<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 16, 1999
REGISTRATION NO. 333-74273
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
------------------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
ZIPLINK, INC.
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 4813 04-3457219
(State or other jurisdiction of (Primary Standard Identification (I.R.S. Employer Identification Number)
incorporation or organization) Classification Code Number)
</TABLE>
------------------------
900 CHELMSFORD STREET
TOWER ONE, FIFTH FLOOR
LOWELL MASSACHUSETTS 01851
(978) 551-8100
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
------------------------------
HENRY M. ZACHS
CO-CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE OFFICER
ZIPLINK, INC.
900 CHELMSFORD STREET
TOWER ONE, FIFTH FLOOR
LOWELL MASSACHUSETTS 01851
(978) 551-8100
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
------------------------------
COPIES TO:
<TABLE>
<S> <C>
WAYNE A. MARTINO, ESQ. PAUL JACOBS, ESQ.
GEORGE BRENCHER IV, ESQ. MARA H. ROGERS, ESQ.
BRENNER, SALTZMAN & WALLMAN, LLP FULBRIGHT & JAWORSKI L.L.P.
271 WHITNEY AVENUE 666 FIFTH AVENUE
NEW HAVEN, CONNECTICUT 06511 NEW YORK, NEW YORK 10103
(203) 772-2600 (212) 318-3000
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
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, as amended (the "Securities Act"), check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the Prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
------------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
AMOUNT OF
PROPOSED MAXIMUM AGGREGATE REGISTRATION
TITLE OF EACH CLASS OF SECURITIES TO BE REGISTERED OFFERING PRICE (1) FEE(2)
<S> <C> <C>
Common stock, par value $.001 per share.................................. $56,350,000.00 $15,665.30
</TABLE>
(1) Estimated solely for the purpose of computing the registration fee pursuant
to Rule 457(o) under the Securities Act of 1933, as amended.
(2) $13,427.40 of the Registration Fee was previously paid.
------------------------------
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 SAID SECTION 8(A), MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
THE INFORMATION IN THIS PRELIMINARY PROSPECTUS IS NOT COMPLETE AND MAY BE
CHANGED. WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED
WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PRELIMINARY
PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN
OFFER TO BUY THESE SECURITIES IN ANY JURISDICTION WHERE THE OFFER OR SALE IS NOT
PERMITTED.
SUBJECT TO COMPLETION, DATED APRIL 16, 1999
PROSPECTUS
3,500,000 SHARES
[LOGO]
ZIPLINK, INC.
COMMON STOCK
------------------
This is the initial public offering of ZipLink, Inc. and we are offering
3,500,000 shares of our common stock. We anticipate that the initial public
offering price will be between $12.00 and $14.00 per share.
We intend to apply to list our common stock on the Nasdaq National Market under
the symbol "ZIPL."
INVESTING IN OUR COMMON STOCK INVOLVES RISKS. SEE "RISK FACTORS" BEGINNING ON
PAGE 9.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
------------------------
<TABLE>
<CAPTION>
PER SHARE TOTAL
--------------------- ---------------------
<S> <C> <C>
Initial public offering price........................... $ $
Underwriting discount................................... $ $
Proceeds, before expenses, to ZipLink................... $ $
</TABLE>
ZipLink has granted the underwriters a 30-day option to purchase up to an
additional 525,000 shares of common stock at the initial public offering price
less the underwriting discount to cover any over-allotments.
Jefferies & Company, Inc. FAC/EQUITIES
The date of this prospectus is , 1999
<PAGE>
THE ZIPLINK NETWORK
[ZIPLINK NETWORK MAP APPEARS HERE]
COURTESY OF BOARDWATCH MAGAZINE, 1999
ZIPLINK'S NETWORK OFFERS LOCAL DIAL-UP AND OTHER FORMS OF INTERNET ACCESS IN 16
OF THE 20 LARGEST METROPOLITAN AREAS IN THE UNITED STATES. ONCE CONNECTED,
TRAFFIC IS ROUTED TO THE DESIRED INTERNET LOCATION ON OUR HIGH-SPEED, QUALITY
NETWORK. USERS CAN CONNECT TO THE NETWORK AT A VARIETY OF SPEEDS USING A RANGE
OF ACCESS METHODS.
WHOLESALE INTERNET ACCESS SOLUTIONS FOR
INTERNET APPLIANCES AND LOCAL, REGIONAL AND NATIONAL
INTERNET SERVICE PROVIDERS
<PAGE>
PROSPECTUS SUMMARY
YOU SHOULD READ THE FOLLOWING SUMMARY TOGETHER WITH THE MORE DETAILED
INFORMATION REGARDING OUR COMPANY AND THE COMMON STOCK BEING SOLD IN THIS
OFFERING AND OUR FINANCIAL STATEMENTS AND NOTES THERETO APPEARING ELSEWHERE IN
THIS PROSPECTUS. UNLESS OTHERWISE INDICATED, ALL INFORMATION IN THIS PROSPECTUS
(I) ASSUMES THAT THE UNDERWRITERS' OVER-ALLOTMENT WILL NOT BE EXERCISED, (II)
GIVES EFFECT TO CONVERSION OF OUR BUSINESS FORM FROM A LIMITED LIABILITY COMPANY
TO A CORPORATION AND THE CONVERSION OF OUR MEMBERSHIP UNITS INTO COMMON STOCK,
WHICH REORGANIZATION WILL OCCUR PRIOR TO THE CLOSING OF THIS OFFERING, AND (III)
GIVES EFFECT TO THE CONVERSION OF $7.5 MILLION OF INDEBTEDNESS INTO 834,615
SHARES OF COMMON STOCK, BASED UPON AN ASSUMED INITIAL PUBLIC OFFERING PRICE OF
$13.00 PER SHARE, WHICH CONVERSION WILL OCCUR CONCURRENTLY WITH THE CLOSING OF
THIS OFFERING.
ZIPLINK
OUR BUSINESS
ZipLink is a national provider of wholesale Internet access services to
developers and vendors of Internet appliances and local, regional and national
Internet service providers. Internet access services represent the means by
which users connect to the Internet allowing them to access the World Wide Web,
e-mail and other resources. Internet appliances are electronic devices, other
than personal computers, which connect users to the Internet. Internet service
providers offer Internet access to their subscribers either by developing a
proprietary network infrastructure or by purchasing Internet access services
from wholesale providers such as ZipLink, or through a combination of both.
ZipLink offers a range of Internet access solutions for Internet appliances,
such as TV set-top boxes, which are devices that enable a user to access the
Internet using an ordinary television. Our Internet access solutions include:
- Providing a connection between an Internet appliance and the Internet, or
Internet connectivity;
- Ensuring that users of Internet appliances attempting to access the
Internet (or a customer's network) are authorized subscribers, a function
known in our industry as "subscriber authentication;" and
- Selective, or filtered, forwarding of e-mail to mobile Internet appliances
such as some specially-designed pagers.
We also provide wholesale national Internet access services under the name
ZipDial to Internet service providers which, in turn, offer Internet access to
their subscribers using our network infrastructure. Our ZipDial service features
an array of access options including modem, or dial-up, access and enhanced
services, such as high-speed access using digital subscriber line technology
(which is known in our industry as "DSL"). DSL technology makes possible data
transmission speeds historically associated with private or "dedicated" lines at
comparatively low cost using ordinary telephone lines.
We are a leading provider of Internet connectivity to subscribers of
Microsoft's-Registered Trademark- WebTV Network-TM- service. WebTV subscribers
receive this service through a TV set-top box. We provide a dial-up connection
over our network between WebTV subscribers and the Internet access facilities of
WebTV Networks, Inc. ("WebTV"). We have provided Internet connectivity to WebTV
since its product introduction in late 1996. This customer relationship has
helped us to more efficiently develop our Internet access network, allowing us
to add "points-of-presence" where we believed our investment would be
substantially supported by traffic from WebTV's subscriber base. A "point of
presence" is a facility that allows users to access our network with a local
telephone call.
We provide wholesale Internet access services using our high-speed national
network. Our network features 19 efficient, broad-coverage points of presence of
a type known in our industry as "super points of presence" or "SuperPOPs." We
have SuperPOPs in 16 of the 20 largest metropolitan areas in
3
<PAGE>
the United States and offer dial-up access at connection speeds of up to 56
kilobits per second (the speed of the fastest dial-up modems).
We facilitated our network buildout and upgrade through a strategic alliance
with Bay Networks, Inc., a subsidiary of Northern Telecom Limited ("Nortel
Networks"). As a part of this strategic alliance, Nortel Networks has invested
$10.0 million in ZipLink, consisting of $2.5 million of equity and $7.5 million
of convertible debt. Concurrently with the closing of this offering, $2.5
million of this debt will convert into common stock at the rate of $5.56 per
share and $5.0 million of this debt will convert into common stock at the
initial public offering price. We have purchased approximately $7.1 million of
network equipment and services from Nortel Networks at preferred pricing to
upgrade our dial-up network to its current connection speed. In addition, we
have served as a testing facility, or "beta site," for new Nortel Networks
product offerings, and have performed field testing for, and have received
pre-released versions of, their equipment and software. As an outgrowth of this
alliance, we recently commenced a joint nationwide marketing campaign for our
ZipDial service with Nortel Networks.
OUR MARKET OPPORTUNITY
We believe the Internet appliance market is poised to grow rapidly. As this
market grows, we anticipate that there will be an increasing demand for
cost-effective, high-quality access services connecting these devices to the
Internet.
- Industry analyst International Data Corporation, or IDC, estimates that
there will be 12.8 million Internet appliances in use in 1999, of which
4.1 million will be televisions which can access the Internet.
- Industry analyst Forrester Research, Inc. predicts that 20 million
Internet appliances will be installed in U.S. homes by 2002.
- IDC projects that Internet appliances (other than personal computers)
shipped will grow from 9% of all Internet access devices (including
personal computers) in 1998 to 43% of the market by 2002.
The Internet service provider market is highly fragmented with approximately
4,800 Internet service providers in the United States. As demand for Internet
access grows and the market for access matures, we believe that Internet service
providers will face pressure to lower prices, increase services, expand
infrastructure and concentrate on customer service and marketing. We believe
these factors create a significant outsourcing opportunity for wholesale
providers of Internet access services.
- Forrester Research predicts that the Internet access market will reach $50
billion in 2002.
- Forrester Research estimates that there will be 60 million Internet access
dial-up accounts in 2002, constituting 77% of the Internet access market.
ZIPLINK'S SOLUTION
Our wholesale Internet access solutions are designed to meet the needs of
the emerging Internet appliance market and to provide a network outsourcing
opportunity for Internet service providers. We offer a range of wholesale
Internet access services to developers and vendors of Internet appliances in
need of an Internet access provider for their products, including Internet
connectivity, subscriber authentication and e-mail filtering and forwarding. Our
ZipDial service features a selection of wholesale Internet access services for
Internet service providers, available on an outsourced basis. This service
includes dial-up access, DSL, and streaming audio and video (the simultaneous
transmission and
4
<PAGE>
playback of continuous streams of audio and visual content over the Internet).
We believe that the success of our wholesale Internet access solutions is based
on the following elements:
- OUTSOURCING SOLUTION. We provide outsourced Internet access for our
customers, allowing them to focus on their core competency of marketing
their products and services;
- REDUCED TIME TO MARKET. Our services allow customers to quickly offer
Internet access to their subscribers, significantly reducing their time to
market;
- NATIONAL ACCESS. Our network covers 16 of the 20 largest metropolitan
areas in the United States, thereby lowering the barriers to entry into
new geographic markets for our customers;
- CAPITAL EXPENDITURE SAVINGS. Our service provides our customers with a
cost-effective alternative to a self-funded network upgrade or buildout;
and
- EXPANDED SERVICE OPTIONS. Our services allow our customers to offer a
broad range of services to their subscribers, including DSL and streaming
audio and video.
OUR BUSINESS STRATEGY
Our objective is to become the leading wholesale provider of Internet access
services for developers and vendors of Internet appliances and Internet service
providers in the United States. We intend to achieve this objective by
implementing the following key strategies:
- identify, develop and sustain relationships with key innovators and early
marketers of Internet appliances in order to increase our market
visibility;
- capitalize on our network infrastructure and expertise to make ZipDial the
leading high-quality, cost-effective wholesale access solution for
Internet service providers;
- expand, enhance and maintain a reliable network infrastructure with
high-quality performance;
- establish and sustain strategic alliances with key customers and suppliers
to create and exploit early access to new markets and new technologies;
and
- capitalize on our relationship with WebTV, a leading Internet appliance
company, by continuing to expand our network where it is likely to be
supported by WebTV traffic and by using this relationship to boost our
marketing efforts with developers and vendors of other Internet
appliances.
OUR HISTORY
ZipLink is presently organized as a Delaware limited liability company known
as "ZipLink, LLC." Prior to the closing of this offering, ZipLink, LLC will
merge with and into ZipLink, Inc., a newly-formed Delaware corporation. Except
as otherwise required by the context, references in this prospectus to "we,"
"our," "us" and "ZipLink" mean ZipLink, Inc. and its predecessors.
We began revenue generating operations in June, 1996. Although we had
revenue of $7.1 million in 1998, 68% of that revenue was from one customer,
WebTV. We have a history of operating losses and, as of December 31, 1998, had
incurred a cumulative net loss from operations of $24.0 million. Our industry is
new and characterized by significant capital investment, intense competition and
low barriers to entry.
Our principal executive offices are located at 900 Chelmsford Street, Tower
One, Fifth Floor, Lowell, Massachusetts 01851, and our telephone number at that
address is (978) 551-8100. We maintain a website at http://www.ziplink.net.
Information contained in our website does not constitute a part of this
prospectus.
5
<PAGE>
ZipLink is a trademark owned by us and ZipDial is subject to a trademark
application made by us. Any other trademark, trade name or service mark of any
other entity appearing in this prospectus belongs to its holder.
THE OFFERING
<TABLE>
<S> <C>
Common stock offered by us................... 3,500,000 shares
Common stock outstanding after the 12,500,000 shares
offering...................................
Use of proceeds.............................. To repay approximately $20.0 million of
indebtedness, expand our network
infrastructure, increase sales and marketing
and for other working capital and general
corporate purposes. See "Use of Proceeds."
Proposed Nasdaq National Market symbol....... ZIPL
Closing...................................... New York, New York, , 1999
</TABLE>
The outstanding share information is based on our shares outstanding as of
December 31, 1998 and includes 834,615 shares of common stock to be issued upon
conversion of convertible debt concurrently with the closing of this offering,
based upon an assumed initial public offering price of $13.00 per share. The
shares of common stock outstanding excludes:
- 1,500,000 shares reserved for issuance under our 1999 Stock Option Plan
(after giving effect to the conversion of our outstanding options under
our Unit Option Plan), of which options to purchase 366,200 shares,
exerciseable at a weighted average price of $2.68 per share, have been
granted and options to purchase 360,250 shares, exerciseable at a weighted
average price of $12.78 per share, based upon an assumed initial public
offering price of $13.00 per share, will be granted concurrently with the
closing of this offering; and
- 58,324 shares reserved for issuance upon the exercise of an outstanding
warrant, at a price of $1.71 per share.
6
<PAGE>
SUMMARY FINANCIAL DATA
The following table summarizes the statement of operations data for our
business. The pro forma data reflects the net loss, net loss per common share
and the weighted average common shares outstanding for each period presented,
assuming the ZipLink, LLC membership units had been converted into common stock,
pursuant to the Reorganization, at the beginning of each respective period. You
should read the following summary financial data together with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
our financial statements and notes thereto included elsewhere in this
prospectus.
<TABLE>
<CAPTION>
PERIOD FROM
NOVEMBER 21,
1995 (DATE OF
INCEPTION) TO YEAR ENDED DECEMBER 31,
DECEMBER 31, -------------------------------
1995 1996 1997 1998
------------- --------- --------- ---------
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues.............................................. $ -- $ 756 $ 5,236 $ 7,088
Cost of revenues...................................... -- 1,782 3,187 6,271
Selling, general and administrative................... 25 7,373 6,507 5,174
Depreciation and amortization......................... 1 384 1,084 2,637
Loss from operations.................................. (26) (8,783) (5,543) (6,994)
Net loss.............................................. (26) (8,802) (6,709) (8,446)
PRO FORMA DATA:
Pro forma net loss.................................... $ (26) (8,802) (6,709) (8,446)
Pro forma net loss per common share--basic and
diluted............................................. (.00) (1.20) (.91) (1.03)
Weighted average common shares outstanding--basic and
diluted............................................. 7,341 7,341 7,408 8,165
OTHER FINANCIAL DATA:
Capital expenditures.................................. $ 79 $ 4,219 $ 8,516 $ 1,313
EBITDA(1)............................................. (25) (8,399) (4,527) (4,502)
</TABLE>
- ------------------------
(1) EBITDA consists of net loss excluding net interest, taxes, depreciation and
amortization. EBITDA is provided because we believe that investors find it
to be a useful tool for approximating our cash flow. EBITDA is presented to
enhance an understanding of our operating results and should not be
construed (i) as an alternative to operating income (as determined in
accordance with GAAP) as an indicator of our operating performance, or (ii)
as an alternative to cash flows from operating activities (as determined in
accordance with GAAP) as a measure of liquidity. Our methodology for
calculating EBITDA may be different from that used by other companies. See
the financial statements and notes thereto contained elsewhere in this
prospectus for more detailed information.
7
<PAGE>
The following table summarizes our balance sheet as of December 31, 1998.
The pro forma as adjusted balance sheet data as of December 31, 1998 gives
effect to (i) the Reorganization, (ii) the conversion of all outstanding
convertible debt into common stock concurrently with the closing of this
offering, based upon an assumed initial public offering price of $13.00 per
share, (iii) the sale of 3,500,000 shares of common stock in this offering at an
assumed initial public offering price of $13.00 per share, after deducting the
underwriting discount and estimated offering expenses, and (iv) the application
of the estimated net proceeds of the offering, including the repayment of
indebtedness to Fleet Bank N.A. in the amount of $17.6 million. See "Use of
Proceeds" and "Capitalization."
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
1998
----------------------
ACTUAL PRO FORMA
--------- AS ADJUSTED
-----------
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents.............................................. $ 512 $ 24,412
Working capital (deficit).............................................. (3,062) 21,338
Total assets........................................................... 11,174 35,074
Long-term debt......................................................... 17,939 339
Convertible debt, net of current portion............................... 7,000 --
Members'/Stockholders' equity (deficit)................................ (18,089) 30,911
</TABLE>
8
<PAGE>
RISK FACTORS
YOU SHOULD CAREFULLY CONSIDER THE RISKS AND UNCERTAINTIES DESCRIBED BELOW
AND THE OTHER INFORMATION IN THIS PROSPECTUS BEFORE MAKING AN INVESTMENT
DECISION. THE RISKS AND UNCERTAINTIES DESCRIBED BELOW ARE THE MATERIAL RISKS
PRESENTLY KNOWN TO US. ADDITIONAL RISKS AND UNCERTAINTIES NOT PRESENTLY KNOWN TO
US OR THAT WE CURRENTLY DEEM IMMATERIAL MAY ALSO IMPAIR OUR OPERATIONS. IF ANY
OF THE FOLLOWING RISKS ACTUALLY OCCUR, OUR BUSINESS, FINANCIAL CONDITION AND
RESULTS OF OPERATIONS COULD BE MATERIALLY ADVERSELY AFFECTED. IN SUCH CASE, THE
MARKET PRICE OF OUR COMMON STOCK COULD DECLINE, AND YOU MAY LOSE ALL OR PART OF
YOUR INVESTMENT.
WE ARE DEPENDENT ON WEBTV.
We have in the past derived, and we expect in the future to continue to
derive, a significant portion of our revenues from WebTV. Revenue from WebTV
accounted for $2.5 million, or 48%, of our revenues for the year ended December
31, 1997, and $4.8 million, or 68%, of our revenues for the year ended December
31, 1998. Our revenues from WebTV are dependent on the number of WebTV
subscribers who make use of our network for connectivity to WebTV. The market
for WebTV's products and services is at an early stage of development and,
accordingly, we cannot assure you that products such as those offered by WebTV
will achieve or sustain market acceptance.
Our ability to maintain and grow our revenue from WebTV depends upon a
variety of factors, many of which are beyond our control. Those factors include
the following:
- WebTV could quickly and significantly reduce the amount of monthly revenue
we receive from WebTV. The minimum monthly revenue amount that must be
paid to us by WebTV under our agreement is significantly below the actual
monthly revenue we have received from WebTV since July, 1998. The amount
of revenue we have received per month from WebTV commencing in August 1998
has exceeded the minimum monthly amount WebTV is required to pay to us
under our agreement by an average of 36% per month.
- Our agreement with WebTV expires in December, 2000, subject to earlier
termination by either party at will with a pro-rata monthly reduction of
subscriber traffic over time.
- We do not control or influence WebTV's ability to succeed in the
marketplace or its ability to obtain or retain subscribers.
- Our agreement with WebTV is not exclusive. WebTV obtains services such as
those we provide from a number of our competitors, including PSINet, Inc.,
UUNet Technologies, Inc. (an MCI WorldCom company) and Concentric Network
Corporation. Many of such competitors are substantially larger than we are
and have more extensive networks and other resources.
- WebTV reallocates its subscriber traffic to us monthly based in part on
our quality of service. In late 1997 and the first half of 1998, during
the course of a network upgrade, WebTV subscribers experienced difficulty
in establishing a connection to our network. As a result, WebTV reduced
the amount of subscriber traffic on our network. If we experience service
quality problems of this or any nature in the future, WebTV may reduce our
allocation of subscriber traffic.
- Our business concentrates on delivering Internet connectivity primarily
using dial-up access over telephone lines. WebTV set-top boxes currently
rely upon this method of connectivity; however, these devices may, in the
future, be configured to use a cable modem as an alternative to dial-up
access. As the Internet becomes more readily accessible over the cable
network, we may experience an erosion in WebTV subscriber traffic. See
"--We face risks from new access technologies such as cable modems."
Because of these and other factors, we cannot assure you that revenue from
WebTV will continue or that such revenue will reach or exceed historical levels
in any future period.
9
<PAGE>
We cannot assure you that our efforts to develop other sources of revenue,
whether from the provision of services for other Internet appliances or through
our ZipDial program, will be successful or that alternative sources of revenue
will develop as anticipated. As a result, the loss or reduction of WebTV's
business would have a material adverse effect on our business, financial
condition and results of operations.
WE CANNOT PREDICT OUR SUCCESS BECAUSE WE HAVE A LIMITED OPERATING HISTORY.
We commenced revenue generating operations in June, 1996 and significantly
upgraded and altered our network infrastructure in 1997 and 1998. Our ZipDial
service has only been offered since November, 1998. Accordingly, we have a
limited operating history upon which an evaluation of our business and prospects
can be based. Our prospects must be considered in light of the risks, expenses
and difficulties frequently encountered by companies in new and rapidly evolving
markets. We cannot assure you that we will be successful in addressing the risks
we face. The failure to do so would have a material adverse effect on our
business, financial condition and results of operations.
WE EXPECT OUR LOSSES AND NEGATIVE CASH FLOW TO CONTINUE.
Since our inception, we have incurred net losses and experienced negative
cash flow from operations. Our cumulative net loss from operations as of
December 31, 1998 was $24.0 million. We expect to continue to operate at a net
loss and experience negative cash flow for the foreseeable future given the
level of planned operating and capital expenditures. Our ability to achieve
profitability and positive cash flow from operations is dependent upon our
ability to substantially grow our revenue base through expansion of our ZipDial
program and an increase in sales of access services for Internet appliances and
to achieve operating efficiencies. We plan to make significant capital
expenditures to expand our network and to increase our operating expenses
relating principally to our network infrastructure, based in large part on our
estimates of potential future revenues. If our future revenues fall short of our
estimates or if our operating expenses exceed our expectations, then we may
never obtain or sustain profitability.
WE WILL NEED SIGNIFICANT ADDITIONAL CAPITAL, WHICH WE MAY BE UNABLE TO OBTAIN.
We will require significant capital to build out our network and fund our
growth and operating losses. Since our inception, our capital needs have
primarily been satisfied by equity investments by, and loans from or guaranteed
by, significant stockholders. We do not anticipate that these sources of
financing will be available to us after the consummation of the offering.
We anticipate that our available cash from operations, combined with the net
proceeds from this offering (after repayment of $20.0 million of indebtedness)
will be sufficient to meet our anticipated working capital and capital
expenditure requirements for at least the next 12 months. We are presently
seeking one or more debt financings aggregating approximately $15.0 million to
be used for capital expenditures, working capital and other general corporate
purposes. Even if we obtain such financing, we anticipate that we will need to
raise significant additional capital for the period after the next 12 months
through public or private debt or equity financings or other sources.
We cannot assure you that we will be able to raise any additional capital on
terms favorable to us, or at all. If adequate capital is not available or is not
available on acceptable terms, we may not be able to expand, enhance and
maintain our network infrastructure according to our current business plan,
develop new products or services, or otherwise respond to unanticipated
competitive pressures and we may be prevented from taking advantage of
unanticipated opportunities. In such case, our business, financial condition and
results of operations could be materially adversely affected.
10
<PAGE>
WE MAY INCUR INDEBTEDNESS WHICH MAY CREATE FINANCIAL AND OPERATING RISK.
We are currently seeking one or more debt financings aggregating
approximately $15.0 million. If we obtain any debt financing in the future, we
do not anticipate that the terms of such indebtedness will be as favorable to us
as the financing we have previously obtained because our prior source of
financing has consisted of equity investments by, and loans from or guaranteed
by, significant stockholders, at rates and terms favorable to us. The amount and
terms of any new financing we may obtain will have important consequences for
our company, including the following:
- a significant portion of our cash flow from operations may be dedicated to
the payment of interest or principal on our debt, which reduces the funds
available to us for other purposes;
- financial covenants may be imposed, such as ratios to measure performance,
limitations on incurring additional indebtedness, capital expenditures,
payment of dividends or the use of proceeds from the sale of assets, which
may limit our flexibility in operating our business and in planning for,
or reacting to, changes in market conditions; and
- we may be more vulnerable in the event of a downturn in our business or
the economy generally.
Our ability to comply with the terms of such financing will depend on a
number of factors, including our future operating performance and financial
results, as well as factors beyond our control. If we are unable to comply with
such terms, then we may be required to, among other things, seek additional
financing in the debt or equity markets, refinance or restructure all or a
portion of our then-existing debt, sell selected assets or reduce or delay
capital expenditures.
OUR OPERATING RESULTS IN ONE OR MORE FUTURE PERIODS ARE LIKELY TO FLUCTUATE AND
MAY FAIL TO MEET THE EXPECTATIONS OF SECURITIES ANALYSTS OR INVESTORS.
Our annual and quarterly operating results have fluctuated in the past and
may fluctuate significantly in the future. Those results fluctuate due to a
variety of factors, including the following:
- timely deployment and expansion of our network;
- the timing and amount of capital costs related to our planned network
expansion;
- the timing and amount of bandwidth acquisitions;
- the degree and success of promotional activity undertaken by WebTV and our
other customers and changes in their number of subscribers;
- the degree and speed of market acceptance and commercial success of
Internet appliances;
- our customer enrollment and retention rate;
- user demand for Internet access services and the success of our ZipDial
Internet service provider customers; and
- continued need for dial-up access and connectivity and our ability to
respond to technological change.
As a result of these or other factors, our operating results may, in some
future period, fall below the expectations of securities analysts and investors.
In such event, the market price of our securities will likely fall. Moreover,
fluctuations in our operating results may also result in volatility in the
market price of our securities.
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WE DEPEND UPON NEW AND UNCERTAIN MARKETS.
We provide wholesale Internet access services to the Internet appliance and
Internet service provider markets. These markets are in the early stages of
development. The Internet appliance market, in particular, is new and rapidly
evolving. It is difficult to predict the rate at which these markets will
develop and grow and whether demand can be sustained. These markets are subject
to numerous uncertainties, some of which are discussed below. In general,
certain critical issues concerning the use of the Internet itself remain
unresolved and may impact the growth of the Internet appliance and Internet
service provider markets and the corresponding demand for our wholesale Internet
access services. These issues include, among others, security, reliability, ease
and cost of access, and quality of service. Further, although the Internet
appliance market and the Internet service provider market are related because
both are dependent upon the general growth and acceptance of the Internet, we
believe they are to a degree independent of one another. Accordingly, conditions
which favor the success of our wholesale access services in one market may be
either neutral or even unfavorable for our prospects in the other.
We believe that the market for providing wholesale Internet access services
for Internet appliances is subject to the following specific risks and
uncertainties:
- Internet appliances which make use of our Internet access services may not
be developed or, if developed, may not gain market acceptance as quickly
as we anticipate, if at all;
- we could fail to correctly identify and successfully form relationships
with developers and vendors of Internet appliances whose products enjoy
commercial success and acceptance; and
- developments in Internet access technology, such as alternative access
devices, could occur which render our network less competitive or less
marketable for providing wholesale Internet access services for Internet
appliances.
We believe that the market for providing our wholesale Internet access
services to Internet service providers is subject to one or more of the
following specific risks and uncertainties:
- consolidation among Internet service providers could result in increasing
price pressure on us and in a reduction in the number of Internet service
providers with a need for our wholesale service offerings;
- changes in technology or in the price of equipment or network
infrastructure could make it cost-effective for Internet service providers
to construct their own network infrastructure rather than outsourcing
Internet access to us;
- government regulation could have a material adverse effect on our ability
to offer wholesale Internet access solutions at a price which is
attractive to Internet service providers; and
- emerging access technologies such as cable modems or wireless devices may
eliminate or decrease the need for dial-up access.
In the event that either the Internet appliance market or the Internet
service provider market fails to develop or fails to develop as quickly as we
have anticipated, our business, financial condition and results of operations
would be materially adversely affected.
WE ARE DEPENDENT ON OUR ZIPDIAL CUSTOMERS.
We earn revenue from our ZipDial Internet service provider customers largely
on the basis of the number of their subscribers who use our network. Our
agreements with these Internet service provider customers do not require them to
outsource any or all of their Internet access needs to us. The extent to which
an Internet service provider chooses to outsource these services to us for some
or all of its
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subscribers is wholly within the discretion of the Internet service provider.
Traffic allocation decisions may be made by Internet service providers on a
subscriber-by-subscriber or on an aggregate basis at any time, or from time to
time.
Our business, financial condition and results of operations could be
materially adversely affected if, for any reason:
- our ZipDial customers do not expend efforts to enroll large numbers of
subscribers or otherwise succeed in growing their subscriber base; or
- our ZipDial customers do not allocate large numbers of subscribers to our
network.
We initiated the ZipDial program in November, 1998. Accordingly, we have a
limited history upon which to base an evaluation of whether, or under what
terms, large numbers of Internet service providers will join our ZipDial
program, at what rate, if at all, they will acquire subscribers, or the extent
to which they will cause their subscribers to use our network. Our agreements
with ZipDial customers are generally for a term of one year. None of these
agreements has reached the end of its initial term and we cannot assure you that
any of these agreements will be renewed upon expiration. Nor can we assure you
as to the levels of resources or effort, if any, that will be devoted by ZipDial
customers to marketing Internet access using our network services, or the extent
to which these customers will outsource Internet access services to us.
WE MUST EXPAND AND ADAPT OUR NETWORK.
The execution of our business plan requires us to rapidly expand our network
infrastructure to extend and increase our service offerings, to grow our network
capacity and to modify its capabilities to match increases in the number of
users and the amount and type of information users wish to transfer. We will
also be required to respond to changes in customer requirements. For example,
WebTV may shift its subscriber traffic from one area of our network to another,
requiring a reallocation of our network capacity. Such a shift could occur
rapidly and without advance notice. In 1998, WebTV significantly reduced its
allocation of subscriber traffic to one area of our network for reasons
unrelated to our service quality. At the same time, WebTV increased subscriber
traffic to other areas of our network. While WebTV subscriber traffic on our
network as a whole remained constant after such reallocation, the increased
traffic in the affected portions of our network significantly reduced our excess
capacity in those areas. If such added traffic had exceeded the capacity of our
network in the affected areas, we would have experienced capacity constraints
that could have reduced our service quality. We currently project our network
utilization and customer requirements will necessitate a rapid expansion of our
network capacity to avoid capacity constraints that would adversely affect
system performance. We also plan to increase our area of service coverage to,
among other things, broaden the reach of our ZipDial program. The expansion and
adaptation of our network infrastructure will require substantial financial,
operational and management resources in 1999 and future periods. We cannot
assure you that we will be able to expand or adapt our network infrastructure to
facilitate our business plan or to meet additional demand or our customers'
changing requirements on a timely basis, at a commercially reasonable cost, or
at all. In addition, if demand for network usage were to increase faster than
projected by us or were to exceed our current forecasts, the network could
experience capacity constraints, which would adversely affect the performance of
the system. Our business, financial condition and results of operations could be
materially adversely affected if, for any reason, we fail to:
- expand our network infrastructure both in capacity and in geographic terms
on a timely basis; or
- adapt our network infrastructure to changing customer requirements or
evolving industry trends.
We cannot assure you that we will be able to expand our network
infrastructure or adapt our infrastructure sufficiently, or at all.
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OUR GROWTH AND EXPANSION MAY STRAIN OUR RESOURCES.
If we are successful in executing our business plan, our network
infrastructure and our operations will expand rapidly. If we fail to manage this
growth effectively, we may suffer a reduction in service quality or other
problems which could materially and adversely affect our business, financial
condition and results of operations. Our business and our service offerings have
grown rapidly since our inception and are expected to continue to grow. This
growth and expansion have required, and are expected to require a great deal of
management time and significant financial resources. To manage our growth, we
must, among other things:
- continue to expand and upgrade our network infrastructure;
- hire, train and retain qualified personnel, especially technical
personnel; and
- continue to implement and improve our operational, financial and
management information systems, including our billing, accounts receivable
and payable tracking, fixed assets and other financial management systems.
We cannot assure you that we will be able to expand our network according to
the schedule presently planned by us, that we will be able to hire, train or
retain sufficient numbers of qualified personnel to meet our requirements or
that we will be able to implement information management systems to meet the
requirements created by our future growth.
Future expansion of our customer base (such as an increase in ZipDial
customers) or growth in our customers' subscriber bases will demand the rapid
growth of our network infrastructure, technical support resources and, in some
cases, our customer support capabilities. We may in the future experience
difficulties meeting the demand for our access services and technical and
customer support. We cannot assure you that our technical or customer support or
other resources will be sufficient to facilitate our growth.
OUR NEW OR ENHANCED SERVICES MAY HAVE ERRORS OR DEFECTS.
Our services may contain undetected errors or defects when first introduced
or upgraded. We cannot assure you that, despite testing by us or our customers
and suppliers, errors will not be found in new services or enhancements after
commencement of commercial deployment. Such errors could result in:
- additional development costs;
- loss of, or delays in, market acceptance;
- diversion of technical and other resources from our other development
efforts; or
- the loss of customers and users (for example, subscribers of a ZipDial
customer).
Any of these consequences could have a material adverse effect on our
business, financial condition and results of operations.
OUR FAILURE OR THE FAILURE OF THIRD PARTIES TO BE YEAR 2000 COMPLIANT COULD
NEGATIVELY IMPACT OUR BUSINESS.
The Year 2000 issue is the result of computer programs being written using
two digits rather than four to define the applicable year. As a result, our
computer programs that have date-sensitive software and software of companies
into which our network is interconnected may recognize a date using "00" as the
year 1900 rather than the year 2000. This could result in system failures or
miscalculations
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causing disruptions of operations, including, among other things, a temporary
inability to process transactions, send invoices or engage in similar normal
business activities.
We are currently in the process of reviewing our products and services, as
well as our internal management information systems and non-information
technology systems in order to identify and modify those products, services and
systems that are not Year 2000 compliant. In addition, we have contacted
approximately 40% of our suppliers to ascertain their Year 2000 status. During
the next 60 days we plan to contact the remainder of our suppliers, as well as
our significant customers, including WebTV, to ascertain their Year 2000 status.
At this time, we estimate that our costs associated with remediation and
verification to become Year 2000 compliant will not exceed $180,000, although
the actual cost of achieving compliance could differ materially from this
estimate.
While we expect to be Year 2000 compliant by the end of the third quarter of
1999, we cannot assure you that we will be able to timely and successfully
modify our services and systems to comply with Year 2000 requirements. Nor can
we assure you that equipment received from suppliers will comply or that any of
our suppliers, such as Nortel Networks or MCI WorldCom or our customers will be
Year 2000 compliant in a timely manner or that there will not be problems with
technology working together. Furthermore, despite testing performed by us and
our suppliers and partners, our products, services and systems may contain
undetected errors or defects associated with Year 2000 related functions. In the
event any material errors or defects are not detected and fixed, or if third
parties cannot provide products, services or systems that meet Year 2000
requirements in a timely manner, if at all, our business, financial condition
and results of operations could be adversely affected. Known or unknown errors
or defects that affect the operation of our products, services or systems could
result in delay or loss of revenue, interruption of network services,
cancellation of customer contracts, diversion of development or network
expansion resources, damage to our reputation, or litigation costs.
We believe that the worst case scenario related to our services and systems
due to Year 2000 complications would be the failure of our entire network. This
would result in users being unable to connect to the Internet using our network
until such failure was remedied. As a result of such failure our revenues would
be materially adversely affected and our customers may terminate agreements to
use our Internet access services or otherwise not utilize such services.
We do not have a contingency plan in the event our systems fail due to Year
2000 related problems. We cannot assure you that these or other factors relating
to Year 2000 compliance issues will not have a material adverse effect on our
business, financial condition or results of operations. See "Management's
Discussion and Analysis of Financial Condition--Year 2000 Issues."
WE DEPEND UPON OUR SUPPLIERS AND HAVE LIMITED SOURCES OF SUPPLY FOR KEY PRODUCTS
AND SERVICES.
We rely on other companies to supply us with telecommunications facilities,
computer hardware and software, networking equipment and related services which
are critical to the maintenance and operation of our network. We primarily buy
these products and services from MCI WorldCom, local exchange carriers,
competitive local exchange carriers, Nortel Networks and Cisco Systems, Inc.
These products and services are available in the quantity and of the quality
required by us only from limited sources. We do not carry significant
inventories of many of these products and have no guaranteed supply arrangements
for any such limited source products. We cannot assure you that we will be able
to obtain the products and services that we need on a timely basis, in
sufficient quantities or at an affordable cost. We have experienced
interruptions in some telecommunications services and delays in purchasing
products and other services from time to time in the past and may experience
similar interruptions and delays in the future. We do not currently have, and do
not expect in the future to have, a means of replacing these products or
services on a timely and cost-effective basis.
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Further, all of our suppliers sell products and services to our competitors and,
in the case of telecommunications services in particular, some of our suppliers
are or may become competitors themselves. Our suppliers may enter into exclusive
relationships with our competitors or stop selling products and services to us
at commercially reasonable prices. If we are unable to obtain critical services
or products in the quantities required by us and on a timely basis, our
business, financial condition and results of operations may be materially and
adversely affected.
We also depend on our suppliers' ability to provide necessary products that
comply with various Internet and telecommunications standards. These products
must also function efficiently with products and components from other vendors.
Any failure of our suppliers to provide products or components that comply with
Internet standards or that function efficiently with other products or
components used by us in our network infrastructure could have a material
adverse effect on our business, financial condition and results of operations.
OUR SUCCESS DEPENDS ON MAINTAINING RELATIONSHIPS WITH OTHER INTERNET ACCESS
PROVIDERS.
The Internet includes a number of Internet access providers (including
Internet service providers) that operate their own networks and connect with
each other at various locations around the United States under informal
arrangements known as "peering" (where providers connect without charge) and
under written arrangements known as "transit" agreements (where there are
charges imposed). It is more costly and less efficient to operate a network
without peering or transit arrangements. Consequently, we must maintain our
peering and transit relationships to maintain high performance levels at a
reasonable cost. These arrangements are not subject to regulation and the terms,
conditions and costs can be changed by the provider at any time. Currently, we
have peering relationships with 48 Internet access providers and transit
agreements with two Internet access providers. If we fail to maintain these
relationships on a cost-effective basis, the costs of operating our network
could increase and our business, financial condition and results of operations
could be materially and adversely affected.
WE DEPEND UPON OUR NETWORK INFRASTRUCTURE FUNCTIONING WITHOUT INTERRUPTION.
Our success depends upon the reliability and security of our network
infrastructure. While we have taken precautions against system failure,
interruptions could result from natural disasters, as well as power loss,
telecommunications failure and similar events and interruptions have occurred in
the past. For example, in December, 1998, an MCI WorldCom telecommunications
cable was accidentally cut, resulting in an interruption in the functioning of
our Washington, D.C. SuperPOP and a temporary suspension of our ability to
provide service to that geographic area.
A significant portion of our computer equipment is located in Lowell,
Massachusetts, as well as at individual SuperPOPs. Although we maintain
insurance to cover loss or damage to equipment, we do not maintain any business
interruption insurance or have a formal disaster recovery plan or alternative
providers of network infrastructure. Any damage or failure that causes
interruptions in our operations could have a material adverse effect on our
business, financial condition and results of operations.
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OUR MARKET IS EXTREMELY COMPETITIVE AND WE MAY NOT BE ABLE TO COMPETE
EFFECTIVELY.
We face intense competition. There are no substantial barriers to entry in
the market for our services, and we expect that competition will further
intensify in the future. In particular, because our agreements with our ZipDial
customers are not exclusive and these Internet service providers are free to
outsource any or all of their Internet access services to other providers, our
ZipDial program is vulnerable to competitive pressures. We believe that our
ability to compete successfully in the market for Internet access service
generally depends upon a number of factors, including:
- our ability to create and market wholesale Internet access solutions that
are attractive to Internet service providers in terms of price, quality
and breadth of service offerings;
- the capacity, reliability and security of our network infrastructure;
- market presence and, with respect to Internet appliances, our success at
developing relationships with innovators and early marketers of such
devices;
- technical expertise and functionality, performance and quality of services
and our ability to anticipate and meet the changing service needs of the
marketplace;
- our ability to establish and maintain successful strategic relationships
with key customers and suppliers and to gain early access to new markets
and new technologies; and
- our ability to support industry standards.
Our competitors may be divided into two groups: those with whom we presently
compete and those who may, in the future, compete with us. Our present
competitors with respect to the WebTV relationship consist of the other current
providers to WebTV: PSINet, UUNet, Concentric, and a number of other, smaller
Internet service providers. Our present competitors with respect to ZipDial
consist of a variety of companies who are, in some form or another, offering
wholesale Internet access services. This group includes Internet service
providers such as GTE Internetworking, Concentric, PSINet, UUNet, IDT Corp.,
Splitrock Services, Inc. and Epoch Internet, Inc., as well as competitive local
exchange carriers in selected markets, such as XCOM Technologies, Inc. in
Boston, Massachusetts, Intermedia Communications, Inc. in Vienna, Virginia and
ICG Communications, Inc. in Englewood, Colorado. Our potential future
competitors include all of our present competitors as well as telecommunications
companies, such as AT&T Corporation, Williams Communications, a division of The
Williams Companies, Inc., Qwest Communications International, Inc. and Level 3
Communications, Inc., and other Internet service providers. Many of our present
and potential competitors have greater market presence, engineering and
marketing capabilities, and larger financial, technological and personnel
resources than those available to us. They may also enjoy certain price
advantages with respect to the purchase of bandwidth from telecommunications
carriers if, for example, they are a carrier themselves, or if they are
affiliated with a carrier, or if their usage enables them to secure volume
discounts. As a result, these present and future competitors may be able to
develop and expand their communications and network infrastructures more
quickly, adapt more swiftly to new or emerging technologies and changes in
customer requirements, take advantage of acquisition and other opportunities
more readily, and devote greater resources to the marketing and sale of their
products and services than we can.
In addition to possessing greater financial, technological and personnel
resources, a number of our present and future competitors have the ability to
bundle other services and products with Internet access services which could
place us at a competitive disadvantage. Certain companies are also exploring the
possibility of providing or are currently providing Internet access services
using alternative delivery methods, such as over the cable television
infrastructure, through direct broadcast satellites and over wireless cable. See
"--We face risks from new access technologies such as cable modems."
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We also anticipate increasing vertical and horizontal integration in our
industry. As a result of increased competition and this integration in the
industry, we could encounter significant pricing pressure both from our Internet
appliance and our ZipDial customers. This pricing pressure could result in
significant reductions in the average selling price of our services. For
example, telecommunications companies that compete with us may be able to
provide customers with reduced communications costs in connection with their
Internet access services, reducing the overall cost of their solutions and
significantly increasing price pressures on us. We cannot assure you that we
will be able to offset the effects of any such price reductions with an increase
in the number of our customers, higher revenue from enhanced services, cost
reductions or otherwise.
INDUSTRY CONSOLIDATION COULD ADVERSELY AFFECT US.
The Internet access industry is experiencing consolidation and we believe
the pace of this consolidation will increase in the near future. We cannot
predict with any certainty how such consolidation will affect us or our
competitors. Consolidation among Internet access providers could result in
increased price and other competition in the market for wholesale Internet
access services and we cannot assure you that we will be able to compete
successfully in an increasingly consolidated industry. Any heightened
competitive pressures may have a material adverse effect on our business,
financial condition and results of operations. In addition, consolidation in the
Internet service provider market could result in a reduced number of actual and
potential customers for our ZipDial service as local and regional Internet
service providers are absorbed by larger, national providers or as Internet
service providers combine into entities with greater resources and purchasing
power. A reduction in our potential customer base for ZipDial service could have
a material adverse effect on our business, financial condition and results of
operations.
WE MUST KEEP UP WITH RAPID TECHNOLOGICAL CHANGE AND EVOLVING INDUSTRY STANDARDS.
The markets for our services are characterized by rapidly changing
technology, evolving industry standards. Our future success will depend, in
part, on our ability to:
- effectively identify and implement leading technologies;
- develop our technical expertise;
- enhance our current Internet access services; and
- influence and respond to emerging industry standards and other
technological changes.
All this must be accomplished in a timely and cost-effective manner. We
cannot assure you that we will be successful in effectively identifying or
implementing new technologies, identifying or developing new services or
enhancing our existing services on a timely basis, if at all. We cannot assure
you that those technologies or enhancements we do identify and develop will
achieve market acceptance. Our pursuit of necessary technological advances may
require substantial time and expense. We cannot assure you that we will succeed
in adapting our Internet access services business to alternate technologies as
they emerge. If we fail to identify and implement new technologies or services,
our business, financial condition and results of operations could be materially
adversely affected.
Our success is also dependent upon the continued compatibility of our
services with products and architectures offered by various vendors. Although we
intend to support emerging standards in the market for Internet access products,
we cannot assure you that industry standards will be established. If industry
standards are established, we cannot assure you that we will be able to conform
to these new standards in a timely fashion and maintain a competitive position
in the market. Specifically, our services rely on the continued widespread
commercial use of a group of network standards, or protocols, known in our
industry as "TCP/IP." Alternative standards have been or are being developed. If
any of these alternative protocols become widely adopted, there may be a
reduction in the use of TCP/
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IP, which could render our services obsolete, unmarketable or subject to
substantial modification and upgrades. In addition, we cannot assure you that
services or technologies developed by others will not render our services or
technology uncompetitive or obsolete.
An integral part of our strategy is to design our network to meet the
requirements of emerging standards. However, we have, from time to time in the
past, experienced difficulties in adapting to new standards and will likely
experience similar difficulties in the future. Difficulties experienced while
adapting to new standards may have a material adverse effect on our business,
financial condition and results of operations. For example:
- We initially experienced temporary service quality problems when enhancing
our network to make use of new Nortel Networks equipment. The reduced
service quality resulted in a temporary reduction in WebTV subscriber
traffic and a corresponding reduction in revenue from WebTV.
- We are currently upgrading our network to the most current modem standard,
known as "V.90 56 kilobits per second." We initially had to delay our
implementation of this upgrade due to compatibility issues between WebTV's
devices and our Nortel Networks software. We cannot assure you that our
ongoing deployment of this network upgrade will be completed on a timely
basis, if at all, or whether such deployment will be successful.
If we fail, for technological or other reasons, to implement emerging
standards or to develop and introduce other new or enhanced services that are
compatible with industry standards, then our business, financial condition and
results of operations would be materially adversely affected.
WE FACE RISKS FROM NEW ACCESS TECHNOLOGIES SUCH AS CABLE MODEMS.
We face the risk of fundamental changes in the way Internet access is
delivered. Internet services are currently accessed primarily over telephone
lines by computers and substantially all of our business concentrates on
providing connectivity to the Internet over telephone lines, particularly
dial-up connectivity. Several companies are providing Internet access on a
limited basis via cable modems, wireless cable modems, satellite modems and
other access devices that do not use telephone lines. According to Forrester
Research, Internet access other than over telephone lines will constitute 23% of
the Internet access market by 2002. Advantages of these alternative access
devices include the ability to operate at substantially faster speeds than the
modems we and our customers and their subscribers currently use and, in some
cases, with reduced network costs. In addition, some Internet appliances are
presently configured to make use of these and other new access technologies if
and when they become available. As the Internet becomes accessible through
alternative access devices, we may experience an erosion in our customer base
and in the number of their subscribers making use of our system as our customers
allocate subscriber traffic away from our network to the newer, faster
technologies. For example, if WebTV set-top boxes were configured to use cable
modems and if Internet access using the cable network becomes widely available
to WebTV subscribers, the number of WebTV subscribers using our network through
a dial-up connection could fall significantly. In such event, we will be
required to identify and develop alternative markets that can use the dial-up
capabilities of our network or to embrace and incorporate such new access
technologies. If we fail to either identify and successfully develop alternative
services or otherwise to adapt to new access methods or other new technologies,
our business, financial condition and results of operations would be materially
adversely affected.
OUR SYSTEM MAY EXPERIENCE SECURITY BREACHES.
Despite the implementation of network security and user authentication
measures, the core of our network infrastructure is vulnerable to computer
viruses, break-ins and similar disruptive problems caused by our customers,
Internet users, our current or former employees or others. Computer viruses,
break-ins or other problems caused by third parties could lead to significant
interruptions or delays in
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service to our customers and their subscribers. Furthermore, inappropriate use
of the network by third parties could also potentially jeopardize the security
of confidential information stored in our computer systems and our customers'
computer systems. We may face liability and may lose potential customers or our
customers may lose subscribers as a result. We have no insurance covering such
liabilities. Although we intend to continue to implement industry-standard
security and authentication measures, our protective measures have been
circumvented in the past. Moreover, we have in the past and expect in the future
to experience security threats which we believe are typical to the business of
providing Internet access. We cannot assure you that our security measures will
prevent security breaches. The costs and resources required to eliminate
computer viruses and alleviate other security problems could be prohibitively
expensive and efforts to address such problems may result in interruptions,
delays or cessation of service to our customers that could have a material
adverse effect on our business, financial condition and results of operations.
WE DEPEND UPON KEY PERSONNEL AND MAY BE UNABLE TO HIRE AND RETAIN SUFFICIENT
NUMBERS OF QUALIFIED PERSONNEL.
Our success depends to a significant degree upon the continued contributions
of Henry Zachs, our Co-Chairman and Chief Executive Officer, Christopher
Jenkins, our President, and James Cocks, our Director of Networking. Mr. Zachs
will devote approximately 50% of his time to our business following the
consummation of the offering. The loss of the services of any of these employees
could have a material adverse effect on us. We have an employment agreement with
Mr. Jenkins, which expires in December, 2001, but do not have any employment
agreements with Messrs. Zachs or Cocks or any other employee. Further, we do not
carry key man life insurance on the life of any employee. Our success will also
depend upon the continued service of the other members of our senior management
team and our technical and marketing personnel. Competition in our industry for
qualified employees, especially technical personnel, is intense. Our employees
may voluntarily terminate their employment with us at any time. Our success also
depends upon our ability to attract and retain additional highly qualified
management, technical and marketing personnel. Locating personnel with the
combination of skills and attributes required to carry out our strategy is often
a lengthy process. The loss of key personnel, or the inability to attract
additional, qualified personnel, could have a material adverse effect upon our
results of operations, service development efforts and ability to complete the
expansion of our network infrastructure.
GOVERNMENT REGULATION COULD NEGATIVELY IMPACT OUR BUSINESS.
Regulation of the telecommunications industry is in a state of rapid and
uncertain change. We cannot predict the direction or scope of these regulatory
changes or the impact such changes may have on our business, financial condition
or results of operations. Government regulation could negatively impact our
business in a number of ways:
- we may become subject to direct government regulation;
- regulatory regimes governing our actual and future competitors could
change in ways which enhance their ability to compete with us; and
- our suppliers may be subject to regulation which has the effect of
increasing our cost of doing business.
Our activities are not presently subject to direct government regulation.
The Federal Communications Commission, or FCC, currently does not regulate
either value-added network software or computer equipment related services that
transport data or voice messages based on Internet protocol over
telecommunication facilities as telecommunications services. We provide
value-added Internet protocol-based network services, in part, through data
transmissions over public telephone lines. Operators of these types of
value-added networks that provide access to regulated transmission facilities
only as part
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of a data services package are classified for regulatory purposes as providers
of "information services" and are currently excluded from regulations that apply
to "telecommunications carriers." As such, we are not currently subject to
direct regulation by the FCC or any other governmental agency, other than
regulations applicable to businesses generally. However, future changes in law
or regulation could result in some aspects of our current operations becoming
subject to regulation by the FCC or another regulatory agency.
State public utility commissions generally have declined to regulate
enhanced or information services. Some states, however, have continued to
regulate particular aspects of enhanced services in limited circumstances, such
as where they are provided by incumbent local exchange carriers that operate
telecommunications networks. Moreover, the public service commissions of some
states continue to review potential regulation of such services. We cannot
assure you that regulatory authorities of states where we provide Internet
access services will not seek to regulate aspects of this activity as
telecommunications services.
If we become subject to direct government regulation, our business,
financial condition and results of operations could be adversely affected.
Our actual and potential future competitors include incumbent local exchange
carriers, such as Southern New England Telecommunications Corporation, or SNET
(a subsidiary of SBC Communications Inc.), and Bell Atlantic Corporation, which
are presently subject to extensive government regulation. Changes in the
regulations affecting these competitors could have the effect of enhancing their
ability to compete with us, which could, in turn, have a material adverse effect
on our business, financial condition and results of operations.
In addition, we purchase significant services from entities which are
subject to government regulation, including competitive local exchange carriers
which provide key enabling components of our SuperPOP architecture. Competitive
local exchange carriers are subject to extensive regulation by the FCC. This
includes rules governing so-called "reciprocal compensation," the compensation
of competitive local exchange carriers by incumbent local exchange carriers, for
telephone calls from incumbent local exchange carrier customers which are
terminated on the competitive local exchange carrier's system. This regulation
applies to dial-up calls to ZipLink's network which originate on an incumbent
local exchange carrier's telephone line and pass through competitive local
exchange carrier facilities used in our SuperPOPs. The FCC has recently
considered the issue of reciprocal compensation and may, in the future, alter
existing reciprocal compensation rules in ways which negatively affect
competitive local exchange carriers. We cannot predict any future changes in
reciprocal compensation or other rules governing competitive local exchange
carriers or the impact any such regulatory changes may have on their businesses.
If competitive local exchange carriers are adversely affected by regulatory
changes, they may raise the price or otherwise modify the terms applicable to
services they provide to ZipLink which are important to our SuperPOP
architecture. Such modifications could increase our cost of doing business and,
as a result, negatively affect our ability to compete, reduce our gross margin
on some services or otherwise have a material adverse effect on our business,
financial condition and results of operations.
We cannot predict the impact, if any, that future regulation or regulatory
changes may have on our business and we cannot assure you that future regulation
or regulatory changes will not have a material adverse effect on our business,
financial condition and results of operations.
WE DEPEND ON OUR PROPRIETARY TECHNOLOGY AND TECHNOLOGICAL EXPERTISE.
Although we believe our success is more dependent upon our technological
expertise than on our proprietary rights, our success and ability to compete is
dependent in part on our technology and know-how. We rely upon a combination of
copyright, trademark and trade secret laws and contractual restrictions to
protect our proprietary technology and know-how. We cannot assure you that such
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<PAGE>
measures have been, or will be, adequate to prevent misappropriation of our
proprietary technology or know-how. Our competitors may also independently
develop technologies that are substantially equivalent or superior to our
technology.
THIRD PARTIES MAY CLAIM WE INFRINGE THEIR PROPRIETARY RIGHTS.
We have applied for or received certain trademarks for use in the United
States. None of our technology is patented by us. We use certain "open source"
and "shareware" software in our business, such as Linux and MRTG. We believe
that such software is in the public domain and that its use by ZipLink and
others is not subject to any charge or licensing fee, although we may, on a
voluntary basis, make contributions to developers or, in some cases, incur
charges for support materials or services relating to such software. However, we
have not investigated our use of any open source or shareware software to
determine whether it constitutes infringement of any third party proprietary
rights. Although we do not believe our trademarks or use of technology infringe
the proprietary rights of any third parties, we cannot assure you that third
parties will not assert such claims against us in the future or that such claims
will not be successful. We could incur substantial costs and diversion of
management resources to defend any claims relating to proprietary rights, which
could have a material adverse effect on our business, financial condition and
results of operations. Furthermore, parties making such claims could secure a
judgment awarding substantial damages, as well as injunctive or other equitable
relief that could effectively block our ability to use such trademarks or
technology. Such a judgment would have a material adverse effect on our
business, financial condition and results of operations. If someone asserts a
claim relating to proprietary technology or information against us, we may seek
licenses to such intellectual property. We cannot assure you, however, that we
could obtain licenses on commercially reasonable terms, if at all. The failure
to obtain the necessary licenses or other rights could have a material adverse
effect on our business, financial condition and results of operations.
WE ARE AT RISK FROM INAPPROPRIATE USE OF OUR NETWORK.
We could face liability for the use of our network to carry or disseminate
inappropriate information. The law relating to the liability of online service
providers, private network operators and Internet service providers for
information carried on or disseminated through the facilities of their networks
is continuing to evolve and remains unsettled. Several private lawsuits seeking
to impose such liability are currently pending. In the past, at least one court
has ruled that Internet service providers could be found liable for copyright
infringement as a result of information disseminated through their networks.
Although no such claim has been asserted against us to date, we cannot assure
you that such claims will not be asserted in the future. Further, while we have
attempted to limit our liability in this respect through various contractual
means, we cannot assure you that our liability will be so limited in the event
of any litigation or other claim against us. We do not have any insurance
covering liabilities or claims relating to the use of our network or to
materials disseminated using our network. Federal laws have been enacted,
however, which, under certain circumstances, may provide Internet service
providers with immunity from liability for information that is disseminated
through their networks when they are acting as mere conduits of information. A
Federal Court of Appeals has recently held that the Telecommunications Act of
1996 creates immunity from liability for Internet service providers for libel
claims arising out of information disseminated over their services by third
party content providers. In addition, the Digital Millennium Copyright Act of
1998, creates a safe harbor from copyright infringement liability for Internet
service providers that meet certain requirements. We have complied with these
requirements by instituting certain technical measures and by registering with
the Copyright Office. We cannot assure you, however, that the Digital Millennium
Copyright Act or any other legislation will protect us from copyright
infringement liability.
The Child Online Protection Act of 1998 prohibits and imposes criminal
penalties and civil liability on anyone engaged in the business of selling or
transferring, by means of the World Wide Web,
22
<PAGE>
material that is harmful to minors without restricting access to such material
by persons under seventeen years of age. Numerous states have adopted or are
currently considering similar types of legislation. The imposition upon us as an
Internet service provider of potential liability for such materials carried on
or disseminated through our system could require us to implement measures to
reduce our exposure to such liability. Such measures may require the expenditure
of substantial resources or the discontinuation of certain service offerings.
Further, the costs of defending against any such claims and potential adverse
outcomes of such claims could have a material adverse effect on our business,
financial condition and results of operations. The Child Online Protection Act
of 1998 has been challenged by civil rights organizations in part on the grounds
that it violates the First Amendment. A similar statute was held
unconstitutional by the United States Supreme Court in 1997. A United States
District Court has temporarily enjoined enforcement of the law pending final
resolution of the case. We do not carry any insurance against any claims related
to the use of our network by third parties.
Our network operations, like those of all Internet service providers and
on-line services, are at risk from inappropriate uses by third parties known as
"spamming." Spamming occurs when a user, which could be a subscriber of a
ZipDial customer, employs our network to rapidly distribute a large number of
unsolicited e-mails to users of other networks. The volume of unsolicited
e-mails can cause congestion on the originating network, in this case ZipLink's,
or on the networks of other providers who serve addressees of the e-mails. These
addressees may also register complaints with their host Internet service
providers. As a result, many Internet service providers react to spamming of
their users by temporarily blocking the flow of traffic from the originating
network until that network blocks access by the offending user and terminates
the flow of unwanted e-mails. Because these blockages are not specific to the
offending user, they affect all traffic emanating from the originating network
and can result in the temporary interruption of service to all users of that
network. If ZipLink's network is used by a spammer, service to our users could
be interrupted and our business, financial condition and results of operations
could be materially adversely affected. Although ZipLink attempts to prevent use
of its network for spamming through contractual means and through industry
standard network monitoring, spamming has occurred on our network in the past
and we cannot assure you that spamming will not occur in the future.
OUR CO-CHAIRMEN AND OUR CHIEF EXECUTIVE OFFICER WILL BENEFIT FROM THIS OFFERING.
Since our inception, we have relied substantially on equity contributions
and advances from Henry Zachs, our Co-Chairman and Chief Executive Officer, Eric
Zachs, our Co-Chairman, and their affiliates and, more recently, on loans from
commercial banks supported by the personal guarantee of Henry Zachs. These
recent commercial loans have been on terms and at rates that would not otherwise
have been available to us absent Henry Zachs' personal guarantee. We intend to
use a portion of the net proceeds of this offering to repay our outstanding
indebtedness to Fleet Bank, N.A. and to obtain the release of Henry Zachs'
personal guarantee of such indebtedness, resulting in a material benefit to
Henry Zachs. Further, Henry Zachs has agreed to personally guarantee an
additional $10.0 million of indebtedness to ZipLink from institutional lenders
acceptable to Henry Zachs. This guarantee will terminate upon the closing of
this offering. See "Certain Relationships and Related Transactions."
Additionally, this offering is expected to create a public market for our common
stock which may result in a substantial increase in the market value of the
initial investments of Henry and Eric Zachs and their affiliates.
OUR CO-CHAIRMEN AND OUR CHIEF EXECUTIVE OFFICER CAN EXERCISE SIGNIFICANT
INFLUENCE OVER THE COMPANY.
Henry Zachs, our Co-Chairman and Chief Executive Officer, and Eric Zachs,
our Co-Chairman, will, in the aggregate, beneficially own approximately 55.7% of
our common stock following the completion of this offering (53.5% if the
underwriters' over-allotment option is exercised in full), based upon an assumed
initial public offering price of $13.00 per share. These stockholders will be
able to
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<PAGE>
control all matters requiring approval by our stockholders, including the
election of directors and approval of significant corporate transactions. This
concentration of ownership may also have the effect of delaying or preventing a
change in control of ZipLink, which in turn could have a material adverse effect
on the market price of our common stock or prevent our stockholders from
realizing a premium over the market price for their shares of common stock. See
"Principal Stockholders."
WE FACE RISKS FROM POTENTIAL VOLATILITY IN OUR STOCK PRICE.
Prior to this offering, there has been no public market for our common stock
and we have engaged in only limited private sales of securities. We cannot
predict the extent to which investor interest in our common stock will lead to
the development of a trading market or how liquid that market might become. The
market price for our common stock could be subject to fluctuations and it may
decline below the initial public offering price. The stock market has
experienced significant price and volume fluctuations that have affected the
market prices for the common stocks of Internet-related companies. In the past,
these broad market fluctuations have been unrelated or disproportionate to the
operating performance of these companies. Historically, following periods of
volatility in the market price of a particular company's securities, securities
class action litigation has often been brought against that company. If the
market price of our common stock experiences volatility, we may become involved
in this type of litigation in the future. Litigation is often expensive and
diverts management's attention and resources, which could have a material
adverse effect upon our business, financial condition and results of operations.
See "Underwriting."
SHARES ELIGIBLE FOR PUBLIC SALE AFTER THIS OFFERING COULD ADVERSELY AFFECT OUR
STOCK PRICE.
The market price for our common stock could decline as a result of sales by
our existing stockholders of a large number of shares of our common stock in the
market after this offering, or the perception that such sales may occur. These
sales also might make it more difficult for us to sell equity or equity-related
securities in the future at a time and price that we deem appropriate. In
addition, commencing 180 days after the date of this offering, some of our
executive officers and existing stockholders, owning in the aggregate
approximately 9,000,000 shares of common stock, have the right to demand
registration of their shares or to require us to include their shares in some
registration statements relating to our securities. The existence of these
rights may increase the likelihood, or the perceived likelihood that these
stockholders will sell a large number of shares of common stock in the market
after the offering. See "Shares Eligible for Future Sale."
WE WILL HAVE BROAD DISCRETION IN USE OF THE PROCEEDS FROM THIS OFFERING.
We intend to use a substantial portion of the proceeds of this offering for
working capital and general corporate purposes. Accordingly, our management will
have broad discretion in how the proceeds from this offering are used. Investors
will be relying on the judgment of our management regarding the application of
the proceeds of this offering. See "Use of Proceeds."
YOU WILL INCUR IMMEDIATE AND SUBSTANTIAL DILUTION.
We expect the initial public offering price to be substantially higher than
the net tangible book value per share of our common stock. Therefore, investors
purchasing shares in the offering will incur immediate and substantial dilution
in net tangible book value per share. The dilution to investors in this offering
will be approximately $10.53 per share, based upon an assumed initial public
offering price of $13.00 per share. In addition, the exercise of stock options
and warrants could cause additional substantial dilution to such investors. See
"Dilution."
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<PAGE>
WE ARE SUBJECT TO ANTI-TAKEOVER PROVISIONS WHICH COULD NEGATIVELY IMPACT OUR
STOCKHOLDERS.
We are subject to Delaware laws that could have the effect of delaying,
deterring or preventing a change in control of ZipLink. One of these laws
prohibits us from engaging in a business combination with any interested
stockholder for a period of three years from the date the person became an
interested stockholder, unless some conditions are met. In addition, provisions
in our Amended and Restated Certificate of Incorporation and By-Laws, and the
significant proportion of our stock held by our executive officers, directors
and affiliates, could have the effect of discouraging potential takeover
attempts or making it more difficult for stockholders to change management. One
such provision is the ability of our Board of Directors to authorize the
issuance of preferred stock with rights and privileges that might be senior to
our common stock without shareholder approval. Our Amended and Restated
Certificate of Incorporation and By-Laws also provide that stockholders may not
take action by written consent and that special meetings of the stockholders may
only be called by our Board of Directors. Our Amended and Restated Certificate
of Incorporation and By-Laws further require a supermajority vote of the
stockholders to amend certain provisions of our Amended and Restated Certificate
of Incorporation or the By-Laws. See "Description of Capital Stock--Delaware
Anti-takeover Law and Certain Charter and By-Law Provisions."
FORWARD LOOKING STATEMENTS
This prospectus contains forward-looking statements that involve risks and
uncertainties. These statements refer to our future plans, objectives,
expectations and intentions. We use words such as "anticipates," "believes,"
"plans," "expects," "future," "intends," and similar expressions to identify
forward-looking statements. Our actual results could differ materially from
those anticipated in these forward-looking statements, as a result of certain
factors, as more fully described in "Risk Factors" and elsewhere in this
prospectus. We caution you that no forward-looking statement is a guarantee of
future performance and you should not place undue reliance on these
forward-looking statements which reflect our management's view only as of the
date of this prospectus. ZipLink undertakes no obligation to update publicly any
forward-looking statements for any reason, even if new information becomes
available or other events occur in the future.
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<PAGE>
USE OF PROCEEDS
We estimate that the net proceeds from the sale of the 3,500,000 shares of
common stock we are offering will be approximately $41,500,000 ($47,847,250 if
the underwriters' over-allotment is exercised in full), based upon an assumed
initial public offering price of $13.00 per share, and after deducting the
underwriting discount and other estimated offering expenses.
We intend to use approximately $20.0 million of the net proceeds of this
offering for repayment in full of our then-outstanding indebtedness to Fleet
Bank ($19.0 million at March 31, 1999) under a line of credit. The Fleet Bank
line of credit matures on April 1, 2001, accrues interest at a variable rate
equal to the London Interbank Offered Rate, or LIBOR, plus 0.30% and was
incurred in March 1998 to refinance advances from Henry Zachs, our Co-Chairman
and Chief Executive Officer, and Eric Zachs, our Co-Chairman, and certain of
their affiliates, to refinance indebtedness guaranteed by Henry and Eric Zachs,
as well as to provide us with general working capital. The interest rate
applicable to the Fleet Bank line of credit was 5.26% as of March 31, 1999. We
intend to use the net proceeds of this offering remaining after repayment of the
Fleet Bank indebtedness as follows: approximately $10.0 million to expand our
network infrastructure, approximately $2.3 million for sales and marketing and
the remainder for working capital and general corporate purposes. We are
presently seeking one or more debt financings aggregating approximately $15.0
million to be used for capital expenditures, working capital and other general
corporate purposes as a replacement for the Fleet Bank line of credit. We cannot
assure you that we will be able to obtain any such financing or that, if
available, it will be on terms we deem acceptable.
We will retain broad discretion in the allocation of the net proceeds from
this offering. The amounts actually expended for any such purposes may vary
significantly and will depend upon a number of factors, including the amount of
our future revenues, our ability to obtain additional financing and other
factors described under "Risk Factors" and elsewhere in this prospectus. Pending
use of the net proceeds from this offering, we intend to invest the net proceeds
in short-term, interest bearing, investment grade securities.
DIVIDEND POLICY
We have not paid and do not anticipate paying any cash dividends on our
common stock in the foreseeable future. We intend to retain our earnings, if
any, for use in our growth and ongoing operations. Any determination to declare
or pay cash dividends will be at the discretion of our Board of Directors and
will depend on our financial condition, results of operations, capital
requirements and such other factors as the Board of Directors determines are
relevant.
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<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of ZipLink, as of December
31, 1998, (A) on an actual basis, (B) on a pro forma basis to give effect to (i)
the Reorganization, and (ii) the conversion of all outstanding convertible debt
into 834,615 shares of common stock concurrently with the offering, based upon
an assumed initial public offering price of $13.00 per share, and (C) on a pro
forma as adjusted basis to give effect to (i) the sale of 3,500,000 shares of
common stock in this offering, at an assumed initial public offering price of
$13.00 per share, after deducting the underwriting discount and the estimated
offering expenses, and (ii) the application of the estimated net proceeds
therefrom as described under the section "Use of Proceeds." You should read the
following table together with our financial statements and notes thereto
included elsewhere in this prospectus.
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1998
------------------------------------
(A) (B) (C)
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
---------- ----------- -----------
<S> <C> <C> <C>
(DOLLARS IN THOUSANDS)
Cash and cash equivalents................................................... $ 512 $ 512 $ 24,412
---------- ----------- -----------
---------- ----------- -----------
Long-term obligations:
Capital lease obligations................................................. $ 803 $ 803 $ 803
Note payable.............................................................. 17,600 17,600 --
Convertible debentures.................................................... 7,500 -- --
---------- ----------- -----------
Total long-term obligations (including current portion)................. 25,903 18,403 803
Members'/Stockholders' equity (deficit):
Members' equity (deficit)................................................. (18,089) -- --
Preferred stock, $.001 par value; no shares authorized, issued or
outstanding, actual; 1,000,000 shares authorized, no shares issued or
outstanding (pro forma and pro forma as adjusted)....................... -- -- --
Common stock, $.001 par value, no shares authorized, issued or
outstanding, actual; 50,000,000 shares authorized, 9,000,000 and
12,500,000 issued and outstanding (pro forma and pro forma as adjusted,
respectively)........................................................... -- 9 12
Additional paid-in capital................................................ -- 13,280 54,777
Accumulated deficit....................................................... -- (23,878) (23,878)
---------- ----------- -----------
Total members'/stockholders' equity (deficit)........................... (18,089) (10,589) 30,911
---------- ----------- -----------
Total capitalization.................................................. $ 7,814 $ 7,814 $ 31,714
---------- ----------- -----------
---------- ----------- -----------
</TABLE>
The outstanding share information excludes:
- 1,500,000 shares reserved for issuance under our 1999 Stock Option Plan
(after giving effect to the conversion of our outstanding options under
our Unit Option Plan), of which options to purchase 366,200 shares,
exerciseable at a weighted average price of $2.68 per share, have been
granted and options to purchase 360,250 shares, exerciseable at a weighted
average price of $12.78 per share, based upon an assumed initial public
offering price of $13.00 per share, will be granted concurrently with the
closing of this offering; and
- 58,324 shares reserved for issuance upon the exercise of an outstanding
warrant at a price of $1.71 per share.
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<PAGE>
DILUTION
After giving effect to the conversion of the $7.5 million of outstanding
convertible debt held by Nortel Networks into an aggregate of 834,615 shares of
common stock concurrently with the closing of this offering, based upon an
assumed initial public offering price of $13.00 per share, the pro forma net
tangible book value of ZipLink as of December 31, 1998 would have been $(10.6
million), or $(1.18) per share of common stock. The pro forma net tangible book
value per share is determined by dividing our pro forma tangible net worth (pro
forma tangible assets less total liabilities) by the pro forma number of shares
of common stock outstanding. Dilution per share represents the difference
between the amount per share paid by investors in this offering and the pro
forma net tangible book value per share after the offering. After giving effect
to the sale of the shares of common stock in the offering at an assumed initial
public offering price of $13.00 per share and after deducting the underwriting
discount and the other estimated offering expenses payable by us, the pro forma
net tangible book value of ZipLink as of December 31, 1998 would have been $2.47
per share. This represents an immediate accretion in the net tangible book value
of $3.65 per share to existing stockholders and an immediate dilution in net
tangible book value of $10.53 per share to new investors purchasing shares at
the assumed initial public offering price. The following table illustrates this
per share dilution.
<TABLE>
<S> <C> <C> <C>
Assumed initial public offering price per share............... $ 13.00
---------
Pro forma net tangible book value per share as at December
31, 1998.................................................. $ (1.18)
Increase per share attributable to new investors............ $ 3.65
---------
Pro forma net tangible book value per share after the
offering.................................................... 2.47
---------
Dilution per share to new investors (1)....................... $ 10.53
---------
---------
</TABLE>
- ------------------------
(1) If the underwriters' over-allotment is exercised in full, the pro forma net
tangible book value per share after the offering would be $2.86, resulting
in an immediate dilution of $10.14 per share to investors purchasing shares
in this offering.
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<PAGE>
The following table summarizes, on a pro forma basis, as of December 31,
1998, the total number of shares of common stock purchased from us, the total
consideration paid to us and the average price paid per share by (i) Nortel
Networks, (ii) other existing stockholders, and (iii) investors purchasing
shares from us in this offering at an assumed initial public offering price of
$13.00 per share (before deducting the underwriting discount and estimated
offering expenses payable by us). The information provided gives effect to the
Reorganization as if it had occurred as at the inception of ZipLink, LLC, a
Connecticut limited liability company.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
-------------------------- -------------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
------------- ----------- ------------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Nortel Networks(1)..................................... 1,659,478 13.3% $ 10,000,000 18.0% $ 6.03
Other existing stockholders............................ 7,340,522 58.7 9,500 -- --
New investors.......................................... 3,500,000 28.0 45,500,000 82.0 13.00
------------- --- ------------- ---
Total.............................................. 12,500,000 100% $ 55,509,500 100%
------------- --- ------------- ---
------------- --- ------------- ---
</TABLE>
- ------------------------
(1) Includes 824,863 shares purchased from us for $3.03 per share on December
23, 1997, 450,000 shares of common stock issued upon conversion of a $2.5
million convertible debenture at a conversion price of $5.56 per share, and
384,615 shares of common stock issued upon conversion of a $5.0 million
convertible debenture at a conversion price of $13.00 per share, based upon
an assumed initial public offering price of $13.00 per share, which
conversions will occur concurrently with the closing of this offering.
The foregoing table assumes that no stock options or warrants outstanding as
of December 31, 1998 have been exercised. There were, as of December 31, 1998,
outstanding options to purchase 366,200 shares of common stock, exerciseable at
a weighted average price of $2.68 per share, and an outstanding warrant to
purchase 58,324 shares of common stock, with an exercise price of $1.71 per
share. To the extent outstanding options and warrants are exercised, there will
be additional dilution to investors purchasing shares in this offering.
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<PAGE>
SELECTED FINANCIAL DATA
The following selected statement of operations data of ZipLink, for the
three years ended December 31, 1996, 1997 and 1998 and the balance sheet data as
of December 31, 1996, 1997, 1998 have been derived from our financial
statements, which have been audited by Arthur Andersen LLP, independent
accountants, whose report is included elsewhere in this prospectus. The selected
statement of operations data for the period from inception (November 21, 1995)
to December 31, 1995 and the balance sheet data as of December 31, 1995 have
been derived from unaudited financial data of ZipLink and, in our opinion, these
financial statements include all adjustments, consisting of only normal
recurring adjustments, necessary for a fair presentation of the information. The
pro forma data reflects the net loss, net loss per common share and the weighted
average common shares outstanding for each period presented assuming for each
period presented the capital contribution of the members had been converted into
common stock, pursuant to the Reorganization, at the beginning of each
respective period. The pro forma financial data included herein is not
necessarily indicative of the results that would have been obtained had the
Reorganization been consummated on the dates indicated, nor do they purport to
indicate the results of future operations. The following selected financial data
is qualified by reference to, and should be read in conjunction with, the
financial statements of ZipLink, the notes thereto and "Management's Discussion
and Analysis of Financial Condition and Results of Operations" included
elsewhere in this prospectus.
<TABLE>
<CAPTION>
PERIOD FROM
NOVEMBER 21,
1995 (DATE OF
INCEPTION) TO YEAR ENDED DECEMBER 31,
DECEMBER 31, -------------------------------
1995 1996 1997 1998
------------- --------- --------- ---------
<S> <C> <C> <C> <C>
(UNAUDITED)
<CAPTION>
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues.......................................................... $ -- $ 756 $ 5,236 $ 7,088
Cost of revenues.................................................. -- 1,782 3,187 6,271
Selling, general and administrative............................... 25 7,373 6,507 5,174
Depreciation and amortization..................................... 1 384 1,084 2,637
------------- --------- --------- ---------
Total costs and expenses........................................ 26 9,539 10,779 14,082
------------- --------- --------- ---------
Loss from operations.............................................. (26) (8,783) (5,543) (6,994)
Interest and other expenses, net................................ -- 19 1,167 1,452
------------- --------- --------- ---------
Net loss.......................................................... $ (26) $ (8,802) $ (6,709) $ (8,446)
------------- --------- --------- ---------
------------- --------- --------- ---------
PRO FORMA DATA:
Pro forma net loss................................................ $ (26) $ (8,802) $ (6,109) $ (8,446)
Pro forma net loss per common share--basic and diluted............ (.00) (1.20) (.91) (1.03)
Weighted average common shares outstanding--basic and diluted..... 7,341 7,341 7,408 8,165
OTHER FINANCIAL DATA:
Capital expenditures.............................................. $ 79 $ 4,219 $ 8,516 $ 1,313
EBITDA(1)......................................................... (25) (8,399) (4,527) (4,502)
</TABLE>
- ------------------------
(1) EBITDA consists of net loss excluding net interest, taxes, depreciation and
amortization. EBITDA is provided because we believe that investors find it
to be a useful tool for approximating our cash flow. EBITDA is presented to
enhance an understanding of our operating results and should not be
construed (i) as an alternative to operating income (as determined in
accordance with GAAP) as an indicator of our operating performance or (ii)
as an alternative to cash flows from operating activities (as determined in
accordance with GAAP) as a measure of liquidity. Our methodology
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<PAGE>
for calculating EBITDA may be different from that used by other companies.
See the financial statements and notes thereto contained elsewhere in this
prospectus for more detailed information.
The following pro forma as adjusted balance sheet data as of December 31,
1998 gives effect to (i) the Reorganization, (ii) the conversion of all
outstanding convertible debt into common stock concurrently with the closing of
this offering, based upon an assumed initial public offering price of $13.00 per
share, (iii) the sale of 3,500,000 shares of common stock in this offering at an
assumed initial public offering price of $13.00 per share, after deducting the
underwriting discount and estimated offering expenses, and (iv) the application
of the estimated net proceeds from the offering, including the repayment of the
note payable to Fleet Bank in the amount of $17.6 million.
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
----------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1996 1997
--------- ---------
1998
1995 -----------------------
----------- PRO FORMA
(UNAUDITED) ACTUAL AS ADJUSTED
---------- -----------
<CAPTION>
(DOLLARS IN THOUSANDS) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents............................. $ 2,074 $ 301 $ 1,082 $ 512 $ 24,412
Working capital (deficit)............................. (78) (6,841) (5,317) (3,062) 21,338
Total assets.......................................... 2,185 4,569 12,984 11,174 35,074
Long-term debt........................................ -- -- 15,803 17,939 339
Convertible debentures, net of current portion........ -- -- -- 7,000 --
Members'/Stockholders' equity (deficit)............... 1 (3,024) (9,748) (18,089) 30,911
</TABLE>
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION SHOULD BE READ IN CONJUNCTION WITH OUR FINANCIAL
STATEMENTS AND NOTES THERETO AND THE OTHER INFORMATION INCLUDED ELSEWHERE IN
THIS PROSPECTUS. THIS DISCUSSION CONTAINS FORWARD-LOOKING STATEMENTS BASED ON
ZIPLINK'S CURRENT EXPECTATIONS, ASSUMPTIONS, ESTIMATES AND PROJECTIONS. THESE
FORWARD-LOOKING STATEMENTS INVOLVE RISKS AND UNCERTAINTIES. OUR ACTUAL RESULTS
AND THE TIMING OF CERTAIN EVENTS MAY DIFFER MATERIALLY FROM THOSE ANTICIPATED IN
THESE FORWARD-LOOKING STATEMENTS. FACTORS THAT COULD CAUSE OR CONTRIBUTE TO SUCH
DIFFERENCES INCLUDE, BUT ARE NOT LIMITED TO, THOSE DISCUSSED BELOW, IN "RISK
FACTORS" AND ELSEWHERE IN THIS PROSPECTUS.
OVERVIEW
ZipLink is a national provider of wholesale Internet access services to
developers and vendors of Internet appliances and local, regional and national
Internet service providers. ZipLink was founded in November, 1995. We began
testing our Internet network in the Northeastern U.S. in April, 1996. In June,
1996, we commenced revenue generating operations. In July, 1996, we acquired the
network assets and call center of the former Delphi Internet Corporation/News
America Holdings, Incorporated joint venture ("Delphi") from iGuide, Inc, began
use of our present network architecture and commenced initial deployment of
Super POPs. During 1998, we began an upgrade of substantially all of our points
of presence and expanded our network to new geographic areas.
We derive a significant portion of our revenues from the provision of
wholesale Internet access services for Internet appliances, including Internet
connectivity, subscriber authentication, e-mail filtering and forwarding and
other specially developed services. One customer, WebTV, accounts for
substantially all of our revenues from Internet appliance services. Revenues
from the provision of wholesale Internet access to WebTV are recognized monthly
as services are performed.
We also provide wholesale national dial-up Internet access and enhanced
services, including DSL service where available, under the name ZipDial, to 69
Internet service providers (as of March 31, 1999). Our services enable Internet
service providers to quickly and inexpensively expand their existing geographic
coverage and offer national dial-up Internet access, without investing in costly
infrastructure. Revenues from our ZipDial program are recognized monthly as
services are provided.
We also provide direct Internet access under the ZipLink name to a limited
number of retail users, although we intend to devote minimal resources to
marketing in this area. Revenues from these users derives from service
subscriptions and are recognized monthly.
Since inception, we have incurred net losses and experienced negative cash
flow from operations. Our cumulative net loss from operations as of December 31,
1998 was $24.0 million. We expect to continue to operate at a net loss and
experience negative cash flow for the foreseeable future given the level of
planned operating and capital expenditures. Our ability to achieve profitability
and positive cash flow from operations is dependent upon our ability to
substantially grow our revenue base through expansion of our ZipDial program and
an increase in sales of access services for Internet appliances and to achieve
operating efficiencies. We plan to make significant capital expenditures to
expand our network and to increase our operating expenses based in large part on
our estimate of potential future revenues. If our future revenues fall short of
our estimates or if our operating expenses exceed our expectations, then we may
never obtain or sustain profitability.
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RESULTS OF OPERATIONS
The following table sets forth, for the periods presented, certain data from
our statement of operations expressed as a percentage of revenues.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------
<S> <C> <C> <C>
1996 1997 1998
--------- ----------- -----------
Revenues.................................................................. 100.0% 100.0% 100.0%
Cost of revenues.......................................................... 235.9 60.9 88.5
Selling, general and administrative....................................... 975.6 124.3 73.0
Depreciation and amortization............................................. 50.8 20.7 37.2
--------- ----------- -----------
Loss from operations...................................................... (1,162.3) (105.9) (98.7)
Interest and other expenses, net.......................................... (2.5) (22.2) (20.5)
--------- ----------- -----------
Net loss.................................................................. (1,164.8)% (128.1 )% (119.2 )%
--------- ----------- -----------
--------- ----------- -----------
</TABLE>
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1998
REVENUES. Revenues increased 36.5% from $5.2 million for the year ended
December 31, 1997 to $7.1 million for the year ended December 31, 1998.
Substantially all of this increase resulted from WebTV revenues which increased
from $2.5 million for the year ended December 31, 1997 to $4.8 million for the
year ended December 31, 1998. During this period, revenue from direct retail
users decreased from $2.3 million for the year ended December 31, 1997 to $1.9
million for the year ended December 31, 1998. This decrease reflects our
decision to shift our business and marketing strategy from the provision of
direct retail service to wholesale service for Internet service providers. We
launched our ZipDial program in November, 1998. Revenues from ZipDial services
for the year ended December 31, 1998 were $32,000.
COST OF REVENUES. Cost of revenues consist primarily of telecommunications
costs and collocation costs for SuperPOP locations. Cost of revenues increased
96.9% from $3.2 million for the year ended December 31, 1997 to $6.3 million for
the year ended December 31, 1998. Substantially all of this increase was due to
telecommunications costs reflecting the expansion of our network infrastructure
during 1998. Costs for collocation for SuperPOP locations increased in 1998 as
the number of SuperPOPs increased from ten at December 31, 1997 to 18 at
December 31, 1998.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
expenses consist primarily of salaries, professional services, marketing and
promotional materials to expand our revenue base and other costs related to our
sales, finance and administrative functions. These expenses decreased 20.0% from
$6.5 million for the year ended December 31, 1997 to $5.2 million for the year
ended December 31, 1998. This decrease was principally due to a substantial
reduction in employees during 1997, most of the cost savings of which were not
realized until 1998. This reduction in employees resulted from the termination
of customer support provided by ZipLink under an agreement with Delphi Internet
Services, Inc. related to the acquisition of the Delphi assets and our shift in
focus from the direct retail market to the wholesale Internet service provider
market.
DEPRECIATION AND AMORTIZATION. Substantially all of our depreciation is of
network equipment. Depreciation expense increased from $1.1 million for the year
ended December 31, 1997 to $2.6 million for the year ended December 31, 1998.
This increase was principally due to additional capital expenditures incurred in
1998 for network infrastructure and the effect of a full year of depreciation on
assets acquired during 1997.
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INTEREST EXPENSE. Interest expense increased from $1.1 million for the year
ended December 31, 1997 to $1.3 million for the year ended December 31, 1998.
Substantially all of this increase was due to interest on convertible debt
funded by Nortel Networks during 1998 and increased borrowing in 1998 on our
line of credit.
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1997
REVENUES. We commenced revenue generating activity from direct retail users
in June, 1996 and from WebTV in December, 1996. Revenues increased 587.8% from
$756,000 for the year ended December 31, 1996 to $5.2 million for the year ended
December 31, 1997. This increase was primarily due to an increase in our WebTV
revenues from $30,000 for the year ended December 31, 1996 to $2.5 million for
the year ended December 31, 1997. The remainder was largely due to an increase
in revenue from direct retail users from $500,000 in 1996 to $2.3 million for
the year ended December 31, 1997.
COST OF REVENUES. Cost of revenues increased 77.8% from $1.8 million for
the year ended December 31, 1996 to $3.2 million for the year ended December 31,
1997. This increase was primarily due to an increase in telecommunications costs
and, to a lesser extent an increase in collocation costs, which was offset by a
small decrease in software costs.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
expenses decreased 12.2% from $7.4 million for the year ended December 31, 1996
to $6.5 million for the year ended December 31, 1997. This decrease was due to a
significant reduction in employees during 1997 associated with the termination
of the customer support agreement with Delphi Internet Services, Inc. and our
shift in focus from the direct retail market to the wholesale Internet service
provider market.
DEPRECIATION AND AMORTIZATION. Depreciation expense increased from $384,000
for the year ended December 31, 1996 to $1.1 million for the year ended December
31, 1997. The increase in depreciation resulted from our increased investment in
our network infrastructure, with equipment purchases of approximately $8.5
million for the year ended December 31, 1997, as well as a full year of
depreciation for the equipment purchased during 1996.
INTEREST EXPENSE. Interest expense increased from $30,000 for the year
ended December 31, 1996 to $1.1 million for the year ended December 31, 1997.
This increase resulted from increased levels of borrowing under a line of credit
to support operations.
INCOME TAXES
No benefit for federal and state income taxes is reported in the financial
statements as ZipLink has been taxed as a partnership since inception.
Therefore, for the periods presented, the federal and state tax effects of the
tax losses were recorded by the members of the limited liability company in
their respective income tax returns. Subsequent to the consummation of the
Reorganization, we will account for income taxes in accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS No.
109"). Had we applied the provisions of SFAS No. 109 for the period from
inception (November 21, 1995) through December 31, 1998, the deferred tax asset
generated, primarily from net operating loss carryforwards, would have been
offset by a full valuation allowance.
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LIQUIDITY AND CAPITAL RESOURCES
Since our inception, we have financed our operations primarily from
investments and advances from Henry and Eric Zachs and their affiliates, loans
from commercial banks, including Fleet Bank, supported by Henry Zachs and/or
Eric Zachs' personal guarantee and investments of equity and debt from Nortel
Networks. The principal uses of cash have been to fund working capital
requirements and capital expenditure programs. At December 31, 1996, 1997 and
1998, we had $301,000, $1.1 million and $512,000, respectively, in cash and cash
equivalents.
Net cash used in operating activities was $6.0 million, $3.4 million and
$8.9 million for the years ended December 31, 1996, 1997 and 1998, respectively.
Net cash used in operating activities for the year ended December 31, 1996 is
primarily attributable to our net loss, partially offset by depreciation and
amortization and the increases in accounts payable and accrued expenses. Net
cash used in operating activities for the year ended December 31, 1997 is
primarily attributable to our net loss and decreases in amounts due to
affiliates, partially offset by depreciation and amortization and the increases
in accounts payable. Net cash used in operating activities for the year ended
December 31, 1998 is primarily attributable to our net loss and decreases in
accounts payable, partially offset by depreciation and amortization,
compensation expenses associated with the granting of unit options and a warrant
and the increases in accrued expenses.
Net cash used in investing activities was $4.3 million, $7.0 million and
$1.3 million for the years ended December 31, 1996, 1997 and 1998, respectively.
Principal investments were for capital expenditures which amounted to $4.2
million, $8.5 million and $1.3 million for the years ended December 31, 1996,
1997 and 1998, respectively. Significant capital expenditures for the year ended
December 31, 1996 include the acquisition of Delphi's network assets and call
center for $2.7 million, and, for the year ended December 31, 1997, $1.5 million
of network equipment and $6.1 million of other equipment acquired from Nortel
Networks to continue the expansion of our network. We purchased $1.3 million of
additional equipment in 1998.
Net cash provided by financing activities was $8.5 million, $11.1 million
and $9.7 million for the years ended December 31, 1996, 1997 and 1998,
respectively, and includes $3.3 million of net contributions from Henry and Eric
Zachs and their affiliates, as well as loans from commercial banks, such loans
being supported by Henry Zachs and/or Eric Zachs' personal guarantee. In
November, 1996, we obtained a $5.0 million line of credit from BancBoston to be
used for working capital purposes. In December, 1997, this line of credit was
increased to provide for maximum borrowings of up to $20.0 million with a
maturity date of October 1, 2000. This line of credit was refinanced in March,
1998 with the proceeds of a line of credit from Fleet Bank which provided for
maximum borrowings of $15.0 million. The Fleet Bank line of credit was increased
to $20.0 million in October, 1998 and has a maturity date of April 1, 2001. In
addition, we received a $10.0 million investment ($2.5 million equity in 1997
and $7.5 million convertible debt in 1998) from Nortel Networks for working
capital, to facilitate our network buildout and upgrade our network
infrastructure. In 1997, we also entered into a capital lease for $1.5 million
of equipment.
We intend to use approximately $20.0 million of the net proceeds from this
offering to repay the then-outstanding principal amount of our line of credit
with Fleet Bank ($19.0 million as of March 31, 1999). We are also seeking to
obtain one or more debt financings aggregating approximately $15.0 million to be
used for capital expenditures, working capital and other general corporate
purposes as a replacement for the Fleet Bank line of credit. We further intend
to make approximately $6.5 million in capital expenditures in 1999, primarily to
expand our network infrastructure and increase our area of service coverage.
Subject to our capital resources, we currently expect that our capital
expenditures will be substantially higher in future periods in connection with
the expansion of our network capacity and the increase in our area of service
coverage. Cash used to service debt associated with our capital lease
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<PAGE>
obligation is anticipated to be $528,624 for the year ended December 31, 1999
and $352,416 for the year ended December 31, 2000.
We believe that our available cash from operations, combined with the net
proceeds from this offering (after repayment of the Fleet Bank line of credit)
will be sufficient to meet our anticipated working capital and capital
expenditure requirements for at least the next 12 months. We anticipate that we
will need to raise significant additional capital for the period after the next
12 months through public or private debt or equity financings or other sources
in order to execute our business plan.
YEAR 2000 ISSUES
The Year 2000 issue is the result of computer programs being written using
two digits rather than four to define the applicable year. As a result, our
computer programs that have date-sensitive software and software of companies
into which our network is interconnected may recognize a date using "00" as the
year 1900 rather than the year 2000. This could result in system failures or
miscalculations causing disruptions of operations, including, among other
things, a temporary inability to process transactions, send invoices or engage
in similar normal business activities.
We rely on our computer systems for authentication of our wholesale
customers onto our network, e-mail and web services, billing and customer
support activities and network monitoring. We are currently in the process of
reviewing our products and services, as well as our internal management
information systems and non-information technology systems in order to identify
and modify those products, services and systems that are not Year 2000
compliant. In addition, we have contacted approximately 40% of our suppliers to
ascertain their Year 2000 status. During the next 60 days we plan to contact the
remainder of our suppliers, as well as our significant customers, including
WebTV, to ascertain their Year 2000 status. At this time, we estimate that our
direct costs associated with remediation and verification to become Year 2000
compliant will not exceed $180,000, although the actual cost of achieving
compliance could differ materially from this estimate.
We are currently engaged in Phase I of our Year 2000 Compliance Project and
have tested and replaced or corrected some non-compliant equipment and software.
A member of the senior management team has been identified to lead the Year 2000
Compliance Project. We define the term "Year 2000 Compliance" to mean the
assurance that our customers will not be negatively impacted, nor will there be
any disruption in service, by dates prior to, during, or after the year 2000.
Phase I of this project involves doing a full inventory of all equipment,
computer hardware, and software. Based upon this inventory, all equipment,
computer hardware, and software components will then be tested for Year 2000
Compliance. Phase II of this project involves evaluation of the results of these
tests. Any equipment, computer hardware, or software component that is found to
be non-compliant will then be upgraded, rewritten, or replaced as required to
achieve compliance.
As of December 31, 1998, we have spent approximately $50,000 correcting
incidents of noncompliance, exclusive of internal costs. We anticipate that the
direct costs associated with our Year 2000 Compliance Project will not exceed
$180,000, however, we cannot assure you that our actual costs of achieving
compliance will not exceed this amount. While we expect to be Year 2000
compliant by the end of the third quarter of 1999, we cannot assure you that we
will be able to timely and successfully modify our services and systems to
comply with Year 2000 requirements. Nor can we assure that equipment received
from suppliers will comply or that any of our suppliers or peering or transit
partners, such as Nortel Networks or MCI WorldCom, will be Year 2000 compliant
in a timely manner or that there will not be problems with technology working
together. Furthermore, despite testing performed by us and our suppliers and
partners, our products, services and systems may contain undetected errors or
defects associated with Year 2000 related functions. In the event any material
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<PAGE>
errors or defects are not detected and fixed, or if third parties cannot timely
provide us with products, services or systems that meet Year 2000 requirements,
our business, financial condition or results of operations could be adversely
affected. Known or unknown errors or defects that affect the operation of our
products, services or systems could result in delay or loss of revenue,
interruption of network services, cancellation of customer contracts, diversion
of development or network expansion resources, damage to our reputation, and
litigation costs.
We believe that the worst case scenario related to our services and systems
due to Year 2000 complications would be the failure of our entire network. This
would result in users being unable to connect to the Internet using our network
until such failure was remedied. As a result of such failure our revenues would
be materially adversely affected and our customers may terminate agreements to
use our Internet access services or otherwise not utilize such services.
We do not have a contingency plan in the event our systems fail due to Year
2000 related problems. We cannot assure you that these or other factors relating
to Year 2000 compliance issues will not have a material adverse effect on our
business, financial condition or results of operations.
37
<PAGE>
BUSINESS
ZipLink is a national provider of wholesale Internet access services to
developers and vendors of Internet appliances and local, regional and national
Internet service providers. We offer a range of Internet access solutions for
Internet appliances, including Internet connectivity, subscriber authentication
and filtering and forwarding of e-mail. We also provide wholesale national
Internet access services under the name ZipDial to Internet service providers
which, in turn, offer Internet access to their subscribers using our network
infrastructure. Our ZipDial service features wholesale dial-up Internet access
and enhanced services, such as DSL access.
INDUSTRY BACKGROUND
EMERGENCE AND GROWTH OF THE INTERNET
The emergence of the Internet and the widespread adoption of Internet
protocol as a data transmission standard in the 1990s, combined with the
deregulation of the telecommunications industry and advances in
telecommunications technology have significantly increased the attractiveness of
providing data communication applications and services over the Internet. At the
same time, growth in client/ server computing, multimedia personal computers and
online computing services and the proliferation of networking technologies have
resulted in a large and growing number of people who are accustomed to using
networked computers for a variety of purposes, including e-mail, electronic file
transfers, online computing and electronic financial transactions. The
convergence of these trends has significantly accelerated the already rapid
expansion of Internet usage. According to IDC, the number of Internet users
worldwide reached 38 million in 1996 and should grow to over 173 million by the
Year 2000.
INTERNET APPLIANCES
As Internet usage grows it is also expected to expand rapidly beyond today's
paradigm of PC-based web browsing and e-mail. We believe that the ubiquitous
nature and relatively low cost of the Internet, together with rapid advances in
software, hardware and computer chip technology will usher in a new generation
of electronic devices--Internet appliances. These comparatively inexpensive
consumer and business electronics products will make more focused use of the
Internet than personal computers, employing connectivity and network computing
to accomplish limited but nonetheless valuable tasks. Internet appliances are
expected to come in a wide variety of forms, some of which will resemble
familiar consumer electronics products. There are a number of examples of
Internet appliances currently in use, including devices known as TV set-top
boxes, which enable Internet browsing and e-mail from a television, and wireless
devices which receive Internet e-mail broadcast over a paging network. Other
Internet appliances will have functionality which is more business oriented or
which is geared to mobile professionals. For example, some vending machines in
use today regularly communicate inventory status and needs to distributors via
the Internet and the use of such remote inventory management techniques is
expected to increase. Some cellular phones can now receive e-mail messages and
electronic content from the Web.
The market for these and other Internet devices is presently in its infancy,
but ZipLink and many industry analysts believe it is poised for rapid growth.
For example, IDC estimates that there will be 12.8 million Internet appliances
in use in 1999, 4.1 million of which will be Internet-enabled televisions.
Forrester Research predicts that 20 million Internet appliances will be
installed in U.S. homes by 2002. IDC projects that Internet appliances (other
than personal computers) shipped will grow from 9% of all Internet access
devices (including personal computers) in 1998 to 43% of the market by 2002.
THE INTERNET ACCESS INDUSTRY
The rapid development and growth of the Internet has resulted in a highly
fragmented industry of over 4,800 local, regional and national Internet service
providers in the United States. These companies
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provide Internet access to their subscribers either by developing a proprietary
network infrastructure or by purchasing Internet access from a wholesale
provider such as ZipLink or through a combination of both. Internet service
provider revenues have grown and are expected to continue to grow at a high
rate. IDC estimates that Internet service provider revenues will increase from
$10.7 billion in 1998 to $29.7 billion in 2002. Forrester Research projects that
the Internet access market will reach $50 billion in 2002. Forrester Research
also estimates that there will be 60 million Internet access dial-up accounts in
2002 with such accounts representing 77% of the Internet access market. This
large and fragmented market includes a comparatively small number of national
Internet service providers, including regional Bell operating companies and
other telecommunications companies, as well as a much greater number of local
and regional providers who serve consumers and, to a significant degree, small
and medium sized businesses. Internet service providers in general are under
increasing price pressure as the Internet access industry matures and moves
progressively toward a commodity pricing model.
In addition, local and regional Internet service providers, in particular,
are experiencing mounting customer demands for more sophisticated and reliable
service options. We believe that the principal customer requirements are
increased bandwidth, more reliable connectivity, broader local dial-up access
coverage and enhanced services. However, we also believe that satisfying these
service needs requires significant infrastructure investments that may be beyond
the reach of local and regional providers, particularly in light of increasing
price pressure and intense competition from larger providers with greater
financial and infrastructure resources. Accordingly, we believe that many of
these local and regional Internet service providers will be driven to seek
consolidation with larger players, as well as the outsourcing of network
infrastructure to meet these market challenges. Because Internet connectivity
comprises a large portion of an Internet service provider's overhead expenses,
irrespective of the size of the provider, we believe that these services will be
among the first to be shifted to third-party providers if a reliable,
cost-effective alternative is made available to them.
THE ZIPLINK SOLUTION
Our wholesale Internet access services are designed to meet the needs of the
emerging Internet appliances market and to provide a network outsourcing
solution for Internet service providers. We presently provide Internet
connectivity, subscriber authentication, e-mail filtering and forwarding and
other specially developed services for several Internet appliances, such as the
WebTV set-top box, and have the ability to provide similar services to other
Internet appliances. We have been a provider of Internet access services to
WebTV, a widely-used Internet appliance, since its introduction in 1996. We
believe our experience with WebTV will enable us to attract other developers and
vendors of Internet appliances and assist us in quickly implementing Internet
access services for their devices. The ready availability of our existing
service offerings and our ability to quickly implement new access services will
enable developers and vendors of Internet appliances to significantly reduce
their time to market and allow them to focus their resources on their core
competencies of product development and distribution.
The network attributes and experience we have developed through our
relationship with WebTV and other Internet appliance customers also enable us to
provide high-quality wholesale Internet access services to Internet service
providers. Our network has been engineered and operated to optimize dial-up
performance in order to provide reliable, high-quality national dial-up
connectivity to WebTV. Our ZipDial service for Internet service providers
feature dial-up connectivity using this same network capability as its core
feature. By outsourcing network connectivity to ZipLink, these Internet service
providers can offer their subscribers a far wider array of access options than
their resources would otherwise permit without the need to invest in costly
infrastructure. Outsourcing further allows these Internet service providers to
concentrate on acquiring and retaining subscribers and marketing Internet access
and other complementary products rather than network management and buildout.
ZipLink's services are transparent to the Internet service provider's
subscriber, preserving the Internet service provider's own brand identity as the
service provider. For example, by using ZipLink's services an
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<PAGE>
Internet service provider can quickly, easily and inexpensively expand its
geographic coverage to cover new local dialing areas and provide its subscribers
with DSL access and streaming audio and video applications, thereby enabling the
Internet service provider to better satisfy customer demand without sacrificing
price-competitiveness.
OUR BUSINESS STRATEGY
Our objective is to become the leading wholesale provider of Internet access
services for developers and vendors of Internet appliances and Internet service
providers in the United States. We intend to achieve this goal by implementing
the following key strategies:
LEVERAGE KEY INTERNET APPLIANCE RELATIONSHIPS. ZipLink actively seeks to
identify, develop and sustain relationships with key innovators and early
marketers of Internet appliances to increase our market visibility.
ESTABLISH ZIPDIAL AS A LEADING WHOLESALE SOLUTION. We intend to capitalize
on our network infrastructure and expertise to make our ZipDial service the
leading high-quality, cost-effective wholesale access solution for Internet
service providers. ZipDial is designed to allow Internet service providers
to respond to increasing price competition and service demands by quickly
expanding their capacity, coverage and product offerings without costly
infrastructure investments.
EXPAND AND ENHANCE OUR NETWORK. We intend to continue to expand, enhance
and maintain a reliable network infrastructure with high-quality
performance.
ESTABLISH STRATEGIC ALLIANCES. We seek to establish and sustain strategic
alliances with key customers and suppliers to create and exploit early
access to new markets and new technologies.
CAPITALIZE ON OUR WEBTV RELATIONSHIP. We intend to capitalize on our
relationship with WebTV by continuing to expand our network where it is
likely to be supported by WebTV traffic and by using this relationship to
boost our marketing efforts with developers and vendors of other Internet
appliances.
STRATEGIC ALLIANCE--NORTEL NETWORKS
As a key component of our strategy to become a leading provider of Internet
access services to developers and vendors of Internet appliances and Internet
service providers, we intend to identify, establish and maintain strategic
alliances with important customers and suppliers to create and exploit early
access to new markets and new technologies. Consistent with this strategy, in
1997, ZipLink entered into a strategic alliance with Bay Networks, Inc., now a
subsidiary of Northern Telecom Limited, or Nortel Networks, a major manufacturer
of telecommunications equipment. As a part of this strategic alliance Nortel
Networks has provided ZipLink with $7.5 million of convertible debt financing
and made a $2.5 million equity investment in ZipLink. Concurrently with the
closing of this offering, the outstanding $7.5 million convertible debt to
Nortel Networks will be converted into shares of common stock. We have purchased
approximately $7.1 million of telecommunications equipment and related services
from Nortel Networks to facilitate our network buildout and upgrade. In
connection with our use of Nortel Networks equipment, we have served as a beta
site for new product offerings, have performed field testing for, and have
received pre-released versions of, their equipment and software. In addition
Nortel and ZipLink are currently collaborating on a joint marketing campaign for
the ZipDial service. We believe that our strategic alliance with Nortel Networks
helps to raise our visibility in the marketplace for wholesale Internet access
and provides this important supplier with a vested interest in supporting our
success. See "Certain Relationships and Related Transactions-- Purchases from
Nortel Networks" and "--Nortel Networks Funding."
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SERVICES
ZipLink provides wholesale Internet access services to developers and
vendors of Internet appliances and to local, regional and national Internet
service providers using our national network. We also provide Internet service
to a limited number of direct subscribers, although we intend to devote minimal
resources to this market segment.
INTERNET APPLIANCE SERVICES
We believe that we are one of the only national Internet access providers to
actively focus on Internet appliances as a distinct market. We believe that the
dial-up focus of our network configuration and our understanding of, and
experience with, providing Internet connectivity to WebTV and other devices have
provided us with a valuable platform for serving this rapidly emerging area of
Internet usage. We have developed the network, systems configuration and
know-how to provide Internet connectivity, subscriber authentication, e-mail
filtering and forwarding and other specially developed services to link a
diverse array of electronic devices to the Internet. While our service offerings
for Internet appliances are typically tailored to the needs of specific devices,
the solutions we offer are generally applicable to a number of categories of
appliances. The following describes the principal categories of devices for
which we have developed Internet access services and provides specific
information on our existing service relationships in these categories. We
believe that our ability to provide these services will allow us to offer
developers and vendors of Internet appliances an opportunity to reduce their
time to market and to avoid the necessity of developing the required network and
service capabilities in-house or with other less experienced providers.
TV SET-TOP BOXES. TV set-top boxes are relatively inexpensive consumer
electronic devices which enable users to access the Internet, browse the World
Wide Web and send and receive e-mail using a standard television rather than a
personal computer. ZipLink has two customers in this device category, WebTV and
WebSurfer, and believes that the market for these devices is poised to grow
rapidly. IDC forecasts that 22% of U.S. homes will have a TV set-top box
installed by the year 2002. ZipLink's customer relationships in this device
category are described below.
- WEBTV. We are a leading national provider of Internet connectivity to
WebTV, a subsidiary of Microsoft Corporation. The WebTV set-top box
provides the leading Internet-enabling solution for televisions in the
United States. We entered into an agreement with WebTV in October, 1996 to
provide dial-up connectivity between WebTV subscribers and WebTV's own
Internet access facility over the ZipLink network. Since WebTV launched
its service in December, 1996, its subscriber traffic has grown to more
than 700,000. See "Risk Factors--We are dependent on WebTV."
- WEBSURFER. We will serve as the "preferred" Internet access provider for
a TV set-top box developed and marketed by WebSurfer, Inc., a subsidiary
of The Batra Group, Inc. ("WebSurfer"). Like WebTV, the WebSurfer TV
set-top box allows for Internet access and it offers added features such
as a built-in handset for making local and long distance telephone calls
over the Internet. WebSurfer is presently marketed solely in Canada (where
we do not serve as an access provider) and is targeted for commercial
launch in the United States in May, 1999. As a "preferred" provider,
ZipLink will serve as the exclusive provider of Internet access in areas
of the United States where we have network coverage, although WebSurfer
can use other providers in such areas to the extent we are unable or
unwilling to match competing prices or services. As in the WebTV
relationship, we will provide dial-up connectivity between WebSurfer
subscribers and WebSurfer's own Internet access facility. In addition to
providing this connectivity, we will also perform user authentication and
registration of first-time users for WebSurfer, acting as a gateway to the
WebSurfer service, furnish customer and technical support to WebSurfer
subscribers and perform subscriber billing services.
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PERSONAL COMMUNICATION DEVICES. Internet-enabled personal communications
devices combine existing wireless technology, typically paging, with Internet
functionality to add features such as the ability to send and receive e-mail.
According to the Multimedia Telecommunications Association, there were 54.5
million total paging subscribers in 1998 and we believe this market will move
rapidly to become Internet-enabled. ZipLink has created the tools to provide a
gateway between the Internet and wireless systems, delivering Internet
communications in a specially developed display format for transmission to
wireless devices, including pagers. We have developed two customer relationships
in this device category, each of which is discussed below, and plan to pursue
relationships with other developers.
- BEEPWEAR. We are the exclusive Internet service provider for the Beepwear
wristwatch pager, a device jointly developed by Motorola, Inc. and Timex
Corporation and marketed by Beepwear Paging Products, LLC. The Beepwear
watch is enabled to receive alphanumeric paging messages on a local or
nationwide basis under an agreement with SkyTel Communications, Inc., a
major paging company. ZipLink enhances this product by providing a
central, unified e-mail address for each watch, filtering and forwarding
received e-mail, providing instant notification on the watch that an
e-mail message has been received (including the sender's e-mail address
and the time, date and subject header of the e-mail) and by providing a
repository where the complete e-mail message text and attachments can be
accessed. The Beepwear watch was introduced in January, 1998. ZipLink and
Beepwear have engaged in a variety of co-marketing and co-branding efforts
at trade shows and other venues, including placement of co-branded
materials in a nationwide retail office supply chain and co-branded direct
mailings. We believe these joint marketing programs will increase
ZipLink's visibility within the Internet appliance industry as a provider
of Internet access services to this market. Our agreement with Beepwear
expires in December, 2002 but may be earlier terminated if certain
established targets are not met.
- CUE DATA. ZipLink has entered into a letter of intent with CUE Data
Corporation to provide full-service, nationwide Internet connectivity and
e-mail filtering, forwarding and notification to car radios that use
Microsoft's AutoPC technology. This technology allows a car radio to
receive, send and display e-mail and text pages and real-time traffic,
weather and emergency alerts. The AutoPC is expected to be released later
this year.
FUTURE APPLICATIONS OF OUR INTERNET APPLIANCE SERVICES. We have identified
three Internet appliance categories, in particular, which we believe present
particularly strong market opportunities for us: Internet telephones, online
gaming and Internet-enabled computing devices. We believe that our network
experience and specialized service offerings for Internet appliances will
position us to establish relationships in the future with developers and vendors
of Internet appliances in these and other categories.
- INTERNET TELEPHONES. Internet-enabled cellular and conventional
telephones will use the Internet to deliver and send voice and data
communications including e-mail, and to receive electronic content such as
news and stock quotes. IDC projects that there will be 6.1 million
Internet screen telephones sold in the United States in 2002. Forrester
Research estimates that the use of the Internet for local and long
distance phone calls will become an approximately $900 million market in
2002. We also believe that Internet-enabled cellular phones, sometimes
called "smart phones," will be attractive to mobile professionals because
they combine the ability to talk, send and receive e-mail and receive
content from the Web in a single portable device.
- ONLINE GAMING. Internet-enabled electronic games represent the
convergence of popular Internet games, and ubiquitous in-home gaming
platforms. Initiatives in this market have been announced by Sega
Enterprises, Ltd. and Nintendo Corporation, two leading U.S. makers of in-
home gaming platforms. These new devices will allow relatively inexpensive
in-home gaming platforms that use a standard TV set to support multiplayer
games over the Internet. We have upgraded our network to accommodate
streaming audio and video and multicasting applications
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(which simultaneously transmit data in a single stream to multiple users)
and plan further upgrades of this capability in order to capitalize on
what we believe will be a significant market opportunity in this area. The
Yankee Group, an industry analyst, anticipates that online gaming of this
type will encompass more than 9 million households by the year 2000.
- INTERNET-ENABLED COMPUTING DEVICES. Computing products, such as handheld
computers and network computers, are becoming increasingly
Internet-enabled. These products include palmtop computers from 3Com
Corporation and handheld scanners from Hewlett-Packard Corporation that
use wireless technology to connect to the Internet.
ZIPDIAL WHOLESALE SERVICES FOR INTERNET SERVICE PROVIDERS
We provide an array of wholesale Internet access services under the name
ZipDial to Internet service providers which, in turn, offer Internet access to
their subscribers using ZipLink's network. The use of this service is wholly
transparent to the subscriber, preserving the Internet service provider's own
brand identity as the service provider. The ZipDial program is specifically
designed to afford Internet service providers a high quality, cost-effective
means of quickly expanding their existing network capacity, geographic reach and
product offerings without investing in a costly network infrastructure and to
allow them to focus their efforts and resources on their core competency of
marketing Internet access and other complementary products.
ZipLink's current service offerings through its ZipDial program include
local dial-up access in any area covered by our national network as well as
other Internet access options including a range of connection types and features
such as streaming audio and video and multicasting in certain areas. By
contracting with ZipLink for Internet access services, Internet service
providers can offer their subscribers a broader range of products than would
otherwise be possible, enabling local and regional Internet service providers,
in particular, to compete favorably with large national Internet service
providers possessing greater resources.
One Internet access service option which we believe will be significant to
our ZipDial customers is DSL service. DSL technology allows users to achieve
data transmission speeds over ordinary telephone lines up to 7.1 megabits per
second (or 125 times the fastest dial-up modem currently available) at a
reasonable cost. In order to support DSL technology within a given local dialing
area, however, an Internet service provider must generally incur significant
up-front costs to acquire the necessary equipment and infrastructure. By
outsourcing their Internet access services to ZipLink, Internet service
providers will be able to offer DSL to their subscribers without incurring these
substantial up-front investments.
ZipLink's ability to offer DSL access as a part of its ZipDial program is
the result of supplier relationships with two significant providers of DSL
services: Covad Communications, Inc. ("Covad") and Northpoint Communications,
Inc. ("Northpoint"). Ziplink is a master reseller of Covad's DSL services,
allowing us to market DSL access to our ZipDial customers in areas covered by
Covad's network. We are also a reseller of Northpoint's DSL service in areas
covered by its network. During the third quarter of 1999, we expect that ZipLink
will offer DSL access in 30% of its markets. ZipLink plans to use a portion of
the net proceeds of this offering to build its network infrastructure to support
DSL.
ZipLink's wholesale service offerings are priced in a manner designed to
encourage Internet service providers to enroll in the ZipDial program by
minimizing barriers to entry. Internet service providers pay a nominal
enrollment fee and are charged monthly for local dial-up access on the basis of
the number of unique subscribers who actually use the ZipLink network in that
month rather than on the gross number of subscribers capable of accessing the
network during that period. This allows Internet service providers to enter new
local calling areas without first acquiring a critical mass of subscribers to
support network expansion, a common limiting factor for local and regional
Internet Service Providers.
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Furthermore, enrollment is processed very quickly, typically within 72 hours
after receipt of an enrollment form and any required fees.
Our ZipDial program was launched in November, 1998. As of December 31, 1998,
we had enrolled 17 Internet service providers and, as of March 31, 1999, had
enrolled 69 Internet service providers into our Zipdial program. One such
customer is DirectWeb, Inc. ("DirectWeb"). DirectWeb operates a
subscription-based online service and markets its service by offering
subscribers a free personal computer as part of its Internet access subscription
fee. ZipLink expects to begin providing ZipDial wholesale Internet access
service to connect these subscribers to the DirectWeb Internet access facility
during the second quarter of 1999. The DirectWeb service was launched on March
31, 1999.
DIRECT INTERNET ACCESS SERVICES
We provide direct Internet access under the ZipLink name to a limited number
of retail users. Service offerings in this area include all of our services
which are made available to wholesale customers. We regard the direct provision
of Internet access as outside of our core business focus and have expended
minimal efforts at marketing retail Internet access service since March, 1997.
Those direct users currently serviced by ZipLink consist largely of accounts
generated by our early efforts at marketing direct access or through referrals.
We are currently exploring our opportunities with respect to these direct user
accounts, but intend to devote minimal resources to marketing to this segment.
Although we do not presently contemplate marketing retail Internet access
services, there are circumstances under which we may provide such services in
conjunction with a strategic relationship. For example, under an agreement with
WebSurfer and its affiliate The Batra Group, Inc. ("Batra"), Batra and ZipLink
have agreed to jointly offer retail Internet access under the name
"WebInfinity." The WebInfinity Internet access service will be available to U.S.
purchasers of a low-cost personal computer made by Batra under the name
"Innovator." Purchasers of these personal computers will activate the
WebInfinity service by clicking on an icon installed on the start-up screen of
the new personal computer. In addition to providing Internet access to
WebInfinity subscribers, ZipLink will perform all registration and
authentication of Web Infinity subscribers, customer support services for
subscribers and billing of subscribers for Batra. Batra's Innovator personal
computers are scheduled for release in the United States in the third quarter of
1999.
CUSTOMER SERVICE AND TECHNICAL SUPPORT
We provide technical support services to our ZipDial customers from our call
center in Lowell, Massachusetts as a part of the ZipDial program. These services
assist our customers in technical aspects of using the ZipDial service. We also
provide customer support to our direct subscribers and possess the
infrastructure to provide customer or subscriber support to Internet appliance
customers and ZipDial customers as the need for such services grows with limited
additional capital expenditures. We anticipate that we will be required to
expand our customer support capabilities in the event of significant sales of
WebSurfer, or Beepwear devices or the WebInfinity service.
SALES AND MARKETING
We focus our marketing efforts and organize our marketing strategy around
our two primary service offerings: Internet appliance services and wholesale
Internet access services for Internet service providers.
INTERNET APPLIANCE SERVICES
The market for Internet appliances is at a very early stage of development.
Accordingly, most of our marketing efforts in this area are targeted toward
identifying and establishing relationships with developers and early marketers
of Internet appliances and toward raising the visibility and profile of
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ZipLink as a provider of Internet access services to this market. Our methods
for identifying prospective relationships and increasing ZipLink's visibility
include attendance, presentations and joint exhibitions with existing customers
at trade shows and joint marketing efforts with these customers. For example, we
display co-branded advertising with Beepwear in nationwide locations of a retail
office supply chain. We have given presentations on Internet appliances at trade
shows and internal forums sponsored by strategic partners such as Nortel
Networks.
ZIPDIAL WHOLESALE INTERNET ACCESS SERVICES
Our marketing efforts for the ZipDial program are organized into four tiers:
joint marketing, direct mail campaigns, proactive telemarketing and attendance
at trade shows. We are developing joint marketing programs for ZipDial with our
suppliers. ZipLink and Nortel Networks have announced a co-marketing campaign
for our ZipDial service which will feature co-branded print advertising and
direct mail solicitations, to approximately 4,800 Internet service providers
nationwide. In addition, we are planning joint marketing efforts focusing on our
DSL service offering with Covad and Northpoint. Each of these suppliers has
agreed to make funding available to ZipLink for approved co-marketing programs.
In addition, both Covad and Northpoint have committed to market our ZipDial
service to Internet service providers in conjunction with their direct offerings
of DSL services and may refer smaller Internet service providers seeking such
service to ZipLink for integration into our ZipDial program. We will also market
ZipDial through our internal sales force, which was comprised of six sales
representatives as of February 28, 1999. Our internal sales force operates out
of our Lowell offices. This sales force is dedicated to generating leads,
executing direct mail and proactive telemarketing campaigns and handling
inquiries prompted by any of our sales channels. In connection with ZipDial, we
intend to attend and exhibit at trade shows as a way of raising our visibility
and building our brand.
THE ZIPLINK NETWORK
The ZipLink network is comprised of 19 "super points of presence" or
"SuperPOPs" covering 16 of the 20 largest metropolitan areas in the United
States. Once connected, traffic is routed using primarily Nortel Networks
equipment through the network to the desired Internet location via a system of
high-speed network connections (known as a "backbone" in our industry) provided
to ZipLink by MCI WorldCom. Our network backbone operates at a speed of 45
megabits per second using Asynchronous Transfer Mode, an information transfer
standard that, among other things, allows for a transmission of data, voice, and
video. Users connect to the network at a variety of speeds using a range of
access methods.
Our network is engineered to provide superior quality of service, including
high connection success rates, low latency (response time), fast download times
and reliability.
SUPERPOP ARCHITECTURE
ZipLink's network architecture features 19 SuperPOPs. A SuperPOP is created
by using products provided by competitive local exchange carriers which
aggregate local telephone calls from a broad geographic area and deliver them to
a single network access point. This allows equipment installed at this single
network point of presence to cover a larger calling area than would be possible
with conventional point of presence configurations, significantly reducing the
number of points of presence required to cover a given geographical area and the
corresponding investment required to expand the network. The SuperPOP
architecture also enhances economies of scale from larger equipment
installations, lowers maintenance costs and allows for easier, more efficient
capacity upgrades since equipment is located centrally within a given region.
The resulting cost savings and efficiencies contribute to our ability to offer
Internet appliance and ZipDial customers low-priced Internet connectivity.
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SCALEABLE INFRASTRUCTURE
We believe that our existing network can accommodate more users without any
resulting loss of functionality, which in our industry is know as scaleability.
Some expansion in network capacity can be achieved without significant capital
expenditures by increasing the number of telephone lines delivered to existing
hardware which currently has excess capacity. In the past, our strategy for
network expansion has been to add points of presence where we believed our
investment would be substantially supported by traffic from WebTV's subscriber
base. We plan to continue this approach, to the extent possible, with other
customers and generally to target areas served by a competitive local exchange
carrier in order to implement a SuperPOP architecture.
NETWORK INTEGRITY
The integrity of our network is monitored by on-line software and hardware
tools at ZipLink's network operations center located at our executive offices in
Lowell, Massachusetts. Anomalies in the function of the various network elements
are displayed on computer screens and the pertinent information sent to text
pagers carried by members of the engineering staff. The network operations
center is staffed 24 hours per day, 7 days per week, which helps enable us to
mount a rapid response in the event of a telecommunications outage or an
equipment failure. All elements of the network, wherever located, can be
configured remotely from our network operations center and our SuperPOP
equipment is accessible remotely via a modem connection. This remote access
capability helps to support the speedy diagnosis and repair of network problems,
whether at ZipLink's main facility or at a remote network site.
Each of our SuperPOP's are connected to our network backbone by two
independent circuits. This use of back-up, or "redundant" circuits allows for
automatic and rapid re-routing of traffic in the event of a problem in either
path and provide us with flexibility in routing traffic through the network to
optimize efficiency and reduce congestion. Our network operations center is also
supported by redundant connections to the network. To date, network downtime has
been minimal. We have in the past, and intend in the future to continue to,
periodically increase network capacity consistent with our projections of
traffic flow and customer requirements. These projections are, in part, assisted
by network monitoring tools which analyze traffic flow and usage patterns
helping us to place orders with telecommunications carriers sufficiently early
to add capacity before congestion occurs. Scheduled maintenance is pre-announced
and, if significant disruption to any service appears likely, is performed
during an off-hours maintenance window.
COMPETITION
We face intense competition. There are no substantial barriers to entry in
the market for our services, and we expect that competition will further
intensify in the future. We believe that our ability to compete successfully
depends upon a number of factors, including:
- our ability to create and market wholesale Internet access solutions that
are attractive to Internet service providers in terms of price, quality
and breadth of service offerings;
- the capacity, reliability and security of our network infrastructure;
- market presence and, with respect to Internet appliances, our success at
developing relationships with innovators and early marketers of such
devices;
- technical expertise and functionality, performance and quality of services
and our ability to anticipate and meet the changing service needs of the
marketplace;
- our ability to establish and maintain successful strategic relationships
with key customers and suppliers and to gain early access to new markets
and new technologies; and
- our ability to support industry standards.
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Our competitors may be divided into two groups: those with whom we presently
compete and those who may, in the future, compete with us. Our present
competitors with respect to the WebTV relationship consist of the other current
providers to WebTV: PSINet, UUNet, Concentric, and a number of other, smaller
Internet service providers. Our present competitors with respect to ZipDial
consist of a variety of companies who are, in some form or another, offering
wholesale Internet access services. This group includes Internet service
providers such as GTE Internetworking, Concentric, PSINet, UUNet, IDT Corp.,
Splitrock Services, Inc. and Epoch Internet, Inc., as well as competitive local
exchange carriers in selected markets, such as XCOM Technologies, Inc. in
Boston, Massachusetts, Intermedia Communications, Inc. in Vienna, Virginia and
ICG Communications, Inc. in Englewood, Colorado. Our potential future
competitors include all of our present competitors as well as telecommunications
companies, such as AT&T Corporation, Williams Communications, Inc., Qwest
Communications International, Inc. and Level 3 Communications, Inc., and other
Internet service providers. Many of our present and potential competitors have
greater market presence, engineering and marketing capabilities, and larger
financial, technological and personnel resources than those available to us.
They may also enjoy certain price advantages with respect to the purchase of
bandwidth from telecommunications carriers if, for example, they are a carrier
themselves, or if they are affiliated with a carrier, or if their usage enables
them to secure volume discounts. As a result, these present and future
competitors may be able to develop and expand their communications and network
infrastructures more quickly, adapt more swiftly to new or emerging technologies
and changes in customer requirements, take advantage of acquisition and other
opportunities more readily, and devote greater resources to the marketing and
sale of their products and services than we can.
In addition to possessing greater financial, technological and personnel
resources, a number of our present and future competitors have the ability to
bundle other services and products with Internet access services which could
place us at a competitive disadvantage. Certain companies are also exploring the
possibility of providing or are currently providing Internet access services
using alternative delivery methods, such as over the cable television
infrastructure, through direct broadcast satellites and over wireless cable. See
"Risk Factors--We face risks from new access technologies such as cable modems."
We also anticipate increasing vertical and horizontal integration in our
industry. As a result of increased competition and this integration in the
industry, we could encounter significant pricing pressure both from our Internet
appliance and our ZipDial customers. This pricing pressure could result in
significant reductions in the average selling price of our services. For
example, telecommunications companies that compete with us may be able to
provide customers with reduced communications costs in connection with their
Internet access services, reducing the overall cost of their solutions and
significantly increasing price pressures on us. We cannot assure you that we
will be able to offset the effects of any such price reductions with an increase
in the number of our customers, higher revenue from enhanced services, cost
reductions or otherwise.
PROPRIETARY RIGHTS
Although we believe our success is more dependent upon our technological
expertise than on our proprietary rights, our success and ability to compete is
dependent in part on our technology and know-how. We rely upon a combination of
copyright, trademark and trade secret laws and contractual restrictions to
protect our proprietary technology and know-how. It is and has been our policy
to require all employees and consultants to execute confidentiality agreements
upon commencement of their relationships with ZipLink. These agreements
generally provide that confidential information developed or made known during
the course of a relationship with us is to be kept confidential and not
disclosed except in specific circumstances. We cannot assure you that such
measures have been, or will be, adequate to prevent misappropriation of our
proprietary technology or know-how. Our competitors may also independently
develop technologies that are substantially equivalent or superior to our
technology.
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We have applied for or received certain trademarks for use in the United
States. None of our technology is patented by us. We use certain "open source"
and "shareware" software in our business, such as Linux and MRTG. We believe
that such software is in the public domain and that its use by ZipLink and
others is not subject to any charge or licensing fee, although we may, on a
voluntary basis, make contributions to developers or, in some cases, incur
charges for support materials or services relating to such software. However, we
have not investigated our use of any open source or shareware software to
determine whether it constitutes infringement of any third party proprietary
rights. Although we do not believe our trademarks or use of technology infringe
the proprietary rights of any third parties, we cannot assure you that third
parties will not assert such claims against us in the future or that such claims
will not be successful. We could incur substantial costs and diversion of
management resources to defend any claims relating to proprietary rights, which
could have a material adverse effect on our business, financial condition and
results of operations. Furthermore, parties making such claims could secure a
judgment awarding substantial damages, as well as injunctive or other equitable
relief that could effectively block our ability to use such trademarks or
technology. Such a judgment would have a material adverse effect on our
business, financial condition and results of operations. If someone asserts a
claim relating to proprietary technology or information against us, we may seek
licenses to such intellectual property. We cannot assure you, however, that we
could obtain licenses on commercially reasonable terms, if at all. The failure
to obtain the necessary licenses or other rights could have a material adverse
effect on our business, financial condition and results of operations.
EMPLOYEES
As of December 31, 1998, we had 49 full-time and five part-time employees.
Our employees are not covered by a collective bargaining agreement. We have
never experienced an employment-related work stoppage and consider our employee
relations to be good.
FACILITIES
ZipLink's headquarters are located in Lowell, Massachusetts, where we
currently lease an approximately 50,000 square foot facility and a 1,000 square
foot data center. The Lowell facility contains our call center, data center,
network operations center, marketing department and most administrative
personnel.
We lease the bulk of our Lowell facility from iGuide, Inc. under a sublease
which expires on May 14, 2010 and sublet 25,000 square feet of presently unused
space to a third party under a sublease which expires on December 31, 1999.
We also lease approximately 3,500 square feet of office and collocation
space in Hartford, Connecticut from Henry Zachs, our Co-Chairman and Chief
Executive Officer, under a lease that expires in December, 2000. See "Certain
Relationships and Related Transactions--Real Property Leases."
In addition, we lease space (typically less than 500 square feet) in various
locations to house the telecommunications equipment for each of our SuperPOPs.
LEGAL PROCEEDINGS
On March 10, 1999, ZipLink commenced an arbitration proceeding against a
former employee seeking a ruling that such employee has forfeited an
approximately 0.8% membership interest in ZipLink, LLC, a Connecticut limited
liability company (which would be convertible into 74,511 shares of common stock
of ZipLink) due to the violation of a restrictive covenant under the Operating
Agreement of ZipLink, LLC. The basis for such claim is a written agreement
between such employee and ZipLink which provided that the employee's membership
interest would be forfeited in the event he violated a restrictive covenant. Our
outstanding capital stock as described in this prospectus excludes this
employee's forfeited membership interest and 74,511 shares which would be
received in exchange therefor upon consummation of the Reorganization. The
arbitration has been stayed pending a hearing. Although we believe we will
prevail in this arbitration proceeding, there can be no assurance that we will
prevail and an adverse outcome may result in dilution to our stockholders.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth certain information concerning ZipLink's
executive officers and directors and those persons who will become directors
upon consummation of this offering:
<TABLE>
<CAPTION>
NAME AGE POSITION
- --------------------------------------- --- ------------------------------------------------------------------
<S> <C> <C>
Henry M. Zachs......................... 64 Chief Executive Officer and Co-Chairman of the Board
Eric M. Zachs.......................... 39 Co-Chairman of the Board
Christopher W. Jenkins................. 40 President, and director
Gary P. Strickland..................... 35 Chief Financial Officer
Ronald C. Lipof........................ 36 Chief Marketing and Strategic Officer
James G. Cocks......................... 60 Director of Networking
Kathleen A. Stillson................... 33 Director of Operations
Russell S. Bernard..................... 41 Nominee for director
Jai P. Bhagat.......................... 52 Nominee for director
Wayne A. Martino....................... 39 Nominee for director
Alan M. Mendelson...................... 51 Nominee for director
</TABLE>
HENRY M. ZACHS has served as Co-Chairman since our inception and is
Co-Chairman of our Board of Directors. Mr. Zachs has served as our Chief
Executive Officer since June, 1997. Mr. Zachs will devote approximately 50% of
his time to our business following the consummation of the offering. Prior to
our inception, Mr. Zachs was for 34 years the Chief Executive Officer of Message
Center USA, Inc. ("MCUSA"), a paging company he founded which had approximately
349,000 subscribers when it was sold to AirTouch Communications, Inc. in
December, 1995. Mr. Zachs also serves on the advisory board of Axiom Venture
Partners, L.P., a venture capital firm, as President of the Greater Hartford
Jewish Federation and as a Trustee of Trinity College in Hartford, Connecticut
and the Williston Northampton School. Mr. Zachs received a B.A. from Trinity
College and an M.B.A. from the Wharton School of the University of Pennsylvania.
ERIC M. ZACHS founded ZipLink in November, 1995, has served as Co-Chairman
since that time and is Co-Chairman of our Board of Directors. Mr. Zachs served
as our President and Chief Executive Officer from our inception until June,
1997. Prior to our inception, Mr. Zachs served as President and as Chief
Operating Officer at MCUSA from 1993 until the sale of MCUSA in December, 1995.
Previously, Mr. Zachs was Executive Vice President of MCUSA from 1989 to 1983.
Mr. Zachs serves as general partner of Bantry Bay Ventures, a venture capital
firm, and as a director of NetActive Internet (Pty.) Ltd., a South African
Internet service provider. Mr. Zachs received a B.A. from Tufts University and a
J.D. from Columbia University School of Law.
CHRISTOPHER W. JENKINS has served as our President since June, 1997 and,
from time to time since our inception, as our Chief Financial Officer, and is a
director. Previously, Mr. Jenkins served as our Chief Financial Officer from our
inception until June, 1997. From June, 1993 until December, 1995, Mr. Jenkins
served as Vice President of Operations at MCUSA. Mr. Jenkins also served as
acting Chief Financial Officer of MCUSA from June, 1995 to December, 1995. From
December, 1987 to June, 1993, Mr. Jenkins was President of Worcester
Communications, a regional paging company. Mr. Jenkins also served as a Vice
President at Arch Communications, and an Experienced Senior at Arthur Andersen,
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LLP. Mr. Jenkins received a B.S. from Indiana University and an M.S. from the
Sloan School of Management at the Massachusetts Institute of Technology.
GARY P. STRICKLAND has been our Chief Financial Officer since April, 1999.
Prior to joining ZipLink, Mr. Strickland was Vice President, Finance &
Administration and Chief Financial Officer of GammaGraphX, Inc., a technology
company in the digital printing industry, from 1993 to 1999. From 1991 to 1993,
Mr. Strickland was Controller of Autographix, Inc. Previously, Mr. Strickland
was Director of Financial Reporting of M/A-Com, Inc. and Audit Manager at Ernst
& Young, LLP. Mr. Strickland received a B.B.A. from the University of Notre Dame
and was licensed as a C.P.A. in 1988.
RONALD C. LIPOF has been our Chief Marketing and Strategic Officer since
October, 1997. From 1993 to 1997, Mr. Lipof was the President of Arch Nationwide
Paging, a division of Arch Communications Group, Inc. Prior to joining Arch, Mr.
Lipof was the founder and managing director of RC Consultants, a
telecommunications consulting and brokerage firm. Previously, Mr. Lipof was an
asset-based and communications lender at Fleet Credit Corporation, a subsidiary
of Fleet Bank, N.A. Mr. Lipof filed for personal bankruptcy in August, 1995. Mr.
Lipof received a B.S. from Boston University.
JAMES G. COCKS has been our Director of Networking since April, 1998. Prior
to joining ZipLink, Mr. Cocks was the Director of Network Engineering at UNIFI
Communications from June, 1996 until February, 1998, and held the position of
Service Line Manager for Internet Dial-up at BBN Planet from April, 1995 to
June, 1996. Previously, Mr. Cocks held various positions at Digital Equipment
Corporation, Wang Laboratories, Incoterm Corporation and Univac (UK and USA).
Mr. Cocks received a B.Sc. from London University, UK.
KATHLEEN A. STILLSON has been our Director of Operations since December,
1996. Ms. Stillson was Manager of Operations at EDS Personal Communications, a
provider of services for the cellular telephone industry, from July, 1995 to
December, 1996 and an Operations Supervisor from June, 1994 until July, 1995.
Ms. Stillson received a B.A. from the University of Michigan.
RUSSELL S. BERNARD will become a director of ZipLink upon consummation of
this offering. Mr. Bernard has been a Principal of Oaktree Capital Management,
LLC and Portfolio Manager of its Real Estate Funds since 1995. Oaktree is an
independent investment management firm. Prior to joining Oaktree, Mr. Bernard
was a Managing Director of Trust Company of the West (TCW), a privately held
investment management firm. Previously, Mr. Bernard was a partner in Win
Properties, Inc., a national real estate investment company. Mr. Bernard is a
Director of Metropolis REIT and Jamboree Office REIT. Mr. Bernard received a
B.S. from Cornell University.
JAI P. BHAGAT will become a director of ZipLink upon consummation of this
offering. Mr. Bhagat has been the Vice Chairman and a Director of SkyTel
Communications, Inc. (formerly Mtel), a leading provider of nationwide wireless
messaging services, since 1995. From 1988 until 1995, Mr. Bhagat was an
Executive Vice President of SkyTel. Mr. Bhagat was Chairman of the Board of
Directors of the Personal Communications Industry Association (PCIA) in 1988,
has served as a member of its Board since 1985, and has served as a member of
its Paging and Messaging Alliance Council since 1997. He also served as Chairman
of the Board of Directors of American Mobile Satellite Corporation from 1988 to
1991 and as a member of its Executive Committee from 1988 to 1994. Mr. Bhagat
received a B.S. from Birla Institute of Technology and Science, Pilani, India
and an M.S. from Howard University.
WAYNE A. MARTINO will become a director of ZipLink upon consummation of this
offering. Mr. Martino has been a principal of Brenner, Saltzman & Wallman, LLP
since 1991. Mr. Martino was a director of Mecklermedia Corporation, a
publicly-held Internet media company from December, 1993 until November, 1998
when it was acquired by Penton Media, Inc. Mr. Martino received a B.A. from
American University and a J.D. from the University of Connecticut Law School.
ALAN M. MENDELSON will become a director of ZipLink upon consummation of
this offering. Mr. Mendelson has been a general partner of Axiom Venture
Partners, L.P. since April, 1994. From
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November, 1969 until April, 1994, Mr. Mendelson served with Aetna Life &
Casualty in Hartford, Connecticut in various capacities, most recently as Vice
President of Investment Strategy and Policy. In 1988, Mr. Mendelson founded
Systemix, Inc., a biotechnology company, where he initially served as Chief
Executive Officer until 1991. Mr. Mendelson is also a director of Cellomics,
Inc., and Purilens, Inc., and sits on the advisory boards of Battery Ventures I,
II and III, Syncom Inc. and Connecticut Innovations, Inc. Mr. Mendelson received
a B.A. from Trinity College and a J.D. from the University of Connecticut.
BOARD COMPOSITION
Directors are elected for a period of one year at ZipLink's annual meeting
of stockholders and each serves until the next annual meeting or until his
successor has been duly elected and qualified. Officers are elected and serve at
the discretion of the Board of Directors. Eric Zachs, the Co-Chairman of the
Board of Directors is the son of Henry Zachs, the Chief Executive Officer and
Co-Chairman of the Board of Directors.
BOARD COMMITTEES
Our Board of Directors will establish an Audit Committee and a Compensation
Committee promptly following the closing of the offering. The Audit Committee
will review ZipLink's annual audit and meet with our independent auditors to
review our internal controls and financial management practices. The
Compensation Committee will determine compensation for certain of ZipLink's
personnel and may administer our 1999 Stock Option Plan.
DIRECTOR COMPENSATION
Directors who are employees of ZipLink do not receive additional
compensation for serving as directors. Each director who is not an employee of
ZipLink will receive $1,000 for attendance at each Board of Directors and
Committee meeting. Pursuant to our 1999 Stock Option Plan, each non-employee
director will automatically receive a non-discretionary grant of options to
purchase 10,000 shares of common stock upon first becoming a director. At each
annual meeting of our stockholders, each director who is re-elected and has
served continuously as a director for at least six months prior to such meeting
will be automatically granted an option to purchase 2,000 shares of common
stock. The exercise price of all options granted to directors will be equal to
the fair market value of the common stock on the date of the grant. Directors
are also reimbursed for their out-of-pocket expenses in attending board and
committee meetings in accordance with ZipLink's expense reimbursement policies.
To date, no director has received any cash payments or been granted stock
options as compensation for service as a director. See "--Employee Benefit
Plans--Stock Option Plan."
EXECUTIVE COMPENSATION
The following table sets forth certain information concerning all cash and
non-cash compensation awarded to, earned by, or paid to, our Chief Executive
Officer and to all other executive officers whose total cash consideration
exceeded $100,000 for services rendered to ZipLink during the fiscal year ended
December 31, 1998 (collectively, with the Chief Executive Officer, the "Named
Executives").
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SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
ANNUAL COMPENSATION --------------------------
------------------------------------ SECURITIES
OTHER ANNUAL UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS COMPENSATION OPTIONS(1) COMPENSATION
- -------------------------------------------- ---------- --------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Henry Zachs................................. $ --(2) $ -- $ -- -- $ --
Co-Chairman and Chief
Executive Officer
Christopher Jenkins......................... $ 135,000 $ 25,000 $ 6,000(3) 52,369 $ 1,685(4)
President and Director
Ronald Lipof................................ $ 97,692 $ 13,500 $ -- 81,216 $ --
Chief Marketing and
Strategic Officer
</TABLE>
- ------------------------
(1) All option grants were initially grants of options to purchase membership
interests in ZipLink, LLC. Information with regard to securities underlying
options gives effect to the Reorganization as if it had occurred prior to
January 1, 1998.
(2) Mr. Zachs served as an employee and a director without compensation during
1998. Upon the closing of this offering, Mr. Zachs' salary will be $100,000
per year.
(3) Represents a car allowance.
(4) Represents matching contributions under a 401(k) plan.
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STOCK OPTION GRANTS
The following table sets forth certain information regarding stock options
granted to the Named Executives during the fiscal year ended December 31, 1998.
The exercise price of all such options was not less than the fair market value
on the date of the grant.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS(1) POTENTIAL REALIZABLE
----------------------------------------------------------------- VALUE AT ASSUMED
PERCENT OF ANNUAL RATES
NUMBER OF TOTAL OF STOCK PRICE
SHARES OPTIONS APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE OPTION TERM (2)
OPTIONS EMPLOYEES PRICE PER EXPIRATION --------------------
NAME GRANTED IN 1998 SHARE DATE 5% 10%
- ---------------------------- ----------- --------------- ----------- ---------------------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Henry Zachs................. -- -- $ -- -- $ -- $ --
Christopher Jenkins......... 52,369 14% 3.08 November 20, 2008 8,065 16,130
Ronald Lipof................ 81,216 22 2.22 February 15, 2008 9,015 18,030
</TABLE>
- ------------------------
(1) All of the options reflected in this table were granted pursuant to our Unit
Option Plan and in connection with the Reorganization will be converted to
options under our 1999 Stock Option Plan. Options granted under such plan
prior to the completion of this offering are subject to vesting as follows:
50% of all then-unvested options vest upon the completion of this offering,
40% of all then-unvested options vest on the date which is two years after
the date of the option grant, and the remaining unvested options vest
ratably on the third, fourth and fifth anniversary of the date of the grant.
See "--Employee Benefit Plans."
(2) These amounts represent assumed rates of appreciation in the price of our
common stock during the terms of the options in accordance with rates
specified in applicable federal securities regulations. Actual gains, if
any, on stock option exercises will depend on the future price of the common
stock and overall stock market conditions. There is no representation that
the rates of appreciation reflected in the table will be achieved.
AGGREGATED YEAR-END OPTION VALUES
The following table sets forth information concerning the number and value
of exerciseable and unexerciseable stock options held by each of the Named
Executives at December 31, 1998. No options were exercised by any of the Named
Executives during the fiscal year ended December 31, 1998.
FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS AT
OPTIONS AT FISCAL YEAR-END FISCAL YEAR-END (1)
---------------------------- --------------------------
NAME EXERCISEABLE UNEXERCISEABLE EXERCISEABLE UNEXERCISEABLE
- ------------------------------------------------------- ------------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Henry Zachs............................................ -- -- $ -- $ --
Christopher Jenkins.................................... -- 52,369 $ -- $ 519,500
Ronald Lipof........................................... -- 81,216 $ -- $ 875,508
</TABLE>
- ------------------------
(1) The dollar values have been calculated by determining the difference between
the fair market value of the securities underlying the options at December
31, 1998 and the exercise prices of the options. Solely for purposes of
determining the value of options at December 31, 1998, we have assumed that
the fair market value of shares of common stock issuable upon exercise of
options was $13.00 per share, the assumed initial public offering price,
since the common stock was not traded in an established market prior to this
offering.
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COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
We intend to establish a Compensation Committee promptly following the
closing of this offering. All matters concerning executive officer compensation
have historically been addressed by Henry Zachs, our Co-Chairman of the Board
and Chief Executive Officer, and Eric Zachs, our Co-Chairman and former Chief
Executive Officer, because we did not have a compensation committee.
EMPLOYMENT AGREEMENTS
Christopher Jenkins, our President, is employed under an Employment
Agreement that expires in December, 2001, unless earlier terminated by either
party. The Agreement provides for a compensation package consisting of a base
salary equal to $150,000 per year and an annual performance bonus in an amount
to be determined by ZipLink. Mr. Jenkins is also eligible to participate in all
of our fringe benefit programs. In the event that we terminate Mr. Jenkins'
employment without cause, Mr. Jenkins will receive severance compensation equal
to his base salary for the one-year period following termination. The Agreement
contains non-competition and non-solicitation covenants which restricts Mr.
Jenkins during and after his employment.
EMPLOYEE BENEFIT PLANS
Since 1995, we have issued options to purchase membership interests in
ZipLink, LLC, a Connecticut limited liability company, under the ZipLink, LLC
Unit Option Plan. In connection with the merger of ZipLink, LLC, a Connecticut
limited liability company, into ZipLink, LLC, a Delaware limited liability
company, in March, 1999, all outstanding options issued to purchase membership
interests under the ZipLink, LLC Unit Option Plan were assumed by ZipLink, LLC,
a Delaware limited liability company and converted into options to purchase
membership interests in that limited liability company. In connection with the
Reorganization, all outstanding options to purchase membership interests in
ZipLink, LLC, a Delaware limited liability company, will be assumed by ZipLink,
Inc. and will be converted into options to purchase shares of common stock under
the 1999 Stock Option Plan described below. Each such option will be converted
into an option to purchase common stock based upon a ratio of approximately .81
shares of common stock for each membership interest. The options outstanding to
purchase membership interests in ZipLink, LLC, a Delaware limited liability
company, on December 31, 1998 will be converted into options to purchase 366,200
shares of common stock, at a weighted average exercise price of $2.68 per share
(assuming the Reorganization occurred as of such date). Upon the completion of
this offering, under most option agreements 50% of the then-unvested options
will become vested.
STOCK OPTION PLAN
In April 1999, we adopted a stock option plan designated the ZipLink, Inc.
1999 Stock Option Plan (the "Stock Option Plan"). The total number of shares of
common stock reserved for issuance under our Stock Option Plan is 1,500,000. The
total number of shares authorized, as well as shares subject to outstanding
options, will be adjusted in the event of changes to our capital structure, such
as stock dividends, stock splits or other recapitalizations. If any shares
subject to an award are forfeited, canceled, exchanged, or surrendered, or if an
award otherwise terminates or expires without a distribution of shares to the
holder of such award, the shares of common stock with respect to such award
will, to the extent of any such forfeiture, cancellation, exchange, surrender,
termination, or expiration, again be available for awards under the Stock Option
Plan.
The Stock Option Plan provides for the granting of awards to such officers,
other employees, consultants, and directors of ZipLink and its affiliates as our
Board may select from time to time. The Stock Option Plan provides that no
person may be granted options to purchase more than 500,000 shares of common
stock during any one calendar year.
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Our Board has the authority to administer the Stock Option Plan and to
exercise all the powers and authorities either specifically granted to it under,
or necessary or advisable in the administration of, the Stock Option Plan,
including, without limitation, the authority to grant awards; to determine the
persons to whom and the time or times at which awards shall be granted; to
determine the type and number of awards to be granted, the number of shares of
common stock to which an award may relate and the terms, conditions,
restrictions and performance goals relating to any award; to determine whether,
to what extent, and under what circumstances an award may be settled, canceled,
forfeited, exchanged, or surrendered; to construe and interpret the Stock Option
Plan and any award; to prescribe, amend and rescind rules and regulations
relating to the Stock Option Plan; to determine the terms and provisions of
agreements evidencing awards; and to make all other determinations deemed
necessary or advisable for the administration of the Stock Option Plan. Our
Board may appoint a committee to administer the Stock Option Plan.
The purchase price per share payable upon the exercise of an option will be
established by the Board, provided, however, that incentive stock options within
the meaning of Section 422 of the Internal Revenue Code (the "Code") may not
have an exercise price less than the fair market value of a share of common
stock on the date of grant. The option exercise price is payable by any one of
the following methods or a combination thereof, to the extent permitted by the
Board: (i) in cash or by personal check, certified check, bank cashier's check
or wire transfer and/or (ii) subject to the approval of the Board, in common
stock owned by the participant.
Options granted under the Stock Option Plan will have a maximum term of ten
years. Options will generally vest in equal installments over a five-year
period, but in no event will an option be exerciseable more than ten years
following the date of its grant, subject to acceleration in the event of certain
transactions involving ZipLink.
Options granted under the Stock Option Plan will generally expire three
months after the termination of the optionee's service, except in the case of
death or disability, in which case the options generally will be exerciseable up
to 12 months following the date of death or termination of service. Options will
generally terminate immediately upon termination for cause. In the event of a
sale of all or substantially all of ZipLink's assets, a merger, consolidation,
or other capital reorganization of ZipLink with or into another corporation, or
a dissolution or liquidation of ZipLink, the vesting of the options will be
accelerated, unless the Board determines otherwise.
The Stock Option Plan provides for certain automatic and non-discretionary
grants of options to members of our Board who are not employees of ZipLink or of
any affiliated company. The exercise price of such options will be the fair
market value of the common stock on the date of grant. The Stock Option Plan
provides that each eligible director will be granted an option to purchase
10,000 shares of common stock upon first becoming a member of the Board, which
options will vest as to 33.3% of such shares on each anniversary of the option
grant date. At each annual meeting of stockholders, upon re-election each
eligible director will automatically be granted an additional option to purchase
2,000 shares if he or she has served continuously as a member of the Board for
at least six months, which options will vest on the first anniversary of such
grant provided such director served continuously as a director for such period.
The options granted to Board members will have ten year terms. Options granted
under these provisions will generally expire seven months after the date the
director ceases to be a director of ZipLink, except in the case of death or
disability. In the event of a sale of all or substantially all of our assets, a
merger, consolidation, or other capital reorganization of ZipLink with or into
another corporation, or a dissolution or liquidation of ZipLink, the vesting of
the options will be accelerated.
Our Board may suspend, revise, terminate, or amend the Stock Option Plan at
any time, provided, however, that: (i) stockholder approval will be sought if
and to the extent required under Rule 16b-3 promulgated under the Exchange Act
or if and to the extent the Board determines that such approval
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<PAGE>
is required for purposes of satisfying Section 162(m) or Section 422 of the Code
and (ii) no such suspension, revision, termination or amendment may, without the
consent of a participant, reduce the participant's rights under any outstanding
option.
The Stock Option Plan will terminate ten years after its adoption, unless
sooner terminated in accordance with its terms.
Concurrently with the consummation of this offering, ZipLink will grant
options to purchase 360,250 shares of common stock under the Stock Option Plan
to certain of its directors and employees at a weighted average exercise price
of $12.78 per share, based upon an assumed initial public offering price of
$13.00 per share.
401(K) PLAN. We intend to adopt a defined contribution plan intended to
qualify under Section 401 of the Code to be designated the ZipLink, Inc. 401(k)
Savings Plan. We intend that such plan will be the successor to a 401(k) Plan
adopted by ZipLink, LLC. All personnel who have completed one year of service
with ZipLink and have attained the age of 21 will be eligible to participate and
enter the plan as of the earlier of the first day of January or the first day of
July coinciding with or next following the date the participant satisfies the
eligibility requirements. Participants will be entitled to make pre-tax
contributions to the plan of up to 15% of their eligible earnings, subject to a
statutorily prescribed annual limit. The 401(k) plan will provide that ZipLink
will make matching contributions equal to 25% of the participant's contribution.
Each participant will be fully vested in his or her contributions and the
investment earnings thereon. Participants will become fully vested in the
matching contributions made by ZipLink after five years of service.
Contributions by the participants or ZipLink, and the income earned on such
contributions, will generally not be taxable to the participants until
withdrawn. Contributions by ZipLink will generally be deductible by ZipLink when
made. Contributions will be held in trust as required by law. Individual
participants will be entitled to direct the trustee to invest their accounts in
authorized investment alternatives.
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
FORMATION TRANSACTIONS. ZipLink was originally organized as a Connecticut
limited liability company (the "Connecticut LLC") in November, 1995 by our
founder Eric Zachs. In connection with the formation of the Connecticut LLC,
Henry Zachs, our Co-Chairman and Chief Executive Officer, and Eric Zachs, our
Co-Chairman, each received a 1% membership interest in the Connecticut LLC in
exchange for a capital contribution of $100, the Zachs Family Limited
Partnership Number One (the "Zachs Partnership"), an affiliate of Henry and Eric
Zachs, received a 90% membership interest in the Connecticut LLC in exchange for
a capital contribution of $9,300, and Christopher Jenkins, our President and a
director, received a 5% membership interest as an incentive to join the company.
The Operating Agreement of the Connecticut LLC contemplated that Henry and Eric
Zachs and the Zachs Partnership (collectively, the "Zachs Founders") would make
additional capital contributions without an increase in their percentage
ownership of the Connecticut LLC, but that, in exchange, they would receive a
preferential return of capital contributions over certain members of the
Connecticut LLC (including Mr. Jenkins) to the extent that such capital
contributions exceeded $2.0 million. During 1996, Henry and Eric Zachs and their
affiliates made net capital contributions to the Connecticut LLC of $5.8
million. During 1997, the Connecticut LLC made net capital distributions to
Henry and Eric Zachs and their affiliates of $2.5 million. No contributions or
distributions were made in 1998.
REORGANIZATION OF LLC. We intend to convert our company's business form
from a limited liability company to a corporation in order to have a business
organization that is more typical of other publicly-traded entities in our
market. In March, 1999, in order to facilitate our ultimate conversion to a
Delaware corporation, the Connecticut LLC was merged with and into a
newly-formed Delaware limited liability company (the "Delaware LLC"), retaining
the name ZipLink, LLC. As a result of such merger, all of the assets and
liabilities of the Connecticut LLC were acquired by the Delaware LLC and all
membership interests and options and warrants to acquire membership interests in
the Connecticut LLC were exchanged for economically equivalent interests in the
Delaware LLC.
Prior to the closing of this offering, the Delaware LLC will merge with and
into a newly-formed Delaware corporation known as ZipLink, Inc., as a result of
which all of the assets and liabilities of the Delaware LLC will be transferred
to ZipLink, Inc. In connection with such merger, each membership unit in the
Delaware LLC (other than membership units held by Nortel Networks) will be
exchanged into approximately .82 shares of common stock of ZipLink, Inc. and
each option and warrant to acquire a membership unit in the Delaware LLC will be
exchanged for an option or warrant, as the case may be, to purchase .81 shares
of our common stock and each membership unit in the Delaware LLC held by Nortel
Networks will be exchanged into .82 shares of common stock. After such exchange,
Henry Zachs, Eric Zachs, and the Zachs Partnership, will own, 75,739, 75,739,
and 6,816,494 shares of our common stock, respectively. Christopher Jenkins will
own 372,550 shares of our common stock and Nortel Networks will own 824,863
shares of our common stock.
NORTEL NETWORKS FUNDING. In December, 1997 Nortel Networks, a holder of
more than 5% of our common stock, acquired $2.5 million of equity and $7.5
million of debt convertible into additional equity. Interest on such convertible
debt has been accruing at a floating rate equal to LIBOR plus .80% and has been
paid currently. Concurrently with the closing of this offering, $2.5 million of
the convertible debt will be converted into 450,000 shares of common stock at a
conversion price of $5.56 per share, and $5.0 million of the convertible debt
will be converted into 384,615 shares of common stock at the initial public
offering price, based upon an assumed initial public offering price of $13.00
per share.
PURCHASES FROM NORTEL NETWORKS. We purchased equipment and services from
Nortel Networks, in the aggregate amounts of $6.1 million in 1997 and $1.0
million in 1998. Commencing 100 days after the installation of our fifteenth
SuperPOP using Nortel Networks equipment, we will obtain hardware maintenance
and software subscription services from Nortel Networks at the rate of $423,000
per
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annum and intend to continue to obtain such services and purchase additional
equipment from Nortel Networks on terms no less favorable than those which could
be obtained from an independent third party.
ZACHS FOUNDERS ADVANCES. During the period from 1996 through December 1997,
ZipLink acted as a collection and dispersal agent for other companies controlled
by the Zachs Founders which did not then have full-time accounting and cash
management personnel. Some of the proceeds collected by ZipLink were retained by
ZipLink and recorded as non-interest bearing advances. The principal amount of
such advances at the end of 1997 was $479,600 and at the end of 1998 was
$476,100. Such advances were repaid in March, 1999. ZipLink ceased to act as a
collection or dispersal agent for affiliates of the Zachs Founders in January,
1999 and does not intend to reinstitute such arrangement in the future.
HENRY AND ERIC ZACHS GUARANTEES. During the period 1996 through 1998,
BancBoston Connecticut, N.A. made loans to ZipLink under a $20.0 million line of
credit which was personally guaranteed by Henry and Eric Zachs. Henry and Eric
Zachs received an aggregate of $175,000 in compensation for providing such
guarantees through 1997. The principal amount outstanding under the BancBoston
line of credit was $3.5 million at the end of 1996, $15.0 million at the end of
1997, and $15.0 million upon repayment at March, 1998. Such outstanding balance
bore interest at a floating rate equal to the LIBOR plus 0.50%. The BancBoston
loans were repaid in March, 1998 with the proceeds of a $15.0 million line of
credit to ZipLink from Fleet Bank, which amount was increased to $20.0 million
in October, 1998. The Fleet Bank line of credit is secured by a pledge of all of
ZipLink's assets and supported by a personal guarantee from Henry Zachs. Henry
Zachs did not receive any compensation for providing such personal guarantee of
the Fleet Bank Line of Credit. The Fleet Bank loan bears interest at a floating
rate equal to LIBOR plus 0.30% (which was equal to 5.26% per annum as of March
31, 1999). ZipLink believes that the loans from both BancBoston and Fleet Bank
were at interest rates, in amounts and on other terms which were more favorable
to ZipLink than those which we could have obtained without the guarantee of
Henry Zachs or Eric Zachs. As of March 31, 1999, the outstanding balance under
the Fleet Bank line of credit was $19.0 million and we anticipate that such
balance will increase prior to closing of this offering. We intend to use
approximately $20.0 million of the net proceeds of this offering to repay the
entire outstanding indebtedness to Fleet Bank. Henry Zachs has agreed to
guarantee up to $10.0 million of additional indebtedness to ZipLink from
institutional lenders acceptable to Mr. Zachs. We do not intend to incur any
such indebtedness which is guaranteed by Mr. Zachs prior to the consummation of
this offering and Mr. Zachs' agreement to provide such guaranty will terminate
upon the closing of this offering. After the closing of this offering, we do not
believe that any further loans to ZipLink will be supported by a guarantee from
either Henry or Eric Zachs. See "Risk Factors--Our Co-Chairmen and our Chief
Executive Officer will benefit from this offering."
HENRY ZACHS' CONVERSION OPTION. In connection with the issuance of the
convertible debt to Nortel Networks, Henry Zachs received an option to convert
any loans to ZipLink which were guaranteed by Mr. Zachs into additional equity
of ZipLink if Nortel Networks elected, or was required to, convert the $5.0
million convertible debenture into equity of ZipLink. Mr. Zachs is further
obligated to convert up to $7.5 million of such indebtedness into additional
equity of ZipLink if ZipLink requires Nortel to convert any of the $5.0 million
debenture into equity of ZipLink. Mr. Zachs' obligation to convert indebtedness
and acquire additional equity will not be triggered by the conversion of the
convertible debt in connection with this offering. Conditioned upon the closing
of this offering, Mr. Zachs' option to acquire additional membership interests
will terminate.
REAL PROPERTY LEASES. We have leased certain office and co-location space
in Hartford, Connecticut from Henry Zachs. Our rental expenses to Mr. Zachs were
$64,000 during 1996, $45,000 during 1997 and $39,000 during 1998. In January,
1999 we terminated our then-existing lease with Mr. Zachs
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and entered into a two year lease with him for approximately 3,500 square feet
of office and co-location space in Hartford, Connecticut. Rent payable under
such lease is $39,000 per annum, including taxes, insurance, and certain
utilities.
SALARY ACCRUALS. ZipLink accrued, but did not pay, salary to Henry Zachs of
$90,000 per year for each of 1996 and 1997, a salary to Christopher Jenkins of
$50,000 for 1997 and bonus of $25,000 to Christopher Jenkins for 1998. In March,
1999 Mr. Zachs' agreed to forgive ZipLink's obligation to pay his accrued
salary. Mr. Jenkins' accrued salary and bonus were paid in March, 1999.
TRADEMARK LICENSE. Under an oral royalty-free license, ZipLink has used
certain trademarks owned by Henry Zachs or subject to pending applications made
by him. In March, 1999, Mr. Zachs granted ZipLink a royalty-free, perpetual
non-exclusive license to use all such trademarks and trademark applications for
Internet related applications. Mr. Zachs will not grant any further licenses to
any of such trademarks or trademark applications without the consent of ZipLink.
Under certain circumstances, ZipLink has an option to purchase all of such
trademarks and trademark applications for nominal consideration. Mr. Zachs
received no payment or other consideration for granting such license.
OTHER ZACHS FAMILY TRANSACTIONS. ZipLink provided administrative and
accounting services to other companies controlled by the Zachs Founders,
including ZipCall Long Distance, Inc., Message Center Management, Inc. and
Brainbug, LLC during 1996, 1997 and 1998. Such services were provided without
charge in 1996 and 1997, and ZipLink accrued $24,000 in 1998 for reimbursement
for such services. We engaged in the resale of long distance telephone services
under a reseller agreement dated February 15, 1996 with ZipCall Long Distance.
The total amounts paid to ZipCall Long Distance in 1996, 1997 and 1998 were
$88,000, $233,000 and $83,000 respectively. ZipLink terminated the provision of
administrative and accounting services and the resale of long distance telephone
services in 1997 and will not provide such services in the future.
STOCK OPTIONS. We have granted certain stock options to Christopher Jenkins
and Ronald Lipof, as well as certain other employees. See "Management--Stock
Option Grants." Concurrently with the closing of this offering, ZipLink will
grant 100,000 and 10,000 options to purchase shares of common stock to
Christopher Jenkins and Ronald Lipof, respectively.
REGISTRATION RIGHTS.
FOUNDERS' REGISTRATION RIGHTS. Henry Zachs, Eric M. Zachs, the Zachs
Partnership, and Christopher Jenkins (the "Founding Stockholders"), are
entitled to registration rights with respect to shares of common stock held
by them under the terms of a registration rights agreement dated as of
December 23, 1997. In the event that we elect to register any of our common
stock under the Securities Act (other than in connection with this
offering), either for our own account or for the account of any other
stockholder, we are required to include in such registration the shares of
common stock held by such Founding Stockholders as request registration,
subject to conditions and limitations, among them being the right of an
underwriter of an offering to limit the number of shares of common stock
they may include in the registration. The Founding Stockholders also have
the right on two occasions to require us to register their shares of common
stock. This right may be exercised at any time after the date which is six
months from the closing of this offering by the holders of not less than 20%
of the aggregate shares of common stock held by the Founding Stockholders
(or a lesser percentage if the anticipated aggregate net offering price of
the common stock to be registered would exceed $5.0 million, net of standard
underwriting discounts). The registration rights granted to the Founding
Stockholders will terminate as to any of them who can sell an unlimited
number of shares under Rule 144. ZipLink is required to bear the expenses of
the registration of its common stock for the Founding Stockholders, except
any underwriting discounts and commissions.
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<PAGE>
NORTEL NETWORKS REGISTRATION RIGHTS. Pursuant to an agreement dated as
of December 23, 1997, Nortel Networks is entitled to registration rights
with respect to shares of common stock owned by Nortel Networks. In the
event that we elect to register any of our common stock under the Securities
Act (other than in connection with this offering), either for our own
account or for the account of any other stockholder, we are required to
include in such registration shares of common stock held by Nortel Networks
to the extent requested by Nortel Networks to do so, subject to conditions
and limitations, among them being the right of an underwriter of an offering
to limit the number of shares of common stock they may include in the
registration. Nortel Networks also has the right on two occasions to require
us to register their shares of common stock. This right may be exercised at
any time after the date which is six months from the closing of this
offering by the holders of not less than 20% of the aggregate shares of
common stock covered by Nortel Networks' registration rights (or a lesser
percentage if the anticipated aggregate net offering price of the common
stock to be registered would exceed $5.0 million, net of standard
underwriting discounts). Nortel Networks' registration rights terminate on
the earlier of (i) three years from the closing of this offering, or (ii) at
such time as Nortel Networks has been entitled to sell, during any
three-month period, all of its common stock subject to registration rights.
ZipLink is required to bear the expenses of the registration of its common
stock for Nortel Networks, except any underwriting discounts and
commissions.
OTHER TRANSACTIONS. For the past several years, Wayne A. Martino, a
director nominee of ZipLink, has performed legal services on our behalf in his
capacity as a principal of the New Haven, Connecticut law firm of Brenner,
Saltzman & Wallman, LLP, as have other principals and employees of such firm.
The fees paid by ZipLink to such law firm during 1996, 1997 and 1998 were
$55,000, $106,000 and $26,000, respectively. However, at no time were the fees
paid by ZipLink to such law firm in excess of 5% of the law firm's gross
revenues. In addition, Mr. Martino has received options to purchase membership
interests in ZipLink, LLC which will be converted into options to purchase 4,061
shares of common stock at an exercise price of $3.08 per share.
We believe that all of the related party transactions described above (other
than the provision of administrative and accounting services) were on terms no
less favorable than terms we could have obtained from independent third parties.
All future transactions with our officers, directors and principal stockholders
and their affiliates will be on terms no less favorable than terms we could
obtain from independent third parties and will be approved by a majority of the
Board of Directors, including a majority of the independent and disinterested
outside directors.
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PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of our common stock as of December 31, 1998 and as adjusted to reflect
the sale of the shares of common stock offered hereby and the conversion of
convertible debt concurrently with the closing of this offering by (i) each
person who we know owns beneficially more than 5% of our outstanding common
stock, (ii) each of our directors and director nominees, (iii) each of the Named
Executives, and (iv) all of our executives officers, directors and director
nominees as a group.
Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or investment
power with respect to securities. Shares of common stock issuable pursuant to
options, to the extent those options are currently exercisable or convertible
within 60 days as of the date hereof, are treated as outstanding for computing
the percentage securities held by a person but are not treated as outstanding
for computing the percentage of any other person. Unless otherwise noted, each
person or group identified possesses sole voting and investment power with
respect to shares, subject to applicable community property laws.
The information in the table below gives effect to the Reorganization as if
it had occurred on December 31, 1998 and includes 834,615 shares issuable upon
the conversion of convertible debt, based upon an assumed initial public
offering price of $13.00 per share, which conversion will occur concurrently
with the closing of this offering. There were, as of December 31, 1998,
outstanding options to purchase 366,200 shares of common stock, exerciseable at
a weighted average price of $2.68 per share, and an outstanding warrant to
purchase 58,324 shares of common stock, with an exercise price of $1.71 per
share.
<TABLE>
<CAPTION>
PERCENTAGE OF COMMON STOCK
NUMBER OF BENEFICIALLY OWNED
SHARES -----------------------------
BENEFICIALLY BEFORE AFTER
BENEFICIAL OWNER OWNED OFFERING OFFERING
- ---------------------------------------------------------------------- ----------- -------------- -------------
<S> <C> <C> <C>
Zachs Family Limited Partnership Number One(1)........................ 6,816,494 75.7% 54.5%
Henry M. Zachs(1)(2).................................................. 6,892,233 76.6 55.1
Eric M. Zachs(1)(2)................................................... 6,892,233 76.6 55.1
Northern Telecom Limited(3)........................................... 1,659,478 18.4 13.3
Christopher W. Jenkins(4)............................................. 398,735 4.4 3.2
Ronald C. Lipof....................................................... -- *
Gary P. Strickland.................................................... -- * --
Russell S. Bernard.................................................... -- * --
Jai P. Baghat......................................................... -- * --
Wayne A. Martino(5)................................................... 4,061 * --
Alan M. Mendelson..................................................... -- * --
----------- ------- -------------
All executive officers, directors and director nominees as a group (11
persons)............................................................ 7,451,984 82.8% 59.1
</TABLE>
- ------------------------
* less than 1 percent
(1) The address for the Zachs Family Limited Partnership Number One, Henry M.
Zachs and Eric M. Zachs is 40 Woodland Street, Hartford, Connecticut 06105.
(2) Includes 6,816,494 shares owned by Zachs Family Limited Partnership Number
One. Henry M. and Eric M. Zachs are each general partners of the Zachs
Family Limited Partnership Number One.
(3) Consists of 824,863 shares owned by Bay Networks, Inc., a subsidiary of
Northern Telecom Limited, and 834,615 shares issuable upon the conversion of
convertible debt held by Bay Networks, Inc. The address for Northern Telecom
Limited is 8200 Dixie Road, Suite 100, Brampton, Ontario, Canada L6T 5P6.
(4) Represents 26,185 shares issuable upon exercise of options exerciseable upon
the closing of this offering.
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DESCRIPTION OF CAPITAL STOCK
Our authorized capital stock consists of 50,000,000 shares of common stock,
par value $.001 per share, and 1,000,000 shares of undesignated preferred stock,
par value $.001 per share. Immediately after this offering, after giving effect
to the Reorganization and the conversion of all convertible debt into shares of
common stock, there will be outstanding 12,500,000 shares of common stock, and
no shares of preferred stock.
The following description of our capital stock and selected provisions of
our Amended and Restated Certificate of Incorporation and By-Laws is a summary
and is qualified in its entirety by reference to our Amended and Restated
Certificate of Incorporation and By-Laws, copies of which are filed as exhibits
to the registration statement of which this prospectus is a part.
COMMON STOCK
The holders of common stock are entitled to one vote for each share held of
record on all matters submitted to a vote of the stockholders. Subject to
preferences that may be applicable to any outstanding preferred stock, holders
of common stock are entitled to receive ratably such dividends as may be
declared by the Board of Directors out of funds legally available therefor. In
the event of a liquidation, dissolution or winding up of ZipLink holders of
common stock are 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 common stock. Each outstanding share of
common stock is, and all shares of common stock to be outstanding upon
completion of this offering will be upon payment therefor, duly and validly
issued, fully paid and non-assessable. As of the date of this prospectus, there
were five holders of record of our common stock.
PREFERRED STOCK
ZipLink's Amended and Restated Certificate of Incorporation provides that we
may issue up to 1,000,000 shares of preferred stock in one or more series and as
may be determined by our Board of Directors, who may establish from time to time
the number of shares to be included in each series, and who may fix the
designations, powers, preferences and rights of the shares of each such series
and any qualifications, limitations or restrictions thereon, including the
dividend rights, voting rights, redemption and sinking fund provisions,
liquidation preferences, conversion rights and preemptive rights, and the number
of shares constituting any series. The Board of Directors may authorize, without
stockholder approval, the issuance of preferred stock with voting and conversion
rights that could adversely affect the voting power and other rights of holders
of common stock and, under certain circumstances, make it more difficult or
costly for a third party to acquire, or discourage a third party from attempting
to acquire, control of ZipLink. See "Risk Factors--We are subject to
anti-takeover provisions which could negatively impact our stockholders." In
certain circumstances, this could have the effect of decreasing the market price
of the common stock. We do not have any present plans to issue any shares of
preferred stock.
WARRANTS
As of the date of this prospectus, we had outstanding one warrant to
purchase 58,324 shares of common stock at an exercise price of $1.71. This
warrant expires on September 2, 2002.
OPTIONS
Immediately after the closing of the offering, after giving effect to the
options being granted to certain directors and employees concurrently with the
closing of this offering, there will be outstanding
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options to purchase 724,956 shares of common stock at a weighted average
exercise price of $7.70 per share, based upon an assumed initial public offering
price of $13.00 per share.
REGISTRATION RIGHTS
Henry Zachs, Eric Zachs, the Zachs Family Limited Partnership Number One,
Christopher Jenkins and Nortel Networks have been granted registration rights
with respect to shares of common stock held by them. See "Certain Relationships
and Related Transactions--Registrations Rights."
DELAWARE ANTI-TAKEOVER LAW AND CERTAIN CHARTER AND BY-LAW PROVISIONS
Delaware law and provisions of ZipLink's charter documents could make the
acquisition of ZipLink and the removal of incumbent officers and directors more
difficult. These provisions are expected to discourage coercive takeover
practices and inadequate takeover bids and to encourage persons seeking to
acquire control of ZipLink to negotiate with us first. We believe that the
benefits of increased protection of the potential ability to negotiate with the
proponent of an unfriendly or unsolicited proposal to acquire or restructure
ZipLink outweigh the disadvantages of discouraging such proposals because, among
other things, negotiation of such proposals could result in an improvement of
their terms.
ZipLink is subject to the provisions of Section 203 of the Delaware General
Corporation Law. In general, the statute prohibits a publicly-held Delaware
corporation from engaging in a "business combination" with an "interested
stockholder" for a period of three years after the date that the person became
an interested stockholder unless (with certain exceptions): the business
combination or the transaction in which the person became an interested
stockholder is approved in a prescribed manner. The term "business combination"
is defined generally to include a merger, asset or stock sale, or other
transaction resulting in a financial benefit to the stockholder. Generally, an
"interested stockholder" is a person who, together with affiliates and
associates, owns (or within three years prior did own) 15% or more of the
corporation's voting stock. These provisions may have the effect of delaying,
deferring or preventing a change in control of ZipLink.
ZipLink's Amended and Restated Certificate of Incorporation provides for
authorized but unissued shares of preferred and common stock. Such shares are
available for issuance without stockholder approval and may be used by us for a
variety of corporate purposes, including future public offerings to raise
additional capital, corporate acquisitions and employee benefit plans. This
could make it more difficult or discourage any attempt to take control of us by
means of a proxy contests, tender offer, merger or otherwise.
Our Amended and Restated Certificate of Incorporation further provides that
stockholder action can be taken only at an annual or special meeting of
stockholders and may not be taken by written consent. The Amended and Restated
Certificate of Incorporation and By-Laws provide that special meetings of
stockholders can be called only by the Board. Moreover, the business permitted
to be conducted at any special meeting of stockholders is limited to the
business brought before the meeting by the Board. The By-Laws also set forth an
advance notice procedure with regard to the nomination, other than by or at the
direction of the Board, of candidates for election as directors and with regard
to business to be brought before a meeting of stockholders. The Amended and
Restated Certificate of Incorporation further provides that the provisions
respecting the powers, number and election of directors, stockholder action by
written consent, special meetings of stockholders and the By-Laws may only be
amended by a supermajority vote of the stockholders.
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
To the extent permitted by the Delaware General Corporation Law, ZipLink has
included in its Amended and Restated Certificate of Incorporation a provision to
eliminate the personal liability of its
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directors for monetary damages for breach or alleged breach of their fiduciary
duties as directors, subject to certain exceptions. In addition, our Amended and
Restated Certificate of Incorporation requires us to indemnify our officers and
directors under certain circumstances, including those circumstances in which
indemnification would otherwise be discretionary, and is required to advance
expenses to its officers and directors as incurred in connection with
proceedings against them for which they may be indemnified. Prior to the
consummation of this offering, we also intend to enter into indemnity agreements
with our directors and executive officers. We are seeking to obtain directors'
and officers' liability insurance.
We believe that our charter provisions and indemnity agreements are
necessary to attract and retain qualified persons as directors and officers.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the common stock is American Stock
Transfer and Trust Company.
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<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
If our stockholders sell substantial amounts of common stock, including
shares issued upon the exercise of outstanding options or warrants, in the
public market following this offering, the market price of our common stock
could fall. These sales might adversely affect the prevailing market price and
our ability to raise equity capital in the future.
Upon completion of this offering, we will have outstanding an aggregate of
12,500,000 shares of our common stock, assuming no exercise of the underwriters'
over-allotment option and no exercise of outstanding options or warrants. Of
these shares, all of the shares sold in this offering will be freely tradable
without restriction or further registration under the Securities Act, unless
such shares are purchased by "affiliates" as that term is defined in Rule 144
under the Securities Act. The remaining 9,000,000 shares of common stock held by
existing stockholders are "restricted securities" as that term is defined in
Rule 144 under the Securities Act. Restricted securities may be sold in the
public market only if registered or if they qualify for an exemption from
registration under Rule 144 or 701 promulgated under the Securities Act, which
rules are summarized below.
As a result of the contractual restrictions described below and the
provisions of Rule 144 and 701, the restricted securities will become eligible
for sale in the public market not earlier than 180 days after the date of this
prospectus.
LOCK-UP AGREEMENTS
All of our officers, directors and stockholders will sign lock-up agreements
under which they will agree not to transfer or dispose of, directly or
indirectly, any shares of our common stock or any securities convertible into or
exercisable or exchangeable for shares of common stock, for a period of 180 days
after the date of this prospectus. Transfers or dispositions can be made sooner
with the prior written consent of Jefferies & Company, Inc.
RULE 144
In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this prospectus, a person who has beneficially owned shares of our
common stock for at least one year would be entitled to sell within any
three-month period a number of shares that does not exceed the greater of:
- 1% of the number of shares of common stock then outstanding, which will
equal approximately 125,000 shares immediately after this offering; or
- the average weekly trading volume of the common stock on the Nasdaq
National Market during the four calendar weeks preceding the filing of a
notice on Form 144 with respect to such sale.
Sales under Rule 144 are also subject to certain manner of sale provisions
and notice requirements and to the availability of current public information
about us.
RULE 144(K)
Under Rule 144(k), a person who is not deemed to have been one of our
affiliates at any time during the 90 days preceding a sale, and who has
beneficially owned the shares proposed to be sold for at least two years,
including the holding period of any prior owner other than an affiliate, is
entitled to sell such shares without complying with the manner of sale, public
information, volume limitation or notice provisions of Rule 144. Therefore,
unless otherwise restricted, "144(k) shares" may be sold immediately upon the
completion of this offering.
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RULE 701
In general, under Rule 701 of the Securities Act as currently in effect, any
of our employees, consultants or advisors who purchases shares of our common
stock from us in connection with a compensatory stock or option plan or other
written agreement is eligible to resell such shares 90 days after the effective
date of this offering in reliance on Rule 144, but without compliance with
certain restrictions, including the holding period, contained in Rule 144.
REGISTRATION RIGHTS
Upon completion of this offering, the holders of 9,000,000 shares of our
common stock, or their transferees, will be entitled to certain rights with
respect to the registration of such shares under the Securities Act. See
"Description of Capital Stock--Registration Rights." After such a registration
and the expiration of any applicable contractual restrictions, these shares
becoming freely tradable without restriction under the Securities Act. These
sales of securities could have a material adverse effect on the market price of
our common stock.
STOCK OPTIONS
We intend to file a registration statement on Form S-8 under the Securities
Act no earlier than 180 days after this offering covering 1,500,000 shares of
common stock reserved for issuance under our Stock Option Plan. As of December
31, 1998, options to purchase 366,200 shares of common stock were issued and
outstanding. Upon the expiration of the lock-up agreements described above, at
least 193,928 shares of common stock will be subject to vested options (based on
options outstanding as of December 31, 1998). Shares of our common stock
registered under the S-8 registration statement will, subject to vesting
provisions and Rule 144 volume limitations applicable to our affiliates, be
available for sale immediately in the open market.
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UNDERWRITING
Subject to the terms and conditions of the underwriting agreement dated the
date hereof, the underwriters named below, through their representatives,
Jefferies & Company, Inc. and FAC/Equities (a division of First Albany
Corporation), have severally agreed to purchase from ZipLink the number of
shares of common stock set forth opposite their respective names in the table
below at the public offering price less the underwriting discount set forth on
the cover page of this prospectus.
<TABLE>
<CAPTION>
NUMBER
UNDERWRITERS OF SHARES
- ---------------------------------------------------------------------------------------------------- ------------
<S> <C>
Jefferies & Company, Inc............................................................................
FAC/Equities........................................................................................
------------
Total........................................................................................... 3,500,000
------------
------------
</TABLE>
The underwriting agreement provides that the obligations of the underwriters
to purchase the shares of common stock offered hereby are subject to certain
conditions. The underwriters are obligated to purchase all of the shares of
common stock offered hereby (other than those covered by the over-allotment
option described below), if any of such shares are purchased.
The underwriters propose to offer the shares of common stock to the public
initially at the public offering price set forth on the cover page of this
prospectus and to certain dealers at such price less a concession not in excess
of $ per share. The underwriters may allow, and such dealers may re-allow, a
discount not in excess of $ per share to certain other dealers. After the
initial public offering, the representatives of the underwriters may change the
offering price, the concession to selected dealers and the reallowance to other
dealers.
ZipLink has granted to the underwriters an option, exercisable not later
than 30 days after the date of this prospectus, to purchase, from time to time,
in whole or in part, up to 525,000 additional shares of common stock at the
public offering price less the underwriting discount set forth on the cover page
of this prospectus. The underwriters may exercise such option only to cover
over-allotments, if any, made in connection with the sale of the common stock
offered hereby. To the extent that the underwriters exercise such option, each
of the underwriters will become obligated, subject to certain conditions, to
purchase additional shares of common stock proportionate to such underwriter's
initial commitment as indicated in the table above.
The following table shows the underwriting fees to be paid to the
underwriters by ZipLink in connection with this offering. The amounts are shown
assuming both no exercise and full exercise of the underwriters' option to
purchase additional shares of common stock.
<TABLE>
<CAPTION>
FULL
NO EXERCISE EXERCISE
----------- ------------
<S> <C> <C>
Per share.......................................................... $ $
Total.............................................................. $ $
</TABLE>
Other expenses of this offering payable by ZipLink are estimated to be
$815,000.
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ZipLink has agreed to indemnify the underwriters against certain
liabilities, including civil liabilities under the Securities Act, or will
contribute to payments the underwriters may be required to make in respect
thereof.
Each of ZipLink, its executive officers and directors and stockholders has
agreed, subject to certain exceptions, not to offer, pledge, sell, contract to
sell, sell any option or contract to purchase, purchase any option or contract
to sell, grant any option, right or warrant to purchase or otherwise transfer or
dispose of, directly or indirectly, any shares of common stock or any securities
convertible into or exercisable or exchangeable for common stock for a period of
180 days after the date of this prospectus without the prior written consent of
Jefferies & Company, Inc. Such consent may be given at any time without public
notice.
The representatives of the underwriters have advised ZipLink that the
underwriters do not intend to confirm sales to any account over which they
exercise discretionary authority.
The representatives of the underwriters have advised ZipLink that, pursuant
to Regulation M under the Securities Act, certain persons participating in this
offering may engage in transactions that stabilize, maintain or otherwise affect
the market price of the common stock. Specifically, the underwriters may
over-allot shares of the common stock in connection with this offering, thereby
creating a short position in the common stock for their own account.
Additionally, to cover such over-allotments or to stabilize the market price of
the common stock, the underwriters may bid for, and purchase, shares of the
common stock in the open market. Finally, the representatives, on behalf of the
underwriters, also may reclaim selling concessions allowed to an underwriter or
dealer if the underwriting syndicate repurchases shares distributed by that
underwriter or dealer. Any of these activities may maintain the market price of
the common stock at a level above that which might otherwise prevail in the open
market. The underwriters are not required to engage in these activities and, if
commenced, may end any of these activities at any time. These transactions may
be effected on the Nasdaq National Market, the over-the-counter market or
otherwise.
Prior to this offering, there has been no public market for ZipLink's common
stock. Consequently, the initial public offering price for ZipLink's common
stock will be determined by negotiation among ZipLink and the representatives of
the underwriters. The factors to be considered in determining the initial public
offering price will include the history of and the prospects for the industry in
which ZipLink competes, an assessment of ZipLink's management, the past and
present operations of ZipLink, the historical results of operations of ZipLink,
the recent market prices of securities of companies that ZipLink and the
representatives of the underwriters believe to be comparable to ZipLink and the
general condition of the securities markets at the time of this offering.
LEGAL MATTERS
The validity of the common stock offered hereby will be passed upon for
ZipLink by Brenner, Saltzman & Wallman LLP, New Haven, Connecticut. As of the
date of this prospectus, attorneys at Brenner, Saltzman & Wallman, LLP,
including Wayne A. Martino, a director nominee of ZipLink and a principal of
such firm, own options to purchase an aggregate of 9,341 shares of our common
stock. Certain legal matters in connection with this offering will be passed
upon for the underwriters by Fulbright & Jaworski L.L.P., New York, New York.
EXPERTS
The financial statements and schedule included in this prospectus and
elsewhere in the registration statement have been audited by Arthur Andersen
LLP, independent public accountants, as indicated in their reports with respect
thereto, and are included herein in reliance upon the authority of said firm as
experts in giving said reports.
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WHERE YOU CAN FIND ADDITIONAL INFORMATION
We have filed with the Securities and Exchange Commission ("SEC") a
registration statement, of which this prospectus constitutes a part, on Form S-1
under the Securities Act with respect to the common stock offered hereby. This
prospectus does not contain all of the information set forth in the registration
statement and the exhibits and schedules thereto. For further information with
respect to ZipLink and the common stock offered hereby, reference is made to the
registration statement and to the exhibits and schedules thereto. Statements
made in this prospectus concerning the contents of any document referred to
herein are not necessarily complete. With respect to each such document filed as
an exhibit to the registration statement, reference is made to the exhibit for a
more complete description of the matter involved. The registration statement and
the exhibits and schedules thereto may be inspected without charge at the public
reference facilities maintained by the SEC at 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the regional offices of the SEC located at Seven
World Trade Center, 13(th) Floor, New York, New York 10048, and Citicorp Center,
500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of all or
any part of the registration statement may be obtained from the SEC's offices
upon payment of certain fees prescribed by the SEC. The SEC maintains a World
Wide Web site that contains reports, proxy and information statements and other
information regarding registrants that file electronically with the SEC. The
address of the site is http://www.sec.gov.
We intend to furnish our stockholders with annual reports containing
financial statements audited by our independent auditors and quarterly reports
containing unaudited financial information.
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INDEX TO FINANCIAL STATEMENTS
ZIPLINK, LLC
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Report of Independent Public Accountants................................................................... F-2
Balance Sheets............................................................................................. F-3
Statements of Operations................................................................................... F-4
Statements of Changes In Members' Equity (Deficit)......................................................... F-5
Statements of Cash Flows................................................................................... F-6
Notes to Financial Statements.............................................................................. F-7
</TABLE>
ZIPLINK, INC.
<TABLE>
<S> <C>
Report of Independent Public Accountants............................................. F-17
Balance Sheet........................................................................ F-18
Statement of Cash Flows.............................................................. F-19
Notes to Financial Statements........................................................ F-20
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To ZipLink, LLC:
We have audited the accompanying balance sheets of ZipLink, LLC (a Delaware
limited liability company, formerly a Connecticut limited liability company) as
of December 31, 1997 and 1998, and the related statements of operations, changes
in members' deficit and cash flows for the three years ended December 31, 1998.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of ZipLink, LLC as of December
31, 1997 and 1998, and the results of its operations and its cash flows for the
three years ended December 31, 1998, in conformity with generally accepted
accounting principles.
Arthur Andersen LLP
Boston, Massachusetts
March 10, 1999
F-2
<PAGE>
ZIPLINK, LLC
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
1998
DECEMBER 31, PRO FORMA
----------------------------- (NOTE 3)
1997 1998 (UNAUDITED)
------------- -------------- --------------
<S> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents....................................... $ 1,081,505 $ 512,055 $ 512,055
Accounts receivable, less allowance for doubtful accounts of
approximately $153,000 and $68,000 in 1997 and 1998,
respectively.................................................. 474,780 678,683 678,683
Prepaid expenses and other current assets....................... 56,224 70,964 70,964
------------- -------------- --------------
Total current assets........................................ 1,612,509 1,261,702 1,261,702
------------- -------------- --------------
Property and Equipment, at cost:
Network equipment............................................... 11,719,967 12,659,088 12,659,088
Computer equipment and software................................. 289,973 356,789 356,789
Leasehold improvements.......................................... 595,706 756,901 756,901
Furniture, fixtures and equipment............................... 105,948 107,764 107,764
Vehicles........................................................ 20,416 20,416 20,416
------------- -------------- --------------
12,732,010 13,900,958 13,900,958
Less--Accumulated depreciation and amortization................. 1,460,805 4,097,553 4,097,553
------------- -------------- --------------
11,271,205 9,803,405 9,803,405
Other Assets...................................................... 100,772 108,772 108,772
------------- -------------- --------------
Total assets................................................ $ 12,984,486 $ 11,173,879 $ 11,173,879
------------- -------------- --------------
------------- -------------- --------------
LIABILITIES AND MEMBERS' DEFICIT
Current Liabilities:
Current portion of convertible debentures....................... $ -- $ 500,000 $ --
Current portion of capital lease obligation..................... 410,029 464,531 464,531
Accounts payable................................................ 4,840,141 881,199 881,199
Accrued expenses................................................ 971,051 1,882,424 1,882,424
Deferred revenue................................................ 228,921 119,672 119,672
Amounts due to affiliates, net.................................. 479,561 476,140 476,140
------------- -------------- --------------
Total current liabilities................................... 6,929,703 4,323,966 3,823,966
Note Payable To a Bank............................................ 15,000,000 17,600,000 17,600,000
Capital Lease Obligation, less current portion.................... 803,112 338,580 338,580
Convertible Debentures............................................ -- 7,000,000 --
------------- -------------- --------------
Total liabilities........................................... 22,732,815 29,262,546 21,762,546
------------- -------------- --------------
Commitments and Contingencies (Notes 13, 15 and 17)
Stockholders' Equity (Deficit):
Common Stock, $.001 par value, 50,000,000 shares authorized,
9,000,000 shares issued and outstanding at December 31, 1998 on
a pro forma basis............................................... -- -- 9,000
------------- -------------- --------------
Additional paid in capital........................................ -- -- 13,280,678
------------- -------------- --------------
Accumulated deficit............................................... -- -- (23,878,345)
------------- -------------- --------------
Members' deficit/Stockholders' deficit............................ (9,748,329) (18,088,667) (10,588,667)
------------- -------------- --------------
Total liabilities and members' deficit...................... $ 12,984,486 $ 11,173,879 $ 11,173,879
------------- -------------- --------------
------------- -------------- --------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
F-3
<PAGE>
ZIPLINK, LLC
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
----------------------------------
1996 1997 1998
---------- ---------- ----------
<S> <C> <C> <C>
Revenues............................................... $ 755,655 $5,235,830 $7,088,200
---------- ---------- ----------
Costs and Expenses:
Cost of revenues..................................... 1,782,430 3,186,777 6,271,169
Selling, general and administrative.................. 7,372,740 6,507,490 5,174,370
Depreciation and amortization........................ 383,965 1,084,393 2,636,748
---------- ---------- ----------
Total costs and expenses......................... 9,539,135 10,778,660 14,082,287
---------- ---------- ----------
Loss from operations............................. (8,783,480) (5,542,830) (6,994,087)
---------- ---------- ----------
Other Expenses:
Interest expense..................................... (30,492) (1,098,119) (1,344,285)
Interest income...................................... 11,217 426 37,029
Other (expense) income............................... 630 (68,902) (144,514)
---------- ---------- ----------
(18,645) (1,166,595) (1,451,770)
---------- ---------- ----------
Net loss......................................... $(8,802,125) $(6,709,425) $(8,445,857)
---------- ---------- ----------
---------- ---------- ----------
Pro forma net loss per share (Note 2(m)):
Pro forma net loss per share--basic and diluted...... $ (1.20) $ (.91) $ (1.03)
---------- ---------- ----------
---------- ---------- ----------
Pro forma weighted average shares--basic and
diluted............................................ 7,340,522 7,408,298 8,165,137
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
F-4
<PAGE>
ZIPLINK, LLC
STATEMENTS OF CHANGES IN MEMBERS' EQUITY (DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
<TABLE>
<CAPTION>
ZACHS
(INDIVIDUALS NORTEL
AND LIMITED NETWORKS,
PARTNERSHIP) INC. TOTAL
-------------- ------------ --------------
<S> <C> <C> <C>
Members' Equity, December 31, 1995 (unaudited)..................... $ 989 $ -- $ 989
Net loss......................................................... (8,802,125) -- (8,802,125)
Members' contributions, net of distributions..................... 5,776,994 -- 5,776,994
-------------- ------------ --------------
Members' Equity (Deficit), December 31, 1996....................... (3,024,142) -- (3,024,142)
Net loss......................................................... (6,694,719) (14,706) (6,709,425)
Members' contributions, net of distributions..................... (2,514,762) 2,500,000 (14,762)
-------------- ------------ --------------
Members' Equity (Deficit), December 31, 1997....................... (12,233,623) 2,485,294 (9,748,329)
Net loss......................................................... (7,601,271) (844,586) (8,445,857)
Compensation associated with the issuance of unit options and
warrants......................................................... 94,967 10,552 105,519
-------------- ------------ --------------
Members' Equity (Deficit), December 31, 1998....................... $ (19,739,927) $ 1,651,260 $ (18,088,667)
-------------- ------------ --------------
-------------- ------------ --------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
F-5
<PAGE>
ZIPLINK, LLC
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1996 1997 1998
---------- ---------- ----------
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net loss............................................. $(8,802,125) $(6,709,425) $(8,445,857)
Adjustments to reconcile net loss to net cash used in
operating activities--
Depreciation and amortization...................... 383,965 1,084,393 2,636,748
Loss on disposal of property and equipment......... -- 53,053 143,844
Compensation expense associated with the granting
of unit options and warrants..................... -- -- 105,519
Changes in operating assets and liabilities--
Accounts receivable, net......................... (159,940) (314,840) (203,903)
Prepaid expenses and other current assets........ (81,603) 57,221 (14,740)
Accounts payable................................. 1,292,629 3,476,809 (3,958,942)
Accrued expenses................................. 1,444,417 (473,366) 911,373
Deferred revenue................................. 177,136 51,785 (109,250)
Due to affiliates................................ (206,101) (578,276) (3,421)
---------- ---------- ----------
Net cash used in operating activities.......... (5,951,622) (3,352,646) (8,938,629)
---------- ---------- ----------
Cash Flows from Investing Activities:
Purchases of property and equipment.................. (4,218,716) (6,969,558) (1,312,792)
Proceeds from sale of property and equipment......... -- 20,765 --
Increase in other assets............................. (80,772) (20,000) (8,000)
---------- ---------- ----------
Net cash used in investing activities.......... (4,299,488) (6,968,793) (1,320,792)
---------- ---------- ----------
Cash Flows from Financing Activities:
Proceeds from convertible debentures................. -- -- 7,500,000
Net proceeds from borrowings under notes payable..... 2,700,970 11,450,000 2,600,000
Payments of principal made on capital lease
obligations........................................ -- (333,388) (410,029)
Members' contributions............................... 5,776,994 2,500,000 --
Members' distributions............................... -- (2,514,762) --
---------- ---------- ----------
Net cash provided by financing activities...... 8,477,964 11,101,850 9,689,971
---------- ---------- ----------
Net Increase (Decrease) in Cash and Cash Equivalents... (1,773,146) 780,411 (569,450)
Cash and Cash Equivalents, beginning of period......... 2,074,240 301,094 1,081,505
---------- ---------- ----------
Cash and Cash Equivalents, end of period............... $ 301,094 $1,081,505 $ 512,055
---------- ---------- ----------
---------- ---------- ----------
Supplemental Disclosure of Cash Flow Information:
Cash paid for interest............................... $ 30,402 $1,034,506 $1,242,138
---------- ---------- ----------
---------- ---------- ----------
Supplemental Disclosure of Non-Cash Financing and
Investing Activities:
Acquisition of equipment pursuant to capital lease
obligation......................................... $ -- $1,546,529 $ --
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
F-6
<PAGE>
ZIPLINK, LLC
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
(1) ORGANIZATION
ZipLink, LLC (the Company) was organized as a Connecticut limited liability
company (LLC) on November 21, 1995. The Company had no significant operations
prior to January 1, 1996. On March 9, 1999, the Company was merged into a
Delaware LLC and will be subsequently merged into a Delaware corporation upon
the closing of the Company's proposed initial public offering (IPO). The Company
intends to file for an IPO. See Note 17.
The Company has operations in Lowell, Massachusetts and Hartford,
Connecticut and is a national provider offering wholesale Internet access
services in the United States to two distinct target markets: Internet
appliances and local, regional and national Internet service providers.
The Company is subject to a number of risks common to companies in similar
stages of development, including dependence on key personnel, customers and
suppliers, competition from substitute services and larger companies, the need
for adequate financing to fund future operations, the continued successful
development and marketing of its services and the attainment of profitable
operations. See "Risk Factors" included elsewhere in this prospectus for
additional discussion.
The Company has incurred a cumulative net loss from operations of $24
million since inception and has funded these losses principally through the
issuance of debt and equity securities. The Company has a members' deficit of
$18 million as of December 31, 1998 and is dependent on raising additional
capital in the short term to satisfy ongoing capital needs. As discussed in Note
7, the Capital Member has agreed to personally guarantee an additional $10
million of borrowings. These additional proceeds should be sufficient to
continue operations through 1999.
(2) SIGNIFICANT ACCOUNTING POLICIES
The accompanying financial statements reflect the application of certain
significant accounting policies as described in this note and elsewhere in the
accompanying notes to financial statements.
(A) USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
(B) CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with an original
maturity of three months or less to be cash equivalents. Cash and cash
equivalents are stated at cost, which approximates market, and include
overnight investments in U.S. Treasury securities.
(C) REVENUE RECOGNITION
The Company recognizes revenue over the period in which the services are
performed. Deferred revenue relates to advanced service billings and are
$228,921 and $119,672 at December 31, 1997 and 1998, respectively.
F-7
<PAGE>
ZIPLINK, LLC
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
(D) DEPRECIATION AND AMORTIZATION
Depreciation and amortization is provided using the straight-line method
over the following estimated useful lives of the assets:
<TABLE>
<S> <C>
Network equipment..................................... 3-5 years
Computer equipment and software....................... 5 years
Leasehold improvements................................ Life of the lease
Furniture, fixtures and equipment..................... 5 years
Vehicles.............................................. 5 years
</TABLE>
Expenditures for major renewals and betterments are capitalized.
Expenditures for maintenance and repairs that do not improve or extend the
life of the respective assets are expensed as incurred.
(E) TRANSACTIONS WITH AFFILIATES
The Company collects and disburses funds on behalf of other entities
owned by some of the Company's members. The amount of non-interest bearing
advances due these entities is $479,561 and $476,140 at December 31, 1997
and 1998, respectively, and is therefore reflected as a liability on the
accompanying balance sheets. Any unpaid balances will be paid in 1999.
(F) OTHER ASSETS
Other assets consist primarily of security deposits on the Company's
leased facilities.
(G) LONG-LIVED ASSETS
The Company follows Statement of Financial Accounting Standards (SFAS)
No. 121, ACCOUNTING FOR LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE
DISPOSED OF. SFAS No. 121 requires that long-lived assets be reviewed for
impairment by comparing the fair value of the assets with their carrying
amount. Any write-downs are to be treated as permanent reductions in the
carrying amount of the assets. Accordingly, the Company evaluates the
possible impairment of long-lived assets at each reporting period based on
the undiscounted projected cash flows of the related asset. Should there be
impairment, the cash flow estimates that will be used will contain
management's best estimates, using appropriate and customary assumptions and
projections at the time. To date, the Company does not believe that an
impairment exists.
(H) CONCENTRATIONS OF CREDIT RISK
Financial instruments that subject the Company to significant
concentrations of credit risk consist primarily of cash and cash equivalents
and accounts receivable. The Company's cash equivalents are invested in
financial instruments with high credit ratings. Concentration of credit risk
with respect to accounts receivable is limited to customers to whom the
Company makes significant sales. To control credit risk, the Company
performs periodic credit evaluations of its customers and has recorded
allowances for estimated losses. One customer accounted for approximately
80% and 85% of accounts receivable at December 31, 1997 and 1998,
respectively.
F-8
<PAGE>
ZIPLINK, LLC
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
(I) FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of the Company's cash and cash equivalents,
accounts receivable, accounts payable, amounts due to affiliates, notes
payable, and convertible debentures approximates their fair value.
(J) STOCK-BASED COMPENSATION
The Company adopted SFAS No. 123 ACCOUNTING FOR STOCK-BASED COMPENSATION
in 1997. SFAS No. 123 defines a fair-value-based method of accounting for
employee stock options and other stock-based compensation. The compensation
expense arising from this method of accounting can be reflected in the
financial statements or alternatively, pro forma net income and earnings per
share effect of the fair-value-based accounting can be disclosed in the
financial footnotes. The Company has adopted the disclosure-only
alternative.
(K) SIGNIFICANT VENDORS
The Company relies on other companies to supply certain key components
of their network infrastructure. These components include critical
telecommunications services and networking equipment, which, are available
only from sole-or limited-sources. Six companies provide the backbone data
communications facilities and capacity for the Company. The Company is also
dependent upon local exchange carriers to provide telecommunications
services to the Company and its customers. One company is the sole supplier
of the servers primarily used in the Company's network infrastructure.
(L) POSTRETIREMENT BENEFITS
The Company has no obligations for postretirement benefits.
(M) PRO FORMA NET LOSS PER SHARE
The Company applies SFAS No. 128, EARNINGS PER SHARE. Pro forma net loss
per share assumes the Company's conversion into a Delaware corporation (see
Note 17) and the conversion of the members equity to capital stock. Under
SFAS No. 128, basic net loss per common share is computed using the weighted
average number of shares of common stock outstanding during the period.
Diluted net loss per common share is the same as basic net loss per common
share since the effects of the Company's potential common stock equivalents
are antidilutive. In accordance with Staff Accounting Bulletin No. 98, the
Company has determined that there were no nominal issuances of common stock
or potential common stock in the period prior to the Company's planned IPO.
Antidilutive securities, which consist of stock options and convertible
debentures that are not included in diluted net loss per common share were
44,707, 7,448 and 1,200,807 for 1996, 1997 and 1998, respectively.
(N) NEW ACCOUNTING STANDARDS
In March 1998, the American Institute of Certified Public Accountants
(AICPA) issued Statement of Position (SOP) 98-1, ACCOUNTING FOR THE COSTS OF
COMPUTER SOFTWARE DEVELOPED OR OBTAINED FOR INTERNAL USE. SOP 98-1 requires
computer software costs associated with internal use software to be charged
to operations as incurred until certain capitalization criteria are met. SOP
98-1 is
F-9
<PAGE>
ZIPLINK, LLC
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
effective beginning January 1, 1999. The Company does not expect adoption of
this statement to have a material impact on its financial position or
results of operations.
(3) PRO FORMA PRESENTATION (UNAUDITED)
The pro forma balance sheet as of December 31, 1998 gives effect to the
Company's merger with ZipLink, Inc. (see Note 17) and the conversion of the
convertible debentures into common stock upon the closing of the IPO at an
assumed offering price of $13.00 per share.
(4) SIGNIFICANT CUSTOMER
In October 1996, the Company entered into a wholesale network services
agreement with WebTV Networks, Inc. (WebTV). Under the terms of this agreement,
the Company provides dial-up connectivity between WebTV subscribers and WebTV's
own internet access facility over the ZipLink network. The agreement expires in
December 2000. During the years ended December 31, 1996, 1997 and 1998, WebTV
represented approximately 4%, 48% and 68%, respectively, of the Company's
revenues.
(5) SEGMENT DISCLOSURE
In July 1997, the FASB issued SFAS No. 131, DISCLOSURES ABOUT SEGMENTS OF AN
ENTERPRISE AND RELATED INFORMATION. SFAS No. 131 requires certain financial and
supplementary information to be disclosed on an annual and interim basis for
each reportable segment of an enterprise. The Company has determined that it
only operates in one segment.
(6) INCOME TAXES
As a result of the Company's organization as an LLC, taxation does not occur
at the Company level, but is shared individually by the members. Accordingly, no
provision for federal or state income taxes is required in the accompanying
statements of operations for the years ended December 31, 1996, 1997 and 1998.
Upon the consummation of the reorganization discussed in Note 17, the Company
will be subject to federal and state income tax based upon the taxable income
generated after the date of the reorganization and will begin accounting for
income taxes in accordance with SFAS No. 109 ACCOUNTING FOR INCOME TAXES.
(7) NOTE PAYABLE
On March 31, 1998, the Company entered into a revolving credit agreement, as
amended on October 15, 1998 (the Financing Agreement) that provides for
borrowings up to $20.0 million and matures on April 1, 2001. Borrowings under
the Financing Agreement are for working capital purposes and are secured by a
pledge of certain collateral owned by a Capital Member of the Company and
substantially all the assets of the Company. Borrowings are limited to the
lesser of 60% of the current market value of certain collateral, subject to
adjustment, or $20 million and bear interest at LIBOR (5.066 % at December 31,
1998) plus .3%.
In March 1999, the Capital Member agreed to personally guarantee an
additional $10 million of borrowings from an institutional lender (Additional
Guarantee). The Additional Guarantee will expire, upon the earlier of the
closing of the IPO, as long as the net proceeds from the offering exceed $30
million or, January 1, 2000. Although the Company has not arranged additional
financing with an
F-10
<PAGE>
ZIPLINK, LLC
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
institutional lender as of the date of this report, the Capital Member has the
ability to make this guarantee.
On December 24, 1997, the Company amended its existing revolving credit
agreement to allow for borrowing up to $20 million. Borrowings were secured by
certain collateral of a Capital Member and bore interest at LIBOR plus 0.5%. At
December 31, 1997, the Company had borrowings of $15 million outstanding under
this agreement. The Company refinanced these borrowings in 1998 with the above
described Financing Agreement.
(8) CONVERTIBLE DEBENTURES
In December 1997, the Company entered into two unsecured convertible
debenture agreements (the Debenture Agreements) with a Senior Member (Nortel
Networks) for $2.5 million and $5 million, Debenture One and Debenture Two,
respectively. In 1998, the Company received proceeds of $7.5 million under these
Debenture Agreements. The Debenture Agreements both bear interest at the six
month LIBOR rate (5.066 % at December 31, 1998) plus 0.8%. The Debenture
Agreements are payable in 60 equal monthly installments of principal of
$125,000, commencing on September 15, 1999.
Both Debenture Agreements contain automatic and voluntary conversion rights.
Debenture One and Debenture Two each convert into a number of units, as defined
in the Debenture Agreements. The Debenture Agreements cannot be converted prior
to June 30, 1999 unless certain events occur causing an automatic conversion, as
defined in the Debenture Agreements, including but not limited to an initial
public offering. The Senior Member and the Company each have voluntary
conversion rights after June 30, 1999 into units at the defined conversion
prices. In the event the Company voluntarily elects to convert Debenture Two
into units of the Company, the Company must cause a Capital Member to repay a
certain amount of the Company's borrowings and convert that amount into
additional units of the Company. The amount which must be repaid and converted
into units of the Company is equal to the lesser of (i) $7.5 million or (ii)
150% of the outstanding principal balance of Debenture Two. The indebtedness
under both Debenture Agreements is subordinate to the Financing Agreement.
The future principal payments in accordance with the Debenture Agreements
are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, AMOUNT
- -------------------------------------------------------------------------------- ------------
<S> <C>
1999............................................................................ $ 500,000
2000............................................................................ 1,500,000
2001............................................................................ 1,500,000
2002............................................................................ 1,500,000
2003............................................................................ 1,500,000
Thereafter...................................................................... 1,000,000
------------
$ 7,500,000
------------
------------
</TABLE>
(9) MEMBERS' EQUITY
At December 31, 1998, the Company's membership was comprised of the three
Capital Members--85.4% (all Zachs family members and/or partnerships), one
Senior Member--10% (Nortel Networks) and one Service Member--4.6% (the Company's
president).
F-11
<PAGE>
ZIPLINK, LLC
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
The Capital Members contributed an aggregate of $9,500 for their initial
interests, Nortel Networks contributed $2.5 million for its interest and the
Service Member received his interest for no consideration. The estimated fair
market value of the Service Member's interest was not material at the date of
grant.
Income of the Company shall be allocated first, to members with senior units
based on their percentage interest; second to Capital Members until the
cumulative amount of income equals the Cumulative Preferred Distributions made
to the Capital Members; third, until the cumulative amount of income allocated
equals the cumulative amount of loss previously allocated to the Members in the
same proportions in which such losses were allocated; and fourth, the balance,
if any, to all Members in proportion to their percentage interests.
Losses of the Company shall be allocated first, to members with senior units
based on their percentage interest, second, until the cumulative amount of
losses equals the cumulative amount of income previously allocated to the
Members in the same proportions in which such income was allocated and the
balance, if any, to all Capital Members in proportion to their percentage
interests. No allocation shall be made to the Service Member.
On January 1, 1998, the Company effected a ten-for-one unit split. The
accompanying financial statements have been retroactively restated to reflect
this unit split.
In December 1997, the Company entered into a securities purchase agreement
(the Securities Agreement) with Nortel Networks for the purchase of a 10%
interest in the Company for an aggregate investment of $2.5 million. In
connection with the Securities Agreement, the Company also entered into two
unsecured convertible debentures (see Note 8).
(10) UNIT OPTION PLAN
In September, 1996, the Company adopted the ZipLink, LLC Unit Option Plan
(the Unit Plan). Pursuant to the Unit Plan, unit options may be granted to
certain employees of the Company at no less than fair market value on the date
of grant. Options granted under the Unit Plan expire 10 years subsequent to the
date of grant. In addition, option vesting is determined by the Company, however
options generally vest over a five year period, except that 50% of the unvested
portion of any option outstanding prior to the completion of an initial public
offering shall become vested upon completion of such offering.
F-12
<PAGE>
ZIPLINK, LLC
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
Unit option activity from the Unit Plan's inception is as follows:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
OPTIONS EXERCISE PRICE
---------- ---------------
<S> <C> <C>
Outstanding at December 31, 1995................................... -- --
Granted.......................................................... 55,044 $ 0.22
---------- -----
Outstanding at December 31, 1996................................... 55,044 0.22
Granted.......................................................... 82,566 1.46
Cancelled........................................................ (128,440) 0.93
---------- -----
Outstanding at December 31, 1997................................... 9,170 1.46
Granted.......................................................... 452,369 2.18
Cancelled........................................................ (10,675) 1.61
---------- -----
Outstanding at December 31, 1998................................... 450,864 $ 2.20
---------- -----
---------- -----
</TABLE>
There were no options exercisable at December 31, 1996, 1997 and 1998. The
weighted average grant date value of options granted during 1996, 1997 and 1998
are $0.16, $1.08, and $1.72, respectively. As of December 31, 1998 the weighted
average remaining contractual life of options outstanding under the Unit Plan is
9.8 years.
In 1998, the Company granted 24,500 unit options to non-employees. The
Company has valued these options at $43,945 using the Black-Scholes method as
prescribed in SFAS No. 123. The Company is amortizing the expense associated
with these options over the vesting period of the options. During 1998, the
Company recognized $8,789 of compensation expense associated with these options.
The Company has computed the pro forma disclosures required under SFAS 123
for options granted using the Black-Scholes pricing model prescribed by SFAS
123. The weighted average assumptions used are as follows:
<TABLE>
<CAPTION>
1996 1997 1998
--------- --------- ---------
<S> <C> <C> <C>
Risk free interest rate........................................ 5.94% 5.71% 4.62%
Expected dividend yield........................................ -- -- --
Expected lives................................................. 5 years 5 years 5 years
Expected volatility............................................ 65% 65% 65%
</TABLE>
Had compensation cost for the Company's unit option plan been determined
based on the fair value at the grant dates of awards under the plan consistent
with the method of SFAS 123, net loss would have been as follows:
<TABLE>
<CAPTION>
1996 1997 1998
------------- ------------- -------------
<S> <C> <C> <C>
Net loss--as reported............................ $ (8,802,125) $ (6,709,425) $ (8,445,857)
Net loss--pro forma.............................. (8,803,910) (6,711,403) (8,473,744)
Pro forma net loss per share--basic and
diluted........................................ $(1.20) $(0.91) $(1.04)
</TABLE>
The Black-Scholes option-pricing model was developed for use in estimating
fair value of traded options which have no vesting restrictions and are fully
transferable. In addition, option-pricing models
F-13
<PAGE>
ZIPLINK, LLC
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
require the input of highly subjective assumptions included expected stock price
volatility. Because the Company's employee unit options have characteristics
significantly different from those of traded options, and because changes in the
subjective imputed assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its unit options.
(11) BENEFIT PLAN
Substantially all full-time employees of the Company who have met certain
age and service requirements, are eligible to participate in a 401(k) savings
plan sponsored by the Company. The Company is required to make a matching
contribution equal to 25% of the amount that the participant has elected to
contribute. The Company match is limited to employee contributions up to 5% of
the employee's annual compensation. The Company's expense for matching
contributions was approximately $16,000, $8,000 and $17,000 for the years ended
December 31, 1996, 1997 and 1998, respectively.
(12) ACCRUED EXPENSES
Accrued expenses at December 31, 1997 and 1998 consist of the following:
<TABLE>
<CAPTION>
1997 1998
---------- ------------
<S> <C> <C>
Accrued payroll and related......................................... $ 608,512 $ 407,994
Accrued installation costs.......................................... -- 566,000
Accrued professional fees........................................... 177,210 228,546
Accrued other....................................................... 185,329 679,884
---------- ------------
$ 971,051 $ 1,882,424
---------- ------------
---------- ------------
</TABLE>
(13) RELATED PARTY TRANSACTIONS
In December 1997, the Company entered into a purchase and license agreement
with Nortel. Pursuant to this agreement, the Company purchased certain network
equipment from Nortel for approximately $6.1 million in 1997 (of which $2
million was paid during December 1997 and $4.1 million is included in accounts
payable in the accompanying balance sheet at December 31, 1997 which was
subsequently paid in 1998). In 1998, the Company purchased approximately $1
million of equipment and services from Nortel Networks. In addition, Nortel has
agreed to provide certain services to the Company, as defined (see Note 15).
The Company rents office space from a related party. Rent expense related to
this office space was approximately $64,000, $45,000 and $39,000 for the years
ended December 31, 1996, 1997 and 1998, respectively. In January 1999, the
Company entered into a two year lease with the related party with annual
payments of $39,000.
The Company was engaged in the resale of long distance telephone services
pursuant to the terms of a Reseller Agreement dated February 15, 1996 with
ZipCall Long Distance, Inc., a company controlled by two of the Capital Members
of the Company. The Company paid ZipCall Long Distance its long distance carrier
cost plus 5%. The accompanying statements of operations reflects $88,000,
$233,000 and $83,000 of expense paid to ZipCall Long Distance for the years
ended December 31,
F-14
<PAGE>
ZIPLINK, LLC
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
1996, 1997 and 1998, respectively. During October 1997, the Company sold its
long distance telephone services to a third party.
At December 31, 1997 and 1998, the Company had $230,000 and $255,000 of
accrued compensation payable to the Capital and Service Members which is
included in the accompanying balance sheet. In addition, there is $280,000,
$192,000 and $25,000 of compensation expense which is included in the statement
of operations for the years ended December 31, 1996, 1997 and 1998,
respectively. In March 1999, the Capital member agreed to forgive $180,000 of
the accrued compensation.
(14) ACQUISITION
In July 1996, the Company acquired certain property and equipment from
iGuide, Inc. (iGuide) for approximately $2.7 million. The Company also assumed
certain contracts related to the operation of the equipment from iGuide. The
purchase price was allocated to property and equipment based on the estimated
fair value of the assets acquired. No allocation was made to the contracts as
they were deemed to have only a nominal value.
(15) COMMITMENTS AND CONTINGENCIES
(A) OPERATING LEASES
The Company has various leasing arrangements for real estate and
equipment. In most cases, the Company expects that in the normal course of
business, leases will be renewed or replaced by other leases. In addition,
the Company subleases office space to a third party. As of December 31,
1998, future minimum lease payments required under operating leases that
have initial or remaining noncancellable lease terms in excess of one year,
net of any subleases, are as follows:
<TABLE>
<S> <C>
1999............................................................ $ 121,000
2000............................................................ 359,000
2001............................................................ 323,000
2002............................................................ 323,000
2003............................................................ 323,000
Thereafter...................................................... 2,684,000
---------
Total....................................................... $4,133,000
---------
---------
</TABLE>
Net rental expense relating to these operating leases was approximately
$325,000, $425,000 and $198,000 for the years ending December 31, 1996, 1997
and 1998, respectively.
(B) CAPITAL LEASES
In June 1997, the Company entered into a capital lease for network
equipment. The lease is payable in an initial installment of $233,491, made
in June 1997 and 36 monthly installments of $44,052, including interest at
10.78%, commencing in September 1997. The outstanding capital lease
obligation as of December 31, 1998 is $803,111.
F-15
<PAGE>
ZIPLINK, LLC
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
Repayments required under this capital lease agreement are as follows:
<TABLE>
<CAPTION>
YEAR AMOUNT
- ---------------------------------------------------------------------------------- ----------
<S> <C>
1999.............................................................................. $ 528,624
2000.............................................................................. 352,416
----------
881,040
Less--Amount representing interest................................................ (77,929)
----------
Present value of future minimum payments.......................................... 803,111
Less--Current portion............................................................. 464,531
----------
$ 338,580
----------
----------
</TABLE>
(C) PURCHASE AND LICENSE AGREEMENT
Pursuant to the Company's purchase and license agreement with Nortel,
Nortel is committed to provide and the Company may purchase certain services
for annual fees aggregating $666,000. The fees are payable at various times
during 1998 and 1999 depending on the respective service. During 1998, the
Company purchased approximately $566,000 of services pursuant to this
arrangement. Upon the installation of certain equipment, as defined, the
Company will be required to enter into hardware and software maintenance
agreement with Nortel for $423,000 per annum.
(D) EMPLOYMENT AGREEMENTS
The Company has an employment agreement with an employee, which provides
for an aggregate base salary of approximately $150,000 per annum through
2001.
(16) ADVISORY AGREEMENT
In May 1997, as amended in January 1998, the Company entered into an
agreement with a financial advisor (the Advisor) for the purpose of obtaining
further sources of equity related financing. Under the terms of the agreement
the Advisor obtained a cash fee in connection with the Nortel transaction and is
entitled to 1% of the gross proceeds received by the Company from the future
conversion of the Nortel debentures. However, the aggregate amount of the
additional payment shall not exceed $25,000. In addition, on March 23, 1998, for
further consideration of advisory services performed on behalf of the Company,
the Company issued a warrant to the Advisor to purchase up to .7142% of the
Company's units, or part there of, for an exercise price of $100,000. The
Company valued this warrant using the Black-Scholes model and has recorded an
expense of approximately $97,000. This warrant terminates on September 2, 2002.
(17) REORGANIZATION, UNAUDITED
The Company has formed a wholly-owned subsidiary, ZipLink, Inc., a Delaware
corporation that has no operations. In March 1999, ZipLink, Inc., plans to file
for an initial public offering of its common stock. Prior to the closing of the
IPO, the Company will merge with and into ZipLink, Inc. as a result of which all
of the assets and liabilities of the Company will be transferred to ZipLink,
Inc. In connection with such merger, each membership unit in the Company (other
than membership units held by Nortel Networks) will be exchanged into
approximately .82 shares of common stock of ZipLink, Inc. and each option and
warrant to acquire a membership unit in the Company will be exchanged for
F-16
<PAGE>
ZIPLINK, LLC
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
an option or warrant, as the case may be, to purchase approximately .81 common
shares of ZipLink, Inc. and each membership unit in the Company held by Nortel
Networks will be exchanged into approximately .82 shares of common stock of
ZipLink, Inc. As these entities are under common control, the merger transaction
will be accounted for as a reorganization of entities under common control
similar to a pooling of interest.
ZipLink, Inc. has authorized capital stock consisting of 50,000,000 shares
of common stock, par value $.001 per share and 1,000,000 shares of undesignated
preferred stock, par value $.001 per share.
Prior to the completion of the Reorganization, ZipLink, Inc. will adopt the
1999 Stock Option Plan (the 1999 Plan) which provides for the granting of common
stock options to officers, employees, consultants and directors of the Company.
The 1999 Plan will be administered by the Company's board of directors. The
total number of shares of common stock reserved for the 1999 Plan is 1,500,000.
Options granted under the 1999 Plan will generally vest in equal installments
over a five-year period and are subject to acceleration in certain events, as
defined. The options will expire ten years from the date of grant, and the plan
terminates ten years from the date of adoption. The options issued under the
Company's Unit Plan will be converted to the 1999 Plan upon the completion of
the Reorganization. In addition, upon the completion of the Reorganization, the
convertible debentures will be converted to common stock.
F-17
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To ZipLink, Inc.
We have audited the accompanying balance sheet of ZipLink, Inc. as of April
14, 1999 and the related statement of cash flows for the period from inception
(March 9, 1999) to April 14, 1999. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of ZipLink, Inc. at April 14,
1999, and its cash flows for the period from inception (March 9, 1999) to April
14, 1999, in conformity with generally accepted accounting principles.
Arthur Andersen, LLP
Boston, Massachusetts
April 14, 1999
F-18
<PAGE>
ZIPLINK, INC.
BALANCE SHEET
AS OF APRIL 14, 1999
<TABLE>
<S> <C>
Current Assets:
Cash.............................................................................. $ 1,000
---------
Total assets.................................................................. $ 1,000
---------
---------
Stockholder's Equity:
Common stock, $.001 par value,
Authorized 50,000,000 shares
Issued and outstanding--1,000 shares............................................ $ 1
Additional paid-in capital........................................................ 999
---------
Total stockholder's equity.................................................... $ 1,000
---------
---------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-19
<PAGE>
ZIPLINK, INC.
STATEMENT OF CASH FLOWS
FOR THE PERIOD FROM INCEPTION (MARCH 9, 1999) TO APRIL 14, 1999
<TABLE>
<S> <C>
Cash Flows from Operating Activities:
Net income........................................................................ $ --
Cash Flows from Financing Activities:
Issuance of common stock.......................................................... 1,000
---------
Net cash provided by financing activities....................................... 1,000
---------
Net Increase in Cash ............................................................... 1,000
Cash, Beginning of Period........................................................... --
---------
Cash, End of Period................................................................. $ 1,000
---------
---------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-20
<PAGE>
ZIPLINK, INC.
NOTES TO FINANCIAL STATEMENTS
APRIL 14, 1999
1. OPERATIONS AND REORGANIZATION
ZipLink, Inc. (the Company), a Delaware corporation, was formed as a
wholly-owned subsidiary of ZipLink, LLC on March 9, 1999. The Company currently
has no operations. The Company has the authorization to issue 50,000,000 shares
of common stock, par value $.001 per share and 1,000,000 shares of undesignated
preferred stock, par value $.001 per share. On April 14, 1999, the Company
issued 1,000 shares, par value $.001 per share, for $1,000.
On March 11, 1999, the Company filed for an initial public offering of its
common stock. Prior to the closing of such initial public offering, ZipLink, LLC
will be merged with, and into, the Company (the Reorganization). As a result of
the Reorganization, all of the assets and liabilities of ZipLink, LLC will be
transferred to the Company. In connection with such merger, each membership unit
in ZipLink, LLC (other than membership units held by Nortel Networks) will be
exchanged into approximately .82 shares of common stock of the Company and each
option and warrant to acquire a membership unit in ZipLink, LLC will be
exchanged for an option or warrant, as the case may be, to purchase
approximately .81 common shares of the Company and each membership unit in
ZipLink, LLC held by Nortel Networks will be exchanged into approximately .82
shares of common stock of the Company. As these entities are under common
control, the merger transaction will be accounted for as a reorganization of
entities under common control similar to a pooling of interest.
The Company has adopted the 1999 Stock Option Plan (the 1999 Plan) which
provides for the granting of common stock options to officers, employees,
consultants and directors of the Company. The total number of shares of common
stock reserved for the 1999 Plan is 1,500,000. Options granted under the 1999
Plan will generally vest in equal installments over a five-year period and are
subject to acceleration in certain events, as defined. The options will expire
ten years from the date of grant, and the plan terminates ten years from the
date of adoption. The options issued under ZipLink, LLC's Unit Plan will be
converted to the 1999 Plan upon the completion of the Reorganization. In
addition, upon the completion of the Reorganization, the convertible debentures
will be converted to common stock. As of April 14, 1999, there were no options
granted by the Company.
F-21
<PAGE>
ZIPLINK WHOLESALE INTERNET ACCESS SERVICES
INTERNET ACCESS SOLUTIONS FOR INTERNET APPLIANCES
ZIPLINE ENHANCES CONSUMER ELECTRONICS DEVICES BY PROVIDING
INTERNET CONNECTIVITY AND SPECIALLY DEVELOPED SERVICES
[ILLUSTRATION OF ZIPLINK NETWORK APPLIANCES]
ZIPDIAL PROGRAM
[ILLUSTRATION OF ZIPDIAL NETWORK FOR INTERNET SERVICE PROVIDERS]
ZIPLINK WHOLESALE DSL SERVICE
[ILLUSTRATION OF ZIPLINK NETWORK FOR DSL SERVICE]
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO REPRESENT ANYTHING NOT CONTAINED IN THIS PROSPECTUS. YOU MUST
NOT RELY ON ANY UNAUTHORIZED INFORMATION OR REPRESENTATIONS. THIS PROSPECTUS IS
AN OFFER TO SELL ONLY THE SHARES OFFERED HEREBY, BUT ONLY UNDER CIRCUMSTANCES
AND IN JURISDICTIONS WHERE IT IS LAWFUL TO DO SO. THE INFORMATION CONTAINED IN
THIS PROSPECTUS IS CURRENT ONLY AS OF ITS DATE.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Prospectus Summary.............................. 3
Risk Factors.................................... 9
Forward Looking Statements...................... 25
Use of Proceeds................................. 26
Dividend Policy................................. 26
Capitalization.................................. 27
Dilution........................................ 28
Selected Financial Data......................... 30
Management's Discussion and Analysis of
Financial Condition and Results of
Operations.................................... 32
Business........................................ 38
Management...................................... 50
Certain Relationships and Related
Transactions.................................. 58
Principal Stockholders.......................... 62
Description of Capital Stock.................... 63
Shares Eligible for Future Sale................. 66
Underwriting.................................... 68
Legal Matters................................... 69
Experts......................................... 69
Where You Can Find Additional Information....... 70
Index to Financial Statements................... F-1
</TABLE>
------------------------
UNTIL , 1999 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS THAT
EFFECT TRANSACTIONS IN SHARES OF COMMON STOCK, WHETHER OR NOT PARTICIPATING IN
THIS OFFERING, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO A
DEALER'S OBLIGATION TO DELIVER A PROSPECTUS WHEN ACTING AS AN UNDERWRITER AND
WITH RESPECT TO AN UNSOLD ALLOTMENT OR SUBSCRIPTION.
3,500,000 SHARES
[LOGO OF ZIPLINK, INC.]
ZIPLINK, INC.
COMMON STOCK
---------------------
PROSPECTUS
---------------------
Jef
feries & Company, Inc.
FAC/EQUITIES
, 1999
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the various expenses, all of which will be
borne by the Registrant, in connection with the sale and distribution of the
securities being registered, other than the underwriting discount. All amounts
shown are estimates except for the Securities and Exchange Commission
registration fee, the NASD filing fee and the Nasdaq National Market listing
fee.
<TABLE>
<S> <C>
SEC registration fee.................................................... $ 15,665
NASD filing fee......................................................... 6,135
Nasdaq National Market listing fee...................................... 87,000
Accounting fees and expenses............................................ 150,000
Legal fees and expenses................................................. 250,000
Printing and mailing expenses........................................... 160,000
Blue Sky fees and expenses.............................................. 5,000
Transfer Agent and Registrar fees....................................... 10,000
Miscellaneous........................................................... 131,200
---------
Total............................................................... $ 815,000
---------
---------
</TABLE>
----------------------------
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 102(b)(7) of the Delaware General Corporation Law (the "DGCL")
permits a corporation, in its certificate of incorporation, to limit or
eliminate, subject to certain statutory limitations, the liability of directors
to the corporation or its stockholders for monetary damages for breaches of
fiduciary duty, except for liability (a) for any breach of the director's duty
of loyalty to the corporation or its stockholders, (b) for acts or omissions not
in good faith or which involve intentional misconduct or a knowing violation of
law, (c) under Section 174 of the DGCL, or (d) for any transaction from which
the director derived an improper personal benefit. Article VII B of the
Registrant's Amended and Restated Certificate of Incorporation provides that the
personal liability of directors of the Registrant is eliminated to the fullest
extent permitted by Section 102(b)(7) of the DGCL.
Under Section 145 of the DGCL, a corporation has the power to indemnify
directors and officers under certain prescribed circumstances, and subject to
certain limitations, against certain costs and expenses, including attorneys'
fees actually and reasonably incurred in connection with any action, suit or
proceeding, whether civil, criminal, administrative or investigative, to which
any of them is a party by reason of being a director or officer of the
corporation if it is determined that the director or officer acted in accordance
with the applicable standard of conduct set forth in such statutory provision.
Article VII A of the Registrant's Amended and Restated Certificate of
Incorporation provides that the Registrant will indemnify any director and any
officer, employee or agent of the Registrant selected by its Board of Directors
for indemnification, such selection to be evidenced by an indemnification
agreement, who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding by reason of the
fact that he is or was a director, officer, employee or agent of the Registrant,
or is or was serving at the request of the Registrant as a director, officer,
employee or agent of another entity, against certain liabilities, costs and
expenses. Article VII A further permits the Registrant to maintain insurance on
behalf of any person who is or was a director, officer, employee or agent of the
Registrant, or is or was serving at the request of the Registrant as a director,
officer, employee or agent of another entity, against any liability asserted
against such person
II-1
<PAGE>
and incurred by such person in any such capacity or arising out of his status as
such, whether or not the Registrant would have the power to indemnify such
person against such liability under the DGCL. The Registrant intends to enter
into indemnification agreements with its officers and directors and to obtain
directors' and officers' liability insurance.
Under Section 6(b) of the Underwriting Agreement, the Underwriters are
obligated, under certain circumstances, to indemnify directors and officers of
the Registrant against certain liabilities, including liabilities under the
Securities Act of 1933. Reference is made to the form of Underwriting Agreement
filed as Exhibit 1.1 hereto.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Since April, 1996, the Registrant, or its predecessors, ZipLink, LLC, a
Connecticut limited liability company (the "Connecticut LLC") and ZipLink, LLC,
a Delaware limited liability company (the "Delaware LLC"), issued and sold
unregistered securities as follows:
On December 23, 1997, the Connecticut LLC issued to Bay Networks, Inc., an
indirect wholly-owned subsidiary of Northern Telecom Limited ("Nortel"), (i) a
10% membership interest in the Connecticut LLC for $2.5 million in cash, and
(ii) a $5.0 million convertible debenture and a $2.5 million convertible
debenture, both convertible into membership units of the Connecticut LLC at
defined conversion prices, as described below, in consideration for $7.5 million
in cash. Upon an initial public offering of the securities of the Connecticut
LLC, the $5.0 million debenture is automatically convertible into membership
units of the Connecticut LLC at a price per unit of membership interest of equal
to the effective per unit price in the initial public offering and the $2.5
million debenture is automatically convertible into membership units of the
Connecticut LLC at a price per unit of membership interest of $37.87.
From prior to April, 1996 through April, 1999, the Connecticut LLC granted
options to purchase, an aggregate of 449,024 units of membership interests in
the Connecticut LLC to certain employees and consultants.
On January 1, 1998, the Connecticut LLC effected a 10 for 1 unit split on
its outstanding membership interest, options and warrants.
On March 23, 1998, the Connecticut LLC issued warrants to purchase up to
.7142% of the membership interests in the Connecticut LLC, for $100,000, to an
investment banker, Jonathan Greenwald, in consideration of investment banking
services performed.
On March 9, 1999, the Connecticut LLC merged with and into the Delaware LLC.
In connection with the merger, all outstanding membership interests in, and
convertible debt of, the Connecticut LLC were converted into economically
equivalent membership interests in, and convertible debt of, the Delaware LLC.
In connection with the merger, all outstanding options and warrants to purchase
membership interests in the Connecticut LLC were converted into a like number of
options and warrants to acquire membership interests in the Delaware LLC.
Prior to the closing of this offering, the Delaware LLC will merge with and
into a newly-formed Delaware corporation known as ZipLink, Inc., as a result of
which all of the assets and liabilities of the Delaware LLC will be transferred
to ZipLink, Inc. In connection with such merger, each membership unit in the
Delaware LLC (other than membership units held by Nortel Networks) will be
exchanged into approximately .82 shares of common stock of ZipLink, Inc. and
each option and warrant to acquire a membership unit in the Delaware LLC will be
exchanged for an option or warrant, as the case may be, to purchase .81 shares
of common stock of ZipLink, Inc. and each membership unit in the Delaware LLC
held by Nortel Networks will be exchanged into .82 shares of common stock of
ZipLink, Inc.
II-2
<PAGE>
Concurrently with the closing of this offering, the $5.0 million convertible
debenture held by Nortel will be converted into 384,615 shares of common stock
of ZipLink, Inc. at the initial public offering price and the $2.5 million
convertible debenture will convert into 450,000 shares of common stock of
ZipLink, Inc. at a price per share of $5.56.
No underwriters were engaged in connection with the foregoing sales of
securities. The sales of membership interests and warrants described above were
made in reliance upon the exemption from registration set forth in Section 4(2)
of the Securities Act of 1933 (the "Act") for transactions not involving a
public offering. Issuances of options to employees and consultants of the
Connecticut LLC were made pursuant to Rule 701 promulgated under the Act. The
issuances of membership interests, convertible debentures, options and warrants
of the Delaware LLC pursuant to the merger with the Connecticut LLC described
above were exempt from the registration requirements of the Act pursuant to
Section 3(a)(9) thereof because a security was exchanged by the issuer thereof
with existing security holders exclusively and no commission or other
renumeration was paid or given directly or indirectly for soliciting such
exchange.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- --------- -------------------------------------------------------------------------------------------------------
<C> <S>
1.1 Form of Underwriting Agreement
2.1** Plan of Merger between ZipLink, LLC, a Connecticut limited liability company, and ZipLink, LLC, a
Delaware limited liability company
2.2 Form of Agreement and Plan of Merger between the Registrant and ZipLink, LLC, a Delaware limited
liability company, to be filed and become effective prior to the effective date of the offering
3.1 Amended and Restated Certificate of Incorporation of the Registrant
3.2 Amended and Restated Bylaws of the Registrant
4.1* Form of Specimen Stock Certificate for the Registrant's Common Stock
4.2** Registration Rights Agreement dated as of December 23, 1997 between ZipLink, LLC and Henry M. Zachs,
Eric M. Zachs, Zachs Family Limited Partnership Number One and Christopher Jenkins
5.1* Opinion of Brenner, Saltzman & Wallman, LLP regarding legality of the securities being registered
10.1** Securities Purchase Agreement made as of December 23, 1997 between ZipLink, LLC and Bay Networks, Inc.
10.2** Convertible Debenture dated December 23, 1997 made by ZipLink, LLC in favor of Bay Networks, Inc. in
the amount of $5,000,000
10.3** Convertible Debenture dated December 23, 1997 made by ZipLink, LLC in favor of Bay Networks, Inc. in
the amount of $2,500,000
10.4* Agreement for Purchase and License of Bay Networks Products and Services effective as of December 10,
1997 between ZipLink, LLC and Bay Networks, USA, Inc.
10.5 Form of Indemnification Agreement between the Registrant and its Directors and Officers
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- --------- -------------------------------------------------------------------------------------------------------
<C> <S>
10.6* "ZipLink-WebTV" Network Services Agreement made and entered into on October 23, 1996 between ZipLink,
LLC and WebTV Networks, Inc. as amended by Amendment No. 1 thereto effective as of May 13, 1997,
Amendment No. 2 thereto effective as of February 1, 1998 and Amendment No. 3 thereto effective as of
March 9, 1999.
10.7* WorldCom Data Services (Revenue Plan) Agreement dated January 1, 1997 between ZipLink, LLC and
WorldCom, Inc., as amended by an Amendment thereto dated March 6, 1997.
10.8** Lease dated as of January 1, 1999 between ZipLink, LLC and Henry M. Zachs
10.9** Agreement of Sublease and License Agreement made and entered into as of July 1, 1996 between ZipLink,
LLC and iGuide, Inc.
10.10 ZipLink, Inc. 1999 Stock Option Plan
10.11 Revolving Loan Agreement dated March 31, 1998 between the Registrant and Fleet National Bank as amended
by a modification agreement dated October 15, 1998
10.12 Employment Agreement dated as of March 4, 1999 between the Registrant and Christopher Jenkins
10.13 License Agreement dated as of March 11, 1999 between the Registrant and Henry M. Zachs
10.14 Letter of Henry M. Zachs dated March 10, 1999 to the Registrant respecting Guarantee
23.1* Consent of Brenner, Saltzman & Wallman, LLP (included in Exhibit 5.1)
23.2 Consent of Arthur Andersen LLP
24.1** Power of Attorney (included in signature page to the Registration Statement)
27.1** Financial Data Schedule
99.1** Consent of Jai P. Bhagat to use his name as a director nominee
99.2** Consent of Alan M. Mendelson to use his name as a director nominee
99.3** Consent of Wayne A. Martino to use his name as a director nominee
99.4 Consent of Russell S. Bernard to use his name as a director nominee
</TABLE>
- ------------------------
* To be filed by amendment.
** Previously filed.
(b) Financial Statement Schedules.
Schedule II: Valuation and qualifying accounts.
All other schedules are omitted because they are not required or are not
applicable or the information is included in the financial statements and notes
thereto.
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes to provide to the underwriters
at the closing specified in the Underwriting Agreement, certificates in such
denominations and registered in such names as required by the underwriters to
permit prompt delivery to each purchaser.
II-4
<PAGE>
Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended (the "Act"), may be permitted to directors, officers and
controlling persons of the Registrant pursuant to the foregoing provision or
otherwise, the Registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a claim
for indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, as amended, the information omitted from the form of prospectus filed as
part of this Registration Statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4)
or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act of
1933, as amended, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Amendment No. 1 to its Registration Statement to
be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Hartford, State of Connecticut on the 16th day of April, 1999.
ZIPLINK, INC.
By:
-----------------------------------------
Henry Zachs
CO-CHAIRMAN AND CHIEF EXECUTIVE OFFICER
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Amendment No. 1 to Registration Statement has been signed by the following
persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
- ------------------------------ --------------------------- -------------------
Chief Executive Officer and
Co-Chairman of the Board
- ------------------------------ (Principal Executive April 16, 1999
Henry M. Zachs Officer)
Co-Chairman of the Board
- ------------------------------ April 16, 1999
Eric M. Zachs
Chief Financial Officer
- ------------------------------ (Principal Financial and April 16, 1999
Gary P. Strickland Accounting Officer)
II-6
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To ZipLink, LLC:
We have audited, in accordance with generally accepted auditing standards,
the financial statements included in this registration statement and have issued
our report thereon dated March 10, 1999. Our audit was made for the purpose of
forming an opinion on those statements taken as a whole. The schedule listed in
Item 14(a)(2) is the responsibility of the Company's management and is presented
for purposes of complying with the Securities and Exchange Commission's rules
and is not part of the basic financial statements and, in our opinion, fairly
states in all material respects the financial data required to be set forth
therein in relation to the basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Boston, Massachusetts
March 10, 1999
S-1
<PAGE>
ZIPLINK, LLC
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
BALANCE AT BALANCE AT
BEGINNING END OF
OF PERIOD ADDITIONS DEDUCTIONS PERIOD
------------ ---------- ----------- ----------
<S> <C> <C> <C> <C>
Allowance for Doubtful Accounts:
1997........................................................... $ 20,000 $ 133,390 $ -- $ 153,390
1998........................................................... $ 153,390 $ 66,320 $ 151,973 $ 67,737
</TABLE>
S-2
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- --------- -------------------------------------------------------------------------------------------------------
<C> <S>
1.1 Form of Underwriting Agreement
2.1** Plan of Merger between ZipLink, LLC, a Connecticut limited liability company and ZipLink, LLC, a
Delaware limited liability company
2.2 Form of Agreement and Plan of Merger between the Registrant and ZipLink, LLC, a Delaware limited
liability company to be filed and become effective prior to the effective date of the offering
3.1 Amended and Restated Certificate of Incorporation of the Registrant
3.2 Bylaws of the Registrant
4.1* Form of Specimen Stock Certificate for the Registrant's Common Stock
4.2** Registration Rights Agreement dated as of December 23, 1997 between ZipLink, LLC and Henry M. Zachs,
Eric M. Zachs, Zachs Family Limited Partnership Number One and Christopher Jenkins
5.1* Opinion of Brenner, Saltzman & Wallman, LLP regarding legality of the securities being registered
10.1** Securities Purchase Agreement made as of December 23, 1997 between ZipLink, LLC and Bay Networks Inc.
10.2** Convertible Debenture dated December 23, 1997 made by ZipLink, LLC in favor of Bay Networks Inc. in the
amount of $5,000,000
10.3** Convertible Debenture dated December 23, 1997 made by ZipLink, LLC in favor of Bay Networks Inc. in the
amount of $2,500,000
10.4* Agreement for Purchase and License of Bay Networks Products and Services effective as of December 10,
1997 between ZipLink, LLC and Bay Networks, USA, Inc.
10.5 Form of Indemnification Agreement between Registrant and its Directors and Officers
10.6* "ZipLink-WebTV" Network Services Agreement made and entered into on October 23, 1996 between ZipLink,
LLC and WebTV Networks, Inc. as amended by Amendment No. 1 thereto effective as of May 13, 1997 and
Amendment No. 2 thereto effective as of February 1, 1998 and Amendment No. 3 thereto effective March 9,
1999
10.7* WorldCom Data Services (Revenue Plan) Agreement dated January 1, 1997 between ZipLink, LLC and
WorldCom, Inc., as amended by an Amendment thereto dated March 6, 1997
10.8** Lease dated as of January 1, 1999 between ZipLink, LLC and Henry M. Zachs
10.9** Agreement of Sublease and License Agreement made and entered into as of July 1, 1996 between ZipLink,
LLC and iGuide, Inc.
10.10 ZipLink, Inc. 1999 Stock Option Plan
10.11 Revolving Loan Agreement dated March 31, 1998 between the Registrant and Fleet National Bank as amended
by a modification agreement dated October 15, 1998
10.12 Employment Agreement dated as of March 4, 1999 between the Registrant and Christopher Jenkins
10.13 License Agreement dated as of March 11, 1999 between the Registrant and Henry M. Zachs
10.14 Letter from Henry M. Zachs dated March 10, 1999 to the Registrant respecting Guarantee
23.1* Consent of Brenner, Saltzman & Wallman, LLP (included in Exhibit 5.1)
23.2 Consent of Arthur Andersen LLP
24.1 Power of Attorney (included as signature page to the Registration Statement)
27.1** Financial Data Schedule
99.1** Consent of Jai P. Bhagat to use his name as a director nominee
99.2** Consent of Alan M. Mendelson to use his name as a director nominee
99.3** Consent of Wayne A. Martino to use his name as a director nominee
99.4 Consent of Russell S. Bernard to use his name as director nominee
</TABLE>
- ------------------------
* To be filed by amendment.
** Previously filed.
<PAGE>
Exhibit 1.1
Proof of April 15, 1999
ZIPLINK, INC.
3,500,000 Shares
Common Stock
UNDERWRITING AGREEMENT
Jefferies & Company, Inc.
First Albany Corporation
As Representatives of the Several
Underwriters Named in Schedule I
c/o JEFFERIES & COMPANY, INC.
650 Fifth Avenue, 4th Floor
New York, New York 10019
Ladies and Gentlemen:
ZipLink, Inc., a Delaware corporation (the "Company"), hereby confirms its
agreement with the underwriters named in Schedule I hereto (the "Underwriters"),
with respect to the sale by the Company and the purchase by the Underwriters of
3,500,000 shares (the "Firm Shares") of the Company's common stock, $.001 par
value (the "Common Stock"). The Company has also agreed to sell up to an
aggregate of 525,000 shares (the "Additional Shares") of Common Stock to cover
over-allotments, if any. The Firm Shares and the Additional Shares are
hereinafter collectively referred to as the "Shares."
You have advised us that, subject to the terms and conditions herein
contained, you desire to purchase the Firm Shares and that you propose to make
an initial public offering of the Firm Shares as soon as you deem advisable
after the Registration Statement referred to below becomes effective.
The terms that follow, when used in this Agreement, shall have the
meanings indicated. "Preliminary Prospectus" shall mean each prospectus subject
to completion included in the Company's registration statement on Form S-1
referred to in Section 1(a)(i) below or any amendment or post-effective
amendment thereto (including the prospectus subject to completion included in
the Registration Statement (as defined below) on the date that the Registration
Statement becomes effective (the "Effective Date") that omits Rule 430A
Information (as defined below)). "Registration Statement" shall mean the
registration statement referred to in Section 1(a)(i) below,
<PAGE>
including all financial statement schedules and exhibits, as amended at the
Representation Date (as defined in Section 1(a) hereof) (or, if not effective at
the Representation Date, in the form in which it shall become effective) and, if
any post-effective amendment thereto becomes effective prior to the Closing Date
(as defined in Section 2 hereof), shall also mean such registration statement as
so amended. The term "Registration Statement" shall include Rule 430A
Information deemed to be included therein at the Effective Date as provided by
Rule 430A (as defined below). If the Company files an abbreviated registration
statement to register additional shares of Common Stock pursuant to Rule 462(b)
(the "Rule 462 Registration Statement") under the Securities Act of 1933, as
amended (the "Act"), then any reference herein to the term "Registration
Statement" shall be deemed to include such Rule 462 Registration Statement.
"Prospectus" shall mean (x) if the Company relies on Rule 434 under the Act, the
Term Sheet (as defined below) relating to the Shares that is first filed
pursuant to Rule 424(b)(7) under the Act, together with the Preliminary
Prospectus identified therein that the Term Sheet supplements, or (y) if the
Company does not rely on Rule 434 under the Act, the prospectus first filed with
the Securities and Exchange Commission (the "Commission") pursuant to Rule
424(b) under the Act, or, if no prospectus is required to be filed pursuant to
Rule 424(b) under the Act, the prospectus included in the Registration
Statement. "Term Sheet" shall mean any term sheet that satisfies the
requirements of Rule 434 under the Act. "Rule 158," "Rule 424," "Rule 434" and
"Rule 430A" refer to such rules under the Act (the rules and regulations under
the Act, the "Act Regulations"). "Rule 430A Information" means information with
respect to the Shares and the offering thereof permitted to be omitted from the
Registration Statement when it becomes effective pursuant to Rule 430A. For
purposes of the representations and warranties contained herein, to the extent
reference is made to the Prospectus and at the relevant time the Prospectus is
not yet in existence, such reference shall be deemed to be to the most recent
Preliminary Prospectus. For purposes of this Agreement, all references to the
Registration Statement, Prospectus, Preliminary Prospectus or Term Sheet or to
any amendment or supplement to any of the foregoing shall be deemed to include
the copy filed with the Commission pursuant to its Electronic Data Gathering
Analysis and Retrieval system ("EDGAR").
1. REPRESENTATIONS AND WARRANTIES.
(a) The Company represents and warrants to, and agrees with, each of
the Underwriters as of the date hereof (such date being referred to as the
"Representation Date"), as follows:
(i) The Company meets the requirements for use of Form S-1
under the Act and has filed with the Commission a registration statement
(Registration No. 333-74273) on such form, including a prospectus subject to
completion, for the registration under the Act of the offering and sale of the
Shares. The Company may have filed one or more amendments thereto, including the
related prospectus subject to completion, each of which has previously been
furnished to the Underwriters. After the execution of this Agreement, the
Company will file with the Commission either (A) prior to effectiveness of such
registration statement, a further amendment to such registration statement
(including a form of prospectus), a copy of which amendment has been furnished
to and approved by the Underwriters prior to the execution of this Agreement, or
(B) after
-2-
<PAGE>
effectiveness of such registration statement, either (1) if the Company relies
on Rule 434 under the Act, a Term Sheet relating to the Shares that shall
identify the Preliminary Prospectus that it supplements containing such
information as is required or permitted by Rules 434, 430A and 424(b) under the
Act or (2) if the Company does not rely on Rule 434 under the Act, a prospectus
in the form most recently included in an amendment to such registration
statement (or, if no amendment shall have been filed, in such registration
statement) in accordance with Rules 430A and 424(b) of the Act Regulations and
as have been provided to and approved by the Underwriters prior to execution of
this Agreement.
(ii) Neither the Commission nor any "blue sky" or securities
authority of any jurisdiction in which the Shares have been offered has issued
any order preventing or suspending the use of any Preliminary Prospectus, the
Prospectus or any amendment or supplement thereto. When any Preliminary
Prospectus was filed with the Commission it (A) complied in all material
respects with the applicable requirements of the Act and the Act Regulations and
(B) did not contain any untrue statement of a material fact or omit to state any
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 and each Preliminary Prospectus and the Prospectus
delivered to the Underwriters for use in connection with the offering of Shares
will, at the time of such delivery, be identical to the electronically
transmitted copies thereof filed with the Commission pursuant to EDGAR, except
to the extent permitted by Regulation S-T under the Act. On the Effective Date,
the Representation Date and each Closing Date, the Registration Statement did
and will, and when the Prospectus or any Term Sheet that is a part thereof is
first filed (if required) in accordance with Rule 424(b) and on the
Representation Date and each Closing Date, the Prospectus will, comply in all
material respects with the applicable requirements of the Act and the Act
Regulations; on the Effective Date, the Representation Date and each Closing
Date, the Registration Statement did not and will not contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements therein not
misleading; on the Effective Date, the Representation Date and each Closing
Date, and on the date of any filing pursuant to Rule 424(b), the Prospectus or
any Term Sheet that is a part thereof did not and will not include any untrue
statement of a material fact or omit to state a material fact necessary in order
to make the statements therein, in the light of the circumstances under which
they were made, not misleading; PROVIDED, that the Company makes no
representations or warranties as to the information provided in writing to the
Company by or on behalf of the Underwriters expressly for use in any Preliminary
Prospectus, the Registration Statement or the Prospectus, and the Company agrees
that the only information provided in writing by or on behalf of Underwriters to
the Company expressly for use in any Preliminary Prospectus, the Registration
Statement or the Prospectus is, the table of Underwriters set forth under the
caption "Underwriting" in the Prospectus, the amounts of the selling concession
and reallowance set forth in the Prospectus and the last three paragraphs under
the caption "Underwriting" in the Prospectus.
(iii) The Agreement and Plan of Merger dated March 5, 1999
(the "LLC Merger Agreement") by and between ZipLink, LLC, a Connecticut limited
liability company (the "Connecticut LLC"), and ZipLink, LLC, a Delaware limited
liability company (the "Delaware
-3-
<PAGE>
LLC") was duly authorized by all necessary board of managers and member action
on the part of the Connecticut LLC and all necessary boards of managers and
member action on the part of the Delaware LLC. The merger contemplated by the
LLC Merger Agreement is effective under the laws of the State of Connecticut and
the State of Delaware. The execution and delivery of the LLC Merger Agreement
and the consummation of the merger contemplated thereby did not contravene any
provision of applicable Federal, Connecticut or Delaware law or the respective
Certificates of Formation, Limited Liability Operating Agreements or Bylaws of
the either limited liability company or any agreement or other instrument
binding upon the limited liability companies, or any judgment or decree of any
governmental body, agency or court having jurisdiction over either limited
liability company, and no consent, approval, authorization or order of or
qualification with any governmental body or agency was required for the
performance by the limited liability companies of their respective obligations
under the LLC Merger Agreement except such as were obtained. In connection with
the LLC Merger Agreement and the transactions contemplated thereby, the
Connecticut LLC and the Delaware LLC obtained all necessary consents, approvals
and authorizations required to assign and transfer all material contracts to
which the Connecticut LLC was a party to the Delaware LLC so that the Delaware
LLC was made a party, in place of the Connecticut LLC or, as assignee.
(iv) The Agreement and Plan of Merger dated ___________, 1999
(the "Company Merger Agreement") by and between the Company and ZipLink, LLC, a
Delaware limited liability company, has been duly authorized by all necessary
board of directors and stockholder action on the part of the Company and all
necessary boards of managers and member action on the part of the Delaware LLC
and has been duly executed and delivered by each of the parties thereto. The
merger contemplated by the Company Merger Agreement is effective under the laws
of the State of Delaware. The execution and delivery of the Company Merger
Agreement and the consummation of the merger contemplated thereby did not
contravene any provision of applicable Federal or Delaware law or Certificate of
Formation, Limited Liability Operating Agreements or Bylaws of the Delaware LLC
or any agreement or other instrument binding upon the Delaware LLC or the
Company, any judgment or decree of any governmental body, agency or court having
jurisdiction over the Company or Delaware LLC, and no consent, approval,
authorization or order of or qualifications with any governmental body or agency
was required for the performance by the Company and Delaware LLC of the
respective obligations under the Company Merger Agreement except such as have
been obtained. In connection with the Company Merger Agreement and the
transactions contemplated thereby, the Company and the Delaware LLC have
obtained all necessary consents, approvals and authorizations required to assign
and transfer all material contracts to which the Delaware LLC was a party to the
Company so that the Company was made a party, in place of Delaware LLC or, as
assignee.
(v) The Company is a corporation duly incorporated, validly
existing and in good standing under the laws of the State of Delaware, with all
requisite corporate power and authority to own, lease and operate its properties
and to conduct its business as described in the Registration Statement and the
Prospectus, and is duly qualified to conduct its business and is in good
standing in each jurisdiction or place where the nature or location of its
properties (owned or
-4-
<PAGE>
leased) or the conduct of its business requires such qualification, except where
the failure so to qualify would not have an adverse effect on the condition
(financial or other), business, properties, prospects, net worth or results of
operations of the Company that is or would be, singly or in the aggregate,
material to the Company, whether or not occurring in the ordinary course of
business (a "Material Adverse Effect").
(vi) The Company possesses all authorizations, approvals,
orders, licenses, certificates, franchises and permits of and from, and have
made all declarations and filings with, all regulatory or governmental
officials, bodies and tribunals ("Permits") to own, lease or operate its
property and to conduct its business described in the Registration Statement and
the Prospectus, except where failure to have obtained or made the same would not
have a Material Adverse Effect, and the Company has not received any notice of
proceedings relating to the revocation or modification of any such Permits. The
Company has fulfilled and performed all its current material obligations with
respect to such Permits and no event has occurred that allows, or after notice
or lapse of time, or both, would allow, revocation or termination thereof or
result in any other material impairment of the rights of the holder of any such
Permit and such Permits contain no restrictions that are materially burdensome
to the Company and the Company is in compliance with all applicable laws, rules,
regulations, orders and consents, the violation of which would have a Material
Adverse Effect. The property and business of the Company conform in all material
respects to the descriptions thereof contained in the Registration Statement and
the Prospectus.
(vii) All of the Company's issued and outstanding capital
stock has been duly authorized, validly issued and is fully paid and
nonassessable, and the Common Stock and the capitalization of the Company
conform to the descriptions thereof and the statements made with respect thereto
in the Registration Statement and the Prospectus as of the date set forth
therein. None of the issued shares of Common Stock have been issued in violation
of any preemptive or other rights to subscribe for or purchase shares of capital
stock of the Company. There are no outstanding securities convertible into or
exchangeable for, and no outstanding options, warrants or other rights to
purchase, any shares of the capital stock of the Company, nor any agreements or
commitments to issue any of the same except as described in the Registration
Statement and Prospectus, and there are no preemptive or other rights to
subscribe for or to purchase, and no restrictions upon the voting or transfer
of, any capital stock of the Company pursuant to the Company's certificate of
incorporation or by-laws or any agreement or other instrument to which the
Company is a party. All offers and sales of the Company's capital stock prior to
the date hereof were at all relevant times exempt from the registration
requirements of the Act, and were duly registered or the subject of an available
exemption from the registration requirements of the applicable state securities
or blue sky laws.
(viii) The Company has good and marketable title to, and is
possessed of, each property, right, interest or estate constituting the
properties and assets described in the Registration Statement and the Prospectus
as owned by it, free and clear of all liens, charges, encumbrances and
restrictions, except such as are described in the Registration Statement and the
Prospectus. The Company has valid, subsisting and enforceable leases for the
properties described
-5-
<PAGE>
in the Registration Statement and the Prospectus as leased by it and no event
has occurred which, with the passage of time or the giving of notice or both,
would cause a material breach of, or default under any such lease.
(ix) The Company has all requisite power, authority,
authorizations, approvals, orders, licenses, certificates and permits to enter
into this Agreement and to carry out the provisions and conditions hereof,
including the issuance and delivery of the Shares to the Underwriters as
provided herein. This Agreement has been duly and validly authorized by the
Company, and this Agreement has been duly executed and delivered by the Company
and constitutes a legal, valid and binding agreement of the Company, enforceable
against it in accordance with its terms, except to the extent rights to
indemnity hereunder may be limited by Federal or state securities laws or public
policy underlying such laws and except to the extent the enforcement hereof may
be limited by bankruptcy, insolvency, reorganization, moratorium or other
similar laws relating to or affecting creditors' rights generally or by
equitable principles.
(x) Except as disclosed in the Registration Statement and the
Prospectus, the Company owns or possesses adequate licenses or other rights to
use, free and clear of all liens, charges, claims, encumbrances and restrictions
of any kind whatsoever, all patents, trademarks, service marks, trade names,
copyrights, trade secrets, domain names, technology and licenses, and rights
with respect to the foregoing, used by it or which are necessary in the conduct
of its business as currently or proposed, under development or, to be conducted
by the Company, as described in the Prospectus, and except as disclosed in the
Registration Statement and the Prospectus, the Company is not obligated or under
any liability whatsoever to make any payments by way of royalties, fees or
otherwise to any owner or licensee of, or other claimant to, any patent,
trademark, service mark, trade name, copyright, trade secret, know-how,
technology or other intangible asset, with respect to the use thereof or in
connection with the conduct of its business or otherwise. None of the technology
employed by the Company has been obtained or is being used by the Company in
violation of any contractual fiduciary obligation binding on the Company or, to
the knowledge of the Company, its officers, directors or employees or otherwise
in violation of the rights of any person. Except as disclosed in the
Registration Statement and the Prospectus, the Company has not received any
notice of infringement of or conflict with (and knows of no such infringement of
or conflict with) asserted rights of others with respect to any patents,
trademarks, service marks, trade names, copyrights, trade secrets, domain names,
technology or licenses, or rights with respect to the foregoing which could
result in any Material Adverse Effect; and, except as disclosed in the
Registration Statement and Prospectus, the discoveries, inventions, products or
processes of the Company referred to in the Prospectus do not infringe or
conflict with any right or patent of any third party, or any discovery,
invention, product or process which is the subject of a patent application filed
by any third party, known to the Company.
(xi) The Company has reviewed its operations and the
operations of any third parties with which the Company has a material
relationship to evaluate the extent to which the business or operations of the
Company will be affected by Year 2000 issues. As a result of such review, the
Company represents and warrants that the disclosure in the Registration
Statement
-6-
<PAGE>
relating to Year 2000 issues is accurate and complies in all material respects
with the rules and regulations of the Act. "Year 2000 issues" as used herein
means Year 2000 issues described in or contemplated by the Commission's
Interpretation: Disclosure of Year 2000 Issues and Consequences by Public
Companies, Investment Advisors, Investment Companies, and Municipal Securities
Issuers (Release No. 33-7558).
(xii) The Shares to be sold by the Company have been duly and
validly authorized for issuance by the Company and the Company has the corporate
power and authority to issue, sell and deliver the Shares; and, when the Shares
are issued and delivered against payment therefor as provided by this Agreement,
the Shares will have been validly issued, fully paid and nonassessable, and the
issuance of such Shares will not be subject to any preemptive or similar rights.
All corporate action required to be taken by the stockholders or the Board of
Directors of the Company for the authorization, issuance and sale of the Shares
has been duly and validly taken.
(xiii) Arthur Andersen LLP, whose reports are filed with the
Commission as part of the Registration Statement, are independent certified
public accountants with respect to the Company, under the meaning of and as
required by the Act and the Act Regulations.
(xiv) The financial statements and related schedules and notes
included in the Registration Statement and the Prospectus present fairly, in all
material respects, the financial position of the Company, on the basis stated in
the Registration Statement, as of the respective dates thereof and the results
of operations and cash flows of the Company, for the respective periods covered
thereby, all in conformity with generally accepted accounting principles applied
on a consistent basis throughout the entire period involved, except as otherwise
disclosed in the Registration Statement and the Prospectus. The selected
financial information included under the caption "Selected Financial Data" in
the Prospectus presents fairly the information shown therein and has been
compiled on a basis consistent with that of the audited financial statements of
the Company included therein. No other financial statements or schedules of the
Company are required by the Act or the Act Regulations to be included in the
Registration Statement or Prospectus. The Company is not currently planning any
acquisition for which disclosure of pro forma financial information would be
required by the Act.
(xv) The Company maintains a system of internal accounting
controls sufficient to provide reasonable assurance that (A) transactions are
executed in accordance with management's general or specific authorizations; (B)
transactions are recorded as necessary to permit preparation of financial
statements in conformity with generally accepted accounting principles and to
maintain asset accountability; (C) access to assets is permitted only in
accordance with management's general or specific authorization; and (D) the
recorded accountability for assets is compared with the existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.
(xvi) The Company maintains insurance covering its properties,
operations, personnel and businesses. Such insurance insures against such losses
and risks and in such amounts
-7-
<PAGE>
as are prudent and customary in the business in which it is engaged. The Company
has not been refused any insurance coverage sought or applied for; and the
Company has no reason to believe that it will not be able to renew its existing
insurance coverage as and when such coverage expires or to obtain similar
coverage from similar insurers as may be necessary to continue its business at a
cost that would not have a Material Adverse Effect. All such insurance is
outstanding and duly in force on the date hereof.
(xvii) The Company is in compliance with all Federal, state,
local or foreign laws or regulations relating to pollution or protection of
human health or the environment ("Environmental Laws"), except where the failure
to be in compliance would not have a Material Adverse Effect. The Company has
not authorized, conducted and has no knowledge of the generation,
transportation, storage, use, treatment, disposal or release of any hazardous
substance, hazardous waste, hazardous material, hazardous constituent, toxic
substance, pollutant, contaminant, petroleum product, natural gas, liquified gas
or synthetic gas, defined or regulated under any Environmental Law on, in or
under any property currently leased or owned or by any means controlled by the
Company (the "Real Property") in violation of any applicable law, except for any
violation which would not have a Material Adverse Effect; there is no pending
or, to the Company's knowledge, threatened claim, action, litigation or any
administrative agency proceeding involving the Company, nor has the Company
received any written notice, or any oral notice to any executive officer of the
Company or any other employee responsible for receipt of any such notice, from
any governmental entity or third party, that (A) alleges a violation of any
Environmental Laws by the Company or any person or entity whose liability for a
violation of an Environmental Law the Company has retained or assumed either
contractually or by operation of law, which liability or violation could be
reasonably expected to have a Material Adverse Effect; (B) alleges the Company
is a liable party under the Comprehensive Environmental Response, Compensation
and Liability Act, 42 U.S.C. ss. 9601 eT Seq., or any state superfund law; (C)
alleges possible contamination of the environment by the Company; or (D) alleges
possible contamination of the Real Property.
(xviii) The Company is not in violation of its certificate of
incorporation or by-laws. The Company is not, and with the passage of time or
the giving of notice or both would not be, in violation of any law, ordinance,
administrative or governmental rule or regulation applicable to the Company, or
of any judgment, order or decree of any court or governmental agency or body or
of any arbitrator having jurisdiction over the Company which would have a
Material Adverse Effect, or in default in the performance or observance of any
obligation, agreement, covenant or condition contained in any mortgage, loan
agreement, note, bond, debenture, credit agreement or any other evidence of
indebtedness or in any agreement, contract, indenture, lease or other instrument
to which the Company is a party or by which the Company is bound, or to which
any of the property or assets of the Company is subject, the effect of which
violation or default in performance or observance would have a Material Adverse
Effect.
(xix) There is no action, suit or proceeding before or by any
court, arbitrator or governmental agency or body pending or, to the Company's
knowledge, threatened, against the Company, (A) that is required to be described
in the Registration Statement or the Prospectus but
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<PAGE>
is not described as required or (B) that, if adversely determined, could
reasonably be expected to have a Material Adverse Effect. There is no agreement,
contract, indenture, lease or other document or instrument that is required to
be described in the Registration Statement or the Prospectus or to be filed as
an exhibit to the Registration Statement that is not described or filed as
required. All such agreements to which the Company is a party have been duly
authorized, executed and delivered by the Company, constitute valid and binding
agreements of the Company, and are enforceable against the Company in accordance
with the terms thereof.
(xx) Subsequent to the respective dates as of which
information is given in the Registration Statement and the Prospectus, except as
otherwise stated therein, (A) the Company (1) has not issued any securities
other than in connection with the exercise of any outstanding options or
warrants, (2) incurred any material liability or obligation, direct or
contingent, for borrowed money, (3) entered into any transaction, not in the
ordinary course of business, that is material to the Company, (4) entered into
any transaction with an affiliate of the Company (as the term "affiliate" is
defined in Rule 405 promulgated by the Commission pursuant to the Act), which
would otherwise be required to be disclosed in the Registration Statement and
the Prospectus, or (5) declared or paid any dividend on its capital stock or
made any other distribution to its equity holders, (B) there has not been any
material change in the capital stock or other equity, or material increase in
the short-term debt or long-term debt, of the Company and (C) there has been no
change or development with respect to the condition (financial or otherwise),
business, properties, prospects, net worth or results of operations of the
Company that could have a Material Adverse Effect.
(xxi) Neither the execution, delivery or performance of this
Agreement, the offer, issuance, sale or delivery of the Shares, nor the
consummation of the other transactions contemplated hereby (A) requires the
consent, approval, authorization or order of any court or governmental agency or
body, except such as have been obtained under the Act and such as may be
required under the blue sky laws of any jurisdiction in connection with the
purchase and distribution of the Shares by the Underwriters or such as may be
required by the National Association of Securities Dealers, Inc. (the "NASD")
and such other approvals as have been obtained, (B) will conflict with, result
in a breach or violation of, or constitute a default under the terms of any
agreement, contract, indenture, lease or other instrument to which the Company
is a party or by which it or any of its properties may be bound, or the
certificate of incorporation or by-laws of the Company; or will result in the
creation or imposition of any lien, charge or encumbrance upon any property or
assets of the Company or an acceleration of indebtedness pursuant to the terms
of any agreement or instrument to which it may be bound or to which it is a
party or by which it property or assets of any of the Company is subject, or (C)
will conflict with or violate any law, statute or regulation, or any judgment,
order, consent or memorandum of understanding applicable to the Company of any
court, regulatory body, administrative agency, governmental body or arbitrator
having jurisdiction over the Company or its properties.
(xxii) The Company has not distributed and, prior to the later
to occur of (A) the Closing Date or (B) completion of the distribution of the
Shares, will not distribute without the prior written consent of Jefferies &
Company, Inc. ("Jefferies") any offering material in
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connection with the offering and sale of the Shares other than the Registration
Statement, any Preliminary Prospectus, the Prospectus or other materials, if
any, permitted by the Act and the Act Regulations.
(xxiii) Neither the Company nor any employee or agent of the
Company has made any payment of funds of the Company or received or retained any
funds, in violation of any law, rule or regulation, or which payment, receipt or
retention of funds is of a character required to be disclosed in the
Registration Statement or the Prospectus.
(xxiv) The Company is not involved in any labor dispute and,
to the knowledge of the Company, no such dispute is threatened.
(xxv) The Company, the Connecticut LLC and the Delaware LLC
have each filed all Federal, state, local tax returns that are required to be
filed, which returns are complete and correct in all material respects and have
paid all taxes shown on such returns required to be paid by it and all
assessments received by them with respect thereto to the extent that the same
have become due, except those taxes that are being contested or protested in
good faith by the Company or either limited liability company and as to which
any reserves required under generally accepted accounting principles have been
established; the Company does not have knowledge of any tax deficiency which has
been or might be asserted or threatened against the Company or either limited
liability company which could have a Material Adverse Effect.
(xxvi) The Company does not own or control (directly or
indirectly), or own or hold any right to acquire any share of stock or any other
securities of any corporation or have any equity interest in any firm,
partnership, association or other entity.
(xxvii) No holder of any security of the Company has the right
(other than a right which has been waived in writing or complied with) to have
any security owned by such holder included in the Registration Statement and,
except as described in the Registration Statement and the Prospectus, no holder
of any security of the Company has the right to demand registration of any
security owned by such holder during the period ending 12 months after the date
of the Prospectus.
(xxviii) The Company and its respective officers, directors,
employees or agents have not taken or will not take, directly or indirectly, (A)
any action designed to cause or to result in, or that has constituted or which
might reasonably be expected to constitute, the stabilization or manipulation of
the price of any security of the Company to facilitate the sale or resale of the
Shares, or (B) since the filing of the Registration Statement (1) sold, bid for,
purchased or paid anyone any compensation for soliciting purchases of, the
Shares or (2) paid or agreed to pay any person any compensation for soliciting
another to purchase any securities of the Company.
(xxix) The Company is not an "investment company" within the
meaning of the Investment Company Act of 1940, as amended, and is not subject to
registration under such act,
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and does expect to be treated as such by reason of its receipt and application
of the net proceeds from the offering of the Shares.
(xxx) The Company has obtained from each of its officers,
directors and stockholders a written agreement (the "Lock-Up Agreements"), in
form and substance satisfactory to counsel for the Underwriters, that, for a
period of 180 days from the date of the Prospectus, he, she or it will not,
without Jefferies' prior written consent, offer, sell, contract to sell, grant
any option for the sale of, or otherwise dispose of, directly or indirectly, any
shares of Common Stock or any security convertible into, or exchangeable or
exercisable for, shares of Common Stock or other securities of the Company;
provided, however, that such persons may offer, sell, contract to sell, grant an
option for the sale or otherwise dispose of all or any part of his, her or its
Common Stock, or securities convertible, or otherwise exchangeable or
exercisable for shares of Common Stock during such period only if such
transaction is private in nature and the transferee agrees, prior to such
transaction, to be bound in writing by all of the provisions of such agreement.
(xxxi) No transfer tax stamp duty or other similar tax is
payable by or on behalf of the Underwriters in connection with (i) the issuance
by the Company of the Firm Shares and the Additional Shares, (ii) the purchase
by the Underwriters of the Firm Shares or Additional Shares from the Company or
(iii) the consummation by the Company of any of its obligations under this
Agreement.
(xxxii) To the Company's knowledge, no officer, director or
stockholder has any affiliation or association with the National Association of
Securities Dealers, Inc. (the "NASD") or any member thereof, except as described
in the Registration Statement and the Prospectus.
(b) Any certificate signed by any officer of the Company delivered
to the Underwriters or to counsel for the Underwriters pursuant to the terms of
this Agreement shall be deemed a representation and warranty by the Company to
the Underwriters as to the matters covered thereby.
2. SALE AND DELIVERY TO THE UNDERWRITERS; CLOSING.
(a) Subject to the terms and conditions and in reliance upon the
representations and warranties herein set forth, the Company agrees to sell to
each Underwriter, and each Underwriter agrees, severally and not jointly, to
purchase from the Company, at a purchase price of $__________ per share (the
"Initial Price"), the number of Firm Shares set forth opposite such
Underwriter's name in Schedule I hereto.
(b) The Company grants to the Underwriters an option to purchase all
or any part of the Additional Shares at the Initial Price. Additional Shares
shall be purchased from the Company, for the accounts of the Underwriters in
proportion to the number of Firm Shares set forth in Schedule I hereto opposite
the name of such Underwriter. Such option may be exercised only to cover
over-allotments in the sale of the Firm Shares by the Underwriters and may be
exercised in
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whole or in part at any time and from time to time, but no more than twice,
within 30 days after the date of this Agreement, in each case upon written or
facsimile notice, or verbal or telephonic notice confirmed by written or
telegraphic notice, by the Underwriters to the Company no later than 12:00 noon,
New York City time, on the business day before the Firm Shares Closing Date (as
hereinafter defined) or at least two business days before the Additional Shares
Closing Date (as hereinafter defined), as the case may be, setting forth the
number of Additional Shares to be purchased and the time and date (if other than
the Firm Shares Closing Date) of such purchase.
(c) Payment of the purchase price for, and delivery of, the Firm
Shares to be purchased by the Underwriters shall be made at the offices of
Jefferies & Company, Inc., 650 Fifth Avenue, 4th Floor, Attention: Syndicate
Operations, New York, New York 10019, or at such other place as shall be agreed
upon by the Underwriters and the Company at 10:00 A.M. on the third (fourth, if
the pricing occurred after 4:30 p.m. on any given day) business day after the
date of this Agreement, or such other time not later than ten business days
after such date as shall be agreed upon by the Underwriters and the Company
(such time and date of payment and delivery being herein called the "Firm Shares
Closing Date"). Payment shall be made to the Company by wire transfer and
payable in immediately available funds to the order of the Company against
delivery to the Underwriters of the Firm Shares.
(d) Payment of the purchase price for, and delivery of, the
Additional Shares to be purchased by the Underwriters shall be made at the
office as set forth above or at such other place as shall be agreed upon by the
Underwriters and the Company at the time and on the date (which may be the same
as, but in no event shall be earlier than, the Firm Shares Closing Date)
specified in the notice referred to in Section 2(b) hereof (such time and date
of delivery and payment are called the "Additional Shares Closing Date"). The
Firm Shares Closing Date and the Additional Shares Closing Date are called,
individually, a "Closing Date" and together, the "Closing Dates". Payment shall
be made to the Company by wire transfer and payable in immediately available
funds to the order of the Company.
(e) The Shares shall be in such denominations and registered in such
names as the Underwriters may request in writing at least two business days
before the Firm Shares Closing Date or, in the case of the Additional Shares, on
the day of notice of exercise of the option as described in Section 2(b) hereof.
The Shares will be made available for examination and packaging by the
Underwriters not later than 1:00 P.M. on the last business day prior to the Firm
Shares Closing Date (or the Additional Shares Closing Date in the case of the
Additional Shares) at such place as is designated by the Underwriters. If the
Underwriters so elect, delivery of the Shares may be made by credit through full
FAST transfer to the accounts of The Depository Trust Company designated by the
Underwriters.
3. COVENANTS.
(a) The Company covenants with each Underwriter as follows:
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(i) The Company will use its best efforts to cause the
Registration Statement, if not effective at the Representation Date, and any
amendment thereto, to become effective, as promptly as possible after the filing
thereof. The Company will not file any amendment to the Registration Statement
or amendment or supplement to the Prospectus to which the Underwriters shall
reasonably object in writing after a reasonable opportunity to review such
amendment or supplement. Subject to the foregoing sentences in this clause
3(a)(i), if the Registration Statement has become or becomes effective pursuant
to Rule 430A, or filing of the Prospectus or any Term Sheet that constitutes a
part thereof or supplement to the Prospectus is otherwise required under Rule
424(b), the Company will cause the Prospectus or any Term Sheet that constitutes
a part thereof, properly completed, or such supplement thereto, to be filed with
the Commission pursuant to Rule 434 and the applicable paragraph of Rule 424(b)
within the time period prescribed and will provide evidence satisfactory to the
Underwriters of such timely filing. The Company will promptly advise the
Underwriters (A) when the Registration Statement, if not effective at the
Representation Date, and any amendment thereto, shall have become effective, (B)
when the Prospectus or any Term Sheet that constitutes a part thereof, and any
supplement thereto, shall have been filed (if required) with the Commission
pursuant to Rule 434 and 424(b), (C) when any amendment to the Registration
Statement shall have been filed or become effective, (D) of any request by the
Commission for any amendment of or supplement to the Registration Statement or
any Prospectus or for any additional information, (E) of the receipt by the
Company of any notification of, or if the Company otherwise has knowledge of,
the issuance by the Commission of any stop order suspending the effectiveness of
the Registration Statement or the institution or threatening of any proceeding
for that purpose, (F) of the receipt by the Company of any notification with
respect to the suspension of the qualification of the Shares for sale in any
jurisdiction or the initiation or threatening of any proceeding for such
purpose. The Company will use its best efforts to prevent the issuance of any
such stop order and, if issued, to obtain as soon as possible the lifting
thereof.
(ii) If, at any time when a prospectus relating to the Shares
is required to be delivered under the Act or the Act Regulations, any event
occurs as a result of which the Prospectus as then amended or supplemented would
include any untrue statement of a material fact or omit to state any material
fact necessary to make the statements therein in the light of the circumstances
under which they were made not misleading, or if it shall be necessary to amend
the Registration Statement or amend or supplement the Prospectus to comply with
the Act or the Act Regulations, the Company promptly will prepare and file with
the Commission, at the Company's expense, subject to the second sentence of
Section 3(a)(i) hereof, an amendment or supplement which will correct such
statement or omission or effect such compliance and will use its best efforts to
cause the same to become effective as soon as possible; and in case any
Underwriter is required to deliver a prospectus after the nine-month period
referred to in Section 10(a)(3) of the Act, the Company upon request, but at the
expense of such Underwriter, will promptly prepare such amendment or amendments
to the Registration Statement and such Prospectus as may be necessary to permit
compliance with the requirements of Section 10(a)(3) of the Act. Neither consent
to, nor delivery of, any such amendment or supplement shall constitute a waiver
of any of the conditions set forth in Section 5.
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(iii) During such period as a prospectus is required by law to
be delivered in connection with sales by an Underwriter or dealer, the Company,
at its expense, but only for the nine-month period referred to in Section
10(a)(3) of the Act, will furnish to each Underwriter or mail to its order
copies of the Registration Statement, the Prospectus, the Preliminary Prospectus
and all amendments and supplements to any such documents in each case as soon as
available and in such quantities as such Underwriter may request, for the
purposes contemplated by the Act.
(iv) The Company consents to the use of the Prospectus in
accordance with the provisions of the Act and with the securities or blue sky
laws of the jurisdictions in which the Shares are offered by the Underwriters
and by all dealers to whom Shares may be sold, both in connection with the
offering and sale of the Shares and for such period of time thereafter as the
Prospectus is required by the Act to be delivered in connection with the sales
by any Underwriter or dealer. The Company will comply with all requirements
imposed upon it by the Act, as now and hereafter amended, so far as necessary to
permit the continuance of sales of or dealing in the Shares in accordance with
the provisions hereof and the Prospectus.
(v) As soon as practicable, but in any event not later than
forty-five (45) days after the end of the 12-month period beginning at the end
of the fiscal quarter of the Company during which the Effective Date occurs (or
90 days, if such 12-month period coincides with the Company's fiscal year) the
Company will make generally available to its security holders and to the
Underwriters a consolidated earnings statement or statements of the Company
covering a twelve-month period beginning with the first full calendar quarter
following the Effective Date which will satisfy the provisions of Section 11(a)
of the Act and Rule 158 thereunder.
(vi) The Company will, without charge, furnish (A) to the
Underwriters, three signed copies of the Registration Statement (including
exhibits thereto), (B) to each Underwriter, a conformed copy of such
Registration Statement (without exhibits thereto) and (C) so long as delivery of
a prospectus by an Underwriter or dealer may be required by the Act, as many
copies of the Prospectus and all amendments and supplements thereto as the
Underwriters may reasonably request. The copies of the Registration Statement,
and each amendment thereto, and the copies of the Prospectus, and any amendments
or supplements thereto, furnished to the Underwriters will be identical to the
electronically transmitted copies thereof filed with the Commission pursuant to
EDGAR, except to the extent permitted by Regulation S-T.
(vii) During the period of three years hereafter the Company
will furnish to the Underwriters as soon as practicable after the end of each
fiscal year, a copy of its annual report to stockholders for such year; and the
Company will furnish to the Underwriters as soon as available, a copy of each
report or definitive proxy statement of the Company filed with the Commission
under the Exchange Act or mailed to stockholders.
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(viii) The Company will apply the net proceeds from the
offering and sale of the Shares to be sold by the Company in accordance with the
description set forth in the "Use of Proceeds" section of the Prospectus.
(ix) The Company will cooperate with the Underwriters and
their counsel in connection with endeavoring to obtain and maintain the
qualification or registration, or exemption from qualification, of the Shares
for offer and sale under the applicable securities laws of such states and other
jurisdictions of the United States as the Underwriters may designate; PROVIDED,
that in no event shall the Company be obligated to qualify to do business in any
jurisdiction where it is not now so qualified or to take any action which would
subject it to taxation or general service of process in any jurisdiction where
it is not now so subject.
(x) The Company will not at any time, directly or indirectly
(A) take any action designed to cause or result in, or that has constituted or
which might reasonably be expected to constitute, the stabilization or
manipulation of the price of any security of the Company to facilitate the sale
or resale of any of the Shares, or (B) (1) sell, bid for, purchase or pay anyone
any compensation for soliciting purchases of, the Shares or (2) pay or agree to
pay any person any compensation for soliciting another to purchase any other
securities of the Company.
(xi) The Company will comply with all the provisions of any
undertakings contained in the Registration Statement.
(xii) The Company will not, directly or indirectly, for a
period of 180 days following the date of the Prospectus, without the prior
written consent of Jefferies, offer, sell, contract to sell, or grant any option
to purchase or otherwise dispose of, any shares of Common Stock or any
securities convertible into, or exchangeable for, shares of Common Stock, or
register for sale under the Act any shares of Common Stock or any securities
convertible into, or exchangeable for, shares of Common Stock, other than (A)
pursuant to any employee stock option plan of the Company in effect at the
Representation Date or (B) upon exercise of any options or warrants outstanding
at the Representation Date.
(xiii) The Company shall cause the Shares to be quoted on the
Nasdaq National Market and shall use its best efforts to maintain such trading
while the Shares are outstanding.
(xiv) Until the expiration of the 180-day period following the
date of the Prospectus, the Company shall not (i) instruct its transfer agent
and registrar to remove the "Stop Transfer Order" placed on the transferability
of securities of the Company owned by its officers, directors and stockholders
without the prior written consent of Jefferies or (ii) file a registration
statement on Form S-8 under the Act covering shares of Common Stock reserved for
issuance under the Company's 1999 Stock Option Plan without the prior written
consent of Jefferies.
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(xv) The Company will not, prior to the later of 25 days after
the Effective Date or any Additional Shares Closing Date, as the case may be,
issue any press release or other communication, directly or indirectly, or hold
any press conferences with respect to the Company or the offering without the
prior written consent of Jefferies, which consent will not be unreasonably
withheld.
(xvi) Until the expiration of three years from the Effective
Date, the Company will not effect a change in the independent certified public
accountants for the Company unless either the Company has received Jefferies'
prior written consent, which consent will not be unreasonably withheld, or such
substitute independent certified public accountant is one of the "big six"
firms, or an international affiliate thereof.
4. PAYMENT OF EXPENSES.
(a) The Company covenants and agrees with the Underwriters that the
Company will pay (directly or by reimbursement): (i) the fees, disbursements and
expenses of counsel and accountants for the Company, and all other expenses, in
connection with the preparation, printing and filing of the Registration
Statement, any Preliminary Prospectus, the Prospectus and any amendments or
supplements thereto, and the furnishing of copies thereof, including charges for
mailing, air freight and delivery and counting and packaging thereof to the
Underwriters and dealers; (ii) the cost of printing this Agreement, the Master
Agreement Among Underwriters, the Selected Dealer Agreement, communications with
the Underwriters and selling group and the Preliminary and Supplemental Blue Sky
Memorandum, if any, and any other documents in connection with the offering,
purchase, sale and delivery of the Shares; (iii) all expenses in connection with
the qualification of the Shares for offering and sale under securities laws as
provided in Section 3(a) hereof, including filing and registration fees and the
fees, disbursements and expenses for counsel for the Underwriters in connection
with such qualification and in connection with Blue Sky surveys or similar
advice with respect to sales; (iv) the filing fees incident to, and the fees and
disbursements of counsel for the Underwriters in connection with, securing any
required approval of the NASD of the terms of the sale of the Shares; (v) all
fees and expenses in connection with quotation of the Shares on the Nasdaq
National Market; (vi) the cost of publication of "tombstone"advertisements with
respect to the offering; (vii) the cost of at least five sets of bound volumes
of the Registration Statement and all related materials to the individuals
designated by the Underwriters; (viii) and all other costs and expenses incident
to the performance of the obligations of the Company under this Agreement which
are not otherwise specifically provided for in this Section 4, including the
fees of the Company's transfer agent and registrar, the cost of any stock issue
or transfer taxes on sales of the Shares to the Underwriters, the cost of the
Company's personnel and other internal costs, the cost of printing and engraving
the certificates representing the Shares and all expenses and taxes incident to
the sale and delivery of the Shares to be sold by the Company to the
Underwriters hereunder.
(b) The Company shall not, however, be required to pay for any of
the fees of counsel for the Underwriters (other than those related to
qualification of the Shares under state
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securities or Blue Sky laws and in connection with securing any required
approval of the NASD of the terms of the sale of the Shares) or any of the road
show expenses of the Underwriters, except that if this Agreement is terminated
by the Underwriters in accordance with the provisions of Section 5 or 8 hereof,
the Company shall reimburse the Underwriters for all of their reasonable
out-of-pocket expenses, including the reasonable fees and disbursements of
counsel for the Underwriters.
5. CONDITIONS OF THE UNDERWRITERS' OBLIGATION.
The obligation of the Underwriters to purchase the Shares hereunder
is subject to the continued accuracy of the representations and warranties of
the Company herein contained as of the date hereof and on each Closing Date, to
the accuracy of the statements of the Company made in any certificate or
certificates pursuant to the provisions hereof as of the date hereof and on each
Closing Date and to the performance by the Company of its obligations hereunder,
and to the following further conditions:
(a) The Registration Statement shall have become effective not later
than 5:30 P.M. on the date hereof, or at such later time and date as may be
approved by the Underwriters and the Company and shall remain effective at each
Closing Date. No stop order suspending the effectiveness of the Registration
Statement shall have been issued under the Act or proceedings therefor initiated
or threatened by the Commission. No order suspending the effectiveness of the
Registration Statement or the qualification or registration of the Shares under
the securities or blue sky laws of any jurisdiction shall be in effect or
proceedings therefor initiated or threatened by the Commission or the
authorities of any such jurisdiction. If the Company has elected to rely upon
Rule 430A, the price of the Shares and any price-related or other information
previously omitted from the effective Registration Statement pursuant to Rule
430A shall have been transmitted to the Commission for filing pursuant to Rule
424(b) within the prescribed time period, and prior to the Firm Shares Closing
Date, the Company shall have provided evidence satisfactory to the Underwriters
of such timely filing, or a post-effective amendment providing such information
shall have been promptly filed and declared effective in accordance with the
requirement of Rule 430A.
(b) Since the respective dates as of which information is given in
the Registration Statement and the Prospectus, there shall not have occurred (i)
any change, or any development involving a prospective change, in or affecting
the business, properties, prospects, condition (financial or other) or results
of operations of the Company, which, in the judgment of the Underwriters,
materially affects the market for the Shares or (ii) any material loss or
interference with the business or properties of the Company from fire,
explosion, flood or other casualty, whether or not covered by insurance, or from
any labor dispute or any court or legislative or other governmental action,
order or decree, which is not set forth in the Registration Statement and the
Prospectus, if in the judgment of the Underwriters any such development makes it
impracticable or inadvisable to proceed with completion of the sale of and
payment for the Shares.
(c) Since the respective dates as of which information is given in
the Registration Statement and the Prospectus, there shall have been no
litigation or other proceeding instituted
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against the Company or any of its respective officers or directors in their
capacities as such, before or by any Federal, state or local court, commission,
regulatory body, administrative agency or other governmental body, domestic or
foreign, or arbitrator, in which litigation or proceeding an unfavorable ruling,
decision or finding would materially and adversely affect the business,
properties, business prospects, condition (financial or otherwise) or results of
operations of the Company.
(d) Each of the representations and warranties of the Company
contained herein shall be true and correct in all material respects at each
Closing Date, as if made at such Closing Date, and all covenants and agreements
contained herein to be performed on the part of the Company and all conditions
contained herein to be fulfilled or complied with by the Company at or prior to
each Closing Date, shall have been duly performed, fulfilled or complied with.
(e) Brenner, Saltzman & Wallman, counsel for the Company, shall have
furnished to the Underwriters their opinion, satisfactory in form and substance
to counsel for the Underwriters, dated the Firm Shares Closing Date (and, if
applicable, the Additional Shares Closing Date), to the effect that:
(i) The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the State of
Delaware with full corporate power and authority to own, lease and operate its
properties and conduct its business as described in the Registration Statement
and the Prospectus, and is duly qualified to conduct its business and is in good
standing in each jurisdiction or place where the nature or location of its
properties (owned or leased) or the conduct of its business requires such
registration or qualification, except where the failure so to register or
qualify would not have a Material Adverse Effect.
(ii) To the knowledge of such counsel, the Company does not
own or control, directly or indirectly, any corporation, association or other
entity.
(iii) There are no preemptive or other rights to subscribe for
or to purchase shares of capital stock of the Company pursuant to any statute,
the certificate of incorporation or by-laws of the Company or, to such counsel's
knowledge, any agreement or other instrument to which the Company is a party as
to which any person can successfully maintain an action, suit or proceeding
against the Company for violation of his, her or its preemptive rights with
respect to the issuance of any shares of capital stock of the Company.
(iv) To the knowledge of such counsel, there is no pending or
threatened action, suit or proceeding before any court or governmental agency,
authority or body or any arbitrator involving the Company required to be
disclosed in the Prospectus that is not disclosed in the Prospectus, and there
is no contract or other document required to be described in the Registration
Statement or the Prospectus, or to be filed as an exhibit, which is not
described or filed as required.
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(v) All of the Company's issued and outstanding capital stock
has been duly authorized, validly issued, is fully paid and nonassessable and
have not been issued in violation of any applicable Federal securities laws and
the capitalization of the Company conforms in all material respects to the
descriptions thereof and the statements made with respect thereto in the
Registration Statement and the Prospectus under the caption "Description of
Capital Stock."
(vi) The Registration Statement has become effective under the
Act; any required filing of the Prospectus, and any supplements thereto,
pursuant to Rule 424(b) have been made in the manner and within the time period
required by Rule 424(b); to the knowledge of such counsel, no stop order
suspending the effectiveness of the Registration Statement has been issued, no
proceedings for that purpose have been instituted or threatened, and the
Registration Statement and the Prospectus (other than the financial statements
and other financial and statistical information contained therein as to which
such counsel need express no opinion) comply as to form in all material respects
with the requirements of the Act and the applicable Act Regulations.
(vii) The statements in the Registration Statement and
Prospectus, insofar as they are descriptions of contracts, agreements or other
legal documents, fairly summarize the information required to be shown with
respect to such contracts, agreements and documents.
(viii) This Agreement has been duly authorized, executed and
delivered by the Company, is a valid and binding agreement of the Company,
enforceable in accordance with its terms (except to the extent rights to
indemnity hereunder or thereunder may be limited by Federal or state securities
laws or public policy underlying such laws and except to the extent the
enforcement hereof or thereof may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws relating to or affecting
creditors' rights generally or by equitable principles) and the Company has full
corporate power and authority to enter into this Agreement.
(ix) No consent, approval, authorization or order of any court
or governmental agency or body of which such counsel has knowledge is required
for the consummation of the transactions contemplated hereby, except such as
have been obtained under the Act and such as may be required under the blue sky
laws of any jurisdiction in connection with the purchase and distribution of the
Shares by the Underwriters or such as may be required by the NASD and such other
approvals (specified in such opinion) as have been obtained.
(x) All of the Shares have been approved for quotation on the
Nasdaq National Market.
(xi) Neither the execution and delivery of this Agreement, the
issue and sale of the Shares, the consummation of any other of the transactions
herein contemplated, nor the fulfillment of the terms hereof, will conflict
with, or result in a breach or violation of, or constitute a default under, or
result in the creation or imposition of any lien, charge, claim or encumbrance
upon, any of the property or assets of the Company pursuant to (a) the terms of
any agreement, contract, indenture, lease or other instrument known to such
counsel to which the Company is a party
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or by which the Company is bound or to which any of the property or assets of
the Company is subject, (b) any law, statute, rule, or regulation, or any
judgment, order, consent or memorandum of understanding known to such counsel of
any court, regulatory body, administrative agency, governmental body or
arbitrator having jurisdiction over the Company, or (c) the certificate of
incorporation or by-laws of the Company.
(xii) To the knowledge of such counsel, the Company is not now
in violation or breach of, or in default with respect to, any provision of any
contract, agreement, instrument, lease, license, arrangement or understanding
known to such counsel which, individually or in the aggregate, would have a
Material Adverse Effect.
(xiii) The Shares have been duly and validly authorized by the
Company for issuance, and the Company has full corporate power and authority to
issue, sell and deliver the Shares; and, when the Shares are issued and
delivered against payment therefor as provided by this Agreement, the Shares
will have been validly issued and will be fully paid and nonassessable, and the
issuance of such Shares will not be subject to any statutory preemptive rights
or similar statutory rights or, to such counsel's knowledge, any other
preemptive or similar rights. The Shares, when issued, will conform in all
material respects to the description thereof contained in the Registration
Statement and the Prospectus under the caption "Description of Capital Stock."
(xiv) The certificates for the Shares, assuming they are in
the form filed with the Commission, are in due and proper form under Delaware
law and the by-laws of the Company and conform with the form of certificate duly
authorized by the Board of Directors of the Company.
(xv) The Company Merger Agreement has been duly authorized by
all necessary board of directors and stockholder action on the part of the
Company, and all board of managers and member action on the part of the Delaware
LLC, and has been duly executed and filed according to the laws of the State of
Delaware. The Company Merger Agreement is effective under the laws of the State
of Delaware. The execution and delivery of the Company Merger Agreement and the
consummation of the merger contemplated thereby did not contravene any provision
of applicable Federal or Delaware law or the Certificate of Incorporation or
Bylaws of the Company or the Certificate of Formation, Operating Agreement or
Bylaws of the Delaware LLC or any agreement or other instrument known to such
counsel binding upon the Delaware LLC or the Company, any judgment or decree
known to such counsel of any governmental body, agency or court having
jurisdiction over the Company or Delaware LLC, and no consent, approval,
authorization or order of or qualifications with any governmental body or agency
was required for the performance by the Company and Delaware LLC of the
respective obligations under the Company Merger Agreement except such as have
been obtained.
(xvi) The Company is not and, upon sale of the Shares and
application of the net proceeds as described in the Prospectus under "Use of
Proceeds" will not be an "investment company" within the meaning of the
Investment Company Act of 1940, as amended, or subject to registration under
such act.
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(xvii) The Company is recorded in the records of the United
States Patent and Trademark Office as the sole owner or assignee of record of
each of the registered trademarks noted on an appendix to such opinion (the
"Trademarks") and each of the trademark applications noted in such appendix (the
"Trademark Applications"). To the knowledge of such counsel, there are no
asserted or unasserted claims of any possession relating to the use or ownership
of the Trademarks or Trademark Applications, and there are no material defects
of form in the preparation or filing of the Trademark Applications and the
applications which led to the Trademarks. To such counsel's knowledge, none of
the licenses, trademarks, service marks or trade names presently owned, held or
used by the Company infringes or conflicts with any licenses, trademarks,
service marks or trade names of any other person or entity or are in dispute,
and such counsel is not aware of any notice of any infringement of or conflict
with the asserted rights of others.
(xviii) The statements set forth in the Registration Statement
and the Prospectus under the captions "Risk Factors - Government regulation
could negatively affect our business" and "-We could face liability for
inappropriate use of our network" insofar as such statements purport to
summarize applicable provisions of law are accurate summaries in all material
respects of the provisions purported to be summarized under such captions or of
any legal matters, documents or proceedings referred to therein and relating to
the regulation of the business and operations of the Company and the Company's
compliance therewith.
(xix) Except as set forth in the Registration Statement and
the Prospectus, to the knowledge of such counsel no holder of any securities of
the Company or any other person has the right, contractual or otherwise, to
cause the Company to sell or otherwise issue to such person, or to permit such
person to underwrite the sale of, any of the Shares or the right to have any
Common Stock or other securities of the Company included in the Registration
Statement or the right, as a result of the filing of the Registration Statement,
to require registration under the Act of any shares of Common Stock or other
securities of the Company that has not been waived or lapsed.
In addition, such counsel shall also state that such counsel has
participated in conferences with representatives of the Underwriters, officers
and representatives of the Company and representatives of the independent
certified public accountants of the Company, at which conferences the contents
of the Registration Statement and the Prospectus and related matters were
discussed and that, although such counsel is not passing upon and does not
assume any responsibility for the accuracy, completeness or fairness of the
statements contained in the Registration Statement and the Prospectus (except as
set forth in Sections 5(e)(vi), (vii) and (xviii)), on the basis of the
foregoing, no facts have come to the attention of such counsel which lead such
counsel to believe that the Registration Statement at the time it became
effective (but after giving effect to any modifications incorporated therein
pursuant to Rule 430A under the Act) or at the Representation Date and at the
Firm Shares Closing Date (and, if applicable, the Additional Shares Closing
Date) contained an untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading or that the Prospectus, at
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the Representation Date (unless the term "Prospectus" refers to a prospectus
which has been provided to the Underwriters by the Company for use in connection
with the offering of the Shares which differs from the Prospectus on file at the
Commission at the Representation Date, in which case at the time it is first
provided to the Underwriters for such use) or at the Firm Shares Closing Date
(and, if applicable, the Additional Shares Closing Date), included or includes
an untrue statement of a material fact or omitted or omits to state a material
fact necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading; PROVIDED, that such
counsel need not express any comment with respect to the financial statements,
supporting schedules or other financial and statistical data contained in the
Registration Statement or the Prospectus.
To the extent deemed advisable by such counsel, such counsel may rely as
to regulatory and intellectual property matters on the opinions of other counsel
satisfactory to the Underwriters, provided that such counsel shall state that in
their opinion that they know of no reason why the Underwriters and they are not
justified in relying thereon. Copies of such opinions shall be furnished to the
Underwriters and counsel for the Underwriters.
(f) Fulbright & Jaworski L.L.P., counsel for the Underwriters, shall
have furnished to the Underwriters an opinion with respect to such matters as
may be reasonably requested by the Underwriters, dated the Firm Shares Closing
Date (and, if applicable, the Additional Shares Closing Date). The following
conditions contained in clauses (A) through (C) of this Section 5(f) shall have
been satisfied on and as of each Closing Date and the Company shall have
furnished to the Underwriters a certificate of the Company, signed by the
Co-Chairman of the Board and Chief Executive Officer or the President and the
principal financial or accounting officer of the Company, dated the Firm Shares
Closing Date (and, if applicable, the Additional Shares Closing Date), to the
effect that the signers of such certificate have carefully examined the
Registration Statement, the Prospectus, any supplement or amendment to the
Prospectus and this Agreement and that:
(A) the representations and warranties of the Company in this
Agreement are true and correct on and as of the Firm Shares Closing Date (and,
if applicable, on the Additional Shares Closing Date), with the same effect as
if made on the Firm Shares Closing Date (and, if applicable, on the Additional
Shares Closing Date); the Registration Statement, as amended as of the Firm
Shares Closing Date (and, if applicable, on the Additional Shares Closing Date),
does not include any untrue statement of a material fact or omit to state a
material fact necessary to make the statements therein not misleading, and the
Prospectus, as amended or supplemented as of the Firm Shares Closing Date (and,
if applicable, on the Additional Shares Closing Date), does not include any
untrue statement of a material fact or omit to state any material fact necessary
in order to make the statements therein, in light of the circumstances under
which they were made, not misleading; and the Company has complied with all the
agreements and satisfied all the conditions under this Agreement on its part to
be performed or satisfied at or prior to the Firm Shares Closing Date (and, if
applicable, at or prior to the Additional Shares Closing Date);
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(B) no stop order suspending the effectiveness of the
Registration Statement has been issued and no proceedings for that purpose have
been instituted or, to the knowledge of the Company, threatened; and
(C) since the date of the most recent financial statements
included in the Prospectus, there has been no change or development involving a
prospective change, with respect to the business, properties, prospects,
financial condition or results of operations of the Company that could have a
Material Adverse Effect.
(D) At the Effective Date, the Representation Date and at each
Closing Date, Arthur Andersen, LLP shall have furnished to the Underwriters a
letter or letters, dated respectively as of the Effective Date, the
Representation Date and each Closing Date, in form and substance satisfactory to
the Underwriters, containing statements and information of the type customarily
included in accountants' "comfort letters" to underwriters with respect to the
financial statements and certain financial and statistical information contained
in the Registration Statement and the Prospectus.
(i) At each Closing Date, counsel for the Underwriters
shall have been furnished with such information,
certificates and documents as they may reasonably
require for the purpose of enabling them to pass
upon the issuance and sale of the Shares as
contemplated herein and related proceedings, or to
evidence the accuracy of any of the
representations or warranties, or the fulfillment
of any of the conditions, herein contained, or
otherwise in connection with the offering
contemplated hereby; and all opinions and
certificates mentioned above or elsewhere in this
Agreement shall be reasonably satisfactory in form
and substance to the Underwriters and counsel for
the Underwriters.
(ii) On or prior to the Representation Date, the
Company shall have furnished to the Underwriters a
Lock-Up Agreement and Stop Transfer Order letter
addressed to the Company's Transfer Agent in form
and substance reasonably satisfactory to the
Underwriters from the Company's officers,
directors and stockholders in which each such
person agrees not to offer, sell or contract to
sell, or otherwise dispose of, directly or
indirectly, any shares of Common Stock
beneficially owned by such person or any
securities convertible into, or exchangeable for,
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shares of Common Stock for a period of 180 days
following the date of the Prospectus without prior
written consent of Jefferies.
6. INDEMNIFICATION AND CONTRIBUTION.
(a) The Company agrees to indemnify, defend and hold harmless each
Underwriter, the directors, officers, employees and agents of each Underwriter
and each person who controls any Underwriter within the meaning of Section 15 of
the Act or Section 20 of the Exchange Act, to the fullest extent lawful from and
against any losses, expenses, claims, damages or liabilities (including any and
all investigative, legal and other expenses reasonably incurred in connection
with, and any amount paid in settlement of, any action, suit or proceeding or
any claim asserted), which it may become subject under the Act, the Exchange Act
or otherwise, as such expenses are incurred, insofar as such losses, expenses,
claims, damages or liabilities arise out of or are based upon (i) any untrue
statement or alleged untrue statement of a material fact contained in the
Registration Statement, or in any Preliminary Prospectus or the Prospectus, or
in any amendment thereof or supplement thereto, or in any Blue Sky application
or other document executed by the Company specifically for that purpose or based
upon information furnished by the Company filed in any state or other
jurisdiction in order to qualify any or all of the Shares under the securities
laws thereof or filed with the Commission or any securities association or
securities exchange (each, an "Application"), or the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading or (ii) any untrue
statement or alleged untrue statement made in Section 1(a) of this Agreement by
the Company; PROVIDED, HOWEVER, that the Company will not be liable in any such
case to the extent that any such loss, expense, claim, damage or liability
arises out of or is based upon any such untrue statement or alleged untrue
statement or omission or alleged omission made therein in reliance upon and in
conformity with the written information furnished to the Company by any
Underwriter expressly for use in the Registration or the Prospectus; and
PROVIDED, FURTHER, that with respect to any untrue statement or omission or
alleged untrue statement or omission made in any Preliminary Prospectus, the
indemnity agreement contained in this Section 6(a) shall not inure to the
benefit of any such Underwriter the directors, officers, employees or agents of
such Underwriter or any person controlling such Underwriter and the Company
shall not be liable to any such Underwriter, the directors, officers, employees
or agents of such Underwriter or any persons controlling such Underwriter, from
whom the person asserting any such losses, expenses, claims, damages or
liabilities purchased the Shares concerned, to the extent that any such loss,
expense, claim, damage or liability results from the fact that there was not
sent or given to such person, at or prior to the written confirmation of the
sale of such Shares to such person, a copy of the Prospectus, as the same may be
amended or supplemented, within the time required by the Act (if required
thereby), and the untrue statement or alleged untrue statement of a material
fact or omission or alleged omission to state a material fact in such
Preliminary Prospectus was corrected in such Prospectus and the Company had
previously furnished copies thereof to such Underwriter on a timely basis in
order to permit the Prospectus (as the same may be amended or supplemented) to
be sent or given. The
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foregoing indemnity agreement shall be in addition to any liability that the
Company may otherwise have.
(b) Each Underwriter severally agrees to indemnify and hold harmless
the Company, each person, if any, who controls the Company within the meaning of
Section 15 of the Act or Section 20 of the Exchange Act, each director of the
Company and each officer who signs the Registration Statement, to the same
extent as the foregoing indemnities from the Company to each Underwriter, the
directors, officers, employees and agents of such Underwriter and any person
controlling such Underwriter, but only insofar as such loss, expense, claim,
damage or liability arises out of or is based upon any untrue statement or
omission or alleged untrue statement or omission made in reliance or in
conformity with information relating to such Underwriter furnished in writing to
the Company by such Underwriter, expressly for use in the Registration Statement
or the Prospectus. This indemnity agreement will be in addition to any liability
that any Underwriter may otherwise have. The Company agrees that the table of
Underwriters set forth under the heading "Underwriting" in the Prospectus, the
amounts of the selling concession and reallowance set forth in the Prospectus
and the last three paragraphs under the caption "Underwriting" in the Prospectus
constitute the only information provided in writing by any Underwriter expressly
for use in the Registration Statement or the Prospectus.
(c) If any action is brought against an indemnified party under this
Section 6, the indemnified party or parties shall promptly notify the
indemnifying party in writing of the institution of such action (provided that
the failure to give such notice shall not relieve the indemnifying party of any
liability which it may have pursuant to this Agreement, unless and to the extent
the indemnifying party did not otherwise learn of such action and such failure
has resulted in the forfeiture of substantive rights or defenses by the
indemnifying party) and the indemnifying party shall assume the defense of such
action, including the employment of counsel and payment of reasonable expenses.
The indemnified party or parties shall have the right to employ separate counsel
(including local counsel) in any such case and to participate in the defense
thereof, but the fees and expenses of such counsel shall be at the expense of
the indemnified party or parties unless (i) the employment of such counsel shall
have been authorized in writing by the indemnifying party in connection with the
defense of such action, (ii) the indemnifying party shall not have employed
counsel reasonably satisfactory to the indemnified party to take charge of the
defense of such action within a reasonable time after notice of the institution
of such action, (iii) such indemnified party or parties shall have reasonably
concluded that there may be defenses available to it or them that are different
from or additional to those available to the indemnifying party or (iv) the use
of counsel chosen by the indemnifying party to represent the indemnified party
would present such counsel with a conflict of interest (in which case the
indemnifying party shall not have the right to direct the defense of such action
on behalf of the indemnified party or parties, in any of which events such fees
and expenses shall be borne by the indemnifying party and paid as incurred;
PROVIDED that the indemnifying party shall only be responsible for the fees and
expenses of one counsel for the indemnified party or parties hereunder).
Anything in this paragraph to the contrary notwithstanding, the indemnifying
party shall not be liable for any settlement of any such claim or action
effected without its written consent, which consent shall not be unreasonably
withheld. An indemnifying
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party will not, without the prior written consent of the indemnified parties,
settle or compromise or consent to the entry of any judgment with respect to any
pending or threatened claim, action, suit or proceeding in respect of which
indemnification or contribution may be sought hereunder (whether or not the
indemnified parties are actual or potential parties to such claim or action)
unless such settlement, compromise or consent includes an unconditional release
of each indemnified party from all liability arising out of such claim, action,
suit or proceeding.
(d) If the indemnification provided for in this Section 6 is
unavailable to an indemnified party under subsections (a) or (b) of this Section
6 or is insufficient to hold harmless a party indemnified thereunder, in respect
of any losses, expenses, claims, damages or liabilities referred to therein,
then each applicable indemnifying party shall contribute to the amount paid in
settlement of any action, suit or proceeding or any claims asserted, but after
deducting in the case of losses, expenses, claims, damages and liabilities
suffered by the Company, any contribution received by the Company from persons
other than the Underwriters who may also be liable for contribution, including
persons who control the Company within the meaning of Section 15 of the Act or
Section 20 of the Exchange Act, officers of the Company who signed the
Registration Statement and directors of the Company, to which the Company and
one or more of the Underwriters may be subject, in such proportion as is
appropriate to reflect the relative benefits received by the Company on the one
hand, and the Underwriters on the other hand, from the offering of the Shares
or, if, but only if, such allocation is not permitted by applicable law, in such
proportion as is appropriate to reflect not only the relative benefits referred
to above but also the relative fault of the Company on the one hand, and the
Underwriters on the other hand, in connection with the statements or omissions
which resulted in such losses, expenses, claims, damages or liabilities as well
as any other relevant equitable considerations. The relative benefits received
by the Company on the one hand, and the Underwriters on the other hand, shall be
deemed to be in the same proportion as the total proceeds from the offering (net
of underwriting discounts but before deducting expenses) received by the Company
bear to the total underwriting discounts and commissions received by the
Underwriters, in each case as set forth in the table on the cover page of the
Prospectus. The relative fault of the Company on the one hand, and the
Underwriters on the other hand, shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by the Company or the Underwriters and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission. The amount paid or payable by a party as a result of the
losses, expenses, claims and liabilities referred to above shall be deemed to
include any legal or other fees or expenses reasonably incurred by such party in
connection with investigating or defending any claim or action. The Company and
the Underwriters agree that it would not be just and equitable if contribution
pursuant hereto were determined by pro rata allocation (even if the Underwriters
were treated as one entity for such purpose) or by any other method of
allocation which does not take account of the equitable considerations referred
to above. Notwithstanding the provisions of this Section 6(d), no Underwriter
shall be required to contribute any amount in excess of the underwriting
discount received by it by reason of such untrue statement or alleged untrue
statement or omission or alleged omission. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) shall be
entitled to contribution
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from any person who was not guilty of such fraudulent misrepresentation. The
Underwriters' obligations in this Section 6(d) to contribute are several in
proportion to their respective underwriting obligations and not joint.
(e) The Company hereby agrees that in addition to their other
obligations under subsection (a) of this Section 6, as an interim measure during
the pendency of any claim, action, investigation, inquiry or other proceeding
arising out of or based upon any statement or omission, or any alleged statement
or omission described in subsection (a) of this Section, they will reimburse the
Underwriters on a monthly basis for all reasonable legal fees and other expenses
reasonably incurred in connection with investigating or defending such claim,
action, investigation, inquiry or other proceeding, notwithstanding the absence
of a judicial determination as to the propriety and enforceability of the
obligations under this Section 6 and the possibility that such payments might
later be held to be improper by a court of competent jurisdiction. To the extent
that any such interim reimbursement payment is so held to have been improper,
the Underwriters shall promptly return such payments to the Company.
7. SURVIVAL. The respective indemnity and contribution agreements
contained in Section 6 hereof and the covenants, warranties and other
representations of the Company contained in this Agreement or contained in
certificates of officers of the Company or submitted pursuant hereto, shall
remain in full force and effect, regardless of any investigation made by or on
behalf of any Underwriter, or any of their respective officers, employees,
directors, stockholders or person who controls the Underwriters within the
meaning of Section 15 of the Act, or by or on behalf of the Company or any of
its directors, officers, employees or any person who controls the Company within
the meaning of Section 15 of the Act, and shall survive delivery of and payment
for the Shares.
8. DEFAULT BY AN UNDERWRITER. If one or more of the Underwriters shall
fail or refuse at a Closing Date to purchase and pay for any of the Shares
agreed to be purchased by such Underwriter or Underwriters hereunder on such
date and the aggregate number of Firm Shares or Additional Shares, as the case
may be, which such defaulting Underwriter or Underwriters, as the case may be,
agreed but failed or refused to purchase is not more than one-tenth of the total
number of Shares to be purchased on such date by all Underwriters, each
nondefaulting Underwriter shall be obligated severally, in the proportion which
the number of Firm Shares set forth opposite its name in Schedule I bears to the
total number of Firm Shares which all the non-defaulting Underwriters, as the
case may be, have agreed to purchase, or in such other proportion as the
Underwriters may specify, to purchase the Firm Shares or Additional Shares, as
the case may be, which such defaulting Underwriter or Underwriters, as the case
may be, agreed but failed or refused to purchase on such date; PROVIDED that in
no event shall the number of Firm Shares or Additional Shares, as the case may
be, which any Underwriter has agreed to purchase pursuant to Section 2 hereof be
increased pursuant to this Section 8 by an amount in excess of one-tenth of such
number of Firm Shares or Additional Shares, as the case may be, without the
written consent of such Underwriter. If on the Firm Shares Closing Date or on
the Additional Shares Closing Date, as the case may be, any Underwriter or
Underwriters shall fail or refuse to purchase Firm Shares, or Additional Shares,
as
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the case may be, and the aggregate number of Firm Shares or Additional Shares,
as the case may be, with respect to which such default occurs is more than
one-tenth of the aggregate number of Shares to be purchased on such date by all
Underwriters in the event of a default by an Underwriter and arrangements
satisfactory to the Underwriters and the Company for purchase of such Shares are
not made within 48 hours after such default, this Agreement will terminate
without liability on the part of any non-defaulting Underwriter and the Company.
In any such case which does not result in termination of this Agreement, either
the Underwriters or the Company shall have the right to postpone the Firm Shares
Closing Date, or the Additional Shares Closing Date, as the case may be, but in
no event for longer than seven days, in order that the required changes, if any,
in the Registration Statement and the Prospectus or any other documents or
arrangements may be effected. Any action taken under this paragraph shall not
relieve any defaulting Underwriter from liability in respect of any default of
any such Underwriter under this Agreement.
9. TERMINATION OF AGREEMENT.
(a) The Underwriters may terminate this Agreement, by written
notice to the Company prior to the Firm Shares Closing Date (or, if
applicable, the Additional Shares Closing Date) (i) if there shall occur any
default or breach by the Company hereunder or the failure to satisfy any of
the conditions contained in Section 5 hereof, (ii) if there has been, since
the date of this Agreement or since the respective dates as of which
information is provided in the Registration Statement and prior to the Firm
Shares Closing Date (or, if applicable, the Additional Shares Closing Date),
there shall have been any material adverse change, or any development
involving a prospective material adverse change (including, without
limitation, a change in the management or control of the Company), in the
condition (financial or otherwise), business prospects, net worth or results
of operations of the Company, or (iii) if, since the date of this Agreement
and prior to the Firm Shares Closing Date (or, if applicable, the Additional
Shares Closing Date), (A) there has occurred any material adverse change in
political, financial or economic conditions in the United States or any
outbreak or material escalation of hostilities or declaration by the United
States of a national emergency or war or other calamity or crisis, the effect
of which on the financial securities markets of the United States is such as
to make it, in the judgment of the Underwriters, impracticable or inadvisable
to market the Shares on the terms and in the manner contemplated by the
Prospectus, or (B) trading in any of the securities of the Company has been
suspended by the Commission, or trading generally on the New York Stock
Exchange or the Nasdaq National Market has been suspended (other than by
limitation on hours or number of days of trading), or minimum or maximum
prices for trading have been fixed, or maximum ranges for prices for
securities have been required, by the New York Stock Exchange or the Nasdaq
National Market or by order of the Commission or any other governmental
authority or (C) a banking moratorium has been declared by any of the Federal
or New York authorities.
(b) If this Agreement is terminated pursuant to this Section 9 or
any other provision of this Agreement, such termination shall be without
liability of any party to any other party except as provided in Sections 4 and
6.
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10. NOTICES. All notices and other communications hereunder shall be in
writing and shall be deemed to have been duly given if mailed or transmitted by
any standard form of telecommunication. Notices to the Underwriters shall be
directed to the Underwriters, c/o Jefferies & Company, Inc., 11100 Santa Monica
Boulevard, Los Angeles, California 90025, attention of Jerry Gluck, Esq., with a
copy to Fulbright & Jaworski L.L.P., 666 Fifth Avenue, New York, New York 10103,
attention of Paul Jacobs, Esq.; notices to the Company shall be directed to 900
Chelmsford Street, Tower One, Fifth Floor, Lowell, Massachusetts 01851,
attention of Henry Zachs, with a copy to Brenner, Saltzman & Wallman, LLP, 271
Whitney Avenue, New Haven, Connecticut, 06511, attention Wayne A. Martino, Esq.
11. PARTIES. This Agreement shall inure to the benefit of and be binding
upon the Underwriters and the Company and their respective successors and legal
representatives. Nothing expressed or mentioned in this Agreement is intended or
shall be construed to provide any person, firm or corporation, other than the
Underwriters, the Company and their respective successors and legal
representatives and the controlling persons and officers, employees, directors
and stockholders referred to in Sections 6 and 7 and their respective heirs and
legal representatives, any legal or equitable right, remedy or claim under or in
respect of this Agreement or any provision herein contained. This Agreement and
all conditions and provisions hereof are intended to be for the sole and
exclusive benefit of the Underwriters, the Company and their respective
successors and legal representatives, and said controlling persons,
stockholders, officers and directors and their respective heirs and legal
representatives, and for the benefit of no other person, firm or corporation. No
purchaser of Shares from the Underwriters shall be deemed to be a successor by
reason merely of such purchase.
12. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT GIVING EFFECT TO THE
CONFLICTS OF LAWS PRINCIPLES THEREOF.
13. COUNTERPARTS. This Agreement may be executed by any one or more of the
parties hereto in any number of counterparts, each of which shall be deemed to
be an original, but all such counterparts shall together constitute one and the
same instrument.
[Remainder of page intentionally left blank]
-29-
<PAGE>
* * * * *
If the foregoing is in accordance with your understanding of our
agreement, please sign and return to the Company a counterpart hereof, whereupon
this instrument, along with all counterparts, will become a binding agreement
among the Underwriters and the Company in accordance with its terms.
Very truly yours,
ZIPLINK, INC.
By: ____________________________________
Name:
Title:
CONFIRMED AND ACCEPTED,
as of the date first above written:
JEFFERIES & COMPANY, INC.
First Albany Corporation
By: JEFFERIES & COMPANY, INC.
By: ____________________________________
Name:
Title:
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<PAGE>
SCHEDULE I
Number of Firm Shares
Underwriters To Be Purchased
------------ ---------------
Jefferies & Company, Inc. ................................
FAC/Equities..............................................
---------------------
Total 3,500,000
=====================
-31-
<PAGE>
EXHIBIT 2.2
FORM OF
AGREEMENT AND PLAN OF MERGER
OF
ZIPLINK, LLC
(a Delaware limited liability company)
AND
ZIPLINK, INC.
(a Delaware corporation)
AGREEMENT AND PLAN OF MERGER (the "Agreement") approved on _________,
1999 pursuant to Section 18-209 of the Delaware Limited Liability Company Act by
ZipLink, LLC, a limited liability company of the State of Delaware, and in
accordance with its Operating Agreement on said date, and approved on ________,
1999 pursuant to Section 264 of the General Corporation Law of the State of
Delaware by ZipLink, Inc., a business corporation of the State of Delaware, and
by resolution adopted by its Board of Directors on said date.
WHEREAS, ZipLink, Inc. is a business corporation of the State of
Delaware with its registered office therein located at 1013 Centre Road, City of
Wilmington, County of Dover; and
WHEREAS, the total number of shares of stock which ZipLink, Inc. has
authority to issue is 51,000,000, of which 50,000,000 are designated Common
Stock, par value $.001 and 1,000,000 are designated Preferred Stock, par value
$.001; and
WHEREAS, ZipLink, LLC and ZipLink, Inc. and the appropriate managers of
ZipLink, LLC and the Board of Directors of ZipLink, Inc. declare it advisable
and to the advantage, welfare and best interests of said limited liability
company and said corporation and their respective members and stockholders to
merge ZipLink, LLC with and into ZipLink, Inc. pursuant to the provisions of the
Delaware Limited Liability Company Act and pursuant to the provisions of the
General Corporation Law of the State of Delaware upon the terms and conditions
hereinafter set forth:
NOW, THEREFORE, in consideration of the premises and of the mutual
agreement of the parties hereto, being thereunto duly approved by the
appropriate managers of ZipLink, LLC and duly approved by a resolution adopted
by the Board of Directors of ZipLink, Inc., the Agreement and the terms and
conditions thereof and the mode of carrying the same into effect, together with
any provisions required or permitted to be set forth herein, are hereby
determined and agreed upon as hereinafter in the Agreement set forth.
1. ZipLink, LLC and ZipLink, Inc. shall, pursuant to the provisions of
the Delaware Limited Liability Company Act and pursuant to the provisions of the
General Corporation Law of the State of Delaware, be merged with and into a
single corporation, to wit, ZipLink, Inc., which shall be the surviving company
from and after the effective
<PAGE>
EXHIBIT 2.2
time of the merger, and which is sometimes hereinafter referred to as the
"Surviving Corporation", and which shall continue to exist as said Surviving
Corporation under its present name pursuant to the provisions of the General
Corporation Law of the State of Delaware.
The separate existence of ZipLink, LLC, which is hereinafter sometimes referred
to as the `Terminating Company", shall cease at the said effective time in
accordance with the provisions of the Delaware Limited Liability Company Act.
2. The Certificate of Incorporation of Surviving Corporation, as now in
force and effect, shall continue to be the Certificate of Incorporation of
said Surviving Corporation and said Certificate of Incorporation shall
continue in full force and effect until amended and changed in the manner
prescribed by the provisions of the General Corporation Law of the State of
Delaware.
3. The present By-laws of Surviving Corporation will be the By-laws of
Surviving Corporation and will continue in full force and effect until
changed, altered, or amended as therein provided and in the manner prescribed
by the provisions of the General Corporation Law of the State of Delaware.
4. The directors and officers in office of Surviving Corporation at the
effective time of the merger shall be the members of the first Board of
Directors and the first officers of Surviving Corporation, all of whom shall
hold their directorships and offices until the election and qualification of
their respective successors or until their tenure is otherwise terminated in
accordance with the By-laws of Surviving Corporation.
5. All membership interests, and options and warrants to acquire
membership interests, including, without limitation, any options and/or warrants
issued pursuant to the ZipLink, LLC Unit Option Plan shall, from and after the
effective time of the merger, be converted into shares of Common Stock of
Surviving Corporation and options and warrants to acquire shares of Common Stock
of Surviving Corporation, as more particularly described on EXHIBIT A attached
hereto.
6. In the event that the Agreement shall have been fully approved and
adopted upon behalf of Terminating Company in accordance with the provisions of
the Delaware Limited Liability Company Act and upon behalf of Surviving
Corporation in accordance with the provisions of the General Corporation Law of
the State of Delaware, Surviving Corporation and Terminating Company agree that
they will cause to be executed and filed and recorded any document or documents
prescribed by the laws of the State of Delaware, and that they will cause to be
performed all necessary acts within the State of Delaware and elsewhere to
effectuate the merger herein provided for.
<PAGE>
EXHIBIT 2.2
6. The managers and members of Terminating Company and the Board of
Directors and the proper officers of Surviving Corporation are hereby
authorized, empowered, and directed to do any and all acts and things, and to
make, execute, deliver, file, and record any and all instruments, papers, and
documents which shall be or become necessary, proper, or convenient to carry out
or put into effect any of the provisions of the Agreement or of the merger
herein provided for.
IN WITNESS WHEREOF, this Agreement is hereby signed upon behalf of each
of the parties thereto.
Dated: _______, 1999 ZipLink, LLC
By:
------------------
Henry M. Zachs
Manager
Dated: _______, 1999 ZipLink, Inc.
By:
------------------
Henry M. Zachs
Chairman of the Board
<PAGE>
EXHIBIT 2.2
EXHIBIT A
(1) The total number of shares of Common Stock of Surviving Corporation to be
issued with respect to existing Membership Interests (including for this purpose
the Senior Units issuable upon the conversion of Debenture #1 and Debenture #2
(as defined in and pursuant to the Securities Purchase Agreement entered into
during December 1997 between Bay Networks USA, Inc. and ZipLink, LLC) shall be
9,000,000 shares.
(2) The number of shares of Common Stock of Surviving Corporation to be issued
with respect to Debenture #1 shall be 450,000 shares.
(3) The number of shares of Common Stock of Surviving Corporation to be issued
with respect to Debenture #2 shall be based on the actual initial public
offering price for shares of Common Stock of Surviving Corporation.
(4) The number of shares of Common Stock of Surviving Corporation to be issued
with respect to Senior Units shall be equal to: (i) the number of Senior Units
outstanding immediately prior to the consummation of the merger, divided by the
total number of Units and Senior Units outstanding at such time, multiplied by
(ii) the number of shares described in Paragraph (1) above reduced by the number
of shares issued pursuant to Paragraphs (2) and (3) above. The number of shares
issued pursuant to this Paragraph divided by the number of Senior Units may be
referred to hereinafter as the " Senior Unit Conversion Factor".
(5) The number of shares of Common Stock of Surviving Corporation to be issued
with respect to Units shall be equal to: (i) the number of Units outstanding
immediately prior to the consummation of the merger, divided by the total number
of Units and Senior Units outstanding at such time, multiplied by (ii) the
number of shares described in Paragraph (1) above reduced by the number of
shares issued pursuant to Paragraphs (2) and (3) above, and shall be allocated
among the holders of Units as follows:
(a) Those holders of Units who have provided Preferred Capital shall be
issued a number of shares of Common Stock of Surviving Corporation,
with respect to the Preferred Capital, equal to the amount of Preferred
Capital provided divided by $13.00 the estimated initial public
offering price for shares of Common Stock of Surviving Corporation.
(b) The remaining shares of Common Stock of Surviving Corporation to be
issued with respect to Units shall be issued to the holders of Units in
proportion to the number of Units owned. The number of shares issued
pursuant to this Subparagraph divided by the number of Units may be
referred to hereinafter as the "Unit Conversion Factor".
(6) Options and/or warrants to acquire membership interests issued pursuant to
the ZipLink, LLC Unit Option shall be converted to options to acquire shares of
Common Stock of Surviving Corporation as follows:
(a) The number of shares of Common Stock of Surviving Corporation covered
by any such option shall be equal to the number of Units covered by
such option
<PAGE>
EXHIBIT 2.2
multiplied by the Unit Conversion Factor.
(b) The purchase price for each share of Common Stock of Surviving
Corporation covered by any such option shall be equal to the purchase
price for each Unit covered by such option divided by the Unit
Conversion Factor.
(7) Options and/or warrants to acquire membership interests other than those
issued pursuant to the ZipLink, LLC Unit Option shall be converted to options to
acquire shares of Common Stock of Surviving Corporation as follows:
(a) The number of shares of Common Stock of Surviving Corporation covered
by any such option shall be equal to the number of Units covered by
such option multiplied by the Senior Unit Conversion Factor.
(b) The purchase price for each share of Common Stock of Surviving
Corporation covered by any such option shall be equal to the purchase
price for each Unit covered by such option divided by the Senior Unit
Conversion Factor.
5
<PAGE>
EXHIBIT 3.1
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
ZIPLINK, INC.
ARTICLE I
The name of the corporation is ZipLink, Inc.
ARTICLE II
The address of the Corporation's registered office in the State of
Delaware is 1013 Centre Road, City of Wilmington, County of New Castle, State of
Delaware 19805. The name of its registered agent at such address is Corporation
Service Company.
ARTICLE III
The nature of the business to be conducted or promoted by the
Corporation is to engage in any lawful act or activity for which corporations
may be organized under the General Corporation Law of the State of Delaware (the
"DGCL").
ARTICLE IV
A. The Corporation shall have authority to issue the following classes
of stock, in the number of shares and at the par value as indicated opposite the
name of the class:
<TABLE>
<CAPTION>
- ---------------------------------------- ------------------------- ---------------
NUMBER OF SHARES PAR VALUE
CLASS AUTHORIZED PER SHARE
- ---------------------------------------- ------------------------- ---------------
<S> <C> <C>
Common Stock (the "Common Stock") 50,000,000 $.001
Preferred Stock (the "Preferred Stock") 1,000,000 $.001
- ---------------------------------------- ------------------------- ---------------
</TABLE>
A. The designations and the powers, preferences and relative,
participating, optional or other rights of the capital stock and the
qualifications, limitations or restrictions thereof are as follows:
<PAGE>
1. COMMON STOCK.
a. VOTING RIGHTS: Except as otherwise required by law
or expressly provided herein, the holders of shares of Common
Stock shall be entitled to one vote per share on each matter
submitted to a vote of the stockholders of the Corporation.
b. DIVIDENDS: Subject to the rights of the holders,
if any, of Preferred Stock, the holders of Common Stock shall
be entitled to receive and share ratably in cash dividends as,
when and if declared, and at such times and in such amounts as
may be determined, by the Board of Directors of the
Corporation.
c. LIQUIDATION RIGHTS: In the event of any
liquidation, dissolution or winding up of the Corporation,
whether voluntary or involuntary, after payment or provision
for payment of the debts and other liabilities of the
Corporation and the preferential amounts to which the holders
of any outstanding shares of Preferred Stock shall be entitled
upon dissolution, liquidation or winding up, the assets of the
Corporation available for distribution to stockholders shall
be distributed ratably among the holders of the shares of
Common Stock.
2 PREFERRED STOCK. Preferred Stock may be issued from time to
time in one or more series. Subject to the other provisions of this
Certificate of Incorporation and any limitations prescribed by law, the
Board of Directors is authorized to provide for the issuance of and to
issue shares of the Preferred Stock in one or more series, and by
filing a certificate pursuant to the laws of the State of Delaware, to
establish from time to time the number of shares to be included in each
such series, and to fix the designation, powers, preferences and rights
of the shares of each such series and any qualifications, limitations
or restrictions thereof. The number of authorized shares of Preferred
Stock may be increased or decreased (but not below the number of shares
thereof then outstanding) by the affirmative vote of the holders of a
majority of the Common Stock, without a vote of the holders of any
Preferred Stock, or of any series thereof, unless a vote of any such
holders is required pursuant to the certificate or certificates
establishing such series of Preferred Stock.
ARTICLE V
The business and affairs of the Corporation shall be managed by or
under the direction of a Board of Directors. The number of directors shall be
determined from time to time by resolution adopted by the affirmative vote of a
majority of the directors in office at the time of adoption of such resolution.
Initially, the number of directors shall be three.
At each annual meeting of stockholders, directors will be elected by
those stockholders entitled to vote for directors. A director shall hold office
until the next annual meeting of
-2-
<PAGE>
stockholders and until his or her successor shall be elected and shall qualify,
subject, however, to such director's prior death, resignation or removal from
office. Except as required by law or the provisions of this Amended and Restated
Certificate of Incorporation, all vacancies on the Board of Directors and
newly-created directorships shall be filled by the Board of Directors. Any
director elected to fill a vacancy shall hold office until the next annual
meeting of stockholders and until his or her successor shall be elected and
shall qualify, or until his or her earlier death, resignation or removal from
office.
ARTICLE VI
The Board of Directors of the Corporation may adopt a resolution
proposing to amend, alter, change or repeal any provision contained in this
Amended and Restated Certificate of Incorporation, in the manner now or
hereafter prescribed by statute.
ARTICLE VII
A. Indemnification of Officers, Directors, Employees and Agents:
The Corporation shall:
1. indemnify, to the fullest extent permitted by the DGCL, any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative or investigative (other than an action
by or in the right of the Corporation) by reason of the fact that such
person is or was a director, officer, employee or agent of the
Corporation or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise against expenses
(including attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by such person in
connection with such action, suit or proceeding if such person acted in
good faith and in a manner such 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 such person's conduct was unlawful. The termination of any
action, suit or proceeding by judgment, order, settlement, conviction,
or upon a plea of nolo contendere or its equivalent, shall not, of
itself, create a presumption that the person did not act in good faith
and in a manner which such 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 reasonable cause to believe that
such person's conduct was unlawful; and
2. indemnify any person who was or is a party or is threatened
to be made a party to any threatened, pending or completed action or
suit by or in the right of the Corporation to procure a judgment in its
favor by reason of the fact that such person is or was a director,
officer, employee or agent of the Corporation, or is or was serving at
the request of the Corporation as a director, officer, employee or
agent of another
-3-
<PAGE>
corporation, partnership, joint venture, trust or other enterprise
against expenses (including attorneys' fees) actually and reasonably
incurred by such person in connection with the defense or settlement
of such action or suit if such person acted in good faith and in a
manner such person reasonably believed to be in or not opposed to the
best interests of the Corporation and except that no indemnification
shall be made in respect of any claim, issue or matter as to which
such person shall have been adjudged to be liable to the Corporation
unless and only to the extent that the Court of Chancery or the court
in which such action or suit was brought shall determine upon
application that, despite the adjudication of liability but in view of
all the circumstances of the case, such person is fairly and
reasonably entitled to indemnity for such expenses which the Court of
Chancery or such other court shall deem proper; and
3. to the extent that a present or former director or officer
of the Corporation has been successful on the merits or otherwise in
defense of any action, suit or proceeding referred to in Article
VII.A.1. and 2., or in defense of any claim, issue or matter therein,
indemnify such person against expenses (including attorneys' fees)
actually and reasonably incurred by such person in connection
therewith; and
4. make any indemnification under Article VII.A.1. and 2.
(unless ordered by a court) only as authorized in the specific case
upon a determination that indemnification of the director, officer,
employee or agent is proper in the circumstances because such person
has met the applicable standard of conduct set forth in Article
VII.A.1. and 2. Such determination shall be made, with respect to a
person who is an officer or director at the time of such determination,
(1) by the Board of Directors by a majority vote of the directors who
are not parties to such action, suit or proceeding, even if less than a
quorum, or (2) by a committee of such directors designated by a
majority vote of such directors, even if less than a quorum, or (3) if
there are no such directors, or if such directors so direct, by
independent legal counsel in a written opinion, or (4) by the
stockholders of the Corporation; and
5. pay expenses (including attorneys' fees) incurred by a
director or officer in defending a civil or criminal action, suit or
proceeding in advance of the final disposition of such action, suit or
proceeding upon receipt of an undertaking by or on behalf of such
director or officer to repay such amount if it shall ultimately be
determined that such person is not entitled to be indemnified by the
Corporation as authorized in this Article VII; such expenses (including
attorneys' fees) incurred by former directors and officers or other
employees and agents to be so paid upon such terms and conditions, if
any, as the Corporation deems appropriate.
Notwithstanding anything to the contrary contained in this
Article VII.A, (i) the Corporation shall not be obligated to pay
expenses incurred by a director or officer with respect to any
threatened, pending, or completed claims, suits or actions, whether
civil, criminal, administrative, investigative or otherwise
("Proceedings"), initiated or brought voluntarily by such director or
officer and not by way of defense (other than Proceedings brought to
establish or enforce a right to indemnification under the provisions of
this
-4-
<PAGE>
Article VII, unless a court of competent jurisdiction determines that
each of the material assertions made by such director or officer in
such Proceedings were not made in good faith or were frivolous) and
(ii) the Corporation shall not be obligated to indemnify such director
or officer for any amount paid in settlement of a Proceeding covered
hereby without the prior written consent of the Corporation to such
settlement; and
6. not deem the indemnification and advancement of expenses
provided by, or granted pursuant to, the other subsections of this
Article VII as exclusive of any other rights to which those seeking
indemnification or advancement of expenses may be entitled under any
By-law, agreement, or vote of stockholders or disinterested directors,
or otherwise, both as to action in such person's official capacity and
as to action in another capacity while holding such office; and
7. have the right, authority and power to purchase and
maintain insurance on behalf of any person who is or was a director,
officer, employee or agent of the Corporation, or is or was serving at
the request of the Corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or
other enterprise against any liability asserted against such person and
incurred by such person in any such capacity, or arising out of such
person's status as such, whether or not the Corporation would have the
power to indemnify such person against such liability under the
provisions of this Article VII; and
8. deem the provisions of this Article VII to be a contract
between the Corporation and each director, or appropriately designated
officer, employee or agent who serves in such capacity at any time
while this Article VII is in effect, and any repeal or modification of
this Article VII shall not affect any rights or obligations then
existing with respect to any state of facts then or theretofore
existing or any action, suit or proceeding theretofore or thereafter
brought or threatened based in whole or in part upon such state of
facts. The provisions of this Article VII shall not be deemed to be a
contract between the Corporation and any directors, officers, employees
or agents of any other corporation (the "Second Corporation") which
shall merge into or consolidate with the Corporation when the
Corporation shall be the surviving or resulting Corporation, and any
such directors, officers, employees or agents of the Second Corporation
shall be indemnified to the extent required under the DGCL only at the
discretion of the Board of Directors of the Corporation; and
9. continue the indemnification and advancement of expenses
provided by, or granted pursuant to, this Article VII, unless otherwise
provided when authorized or ratified, as to a person who has ceased to
be a director, officer, employee or agent of the Corporation, and the
indemnification and advancement of expenses provided by, or granted
pursuant to, this Article VII shall inure to the benefit of the heirs,
executors and administrators of such a person.
B. ELIMINATION OF CERTAIN LIABILITY OF DIRECTORS: No director of the
Corporation shall
-5-
<PAGE>
be personally liable to the Corporation or its stockholders for monetary damages
for breach of fiduciary duty as a director, except for liability (i) for any
breach of the director's duty of loyalty to the Corporation or its stockholders,
(ii) for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, (iii) under Section 174 of the DGCL,
as the same exists or hereafter may be amended, or (iv) for any transaction from
which the director derived an improper personal benefit. If the DGCL is amended
to authorize the further elimination or limitation of liability of directors,
then the liability of a director of the Corporation existing at the time of such
elimination or limitation, in addition to the limitation on personal liability
provided herein, shall be limited to the fullest extent permitted by the amended
DGCL. Any repeal or modification of this Article VII shall be prospective only,
and shall not adversely affect any limitation on the personal liability of a
director of the Corporation existing at the time of such repeal or modification.
ARTICLE VIII
A director of the Corporation shall not, in the absence of fraud, be
disqualified by his office from dealing or contracting with the Corporation
either as a vendor, purchaser or otherwise, nor in the absence of fraud shall a
director of the Corporation be liable to account to the Corporation for any
profit realized by him from or through any transaction or contract of the
Corporation by reason of the fact that such director, or any firm of which such
director is a member or any corporation of which such director is an officer,
director or stockholder, was interested in such transaction or contract if such
transaction or contract has been authorized, approved or ratified in a manner
provided in the DGCL for authorization, approval or ratification of transactions
or contracts between the Corporation and one or more of its directors or
officers or between the Corporation and any other corporation, partnership,
association or other organization in which one or more of its directors or
officers are directors or officers or have a financial interest.
ARTICLE IX
A. WRITTEN CONSENT. At any time after the closing of an initial public
offering of the Corporation's Common Stock, any action required or permitted to
be taken by the stockholders of the Corporation shall be effected only at a duly
called annual or special meeting of stockholders of the Corporation and shall
not be effected by consent in writing by the holders of outstanding stock
pursuant to Section 228 of the DGCL or any other provision of the DGCL.
B. SPECIAL MEETINGS. Special meetings of stockholders of the
Corporation may be called upon not less than ten (10) nor more than sixty (60)
days' written notice only by the Board of Directors pursuant to a resolution
approved by a majority of the Board of Directors.
C. AMENDMENT. Notwithstanding anything contained in this Amended and
Restated Certificate of Incorporation to the contrary, the affirmative vote of
the holders of at least 80% of
-6-
<PAGE>
the shares entitled to vote generally in the election of directors shall be
required to amend, alter or repeal, or to adopt any provision inconsistent with,
this Article IX.
ARTICLE X
Meetings of stockholders may be held within or without the State of
Delaware as the By-laws of the Corporation may provide. The books of the
Corporation may be kept outside the State of Delaware at such place or places as
may be designated from time to time by the Board of Directors of the Corporation
or in the By-laws of the Corporation. Election of directors need not be by
written ballot unless the By-laws of the Corporation so provide.
ARTICLE XI
Whenever a compromise or arrangement is proposed between the
Corporation and its creditors or any class of them and/or between the
Corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of the Corporation or of any creditor or stockholder thereof or on the
application of any receiver or receivers appointed for the Corporation under the
provisions of Section 291 of the DGCL or on the application of trustees in
dissolution or of any receiver or receivers appointed for the Corporation under
the provisions of Section 279 of the DGCL, order a meeting of the creditors or
class of creditors and/or the stockholders or class of stock of the Corporation,
as the case may be, to be summoned in such manner as the said court directs. If
a majority in number representing three-fourths (3/4) of the value of the
creditors or class of creditors and/or the stockholders or class of stockholders
of the Corporation, as the case may be, agree to any compromise or arrangement
or to any reorganization of the Corporation as a consequence of such compromise
or arrangement, said compromise or arrangement or said reorganization shall, if
sanctioned by the Court to which said application has been made, be binding on
all the creditors or class of creditors and/or on all the stockholders or class
of stockholders, of the Corporation, as the case may be, and also on the
Corporation.
ARTICLE XII
In furtherance and not in limitation of the powers conferred by
statute, the Board of Directors is expressly authorized to adopt, alter amend or
repeal the By-laws of the Corporation. The By-laws of the Corporation may be
altered, amended, or repealed or new By-laws may be adopted, by the Board of
Directors in accordance with the preceding sentence or by the vote of the
holders of at least 80% of the voting power of the shares of the Corporation
entitled to vote generally in the election of directors at an annual or special
meeting of stockholders, provided that if such alteration, amendment, repeal or
adoption of new By-laws is effected at a duly called special meeting, notice of
such alteration, amendment, repeal or adoption of new By-laws is contained in
the notice of such special meeting.
<PAGE>
EXHIBIT 3.2
AMENDED AND RESTATED BY-LAWS
OF
ZIPLINK, INC.
ARTICLE I
OFFICES
SECTION 1.1. REGISTERED OFFICE. The registered office of ZipLink, Inc.
(the "Corporation") shall be in the City of Wilmington, State of Delaware.
SECTION 1.2. OTHER OFFICES. The Corporation may also have offices at
such other places both within and without the State of Delaware as the Board of
Directors may from time to time determine or the business of the Corporation may
require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
SECTION 2.1. PLACE OF MEETING. All meetings of the stockholders for the
election of directors shall be held at such place either within or without the
State of Delaware as shall be designated from time to time by the Board of
Directors and stated in the notice of the meeting. Meetings of stockholders for
any other purpose may be held at such time and place, within or without the
State of Delaware, as shall be stated by the Board of Directors in its notice of
the meeting or in a duly executed waiver of notice thereof.
SECTION 2.2. TIME OF ANNUAL MEETING. Annual meetings of stockholders at
which stockholders shall elect directors as provided in the Corporation's
Amended and Restated Certificate of Incorporation and Section 2.4 of Article II
of these By-laws and transact such other business as may properly be brought
before the meeting in accordance with Section 2.4 of Article II of these By-laws
shall be held on such business day within the 180-day period following the end
of the Corporation's fiscal year as shall be designated from time to time by the
Board of Directors and stated in the notice of the meeting.
SECTION 2.3. NOTICE OF ANNUAL MEETINGS. Except as otherwise required by
law, written notice of the annual meeting stating the place, date and hour of
the meeting shall be given to each stockholder entitled to vote at such meeting
not fewer than 10 nor more than 60 days before the date of the meeting.
<PAGE>
SECTION 2.4 PROPOSALS BY STOCKHOLDERS. Nominations of persons for
election to the Board of Directors of the Corporation and the proposal of
business to be transacted by the stockholders may be made at an annual meeting
of stockholders (i) pursuant to the Corporation's notice with respect to such
meeting, (ii) by or at the direction of the Board of Directors of the
Corporation, or (iii) by any stockholder of record of the Corporation who was a
stockholder of record at the time of the giving of the notice provided for in
the following paragraph, who is entitled to vote at the meeting and who has
complied with the notice procedures set forth in this Article II, Section 2.4.
For nominations or other business to be properly brought before an
annual meeting by a stockholder pursuant to clause (iii) of the foregoing
paragraph, (a) the stockholder must have given timely notice thereof in writing
to the secretary of the Corporation at the principal executive offices of the
Corporation, (b) such business must be a proper matter for stockholder action
under the General Corporation Law of the State of Delaware, (c) if the
stockholder, or the beneficial owner on whose behalf any such proposal or
nomination is made, has provided the Corporation with a Solicitation Notice, as
that term is defined in this Article II, Section 2.4, such stockholder or
beneficial owner must, in the case of a proposal, have delivered a proxy
statement and form of proxy to holders of at least the percentage of the
Corporation's voting shares required under applicable law to carry any such
proposal, or, in the case of a nomination or nominations, have delivered a proxy
statement and form of proxy to holders of a percentage of the Corporation's
voting shares reasonably believed by such stockholder or beneficial holder to be
sufficient to elect the nominee or nominees proposed to be nominated by such
stockholder (the number of voting shares required to carry the proposal or elect
the nominees being the "Required Number"), and must, in either case, have
included in such materials the Solicitation Notice and (d) if no Solicitation
Notice relating thereto has been timely provided pursuant to this section, the
stockholder or beneficial owner proposing such business or nomination must not
have solicited proxies for a number of shares equal to or greater than the
Required Number. To be timely, a stockholder's notice shall be delivered to the
Secretary of the Corporation at the principal executive offices of the
Corporation not less than 45 nor more than 75 days prior to the first
anniversary (the "Anniversary") of the date on which the Corporation first
mailed its proxy materials for the preceding year's annual meeting of
stockholders; provided, however, that if the date of the annual meeting is
advanced more than 30 days prior to, or delayed by more than 30 days after, the
anniversary of the preceding year's annual meeting, or if it is the first annual
meeting of stockholders of the Corporation, notice by the stockholder to be
timely must be so delivered not later than the close of business on the later of
(i) the 90th day prior to such annual meeting or (ii) the 10th day following the
day on which public announcement of the date of such meeting is first made. Such
stockholder's notice shall set forth (a) as to each person whom the stockholder
proposes to nominate for election or reelection as a director, all information
relating to such person as would be required to be disclosed in solicitations of
proxies for the election of such nominees as directors pursuant to Regulation
14A under the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
and such person's written consent to serve as a director if elected, (b) as to
any other business that the stockholder proposes to bring before the meeting,
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a brief description of such business, the reasons for conducting such business
at the meeting and any material interest in such business of such stockholder
and the beneficial owner, if any, on whose behalf the proposal is made, and (c)
as to the stockholder giving the notice and the beneficial owner, if any, on
whose behalf the nomination or proposal is made (i) the name and address of such
stockholder, as they appear on the Corporation's books, and of such beneficial
owner, (ii) the class and number of shares of the Corporation that are owned
beneficially and of record by such stockholder and such beneficial owner, and
(iii) whether either such stockholder or beneficial owner intends to deliver a
proxy statement and form of proxy to holders of, in the case of a proposal, at
least the percentage of the Corporation's voting shares required under
applicable law to carry the proposal or, in the case of a nomination or
nominations, a sufficient number of holders of the Corporation's voting shares
to elect such nominee or nominees (an affirmative statement of such intent being
a "Solicitation Notice").
Notwithstanding anything in the second sentence of the second paragraph
of this Section 2.4 to the contrary, in the event that the number of directors
to be elected to the Board of Directors is increased and there is no public
announcement naming all of the nominees for director or specifying the size of
the increased Board of Directors made by the Corporation at least 55 days prior
to the Anniversary, a stockholder's notice required by these By-laws shall also
be considered timely, but only with respect to nominees for any new positions
created by such increase, if it shall be delivered to the Secretary of the
Corporation at the principal executive offices of the Corporation not later than
the close of business on the 10th day following the day on which such public
announcement is first made by the Corporation.
Only persons nominated in accordance with the procedures set forth in
this Section 2.4 shall be eligible to serve as directors, and only such business
shall be conducted at an annual meeting of stockholders, as shall have been
brought before the meeting in accordance with the procedures set forth in this
section. The chair of the meeting shall have the power and the duty to determine
whether a nomination or any business proposed to be brought before the meeting
has been made in accordance with the procedures set forth in these By-laws and,
if any proposed nomination or business is not in compliance with these By-laws,
to declare that such defective proposed business or nomination shall not be
presented for stockholder action at the meeting and shall be disregarded.
Only such business shall be conducted at a special meeting of
stockholders as shall have been brought before the meeting pursuant to the
Corporation's notice of meeting. Nominations of persons for election to the
Board of Directors may be made at a special meeting of stockholders at which
directors are to be elected pursuant to the Corporation's notice of meeting (i)
by or at the direction of the Board of Directors or (ii) by any stockholder of
record of the Corporation who is a stockholder of record at the time of the
giving of notice provided for in this paragraph, who shall be entitled to vote
at the meeting and who complies with the notice procedures set forth in this
Section 2.4. Nominations by stockholders of persons for election to the Board of
Directors may be made at such a special meeting of stockholders if the
stockholder's notice required by the second paragraph of this Section 2.4 shall
be delivered to the Secretary of the Corporation at the principal executive
offices of the
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Corporation not later than the close of business on the later of the 90th day
prior to such special meeting or the 10th day following the day on which public
announcement is first made of the date of the special meeting and of the
nominees proposed by the Board of Directors to be elected at such meeting.
For purposes of this section, "public announcement" shall mean
disclosure in a press release reported by the Dow Jones News Service, Associated
Press or a comparable national news service or in a document publicly filed by
the corporation with the Securities and Exchange Commission pursuant to Section
13, 14 or 15(d) of the Exchange Act.
Notwithstanding the foregoing provisions of this Section 2.4, a
stockholder shall also comply with all applicable requirements of the Exchange
Act and the rules and regulations thereunder with respect to matters set forth
in this Section 2.4. Nothing in this Section 2.4 shall be deemed to affect any
rights of stockholders to request inclusion of proposals in the Corporation's
proxy statement pursuant to Rule 14a-8 under the Exchange Act.
SECTION 2.5. SPECIAL MEETINGS OF THE STOCKHOLDERS. Special meetings of
the stockholders of the Corporation may be called only by the Board of Directors
pursuant to a resolution approved by a majority of the Board of Directors. The
business transacted at any special meeting of the stockholders shall be limited
to the purposes stated in the notice for the meeting transmitted to
stockholders.
SECTION 2.6. NOTICE OF SPECIAL MEETINGS. Written notice of a special
meeting stating the place, date and hour of the meeting and the purpose or
purposes for which the meeting is called, shall be given by the Secretary of the
Corporation, not fewer than 10 nor more than 60 days before the date of the
meeting, to each stockholder entitled to vote at such meeting.
SECTION 2.7. FIXING OF RECORD DATE. In order that the Corporation may
determine the stockholders entitled to notice of or to vote at any meeting of
stockholders or any adjournment thereof, or entitled to receive payment of any
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 a
record date, which shall not precede the date upon which the resolution fixing
the record date is adopted, and which shall be (i) not more than 60 nor less
than 10 days before the date of a meeting, and (ii) not more than 60 days prior
to any other action. A determination of stockholders of record entitled to
notice of or to vote at a meeting of stockholders shall apply to any adjournment
of the meeting; provided, however, that the Board of Directors may fix a new
record date for any adjourned meeting.
SECTION 2.8. VOTING LISTS. The officer who has charge of the stock
ledger of the Corporation shall prepare and make available, at least 10 days
before every meeting of stockholders, a complete list of the stockholders
entitled to vote at the meeting, arranged in alphabetical order, and showing the
address of each stockholder and the number of shares registered in the name of
each stockholder. Such list shall be open to the examination of any
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stockholder, for any purpose germane to the meeting, during ordinary business
hours, for a period of at least 10 days prior to the meeting, either at a place
within the city where the meeting is to be held, which place shall be specified
in the notice of the meeting, or, if not so specified, at the place where the
meeting is to be held. The list shall also be produced and kept at the time and
place of the meeting during the whole time thereof, and may be inspected by any
stockholder who is present.
SECTION 2.9. QUORUM AND ADJOURNMENTS. The holders of a majority of the
voting power of the stock issued and outstanding and entitled to vote thereat,
present in person or represented by proxy, shall constitute a quorum at all
meetings of the stockholders for the transaction of business, except as
otherwise provided by statute or by the Corporation's Amended and Restated
Certificate of Incorporation. If, however, such quorum shall not be present or
represented at any such meeting of the stockholders, the stockholders entitled
to vote thereat, present in person or represented by proxy, shall have power to
adjourn the meeting from time to time, without notice other than announcement at
the meeting, until a quorum shall be present or represented; provided, that if
the adjournment is for more than 30 days, or if after the adjournment a new
record date is fixed by the directors for the adjourned meeting, a new notice
shall be transmitted to the stockholders of record entitled to vote at the
adjourned meeting. At such adjourned meeting at which a quorum shall be present
or represented, any business may be transacted which might have been transacted
at the meeting as originally notified.
SECTION 2.10. VOTE REQUIRED. When a quorum is present at any meeting of
all stockholders, the affirmative vote of the holders of a majority of the
voting power of the stock issued and outstanding and entitled to vote thereat,
present in person or represented by proxy, shall decide any question brought
before such meeting, unless the question is one upon which, by express provision
of statute or of the Corporation's Amended and Restated Certificate of
Incorporation, a different vote is required, in which case such express
provision shall govern and control the decision of such question; provided,
however, that all elections of directors shall be determined by a plurality of
the votes cast.
SECTION 2.11. VOTING RIGHTS. Unless otherwise provided in the
Corporation's Amended and Restated Certificate of Incorporation, each
stockholder shall at every meeting of the stockholders be entitled to one vote
in person or by proxy for each share of the capital stock having voting power
held by such stockholder, but no proxy shall be voted on after three years from
its date, unless the proxy provides for a longer period. At any meeting of the
stockholders, every stockholder entitled to vote may vote in person or by proxy
authorized by an instrument in writing or by a transmission permitted by law
filed in accordance with the procedure established for the meeting. Any copy,
facsimile telecommunication or other reliable reproduction of the writing or
transmission created pursuant to this paragraph may be substituted or used in
lieu of the original writing or transmission for any and all purposes for which
the original writing or transmission could be used; provided, that such copy,
facsimile telecommunication or other reproduction shall be a complete
reproduction of the entire original writing or transmission. All voting,
including on the election of directors, may (except where
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otherwise required by law) be by a voice vote; provided, however, that upon
demand therefor by a stockholder entitled to vote or by his or her proxy, a
stock vote shall be taken. Every stock vote shall be taken by ballots, each of
which shall state the name of the stockholder or proxy voting and such other
information as may be required under the procedure established for the meeting.
The Corporation may, and to the extent required by law shall, in advance of any
meeting of stockholders, appoint one or more inspectors to act at the meeting
and make a written report thereof. The Corporation may designate one or more
persons as alternate inspectors to replace any inspector who fails to act. If no
inspector or alternate is able to act at a meeting of stockholders, the person
presiding at the meeting may, and to the extent required by law shall, appoint
one or more inspectors to act at the meeting. Each inspector, before entering
upon the discharge of his or her duties, shall take and sign an oath to
faithfully execute the duties of inspector with strict impartiality and
according to the best of his or her ability. Every vote taken by ballots shall
be counted by an inspector or inspectors appointed by the chairman of the
meeting.
SECTION 2.12. PRESIDING OVER MEETINGS. The Chairman of the Board of
Directors shall preside at all meetings of the stockholders. In the absence or
inability to act of the Chairman, the Vice Chairman or the President (in that
order) shall preside, and in their absence or inability to act another person
designated by one of them shall preside. The Secretary of the Corporation shall
act as Secretary of each meeting of the stockholders. In the event of his or her
absence or inability to act, the chairman of the meeting shall appoint a person
who need not be a stockholder to act as Secretary of the meeting.
SECTION 2.13. CONDUCTING MEETINGS. Meetings of the stockholders shall
be conducted in a fair manner but need not be governed by any prescribed rules
of order. The presiding officer of the meeting shall establish an agenda for the
meeting. The presiding officer's rulings on procedural matters shall be final.
The presiding officer is authorized to impose reasonable time limits on the
remarks of individual stockholders and may take such steps as such officer may
deem necessary or appropriate to assure that the business of the meeting is
conducted in a fair and orderly manner.
ARTICLE III
DIRECTORS
SECTION 3.1. GENERAL POWERS. The business and affairs of the
Corporation shall be under the direction of and managed by a Board of Directors,
which may exercise all such powers of the Corporation and do all such lawful
acts and things as are not required by statute, by the Corporation's Amended and
Restated Certificate of Incorporation or by these By-laws to be done by the
stockholders. Directors need not be residents of the State of Delaware or
stockholders of the Corporation. The number of directors shall be determined
from time to time by resolution adopted by the affirmative vote of a majority of
the directors in office at the time of adoption of such resolution.
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SECTION 3.2. ELECTION. Each directors shall hold office until the next
annual meeting following his or her election and until his or her successor is
elected and qualified, subject, however, to his or her prior death, resignation
or removal from office.
SECTION 3.3. VACANCIES. Any vacancies occurring in the Board of
Directors and newly created directorships shall be filled in the manner provided
in the Corporation's Amended and Restated Certificate of Incorporation.
SECTION 3.4. PLACE OF MEETINGS. The Board of Directors of the
Corporation may hold meetings, both regular and special, either within or
without the State of Delaware.
SECTION 3.5 PARTICIPATION BY CONFERENCE TELEPHONE. Unless otherwise
restricted by the Corporation's Amended and Restated Certificate of
Incorporation or these By-laws, members of the Board of Directors, or any
committee designated by the Board of Directors, may participate in a meeting of
the Board of Directors, or any such committee, by means of conference telephone
or similar communications equipment through which all persons participating in
the meeting can hear each other, and participation by such means shall
constitute presence in person at such meeting.
SECTION 3.6. REGULAR MEETINGS. Regular meetings of the Board of
Directors may be held without notice at such time and at such place as shall
from time to time be determined by the Board of Directors.
SECTION 3.7. SPECIAL MEETINGS. Special meetings of the Board of
Directors may be called by the Chairman or Vice Chairman of the Board on at
least one day's notice to each director, either personally or by courier,
telephone, telefax, mail or telegram. Special meetings shall be called by the
Chairman or Vice Chairman of the Board in like manner and on like notice at the
written request of two or more of the directors comprising the Board of
Directors, stating the purpose or purposes for which such meeting is requested.
Notice of any meeting of the Board of Directors for which a notice is required
may be waived in writing signed by the person or persons entitled to such
notice, whether before or after the time of such meeting, and such waiver shall
be equivalent to the giving of such notice. Attendance of a director at any such
meeting shall constitute a waiver of notice thereof, except where a director
attends a meeting for the express purpose of objecting to the transaction of any
business because such meeting is not lawfully convened. Neither the business to
be transacted at nor the purpose of any meeting of the Board of Directors for
which a notice is required need be specified in the notice, or waiver of notice,
of such meeting. The Chairman of the Board shall preside at all meetings of the
Board of Directors. In the absence or inability to act of the Chairman of the
Board, the Vice Chairman of the Board or the President (in that order) shall
preside, and in their absence or inability to act, another director designated
by one of them shall preside.
SECTION 3.8. QUORUM; NO ACTION ON CERTAIN MATTERS. At all meetings of
the Board of
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Directors, a majority of the entire Board of Directors shall constitute a quorum
for the transaction of business and the act of a majority of the directors
present at any meeting at which there is a quorum shall be the act of the Board
of Directors, except as may be otherwise specifically provided by statute or by
the Corporation's Amended and Restated Certificate of Incorporation. If a quorum
shall not be present at any meeting of the Board of Directors, the directors
present thereat may adjourn the meeting from time to time, without notice other
than announcement at the meeting, until a quorum shall be present.
SECTION 3.9. RESIGNATIONS. Any director of the Corporation may resign
at any time by giving written notice to the Board of Directors or to the
Chairman or Vice Chairman of the Board. Such resignation shall take effect at
the time specified therein and, unless tendered to take effect upon acceptance
thereof, the acceptance of such resignation shall not be necessary to make it
effective.
SECTION 3.10. INFORMAL ACTION. Unless otherwise restricted by the
Corporation's Amended and Restated Certificate of Incorporation or these
By-laws, any action required or permitted to be taken at any meeting of the
Board of Directors or of any committee thereof may be taken without a meeting,
if all members of the Board of Directors or such committee consent thereto in
writing and the writing or writings are filed with the minutes of proceedings of
the Board of Directors or such committee.
SECTION 3.11. PRESUMPTION OF ASSENT. A director of the Corporation who
is present at a meeting of the Board of Directors at which action on any
corporate matter is taken shall be conclusively presumed to have assented to the
action taken unless his or her dissent shall be entered in the minutes of the
meeting or unless he or she shall file his or her written dissent to such action
with the person acting as the Secretary of the meeting before the adjournment
thereof or shall forward such dissent by registered mail to the Secretary of the
Corporation immediately after the adjournment of the meeting. Such right to
dissent shall not apply to a director who voted in favor of such action.
SECTION 3.12. COMPENSATION OF DIRECTORS. In the discretion of the Board
of Directors, the directors may be paid their expenses, if any, of attendance at
each meeting of the Board of Directors or a committee thereof, may be paid a
stated salary or a fixed sum for attendance at each meeting of the Board of
Directors or a committee thereof, and may be awarded other compensation for
their services as directors. No such payment or award shall preclude any
director from serving the Corporation in any other capacity and receiving
compensation therefor. Members of special or standing committees may be allowed
like compensation for attending committee meetings.
ARTICLE IV
COMMITTEES OF DIRECTORS
SECTION 4.1. APPOINTMENT AND POWERS. The Board of Directors may
designate one or
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more committees, each committee to consist of one or more of the directors of
the Corporation. The Board of Directors may designate one or more directors as
alternate members of any committee, who may replace any absent or disqualified
member at any meeting of the committee. 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 the 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 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 power or authority in reference to
the following matters: (a) approving or adopting, or recommending to the
stockholders, any action or matter expressly required by the General Corporation
Law of the State of Delaware to be submitted to stockholders for approval; or
(b) adopting, amending or repealing these By-laws.
SECTION 4.2. COMMITTEE MINUTES. Each committee shall keep regular
minutes of its meetings and shall file such minutes and all written consents
executed by its members with the Secretary of the Corporation. Each committee
may determine the procedural rules for meeting and conducting its business and
shall act in accordance therewith, except as otherwise provided herein or
required by law. Adequate provision shall be made for notice to members of all
meetings; one-third of the members shall constitute a quorum unless the
committee shall consist of one or two members, in which event one member shall
constitute a quorum; and all matters shall be determined by a majority vote of
the members present. Action may be taken by any committee without a meeting if
all members thereof consent thereto in writing, and the writing or writings are
filed with the minutes of the proceedings of such committee.
ARTICLE V
NOTICES
SECTION 5.1. MANNER OF NOTICE. Whenever, under applicable law or the
Corporation's Amended and Restated Certificate of Incorporation or these
By-laws, notice is required to be given to any director or stockholder, unless
otherwise provided in the Corporation's Amended and Restated Certificate of
Incorporation or these By-laws, such notice may be given in writing, by courier
or mail, addressed to such director or stockholder, at such director's or
stockholder's address as it appears on the records of the Corporation, with
freight or postage thereon prepaid, and such notice shall be deemed to be given
at the time when the same shall have been deposited with such courier or in the
United States mail. Notice may be given orally if such notice is confirmed in
writing in a manner provided therein. Notice to directors may also be given by
telegram, mailgram, telex or telecopier.
SECTION 5.2. WAIVER. Whenever any notice is required to be given under
applicable law or the provisions of the Corporation's Amended and Restated
Certificate of Incorporation
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or these By-laws, a waiver thereof in writing, signed by the person or persons
entitled to said notice, whether before or after the time stated therein, shall
be deemed equivalent thereto.
ARTICLE VI
OFFICERS
SECTION 6.1. NUMBER AND QUALIFICATIONS. The officers of the Corporation
shall be elected by the Board of Directors and shall be a Chairman of the Board
(who must be a director), a Vice Chairman of the Board (who must be a director),
a Chief Executive Officer, a President, a Chief Financial Officer, one or more
Vice Presidents and a Secretary. Except as provided in the foregoing sentence,
membership on the Board of Directors shall not be a prerequisite to the holding
of any other office. Any number of offices may be held by the same person,
unless the Corporation's Amended and Restated Certificate of Incorporation or
these By-laws otherwise provide.
SECTION 6.2. OTHER OFFICERS AND AGENTS. The Board of Directors may from
time to time choose such other officers and agents as it shall deem necessary,
which officers and agents shall hold their offices for such terms and shall
exercise such powers and perform such duties as shall be determined by the Board
of Directors.
SECTION 6.3. SALARIES. The salaries or other compensation of the
officers and agents of the Corporation shall be fixed from time to time by the
Board of Directors, and no officer shall be prevented from receiving such salary
or other compensation by reason of the fact that such officer is also a director
of the Corporation.
SECTION 6.4. TERM OF OFFICE. The officers of the Corporation shall hold
office until their successors are chosen and qualified or until their earlier
resignation or removal. Any officer elected or appointed by the Board of
Directors may be removed at any time, either with or without cause, by the
affirmative vote of a majority of the directors then in office at any meeting of
the Board of Directors. If a vacancy shall exist among the officers of the
Corporation, the Board of Directors may elect any person to fill such vacancy,
such person to hold office as provided in this Article VI.
SECTION 6.5. THE CHAIRMAN OF THE BOARD. The Chairman of the Board shall
preside at all meetings of the stockholders and of the Board of Directors and
shall see that orders and resolutions of the Board of Directors are carried into
effect. The Chairman of the Board shall perform such duties as may be assigned
to him by the Board of Directors.
SECTION 6.6. THE VICE CHAIRMAN OF THE BOARD. The Vice Chairman of the
Board shall, in the absence of the Chairman of the Board or in the event of the
Chairman of the Board's inability or refusal to act, perform the duties and
exercise the powers of the Chairman of the Board and shall perform such other
duties and have such other powers as the Board of
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Directors may from time to time prescribe. In the absence or incapacity of the
Chairman of the Board, if the Chairman of the Board has been designated Chief
Executive Officer, the Vice Chairman of the Board shall perform the duties of
the Chief Executive Officer and, when so acting, shall have all the powers of
and be subject to all the restrictions upon the Chief Executive Officer.
SECTION 6.7. THE CHIEF EXECUTIVE OFFICER. The Chief Executive Officer
shall be the principal executive officer of the Corporation and shall, in
general, supervise and control all of the business and affairs of the
Corporation, unless otherwise provided by the Board of Directors. The Chief
Executive Officer may sign bonds, mortgages, certificates for shares and all
other contracts and documents whether or not under the seal of the Corporation
except in cases where the signing and execution thereof shall be expressly
delegated by law, by the Board of Directors or by these By-laws to some other
officer or agent of the Corporation. The Chief Executive Officer shall have
general powers of supervision and shall be the final arbiter of all differences
between officers of the Corporation, and the Chief Executive Officer's decision
as to any matter affecting the Corporation shall be final and binding as between
the officers of the Corporation, subject only to its Board of Directors.
SECTION 6.8. THE PRESIDENT. The President shall keep the Chairman of
the Board fully informed concerning the business of the Corporation under his
supervision. The President shall have concurrent power with the Chief Executive
Officer to sign bonds, mortgages, certificates for shares and other contracts
and documents, whether or not under the seal of the Corporation except in cases
where the signing and execution thereof shall be expressly delegated by law, by
the Board of Directors, or by these By-laws to some other officer or agent of
the Corporation. In general, the President shall perform all duties incident to
the office of the President and such other duties as the Chief Executive Officer
or the Board of Directors may from time to time prescribe.
SECTION 6.9. THE CHIEF FINANCIAL OFFICER. The Chief Financial Officer
shall be the principal financial and accounting officer of the Corporation. The
Chief Financial Officer shall: (a) have charge of and be responsible for the
maintenance of adequate books of account for the Corporation; (b) have charge
and custody of all funds and securities of the Corporation, and be responsible
therefor and for the receipt and disbursement thereof; and (c) perform all the
duties incident to the office of the Chief Financial Officer and such other
duties as from time to time may be assigned to him by the President or by the
Board of Directors. If required by the Board of Directors, the Chief Financial
Officer shall give a bond for the faithful discharge of the Chief Financial
Officer's duties in such sum and with such surety or sureties as the Board of
Directors may determine.
SECTION 6.10. THE VICE PRESIDENTS. In the absence of the President, the
Vice Presidents (in the order designated, or in the absence of any designation,
then in the order of their election) shall perform the duties of the President,
and when so acting, shall have all the powers of and be subject to all the
restrictions upon the President. The Vice Presidents shall perform such other
duties and have such other powers as the Chief Executive Officer or the
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Board of Directors may from time to time prescribe.
SECTION 6.11. THE SECRETARY. The Secretary shall attend all meetings of
the Board of Directors and all meetings of the stockholders and record all the
proceedings of the meetings of the Corporation and of the Board of Directors in
a book to be kept for that purpose, and shall perform like duties for the
standing committees when required. The Secretary shall give, or cause to be
given, notice of all meetings of the stockholders and special meetings of the
Board of Directors, and shall perform such other duties as may be prescribed by
the Board of Directors or the Chief Executive Officer, under whose supervision
the Secretary shall be. The Secretary shall have custody of the corporate seal
of the Corporation and the Secretary shall have authority to affix the same to
any instrument requiring it; and when so affixed, it may be attested by the
Secretary's signature. The Board of Directors may give general authority to any
other officer to affix the seal of the Corporation and to attest the affixing by
such officer's signature.
SECTION 6.12. CHAIRMAN AND VICE CHAIRMAN MAY SERVE AS CO-CHAIRMEN. The
Chairman of the Board and the Vice Chairman of the Board may, at the discretion
of the Board of Directors, be designated and serve as Co-Chairmen of the Board.
In the event of any such designation, the Co-Chairmen of the Board shall share
the authority and responsibility otherwise ascribed under these By-laws to the
Chairman of the Board and the Vice Chairman of the Board in such manner as the
Board of Directors may from time to time determine.
ARTICLE VII
CERTIFICATES OF STOCK, TRANSFERS AND RECORD DATES
SECTION 7.1. FORM OF CERTIFICATES. Every holder of stock in the
Corporation shall be entitled to have a certificate signed by or in the name of
the Corporation by (a) the Chairman of the Board, the Vice Chairman of the Board
or the President, and (b) the Secretary of the Corporation; in any such case,
certifying the number of shares owned by such holder in the Corporation. If the
Corporation shall be authorized to issue more than one class of stock or more
than one series of any class, the powers, designations, preferences and
relative, participating, optional or other special rights of each class of stock
or series thereof and the qualifications, limitations or restrictions of such
preferences and/or rights shall be set forth in full or summarized on the face
or back of the certificate which the Corporation shall issue to represent such
class or series of stock; provided that, except as otherwise provided in Section
202 of the General Corporation Law of the State of Delaware, in lieu of the
foregoing requirements, there may be set forth on the face or back of the
certificate which the Corporation shall issue to represent such class or series
of stock, a statement that the Corporation will furnish without charge to each
stockholder who so requests the powers, designations, preferences and relative,
participating, optional or other special rights of each class of stock or series
thereof and the qualifications, limitations or restrictions of such preferences
and/or rights. Subject to the foregoing, certificates of stock of the
Corporation
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shall be in such form as the Board of Directors may from time to time prescribe.
SECTION 7.2. FACSIMILE SIGNATURES. Where a certificate is countersigned
by a transfer agent other than the Corporation or its employee, or by a
registrar other than the Corporation or its employee, any other signatures on
the certificate may be facsimile. In case any officer, transfer agent or
registrar who has signed or whose facsimile signature has been placed upon a
certificate shall have ceased to be such officer, transfer agent or registrar
before such certificate is issued, it may be issued by the Corporation with the
same effect as if such person were such officer, transfer agent or registrar at
the date of issue.
SECTION 7.3. LOST CERTIFICATES. The Board of Directors may direct a new
certificate or certificates 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 of stock to be lost, stolen or destroyed. When
authorizing such issue of a new certificate or certificates, 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 such owner's legal representative, to advertise the same in
such manner as the Corporation shall require and/or give the Corporation a bond
in such sum as it may direct as indemnity against any claim that may be made
against the Corporation or its transfer agent or registrar with respect to the
certificate alleged to have been lost, stolen or destroyed.
SECTION 7.4. TRANSFERS OF STOCK. Upon surrender to the Corporation or
the transfer agent of the Corporation of a certificate for shares duly endorsed
or accompanied by proper evidence of succession, assignment or authority to
transfer, it shall be the duty of the Corporation to issue a new certificate to
the person entitled thereto, cancel the old certificate and record the
transaction upon its books.
SECTION 7.5. REGISTERED STOCKHOLDERS. The Corporation shall be entitled
to recognize the exclusive right of a person registered on its books as the
owner of shares to receive dividends and to vote as such owner and to hold
liable for calls and assessments a person registered on its books as the owner
of shares, and shall not be bound to recognize any equitable or other claim to
or interest in such share or shares on the part of any other person, whether or
not the Corporation shall have express or other notice thereof, except as
otherwise provided by applicable law.
ARTICLE VIII
CONFLICT OF INTERESTS
SECTION 8.1. CONTRACT OR RELATIONSHIP NOT VOID. No contract or
transaction between the Corporation and one or more of its directors or
officers, or between the Corporation and any other corporation, partnership,
association, or other organization in which one or more of
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its directors or officers are directors or officers, or have a financial
interest, shall be void or voidable solely for that reason, or solely because
such director or officer is present at or participates in the meeting of the
Board of Directors or committee thereof which authorizes the contract or
transaction, or solely because such director's or officer's vote is counted
for such purpose, if:
(i) the material facts as to such director's or officer's
relationship or interest and as to the contract or transaction
are disclosed or are known to the Board of Directors or the
committee, and the Board or committee in good faith authorizes
the contract or transaction by the affirmative vote of a
majority of the disinterested directors, even though the
disinterested directors be less than a quorum; or
(ii) the material facts as to such director's or officer's
relationship or interest and as to the contract or transaction
are disclosed or are known to the stockholders entitled to
vote thereon, and the contract or transaction is specifically
approved in good faith by vote of the stockholders; or
(iii) the contract or transaction is fair as to the Corporation as
of the time it is authorized, approved or ratified by the
Board of Directors, a committee thereof, or the stockholders.
SECTION 8.2. QUORUM. Common or interested directors may be counted in
determining the presence of a quorum at a meeting of the Board of Directors or
of a committee which authorizes the subject contract or transaction.
ARTICLE IX
GENERAL PROVISIONS
SECTION 9.1. DIVIDENDS. Dividends upon the capital stock of the
Corporation, subject to the provisions of the Amended and Restated Certificate
of Incorporation, if any, may be declared by the Board of Directors at any
regular or special meeting, pursuant to applicable law. Dividends may be paid in
cash, in property or in shares of the capital stock of the Corporation or rights
to acquire same, subject to the provisions of the Corporation's Amended and
Restated Certificate of Incorporation. Before payment of any dividend, there may
be set aside out of any funds of the Corporation available for dividends such
sum or sums as the directors from time to time, in their absolute discretion,
think proper as a reserve or reserves to meet contingencies, or for equalizing
dividends, or for repairing or maintaining any property of the Corporation, or
for such other purpose as the directors shall think conducive to the interest of
the Corporation, and the directors may modify or abolish any such reserve in the
manner in which it was created.
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SECTION 9.2. CHECKS. All checks or demands for money and notes of the
Corporation shall be signed by such officer or officers or such other person or
persons as the Board of Directors may from time to time designate.
SECTION 9.3. FISCAL YEAR. The fiscal year of the Corporation shall be
fixed by resolution of the Board of Directors.
SECTION 9.4. SEAL. The corporate seal shall have inscribed thereon the
name of the Corporation and the words "Corporate Seal, Delaware." The seal may
be used by causing it or a facsimile thereof to be impressed or affixed or
reproduced or otherwise.
SECTION 9.5. STOCK IN OTHER CORPORATIONS. Shares of any other
corporation which may from time to time be held by this Corporation may be
represented and voted at any meeting of stockholders of such corporation by the
Chairman of the Board, the Vice Chairman of the Board, the Chief Executive
Officer, the President, the Chief Financial Officer or a Vice President of the
Corporation, or by any proxy appointed in writing by the Chairman of the Board,
the Vice Chairman of the Board, the Chief Executive Officer, the President, the
Chief Financial Officer or a Vice President of the Corporation, or by any other
person or persons thereunto authorized by the Board of Directors. Shares
represented by certificates standing in the name of the Corporation may be
endorsed for sale or transfer in the name of the Corporation by the Chairman of
the Board, the Vice Chairman of the Board, the Chief Executive Officer, the
President, the Chief Financial Officer or a Vice President of the Corporation,
or by any other officer of officers thereunto authorized by the Board of
Directors. Shares belonging to the Corporation need not stand in the name of the
Corporation, but may be held for the benefit of the Corporation in the
individual name of the Chief Financial Officer or of any other nominee
designated for the purpose by the Board of Directors.
ARTICLE X
AMENDMENTS
These By-laws may be altered, amended, or repealed, or new by-laws may
be adopted, only in the manner provided in the Corporation's Amended and
Restated Certificate of Incorporation.
Adopted: April 15, 1999
<PAGE>
Exhibit 10.5
INDEMNIFICATION AGREEMENT
This Indemnification Agreement (the "Agreement") is made as of [Date] by
and between ZipLink. Inc., a Delaware corporation (the
"Company"), and [Indemnitee] (the "Indemnitee").
RECITALS
The Company and Indemnitee recognize the increasing difficulty in obtaining
liability insurance for directors, officers and key employees, the significant
increases in the cost of such insurance and the general reductions in the
coverage of such insurance. The Company and Indemnitee further recognize the
substantial increase in corporate litigation in general, subjecting directors,
officers and key employees to expensive litigation risks at the same time as the
availability and coverage of liability insurance has been severely limited.
Indemnitee does not regard the current protection available as adequate under
the present circumstances, and Indemnitee and agents of the Company may not be
willing to continue to serve as agents of the Company without additional
protection. The Company desires to attract and retain the services of highly
qualified individuals, such as Indemnitee, and to indemnify its directors,
officers and key employees so as to provide them with the maximum protection
permitted by law.
AGREEMENT
In consideration of the mutual promises made in this Agreement, and for
other good and valuable consideration, receipt of which is hereby acknowledged,
the Company and Indemnitee hereby agree as follows:
1. Indemnification.
(a) Third Party Proceedings. The Company shall indemnify Indemnitee
if Indemnitee is or was a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (other than an action by or in the
right of the Company) by reason of the fact that Indemnitee is or was a
director, officer, employee or agent of the Company, or any subsidiary of the
Company, by reason of any action or inaction on the part of Indemnitee while an
officer or director or by reason of the fact that Indemnitee is or was serving
at the request of the Company as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
against expenses (including attorneys' fees), judgments, fines and amounts paid
in settlement (if such settlement is approved in advance by the Company, which
approval shall not be unreasonably withheld) actually and reasonably incurred by
Indemnitee in connection with such action, suit or proceeding if Indemnitee
acted in good faith and in a manner Indemnitee
<PAGE>
reasonably believed to be in or not opposed to the best interests of the
Company, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe Indemnitee's conduct was unlawful. The termination
of any action, suit or proceeding by judgment, order, settlement, conviction, or
upon a plea of nolo contendere or its equivalent, shall not, of itself, create a
presumption that Indemnitee did not act in good faith and in a manner which
Indemnitee reasonably believed to be in or not opposed to the best interests of
the Company, or, with respect to any criminal action or proceeding, that
Indemnitee had reasonable cause to believe that Indemnitee's conduct was
unlawful.
(b) Proceedings By or in the Right of the Company. The Company shall
indemnify Indemnitee if Indemnitee was or is a party or is threatened to be made
a party to any threatened, pending or completed action or proceeding by or in
the right of the Company or any subsidiary of the Company to procure a judgment
in its favor by reason of the fact that Indemnitee is or was a director,
officer, employee or agent of the Company, or any subsidiary of the Company, by
reason of any action or inaction on the part of Indemnitee while an officer or
director or by reason of the fact that Indemnitee is or was serving at the
request of the Company as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, against
expenses (including attorneys' fees) and, to the fullest extent permitted by
law, amounts paid in settlement (if such settlement is approved in advance by
the Company, which approval shall not be unreasonably withheld), in each case to
the extent actually and reasonably incurred by Indemnitee in connection with the
defense or settlement of such action or suit if Indemnitee acted in good faith
and in a manner Indemnitee reasonably believed to be in or not opposed to the
best interests of the Company and its stockholders, except that no
indemnification shall be made in respect of any claim, issue or matter as to
which Indemnitee shall have been finally adjudicated by court order or judgment
to be liable to the Company in the performance of Indemnitee's duty to the
Company and its stockholders unless and only to the extent that the court in
which such action or proceeding is or was pending shall determine upon
application that, in view of all the circumstances of the case, Indemnitee is
fairly and reasonably entitled to indemnity for such expenses which such court
shall deem proper.
(c) Mandatory Payment of Expenses. To the extent that Indemnitee has
been successful on the merits or otherwise in defense of any action, suit or
proceeding referred to in Section 1(a) or Section 1(b) or the defense of any
claim, issue or matter therein, Indemnitee shall be indemnified against expenses
(including attorneys' fees) actually and reasonably incurred by Indemnitee in
connection therewith. Notwithstanding the forgoing, the Corporation shall not be
obligated to pay expenses incurred by Indemnitee with respect to any threatened,
pending, or completed claims, suits or actions, whether civil, criminal,
administrative, investigative or otherwise ("Proceedings"), initiated or brought
voluntarily by Indemnitee and not by way of defense (other than Proceedings
brought to establish or enforce a right to indemnification under this Agreement,
unless a court of competent jurisdiction determines that each of the material
assertions made by Indemnitee in such Proceedings were not made in good faith or
were frivolous)
2. No Employment Rights. Nothing contained in this Agreement is intended to
create in Indemnitee any right to continued employment.
3. Expenses; Indemnification Procedure.
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<PAGE>
(a) Advancement of Expenses. The Company shall advance all expenses
incurred by Indemnitee in connection with the investigation, defense, settlement
or appeal of any civil or criminal action, suit or proceeding referred to in
Section l(a) or Section 1(b) hereof (including amounts actually paid in
settlement of any such action, suit or proceeding). Indemnitee hereby undertakes
to repay such amounts advanced only if, and to the extent that, it shall
ultimately be determined that Indemnitee is not entitled to be indemnified by
the Company as authorized hereby. Any advances to be made under this Agreement
shall be paid by the Company to Indemnitee within twenty (20) days following
delivery of a written request therefor by Indemnitee to the Company.
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<PAGE>
(b) Notice/Cooperation by Indemnitee. Indemnitee shall, as a
condition precedent to his or her right to be indemnified under this Agreement,
give the Company notice in writing as soon as practicable of any claim made
against Indemnitee for which indemnification will or could be sought under this
Agreement. Notice to the Company shall be directed to the Chief Executive
Officer of the Company and shall be given in accordance with the provisions of
Section 12(d) below. In addition, Indemnitee shall give the Company such
information and cooperation as it may reasonably require and as shall be within
Indemnitee's power.
(c) Procedure. Any indemnification and advances provided for in
Section 1 and this Section 3 shall be made no later than forty-five (45) days
after receipt of the written request of Indemnitee. If a claim under this
Agreement, under any statute, or under any provision of the Company's
Certificate of Incorporation or Bylaws providing for indemnification, is not
paid in full by the Company within forty-five (45) days after a written request
for payment thereof has first been received by the Company, Indemnitee may, but
need not, at any time thereafter bring an action against the Company to recover
the unpaid amount of the claim and, subject to Section 11 of this Agreement,
Indemnitee shall also be entitled to be paid for the expenses (including
attorneys' fees) of bringing such action. It shall be a defense to any such
action (other than an action brought to enforce a claim for expenses incurred in
connection with any action, suit or proceeding in advance of its final
disposition) that Indemnitee has not met the standards of conduct which make it
permissible under applicable law for the Company to indemnify Indemnitee for the
amount claimed, but the burden of proving such defense shall be on the Company
and Indemnitee shall be entitled to receive interim payments of expenses
pursuant to Section 3(a) unless and until such defense may be finally
adjudicated by court order or judgment from which no further right of appeal
exists. It is the parties' intention that if the Company contests Indemnitee's
right to indemnification, the question of Indemnitee's right to indemnification
shall be for the court to decide, and neither the failure of the Company
(including its Board of Directors, any committee or subgroup of the Board of
Directors, independent legal counsel, or its stockholders) to have made a
determination that indemnification of Indemnitee is proper in the circumstances
because Indemnitee has met the applicable standard of conduct required by
applicable law, nor an actual determination by the Company (including its Board
of Directors, any committee or subgroup of the Board of Directors, independent
legal counsel, or its stockholders) that Indemnitee has not met such applicable
standard of conduct, shall create a presumption that Indemnitee has or has not
met the applicable standard of conduct.
(d) Notice to Insurers. If, at the time of the receipt of a notice of
a claim pursuant to Section 3(b) hereof, the Company has director and officer
liability insurance in effect, the Company shall give prompt notice of the
commencement of such proceeding to the insurers in accordance with the
procedures set forth in the respective policies. The Company shall thereafter
take all necessary or desirable action to cause such insurers to pay, on behalf
of the Indemnitee, all amounts payable as a result of such proceeding in
accordance with the terms of such policies.
(e) Selection of Counsel. In the event the Company shall be obligated
under Section 3(a) hereof to pay the expenses of any proceeding against
Indemnitee, the Company, if appropriate, shall be entitled to assume the defense
of such proceeding, with counsel approved by
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<PAGE>
Indemnitee, upon the delivery to Indemnitee of written notice of its election so
to do. After delivery of such notice, approval of such counsel by Indemnitee and
the retention of such counsel by the Company, the Company will not be liable to
Indemnitee under this Agreement for any fees of counsel subsequently incurred by
Indemnitee with respect to the same proceeding, provided that (i) Indemnitee
shall have the right to employ counsel in any such proceeding at Indemnitee's
expense; and (ii) if (A) the employment of counsel by Indemnitee has been
previously authorized by the Company, (B) Indemnitee shall have reasonably
concluded that there may be a conflict of interest between the Company and
Indemnitee in the conduct of any such defense or (C) the Company shall not, in
fact, have employed counsel to assume the defense of such proceeding, then the
fees and expenses of Indemnitee's counsel shall be at the expense of the
Company.
4. Additional Indemnification Rights; Nonexclusivity.
(a) Scope. Notwithstanding any other provision of this Agreement, the
Company hereby agrees to indemnify the Indemnitee to the fullest extent
permitted by law, notwithstanding that such indemnification is not specifically
authorized by the other provisions of this Agreement, the Company's Certificate
of Incorporation, the Company's Bylaws or by statute. In the event of any
change, after the date of this Agreement, in any applicable law, statute, or
rule which expands the right of a Delaware corporation to indemnify a member of
its board of directors or an officer, such changes shall be deemed to be within
the purview of Indemnitee's rights and the Company's obligations under this
Agreement. In the event of any change in any applicable law, statute or rule
which narrows the right of a Delaware corporation to indemnify a member of its
board of directors or an officer, such changes, to the extent not otherwise
required by such law, statute or rule to be applied to this Agreement shall have
no effect on this Agreement or the parties' rights and obligations hereunder.
(b) Nonexclusivity. The indemnification provided by this Agreement
shall not be deemed exclusive of any rights to which Indemnitee may be entitled
under the Company's Certificate of Incorporation, its Bylaws, any agreement, any
vote of stockholders or disinterested members of the Company's Board of
Directors, the General Corporation Law of the State of Delaware, or otherwise,
both as to action in Indemnitee's official capacity and as to action in another
capacity while holding such office. The indemnification provided under this
Agreement shall continue as to Indemnitee for any action taken or not taken
while serving in an indemnified capacity even though he or she may have ceased
to serve in any such capacity at the time of any action, suit or other covered
proceeding.
5. Partial Indemnification. If Indemnitee is entitled under any provision
of this Agreement to indemnification by the Company for some or a portion of the
expenses, judgments, fines or penalties actually or reasonably incurred in the
investigation, defense, appeal or settlement of any civil or criminal action,
suit or proceeding, but not, however, for the total amount thereof, the Company
shall nevertheless indemnify Indemnitee for the portion of such expenses,
judgments, fines or penalties to which Indemnitee is entitled.
5
<PAGE>
6. Mutual Acknowledgment. Both the Company and Indemnitee acknowledge
that in certain instances, Federal law or public policy may override applicable
state law and prohibit the Company from indemnifying its directors and officers
under this Agreement or otherwise. For example, the Company and Indemnitee
acknowledge that the Securities and Exchange Commission (the "SEC") has taken
the position that indemnification is not permissible for liabilities arising
under certain federal securities laws, and federal legislation prohibits
indemnification for certain ERISA violations. Indemnitee understands and
acknowledges that the Company has undertaken or may be required in the future to
undertake with the SEC to submit the question of indemnification to a court in
certain circumstances for a determination of the Company's right under public
policy to indemnify Indemnitee.
7. Officer and Director Liability Insurance. The Company shall, from time
to time, make the good faith determination whether or not it is practicable for
the Company to obtain and maintain a policy or policies of insurance with
reputable insurance companies providing the officers and directors of the
Company with coverage for losses from wrongful acts, or to ensure the Company's
performance of its indemnification obligations under this Agreement. Among other
considerations, the Company will weigh the costs of obtaining such insurance
coverage against the protection afforded by such coverage. In all policies of
director and officer liability insurance, Indemnitee shall be named as an
insured in such a manner as to provide Indemnitee the same rights and benefits
as are accorded to the most favorably insured of the Company's directors, if
Indemnitee is a director; or of the Company's officers, if Indemnitee is not a
director of the Company but is an officer; or of the Company's key employees, if
Indemnitee is not an officer or director but is a key employee. Notwithstanding
the foregoing, the Company shall have no obligation to obtain or maintain such
insurance if the Company determines in good faith that such insurance is not
reasonably available, if the premium costs for such insurance are
disproportionate to the amount of coverage provided, if the coverage provided by
such insurance is limited by exclusions so as to provide an insufficient
benefit, or if Indemnitee is covered by similar insurance maintained by a parent
or subsidiary of the Company.
8. Severability. Nothing in this Agreement is intended to require or shall
be construed as requiring the Company to do or fail to do any act in violation
of applicable law. The Company's inability, pursuant to court order, to perform
its obligations under this Agreement shall not constitute a breach of this
Agreement. The provisions of this Agreement shall be severable as provided in
this Section 8. If this Agreement or any portion hereof shall be invalidated on
any ground by any court of competent jurisdiction, then the Company shall
nevertheless indemnify Indemnitee to the full extent permitted by any applicable
portion of this Agreement that shall not have been invalidated, and the balance
of this Agreement not so invalidated shall be enforceable in accordance with its
terms.
9. Exceptions. Any other provision herein to the contrary notwithstanding,
the Company shall not be obligated pursuant to the terms of this Agreement:
(a) Claims Initiated by Indemnitee. To indemnify or advance expenses
to Indemnitee with respect to proceedings or claims initiated or brought
voluntarily by Indemnitee and not by way of defense, except with respect to
proceedings brought to establish or enforce a
6
<PAGE>
right to indemnification under this Agreement or any other statute or law or
otherwise as required under Section 145 of the Delaware General Corporation Law,
but such indemnification or advancement of expenses may be provided by the
Company in specific cases if the Board of Directors finds it to be appropriate;
(b) Lack of Good Faith. To indemnify Indemnitee for any expenses
incurred by Indemnitee with respect to any proceeding instituted by Indemnitee
to enforce or interpret this Agreement, if a court of competent jurisdiction
determines that each of the material assertions made by Indemnitee in such
proceeding was not made in good faith or was frivolous;
(c) Insured Claims. To indemnify Indemnitee for expenses or
liabilities of any type whatsoever (including, but not limited to, judgments,
fines, ERISA excise taxes or penalties, and amounts paid in settlement) to the
extent such expenses or liabilities have been paid directly to Indemnitee by an
insurance carrier under a policy of officers' and directors' liability insurance
maintained by the Company; or
(d) Claims under Section 16(b). To indemnify Indemnitee for expenses
or the payment of profits arising from the purchase and sale by Indemnitee of
securities in violation of Section 16(b) of the Securities Exchange Act of 1934,
as amended, or any similar successor statute.
10. Construction of Certain Phrases.
(a) For purposes of this Agreement, references to the "Company" shall
include, in addition to the resulting corporation, any constituent corporation
(including any constituent of a constituent) absorbed in a consolidation or
merger which, if its separate existence had continued, would have had power and
authority to indemnify its directors, officers, and employees or agents, so that
if Indemnitee is or was a director, officer, employee or agent of such
constituent corporation, or is or was serving at the request of such constituent
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, Indemnitee shall stand in
the same position under the provisions of this Agreement with respect to the
resulting or surviving corporation as Indemnitee would have with respect to such
constituent corporation if its separate existence had continued.
(b) For purposes of this Agreement, references to "other enterprises"
shall include employee benefit plans; references to "fines" shall include any
excise taxes assessed on Indemnitee with respect to an employee benefit plan;
and references to "serving at the request of the Company" shall include any
service as a director, officer, employee or agent of the Company which imposes
duties on, or involves services by, such director, officer, employee or agent
with respect to an employee benefit plan, its participants, or beneficiaries;
and if Indemnitee acted in good faith and in a manner Indemnitee reasonably
believed to be in the interest of the participants and beneficiaries of an
employee benefit plan, Indemnitee shall be deemed to have acted in a manner "not
opposed to the best interests of the Company" as referred to in this Agreement.
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11. Attorneys' Fees. In the event that any action is instituted by
Indemnitee under this Agreement to enforce or interpret any of the terms hereof,
Indemnitee shall be entitled to be paid all court costs and expenses, including
reasonable attorneys' fees, incurred by Indemnitee with respect to such action,
unless as a part of such action, the court of competent jurisdiction determines
that each of the material assertions made by Indemnitee as a basis for such
action were not made in good faith or were frivolous. In the event of an action
instituted by or in the name of the Company under this Agreement or to enforce
or interpret any of the terms of this Agreement, Indemnitee shall be entitled to
be paid all court costs and expenses, including attorneys' fees, incurred by
Indemnitee in defense of such action (including with respect to Indemnitee's
counterclaims and cross-claims made in such action), unless as a part of such
action the court determines that each of Indemnitee's material defenses to such
action were made in bad faith or were frivolous.
12. Miscellaneous.
(a) Governing Law. This Agreement and all acts and transactions
pursuant hereto and the rights and obligations of the parties hereto shall be
governed, construed and interpreted in accordance with the laws of the State of
Delaware, without giving effect to principles of conflict of law.
(b) Entire Agreement; Enforcement of Rights. This Agreement sets
forth the entire agreement and understanding of the parties relating to the
subject matter herein and merges all prior discussions between them. No
modification of or amendment to this Agreement, nor any waiver of any rights
under this Agreement, shall be effective unless in writing signed by the parties
to this Agreement. The failure by either party to enforce any rights under this
Agreement shall not be construed as a waiver of any rights of such party.
(c) Construction. This Agreement is the result of negotiations
between and has been reviewed by each of the parties hereto and their respective
counsel, if any; accordingly, this Agreement shall be deemed to be the product
of all of the parties hereto, and no ambiguity shall be construed in favor of or
against any one of the parties hereto.
(d) Notices. Any notice, demand or request required or permitted to
be given under this Agreement shall be in writing and shall be deemed sufficient
when delivered personally or sent by telegram or forty-eight (48) hours after
being deposited in the U.S. mail, as certified or registered mail, with postage
prepaid, and addressed to the party to be notified at such party's address as
set forth below or as subsequently modified by written notice.
(e) Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original and all of which
together shall constitute one instrument.
(f) Successors and Assigns. This Agreement shall be binding upon the
Company and its successors and assigns, and inure to the benefit of Indemnitee
and Indemnitee's heirs, legal representatives and assigns.
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(g) Subrogation. In the event of payment under this Agreement, the
Company shall be subrogated to the extent of such payment to all of the rights
of recovery of Indemnitee, who shall execute all documents required and shall do
all acts that may be necessary to secure such rights and to enable the Company
to effectively bring suit to enforce such rights.
[Signature Page Follows]
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The parties hereto have executed this Agreement as of the day and year set
forth on the first page of this Agreement.
ZipLink, Inc.
By:
Title:
Address: 900 Chelmsford Street
Tower One, Fifth Floor
Lowell,, Mass 01851
AGREED TO AND ACCEPTED:
[Indemnitee]
(Signature)
Address:
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EXHIBIT 10.10
ZIPLINK, INC.
1999 STOCK OPTION PLAN
1. PURPOSE
The purpose of this 1999 Stock Option Plan (the "Plan") of ZipLink, Inc.
(the "Company") is to advance the interests of the Company by providing
additional incentives to attract, motivate and retain individuals of outstanding
competence, on a basis that will encourage them to perform at increasing levels
of effectiveness and to use their best efforts to promote the growth and
profitability of the Company. Consistent with these objectives, the Plan
authorizes the granting of Incentive Stock Options (as hereinafter defined) and
Non Qualified Stock Options (as hereinafter defined) to designated key
employees, officers, directors, consultants and advisors to the Company.
2. ADMINISTRATION
(a) GENERAL. The Plan shall be administered by the board of directors of the
Company (the "Board") which, to the extent it shall determine, may delegate its
powers with respect to the administration of, and all other rights with respect
to, the Plan to a committee (the Board, if it is administering the Plan without
having delegated its powers to such a committee, or such committee, if it has
been established, may be referred to hereinafter as the "Committee") appointed
by the Board.
(b) COMMITTEE COMPOSITION. If a Committee has been appointed pursuant to this
Section, such Committee shall continue to serve in its designated capacity until
otherwise directed by the Board. From time to time the Board may increase the
size of any Committee and appoint additional members thereof, remove members
(with or without cause) and appoint new members in substitution therefor, fill
vacancies (however caused) and remove all members of a Committee and thereafter
directly administer the Plan. If a Committee has been appointed pursuant to this
Section, the Committee shall consist of not less than two persons and, on and
after the effective date specified in Section 12(b), the Committee shall consist
of not less than two persons appointed by the Board, all of whom shall be
"independent or disinterested persons" as defined under Rule 16b-3 under the
Securities Exchange Act of 1934 (the "Exchange Act") and "outside directors" as
defined under section 162(m) of the of the Internal Revenue Code (the "Code")
and related Treasury regulations.
(c) POWERS OF THE COMMITTEE. Subject to the provisions of the Plan, the
Committee shall have the authority, in its sole discretion and from time to time
to:
(1) Determine to whom options shall be granted under the Plan (the
"Optionee" or "Optionees").
(2) Determine the type, quantity and terms of the options to be
granted to each Optionee.
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(3) Determine when the options will be granted and the duration of the
exercise period, including the criteria for vesting and the
acceleration of vesting (if any).
(4) Determine the terms and conditions of agreements to be entered
into by and between the Company and an Optionee (the "Option
Agreement" or "Option Agreements").
(5) Determine the Fair Market Value (as hereinafter defined) of the
shares of Company Stock.
(6) Make determinations with respect to any other matters arising
under the Plan.
(d) LIMITATION ON GRANTS TO NON-EMPLOYEE DIRECTORS. Notwithstanding the
foregoing, on and after the effective date specified in Section 12(b), the
Committee shall not have the authority to make grants to Non-Employee Directors,
except pursuant to provisions of the Plan as then in effect that satisfy the
requirements for making exempt grants in accordance with Rule 16b-3 of the
Exchange Act.
(e) INTERPRETATIONS AND DETERMINATIONS. The Committee shall have full power and
authority to administer and interpret the Plan, to make factual determinations,
and to adopt or amend such rules, regulations, agreements, and instruments for
implementing the Plan and for the conduct of its business as it deems necessary
or advisable, in its sole discretion. The Committee's interpretations of the
Plan and all determinations made by the Committee pursuant to the powers vested
in it hereunder shall be conclusive and binding on all persons having any
interests in the Plan or in any awards granted hereunder. All powers of the
Committee shall be executed in its sole discretion, in the best interest of the
Company and in keeping with the objectives of the Plan and need not be uniform
as to similarly situated individuals.
(f) COUNSEL. The Committee may employ such legal counsel, consultants and agents
as it may deem desirable for the administration of the Plan and may rely upon
any opinion received from any such counsel or consultant and any computation
received from any such consultant or agent.
3. SHARES SUBJECT TO THE PLAN
(a) SHARES SUBJECT TO THE PLAN. Subject to the adjustment specified below, the
aggregate number of shares of the Common Stock of the Company (the "Company
Stock") that have been or may be issued or transferred under the Plan is
1,500,000 shares. Notwithstanding anything in the Plan to the contrary, during
the term of the Plan, the maximum aggregate number of shares of Company Stock
that shall be subject to options granted under the Plan annually to any one
Optionee shall be 500,000. The shares may be authorized but unissued shares of
Company Stock or reacquired shares of Company Stock, including shares purchased
by the Company on the open market or otherwise, for purposes of the Plan. If and
to the extent options granted under the Plan terminate, expire, or are canceled,
forfeited, exchanged or surrendered without having been exercised, the shares
subject to such options shall again be available for purposes of the Plan.
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(b) ADJUSTMENT. If there is any change in the number or kind of shares of
Company Stock outstanding by reason of a stock dividend, recapitalization, stock
split, combination or exchange of such shares, merger, reorganization or
consolidation in which the Company is the surviving corporation,
reclassification or change in par value or by reason of any other extraordinary
or unusual events affecting the outstanding Company Stock as a class without the
Company's receipt of consideration, or if the value of outstanding shares of
Company Stock is substantially reduced due to the Company's payment of an
extraordinary dividend or distribution, the maximum number of shares of Company
Stock available for Stock Options, the maximum number of shares of Company Stock
for which any one Optionee participating in the Plan may be granted over the
term of the Plan, the number of shares covered by outstanding Stock Options, and
the price per share or the applicable market value of such Stock Options, shall
be proportionately adjusted by the Committee to reflect any increase or decrease
in the number or kind of issued shares of Company Stock to preclude the
enlargement or dilution of rights and benefits under such Stock Options;
provided, however, that any fractional shares resulting from such adjustment
shall be eliminated. The adjustments determined by the Committee shall be final,
binding and conclusive. Notwithstanding the foregoing, no adjustment shall be
authorized or made pursuant to this Section to the extent that such authority or
adjustment would cause any Incentive Stock Option to fail to comply with section
422 of the Code.
4. ELIGIBILITY FOR PARTICIPATION
All employees who hold positions of responsibility and whose performance, in
the judgment of the Committee, can have a significant effect on the long-term
success of the Company ("Employees"), all directors of the Company who are not
also employees of the Company ("Non-Employee Directors"), and all advisors and
consultants ("Consultants") whose services, in the judgment of the Committee,
can have a significant effect on the long-term success of the Company shall be
eligible to participate in the Plan. In making this selection and in determining
the form and amount of awards, the Committee shall consider any factors deemed
relevant, including the individual's functions, responsibilities, value of
services to the Company, and past and potential contributions to the Company's
profitability and sound growth. The term Employees as used herein shall include
employees of the Company's "parent corporation" or "subsidiary corporations" as
those terms are defined in section 424(e) or 424(f) of the Code, as well as
directors of the Company who are also employees of the Company.
5. GRANTING OF OPTIONS
(a) GRANT OF OPTIONS. The Committee shall select the Employees, Non-Employee
Directors, and Consultants to receive Stock Options and determine the number of
shares of Company Stock subject to a particular Stock Option in such manner as
the Committee determines.
(b) TYPES OF AWARDS. Awards under the Plan shall consist of options intended to
qualify as incentive stock options ("Incentive Stock Options") within the
meaning of section 422 of the Code or options which are not intended to so
qualify ("Non Qualified Stock Options")
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(hereinafter collectively referred to as "Stock Options" or "Options"). The
Committee may grant Incentive Stock Options, Non Qualified Stock Options or any
combination of Incentive Stock Options and Non Qualified Stock Options, all in
accordance with the terms and conditions set forth herein; provided, however,
that neither Non-Employee Directors nor Consultants shall be eligible to receive
grants of Incentive Stock Options. All Stock Options shall be subject to the
terms and conditions set forth herein and to those other terms and conditions
consistent with this Plan as the Committee deems appropriate and as are
specified in writing by the Committee to the Optionees. Grants under a
particular section of the Plan need not be uniform as among the Optionees.
(d) TERMS AND CONDITIONS OF OPTIONS. Each Option granted pursuant to the Plan
shall be evidenced by an Option Agreement between the Company and the Optionee
in such form or forms as the Committee, from time to time, shall prescribe,
which agreements need not be identical to each other but shall comply with and
be subject to the terms and conditions of the Plan. In addition, the Committee
may, in its absolute discretion, include in any Option Agreement other terms,
conditions, and provisions that are not inconsistent with the express provisions
of the Plan.
(e) NUMBER OF SHARES. The Committee, in its sole discretion, shall determine the
number of shares of Company Stock that will be subject to each Stock Option
grant.
(f) EXERCISE PRICE. The purchase price of Company Stock subject to a Stock
Option shall be determined by the Committee and may be equal to, greater than,
or less than the Fair Market Value (as hereinafter defined) of a share of such
Stock on the date such Stock Option is granted; provided, however, that the
purchase price of Company Stock subject to an Incentive Stock Option shall be
equal to, or greater than, the fair market value of a share of such Stock on the
date such Stock Option is granted. Prior to the effective date specified in
Section 12(b) of the Plan, the Committee shall inform the Optionees as to the
Fair Market Value of the Company Stock on a periodic basis, but not less
frequently than once per calendar year.
(g) VESTING AND EXERCISABILITY OF OPTIONS. Stock Options shall become vested and
exercisable in accordance with the terms and conditions determined by the
Committee, in its sole discretion, and specified in the Option Agreement.
(h) EXERCISE PERIOD. Stock Options shall be exercisable for such exercise period
as is determined by the Committee, in its sole discretion, and specified in the
Option Agreement; provided, however, that the exercise period shall not exceed
ten years from the date of grant.
(i) FAIR MARKET VALUE. "Fair Market Value" of any share of Company Stock on any
date of reference shall mean:
(1) If the Company Stock is listed on an established stock exchange or
traded in the over-the-counter market, the closing price of a share of
Company Stock (on a consolidated basis) on the principal exchange or
such other over-the counter market on the last previous day on which a
sale is reported.
(2) If the Company Stock is not listed on an established stock
exchange or traded in
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the over-the-counter-market, such value as the Committee, in good
faith, shall determine.
(j) TREATMENT OF OPTIONS UPON OPTIONEE'S TERMINATION OF SERVICE. Unless
otherwise determined by the Committee, and except as provided otherwise in
Section 6 below, the following rules shall apply in the event of an Optionee's
termination of service with the Company:
(1) DEATH OR DISABILITY OF OPTIONEE. In the event of: (i) the death of
an Optionee while he or she is an Employee or a Consultant or a
Non-Employee Director of the Company or (ii) the Optionee's
termination of service with the Company by reason of disability
(within the meaning of Section 22(e)(3) of the Code) ("Disability"),
any Stock Option which is otherwise exercisable by the Optionee on the
date on which the Optionee ceases to be an Employee or Consultant or
Non-Employee Director as aforesaid (the "Termination Date") shall
terminate unless exercised by the Optionee or the Optionee's personal
representative within one year of the Termination Date (or within such
other period of time as may be specified in the Option Agreement), but
in any event no later than the date of expiration of the exercise
period of such Option as set forth in the Option Agreement. Any Stock
Option which has not yet become exercisable by the Optionee on the
Termination Date shall immediately terminate (except to the extent
otherwise provided in the Option Agreement); provided, however, that
the Committee may, by written notice given to such Optionee, provide
that any such Option held by the Optionee shall become fully
exercisable as of the Termination Date.
(2) TERMINATION FOR CAUSE BY THE COMPANY. In the event of the
Optionee's termination of service with the Company by reason of a
"Termination for Cause" by the Company (or the applicable parent or
subsidiary corporation), as determined in accordance with the
personnel policies of the Company (or such corporation), or as
determined by a written contract between the Optionee and the Company
(or such corporation), any Stock Option held by the Optionee shall
immediately terminate (except to the extent otherwise provided in the
Option Agreement).
(3) OTHER TERMINATIONS OF SERVICE. In the event of the Optionee's
termination of service with the Company, other than by reason of
death, Disability, or Termination for Cause, any Stock Option which is
otherwise exercisable by the Optionee on the Termination Date shall
terminate unless exercised by the Optionee or the Optionee's personal
representative within three months of the Termination Date (or within
such other period of time as may be specified in the Option
Agreement), but in any event no later than the date of expiration of
the exercise period of such Option as set forth in the Option
Agreement. Any Stock Option which has not yet become exercisable by
the Optionee on the Termination Date shall immediately terminate
(except to the extent otherwise provided in the Option Agreement);
provided, however, that the Committee may, by written notice given to
such Optionee, provide that any such Option held by the Optionee
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shall become fully exercisable as of the Termination Date.
(k) LEAVES OF ABSENCE. The Committee shall be entitled to make such rules,
regulations and determinations as it deems appropriate under the Plan in respect
of any leave of absence taken by any Optionee. Without limiting the generality
of the foregoing, the Committee shall be entitled to determine: (i) whether or
not any such leave of absence shall constitute a termination of employment
within the meaning of the Plan and (ii) the impact, if any, of any such leave of
absence on awards under the Plan theretofore made to any recipient who takes
such leave of absence.
(l) RULE 16b-3 RESTRICTIONS. Unless an Optionee could otherwise transfer Company
Stock issued pursuant to a Stock Option granted hereunder without incurring
liability under Section 16(b) of the Exchange Act, at least six months must
elapse from the date of acquisition of a Stock Option to the date of disposition
of the Company Stock issued upon exercise of such option.
(m) LIMITS ON INCENTIVE STOCK OPTIONS. Each Incentive Stock Option shall provide
that to the extent that the aggregate fair market value of the Company Stock on
the date of the grant with respect to which Incentive Stock Options are
exercisable for the first time by an Optionee during any calendar year under the
Plan or any other stock option plan of the Company or any parent or subsidiary
corporation thereof exceeds $100,000, then, if and to the extent required by
Section 422(d) of the Code or any successor or related provision, such option as
to the excess shall be treated as a Non Qualified Stock Option. An Incentive
Stock Option shall not be granted to any Employee who, at the time of grant,
owns stock possessing more than 10 percent of the total combined voting power of
all classes of stock of the Company or parent of the Company, unless the
exercise price per share is not less than 110% of the Fair Market Value of
Company Stock on the date of grant and the option exercise period is not more
than five years from the date of grant.
(n) OPTIONAL PURCHASE BY THE COMPANY. In the sole discretion of the Committee,
in lieu of the exercise of a Stock Option, the Optionee may be permitted to
transfer the Stock Option to the Company in exchange for a cash payment equal to
the excess of: (i) the then Fair Market Value of the shares of Company Stock
subject to the Optionee's outstanding Stock Options over (ii) the exercise price
as specified therein.
6. NON-DISCRETIONARY GRANTS FOR NON-EMPLOYEE DIRECTORS
(a) NON-DISCRETIONARY GRANTS. Notwithstanding the general grant of discretion to
the Committee, Non-Employee Directors shall be granted Options automatically and
without any discretion on the part of the Committee as follows:
(1) DIRECTOR'S INITIAL OPTIONS. Each Non-Employee Director shall
automatically be granted an Option ("Director's Initial Option") to
acquire 10,000 shares of Company Stock upon the date on which such
individual first becomes a Director, whether through election by the
shareholders of the Company or by appointment of the Board in order to
fill a vacancy.
(2) DIRECTOR'S ANNUAL OPTIONS: Each Non-Employee Director shall
automatically be
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granted an Option ("Director's Annual Option") to acquire 2,000 shares
of Company Stock upon the date of the Company's annual meeting of
stockholders, if he or she has served continuously as a member of the
Board for at least 6 months
(4) EXERCISE PRICE. The purchase price of Company Stock subject to a
Director's Initial Option or Director's Annual Option shall be equal
to the Fair Market Value of a share of Company Stock on the date of
the grant thereof.
(5) VESTING. Director's Initial Options shall become vested and
exercisable as to 33-1/3% of the shares on each of the first three
anniversaries of the date of the grant thereof. Director's Annual
Options shall become vested and exercisable as to all the shares
subject to such option on the first anniversary of the date of the
grant provided such person has continuously served as a director for
such period. In the event of any Corporate Transaction (as defined in
Section 9), all Director's Initial Options and Director's Annual
Options then held by a current director of the Company shall
immediately vest and become exercisable.
(6) EXERCISE PERIOD. Subject to the vesting requirements provided in
the Plan, and subject to the provisions of the Plan which may result
in termination, Director's Initial Options and Director's Annual
Options shall be exercisable at any time during the ten year period
commencing on the date of the grant thereof.
(7) TREATMENT OF DIRECTOR'S INITIAL OPTIONS AND DIRECTOR'S ANNUAL
OPTIONS UPON TERMINATION OF SERVICE OF NON-EMPLOYEE DIRECTOR. Unless
otherwise determined by the Committee, the following rules shall apply
in the event that a Non-Employee Director ceases to be a member of the
Board:
(A) DEATH OR DISABILITY OF NON-EMPLOYEE DIRECTOR. In the
event that a Non-Employee Director ceases to be a member of
the Board by reason of death or disability, any Director's
Initial Option or Director's Annual Option which is
otherwise exercisable by the Non-Employee Director on the
date on which the Non-Employee Director ceases to be a
member of the Board as aforesaid (the "Termination Date")
shall terminate unless exercised by the Non-Employee
Director or the Non-Employee Director's personal
representative within one year of the Termination Date (or
within such other period of time as may be specified in the
Option Agreement), but in any event no later than the date
of expiration of the exercise period of such Option as set
forth in the Option Agreement. Any Director's Initial Option
or Director's Annual Option which has not yet become
exercisable by the Non-Employee Director on the Termination
Date shall immediately terminate (except to the extent
otherwise provided in the Option Agreement); provided,
however, that the Committee may, by written notice given to
such Optionee, provide that any such Option held by the
Optionee shall become fully exercisable as of the
Termination Date.
(B) OTHER TERMINATIONS OF SERVICE. In the event that a
Non-Employee Director ceases to be a member of the Board
other than by reason of death or
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disability, any Director's Initial Option or Director's
Annual Option which is otherwise exercisable by the
Non-Employee Director on the date on which the Non-Employee
Director ceases to be a member of the Board as aforesaid
(the "Termination Date") shall terminate unless exercised by
the Non-Employee Director or the Non-Employee Director's
personal representative within seven (7) months of the
Termination Date (or within such other period of time as may
be specified in the Option Agreement), but in any event no
later than the date of expiration of the exercise period of
such Option as set forth in the Option Agreement. Any
Director's Initial Option or Director's Annual Option which
has not yet become exercisable by the Non-Employee Director
on the Termination Date shall immediately terminate (except
to the extent otherwise provided in the Option Agreement);
provided, however, that the Committee may, by written notice
given to such Optionee, provide that any such Option held by
the Optionee shall become fully exercisable as of the
Termination Date.
(b) AMENDMENT. The provisions of this Section may not be amended more than once
every six months, other than to comport with changes in the Code or the Employee
Retirement Income Security Act of 1974 or the rules promulgated thereunder.
7. EXERCISE OF OPTIONS
(a) MANNER OF EXERCISE. An Option shall be deemed to be exercised when written
notice of such exercise has been given to the Committee in accordance with the
terms of the Option Agreement by the person entitled to exercise the Option and
full payment for the shares with respect to which the Option is exercised has
been received by the Company. Full payment may, as authorized by the Committee,
consist of any consideration and method of payment allowable under Subsection
(b) below. Until the issuance (as evidenced by the appropriate entry on the
books of the Company or of a duly authorized transfer agent of the Company) of
the stock certificate evidencing such shares, no right to vote or receive
dividends or any other rights as a shareholder shall exist with respect to such
shares, notwithstanding the exercise of the Option. The Company shall issue (or
cause to be issued) such stock certificate promptly upon exercise of the Option
and the satisfaction of all conditions and/or requirements under the Plan and/or
established by the Committee pursuant to the Plan. No adjustment will be made
for a dividend or other right for which the record date is prior to the date the
stock certificate is issued, except as provided in Section 3(b) of the Plan.
Exercise of an Option in any manner shall result in a decrease in the number of
shares which thereafter may be available, both for purposes of the Plan and for
sale under the Option, by the number of shares as to which the Option is
exercised.
(b) PERMISSIBLE CONSIDERATION. The Optionee shall pay the exercise price
specified in the Option Agreement in: (i) U.S. Dollars by cash, wire transfer of
immediately available funds, or certified check payable to the order of the
Company, (ii) with the approval of the Committee, by delivering shares of
Company Stock owned by the Optionee (including Company Stock acquired in
connection with the exercise of a particular Stock
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Option) and having a fair market value on the date of exercise equal to the
option price, or (iii) with the approval of the Committee, a combination of the
methods described in Clauses (i) and (ii). The Company may require the Optionee,
in connection with the exercise of a Stock Option, to provide such information
(including, without limitation, the Optionee's address and taxpayer
identification number) as may be necessary to complete any tax information
returns and other tax returns and reports that may be required to reflect such
exercise.
(d) WITHHOLDING OF TAXES. The Optionee or other person receiving shares of
Company Stock upon the exercise of a Stock Option shall be required to pay to
the Company the amount of any federal, state, local, or foreign taxes which the
Company is required to withhold with respect to the exercise of such Stock
Options and the issuance of shares. The Company shall have the right to deduct
from other wages paid to the Optionee by the Company (including through the
withholding of Company Stock purchased upon the exercise of a Stock Option, if
then authorized by the Committee and applicable law) the amount of any tax
required to be deducted, withheld or paid over with respect to such Stock
Options which is not otherwise paid. The Company's obligation to make any
delivery or transfer of any shares shall be conditioned on the Optionee's
compliance, to the Company's satisfaction, with any withholding requirements.
(e) ADDITIONAL REQUIREMENTS FOR ISSUANCE OF SHARES. No Company Stock shall be
issued or transferred upon the exercise of any Stock Option hereunder unless and
until all requirements applicable to the issuance or transfer of such Company
Stock have been complied with to the satisfaction of the Committee. The
Committee shall have the right to condition any Stock Option made to any
Optionee hereunder on such Optionee's undertaking in writing to comply with such
restrictions on his subsequent disposition of such shares of Company Stock as
the Committee shall deem necessary or advisable as a result of any provisions of
such grant or any applicable law, regulation or official interpretation thereof,
and certificates representing such shares may be legended to reflect any such
restrictions. Certificates representing shares of Company Stock issued under the
Plan will be subject to such stop-transfer orders and other restrictions as may
be applicable under such laws, regulations and other obligations of the Company,
including any requirement that a legend or legends be placed thereon.
8. TRANSFERABILITY OF OPTIONS
Only the Optionee or his or her authorized legal representative may exercise
rights under a Stock Option. Such persons may not transfer those rights except
by will or by the laws of descent and distribution or, if permitted under Rule
16b-3 of the Exchange Act and if permitted in any specific case by the Committee
in its sole discretion, pursuant to a qualified domestic relations order as
defined under the Code or Title I of the Employee Retirement Income Security Act
of 1974 or the regulations thereunder. When an Optionee dies, the personal
representative or other person entitled to succeed to the rights of the Optionee
("Successor Optionee") may exercise such rights. A Successor Optionee must
furnish proof satisfactory to the Company of his or her right to receive the
Stock Option under the Optionee's will or under the applicable laws of descent
and distribution.
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Notwithstanding the foregoing, the Committee may permit an Optionee to transfer
rights under a Non Qualified Stock Option to the Optionee's spouse or a lineal
descendant or to one or more trusts for the benefit of such family members or to
partnerships or other entities in which such family members and/or such trusts
are the only partners or owners (a "Family Transfer") provided that the Optionee
receives no consideration for a Family Transfer and that the Optionee and the
transferee in the Family Transfer agree to such conditions as the Committee may
impose, including, without limitation: (i) provisions to assure the payment of
any taxes required to be deducted, withheld and/or paid over in connection with
the exercise of a Stock Option, and (ii) acknowledgment that the Stock Options
and the exercise thereof will continue to be subject to the same terms and
conditions of the Option Agreement and this Plan, and any attempt to transfer a
Stock Option other than in accordance with the foregoing shall be void and of no
force or effect.
9. CORPORATE TRANSACTION
(a) DEFINITION. As used herein, a "Corporate Transaction" shall mean any of the
following events:
(1) CHANGE OF CONTROL. Approval by the holders of Common Stock of, or
the occurrence of, any transaction (which shall include a series of
transactions occurring within a 60 day period or occurring pursuant to
a coordinated plan) pursuant to which the holders of the voting stock,
or securities convertible into the voting stock, of the Company
immediately before such transaction are the holders following such
transaction of less than 50% of the voting stock, or securities
convertible into the voting stock of the Company, in a reorganization,
tender offer, consolidation, merger, liquidation, dissolution or any
other form of corporate transaction except (x) a merger or other
consolidation of the Company in which the holders of Common Stock
immediately prior to such merger or consolidation have substantially
the same proportionate ownership of common stock of the surviving
corporation after the merger or consolidation or (y) the issuance of
shares of Common Stock pursuant to a Public Offering; or
(2) SALE OF ASSETS. Approval by the holders of Common Stock of, or the
occurrence of, any sale, lease, exchange or other disposition other
than in the ordinary course of the Company's business (for cash,
shares of stock, securities, or other consideration) of all or
substantially all of the assets of the Company by reason of which the
Company ceases its normal course of business activities other than a
transfer to a majority-owned Subsidiary of the Company.
(b) ASSUMPTION OF OPTIONS. In connection with any Corporate Transaction, the
Committee may provide that any Options shall be assumed or an equivalent option
shall be substituted by the successor corporation or a Parent or Subsidiary of
such successor corporation (such entity, the "Successor Corporation"), with
appropriate adjustments as to the number of shares and exercise prices, in which
event the Options theretofore granted under the Plan shall continue in the
manner and under the terms so provided.
(c) ACCELERATION AND TERMINATION OF OPTIONS. In the event of a Corporate
Transaction in
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which the Options will not be assumed by the Successor Corporation, the
Committee shall notify each Optionee of the occurrence of the Corporate
Transaction and that the Options will not be assumed by the Successor
Corporation. In connection with the Corporate Transaction and effective only
upon the consummation of such Corporate Transaction, unless the Committee
determines otherwise, each Optionee shall thereupon have the right, within 20
days after such written notice is sent by the Committee, (the "Election
Period"), to exercise in full any or all of such Optionee's outstanding Stock
Options (whether the right to exercise such Stock Option has then vested). If an
Optionee does not exercise the Optionee's outstanding Stock Options in a timely
manner during the Exercise Period, the Optionee's Stock Options shall terminate
as of the consummation of such Corporate Transaction.
(e) ABANDONMENT OF CORPORATE TRANSACTION. Notwithstanding the foregoing, if the
Corporate Transaction is not consummated: (i) Any purchase of Shares pursuant to
Subsection (c) shall be annulled, and the Company shall return the consideration
provided by the Optionee and the Optionee shall return any shares and (ii) to
the extent that any Option vested solely by operation of this Section, such
vesting shall be deemed annulled, and the vesting schedule set forth in the
Option Agreement shall be reinstituted.
(f) OPTIONAL PURCHASE BY THE COMPANY. Notwithstanding the above, in the event of
any Corporate Transaction, the Committee shall have the discretion to cancel
outstanding Options in whole or in part, subject to such conditions as the
Committee may determine, upon payment to Optionees with respect to each Option
then exercisable an amount in cash equal to the difference between: (i) the fair
market value of the shares subject to each Option (at the effective date of such
Corporate Transaction) and (ii) the aggregate exercise price of such Option.
10. AMENDMENT AND TERMINATION OF THE PLAN
(a) AMENDMENT. The Board, by written resolution, may amend or terminate the Plan
at any time; provided, however, that: (i) any amendment that increases the
aggregate number (or individual limit for any single Optionee) of shares of
Company Stock that may be issued or transferred under the Plan (other than by
operation of Section 3(b)), or modifies the requirements as to eligibility for
participation in the Plan, or is required for purposes of satisfying Section 422
of the Code shall be subject to approval by the stockholders of the Company
and(ii) after the effective date specified in Section 12(b), the Board shall not
amend the Plan without stockholder approval if such approval is required by Rule
16b-3 of the Exchange Act or section 162(m) of the Code.
(b) TERMINATION OF PLAN. The Plan shall terminate on February 28, 2009, unless
terminated earlier by the Board or unless extended by the Board with the
approval of the stockholders.
(c) TERMINATION AND AMENDMENT OF OUTSTANDING STOCK OPTIONS. A termination or
amendment of the Plan that occurs after a Stock Option is granted shall not
materially impair the rights of an Optionee unless the Optionee consents or
unless the Committee acts under Section 13(h) hereof. The termination of the
Plan shall not impair the power
11
<PAGE>
and authority of the Committee with respect to an outstanding Stock Option.
Whether or not the Plan has terminated, an outstanding Stock Option may be
terminated or amended under Section 13(h) hereof or may be amended by agreement
of the Company and the Optionee consistent with the Plan.
(e) GOVERNING DOCUMENT. The Plan shall be the controlling document. No other
statements, representations, explanatory materials, or examples, oral or
written, may amend the Plan in any manner. The Plan shall be binding upon and
enforceable against the Company, its successors and assigns and the Optionees
and their assigns.
11. FUNDING OF THE PLAN
This Plan shall be unfunded. The Company shall not be required to establish
any special or separate fund or to make any other segregation of assets to
assure the payment of any Stock Options under this Plan. In no event shall
interest be paid or accrued on any Stock Option, including unpaid installments
of Stock Options.
12. EFFECTIVE DATE
(a) EFFECTIVE DATE OF THE PLAN. Subject to the approval of the Company's
stockholders, this Plan shall be effective as of March 9, 1999.
(b) EFFECTIVENESS OF SECTION 16 AND SECTION 162(M) PROVISIONS. The provisions of
the Plan that refer to, or are applicable to persons subject to, Section 16 of
the Exchange Act or section 162(m) of the Code shall be effective, if at all,
upon registration of the Company Stock under section 12(g) of the Exchange Act,
and shall remain effective thereafter for so long as such stock is so
registered.
13. MISCELLANEOUS
(a) RIGHTS OF INDIVIDUALS. Nothing in this Plan shall entitle any Employee,
Non-Employee Director, Consultant or other person to any claim or right to be
granted a Stock Option under this Plan. Nothing in the Plan or in any agreement
entered into pursuant to the Plan or any action taken hereunder shall confer
upon any Employee, Non-Employee Director, or Consultant the right to continue in
the employ of the Company or affect any right which the Company may have to
terminate the employment of such participant. Neither this Plan nor any action
taken hereunder shall be construed as giving any Employee, Non-Employee
Director, or Consultant any rights to be retained by or in the employ of the
Company or any other employment rights.
(b) NO OBLIGATION TO EXERCISE OPTIONS. The granting of an Option shall impose no
obligation upon an Optionee to exercise such Option.
(c) NO FRACTIONAL SHARES. No fractional shares of Company Stock shall be issued
or delivered pursuant to the Plan or any Stock Option. The Committee shall
determine whether cash, other awards, or other property shall be issued or paid
in lieu of such fractional shares or whether such fractional shares or any
rights thereto shall be forfeited
12
<PAGE>
or otherwise eliminated.
(e) NOTICES. Any notice, request, acknowledgment, consent, or other
communication to the Company or the Committee authorized or required by the Plan
shall be in writing and shall be delivered personally, sent by registered or
certified mail (postage prepaid, return receipt requested), or sent by a
recognized overnight delivery service, in any such case: (i) if to the Company,
to the President of the Company at the Company's principal executive offices or
(ii) if to an Optionee, addressed to him or her at the last address shown for
him or her on the records of the Company. Any such notice shall be deemed to
have been delivered, given, and received for all purposes as of the date so
delivered.
(f) OTHER COMPENSATION PLANS. The adoption of this Plan shall not effect any
other option or incentive or other compensation plans in effect for the Company,
nor shall the Plan preclude the Company from establishing any other forms of
incentive or other compensation for employees of the Company. Nothing contained
in this Plan shall be construed to limit the right of the Company to grant
options otherwise in connection with the acquisition, by purchase, lease,
merger, consolidation or otherwise, of the business or assets of any
corporation, firm or association, including options granted to employees thereof
who become Employees of the Company, or for any other proper corporate purpose.
(g) SUBSTITUTE GRANTS. The Committee may make a grant to an employee of another
corporation who becomes an Employee by reason of a corporate merger,
consolidation, acquisition of stock or property, reorganization or liquidation
involving the Company or any of its subsidiaries in substitution for a stock
option or restricted stock grant granted by such corporation ("Substituted Stock
Incentives"). The terms and conditions of the substitute grant may vary from the
terms and conditions required by the Plan and from those of the Substituted
Stock Incentives. The Committee shall prescribe the provisions of the substitute
grants.
(h) OWNERSHIP OF STOCK. An Optionee or Successor Optionee shall have no rights
as a stockholder with respect to any shares of Company Stock covered by a Stock
Option until the shares are issued or transferred to the Optionee or Successor
Optionee on the stock transfer records of the Company.
(i) COMPLIANCE WITH LAW. The Plan, the exercise of Stock Options and the
obligations of the Company to issue or transfer shares of Company Stock under
Stock Options shall be subject to all applicable laws and to approvals by any
governmental or regulatory agency as may be required. With respect to persons
subject to Section 16 of the Exchange Act, it is the intent of the Company that
the Plan and all transactions under the Plan comply with all applicable
provisions of Rule 16b-3 or its successors under the Exchange Act. The Committee
may revoke any Stock Option if it is contrary to law or modify a Stock Option to
bring it into compliance with any valid and mandatory government regulation.
(j) GOVERNING LAW. This Plan shall be governed by and construed in accordance
with the domestic laws of the State of Connecticut without giving any effect to
any choice or conflict of law provision or rule (whether of the State of
Delaware or of any other jurisdiction) that would cause the application of the
laws of any jurisdiction other than the
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<PAGE>
State of Delaware.
(l) HEADINGS. The headings contained in this Plan are for reference purposes
only and shall not affect the meaning or interpretation of this Plan.
(m) USAGE. In construing this Plan, feminine or neuter pronouns shall be
substituted for those of the masculine form, and the plural for the singular,
and vice versa, in any case in which the context may require. The capitalized
terms used in this Agreement shall have the meaning first applied to their first
usage in this Agreement unless otherwise indicated.
14
<PAGE>
EXHIBIT 10.11
REVOLVING LOAN
AGREEMENT
BETWEEN
ZIPLINK, LLC
AND
FLEET NATIONAL BANK
MARCH 31, 1998
<PAGE>
REVOLVING LOAN AGREEMENT
AGREEMENT, made March 31, 1998, between ZIPLINK, LLC, a Connecticut limited
liability company, with its principal place of business at 40 Woodland Street,
Hartford, Connecticut 06105 ("BORROWER") and FLEET NATIONAL BANK, a national
banking association with an office located at 777 Main Street, Hartford,
Connecticut 06115 ("LENDER").
PREAMBLE
WHEREAS, Borrower has requested Lender to extend to Borrower a revolving
loan in the maximum aggregate principal amount of $15,000,000 (the "Loan").
WHEREAS, Lender has agreed to extend the Loan to Borrower subject to the
terms and conditions set forth below.
NOW, THEREFORE, for the mutual considerations contained in this Agreement,
Borrower and Lender agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.1 ACCOUNTING TERMS; ETC. Unless otherwise defined, all accounting
terms shall be construed, and all computations or classifications of assets and
liabilities and of income and expenses shall be made or determined in accordance
with GAAP consistently applied. As used herein, unless otherwise defined, the
following terms shall have the following meanings:
(a) "Agreement" shall mean this Revolving Loan Agreement as the same may
from time to time be amended, supplemented or otherwise modified.
(b) "Airtouch" shall mean Airtouch Communications, Inc., a Delaware
corporation.
(c) "Borrower Collateral" shall have the meaning provided in SECTION 7.1
hereof.
(d) "Borrowing Base" shall mean, as of any date as of which the amount
thereof shall be determined, an amount of up to the lesser of: (i) the
Commitment Amount, or (ii) the aggregate of the following: (A) sixty
percent (60%) of the then current market value of the Airtouch common
stock initially pledged by Guarantor as Collateral pursuant to the
Pledge Agreement, provided that if the market value of such Airtouch
common stock should thereafter decline, the percentage applicable
thereto for purposes of the calculation of the Borrowing Base
hereunder shall be increased, but not beyond seventy percent (70%), to
the extent necessary to offset the effect of such decline in value for
purposes of such calculation, plus (B) sixty percent (60%) of the then
current market of any additional Airtouch common
<PAGE>
stock pledged by Guarantor to Lender as additional Collateral pursuant
to the Pledge Agreement, (C) seventy percent (70%) of the then current
market value of any additional Securities listed on the New York Stock
Exchange or American Stock Exchange and pledged by Guarantor to the
Lender as additional Collateral pursuant to the terms of the Pledge
Agreement, plus (D) fifty percent (50%) of the then current market
value of any Securities listed on any other stock exchange acceptable
to the Lender in its sole discretion and pledged by Guarantor to the
Lender as additional Collateral pursuant to the terms of the Pledge
Agreement, plus (E) eighty percent (80%) of the then current market
value of any municipal bonds having the highest rating by a nationally
recognized securities rating service and pledged by Guarantor to the
Lender as additional Collateral pursuant to the terms of the Pledge
Agreement, plus (F) ninety percent (90%) of the then current market
value of United States Treasury bonds and notes pledged by Guarantor
to the Lender as additional Collateral pursuant to the terms of the
Pledge Agreement.
(e) "Business Day" shall mean any day other than a day on which commercial
banks in Hartford, Connecticut are required or permitted by law to
close.
(f) "Closing Date" shall mean the date hereof.
(g) "Collateral" shall have the meaning provided in the Pledge Agreement.
(h) "Commitment Amount" shall mean FIFTEEN MILLION DOLLARS
($15,000,000.00), or such lesser amount as the Borrower may stipulate.
(i) "Defaulting Event" shall mean the occurrence of an Event of Default or
the occurrence of any condition or event which but for the giving of
notice or passage of time or both would constitute an Event of
Default.
(j) "Default Rate" shall have the meaning assigned in SECTION
3.1(C)hereof.
(k) "Dollar" and the sign "$" shall mean lawful money of the United States
of America.
(l) "ERISA" shall mean the Employee Retirement Income Security Act of 1974
and all rules and regulations promulgated pursuant thereto, as the
same may be supplemented or amended.
(m) "Event of Default" and "Events of Default" shall have the meanings
assigned in SECTION 8.1 hereof.
(n) "Financing Document" or "Financing Documents" shall mean this
Agreement, the Note, the Guaranty, the Pledge Agreement, and any and
all other instruments, agreements and documents executed in connection
herewith or therewith or
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related hereto or thereto, together with any amendments, supplements
or modifications hereto or thereto.
(o) "GAAP" shall mean generally accepted accounting principals.
(p) "Guarantor" means Henry M. Zachs
(q) "Guaranty" shall mean the Guaranty Agreement dated the date hereof
from the Guarantor to the Lender, as the same may from time to time be
amended, supplemented or otherwise modified.
(r) "Interest Period" shall mean, for a Revolving Loan, a period
commencing on (for the initial Interest Period) the date such
Revolving Loan is advanced or (for each subsequent Interest Period)
the first day after the expiration of the immediately preceding
Interest Period, and ending 30, 60 or 90 days thereafter, as the
Borrower may elect in the Notice of Borrowing; and provided that:
(i) any Interest Period that would otherwise end on a day that is not
a Business Day shall be extended to the next succeeding Business
Day unless such Business Day falls in the next calendar month, in
which case such Interest Period shall end on the immediately
preceding Business Day;
(ii) any Interest Period that begins on the last Business Day of a
calendar month (or on a day for which there is no numerically
corresponding day in the calendar month at the end of such
Interest Period) shall, subject to clause (iii) below, end on the
last Business Day of a calendar month; and
(iii) unless agreed to in advance by the Lender, the Borrower may not
elect an Interest Period which would otherwise end after the end
of the Term.
(s) "LIBOR" or "LIBOR Rate" shall mean for the then current Interest
Period relating thereto the rate of interest per annum (rounded
upward, if necessary, to the nearest 1/32 of one percent) as
determined on the basis of the offered rates for deposits in U.S.
dollars for a period of time comparable to such Interest Period which
appears on the Telerate page 3750 as of 11:00 a.m. London time on the
day that is two (2) London Banking Days preceding the first day of
such Interest Period; provided, however, if the rate described above
does not appear on the Telerate System on any applicable interest
determination date, the LIBOR Rate shall be the rate (rounded upwards
as described above, if necessary) for deposits in dollars for a period
substantially equal to the Interest Period on the Reuters Page "LIBO"
(or such other page as may replace the LIBO Page on that service for
the purpose of displaying such rates), as of 11:00 a.m. (London Time),
on the day that is two (2) London Banking Days prior to the beginning
of such Interest Period. If both the Telerate and Reuters system are
unavailable, then the rate for that date will be determined on the
basis of the offered rates for deposits in U.S. dollars for a period
of time comparable to such Interest Period which are offered by four
major
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<PAGE>
banks in the London interbank market at approximately 11:00 a.m.
London time, on the day that is two (2) London Banking Days preceding
the first day of such Interest Period as selected by the Lender. The
principal London office of each of the four major London banks will be
requested to provide a quotation of its U.S. dollar deposit offered
rate. If at least two such quotations are provided, the rate for that
date will be the arithmetic mean of the quotations. If fewer than two
quotations are provided as requested, the rate for that date will be
determined on the basis of the rates quoted for loans in U.S. dollars
to leading European banks for a period of time comparable to such
Interest Period offered by major banks in New York City at
approximately 11:00 a.m. New York City time, on the day that is two
(2) London Banking Days preceding the first day of such Interest
Period. In the event that the Bank is unable to obtain any such
quotation as provided above, it will be deemed that LIBOR cannot be
determined, and the Lender will set an interest rate for the Revolving
Loans by such means as it shall reasonably deem equitable so that such
rate is comparable to the rate that would be established by the
foregoing means. In the event that the Board of Governors of the
Federal Reserve System shall impose a Reserve Percentage with respect
to LIBOR deposits of the Lender, then for any period during which such
Reserve Percentage shall apply, LIBOR shall be equal to the amount
determined above divided by an amount equal to one minus the Reserve
Percentage.
(t) "Loan" means the revolving loan made pursuant hereto in the maximum
principal amount of the Commitment Amount.
(u) "London Banking Day" means any day on which commercial banks are open
for business in London, England.
(v) "Note" means the Revolving Loan Note.
(w) "Notice of Borrowing" shall have the meaning assigned in SECTION 2.3
hereof.
(x) "Obligation" and "Obligations" mean and include all loans, advances,
interest, indebtedness, liabilities, obligations, fees, charges,
expenses, guaranties, covenants and duties at any time owing by
Borrower to Lender of every kind and description, whether or not
evidenced by any note or other instrument, whether or not for the
payment of money, whether direct or indirect, absolute or contingent,
due or to become due, now existing or hereafter arising, including,
but not limited to, the Revolving Loans, and all other indebtedness,
liabilities and obligations of Borrower arising under this Agreement
and the other Financing Documents or otherwise, and all costs,
expenses, fees, charges incurred by Lender hereunder or otherwise with
respect to Borrower, including without limitation fees and expenses of
attorneys and other professionals incurred in connection with any of
the foregoing, or in any way connected with, involving or relating to
the preservation, enforcement, protection or defense of, or
realization under this Agreement, any of the other Financing
Documents, any related agreement, document or instrument, the
Collateral, the Borrower Collateral and the rights and remedies
hereunder or thereunder.
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<PAGE>
(y) "Plan" means any employee benefit plan or other plan maintained by
Borrower or any entity affiliated with Borrower for employees covered
by Title I of ERISA.
(z) "Pledge Agreement" shall mean that certain Stock Pledge Agreement of
even date herewith by and between Guarantor and Lender, pursuant to
which Guarantor is pledging the Collateral to Lender.
(aa) "Revolving Loan" and "Revolving Loans" have the respective meanings
assigned in SECTION 2.1 hereof.
(bb) "Revolving Loan Account" shall mean the revolving loan account
maintained by the Borrower with the Lender.
(cc) "Revolving Loan Note" shall have the meaning assigned in SECTION 2.3
hereof.
(dd) "Security" or "Securities" shall have the meaning assigned in the
Pledge Agreement.
(ee) "Term" shall have the meaning assigned in SECTION 10.1 hereof.
ARTICLE II
REVOLVING LOANS
SECTION 2.1 AMOUNTS. Subject to the terms and conditions contained in this
Agreement, and so long as no Defaulting Event has occurred, Lender agrees to
make advances on the Loan (the "Revolving Loans" and, individually, a "Revolving
Loan") to Borrower from time to time until terminated as provided below in
principal amounts not exceeding in the aggregate at any one time outstanding the
Borrowing Base, it being agreed and understood that at no time shall the maximum
aggregate principal amount of the Revolving Loans outstanding exceed the
Borrowing Base.
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<PAGE>
SECTION 2.2 PAYMENT.
(a) Interest only as accrued shall be due and payable on the Revolving
Loans on the first day of each month commencing May 1, 1998; provided,
however, that the entire outstanding principal amount of the Revolving
Loans plus all accrued and outstanding interest thereon, and all other
amounts hereunder, shall be due and payable on April 1, 2001.
(b) In the event that the market value of the Airtouch common stock
initially pledged as Collateral pursuant to the Pledge Agreement shall
decline so as to cause the outstanding principal balance of the
Revolving Loans to exceed seventy percent (70%) but not eighty percent
(80%) of the then current market value of such common stock (unless
the Guarantor shall have pledged additional Collateral to Lender as
permitted by and pursuant to the Pledge Agreement so that the
outstanding principal balance of the Revolving Loans does not exceed
the Borrowing Base), a Defaulting Event shall be deemed to have
occurred, which Defaulting Event shall constitute an Event of Default
unless, within thirty (30) days of the date such outstanding principal
balance first exceeds seventy percent (70%) of the current market
value of such common stock, the Borrower either pays down the
outstanding principal balance of the Revolving Loans or the Guarantor
pledges additional Collateral pursuant to the Pledge Agreement, in
either case so that the outstanding principal balance of the Revolving
Loans as of such date no longer exceeds the Borrowing Base. In the
event that the market value of the Airtouch common stock initially
pledged as Collateral pursuant to the Pledge Agreement shall decline
so as to cause the Commitment Amount to exceed eighty percent (80%) of
the current market value of such common stock (unless the Guarantor
shall have pledged additional Collateral to Lender as permitted by and
pursuant to the Pledge Agreement so that the outstanding principal
balance of the Revolving Loans does not exceed the Borrowing Base), a
Defaulting Event shall be deemed to have occurred, which Defaulting
Event shall constitute an Event of Default unless, within five (5)
days of the date such outstanding principal balance first exceeds
eighty percent (80%) of the current market value of such common stock,
the Borrower pays down the outstanding principal balance of the
Revolving Loans or the Guarantor pledges additional Collateral
pursuant to the Pledge Agreement, in either case so that the
outstanding principal balance of Revolving Loans as of such date no
longer exceeds the Borrowing Base.
(c) In the event that the principal amount of the Revolving Loans
outstanding at any time shall exceed the Borrowing Base for any reason
other than one described in subparagraph (b) above, the Borrower
shall, within five (5) days after such outstanding principal amount
first exceeds the Borrowing Base, either pay down the outstanding
principal balance of the Revolving Loans or cause the Guarantor to
pledge additional Collateral pursuant to the terms of the Pledge
Agreement, in either case so that the outstanding principal balance of
the Revolving Loans no longer exceeds the Borrowing Base. In the event
that the Borrower has not reduced
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<PAGE>
such principal balance below the Borrowing Base by the end of such
five (5) day period, an Event of Default shall immediately exist.
SECTION 2.3 ABILITY TO REBORROW, PROCEDURE FOR ADVANCES, NOTICE OF
BORROWING, REVOLVING LOAN NOTE, REVOLVING LOAN ACCOUNT, ETC. Within the limits
of the Borrowing Base and the Term, so long as Borrower is in compliance with
all of the terms and conditions of this Agreement and the other Financing
Documents and no Defaulting Event has occurred, Borrower may request borrowings,
repay and request reborrowings of Revolving Loans. Whenever Borrower desires an
advance, Borrower shall notify Lender in writing or by telephone of the proposed
borrowing. Such notice (each, a "Notice of Borrowing") shall specify the date of
the proposed borrowing and the amount to be borrowed. Each Notice of Borrowing
must be received by Lender no later than 10:00 a.m., Hartford, Connecticut time
on the second London Banking Day preceding the business day on which such
borrowing is requested. The Borrower shall not request any advance in an amount
less than One Hundred Thousand Dollars ($100,000.00) and shall not request more
than one advance per week. In addition to this Agreement, the Revolving Loans
shall be evidenced by a revolving loan promissory note payable to Lender in the
form of EXHIBIT "A" attached hereto (the "Revolving Loan Note"). Insofar as
Borrower may request and Lender shall make Revolving Loans hereunder, Lender
shall enter such advances as debits on a revolving loan account maintained by
Borrower with Lender (the "Revolving Loan Account") and deposit such amounts in
a demand deposit checking account maintained by Borrower with Lender. Lender may
also record to the Revolving Loan Account, in accordance with customary
accounting practices and procedures, all fees, accrued and unpaid interest, late
fees, usual and customary charges for the maintenance and administration of
checking and any other accounts maintained by Borrower with Lender and other
fees, charges and liens which are properly chargeable to Borrower under this
Agreement; all payments, subject to collection, made by Borrower on account of
indebtedness evidenced by the Revolving Loan Account; all proceeds of Borrower
Collateral which are finally paid to Lender in its own office in cash or
collected items; and other appropriate debits and credits. Lender shall record
as credits to the Revolving Loan Account, in accordance with customary
accounting practices and procedures, all Revolving Loan payments made by
Borrower. Borrower hereby authorizes Lender to maintain the Revolving Loan
Account and agrees that the amount shown on the Revolving Loan Account as
outstanding from time to time shall constitute the amount owing to Lender by
reason of the Revolving Loans and other appropriate charges and credits
hereunder, absent manifest error. Borrower hereby authorizes Lender to make such
charges as are described in this Section 2.3 against the Revolving Loan Account
or any other account maintained by Borrower with Lender.
SECTION 2.4 MONTHLY STATEMENTS. On a monthly basis, Lender may render a
statement for the Revolving Loan Account, which statement shall be considered
correct and accepted by Borrower and conclusively binding upon Borrower unless
Borrower notifies Lender to the contrary within thirty (30) days of the receipt
of said statement by Borrower.
SECTION 2.5 LENDER DISCRETION. Nothing herein shall be construed to
prohibit Lender from lending in excess of the Borrowing Base, it being agreed
that all such loans and advances shall be at Lender's sole discretion and shall
not establish a pattern or custom binding upon Lender.
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<PAGE>
ARTICLE III
INTEREST, FEES AND OTHER CHARGES
SECTION 3.1 INTEREST.
(a) INTEREST RATES. So long as no Defaulting Event or Event of Default has
occurred, each of the Revolving Loans shall bear interest for the
applicable Interest Period at a fixed rate per annum equal to the
LIBOR Rate, plus .30%. The Borrower shall elect the length of each
applicable Interest Period, subject to the provisions of this
Agreement. At the expiration of an applicable Interest Period for a
Revolving Loan, the Borrower may elect the length of the next Interest
Period for such Revolving Loan. The Borrower shall not choose an
Interest Period that extends beyond the end of the Term.
(b) PAYMENT OF INTEREST. So long as any of the Obligations remain
outstanding, interest on the Revolving Loans shall be due and payable
without notice or demand monthly in arrears beginning on May 1, 1998
and continuing on the first day of each and every month thereafter
through and including April 1, 2001.
(c) DEFAULT INTEREST RATE. Notwithstanding the foregoing, interest on the
Revolving Loans, at all times after the occurrence of an Event of
Default, and interest on all payments of interest that are not paid
when due, shall accrue at a rate per annum equal to three percentage
points (3.0%) above the applicable interest rates otherwise in effect
under this Agreement (the "Default Rate").
(d) CALCULATION OF INTEREST. Interest on the Revolving Loans shall be
calculated on the basis of a 360-day year and the actual number of
days elapsed.
(e) LATE PAYMENT. If any interest installment due hereunder or under the
Note is not paid within ten (10) days after the date it is due and
payable, without in any way affecting Lender's right to make demand
hereunder or to declare an Event of Default to have occurred, Lender
may in its sole discretion assess a late charge equal to five percent
(5%) of such late payment against Borrower, which late charge shall be
immediately due and payable and may be paid by a charge to Borrower's
Revolving Loan Account as contemplated in Section 2.3 above.
(f) LAWFUL INTEREST. It being the intent of the parties that the rate of
interest and all other charges to Borrower be lawful, if for any
reason the payment of a portion of interest, fees or charges as
required by this Agreement would exceed the limit established by
applicable law which a lender such as Lender may charge to a
commercial borrower such as Borrower, then the obligation to pay
interest or charges shall automatically be reduced to such limit and,
if any amounts in excess of such limits shall have been paid, then
such amounts shall be applied to the unpaid principal amount of the
Obligations or refunded so that under no
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circumstances shall interest or charges required hereunder exceed the
maximum rate allowed by law, as aforesaid.
(g) SWAP ARRANGEMENT. In order for Borrower to make regular payments as if
the interest rates on the Revolving Loans were fixed, the Lender shall
extend to Borrower the right, but not the obligation, to enter into an
interest rate swap agreement with respect to the Loan, such swap
agreement to be in a form provided by and acceptable to the Lender in
its sole discretion. In the event Borrower elects to enter into a swap
arrangement with Lender, all Revolving Loans to which the swap relates
shall use thirty (30) day Interest Periods only and shall bear
interest per annum at the LIBOR Rate plus .20% for each such thirty
(30) day Interest Period.
SECTION 3.2 PREPAYMENT.
(a) The Borrower shall have the right at any time and from time-to-time to
prepay any Revolving Loan subject to the rights of the Borrower to
reborrow as set forth in this Agreement, together with the applicable
premium.
(b) If the outstanding balance of the Revolving Loans shall, at any time,
exceed the Borrowing Base, the Borrower shall immediately repay the
Revolving Loans in the amount of such excess.
(c) The Borrower agrees to pay to the Lender a prepayment fee on the
principal amount of the Revolving Loans being prepaid equal to the
excess, discounted to its present value as of the date paid to Lender,
of (i) the amount of interest which otherwise would have accrued on
the principal amount of the Revolving Loans being prepaid during the
period (the "Indemnity Period") commencing with the date of such
prepayment and ending on the last day of the applicable Interest
Period at the rate of interest applicable to such Revolving Loan
during such Interest Period over (ii) the amount of interest which
would be earned by the Lender during the Indemnity Period if it
invested the principal amount so prepaid at a rate per annum
determined by the Lender as the rate it would bid in the London
interbank market for a deposit of eurodollars in an amount
approximately equal to such principal amount for a period of time
comparable to the Indemnity Period, plus any other reasonable expenses
that the Lender may sustain or incur by reason of the prepayment. In
the event that Borrower has entered into a swap arrangement as
described above, Borrower agrees to pay to Lender upon prepayment of
any Revolving Loans to which such swap relates a yield maintenance fee
that compensates Lender for any actual loss or expense sustained or
incurred by Lender in respect of such swap arrangement as a result of
such prepayment. For the purposes of this Section, the determination
by the Lender of any prepayment, fees and expenses shall be conclusive
if made reasonably and in good faith. A certificate as to any
additional amounts payable pursuant to this Section setting forth the
basis and method of determining such amounts shall be conclusive,
absent manifest error, as to determination by the Lender set forth
therein if made reasonably and in good faith.
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(d) The above premiums for prepayment of the Revolving Loans apply at any
time the Revolving Loans are prepaid, for any reason, including demand
due to the occurrence of an Event of Default.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
SECTION 4.1 REPRESENTATIONS AND WARRANTIES. Borrower represents and
warrants to Lender that:
(a) GOOD STANDING AND QUALIFICATION. It is duly organized, validly
existing and in good standing under the laws of the State of
Connecticut. It has all requisite power and authority to own and
operate its properties and to carry on its business as presently
conducted and is duly qualified to do business and is in good standing
as a foreign limited liability company in each jurisdiction where the
failure to so qualify would have a material adverse effect on the
Borrower.
(b) AUTHORITY. It has full power and authority to enter into this
Agreement, the Note and the other Financing Documents to which it is a
party, to make the borrowings contemplated herein, to execute and
deliver the Note and the other Financing Documents to which it is a
party, and to incur the obligations provided for herein and therein,
all of which have been duly authorized by all necessary and proper
action. No other consent or approval or the taking of any other action
in respect of its members or of any public authority is required as a
condition to the validity or enforceability of this Agreement, the
Note, the other Financing Documents or any other instrument, document
or agreement delivered in connection herewith or therewith.
(c) BINDING AGREEMENTS. This Agreement, the Note and the other Financing
Documents executed and/or delivered by Borrower in connection herewith
or therewith constitute valid and legally binding obligations of
Borrower, enforceable in accordance with their respective terms,
except as enforcement may be limited by principles of equity,
bankruptcy, insolvency, or other laws affecting the enforcement of
creditors' rights generally.
(d) LITIGATION. Except as set forth on Schedule 4.1(d) hereof, there are
no actions, suits or proceedings pending against Borrower before any
court or administrative agency, nor are there any actions, suits or
proceedings threatened, which, either in any case or in the aggregate,
would materially and adversely affect the financial condition, assets
or operations of Borrower, nor are there any such actions, suits or
proceedings which question the validity of this Agreement, the Note,
any of the
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other Financing Documents, or any action to be taken in connection
with the transactions contemplated hereby or thereby.
(e) NO CONFLICTING LAW OR AGREEMENTS. The execution, delivery and
performance by Borrower of this Agreement, the Note and the other
Financing Documents, as the case may be, do not (i) violate any
provision of its Articles of Organization or Operating Agreement or
any order, decree or judgment, or any provision of any statute, rule
or regulation; (ii) violate or conflict with, result in a breach of or
constitute (with notice or lapse of time, or both) a default under any
agreement, mortgage, indenture or other contract or undertaking to
which it is a party, or by which its properties are bound; and (iii)
result in the creation or imposition of any lien, charge or
encumbrance of any nature whatsoever upon any property or assets of
Borrower except for the liens granted hereunder to Lender.
(f) TAXES. It has filed all tax returns which are required to be filed and
all federal, state, municipal, franchise and other taxes shown on such
filed returns have been paid or are being diligently contested by
appropriate proceedings and have been reserved against, as required by
GAAP, consistently applied.
(g) FINANCIAL STATEMENTS. It has heretofore delivered to Lender: (i) its
annual balance sheet as of December 31, 1997, and the related
statements of income, retained earnings and cash flows for the fiscal
year or period then ended. Each of such statements fairly presents in
all material respects its consolidated financial condition as of the
dates and for the periods referred to and has been prepared in
accordance with GAAP consistently applied by it throughout the periods
involved. There are no liabilities, direct or indirect, fixed or
contingent, of Borrower as of the dates of said balance sheets which
are required to be disclosed and listed under GAPP and which are not
reflected in such statements or in the notes thereto.
(h) ADVERSE DEVELOPMENTS. Since September 1, 1997, there has been no
material adverse change in the financial condition, business,
operations, affairs or prospects of Borrower or in any of its
properties or assets.
(i) TITLE TO ASSETS. It has good title to its properties and assets,
including the properties and assets reflected in the financial
statements referred to herein. Such properties and assets are not
subject to any mortgage, pledge, lien, lease, encumbrance or charge
except those shown on Schedule 4.1(i), if any.
(j) REGULATIONS G, T, U AND X. The proceeds of the borrowings hereunder
are not being used and will not be used, directly or indirectly, for
the purposes of purchasing or carrying any margin stock in
contravention, or which would cause any Lender to be in violation, of
Regulations G, T, U or X promulgated by the Board of Governors of the
Federal Reserve System.
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(k) COMPLIANCE. It is not in default with respect to any order, writ,
injunction or decree of any court or of any federal, state, municipal
or other governmental department, commission, board, bureau, agency,
authority or official, nor is it in violation of any law, statute,
rule or regulation to which it is or its properties are subject and it
has not received notice of any such default from any party and is not
in default in the payment or performance of any of its obligations to
any third parties or in the performance of any mortgage, indenture,
lease, contract or other agreement to which it is a party or by which
any of its assets or properties are bound.
(l) PENSION PLANS.
(i) No fact, including but not limited to any "reportable event", as
that term is defined in Section 4043 of ERISA, exists in
connection with any Plan which might constitute grounds for
termination of any such Plan by the Pension Benefit Guaranty
Corporation (the "PBGC"), or for the appointment by the
appropriate United States District Court of a trustee to
administer any such Plan. Each Plan of the Borrower, if any, is
described on SCHEDULE 4.1(L) attached hereto;
(ii) No "prohibited transaction" within the meaning of Section 406 of
ERISA or Section 4975 of the Internal Revenue Code of 1986, as
amended (the "Code") exists or will exist upon the execution and
delivery of this Agreement and the other Financing Documents, or
the performance by the parties hereto or thereto of their
respective duties and obligations hereunder and thereunder;
(iii) Any Plan complies currently, and has complied in the past, both
as to form and operation, with its terms and with provisions of
the Code and ERISA, and all applicable regulations thereunder and
all rules issued by the Internal Revenue Service, U.S. Department
of Labor and the PBGC and as such, is and remains a "qualified"
plan under the Code;
(iv) No actions, suits or claims are pending (other than routine
claims for benefits) against any Plan, or the assets of any such
Plan; and
(v) The Borrower has performed all obligations required to be
performed by it under any Plan is not in default, or in violation
of any Plan.
(m) OFFICE. Its chief executive office and principal place of business,
and the office where its books and records concerning Borrower
Collateral are kept, is at 900 Chelmsford Street, Lowell,
Massachusetts 01851.
(n) PLACES OF BUSINESS. Except as set forth on the attached SCHEDULE
4.1(n), it has no other places of business and locates no Borrower
Collateral, specifically including books and records, at any location
other than as set forth in the first paragraph of
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this Agreement. It shall locate a full and complete set of its books
and records in its offices at the chief executive office described in
the immediately preceding paragraph.
(o) UNIONS. It is not a party to any collective bargaining or union
agreement.
(p) LICENSES. It has all licenses, permits and other permissions required
by any government, agency or subdivision thereof, or from any
licensing entity necessary for the conduct of its business, all of
which it represents to be in good standing and in full force and
effect.
(q) BORROWER COLLATERAL. It is and shall continue to be the sole owner of
the Borrower Collateral; Borrower is fully authorized to sell,
transfer, pledge and/or grant a security interest in each and every
item of the Borrower Collateral to Lender; all documents and
agreements related to the Borrower Collateral shall be true and
correct and in all respects what they purport to be; all signatures
and endorsements that appear thereon shall be genuine and all
signatories and endorsers shall have full capacity to contract; none
of the transactions underlying or giving rise to the Borrower
Collateral shall violate any applicable state or federal laws or
regulations; all documents relating to the Borrower Collateral shall
be legally sufficient under such laws or regulations and shall be
legally enforceable in accordance with their terms; and Borrower
agrees to defend the Borrower Collateral against the claims of all
persons other than Lender.
(r) TRADENAMES. Except as set forth on the attached SCHEDULE 4.1(r), it
does not have any tradenames.
(s) FINANCIAL INFORMATION. All financial information submitted by it to
Lender, whether previously or in the future, is and will be true,
correct and complete in all material respects.
(t) PARENT, AFFILIATE OR SUBSIDIARY CORPORATIONS. Except as set forth on
the attached SCHEDULE 4.1(t), Borrower has no parent corporation and
has no affiliate or subsidiary.
(u) OFFICERS AND DIRECTORS. The officers, members and managers of Borrower
are set forth on the attached SCHEDULE 4.1(u).
(v) PAYMENT OF DEBTS. Prior to and immediately after receiving the
Revolving Loans, the Borrower is solvent and able to pay its debts as
they come due.
(w) USE OF PROCEEDS. It will use the proceeds of the Revolving Loans
solely (i) for refinancing in full its indebtedness to Bank of Boston
Connecticut; and (ii) for working capital purposes.
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ARTICLE V
CONDITIONS OF LENDING
SECTION 5.1 CONDITIONS OF THE INITIAL REVOLVING LOAN. Subject to the terms
hereof, the obligation of Lender to make the Loan under this Agreement is
subject to the fulfillment of the following conditions precedent at the time of
the execution of this Agreement:
(a) NOTE. Lender shall have received a duly executed Revolving Loan Note
drawn to its order.
(b) EVIDENCE OF ACTION. Lender shall have received certified copies of all
manager and member action (in form and substance satisfactory to
Lender) taken by Borrower to authorize the execution, delivery and
performance of this Agreement, the Note, and the other Financing
Documents to which it is a party, and the borrowings to be made
hereunder and thereunder, together with true copies of Borrower's
Articles of Organization and Operating Agreement and such other papers
as Lender or its counsel may require.
(c) OPINION OF COUNSEL. Lender shall have received a favorable written
opinion of counsel for Borrower and the Guarantor, and accompanied by
such supporting documents as Lender or its counsel may require.
(d) GUARANTOR'S DOCUMENTS. Lender shall have received the Guaranty and the
Pledge Agreement, each duly executed by the Guarantor.
(e) UCC-1 FINANCING STATEMENTS. Lender shall have received from Borrower
and the Guarantor duly executed UCC-1 financing statements and such
other documents as Lender deems necessary or proper to perfect the
security interest in the Collateral and the Borrower Collateral, all
of which shall be in form, scope and substance satisfactory to Lender
and its counsel.
(f) STOCK CERTIFICATES. Lender shall have received the Pledged Stock (as
defined in the Pledge Agreement) along with stock powers executed in
blank, and all other conditions and requirements of the Pledge
Agreement shall have been met to the satisfaction of the Lender and
its counsel.
(g) INSURANCE. Lender shall have received evidence of insurance of such
types and in such amounts and with such companies reasonably
satisfactory to Lender, and Lender shall be named as a loss payee on
all such insurance.
(h) SOLVENCY CERTIFICATE. Lender shall have received a Solvency
Certificate from the Guarantor in the form of EXHIBIT "B" attached
hereto.
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(i) FINANCIAL STATEMENTS. Lender shall have received such internally
generated financial statements of the Borrower and the Guarantor as
Lender shall require in its sole discretion.
(j) NO MATERIAL ADVERSE CHANGE. There shall have been no material adverse
change in the financial condition or operating condition of Borrower
or Guarantor since September 1, 1997.
(k) REGULATION U. Borrower shall have executed and delivered to Lender
such documentation as Lender shall require to evidence and confirm
that the Revolving Loans will not be used in any fashion as to cause
the Lender to be in violation of Regulation U or any other regulation
promulgated by the Board of Governors of the Federal Reserve System
relating to "margin stock".
(l) FURTHER DOCUMENTS. Lender shall have received such further documents,
instruments and agreements as Lender may request.
SECTION 5.2 CONDITIONS OF ADDITIONAL REVOLVING LOANS. In addition to the
conditions in Section 5.1 above, Lender shall make no further Revolving Loans
(collectively, the "Further Loans") unless the following conditions shall exist
or have been satisfied by Borrower at the time any Further Loan is requested:
(a) ABSENCE OF TERMINATION OR DEFAULT. Lender shall not have terminated
the Revolving Loan facility hereunder, nor shall a Defaulting Event or
Event of Default exist.
(b) COMPLIANCE CERTIFICATES. On the date of each request for a Revolving
Loan hereunder, and from time-to-time as Lender shall have requested,
Borrower shall have delivered to Lender, upon Lender's request, a
Certificate of Compliance executed by its chief financial officer (or
officer with equivalent position) which shall state, among other
things, that: (i) Borrower has complied, and is when in compliance,
with all the terms, covenants and conditions of this Agreement and the
other Financing Documents which are binding upon it; (ii) there exists
no Event of Default or Defaulting Event; and (iii) the representations
and warranties contained herein and in the other Financing Documents
are true and correct with the same effect as though such
representations and warranties had been made as of the time of each
Further Loan.
(c) BORROWING BASE. The indebtedness of Borrower by virtue of the making
of any Further Loan shall not exceed the Borrowing Base. Borrower
shall not request any Further Loan if the effect of such Further Loan
shall be to cause the principal balance of all outstanding Revolving
Loans to exceed the Borrowing Base.
(d) FURTHER DOCUMENTS. Lender shall have received such further documents,
instruments and agreements as Lender may reasonably request.
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ARTICLE VI
COVENANTS
A. AFFIRMATIVE COVENANTS.
Borrower covenants and agrees that from the date hereof until payment and
performance in full of all Obligations, and until the termination of this
Agreement, unless Lender otherwise consents in writing, Borrower shall:
SECTION 6.1 FINANCIAL STATEMENTS. Deliver or cause to be delivered to
Lender:
(a) within ninety (90) days after the close of each fiscal quarter of
Borrower and the close of each fiscal year of Borrower, internally
prepared financial statements of Borrower including (i) balance sheet;
(ii) statement of income; and (iii) statement of retained earnings,
each as of the close of such quarter or fiscal year, respectively, and
for that portion of the fiscal year-to-date then ended, and each
prepared on a basis consistent with that of the preceding quarter or
containing disclosure of the effect on financial condition or results
of operations of any change in the application of GAAP during such
period, and each certified by the chief financial officer (or
equivalent position) of Borrower as being accurate and fairly
presenting the financial condition of Borrower; provided that if any
Defaulting Event or Event of Default shall exist, such annual
financial statement shall be audited by an independent certified
public accountant.
(b) contemporaneously with the delivery to shareholders or governmental
agencies, copies of all reports and information delivered to
shareholders or filed with governmental agencies;
(c) within one hundred twenty (120) days after the close of each calendar
year, the Guarantor shall deliver to Lender (i) annual updates of
personal financial statements and (ii) personal tax returns prepared
by an accountant reasonably acceptable to Lender;
(d) promptly upon Lender's written request, such other information about
the financial condition and operations of Borrower or the Guarantor,
as Lender may, from time to time, reasonably request; and
(e) promptly upon becoming aware of any Event of Default, or the
occurrence or existence of a Defaulting Event, notice thereof in
writing.
SECTION 6.2 INSURANCE AND ENDORSEMENTS. (a) Keep the Borrower Collateral
insured against fire and other hazards (so-called "All Risk" coverage) in
amounts and with companies satisfactory to Lender to the same extent and
covering such risks as is customary in the same or a similar business; maintain
public liability coverage, including without limitation, products
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liability coverage, against claims for personal injuries or death; and maintain
all worker's compensation, employment or similar insurance as may be required by
applicable law; and (b) all insurance shall contain such terms, be in such form,
and be for such periods reasonably satisfactory to Lender, and be written by
such carriers duly licensed by the appropriate states where any Borrower
Collateral is located and reasonably satisfactory to Lender. Without limiting
the generality of the foregoing, such insurance must provide that it may not be
cancelled without thirty (30) days' prior written notice to Lender. Borrower
shall cause Lender to be endorsed as a loss payee with a long form Lender's Loss
Payable Clause, in form and substance acceptable to Lender on all insurance. In
the event of failure to provide and maintain insurance as herein provided,
Lender may, at its option, provide such insurance and charge the amount thereof
to the Revolving Loan Account. Borrower shall furnish to Lender certificates or
other satisfactory evidence of compliance with the foregoing insurance
provisions. Borrower hereby irrevocably appoints Lender as its attorney-in-fact,
coupled with an interest, to make proofs of loss and claims for insurance, and
to receive payments of the insurance and execute and endorse all documents,
checks and drafts in connection with payment of the insurance. Any insurance
proceeds received by Lender shall be applied to the Obligations in such order
and manner as Lender shall determine in its sole discretion.
SECTION 6.3 TAX AND OTHER LIENS. Comply with all statutes and government
regulations and pay all taxes, assessments, governmental charges or levies, or
claims for labor, supplies, rent and other obligations made against it or its
property which, if unpaid, might become a lien or charge against Borrower or its
properties, except liabilities being contested in good faith and against which,
if requested by Lender, Borrower shall set up reserves in amounts and in form
satisfactory to Lender.
SECTION 6.4 PLACE OF BUSINESS. Maintain its chief place of business and
chief executive offices at the address set forth in Section 4.1(m) unless
Borrower shall have given Lender thirty (30) days' prior written notice of any
change in such place of business.
SECTION 6.5 INSPECTIONS. Allow Lender by or through any of its officers,
attorneys, and/or accountants designated by it, for the purpose of ascertaining
whether or not each and every provision hereof and of any related agreement,
instrument and document is being performed, to enter the offices and plants of
Borrower to examine or inspect any of the properties, books and records or
extracts therefrom, to make copies of such books and records or extracts
therefrom, and to discuss the affairs, finances and accounts thereof with
Borrower all at such reasonable times, upon reasonable notice and as often as
Lender or any representative of Lender may reasonably request.
SECTION 6.6 LITIGATION. Promptly advise Lender of the commencement or
threat of litigation, including arbitration proceedings and any proceedings
before any governmental agency (but excluding product liability claims which are
either fully covered by insurance or adequately covered by insurance and which
is not likely to have a material adverse effect on the business, assets or
condition (financial or otherwise) of Borrower), which is instituted against
Borrower or the Guarantor and is reasonably likely to have a materially adverse
effect upon the condition, financial, operating or otherwise, of Borrower or the
Guarantor.
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SECTION 6.7 MAINTENANCE OF EXISTENCE. Maintain its existence and comply
with all valid and applicable statutes, rules and regulations, and maintain its
properties in good repair, working order and operating condition. Borrower shall
immediately notify Lender of any event causing material loss in the value of its
assets.
SECTION 6.8 ERISA. Immediately notify Lender of any event which causes it
not to be in compliance in all material respects with ERISA.
SECTION 6.9 NOTICE OF CERTAIN EVENTS. Give prompt written notice to Lender
of:
(a) any material dispute that may arise between Borrower and any
governmental regulatory body or law enforcement agency;
(b) any labor controversy resulting or likely to result in a strike or
work stoppage against Borrower;
(c) any proposal by any public authority to acquire the assets or business
of Borrower;
(d) the location of any Borrower Collateral other than at Borrower's
places of business disclosed in this Agreement other than Borrower
Collateral in transit in the ordinary course of Borrower's business;
(e) any proposed or actual change of the name, identity or structure of
Borrower; and
(f) any other matter which has resulted or is reasonably likely to result
in a material adverse change in the financial condition or operations
of Borrower or Guarantor.
SECTION 6.10 DEFAULTS. Upon the occurrence of an Event of Default or of a
Defaulting Event, give prompt written notice of such occurrence to Lender signed
by the president or chief financial officer of Borrower describing such
occurrence and the steps, if any, being taken to cure the Event of Default or
Defaulting Event.
SECTION 6.11 DUTIES. Comply with any and all federal, state and local laws
affecting its business. Borrower agrees to indemnify Lender against and hold
Lender harmless from, all claims, actions and losses, including reasonable
attorneys' fees and costs incurred by Lender arising from any contention,
whether well founded or otherwise, that there has been a failure to comply with
such laws.
SECTION 6.12 BORROWER COLLATERAL DUTIES. Do whatever Lender may reasonably
request from time to time by way of obtaining, executing, delivering and filing
financing statements, assignments and other notices and amendments and renewals
thereof, and Borrower will take any and all steps and observe such formalities
as Lender may request, in order to create and maintain a valid and enforceable
first lien upon, pledge of, and first priority security interest in, any and all
of the Borrower Collateral. Lender is authorized to file financing statements
without the signature of Borrower and to execute and file such financing
statements on behalf of Borrower as
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specified by the Uniform Commercial Code to perfect or maintain its security
interest in all of the Borrower Collateral. All reasonable charges, expenses and
fees Lender may incur in filing any of the foregoing, together with reasonable
costs and expenses of any lien search required by Lender, and any taxes relating
thereto, shall be charged to the Revolving Loan Account and added to the
Obligations.
SECTION 6.13 OFFICERS, MEMBERS AND MANAGERS. Promptly notify Lender in
writing upon any changes or additions to Borrower's officers, members or
managers.
B. NEGATIVE COVENANTS.
Borrower covenants and agrees that from the date hereof until payment and
performance in full of all Obligations, and until the termination of this
Agreement, unless Lender otherwise consents in writing, Borrower shall not:
SECTION 6.14 ENCUMBRANCES. After the occurrence of an Event of Default or
Defaulting Event, incur or permit to exist any lien, mortgage, charge or other
encumbrance against any of the Borrower Collateral, except: (a) liens required
or expressly permitted by this Agreement; (b) pledges or deposits in connection
with or to secure worker's compensation, unemployment or liability insurance;
and (c) those listed on SCHEDULE 4.1(i) attached hereto.
SECTION 6.15 CONSOLIDATION OR MERGER. Merge into or consolidate with or
into any entity, except in connection with an Incorporation Transaction as that
term is defined in the Borrower's Operating Agreement, provided the surviving
corporation executes and delivers all documents required by Lender, including,
without limitation, an assumption of all of the Obligations.
SECTION 6.16 SALE AND LEASE OF ASSETS. Sell or lease any of the assets of
Borrower, except for sales of inventory and equipment in the ordinary course of
business consistent with past practices and on an arms-length basis.
SECTION 6.17 NAME CHANGES. Change its name or conduct its business under
any trade name or style other than as set forth in this Agreement.
SECTION 6.18 PROHIBITED TRANSFERS. Transfer, in any manner, either directly
or indirectly, any cash, property, or other assets to any parent or any of its
affiliates or subsidiaries, or any shareholder, officer and director, other than
sales made in the ordinary course of business and for fair consideration on
terms no less favorable than if such sale had been an arms-length transaction
between Borrower and an unaffiliated entity.
SECTION 6.19 MANAGEMENT CHANGE. Suffer any change in the ownership interest
of the Guarantor in the Borrower or in the Guarantor's participation in the
management of the Borrower.
ARTICLE VII
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BORROWER COLLATERAL
SECTION 7.1 GRANT. To secure the prompt payment and performance of each and
all of the Obligations, Borrower pledges, assigns, transfers and grants to
Lender a continuing, first lien security interest in the following property of
Borrower, now owned or hereafter acquired or arising (herein called the
"Borrower Collateral"):
(a) All accounts and accounts receivable related to or arising from the
sale or lease of inventory or rendering of services by Borrower (the
"Accounts") and all other accounts, bank accounts, contracts, contract
rights, notes, documents, chattel paper, instruments, acceptances,
drafts or other forms of obligations and receivables (collectively
with Accounts, the "Receivables"), whether or not the same are listed
on any schedules, assignments or reports furnished to Lender from time
to time, and whether such Receivables are now existing or are created
or .arise at any time hereafter, together with all goods, inventory
and merchandise returned by or reclaimed by or repossessed from
customers wherever such goods, inventory and merchandise are located,
and all proceeds thereto including without limitation, proceeds of
insurance thereon and all guaranties, securities, and liens which
Borrower may hold for the payment of any such Receivables, including
without limitation, all rights of stoppage in transit, replevin and
reclamation and all other rights and remedies of an unpaid vendor or
lienor, and any liens held by Borrower as a mechanic, contractor,
subcontractor, processor, materialman, machinist, manufacturer,
artisan, or otherwise;
(b) All documents, instruments, documents of title, general intangibles,
policies and certificates of insurance, guaranties, securities,
chattel paper, deposits, tax returns, proceeds of insurance, proceeds
of an eminent domain or condemnation award, cash, liens or other
property, which are now or may hereinafter be in the possession of
Borrower or as to which Borrower may now or hereafter control
possession by documents of title or otherwise, including, but not
limited to, all property at locable to unshipped orders relating to
Receivables and Inventory;
(c) All books, records, customer lists, supplier lists, ledgers, evidences
of shipping, invoices, purchase orders, sales orders and all other
evidences of Borrower's business records, including all cabinets,
drawers, etc. that may hold the same; computer records, lists,
software, programs, wherever located, all whether now existing or
hereafter arising or acquired;
(d) All of Borrower's inventory, whether now owned or hereafter acquired,
including without limitation (collectively herein called the
"Inventory"): (i) all goods manufactured or acquired for sale or
lease, and any piece goods, raw materials, work in process and
finished merchandise, findings or component materials, and all
supplies, goods, incidentals, office supplies, packaging materials,
and any and all items including machinery and equipment used or
consumed in the operation of the business of Borrower or which
contribute to the finished product or to the
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sale, promotion and shipment thereof, in which Borrower now or at any
time hereafter may have an interest; (ii) all inventory whether or not
the same is in transit or in the constructive, actual or exclusive
occupancy or possession of Borrower or is held by Borrower or by
others for the Accounts, including without limitation, all goods
covered by purchase orders and contracts with suppliers and all goods
billed and held by suppliers; (iii) all inventory which may be located
on premises of Borrower or of any carrier, forwarding agents,
truckers, warehousemen, vendors, selling agents or third parties; (iv)
all general intangibles relating to or arising out of inventory; and
(v) all proceeds and products of the foregoing resulting from the
sale, lease or other disposition of inventory, including cash,
accounts receivable, other non-cash proceeds and trade-ins;
(e) All general intangibles, including without limitation, tax refunds,
proceeds of insurance, eminent domain awards, condemnation proceeds,
and patents, copyrights, tradenames, trademarks, applications
therefor, and licenses to any patent, copyright, trademark, or
tradename that Borrower now owns, has the right to use or may
hereafter own or acquire the right to use;
(f) All equipment, machinery, appliances, and furniture and fixtures, now
existing or hereafter arising, wherever located, and all contracts,
contract rights and chattel paper arising out of any lease of any of
the foregoing;
(g) All other collateral in which Borrower may hereafter grant to Lender a
security interest; and
(h) All renewals, substitutions, replacements, additions, accessions,
proceeds, and products of any and all of the foregoing, including
without limitation, all proceeds of credit, fire and other insurance.
SECTION 7.2 SUBORDINATION AND RELEASE. In the event that no Defaulting
Event or Event of Default shall exist, and the outstanding principal amount of
the Revolving Loans shall not otherwise exceed the Borrowing Base, then, upon
written request of the Borrower, with the written consent of the Guarantor, each
delivered at least ten (10) days in advance of the requested date of
subordination or release, Lender shall execute and deliver such documents as
shall be reasonably requested by Borrower in order to subordinate Lender's
security interest in any or all of the Borrower Collateral to that of another
creditor of Borrower or release Lender's interest in any or all of the Borrower
Collateral, as requested by Borrower; provided that (a) all costs and expenses
associated with such subordination or release shall be borne by Borrower, and
(b) in no event shall Lender be required to make any representation, warranty,
covenant or agreement in connection with such subordination or release beyond
the subordination or release of its security interest in the Borrower
Collateral. In no event shall Lender be required to take any action with respect
to the Collateral, in which Lender shall in all events retain a perfected
first-priority security interest. In no event shall Lender be required to
subordinate or release its security interest in the Borrower Collateral if a
Defaulting Event or Event of Default shall exist on the date of the requested
subordination or release, or if the outstanding principal balance of the
Revolving Loans otherwise exceeds the Borrowing Base on such date.
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The Borrower shall not request the release of any Borrower Collateral pursuant
to this Section 7.2 or otherwise without the written consent of the Guarantor.
ARTICLE VIII
EVENTS OF DEFAULT
SECTION 8.1 EVENTS OF DEFAULT. Any and all Obligations, including without
limitation, the Obligations arising pursuant to or in connection with the
Revolving Loans shall, at the option of Lender and notwithstanding any time or
credit allowed by any note or agreement, become immediately due and payable
without notice if any one or more of the following events (herein called "Events
of Default" and individually, an "Event of Default") shall occur:
(a) Borrower's failure to pay principal due hereunder or under the Note or
under any other Financing Document;
(b) Borrower's failure to pay interest or any other sum due hereunder or
under the Note or under any other Financing Document (except as
provided in (a) above) for three (3) business days after notice from
Lender; provided that Lender shall not be obligated to wait such three
(3) day period after notice in the event that Lender reasonably
concludes that such delay will materially impair its ability to
recover from the Borrower, the Guarantor, the Collateral or the
Borrower Collateral.
(c) The occurrence of an Event of Default under Section 2.2(b) or (c)
hereof;
(d) Borrower's failure to pay or perform when due any other covenant,
duty, indebtedness, liability or obligation arising under this
Agreement or any other Financing Document, or any such failure by
Guarantor under any Financing Document, in each case within fifteen
(15) days after notice from Lender, provided that if any such covenant
cannot be reasonably performed within fifteen (15) days it shall not
constitute an Event of Default if Borrower or Guarantor, as the case
may be, has commenced performance within such fifteen (15) day period
and diligently completes the same;
(e) any representation or warranty by Borrower herein or by Borrower or
Guarantor in any other Financing Document or otherwise made to Lender
in connection with the Loan is untrue in any material respect;
(f) the failure by Borrower to maintain the insurance required by this
Agreement or any other Financing Document;
(g) the failure of the Borrower or Guarantor generally to pay its debts as
such debts become due;
(h) the entry of a decree or order for relief by a court having
jurisdiction in respect of the Borrower or Guarantor in an involuntary
case under the federal bankruptcy laws, as now or hereafter
constituted, or any other applicable federal or state
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bankruptcy, insolvency or other similar law, or the appointment of a
receiver, liquidator, assignee, custodian, trustee, sequestrator (or
similar official) of the Borrower or the Guarantor or for any
substantial part of the Borrower's or Guarantor's property, and the
continuance of any such decree or order unstayed and in effect for a
period of sixty (60) consecutive days; or upon the commencement by the
Borrower or the Guarantor of a voluntary case under the federal
bankruptcy laws, as now or hereafter constituted, or any other
applicable federal or state bankruptcy, insolvency or other similar
law, or the consent by the Borrower or the Guarantor to the
appointment of or taking possession by a receiver, liquidator,
assignee, trustee, custodian, sequestrator (or other similar official)
of the Borrower or the Guarantor or for any substantial part of the
property of the Borrower or the Guarantor or the making by the
Borrower or the Guarantor of any assignment for the benefit of
creditors;
(i) a final, unappealed judgment shall be entered against the Guarantor by
any court for the payment of money which is not satisfied within
thirty (30) days after the last date for which an appeal can be filed
and which, together with all such other outstanding judgments against
the Borrower or the Guarantor, as applicable, exceeds $750,000 in the
aggregate;
(j) the occurrence of a default or event of default (howsoever defined)
under the Pledge Agreement, the Guaranty or any other Financing
Document;
(k) the declaration of a default under any material obligation of Borrower
or Guarantor to any other creditor; and
(l) for so long as any stock of Airtouch shall constitute Collateral,
Airtouch shall fail to be current on any regular, periodic or other
required filing with the Securities and Exchange Commission.
Upon the occurrence of any Event of Default, at the option of Lender: (x)
any and all Obligations, including without limitation the Obligations arising
from or in connection with the Revolving Loans, shall become immediately due and
payable, and (y) Borrower's eligibility to request any further Revolving Loans
shall automatically and immediately terminate, without presentment, demand,
protest, notice of protest or other notice or requirements of any kind, all of
which Borrower expressly waives. Notwithstanding the foregoing sentence, if any
Event of Default under clause (h) occurs, the acceleration of Obligations and
termination of Borrower's eligibility to request further Revolving Loans shall
be automatic.
Thereafter, Lender may proceed to enforce the rights of Lender whether by
suit in equity or by action at law, whether for specific performance of any
covenant or agreement contained in this Agreement, the Note or the other
Financing Documents, or in aid of the exercise of any power granted in either
this Agreement or the Note or any other Financing Document, or it may proceed to
obtain judgment or any other relief whatsoever appropriate to the enforcement of
such rights, or proceed to enforce any legal or equitable right which Lender may
have by reason of the occurrence of any Event of Default hereunder.
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ARTICLE IX
RIGHTS AND REMEDIES OF LENDER
SECTION 9.1 REMEDIES OF LENDER. Upon the occurrence of any Event of
Default, Lender shall have in any jurisdiction where enforcement hereof is
sought, in addition to all other rights and remedies which Lender may have under
law and equity, the following rights and remedies, all of which may be exercised
with or without further notice to Borrower and without a prior judicial or
administrative hearing, which notice and hearing are expressly waived: to
enforce or foreclose the liens and security interests created under this
Agreement or under any other Financing Document relating to Borrower Collateral
by any available judicial procedure or without judicial process; to enter any
premises where any Borrower Collateral may be located for the purpose of taking
possession or removing the same; to sell, assign, lease, or otherwise dispose of
Borrower Collateral or any part thereof, either at public or private sale, in
lots or in bulk, for cash, on credit or otherwise, with or without
representations or warranties, and upon such terms as shall be acceptable to
Lender, all at Lender's sole option and as Lender in its sole discretion may
deem advisable; to bid or become purchaser at any such sale if public; and, at
the option of Lender, to apply or be credited with the amount of all or any part
of the Obligations owing to Lender against the purchase price bid by Lender at
any such sale.
SECTION 9.2 SPECIFIC POWERS. Lender may at any time, after the occurrence
of an Event of Default, at Lender's sole reasonable discretion: (i) give notice
of assignment to any entity obligated to Borrower upon an Account (an "Account
Debtor"); (ii) collect Receivables and charge, or cause to be charged, the
collection costs and expenses to the Revolving Loan Account; (iii) exercise all
other rights granted in this Agreement and the other Financing Documents; (iv)
receive, open and dispose of all mail addressed to Borrower and notify the Post
Office authorities to change the address for delivery of Borrower's mail to an
address designated by Lender; (v) endorse the name of Borrower on any checks or
other evidence of payment that may come into possession of Lender and on any
invoice, freight or express bill, bill of lading or other document; (vi) in the
name of Borrower or otherwise, demand, sue for, collect and give acquittance for
any and all monies due or to become due on Receivables; (vii) compromise,
prosecute or defend any action, claim or proceeding concerning Receivables; and
(viii) do any and all things necessary and proper to carry out the purposes
contemplated in this Agreement, the other Financing Documents and any other
agreement between the parties. Neither Lender nor any person acting as its
representative hereunder shall be liable for any acts or omissions or for any
error of judgment or mistake of fact or law, except for bad faith or willful
misconduct or failure to act in a commercially reasonable manner. Borrower
agrees that the powers granted hereunder, being coupled with an interest, shall
be irrevocable so long as any Obligation remains unsatisfied. Notwithstanding
the foregoing, it is understood that Lender is under no duty to take any of the
foregoing actions and that after having made demand upon Account Debtors for
payment, Lender shall have no further duty as to the collection or protection of
Receivables or any income therefrom and no further duty to preserve any rights
pertaining thereto, other than the safe custody thereof.
SECTION 9.3 DUTIES AFTER DEMAND OR DEFAULT. Borrower will, at Lender's
request, assemble all Borrower Collateral and make it available to Lender at
places which Lender may
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reasonably select, whether at the premises of Borrower or elsewhere and will
make available to Lender all premises and facilities of Borrower for the purpose
of Lender taking possession of Borrower Collateral or of removing or putting the
Borrower Collateral in salable form. In the event any goods called for in any
sales order, contract, invoice or other instrument or agreement evidencing or
purporting to give rise to any Receivable shall not have been delivered or shall
be claimed to be defective by any customer, Lender shall have the right in its
discretion to use and deliver to such customer any goods of Borrower to fulfill
such order, contract or the like so as to make good any such Receivable. If any
Borrower Collateral shall require repairing, maintenance, preparation, or the
like, or is in process or other unfinished state, Lender shall have the right,
but shall not be obligated, to do such repairing, maintenance, preparation,
processing or completion of manufacturing for the purpose of putting the same in
such salable form as Lender shall deem appropriate, but Lender shall have the
right to sell or dispose of such Borrower Collateral without such processing.
The net cash proceeds resulting from the collection, liquidation, sale, lease or
other disposition of Borrower Collateral shall be applied first to the expenses
(including all reasonable attorneys' and professionals' fees) of retaking,
holding, storing, processing and preparing for sale, selling, collecting,
liquidating and the like and then to the satisfaction of all Obligations,
application as to particular Obligations or against principal or interest or
other sums to be at Lender's sole discretion, and then, upon full and final
payment of the Obligations, and unless otherwise prohibited by court order or
law, to Borrower, it being agreed that if any such payment made to Lender is
recovered from or repaid by Lender in whole or in part in any bankruptcy,
insolvency or similar proceeding instituted by or against Borrower, this
Agreement automatically shall be reinstated without any further action by
Borrower and Lender. Borrower shall be liable to Lender and shall pay to Lender
on demand any deficiency which may remain after such sale, disposition,
collection or liquidation of Borrower Collateral.
SECTION 9.4 CUMULATIVE REMEDIES. The enumeration of Lender's rights and
remedies set forth in this Article is not intended to be exhaustive and the
exercise by Lender of any right or remedy shall not preclude the exercise of any
other rights or remedies, all of which shall be cumulative and shall be in
addition to any other right or remedy given hereunder or under any other
agreement between the parties or which may now or hereafter exist in law or at
equity or by suit or otherwise. No delay or failure to take action on the part
of Lender in exercising any right, power or privilege shall operate as a waiver
thereof, nor shall any single or partial exercise of any such right, power or
privilege preclude other or further exercise thereof or the exercise of any
other right, power or privilege or shall be construed to be a waiver of any
Event of Default. No course of dealing between Borrower and Lender or its
employees shall be effective to change, modify or discharge any provision of
this Agreement or to constitute a waiver of any Event of Default.
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ARTICLE X
TERM AND TERMINATION
SECTION 10.1 TERM AND TERMINATION. Unless sooner terminated by Lender as a
result of an Event of Default or a Defaulting Event, Borrower's eligibility to
request Revolving Loans shall commence on the date hereof and shall continue for
a period through and including March 31, 2001 (the "Term"). Borrower's
eligibility to request Revolving Loans may be extended after the Term only with
the express written consent of both Borrower and Lender. At the end of the Term,
Borrower shall pay the entire balance of the Revolving Loans outstanding and all
other outstanding Obligations. Further, upon termination of the Revolving Loan
facility, all of the rights, interests and remedies of Lender and Obligations of
Borrower shall survive and Borrower shall have no right to receive, and Lender
shall have no obligation to make, any further Revolving Loans. Upon full, final
and indefeasible payment of the Obligations to Lender, all rights and remedies
of Borrower and Lender hereunder shall cease, so long as any payment so made to
Lender and applied to the Obligations is not thereafter recovered from or repaid
by Lender in whole or in part in any bankruptcy, insolvency or similar
proceeding instituted by or against Borrower, whereupon this Agreement shall be
automatically reinstated without any further action by Borrower and Lender and
shall continue to be fully applicable to such Obligations to the same extent as
though the payment so recovered or repaid had never been originally made on such
Obligations.
ARTICLE XI
MISCELLANEOUS
SECTION 11.1 PAYMENT SET-ASIDE. To the extent that Borrower makes a payment
or payments to Lender (whether hereunder, under the Note, or under the other
Financing Documents) or Lender enforces its security interests or rights or
exercises its right of setoff, and such payment or payments or the proceeds of
such enforcement or setoff or any part thereof are subsequently invalidated,
declared to be fraudulent or preferential, set aside, recovered from, disgorged
by or are required to be refunded, repaid or otherwise restored to Borrower, a
trustee, receiver or any other person under any law (including without
limitation, any bankruptcy law, state or federal law, common law or equitable
cause of action) in each case in connection with any bankruptcy or similar
proceeding involving Borrower, then to the extent of any such restoration, the
obligation, or part thereof originally intended to be satisfied, shall be
revived and continued in full force and effect as if such payment had not been
made or such enforcement or setoff had not occurred.
SECTION 11.2 SET-OFF. Borrower hereby gives Lender a lien and right of
setoff for all its liabilities to Lender upon and against all its deposits,
credits, collateral and property now or hereafter in the possession or control
of Lender or in transit to it. Lender may, upon the occurrence of any Event of
Default, apply or set off the same, or any part thereof, to any liability of
Borrower to Lender, even though unmatured.
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SECTION 11.3 COVENANTS TO SURVIVE; BINDING AGREEMENT. All covenants,
agreements, warranties and representations made herein, in the Note, in the
other Financing Documents, and in all certificates or other documents of
Borrower shall survive the advances of money made by Lender to Borrower
hereunder and the delivery of the Note and the other Financing Documents, and
all such covenants, agreements, warranties and representations shall be binding
upon and inure to the benefit of Lender and its successors and assigns, whether
or not so expressed.
SECTION 11.4 CROSS-DEFAULT. Borrower acknowledges and agrees that an Event
of Default and/or Defaulting Event under any one of the Financing Documents
shall constitute an Event of Default or Defaulting Event under all of the other
Financing Documents.
SECTION 11.5 AMENDMENTS AND WAIVERS. Neither this Agreement, the Note, the
Guaranty, the Pledge Agreement, the other Financing Documents, nor any term,
covenant or condition hereof or thereof may be changed, waived, discharged,
modified or terminated except by a writing executed by the parties hereto or
thereto. No failure on the part of Lender to exercise, and no delay in
exercising, any right, remedy or power hereunder or under the Note or the other
Financing Documents shall preclude any other or future exercise thereof, or the
exercise of any other right, remedy or power.
SECTION 11.6 NOTICES. All notices or other communications required or
permitted to be given under this Agreement shall be considered properly given if
sent by a nationally recognized overnight messenger service or mailed first
class United States mail, postage prepaid, registered or certified mail, with
return receipt requested, or by delivery of same to the address listed below by
prepaid messenger or telegram, as follows:
If to Borrower: ZIPLINK, LLC
40 Woodland Street
Hartford, Connecticut 06105
Attn: Henry M. Zachs
With a copy to:
Brenner, Saltzman & Wallman
271 Whitney Avenue
New Haven, Connecticut 06511
Attn: Wayne A. Martino
If to Lender: Fleet National Bank
777 Main Street
Hartford, Connecticut 06115
Attention: Brian Howard, Private Clients Group
Mail Stop: CTMOHO3A
or such other place as any party hereto may be notified in writing as a place
for service or notice hereunder. Notice so sent shall be effective upon delivery
to such address, whether or not receipt thereof is acknowledged or is refused by
the addressee or any person at such address.
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SECTION 11.7 WAIVERS.
(a) BORROWER WAIVES DILIGENCE, DEMAND, PRESENTMENT FOR PAYMENT, NOTICE OF
NONPAYMENT, PROTEST AND NOTICE OF ANY RENEWALS OR EXTENSIONS. BORROWER
ACKNOWLEDGES THAT THE LOANS EVIDENCED HEREBY ARE COMMERCIAL TRANSACTIONS AND
WAIVES ITS RIGHT TO NOTICE AND HEARING UNDER CHAPTER 903A OF THE CONNECTICUT
GENERAL STATUTES, OR AS OTHERWISE ALLOWED BY ANY STATE OR FEDERAL LAW WITH
RESPECT TO ANY PREJUDGMENT REMEDY WHICH LENDER MAY DESIRE TO USE, AND FURTHER
WAIVES ITS RIGHTS TO REQUEST THAT LENDER POST A BOND, WITH OR WITHOUT SURETY, TO
PROTECT BORROWER AGAINST DAMAGES THAT MAY BE CAUSED BY ANY PREJUDGMENT REMEDY
SOUGHT OR OBTAINED BY LENDER.
(b) BORROWER HEREBY WAIVES TRIAL BY JURY IN ANY COURT IN ANY SUIT, ACTION
OR PROCEEDING ON ANY MATTER ARISING IN CONNECTION WITH OR IN ANY WAY RELATED TO
THE FINANCING TRANSACTIONS OF WHICH THIS AGREEMENT IS A PART AND/OR THE
ENFORCEMENT OF ANY OF LENDER'S RIGHTS, INCLUDING WITHOUT LIMITATION, TORT
CLAIMS. BORROWER ACKNOWLEDGES THAT IT MAKES THIS WAIVER KNOWINGLY, VOLUNTARILY,
WITHOUT DURESS AND ONLY AFTER CONSIDERATION OF THE RAMIFICATIONS OF THIS WAIVER
WITH ITS ATTORNEYS. BORROWER FURTHER ACKNOWLEDGES THAT LENDER HAS NOT
REPRESENTED TO BORROWER THAT THE PROVISIONS OF THIS PARAGRAPH WILL NOT BE FULLY
ENFORCED IN ALL INSTANCES.
(c) BORROWER ACKNOWLEDGES THAT IT MAKES THE FOREGOING WAIVERS IN (A) AND
(b) ABOVE, KNOWINGLY, VOLUNTARILY, WITHOUT DURESS AND ONLY AFTER CONSIDERATION
OF THE RAMIFICATIONS OF SUCH WAIVERS WITH ITS ATTORNEYS.
SECTION 11.8 SECTION HEADINGS; SEVERABILITY; ENTIRE AGREEMENT. Section and
subsection headings have been inserted herein for convenience only and shall not
be construed as part of this Agreement. Every provision of this Agreement, the
Note and the other Financing Documents is intended to be severable; if any term
or provision of this Agreement, the Note, the other Financing Documents, or any
other document delivered in connection herewith shall be invalid, illegal or
unenforceable for any reason whatsoever, the validity, legality and
enforceability of the remaining provisions hereof or thereof shall not in any
way be affected or impaired thereby. All Exhibits and Schedules to this
Agreement shall be annexed hereto and shall be deemed to be part of this
Agreement. This Agreement, the other Financing Documents, and the Exhibits and
Schedules attached hereto and thereto embody the entire agreement and
understanding between Borrower and Lender and supersede all prior agreements and
understandings relating to the subject matter hereof unless otherwise
specifically reaffirmed or restated herein.
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SECTION 11.9 GOVERNING LAW. This Agreement and the other Financing
Documents, and all transactions, assignments and transfers hereunder and
thereunder, and all the rights of the parties, shall be governed as to validity,
construction, enforcement and in all other respects by the laws of the State of
Connecticut (but not its conflicts of law provisions). Borrower agrees that the
Superior Court for the Judicial District of Hartford or the United States
District Court for the District of Connecticut at Hartford shall have
jurisdiction to hear and determine any claims or disputes pertaining to the
financing transactions of which this Agreement is a part and/or to any matter
arising or in any way related to this Agreement or any other agreement between
Lender and Borrower, and Borrower expressly submits and consents in advance to
such jurisdiction in any action or proceeding.
SECTION 11.10 INDEMNIFICATION. In consideration of Lender's execution and
delivery of this Agreement and Lender's making of the Revolving Loans hereunder
and in addition to all other obligations of Borrower under this Agreement,
Borrower hereby agrees to defend, protect, indemnify and hold harmless Lender,
its successors, assigns, officers, directors, employees and agents (including
without limitation, those retained in connection with the transactions
contemplated by this Agreement) (collectively, the "Indemnities") from and
against any and all actions, causes of action, suits, claims, losses, costs,
penalties, fees, liabilities and damages and expenses in connection therewith
(irrespective of whether any such Indemnities is a party to any action for which
indemnification hereunder is sought), and including reasonable attorneys' fees
and disbursements as and when incurred (the "Indemnifiable Liabilities")
incurred by the Indemnities or any of them as a result of, or arising out of, or
relating to (i) the execution, delivery, performance or enforcement of this
Agreement and the other Financing Documents and any instrument, document or
agreement executed pursuant hereto to any of the Indemnities; (ii) Lender's
status as lender to, or creditor of, Borrower; or (iii) the operation of
Borrower's business from and after the date hereof. To the extent that the
foregoing undertaking by Borrower may be unenforceable for any reason, Borrower
shall make the maximum contribution to the payment and satisfaction of each of
the Indemnifiable Liabilities which is permissible under applicable law.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
by their duly authorized officers as of the date first above written.
ZIPLINK, LLC
By: S/Henry M. Zachs
-----------------------
Name: Henry M. Zachs
FLEET NATIONAL BANK
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By: /S/Brian A. Howard
-----------------------
Brian A. Howard
Assistant Vice President
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SCHEDULES
Schedule 4.1(d) -- Litigation
Schedule 4.1(i) -- Liens
Schedule 4.1(l) -- Pension Plans
Schedule 4.1(n) -- Collateral Locations
Schedule 4.1(r) -- Tradenames
Schedule 4.1(t) -- Affiliates, Parents and Subsidiaries
Schedule 4.1(u) -- Officers, Members and Managers
<PAGE>
EXHIBIT A
"REVOLVING LOAN NOTE"
<PAGE>
EXHIBIT A
REVOLVING LOAN NOTE
$15,000,000.00 March 31, 1998
Hartford, Connecticut
For value received, the undersigned, ZIPLINK, LLC (the "Borrower"),
promises to pay to the order of FLEET NATIONAL BANK (the "Lender") at its
office at 777 Main Street, Hartford, Connecticut 06115, or at such other
place as Lender may designate, the principal amount of FIFTEEN MILLION AND
00/100 DOLLARS ($15,000,000.00), or such amount thereof as shall be
outstanding pursuant to the Loan Agreement (as hereafter defined) together
with interest on the unpaid balance of this Note, beginning as of the date
hereof, at a rate per annum for each Interest Period equal to the LIBOR Rate
plus .30% for such Interest Period, or such other rate as shall be provided
in the Loan Agreement, together with all taxes levied or assessed on this
Note or the debt evidenced hereby against Lender, and together with all
costs, expenses and attorneys' fees incurred in the collection of this Note,
or to enforce or foreclose any security agreement, pledge agreement or other
document including, without limitation, the Loan Agreement and the Pledge
Agreement (as hereinafter defined), securing or relating to this Note, or in
protecting or defending the lien thereof, or in any litigation or matter
arising from or connected therewith or with this Note. Interest shall be
computed monthly in arrears on the basis of a 360-day year and actual days
elapsed. The interest rate for each Revolving Loan shall be determined in
accordance with the terms of the Loan Agreement. The terms "Interest Period",
"LIBOR Rate" and "Revolving Loan" as used herein shall have the definitions
assigned in the Loan Agreement.
The principal amount of this Note shall be advanced, upon the request of
Borrower pursuant to a certain Revolving Loan Agreement between Borrower and
Lender of even date herewith (the "Loan Agreement"). This Note is issued and
secured pursuant to the Loan Agreement, the terms of which are deemed
incorporated by reference. This Note is guaranteed by a Guaranty of even date
herewith (the "Guaranty") from Henry M. Zachs (the "Guarantor"). The Guaranty
is secured by a Stock Pledge Agreement of even date herewith between
Guarantor and Lender (the "Pledge Agreement") pursuant to which the Guarantor
has pledged certain marketable securities to the Lender. Lender shall
maintain a Revolving Loan Account (as defined in the Loan Agreement) on which
it will keep record of all outstanding amounts hereunder.
Interest shall be paid on the first day of each month beginning on the
first day of May, 1998 and continuing on the first day of each month
thereafter, until the principal balance with accrued interest thereon is paid
in full. If not sooner paid, the entire principal balance plus accrued
interest thereon shall be paid in full on April 1, 2001.
Borrower may repay this Note in whole or in part at any time, provided
that Borrower shall pay such fees and premiums in connection with a
prepayment as are set forth in the Loan Agreement.
<PAGE>
Upon the occurrence of an Event of Default under and as defined in the
Loan Agreement, the entire indebtedness, with accrued interest thereon due
under this Note, shall, at the option of Lender, become immediately due and
payable without demand or notice of any kind. Borrower agrees that the
interest rate shall increase by three (3%) percentage points per annum over
the otherwise applicable rate upon the occurrence of such Event of Default.
If any interest installment due hereunder is not paid within ten (10)
days after the date it is due, a late charge equal to five percent (5%) of
said amount shall be assessed against Borrower, and shall be immediately due
and payable without demand or notice of any kind.
All payments received hereunder shall be applied first to late charges,
prepayment premiums and fees, and other costs and expenses, then to accrued
interest and then to principal, except as otherwise provided herein or in the
Loan Agreement or Pledge Agreement.
Borrower hereby grants to Lender a lien and right of setoff for all of
Borrower's liabilities to Lender upon and against all the deposits, credits,
collateral and property of Borrower, now or hereafter in the possession or
control of Lender or in transit to it. Lender may, at any time, apply or set
off the same, or any part thereof, to any liability of Borrower, whether or
not matured or demanded.
Notwithstanding any provisions of this Note to the contrary, the rate of
interest to be paid by Borrower to Lender under this Note shall not exceed
the highest or the maximum rate of interest permitted to be charged by Lender
under applicable laws. Any amounts paid by Borrower to Lender in excess of
such rate shall be deemed to be partial prepayments of principal hereunder.
No delay or omission by Lender in exercising any right hereunder, nor
failure by Lender to insist upon the strict performance of any terms herein,
shall operate as a waiver of such right, any other right hereunder, or any
terms herein. No waiver of any right shall be effective unless in writing and
signed by Lender, nor shall a waiver on one occasion be constituted as a bar
to, or waiver of, any such right on any future occasion.
Borrower and each and all endorsers, guarantors and sureties of this
Note waive diligence, demand, presentment for payment, notice of nonpayment,
protest and notice of protest, and notice of any renewals or extensions of
this Note, and all rights under any statute of limitations, and all
endorsers, guarantors and sureties agree that the time for payment of this
Note may be extended at Lender's sole discretion, without impairing their
liability thereon, and further consent to the release of all or any part of
the security for the payment hereof, at the discretion of Lender, or the
release of any party liable for this obligation without affecting the
liability of the other parties hereto.
THE BORROWER ACKNOWLEDGES THAT THE LOAN EVIDENCED BY THIS NOTE IS A
COMMERCIAL TRANSACTION, AND WAIVES ITS RIGHT TO NOTICE AND HEARING UNDER
CHAPTER 903a OF THE CONNECTICUT GENERAL STATUTES, AS NOW CONSTITUTED OR
HEREAFTER AMENDED OR AS OTHERWISE ALLOWED UNDER ANY STATE OR FEDERAL LAW WITH
RESPECT TO ANY PREJUDGMENT REMEDY WHICH THE LENDER MAY DESIRE TO USE, AND
FURTHER WAIVES ITS RIGHTS TO REQUEST THE LENDER POST A BOND, WITH OR WITHOUT
SURETY, TO
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<PAGE>
PROTECT BORROWER AGAINST DAMAGES THAT MAY BE CAUSED BY ANY PREJUDGMENT REMEDY
SOUGHT OR OBTAINED BY LENDER. THE BORROWER ACKNOWLEDGES THAT IT MAKES THESE
WAIVERS KNOWINGLY, VOLUNTARILY, WITHOUT DURESS AND ONLY AFTER CONSIDERATION
OF THE RAMIFICATIONS OF THESE WAIVERS WITH ITS ATTORNEYS.
THE BORROWER WAIVES TRIAL BY JURY IN ANY COURT IN ANY SUIT, ACTION,
PROCEEDING OR ANY MATTER ARISING IN CONNECTION WITH OR IN ANY WAY RELATED TO
THIS NOTE OR THE FINANCING TRANSACTION OF WHICH THIS NOTE IS A PART, OR THE
DEFENSE OR ENFORCEMENT OF ANY OF THE LENDER'S RIGHTS AND REMEDIES IN
CONNECTION THEREWITH. THE BORROWER ACKNOWLEDGES THAT IT MAKES THIS WAIVER
KNOWINGLY, VOLUNTARILY, WITHOUT DURESS AND ONLY AFTER CONSIDERATION OF THE
RAMIFICATIONS OF THIS WAIVER WITH ITS ATTORNEYS.
This Note shall be governed by and construed in accordance with the laws
of the State of Connecticut.
All references to the "Borrower" or the "Lender" shall apply to their
respective successors and assigns.
ZIPLINK, LLC
By:
---------------------------------
Henry M. Zachs
Its Manager
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<PAGE>
EXHIBIT B
"SOLVENCY CERTIFICATE"
<PAGE>
EXHIBIT B
SOLVENCY CERTIFICATE
Personally appeared before me, the undersigned, who, being first duly
sworn according to law, deposes and says:
1. He has personal knowledge of the facts sworn to in this Certificate.
2. As of the date hereof and upon and after the initial funding of the
$15,000,000 revolving loan facility (the "Loan") being extended to ZIPLINK,
LLC (the "Borrower") by Fleet National Bank (the "Lender") pursuant to the
Revolving Loan and Security Agreement (the "LOAN AGREEMENT") of this date and
the undersigned's execution and delivery of (i) the Guaranty of even date
(the "Guaranty"), guarantying the obligations of Borrower under the Loan
Agreement and other related documents and instruments and (ii) the Stock
Pledge Agreement of even date herewith (the "Pledge Agreement") pursuant to
which the undersigned pledged certain shares of capital stock as collateral
for the Guaranty, (a) the undersigned is "Solvent" as that term is defined
below, (b) no petition in bankruptcy has been filed, whether voluntary or
involuntary, by or against the undersigned, and (c) there has not been an
assignment for the benefit of creditors filed under the bankruptcy or
insolvency laws of the United States or any state thereof or any other action
brought under the aforesaid bankruptcy or insolvency laws against or with
respect to the undersigned. "Solvent," as used herein means that the
undersigned's total tangible assets as a going concern on a fair market basis
exceed its total liabilities, calculated in accordance with generally
accepted accounting principles, consistently applied.
3. The undersigned does not contemplate filing a petition in bankruptcy
or for a reorganization under the Bankruptcy Code, and the undersigned does
not have any knowledge of any threatened bankruptcy or insolvency proceedings
against the undersigned.
4. The transactions contemplated by the documents evidencing, securing
and guarantying the Loan, including, without limitation the Loan Agreement,
the Guaranty, the Pledge Agreement and the Note (as defined in the Loan
Agreement) (collectively, the "FINANCING AGREEMENTS"), are not intended to
hinder, delay or defraud either the undersigned's present or future creditors.
5. The undersigned does not intend to incur debts beyond its ability to
pay them as they mature.
6. The aggregate of the undersigned's property and assets at a fair
valuation is sufficient in amount to pay its debt.
7. The undersigned has examined the representations, warranties,
amendments, and covenants contained in the Financing Agreements, and the
undersigned certifies that, as of the date hereof, all of the certificates,
statements, representations, warranties
<PAGE>
and covenants as to past or present existing facts which are contained
therein are true and correct in all material respects, and that no default
exists as of the date hereof.
8. The statements contained herein shall be continuing in nature and
shall be deemed to have been remade upon each borrowing by the Borrower under
the Financing Agreements, unless and until the undersigned gives the Lender
prior written notice (in the manner and to the persons required by the
Financing Agreements) to the contrary. The undersigned hereby acknowledges
that the Lender has relied upon the warranties, representations, agreements
and covenants contained herein.
9. The financial statements previously submitted to the Lender are a
fair presentation of the assets and liabilities of the Borrower and the
undersigned as of the date of such financial statements and there has not
been a material adverse change in the financial or other condition of the
Borrower or the undersigned since such date.
10. This Certificate is made to induce the Lender to extend the Loan to
the Borrower.
----------------------------------------
Henry M. Zachs
Subscribed and sworn to before
me this _____ day of March, 1998.
- ---------------------------------
Commissioner of the Superior Court
Notary Public
My Commission Expires
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<PAGE>
MODIFICATION TO LOAN AGREEMENT
THIS MODIFICATION TO LOAN AGREEMENT (this "Modification"), dated October
15, 1998, by and between FLEET NATIONAL BANK, a national banking association
with an office located at 777 Main Street, Hartford, Connecticut 06115
("Lender") and ZIPLINK, LLC, a Connecticut limited liability company, with
its principal place of business at 40 Woodland Street, Hartford, Connecticut
06105 ("Borrower").
PREAMBLE
WHEREAS, Borrower and Lender entered into a Revolving Loan Agreement,
dated March 31, 1998 (the "Agreement"), pursuant to which Lender extended a
revolving loan to Borrower in the original principal amount of $15,000,000
(the "Loan"); and
WHEREAS, Borrower and Lender wish to amend the Agreement to increase the
amount of the Loan and make certain other changes.
NOW, THEREFORE, for the mutual consideration contained in this
Modification and the Agreement, Borrower and Lender agree as follows:
1. The title of the Agreement is changed in all applicable places to
"Revolving Loan and Security Agreement."
2. The amount "$15,000,000" is deleted in the Preamble of the Agreement and
"$20,000,000" shall be added in its place.
3. The definition of "Commitment Amount" in Section 1.1(h) of the Agreement is
deleted and the following is added in its place:
"Commitment Amount" shall mean TWENTY MILLION AND
00/100 DOLLARS ("$20,000,000.00"), or such lesser amount
as the Borrower may stipulate.
4. The following is added as Section 2.6 of the Agreement:
"SECTION 2.6 OVERADVANCES. Lender may, in its sole discretion and
subject to the terms and conditions set forth in this Agreement or any other
conditions which Lender may impose in its sole discretion, including, without
limitation, the payment of fees, an increased interest rate, or posting of
additional collateral, make temporary advances so that the aggregate
principal amount of all outstanding Revolving Loans is in excess of the
Borrowing Base or the Commitment Amount from time to time (each such
temporary Revolving Loan is referred to herein as an "Overadvance"). Nothing
contained in this Section 2.6 or elsewhere in this Agreement shall constitute
or be deemed to constitute a commitment or agreement by Lender to make any
Overadvances, nor shall the making of
<PAGE>
an Overadvance at any time or from time to time constitute or be deemed to
constitute a course of dealing by Lender with respect to Overadvances."
5. Exhibit "A" to the Agreement is deleted and Exhibit "A" in the form
attached to this Modification is added in its place.
6. In all other respects, the terms and conditions of the Agreement are hereby
ratified and confirmed.
IN WITNESS WHEREOF, the parties set their hands as of the date first
provided above.
ZIPLINK, LLC
By: s/ Henry M. Zachs
-----------------------------
Henry M. Zachs
Its Manager
FLEET NATIONAL BANK
By:s/Brian A. Howard
-----------------------------
Brian A. Howard
Its Assistant Vice President
<PAGE>
EXHIBIT "A"
AMENDED AND RESTATED REVOLVING LOAN NOTE
<PAGE>
EXHIBIT A
AMENDED AND RESTATED REVOLVING LOAN NOTE
$20,000,000.00 Dated March 31, 1998, amended and
restated as of October 15, 1998
Hartford, Connecticut
For value received, the undersigned, ZIPLINK, LLC (the "Borrower"),
promises to pay to the order of FLEET NATIONAL BANK (the "Lender") at its
office at 777 Main Street, Hartford, Connecticut 06115, or at such other
place as Lender may designate, the principal amount of TWENTY MILLION AND
00/100 DOLLARS ($20,000,000.00), or such amount thereof as shall be
outstanding pursuant to the Loan Agreement (as hereafter defined) together
with interest on the unpaid balance of this Note, beginning as of the date
hereof, at a rate per annum for each Interest Period equal to the LIBOR Rate
plus .30% for such Interest Period, or such other rate as shall be provided
in the Loan Agreement, together with all taxes levied or assessed on this
Note or the debt evidenced hereby against Lender, and together with all
costs, expenses and attorneys' fees incurred in the collection of this Note,
or to enforce or foreclose any security agreement, pledge agreement or other
document including, without limitation, the Loan Agreement and the Pledge
Agreement (as hereinafter defined), securing or relating to this Note, or in
protecting or defending the lien thereof, or in any litigation or matter
arising from or connected therewith or with this Note. Interest shall be
computed monthly in arrears on the basis of a 360-day year and actual days
elapsed. The interest rate for each Revolving Loan shall be determined in
accordance with the terms of the Loan Agreement. The terms "Interest Period",
"LIBOR Rate" and "Revolving Loan" as used herein shall have the definitions
assigned in the Loan Agreement.
The principal amount of this Note shall be advanced, upon the request of
Borrower pursuant to a certain Revolving Loan Agreement between Borrower and
Lender, dated March 31, 1998, as amended by that Modification to Loan
Agreement, dated October 15, 1998, and as further amended from time to time
(the "Loan Agreement"). This Note is issued and secured pursuant to the Loan
Agreement, the terms of which are deemed incorporated by reference. This Note
is guaranteed by a Guaranty, dated March 31, 1998, as amended from time to
time (the "Guaranty"), from Henry M. Zachs (the "Guarantor"). The Guaranty is
secured by a Stock Pledge Agreement dated March 31, 1998, between Guarantor
and Lender, as amended from time to time (the "Pledge Agreement"), pursuant
to which the Guarantor has pledged certain marketable securities to the
Lender. Lender shall maintain a Revolving Loan Account (as defined in the
Loan Agreement) on which it will keep record of all outstanding amounts
hereunder.
Interest shall be paid on the first day of each month beginning on the
first day of May, 1998 and continuing on the first day of each month
thereafter, until the principal balance with accrued interest thereon is paid
in full. If not sooner paid, the entire principal balance plus accrued
interest thereon shall be paid in full on April 1, 2001.
<PAGE>
Borrower may repay this Note in whole or in part at any time, provided
that Borrower shall pay such fees and premiums in connection with a
prepayment as are set forth in the Loan Agreement.
Upon the occurrence of an Event of Default under and as defined in the
Loan Agreement, the entire indebtedness, with accrued interest thereon due
under this Note, shall, at the option of Lender, become immediately due and
payable without demand or notice of any kind. Borrower agrees that the
interest rate shall increase by three (3%) percentage points per annum over
the otherwise applicable rate upon the occurrence of such Event of Default.
If any interest installment due hereunder is not paid within ten (10)
days after the date it is due, a late charge equal to five percent (5%) of
said amount shall be assessed against Borrower, and shall be immediately due
and payable without demand or notice of any kind.
All payments received hereunder shall be applied first to late charges,
prepayment premiums and fees, and other costs and expenses, then to accrued
interest and then to principal, except as otherwise provided herein or in the
Loan Agreement or Pledge Agreement.
Borrower hereby grants to Lender a lien and right of setoff for all of
Borrower's liabilities to Lender upon and against all the deposits, credits,
collateral and property of Borrower, now or hereafter in the possession or
control of Lender or in transit to it. Lender may, at any time, apply or set
off the same, or any part thereof, to any liability of Borrower, whether or
not matured or demanded.
Notwithstanding any provisions of this Note to the contrary, the rate of
interest to be paid by Borrower to Lender under this Note shall not exceed
the highest or the maximum rate of interest permitted to be charged by Lender
under applicable laws. Any amounts paid by Borrower to Lender in excess of
such rate shall be deemed to be partial prepayments of principal hereunder.
No delay or omission by Lender in exercising any right hereunder, nor
failure by Lender to insist upon the strict performance of any terms herein,
shall operate as a waiver of such right, any other right hereunder, or any
terms herein. No waiver of any right shall be effective unless in writing and
signed by Lender, nor shall a waiver on one occasion be constituted as a bar
to, or waiver of, any such right on any future occasion.
Borrower and each and all endorsers, guarantors and sureties of this
Note waive diligence, demand, presentment for payment, notice of nonpayment,
protest and notice of protest, and notice of any renewals or extensions of
this Note, and all rights under any statute of limitations, and all
endorsers, guarantors and sureties agree that the time for payment of this
Note may be extended at Lender's sole discretion, without impairing their
liability thereon, and further consent to the release of all or any part of
the security for the payment hereof, at the discretion of Lender, or the
release of any party liable for this obligation without affecting the
liability of the other parties hereto.
THE BORROWER ACKNOWLEDGES THAT THE LOAN EVIDENCED BY THIS NOTE IS A
COMMERCIAL TRANSACTION, AND WAIVES ITS RIGHT TO NOTICE AND HEARING UNDER
CHAPTER 903a OF THE CONNECTICUT GENERAL STATUTES, AS
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<PAGE>
NOW CONSTITUTED OR HEREAFTER AMENDED OR AS OTHERWISE ALLOWED UNDER ANY STATE
OR FEDERAL LAW WITH RESPECT TO ANY PREJUDGMENT REMEDY WHICH THE LENDER MAY
DESIRE TO USE, AND FURTHER WAIVES ITS RIGHTS TO REQUEST THE LENDER POST A
BOND, WITH OR WITHOUT SURETY, TO PROTECT BORROWER AGAINST DAMAGES THAT MAY BE
CAUSED BY ANY PREJUDGMENT REMEDY SOUGHT OR OBTAINED BY LENDER. THE BORROWER
ACKNOWLEDGES THAT IT MAKES THESE WAIVERS KNOWINGLY, VOLUNTARILY, WITHOUT
DURESS AND ONLY AFTER CONSIDERATION OF THE RAMIFICATIONS OF THESE WAIVERS
WITH ITS ATTORNEYS.
THE BORROWER WAIVES TRIAL BY JURY IN ANY COURT IN ANY SUIT, ACTION,
PROCEEDING OR ANY MATTER ARISING IN CONNECTION WITH OR IN ANY WAY RELATED TO
THIS NOTE OR THE FINANCING TRANSACTION OF WHICH THIS NOTE IS A PART, OR THE
DEFENSE OR ENFORCEMENT OF ANY OF THE LENDER'S RIGHTS AND REMEDIES IN
CONNECTION THEREWITH. THE BORROWER ACKNOWLEDGES THAT IT MAKES THIS WAIVER
KNOWINGLY, VOLUNTARILY, WITHOUT DURESS AND ONLY AFTER CONSIDERATION OF THE
RAMIFICATIONS OF THIS WAIVER WITH ITS ATTORNEYS.
This Note shall be governed by and construed in accordance with the laws
of the State of Connecticut.
All references to the "Borrower" or the "Lender" shall apply to their
respective successors and assigns.
This Amended and Restated Revolving Loan Note amends, restates and
supersedes that certain Revolving Loan Note of the Borrower, dated March 31,
1998, in the original principal amount of $15,000,000.00.
ZIPLINK, LLC
By:
-------------------------------
Henry M. Zachs Its Manager
-3-
<PAGE>
Exhibit 10.12
EMPLOYMENT AGREEMENT
This agreement made and entered into as of this 9th day of March l999, by
and between:
ZipLink, Inc., a Delaware corporation with offices at 900
Chelmsford Street, Tower One, Fifth Floor, Lowell
Massachusetts 01851 (the "Company"); and
Christopher W. Jenkins, residing at 72 Boxboro Road, Stowe,
Massachusetts 01775 (the "Employee").
WITNESSETH:
WHEREAS, the Company wishes to employ the Employee, and the Employee wishes
to accept such employment; and
WHEREAS, the Company and the Employee wish to set forth the terms and
conditions of such employment.
NOW, THEREFORE, in consideration of the premises and for other good and
valuable consideration receipt of which is acknowledged and the mutual promises
herein made, the parties hereto hereby agree as follows:
1. EMPLOYMENT
(A) EMPLOYMENT. The Company hereby agrees to employ Employee, and Employee
hereby accepts and agrees to said employment, in accordance with the terms of
this Agreement.
(B) PRIOR AGREEMENTS. Effective upon an initial public offering (an "IPO")
of the Company's common stock, this Agreement will supersede all previous
agreements between the Company and Employee concerning terms and conditions of
the employment of Employee by the Company (including those agreements originally
entered into by and between ZipLink, LLC (formerly known as ZipCall, LLC), a
Connecticut limited liability company), and all such previous agreements are
hereby canceled by mutual consent. No such cancellation shall effect any stock
option agreements or grants which options and agreements shall remain in full
force and effect.
2. POSITION AND DUTIES
(A) POSITION. During his employment hereunder, Employee shall have such
title and executive and managerial level duties as the Company may from time to
time designate. Employee shall initially serve as the President of the Company,
and, in such capacity, Employee shall as, when, and to the extent delegated to
him by the Board of Directors of the Company, have responsibility for the
operations of the Company.
(B) DUTY TO PERFORM SERVICES. Employee shall devote himself on a
"full-time" and exclusive basis to the business and affairs of the Company. He
shall use his best efforts in the rendition of his services to and on behalf of
the Company hereunder. Employee
<PAGE>
will comply with all policies, standards, and regulations established by the
Company from time to time.
3. EMPLOYMENT TERM
The term of Employee's employment under this Agreement shall begin on the
date first above written and shall continue until December 31, 2001 unless
Employee's employment is terminated earlier as provided in Section 9 of this
Agreement (the "Employment Term").
4. TRANSITIONAL EMPLOYMENT
In the event that the Company sells all or a portion of its assets or stock
in a transaction in which the purchaser requires that the Employee become an
employee of the purchaser, Employee will accept such employment for a period of
up to six months so long as the terms and conditions of such employment are
reasonable in terms of location, job description, and compensation.
5. COMPENSATION
(A) BASE COMPENSATION. As "Base Compensation" for services rendered by
Employee to the Company while employed hereunder, the Company will pay Employee
$150,000 per annum. Base Compensation shall be paid by regular periodic payments
as shall be in accordance with the Company's salary payment procedures as from
time to time in effect. Base Salary shall be subject to withholding and
deductions for all applicable taxes. Accrual and payment of Base Salary shall
not be commenced until completion of the IPO.
(B) BONUSES. In addition to Base Compensation, the Company may from time to
time award bonuses to Employee as additional compensation for services rendered.
The awarding, amount and terms of payment of any such bonuses shall remain
within the sole and exclusive discretion of the Company.
(C) WITHHOLDING. If and to the extent required by the Internal Revenue
Code, Base Salary and bonuses shall be subject to withholding and deductions for
all applicable taxes.
(D) BENEFITS. Employee shall be entitled to participate in and under any
and all incentive compensation, retirement, pension, profit sharing, insurance,
disability, medical expense, hospitalization or other plans now existing or
hereafter adopted through which the Company may provide benefits to or for its
employees generally. The foregoing shall not be deemed to guarantee awards to
Employee in any of the aforesaid plans where the granting of awards is
discretionary, but rather shall be deemed to provide only that Employee shall be
eligible for consideration as a recipient of such awards.
2
<PAGE>
(E) MINIMUM BENEFITS. To the extent not provided through benefit programs
described in Subsection (c) above, the Company shall provide to Employee at the
Company's expense:
(1) Health insurance covering Employee and his immediate family; and
(2) Life insurance with a death benefit of at least to two times Base
Compensation covering Employee and payable to Employee's designated
beneficiary.
6. VACATIONS; SICK OR PERSONAL DAYS; HOLIDAYS.
(A) VACATION. Employee shall be entitled to 4 weeks of vacation during each
calendar year of the Employment Term (prorated for any partial calendar years).
(B) SICK OR PERSONAL DAYS. Employee shall be entitled to a reasonable
number of sick or personal days, without loss of pay, on an "as needed" basis.
(C) HOLIDAYS. Employee shall be entitled to such holidays as are
established by the Company for all Employees.
7. DISABILITY
(A) SALARY CONTINUATION. If Employee becomes disabled at any time during
the Employment Term, he shall continue thereafter to receive his full Base
Salary in accordance with the benefit policies of the Company at such time. Any
disability benefits paid to Employee under insurance paid for by the Company
(either as owner or on Employee's behalf) shall be deemed to have come from the
Company in satisfaction of its obligations under this Subsection. Benefits
payable to Employee under individual disability policies owned and paid for by
Employee shall in no way limit or be deemed to be in lieu of the disability
compensation or insurance coverage hereinabove described.
(B) DEFINITION OF DISABILITY. For all purposes of this Agreement, the term
"disability" shall mean temporary or permanent incapacity, physical or mental,
which results in Employee's being unable to perform the requirements of his
position hereunder on a full-time basis. Disability shall be established by
medical proof satisfactory to a physician appointed by the Company, and his
decision as to the competence of such medical proof shall be binding upon
Employee, the Company and all other interested parties. In any event, if
Employee has qualified to receive disability benefits for total and permanent
disability under the Social Security Act, he shall be deemed to be disabled for
all purposes of this Agreement. All disabilities commencing during any 180 day
consecutive period shall be considered a single disability hereunder.
8. EXPENSES
The Company shall pay directly, or shall reimburse Employee for, the
following expenses:
3
<PAGE>
(1) The cost of maintenance, operation, and insurance for one
automobile used by Employee in the performance of his duties under this
Agreement (subject to such limits as may be established from time to time
by the Company, provided, that such limits shall not be less than $500.00
per month); and
(2) Any and all other necessary and ordinary expenses incurred by
Employee in the performance of Employee's duties hereunder, provided that
Employee has received the Company's prior written authorization for the
incurrence of such other expenses.
Any reimbursement shall be made in accordance with the expense documentation and
payment policies adopted from time to time by the Company for executive level
employees.
9. TERMINATION
(A) TERMINATION BY COMPANY. The Company may terminate the employment of
Employee hereunder, effective immediately upon written notice of termination to
Employee specifying the cause for such termination upon the occurrence of:
(1) A dereliction or breach by Employee of any of his duties,
covenants, agreements, or obligations contained herein, which dereliction
or breach continues unremedied for 14 days following notice to Employee of
such breach,
(2) Employee's engaging in any action: (i) involving dishonest,
fraudulent, or criminal conduct, (ii) in violation of Company policies,
standards, and/or regulations, or (iii) which could allow any other
employee of the Company to institute any action against the Company based
on a claim or claims of discrimination, harassment, or violation of civil
or human rights;
(3) The affirmative disregard by Employee of specific and material
(i.e., not involving merely day-to-day operations of the Company)
management directives which had been the subject of discussion and review
by the Board of Directors of the Company;
(4) Employee's engaging in any conduct or action, whether or not also
described in another Paragraph of this Subsection, which has caused or
which, if not checked, could have potentially caused financial harm to the
Company except for actions or conduct which employee believed in good faith
were in the best interests of the Company ;
(5) The failure by the Employee to comply with any rehabilitation
program after the Company determines that his capacity to perform his
duties hereunder has been impaired as a result of drug or alcohol abuse; or
(6) The determination by the Company, in its sole discretion, that the
Employee has engaged in any other conduct which is detrimental to the best
interests of the Company or that the Employee's performance is not
otherwise
4
<PAGE>
satisfactory to the Company or that the Company is no longer in need of the
Employee's services.
(B) TERMINATION BY REASON OF DEATH OR DISABILITY. Employee's employment
hereunder shall terminate immediately upon the death of Employee or upon the
passage of 180 days of disability with respect to Employee during any period of
360 consecutive days.
(C) EFFECT OF TERMINATION. Upon the termination of Employee's employment
hereunder, the Employee shall be entitled to receive any accrued and unpaid Base
Salary with respect to the period up to the effective date of such termination.
Upon a termination of the employment of the Employee by the Company pursuant to
Section 9(a)(6), and which is not described in any of the other Paragraphs of
Section 9(a), Employer's obligation to pay Base Compensation to Employee shall
continue during the one year period following termination of Employment;
provided, however, that Employer's obligation to so pay Base Compensation to
Employee shall immediately cease in the event that Employee breaches any of his
duties, covenants, agreements, or obligations contained in Section 10 but such
termination of payment of Base Salary shall not release Employee of his
obligations under Section 10 (b), (c), (d) or (e).
10. RESTRICTIONS ON CERTAIN BUSINESS ACTIVITIES
(A) EXCLUSIVITY. Employee shall not, at any time while employed by the
Company (other than as an employee of the Company and within the scope of his
duties to the Company and in furtherance of the business and affairs of the
Company), directly or indirectly, for his own account or for the account of
others, as an owner, officer, director, shareholder, partner, employee, agent,
advisor, consultant, manager, licensor, or in any other capacity, engage in or
be concerned with any commercial duties or pursuits whatsoever; provided
however, that: (i) Employee shall not be prevented from investing in stocks,
bonds, securities, real estate, commodities, or other forms of investment for
his own account so long as such investment will not require the rendition of
services on his part and (ii) Employee may serve on the Board of Directors
and/or as an officer of and/or provide services on a voluntary basis to any
not-for-profit organization which is not competitive with the Company and
provided such service does not materially interfere with his duties to the
Company.
(B) NON-COMPETITION. Employee shall not, at any time while employed by the
Company (other than as an employee of the Company and within the scope of his
duties to the Company and in furtherance of the business and affairs of the
Company), and for a period of one year following the date upon which Employee
ceases to be employed by the Company for any reason (the "Termination Date"),
directly or indirectly, for his own account or for the account of others, as an
owner, officer, director, shareholder, partner, member, employee, agent,
advisor, consultant, manager, licensor, or in any other capacity, engage, or be
associated with, in any Restricted Field within the Restricted Area. For
purposes of this Agreement:
5
<PAGE>
(1) Restricted Field shall mean the production, processing, sale,
distribution, or providing of any Restricted Service.
(2) Restricted Service shall mean any services or goods produced,
sold, processed, distributed, or provided by the Company during the one
year period ending on the Termination Date and which accounted for more
than 10% of the Company's revenues for such year or specifically identified
and planned by the Company during the one year period ending on the
Termination Date and which was expected to account for more than 10% of the
Company's revenues for such one year period (or, if there has not been a
Termination Date, during the one year period immediately preceding the date
with respect to which Employee's compliance with this Section is then being
determined). As of the date hereof, the Restricted Services shall mean the
provision of Internet access services, connectivity and other related
services including, without limitation, wholesale Internet access services
for Internet appliances to and other Internet service providers; and
(3) Restricted Area shall mean all geographic areas where the Company
has a point of presence, the United States of America and any other
territory in which the Company is hereafter doing business.
Employee shall not be deemed to have breached his covenant hereunder by
accepting employment after the Termination Date with an entity engaged in a
Restricted Field in a Restricted Area if: (i) Employee is employed only by a
division, subsidiary, or affiliate of such entity, which division, subsidiary,
or affiliate is not itself, directly or indirectly, engaged in any Restricted
Field in any Restricted Area, (ii) Employee does not provide any services,
either directly or indirectly, to any division, subsidiary, or affiliate of such
entity which is, directly or indirectly, engaged in any Restricted Field in any
Restricted Area, and (iii) such entity acknowledges in writing that it is aware
of this Agreement and that it will not cause or permit Employee to breach any of
the terms of this Agreement. Furthermore, Employee shall not be deemed to have
breached his covenant hereunder solely by reason of owning an equity interest of
less than 5% of a publicly held corporation, partnership, or other entity.
(C) NON-SOLICITATION OF CUSTOMERS. Employee shall not, at any time while
employed by the Company (other than as an employee of the Company and within the
scope of his duties to the Company and in furtherance of the business and
affairs of the Company), and for a period of one year following the Termination
Date, directly or indirectly, for his own account or for the account of others,
as an owner, officer, director, shareholder, partner, employee, agent, advisor,
consultant, manager, licensor, or in any other capacity, attempt to or actually
solicit or otherwise transact business in any manner with any Restricted Party
with a view towards providing or selling Restricted Services to or for the
benefit of any such Restricted Party. For the foregoing purposes, "Restricted
Party" shall mean any person or entity to or for the benefit of whom the Company
shall have provided or sold Restricted Services, or shall have made a
presentation or other specific contact with a view towards any such provision or
sale, in either case at any time within one year prior to the Termination Date.
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<PAGE>
(D) NON-SOLICITATION OF EMPLOYEES. Employee shall not, at any time while
employed by the Company, and for a period of one year following the Termination
Date: (i) hire or solicit, or cause or authorize, directly or indirectly, to be
hired or solicited for employment, as an employee, independent contractor,
consultant, or in any other capacity, any person who is, or was within one year
prior to or after the Termination Date, an employee, independent contractor, or
consultant of the Company or (ii) interfere in any way with the employment or
other relationship between the Company and any employee, independent contractor,
consultant, or other person.
(E) CONFIDENTIALITY AND NON-DISCLOSURE.
(1) CONFIDENTIALITY. Employee shall not, at any time while employed by
the Company (other than as an employee of the Company and within the scope
of his duties to the Company and in furtherance of the business and affairs
of the Company) and at all times subsequent to the Termination Date (under
any and all circumstances, without exception), disclose to any person or
entity other than the Company, or use for his own or any other purpose: (i)
any Confidential Information possessed by or pertaining to the Company or
(ii) any similar information belonging to a party other than the Company,
but to which Employee has had access by reason of his relationship with the
Company (including, without limitation, any information which is delivered
to the Company by persons or entities for whom the Company is providing
services or providing products).
(2) RECORDS. Employee shall not remove from the premises of the
Company any document, materials, or record (including, without limitation,
computerized records) containing any Confidential Information. Upon
termination of employment, Employee shall promptly deliver to the Company
all documents, materials, and records (including, without limitation,
computerized records) containing any Confidential Information which are in
Employee's possession, custody, or control.
(3) CONFIDENTIAL INFORMATION. For purposes of this Agreement,
Confidential Information shall mean trade secrets, confidential commercial
information, and any other information, knowledge, or data not generally
known to the public, possessed by or pertaining to the Company, including,
without limitation: (i) information about the Company's employees, (ii)
financial information concerning the Company, (iii) information about the
Company's products, including product designs or formulations, (iv)
information concerning the services provided by the Company, (v)
information concerning the Company's sources of supply, (vi) marketing
information, including advertising or promotional programs, sales
strategies or prospects, pricing or pricing strategies, and (vii)
information concerning the customers of the Company, including customer
lists, mailing lists, and customer requirements. Confidential Information
shall not include any information which becomes generally known to the
public other than as a result of any act or omission of Employee.
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<PAGE>
(F) DISPARAGING STATEMENTS BY EMPLOYEE. Employee acknowledges that the
Company is in an intensely competitive business and that disparaging or
otherwise derogatory comments, writings or other communications made by an
employee or former employee would place the Company at a disadvantage, would do
damage, financial and otherwise, to the Company's business and would do the
Company irreparable harm. Therefore, Employee agrees that from and after the
date of this Agreement, except as may be required by law or the rules and
regulations of any governmental authority, Employee will not make, or cause to
be made, any statement, observation, opinion, or communication (whether oral or
written) that disparages the Company or any of its past or present officers,
directors, shareholders, or employees, whether concerning his separation from
employment, the Company's business, prospects, or finances, or otherwise.
Nothing in the foregoing shall limit the Employee's statements in any pleading,
deposition or hearing in any arbitration proceeding.
(G) ENFORCEMENT. Employee's undertakings and agreements contained in this
Section 10 are of a unique and valuable nature and would, if breached, result in
irreparable damage to the Company that would not be readily susceptible to
monetary valuation; and, accordingly, in the event of the actual or potential
breach of any such undertakings or agreements, the Company shall be fully
entitled to seek and obtain injunctive or other equitable relief in furtherance
of the enforcement thereof, in addition to damages and any other available legal
remedy.
(H) INDEMNITY. Employee hereby indemnifies the Company and agrees to hold
the Company harmless from and against any and all claims, losses, liabilities,
damages, obligations, costs and expenses (including attorneys' fees) which the
Company may incur in connection with, by reason of or related to the breach by
Employee of any of Employee's undertakings or agreements contained in this
Section 10.
(I) CONSENT TO JURISDICTION. Employee hereby irrevocably submits to the IN
PERSONAM jurisdiction of any Connecticut State Court or Federal Court sitting in
Connecticut and any appellate court thereof in any action or proceeding arising
out of or relating to this Section 10, and Employee hereby irrevocably agrees
that all claims in respect of such action or proceeding may be heard and
determined in such Connecticut State Court or in such Federal Court. Employee
hereby irrevocably waives the defense of an inconvenient forum to the
maintenance of any such action or proceeding. Employee hereby irrevocably
consents to service of process by certified mail at his address set forth on the
first page hereof. Employee agrees that a non-appealable final judgment in any
such action or proceeding shall be conclusive and may be enforced in other
jurisdictions by suit on the judgment or in any other manner provided by law.
(J) SEVERABILITY. Employee agrees that the restrictions and limitations
established in this Section 10 shall apply and be enforceable to the fullest
extent allowed by law and shall under no circumstances be terminated in full in
the event that any portion of such limitations or restrictions exceed applicable
law. In the event any court of competent jurisdiction determines that any of the
provisions hereof exceed any applicable geographical, temporal, or other legal
or equitable limitations or restrictions, then such court is hereby authorized
and requested to "blue pencil" or otherwise reform the
8
<PAGE>
applicable limitations and restrictions, and this Agreement shall thereupon be
deemed to be reformed, only to the minimum extent necessary to meet such legal
or equitable limitations and restrictions. The illegality, invalidity or
unenforceability of any term or provision of this Agreement shall have no effect
on any other term or provision of this Agreement.
11. MISCELLANEOUS
(A) NOTICES. Any notice, request, acknowledgment, consent, or other
communication which any party hereto is required or permitted to give to another
party shall be in writing and shall be delivered personally, sent by registered
or certified mail, return receipt requested, or sent by a recognized overnight
delivery service, in any such case to the recipient at his or its address first
stated above or at such other address of which he or it shall have given the
other party or parties due notice hereunder. Any such notice shall be deemed to
have been delivered, given, and received for all purposes as of the date so
delivered.
(B) WAIVER. The failure of either party hereto to insist in any one or more
instances upon the performance of any of the terms and conditions of this
Agreement shall not be construed as a waiver or relinquishment of any right
granted hereunder, or of the future performance of any such term or condition.
(C) AMENDMENT. This Agreement may not be amended, modified or altered in
any manner, except pursuant to the terms of a written instrument signed by each
of the parties hereto.
(D) ASSIGNMENT. This Agreement shall be binding upon and shall inure to the
benefit of the parties hereto and their respective permitted assigns and
successors by operation of law. Neither this Agreement nor any benefits
hereunder may be assigned by Employee without the express prior written consent
of the Company. This Agreement may be assigned, transferred or conveyed by the
Company to a person or entity that acquires all or substantially all of the
business of the Company (whether such acquisition is by way of acquisition or
assets, acquisition of stock, merger, consolidation or otherwise).
(E) GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the domestic laws of the State of Connecticut without giving any
effect to any choice or conflict of law provision or rule (whether of the State
of Connecticut or of any other jurisdiction) that would cause the application of
the laws of any jurisdiction other than the State of Connecticut.
(F) ENTIRE AGREEMENT. This Agreement sets forth the entire understanding of
the parties hereto with respect to the subject matter hereof and supersedes any
prior understandings or agreements among the parties, whether written or oral,
to the extent related to the subject matter hereof.
(G) HEADINGS. The headings contained in this Agreement are for reference
purposes only and shall not affect the meaning or interpretation of this
Agreement.
9
<PAGE>
(H) USAGE. In construing this Agreement, feminine or neuter pronouns shall
be substituted for those of the masculine form, and the plural for the singular,
and vice versa, in any case in which the context may require. The capitalized
terms used in this Agreement shall have the meaning first applied to their first
usage in this Agreement unless otherwise indicated.
(I) ARBITRATION. Other than seeking a temporary restraining order or
permanent injunction to enforce your obligations under Section 10 hereof, any
and all disputes in connection with this contract or related to or arising out
of your employment with the Company shall be submitted to binding arbitration in
Hartford, Connecticut before a single arbitrator under the rules of the American
Arbitration Association. Any award or judgment by the Arbitrator shall be final
and binding upon the parties and may be entered in any court of competition
jurisdiction.
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement on
and as of the date first above written:
ZIPLINK, INC.
By: /s/ Henry Zachs
------------------------------
Its:
/s/ Christopher W. Jenkins
---------------------------------
Christopher W. Jenkins
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EXHIBIT 10.13
LICENSE AGREEMENT
This License Agreement (the "Agreement") is made and entered to be
effective as of the 11th day of March 1999 (the "Effective Date") by and between
HENRY M. ZACHS, an individual who is a citizen of the United States of America
having a business address of 40 Woodland Street, Hartford, Connecticut 06105
("ZACHS"), and ZIPLINK, LLC, a limited liability company organized and existing
under the laws of the State of Delaware, having a primary place of business
address of 900 Chelmsford Street, Lowell, Massachusetts 01851 ("ZIPLINK").
RECITALS
A. ZACHS is the owner of the marks "ZIP", "ZIP DATA", "ZIP
FONE", "ZIPTALK", "ZIP MAIL", "ZIP NEWS", "ZIP WEB", and "JOBLINKS.NET"
(collectively the "ZIP Marks").
B. ZACHS has adopted, acquired, and has consistently and
continuously employed the ZIP Marks as trademarks and service marks for his
various products and communication services.
C. ZACHS has continuously used the ZIP Marks in connection with his
goods and services from his earliest effective date of first use to the present
thereby developing a well known, highly regarded and distinctive family of marks
having substantial goodwill associated therewith.
D. ZACHS has sought and obtained U.S. Trademark or Service Mark
Registrations or has pending U.S. Trademark or Service Mark Applications for all
of the ZIP Marks.
E. ZIPLINK desires to obtain, and ZACHS desires to grant, certain
conditional rights to use the ZIP Marks in connection with certain services
offered and provided by it.
AGREEMENTS
1. INCORPORATION OF RECITALS. The Recitals set forth hereinabove are
hereby referred to, incorporated herein, and made a part of this Agreement by
reference. The parties hereto agree that this Agreement has been entered into
for and in consideration of the provisions contained in said Recitals as well as
those contained in the balance of this Agreement.
2. GRANT OF LICENSE AND PAYMENT.
a. ZACHS hereby grants to ZIPLINK a non-exclusive license for
the ZIP Marks solely in accordance with the use descriptions for each of the ZIP
Marks, as
<PAGE>
set forth on Exhibit A attached hereto (the "License"). The License and this
Agreement replace and novate in their entirety any prior contracts or agreements
between the parties with respect to or relating to the ZIP Marks or any of them.
b. ZIPLINK accepts the License on the following terms and
conditions hereinafter set forth in this Agreement, and agrees to pay ZACHS the
amount of One Dollar ($ 1.00) therefor concurrent with its execution hereof. o
c. ZIPLINK hereby acknowledges and agrees that this Agreement
is made without any representation or warranty by ZACHS as to the absence of
litigation or adverse claims with respect to the ZIP Marks or any of them.
(1). In the event of any monies realized from the
resolution of claims against others by reason of any alleged improper or
unauthorized use of the ZIP Marks or any of them, then such monies will be paid
to and solely inure to the benefit of ZACHS. Effective as of September 8, 1998,
ZACHS will be solely responsible for any attorneys' fees and costs paid or
incurred in the defense of the ZIP Marks or any of them.
(2). In the event of any monies realized from the
resolution of claims against others by reason of any alleged improper or
unauthorized use of the mark "ZIPLINK", such monies will be paid to and solely
inure to the benefit of ZIPLINK. Effective as of September l, 1997, ZIPLINK will
be solely responsible for any attorneys' fees and costs paid or incurred in the
defense of the mark "ZIPLINK".
d. ZACHS agrees and covenants that he will not grant any other
licenses for the ZIP Marks or any of them without the prior written consent of
ZIPLINK.
e. Following a final and non-appealable judgment, settlement,
or other resolution of any and all pending litigation involving any of the ZIP
Marks in which ZACHS and/or ZIPLINK are parties, ZIPLINK will have the right to
purchase from ZACHS the ZIP Marks for a consideration of One Dollar ($1.00);
provided, however, that such right of ZIPLINK will not extend to the ZIP Mark
"ZIP"(Registration No. 2,027, 356 issued on December 31, 1996). Following the
merger of the License with the purchase by ZIPLINK of the ZIP Marks other than
the ZIP Mark "ZIP", then the ZIP Mark "ZIP" will continue to be licensed by
ZACHS to ZIPLINK pursuant to all of the terms and conditions of this Agreement,
including, but not limited to Paragraphs 3(a) and 3(b) herein, and the License
for the ZIP Mark "ZIP" will become as of the closing of such purchase exclusive
as to ZIPLINK only for the use description related thereto, as set forth on
Exhibit A attached hereto.
3. OWNERSHIP OF THE ZIP MARKS.
a. ZIPLINK acknowledges (i) the validity of each of the U.S.
Trademark and Service Mark Registrations and Applications set forth in Exhibit B
attached hereto; and (ii) that ZACHS is the exclusive owner of all right, title,
and interest
2
<PAGE>
in such Registrations and Applications, the services and products associated
therewith, and all good will flowing therefrom.
b. ZIPLINK agrees that (i) nothing in this Agreement will
confer upon it any right, title, or interest in the ZIP Marks other than the
right to use the ZIP Marks in accordance with this Agreement, (ii) its use of
the ZIP Marks in accordance with this Agreement does and will inure to the
benefit of ZACHS, (iii) it will not, directly or indirectly, attack or assist or
act in concert with others to attack the title of ZACHS to the ZIP Marks or any
of them, their validity, any of such Registrations or Applications, and/or this
Agreement.
4. QUALITV STANDARDS AND MAINTENANCE; INDEMNIFICATION.
a. ZACHS will have the right to (i) inspect, examine, and
approve all products and services offered by or the direction of ZIPLINK in
connection with which any of the ZIP Marks are used; and (ii) examine and
approve the manner in which ZIPLINK uses the any or all of the ZIP Marks in
order to insure proper usage thereof.
b. If ZACHS objects to the manner of ZIPLINK'S usage of any of
the ZIP Marks, then, within ninety (90) days after its receipt of written
notification of such an objection by ZACHS, ZIPLINK will submit to ZACHS for his
approval a written recommendation for a different manner of usage. If ZACHS does
not provide written his approval to ZIPLINK fourteen (14) days of his receipt of
such written recommendation or if ZACHS declines his approval of such written
recommendation within such fourteen (14) day period of time and ZIPLINK
resubmits within ten (10) days thereafter a second written recommendation to
ZACHS and no written approval is thereafter forthcoming from ZACHS within a
fourteen (14) day period of time following his receipt of the second written
recommendation of ZIPLINK, then ZIPLINK will refrain from the manner of usage
objected to by ZACHS.
c. To the extent he has deemed necessary, ZACHS has inspected,
examined, and evaluated the products and services presently being provided by
ZIPLINK under other marks, and approves of the nature and quality of such
products and services and the manner in which those other marks associated
therewith have been and are being used. The quality of those products and
services and manner of use of such other marks will be considered as the
standard of quality for all future products and services to be offered by or at
the direction of ZIPLINK under the ZIP Marks (the "Standard of Quality").
ZIPLINK agrees it will (i) comply with all applicable laws and regulation and
obtain appropriate government approvals pertaining to the offering, sale,
distribution, and advertising of products and services used in connection with
any of the ZIP Marks; and (ii) maintain the Standard of Quality on all such
products and services. If any changes are made by ZIPLINK in the Standard of
Quality, it will immediately inform ZACHS in writing of any and all such
changes.
d. ZACHS will be the sole judge of whether or not ZIPLINK has
met
3
<PAGE>
or is meeting the Standard of Quality. ZIPLINK agrees to allow ZACH's authorized
agents to enter ZIPLINK'S premises at any time during regular business hours
whenever necessary in order for ZACHS to inspect the quality of the products and
services being provided by or at the direction of ZIPLINK under any of the ZIP
Marks.
e. ZIPLINK will indemnify, defend, and hold ZACHS harmless
from any claim, liability, loss, or damage to any third party or property,
including, but not limited to, consequential damages or losses, warranty claims,
product liability claims, and/or damages arising out of an action for strict
liability in tort as well as the attorneys' fees and costs of ZACHS associated
with or incurred as part of any such claim, liability, loss or damage arising
from (i) defects in any products or services provided by or at the direction of
ZIPLINK under any of the ZIP Marks; or (2) the exercise by ZIPLINK of its rights
under the License.
5. TERM AND ASSIGNMENT.
a. The License and this Agreement will commence on the
Effective Date, and will continue in force and effect unless terminated in
accordance with the provisions of paragraph 6 herein.
b. ZIPLINK may not assign or transfer the License or this
Agreement without the prior written consent of ZACHS, and any such assignment or
transfer without such written consent will be null and void; provided, however,
ZIPLINK may without the prior written consent of ZACHS freely assign and
transfer the License and this Agreement to ZipLink, Inc., a Delaware Corporation
that is affiliated with or the successor to ZIPLINK (the "Corporation"), in
which case ZIPLINK and the corporation will become jointly and severally liable
for the obligations of ZIPLINK hereunder.
c. The License and this Agreement will be freely assignable by
ZACHS without the prior consent of ZIPLINK.
6. TERMINATION OF THE LICENSE.
a. ZIPLINK will be deemed to be in default of the License and
this Agreement if (i) it applies for or consents to the appointment of a
receiver, trustee, liquidator, or custodian of itself or of all or a substantial
part of its property; (ii) it commences a voluntary case or other proceeding
seeking liquidation, reorganization, or other relief with respect to itself or
its debts under any bankruptcy, insolvency, or other similar law now or
hereinafter in effect, consents to any such relief or to the appointment of or
the taking possession of its property by any official in an involuntary case or
other proceeding commenced against it, or such a proceeding or case is brought
involuntarily against ZIPLINK, and, in any event, such case or proceeding is not
dismissed or discharged within thirty (30) days of commencement; (iii) it ceases
to be an operating business entity; and/or (iv) it fails to perform or comply
with any of the terms and conditions of the License and/or this Agreement. With
respect to the latter circumstance,
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<PAGE>
ZIPLINK will not be deemed to be in default of the License and/or this Agreement
if it has first received written notice from ZACHS specifying in detail the
nature of the default, and ZIPLINK fully cures such default within ten (10) days
of the date of its receipt of written that notice. In the event of a default by
ZIPLINK that is not so cured, then the License and this Agreement will terminate
upon the expiration of such cure period.
b. Upon the effective date of the termination of the License
and this Agreement, ZIPLINK agrees to (i) forthwith discontinue all use of the
ZIP Marks, and thereafter will no longer use or have the right to use any of the
ZIP Marks, any variation thereof, or any word or figure similar thereto; and
(ii) to continue to fully abide by the provisions of Paragraphs 3(a) and 3(b)
herein that will survive any such termination.
7. GENERAL PROVISIONS.
A. The term "Agreement", will include (i) each of the Exhibits
hereto; and (ii) any future written amendments, modifications, or supplements
made to this Agreement that are in a writing executed by all of the parties.
B. The term "Paragraph" or "Paragraphs" refers to the
paragraph or paragraphs of this Agreement. The titles and subtitles used herein
are not a part of this Agreement, are included solely for convenient reference
to the Paragraphs hereof, and have no bearing upon the various terms and
conditions hereof.
C. This Agreement will inure to the benefit of and be binding
upon the parties hereto and their respective heirs, successors, assigns, and
legal representatives.
D. If any provision of this Agreement, or the application
thereof, is for any reason and to any extent deemed invalid or unenforceable,
then the remainder of the Agreement and application of such provision to other
persons or circumstances will be interpreted so as to reasonably effect the
intent of the parties hereto. The parties will replace any such invalid or
unenforceable provision of this Agreement with a valid and enforceable provision
that will achieve, to the maximum extent possible, the economic, business, and
other purposes of the invalid or unenforceable provision.
E. The failure of either party at any time to require
performance by the other party of any provision hereof will not affect in any
way the full right to require such performance at any time thereafter. The
waiver by either party of a breach of any provision herein will not be taken or
held by the other party to be a waiver of the provision itself unless such a
waiver is in writing.
F. Nothing herein will be construed to place the parties in
the relationship of partners or joint venturers, and neither party will have the
power to obligate or bind the other in any manner whatsoever.
5
<PAGE>
G. This Agreement will be deemed to be made and entered into
in the State of Connecticut.
H. The validity, interpretation, and performance of this
Agreement will be controlled by and construed under the laws of the State of
Connecticut; provided, however, that this Agreement will be given a fair and
reasonable construction in accordance with its terms and without any
construction in favor of or against either party.
I Any notice, request, demand, or other communication required
or permitted hereunder will be in writing, communication charges prepaid, and
will be sent to the party to be notified by overnight courier service with
package tracking capability. All communications will be deemed given when
received. The addresses of the parties for the purposes of such communication
are:
ZACHS:
Mr. Henry M. Zachs
40 Woodland Street
Hartford, Connecticut 06105
ZIPLINK:
ZIPLINK, LLC
900 Chelmsford Street
Lowell, Massachusetts 01851
A party may change its address for the purposes of communication under this
Agreement only by giving written notice to the other parties in the manner
specified in this Paragraph 7(i) in which case this Agreement will be deemed to
have been so modified.
J. This Agreement may be executed in counterparts, and each
counterpart will have the same force and effect as an original and will
constitute an effective, binding agreement on the part of each of the
undersigned.
K. THE PARTIES AGREE THAT THIS AGREEMENT IS THE COMPLETE AND
EXCLUSIVE STATEMENT OF THE RELATIONSHIP BETWEEN THEM WITH RESPECT TO THE ZIP
MARKS, AND SUPERSEDES ALL PRIOR OR CONTEMPORANEOUS PROPOSALS AND/OR CONTRACTS
BETWEEN THEM, ORAL OR WRITTEN, UNDERSTANDINGS, REPRESENTATIONS, CONDITIONS,
WARRANTIES, COVENANTS, AND ALL OF THE COMMUNICATIONS BETWEEN THE PARTIES
RELATING TO THE SUBJECT MATTER OF THIS AGREEMENT. THIS AGREEMENT MAY NOT BE
EXPLAINED OR SUPPLEMENTED BY ANY PRIOR COURSE OF DEALlNGS OR PERFORMANCE BETWEEN
THE PARTIES OR BY TRADE CUSTOM OR USAGE.
6
<PAGE>
Executed to be effective as of the Effective Date.
HENRY M. ZACHS ZIPLINK, LLC
s/Henry M. Zachs By: s/Christopher W. Jenkins_
Henry M. Zachs [Print Name and Title]
Dated: 3/11/99 Dated: 3/11/99
7
<PAGE>
EXHIBIT A
8
<PAGE>
ZIP -- Services for and related to the providing of on-line electronic
communications services over a global computer network through an Internet
service provider.
ZIP DATA -- Services for and related to the providing of on-line electronic
communications, telephone, wireless (e.g., cellular, PCS, and two-way), voice
and auditory messaging, and/or data transmission services over a global computer
network through an Internet service provider.
ZIP FONE -- Services for and related to the providing of on-line electronic
communications, telephone, wireless (e.g., cellular, PCS, and two-way), voice
and auditory messaging, and/or data transmission services over a global computer
network through an Internet service provider.
ZIPTALK -- Services for and related to the providing of on-line electronic
communications, telephone, wireless (e.g., cellular, PCS, and two-way), voice
and auditory messaging, and/or data transmission services over a global computer
network through an Internet service provider.
ZIP MAIL -- Services for and related to the providing of on-line electronic
communications, telephone, wireless (e.g., cellular, PCS, and two-way), voice
and auditory messaging, E-mail, and/or data transmission services over a global
computer network through an Internet service provider.
ZIP NEWS -- Services for and related to the providing of on-line electronic
communications, telephone, wireless (e.g., cellular, PCS, and two-way), voice
and auditory messaging, local and national news and events, E-mail, and/or data
transmission services over a global computer network through an Internet service
provider.
ZIP WEB -- Services for and related to the providing of on-line electronic
communications, telephone, wireless (e.g., cellular, PCS, and two-way), voice
and auditory messaging, local and national news and events, electronic mail,
and/or data transmission services electronically over a global computer network
through an Internet service provider, and the design and hosting of sites on
such a global computer network.
JOBLINKS.NET -- [DESCRIPTION TO BE PROVIDED]
9
<PAGE>
EXHIBIT B
10
<PAGE>
<TABLE>
<S> <C> <C>
ZIP Reg. No. 2,027,356 Issued 12/31/96
ZIP DATA Reg. No. 2,175,284 Issued 07/21/98
ZIP FONE Reg. No. 2,178,838 Issued 08/04/98
ZIPTALK Reg. No. 2,180,955 Issued 08/11/98
ZIP WEB Serial No. 75/015,912 Filed 11/07/95
ZIP NEWS Serial No. 75/012,181 Filed 10/30/95
ZIP MAIL Serial No. 75/001,081 Filed 10/03/95
JOBLINKS.NET Serial No. 75/474,777 Filed 04/27/98
</TABLE>
11
<PAGE>
EXHIBIT 10.14
HENRY M. ZACHS
40 WOODLAND STREET
HARTFORD, CONNECTICUT 06103
March 10, 1999
ZipLink, LLC
900 Chelmsford Street
Lowell, Massachusetts 01851
Gentlemen:
I agree to provide for the benefit of ZipLink, LLC or its successor, a
guarantee of $10 million of secured loans from an institutional lender
acceptable to me. This guarantee will expire at the earliest of an initial
public offering of at least $30 million or January 1, 2000.
Arthur Anderson LLP may rely upon this letter in connection with the
issuance of its opinion on the financial statements of ZipLink, LLC. No other
person or entity may rely upon this letter without my written consent.
Sincerely,
s/ Henry M. Zachs
Henry M. Zachs
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our reports
(and all references to our Firm) included in or made a part of this Registration
Statement.
ARTHUR ANDERSEN LLP
Boston, Massachusetts
April 12, 1999
<PAGE>
[LETTERHEAD]
April 14, 1999
To: ZipLink, Inc.
I hereby consent to being named as a director nominee in the
Registration Statement filed by ZipLink, Inc., a Delaware corporation (the
"Registrant"), and agree to serve as a director of the Registrant commencing
immediately following the closing of the offering.
Very truly yours,
/s/ Russel S. Bernard
- ---------------------------
Russel S. Bernard
