<PAGE>
As filed with the Securities and Exchange Commission on August , 1999
Registration No. 333-
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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
U.LINK, INC.
(Name of Small Business Issuer in its Charter)
Delaware 2741 59-3400737
(State or jurisdiction (Primary Standard (I.R.S. Employer
of Industrial Identification No.)
incorporation or Classification Code
organization) Number)
1000 Conshohocken Road
Conshohocken, PA 19428
(610) 940-1515
(Address and telephone number of principal executive offices)
1000 Conshohocken Road
Conshohocken, PA 19428
(610) 940-1515
(Address of principal place of business or intended principal place of
business)
Mr. Michael S. Paul
1000 Conshohocken Road
Conshohocken, PA 19428
(610) 940-1515
(Name, address and telephone number of agent for service)
Please send a copy of all communications to:
Michael D. Harris, Esq. Asher S. Levitsky P.C.
Beth J. Harris, Esq. ESANU KATSKY KORINS & SIGER, LLP
Peter A. Savarese, Esq. 605 Third Avenue
MICHAEL HARRIS, P.A. New York, NY 10158
1645 Palm Beach Lakes Blvd., Suite (212) 953-6000
550 Fax: (212) 953-6899
West Palm Beach, FL 33401
(561) 478-7077
Fax: (561) 478-1817
Approximate date of proposed sale to the public: As soon as practicable
after the effective date of this Registration Statement.
If this Form is filed to register additional shares 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
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<TABLE>
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<CAPTION>
Proposed Proposed
Maximum Maximum Amount of
Title of Each Class of Securities Amount to Be Offering Price Aggregate Registration
To Be Registered Registered Per Security(1)(2) Offering Price Fee
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<S> <C> <C> <C> <C>
Common Stock, $.001 par
value(3)............... 1,725,000 $ 14.00 $24,150,000 $7,318.18
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Underwriter's Warrants.. 150,000 $ 0 $ 100 0
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Common Stock, $.001 par
value, issuable upon
the exercise of the
Underwriter's
Warrants(4)............ 150,000 $16.80(5) $ 2,520,000 $ 763.64
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Total Registration Fee.. $8,081.82
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</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457.
(2) Estimated to be between $12.00 and $14.00 per share. However for the
purpose of calculating the registration fees we have assumed the highest
price per share.
(3) Includes 225,000 shares issuable pursuant to the underwriter's over-
allotment option.
(4) Pursuant to Rule 416, we are also registering such additional shares as
may be required for issuance pursuant to the anti-dilution provisions of
the underwriter's warrants.
(5) Equal to 120% of the initial offering price of the common stock.
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 this Registration
Statement shall become effective on such date as the Commission, acting
pursuant to said Section 8(a), may determine.
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<PAGE>
CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
Form SB-2 Item Numbers and Caption Heading in Prospectus
---------------------------------- ---------------------
<S> <C>
1.Front of the Registration Statement and
Outside Front Cover of Prospectus........ Cover Page of Form SB-2 and of
Prospectus
2.Inside Front and Outside Back Cover Pages
of Prospectus............................ Inside Front and Outside Back Cover
Pages of Prospectus
3. Summary Information and Risk Factors..... Prospectus Summary and Risk Factors
4. Use of Proceeds.......................... Use of Proceeds
5. Determination of Offering Price.......... Cover Page of Prospectus and Risk
Factors
6. Dilution................................. Dilution
7. Selling Security Holders................. Not applicable
8. Plan of Distribution..................... Cover Page of Prospectus and
Underwriting
9. Legal Proceedings........................ Not Applicable
10.Directors, Promoters, Executive Officers,
Promoters and Control Persons............ Management
11.Security Ownership of Certain Beneficial
Owners and Management.................... Principal Stockholders
12. Description of Securities................ Description of Securities
13. Interest of Named Experts and Counsel.... Legal Matters
14.Disclosure of Commission Position on
Indemnification for Securities Act Description of Capital Stock
Liabilities..............................
15. Organization Within Last Five Years...... Related Party Transactions
16. Description of Business.................. Risk Factors and Business
17.Management's Discussion and Analysis or
Plan of Operation........................ Management's Discussion and Analysis of
Results of Operations and Financial
Condition
18. Description of Property.................. Business
19. Certain Relationships and Related Related Party Transactions
Transactions.............................
20.Market for Common Equity and Related
Stockholder Matters...................... Not Applicable
21. Executive Compensation................... Management
22. Financial Statements..................... Financial Statements
23.Changes In and Disagreements With
Accountants on Accounting and Financial Not Applicable
Disclosure...............................
</TABLE>
i
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The Information in this prospectus is not complete and may be changed. We may +
+not sell these securities until the registration statement filed with the +
+Securities and Exchange Commission is effective. This prospectus is not an +
+offer to sell securities, and we are not soliciting offers to buy these +
+securities, in any state where the offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED JULY , 1999
PROSPECTUS
1,500,000 Shares
U.LINK, INC.
Common Stock
This is our initial public offering of shares of common stock. We are
offering 1,500,000 shares.
No public market currently exists for our shares.
We have applied for approval for the listing of our common stock on the
Nasdaq SmallCap Market under the symbol and the Pacific Stock Exchange under
the symbol . We anticipate that the initial public offering price for the
shares we are offering will be between $12 and $14 per share. This initial
offering price may not reflect the market price after the offering.
Investing in the shares involves a high degree of risk. Please see the "Risk
Factors" beginning on page 9.
<TABLE>
<CAPTION>
Per Share Total
--------- -----
<S> <C> <C>
Public Offering Price....................................... $ $
Underwriting Discounts...................................... $ $
Proceeds to U.Link.......................................... $ $
</TABLE>
Our underwriter has a 45 day option to purchase up to 225,000 additional
shares of common stock from us to cover over-allotments, if any.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if
this prospectus is accurate or complete. Any representation to the contrary is
a criminal offense.
H.D. Brous & Co., Inc. expects to deliver the shares of common stock to
purchasers on or about , 1999.
H.D. Brous & Co., Inc.
The date of this prospectus is , 1999
<PAGE>
ABOUT THIS PROSPECTUS
You should only rely on the information contained in this prospectus. We
have not authorized anyone to provide you with information different from that
contained in this prospectus. We are offering to sell, and seeking offers to
buy, shares of common stock only in jurisdictions where offers and sales are
permitted. The information contained in this prospectus is accurate only as of
the date of this prospectus, regardless of the time of delivery of this
prospectus or of any sale of common stock.
See the section of this prospectus entitled "Risk Factors" for a discussion
on certain factors that you should consider before investing in the common
stock offered in this prospectus.
Until , 1999, all dealers selling shares of our common stock, whether or
not participating in this offering, may be required to deliver a prospectus.
This is in addition to the obligation of dealers to deliver a prospectus when
acting as underwriters and with respect to their unsold allotments or
subscriptions.
2
<PAGE>
PROSPECTUS SUMMARY
The information in this prospectus includes statistical data regarding the
Internet industry and the college market. We obtained this data from industry
publications and reports which we believe to be reliable sources; however, we
cannot guarantee the accuracy and completeness of this information. We have not
independently verified the data nor sought the consent of the organizations to
refer to their reports in this prospectus.
In order to make it easier for you to understand this prospectus, we have
defined certain terms that we use in this prospectus.
College or Colleges. Unless otherwise clear from the context, whenever we
use the terms "college" or "colleges" we mean four-year colleges and
universities.
E-Commerce. The term "e-commerce" refers to electronic commerce or the
business of buying and selling goods and services on the Internet.
U.Link. "U.Link," "we," or "our" refers to U.Link, Inc., a Delaware
corporation, which is offering its common stock for sale to the public. Unless
otherwise clear from the context, these terms also refer to us, together with
our wholly-owned subsidiaries, College Directory Publishing, Inc. and
University Publishers, Inc., our predecessor, College Directory Publishing
Corporation, and the predecessors of College Directory Publishing, Inc.
This summary highlights information contained elsewhere in this prospectus.
This summary may not contain all of the information that you should consider
before investing in our common stock. You should read the entire prospectus
carefully. Unless otherwise indicated, all information contained in this
prospectus assumes that the underwriter will not exercise its over-allotment
option. This prospectus contains forward-looking statements which involve risks
and uncertainties. Our actual results could differ materially from those
anticipated in these forward-looking statements as a result of risks, including
those disclosed under "Risk Factors" and elsewhere in this prospectus.
3
<PAGE>
The Company
Our Business................ U.Link is dedicated to becoming the leading
resource for businesses seeking to sell their
products and services to the college market.
We are a leading publisher of print and on-line
campus telephone directories. Our revenues have
come almost exclusively from the sale of
advertising in our print directories.
During the 1998-99 school year, we were the
official publisher of 68 print college and
medical school telephone directories. During the
1999-2000 school year, we will publish 77
official campus telephone and medical school
directories. Our on-line directories, which we
call our Virtual Directories, contain similar
information as our print directories, but are not
official publications of the colleges. We
maintain Virtual Directories at 67 of the
colleges for which we published the official
campus and medical school directory for the 1998-
99 school year.
On June 1, 1999, we terminated a short-term joint
venture with collegestudent.com, Inc., an
operator of on-line college communities, and we
have redefined our business strategy.
We are creating our new website,
aroundcampus.com, in stages. In early August we
launched the first stage at 76 colleges where we
are the official directory publisher. We created
our Virtual Directories and added membership
features consisting of calendars and chatrooms.
We are continuing to add membership features.
In the fall semester we expect to introduce on-
line communities for at least 20 colleges in the
Philadelphia, Pennsylvania area. We expect that
these communities will include, in addition to
our Virtual Directories, expanded membership
benefits, useful local information and e-commerce
opportunities.
Our expanded membership benefits will include:
. free e-mail
. a personal address book,
. a free web page builder,
. the opportunity to buy or win tickets for
screenings of new movies, and
. the opportunity to buy or win tickets for
preferred seats at concerts and sporting
events.
Our new local information will include:
. a restaurant and bar guide,
. a movie guide,
. a music guide,
4
<PAGE>
. a sports guide,
. a shopping guide, and
. local news, weather and other community
information.
We intend to blend our local information with the
yellow page listings in our Virtual Directories.
Beginning in late August 1999, we also intend to
offer on-campus and on-line marketing programs to
companies seeking to market their products and
services to the college communities. We intend to
offer such services at the colleges for which we
are the publisher of the official campus
telephone directories. Our initial marketing
programs will be directed at encouraging use of
our print campus telephone directories, our
Virtual Directories and our aroundcampus.com
website.
Our Market.................. College students represent a large audience with
particular needs and interests. Students are
exposed, often for the first time, to lifestyle
decisions and other challenges. During their
college years, students generally form brand
loyalties. It is for this reason that businesses
seek to market their products and services on
campus.
Advertisers recognize the importance of college
students and dedicate significant resources to
reach this market although, historically, college
students have been difficult to reach in a
targeted fashion.
The Internet has developed into an important
medium for distributing and collecting
information, communicating, entertaining and
conducting business. The Internet allows on-line
merchants to communicate with customers and
customers to communicate with merchants.
Advertisers can use the Internet to target people
with specific needs and interests while measuring
the use of their website. As a result, we believe
that the Internet is emerging as an attractive
medium for advertising and for e-commerce
directed at college students.
Our Strategy................ Our objective is to become the leading source for
providing campus information to college students
and to create relationships with businesses
seeking to market their products and services to
the college community. The key strategies to
achieve our objective include:
. expanding our position as a leading publisher
of official print campus telephone
directories;
. increasing off-line and on-line advertising;
. entering into relationships with businesses
seeking to reach college students;
5
<PAGE>
. creating our on-line local college communities
on our new website, aroundcampus.com;
. promoting our website as an on-line
destination and community for college
students;
. using our focus on college students to
capitalize on the growth of e-commerce; and
. offering direct marketing programs.
About U.Link................ We are a Delaware corporation organized in
February 1999. We are the successor to College
Directory Publishing Corporation, a Florida
corporation organized in 1996. Our wholly-owned
subsidiary, College Directory Publishing, Inc.,
and its predecessor began operations in 1986,
when our chairman of the board and chief
executive officer, Michael S. Paul, was a student
at the University of Delaware. College Directory
Publishing commenced publishing official college
telephone directories in 1986.
Our offices are located at
1000 Conshohocken Road, 5th Floor
Conshohocken, PA 19428
Telephone (610) 940-4948
Our corporate website address is
www.ulinkinc.com. Information contained on our
website is not part of this prospectus.
6
<PAGE>
The Offering
<TABLE>
<S> <C>
Common stock offered.... 1,500,000 shares
Common stock outstanding
before offering........ 3,461,728 shares
after offering......... 4,961,728 shares
Risk factors............ Your purchase of our common stock involves a high degree of risk
and immediate and substantial dilution.
Use of proceeds......... Payment of indebtedness, working capital and potential acquisitions.
Proposed trading symbols
for our common stock...
Nasdaq SmallCap
Market...............
Pacific Exchange......
</TABLE>
Unless otherwise apparent from the context, all numbers and other information
in this prospectus reflect the following:
. the February 1999 merger of College Directory Publishing Corporation
into U.Link;
. U.Link's March 1999 stock distributions through which we increased our
outstanding common stock from 100 shares to 2,121,000 shares; and
. conversion of our Series A, B, C and D Preferred Stock into common
stock, which shall occur on the date we complete this offering.
Summary Financial Data
Prior to July 3, 1997, College Directory Publishing, Inc. was owned by Mr.
Michael S. Paul, our chief executive officer, and his wife and Mr. John S.
Rafanello, our chief operating officer. On July 3, 1997, The Publishing Company
of North America, Inc. acquired College Directory Publishing and on June 10,
1998, The Publishing Company sold College Directory Publishing to us. The pro
forma statement of operations data for 1998 reflects the purchase by us of
College Directory Publishing as if the acquisition had occurred on January 1,
1998. The pro forma statement of operations for 1997 reflects the purchase of
College Directory Publishing by The Publishing Company as if the acquisition
had occurred on January 1, 1997.
7
<PAGE>
Statements of Operations Data
<TABLE>
<CAPTION>
Actual
-------------------------------------------------------------------
Three Three Period from Period from Period from
Months Months June 11, January 1, July 4, 1997 Period from
Ended Ended 1998 through 1998 through through January 1,
March 31, March 31, Pro Forma December June 10, Pro Forma December 1997 through
1999 1998 1998 31, 1998 1998 1997 31, 1997 July 3, 1997(1)
--------- --------- ---------- ------------ ------------ ---------- ------------ ----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales............ $170, 793 $ (1,286) $4,499,254 $4,500,461 $ (1,207) $3,715,656 $3,692,208 $ 23,448
Operating income
(loss).............. (271,742) (212,564) (45,938) 343,950 (437,151) (13,772) 381,845 (526,955)
Net income (loss).... (182,295) (149,393) 52,360 288,052 (309,319) (23,505) 210,223 (540,278)
Basic
Earnings per share... $ (.08) $ (49.80) $ .02 $ .14 $(103.11) $ (7.84) $ 70.07 $(180.09)
Diluted
Earnings per share... $ (.04) $ (49.80) $ .01 $ .07 $(103.11) $ (7.84) $ 70.07 $(180.09)
Shares outstanding
used in per share
Calculation:
Basic............... 2,121,000 3,000 2,121,000 2,121,000 3,000 3,000 3,000 3,000
Diluted............. 4,242,000 3,000 4,242,000 4,242,000 3,000 3,000 3,000 3,000
</TABLE>
- --------
(1) The actual results for this period do not reflect a pro forma tax benefit
of $204,376. If this benefit had been realized the net loss would have been
$335,902 and the basic and diluted loss per share would have been $111.97.
The following balance sheet data for March 31, 1999 is presented:
. on a historical basis;
. on a pro forma basis to reflect our receipt of the net proceeds from our
recent sale of 68 shares of Series E Preferred Stock and the use of a
portion of the net proceeds to pay short-term debt; and
. on an as adjusted basis to also reflect our receipt of the net proceeds
from the sale of 1,500,000 shares of common stock in this offering at
$12.00 per share after deducting underwriting discounts and estimated
offering expenses and the use of a portion of the net proceeds to pay
short term debt.
Balance Sheet Data
<TABLE>
<CAPTION>
As of March 31, 1999
----------------------------------
Actual Pro Forma As Adjusted
---------- ---------- -----------
<S> <C> <C> <C>
Cash and cash equivalents................ $ 205,380 $ 372,380 $14,587,380
Working capital (deficit)................ (569,083) 276,546 15,216,546
Total assets............................. 3,494,012 3,678,891 17,393,891
Short-term debt.......................... 1,579,293 1,229,293 4,293
Long-term debt, less current............. 7,283 7,283 7,283
Redeemable preferred stock............... 300,000 300,000 --
Total stockholders' equity............... 496,957 1,342,586 16,582,586
</TABLE>
8
<PAGE>
RISK FACTORS
An investment in our common stock involves a high degree of risk, and you
should consider an investment in our common stock only if you can afford to
lose your entire investment. You should consider carefully the following
information about these risks, together with the other information contained in
this prospectus, before you decide to buy our common stock. If any of the
following risks actually occur, our business, the results of our operations,
our financial condition and our prospects would likely suffer. In such case,
the market price of our common stock could decline, and you may lose all or a
substantial part of the money you paid to buy our common stock.
We have a working capital deficiency and require capital for operations
At March 31, 1999, we had a working capital deficiency of approximately
$569,000. The deficiency reflects $625,000 principal amount of notes due upon
the earlier of closing of this offering or December 1999. If we do not complete
this offering by December 1999, we will have to raise additional capital to
repay these notes or refinance the notes with the existing preferred
stockholders.
In January 1999, we entered into a revolving line of credit agreement with a
bank. The line of credit has a $1,200,000 borrowing limit. As of July 31, 1999,
the outstanding balance on such line of credit was approximately $600,000. Our
chief executive and operating officers guaranteed our obligations to the bank
under the line of credit. Our business and operations may be hurt if we are not
able to obtain financing as needed.
We need working capital to launch our proposed website on an expedited basis
and our Internet business may be adversely affected by our lack of working
capital
As part of our former joint venture with collegestudent.com, our
responsibility was limited to marketing, and collegestudent.com was responsible
for developing and maintaining the website. As a result of the termination of
the joint venture, we expect to incur substantial expenses to develop and
maintain our Virtual Directories and our new on-line college communities, to
attract members and to develop and implement e-commerce opportunities.
The 1999-2000 school year begins in August and September 1999. We have
limited time, staff and financial resources, and we may not be able to
implement our Internet business in a timely manner. Any delay in developing
this business may hamper our ability both to generate increased Internet
advertising sales and to develop e-commerce relationships.
Our Internet business and prospects and our financial condition may be
impaired if we are not successful in developing our Internet business and
attracting student visits to our communities, and we cannot give you any
assurance that we will be successful.
We lack substantial experience in operating on-line college communities and are
dependent on third parties
Until recently our only experience in operating a college website consists
of publishing our Virtual Directories prior to August 1998. We are and will
continue to be dependent upon third parties to provide us with software,
systems and related services to develop our on-line college communities and to
provide us with content designed to attract students to visit our communities.
As a result, our ability to operate and maintain our website and communities
may be adversely affected by the failure of these parties to provide reliable
software, systems and related services. Because we have limited ability to
control these third parties and we lack substantial experience in operating on-
line college communities, our development of these communities may not be
successful. In that event, our future results of operation may be adversely
affected.
9
<PAGE>
If we cannot effectively manage our growth, we may incur operating losses
As a result of the termination of our former joint venture with
collegestudent.com, we re-developed and now must maintain our Virtual
Directories, are creating new on-line college communities and must negotiate
and implement e-commence opportunities. Collegestudent.com performed these
functions for the joint venture. In addition, we must conduct an expanded
marketing effort to make college students aware of our website. This change in
direction is placing substantial strain on our administrative, operational and
financial resources, especially in view of the need to have a limited number of
on-line communities in place by the fall 1999 semester.
If our business grows, this growth is likely to place a further strain on
our administrative, operational and financial resources. To manage our growth,
we must implement systems and train and manage our employees and our sales
associates. Our chief operating officer and chief financial officer will be
required to implement financial and other operational controls. We have limited
management depth, and if we grow substantially in the future, we expect that we
will have to employ experienced executives and employees capable of providing
the necessary support.
We can not assure you that our management will be able to manage our growth
or that we will be able to hire the necessary senior and middle management
personnel necessary to implement our programs. If we fail to do so, our
business, financial condition and results of operations will be materially
adversely affected.
Fluctuations in our operating results may cause our stock price to fall
Prior to 1999, we generated no revenue during the first two quarters of the
year and, during the first three months of 1999, we generated minimal revenue.
Our revenue has been generated principally in the fourth quarter and, to a
lesser extent, the third quarter, of the year. This reflects the delivery of
our print directories at or near the beginning of the school year. We
anticipate that, even if Internet revenue constitutes a significant portion of
our revenue, our revenue will continue to be seasonal. Our varying quarterly
results may result in the drop of our common stock price.
The Internet has not been accepted as an advertising and commercial medium
The development of our Internet business is dependent upon the growth of the
Internet
Our ability to grow may be dependent upon the growth of the Internet, and we
could lose a significant source of revenue in the event that the Internet does
not develop. If Internet usage grows, the Internet may not be able to support
the demands placed on it by this growth or its performance or reliability may
decline. In addition, our present and proposed website may from time to time
experience interruptions in service as a result of outages or other delays
occurring. If these outages and delays frequently occur in the future, the use
of our website could significantly decrease, which could result in a decline in
Internet-related revenue.
Advertisers have not, and may not, accept the Internet as an advertising
medium
Our principal source of revenue from the Internet has been advertising on
our Virtual Directories. Major advertisers do not presently use the Internet as
a major advertising medium, and we cannot predict whether the Internet will
ever become a major advertising medium. We believe that acceptance of the
Internet as an advertising medium will depend on growth and the commercial use
of the Internet and the ability of advertisers to determine the extent to which
they are reaching their target market. If widespread commercial use of the
Internet does not develop, or if the Internet does not develop as an effective
and measurable advertising medium, our business, financial condition and
operating results could be materially and adversely affected.
10
<PAGE>
Electronic commerce is in its early stages and may never develop as a
significant business
Electronic commerce, which is generally referred to as e-commerce, has not
developed into a reliable method of conducting business. E-commerce includes
the sale of goods using the Internet as the location from which goods are
purchased. A number of companies use e-commerce as a principal method of
selling their goods and services, while others use e-commerce to supplement
their store, print catalogue and other business. The future of e-commerce may
be dependent upon the ability of companies to show profitable e-commerce
operations.
We may not develop any significant revenue from e-commerce
Presently, we have no definitive plans concerning e-commerce and we may
never generate any significant revenue from e-commerce. If we launch e-commerce
programs, a number of factors could prevent market acceptance of e-commerce on
our website by college students, including the following:
. Students may be unwilling to shift their purchasing from traditional
stores and catalogues to on-line stores.
. Students may develop other preferences for e-commerce, including other
websites which target college students as well as websites with a
broader marketing approach.
. Increased government regulation or taxation, including regulation of
telephone service, may adversely affect e-commerce.
. Insufficient availability of telecommunications services or changes in
telecommunications services could result in slower response times.
We cannot insure a secure environment
Our website is vulnerable to physical or electronic break-ins, viruses or
other problems that affect websites and Internet communication and commerce
generally. As e-commerce becomes more prevalent, our customers may become more
concerned about security. Although we believe that we can implement reasonable
security precautions, security systems can and are circumvented. The
circumvention of our security measures may result in the misappropriation of
proprietary information, such as credit card information, or interruptions of
our operations. Any such security breaches could damage our reputation and
expose us to a risk of loss or liability. We may be required to make
significant investments in our efforts to protect against and to remedy
security breaches. Our failure to address security concerns adequately could
materially and adversely affect our business, financial condition and operating
results.
We will face intense competition in all aspects of our business
We face competition for contracts for print directories
Our future growth will be dependent in part upon our continued ability to
become the publisher of print directories for additional colleges as well as
maintaining our relationships with existing colleges. In competing for print
directory contracts, we compete with a number of other publishers of college
directories, including University Directories LLC, which, we believe, is one of
the largest publishers of college directories, G.V. Publications, Inc. and a
number of smaller publishers. We believe that, for many colleges, competition
is based on the percentage of advertising revenue paid to the school as a
royalty and the perceived ability of the publisher to deliver a quality product
on schedule. We may suffer a significant decline in our print directory
business in the future.
Competition for Internet advertising is intense
Although the Internet is not a developed medium for advertisers, there is
significant competition for those advertisers that use the Internet, and we
expect that such competition will increase. Our website will be oriented to
college students as well as other members of the college community. We will
compete for a share of
11
<PAGE>
an advertising budget of those advertisers seeking to reach the college
community, including other on-line services, other Internet services,
traditional print media including local and campus newspapers, radio and
television stations.
We intend to compete in the e-commerce market
Competition for e-commerce and e-commerce opportunities is intense, and we
expect the competition will continue to intensify. There are low barriers to
entry, and competitors can launch new websites at a relatively low cost. We
believe that our ability to compete in e-commerce will be affected, among other
factors, by our ability to:
. develop and maintain a sufficiently large base of users who regularly
visit our website in order to enable us to be attractive to companies
offering goods and services through e-commerce;
. develop regular visitors to our website based upon the features we
offer, including attractive e-commerce products;
. attract local merchants to join our proposed local Internet malls; and
. provide students with incentives to order goods and services from
particpating merchants on-line.
We will compete for on-campus marketing opportunities
A number of established companies are engaged in the direct marketing of
products and services on college campuses. We will compete with these companies
in our attempt to launch a college marketing business. Because of these
competitive factors, our proposed on-campus and on-line marketing programs may
not be successful.
We are subject to restrictions in marketing our print directory services
During 1998, we negotiated with University Directories concerning a proposed
combination of our respective businesses. Although these discussions terminated
and no agreement was reached, we signed a confidentiality agreement with
University Directories. Accordingly, we cannot use confidential information to
solicit business from colleges served by University Directories.
Our print directory business is dependent upon both our suppliers and
advertisers
We do not have any printing facilities for our print directories, and all of
the printing and related work is subcontracted to unaffiliated printers. As a
result, our business may be affected if our printers do not print, bind and
ship the directories in accordance with our specifications and schedule.
We currently derive substantial revenue from the sale of advertising and
coupons in print directories. Because of the uncertainties facing the Internet
business, we anticipate that print directories will continue to account for at
least a majority of our revenue for the foreseeable future. Consequently, any
delays in publishing college directories or problems in selling advertising
including a downturn in the economy could materially and adversely harm our
business, financial condition and results of operations.
We may lose money from publishing print directories
We publish the large majority of our campus telephone directories on a "no-
cost" turnkey basis to the college. This means that we assume all costs of
publication and rely upon the sale of advertising to generate revenue. Turnkey
publishing subjects us to a number of potential risks including our inability
to sell sufficient advertising to cover our direct and indirect costs. We
cannot assure you that we will continue to operate profitably in the future.
12
<PAGE>
The Internet and Internet businesses are characterized by rapid technological
change
We will be dependant upon the sale of advertising, e-commerce and direct
marketing over the Internet to generate our Internet revenue. The Internet and
e-commerce are subject to rapidly changing technology. While these changes are
designed to facilitate the usage of the Internet and the growth of the e-
commerce, unforeseen technological factors may create a competitive environment
in which our business cannot generate adequate revenue or income.
Our business may encounter risks from the Year 2000 which adversely affect us
The Year 2000 problem is the inability of some software, hardware and
systems to determine the correct century on January 1, 2000. For example,
software with date-sensitive functions that are not Year 2000 compliant may not
be able to determine whether "00" means 1900 or 2000, which may result in
computer failures or the failure of the computer to produce accurate
information. Our business, operating results and financial position could be
materially adversely affected if our computer systems and third party suppliers
are not Year 2000 compliant.
We have not completed our Year 2000 evaluation of our computer hardware and
software and other equipment. We are currently taking an inventory of the
software, hardware and systems that we believe may be affected by Year 2000
issues to determine the extent that such software, hardware and systems are
Year 2000 compliant and the effort necessary to make such software, hardware
and systems Year 2000 compliant. We anticipate that we will be able to complete
our assessment by the end of the third quarter of 1999, although it is possible
that our assessment may not be completed at that time. It is possible that our
expenses could be material. The failure of our computer systems to be Year 2000
compliant prior to January 1, 2000 could have a material adverse effect on our
business, results of operations and financial condition.
We have broad discretion as to the use of the proceeds from this offering which
may increase the risk that they will not be used effectively
Except for the payment of principal and interest on outstanding debt, the
net proceeds of this offering are allocated to working capital purposes,
including the development of our new on-line communities, marketing and other
general corporate purposes, including possible acquisitions. Circumstances may
change which may result in a reallocation of such intended use of proceeds.
Accordingly, management will have broad discretion with respect to the
expenditure of the net proceeds of this offering. If you purchase common stock
in this offering, you will be entrusting your funds to our management, upon
whose judgment you must depend, with only limited information concerning
management's specific plans or intentions.
We may not be able to carry out our growth strategy if we cannot make future
acquisitions
Following this offering, we may make acquisitions of other businesses,
including the possible acquisition of companies which publish print campus
telephone directories, publish coupon books for college students, market
products to the college market and provide Internet services aimed at college
students. Such acquisitions may be made using a portion of the net proceeds of
this offering or with our securities or a combination of cash and securities.
At present, we are not engaged in formal or informal discussions with respect
to any acquisition. However, if we make an acquisition, we may not seek
stockholder approval or provide stockholders with any information concerning
any such acquisition prior to the execution of an acquisition agreement. We may
not be successful in acquiring any business. Additionally, we have no
experience in making acquisitions.
Acquisitions may disrupt or have a negative impact on our business
If we make an acquisition, we could have difficulty integrating that
company's personnel and operations with our own. In addition, the key personnel
of the acquired business may not be willing to work for us. We
13
<PAGE>
cannot predict the effect expansion may have on our core business of publishing
official campus telephone directories. Regardless of whether we are successful
in making an acquisition, the negotiations could disrupt our ongoing business,
distract our management and employees, increase our expenses and adversely
affect our future results of operations.
Increasing government regulation could affect our business
As Internet commerce evolves, we expect that federal and state agencies may
adopt legislation and regulations covering issues such as user privacy,
pricing, content and quality of products and services. Although many of these
regulations may not apply to our business directly, we expect the future
legislation and regulation could expose companies involved in e-commerce and
the sale of advertising over the Internet to liability which could limit the
growth of Internet commerce generally. We could face exposure to liability
resulting from allegations of defamation, breach of privacy or inappropriate
usage of e-mail by students. In addition, regulations which increase the cost
of Internet access may have an effect on the use of the Internet by members of
the college community.
We are controlled by our management
Upon completion of this offering, Messrs. Paul and Rafanello together will
own or have the right to vote approximately 64.4% of our outstanding common
stock. As a result, they may be able exercise control over all matters
requiring stockholder approval including the election of directors and approval
of significant corporate transactions. Their voting control could have the
effect of delaying or preventing a change of control which might benefit our
stockholders.
Our management and board of directors will benefit from this offering which
creates a conflict of interest
Messrs. Michael S. Paul and John S. Rafanello and Mr. Paul's wife have
guaranteed our working capital line of credit. As of July 31, 1999, we owed the
bank approximately $600,000. A portion of the proceeds of this offering will be
used to pay the line of credit. Following the offering, we will seek to
eliminate these personal guarantees.
Messrs. Paul and Rafanello have employment agreements with the Company.
These agreements provide that, upon completion of this offering, they will each
receive an increase in salary from $115,000 to $150,000 and one-time bonuses in
the amount of approximately $70,000.
Mr. Alan L. Frank, a member of our board of directors, is a member of Frank
& Rosen which acts as our lawyers in matters unrelated to this offering. Frank
& Rosen is receiving $250,000 from the proceeds of this offering.
We do not have any patent or copyright protection
We do not have any patent or copyright protection on any of the software we
use. We believe that the success of our business is not dependent upon any
patents or copyrights for our business. We are relying on third parties to
develop software for us. In the event any software infringes upon the
proprietary rights of others, our business may be impaired and we may incur
substantial costs, regardless of whether we ultimately prevail.
Last year, the United States Patent and Trademark Office issued two patents
to two different companies on their business models. These patents may protect
their new ways of doing business. Both of these patents were issued for
Internet business models. Although it does not initially appear that these
patents cover our Internet
14
<PAGE>
activities, we do not know whether there are other patent applications on file
which might be applicable to us. Our business could be hurt if our business
breaches any of these patented business models.
You will incur immediate and substantial dilution
On March 31, 1999, we had a pro forma net tangible book value of $.06 per
share of common stock, after giving effect to the conversion of our Series A,
B, C and D Preferred Stock. If you purchase common stock in this offering you
will sustain a dilution in the net tangible book value per share of common
stock of $8.89, or 74.1% from the $12.00 initial public offering price.
We may issue preferred stock without approval of our stockholders which could
make it more difficult for a third-party to acquire us
We have the authority to issue preferred stock without a vote of our
stockholders. In the future, our board of directors may issue one or more
series of preferred stock that has more than one vote per share. This could
permit our board of directors to issue such stock to investors who support our
management and give effective control of our business to our management.
Furthermore, under some circumstances issuing preferred stock may violate the
rules of the Nasdaq Stock Market, which could result in our common stock being
delisted from that market. The delisting of our common stock from the Nasdaq
SmallCap Market could result in both a drop in the stock price and decline in
interest in the stock which could make it more difficult for stockholders to
sell their shares.
The offering price of our common stock was arbitrarily determined
The initial public offering price was determined by negotiations between us
and the underwriter and does not necessarily relate to our book value, net
worth, financial condition or other established criteria of value.
There has never been a trading market for our common stock and we cannot
predict the extent to which a market will develop
Prior to this offering, there was no established market for our common
stock. We have applied for the listing of our common stock on the Nasdaq
SmallCap Market and the Pacific Exchange. However, such listing does not mean
that an active market in the common stock will develop or be maintained. If you
purchase common stock in this offering, you may have difficulties in selling
your shares if you desire to do so.
A significant number of the shares of common stock may be sold to customers
of the underwriter. These customers may subsequently sell common stock to and
purchase common stock from the underwriter. Although it has no obligation to do
so, the underwriter may become a market maker and otherwise effect transactions
in our common stock, and, if it participates in the market, may be a dominating
influence in the trading of such securities. The prices and the liquidity of
the common stock may be significantly affected by the degree, if any, of the
participation of the underwriter as a market maker, should a market develop.
3,461,728, or 69.8% of our total outstanding shares are restricted from
immediate resale but may be publicly sold in the near future. This could cause
the market price of our common stock to drop significantly, even if our
business is doing well
After this offering, we will have outstanding 4,961,728 shares of common
stock. This includes the 1,500,000 we are selling in this offering, which may
be resold in the public market immediately. The remaining 69.8%, or 3,461,728
shares, of our total outstanding shares will become available for resale in the
public market as shown below.
As restrictions on resale end, the market price could drop significantly if
the holders of these restricted shares sell them or are perceived by the market
as intending to sell them.
15
<PAGE>
<TABLE>
<S> <C>
Number of shares/% of total outstanding Date of availability for resale into public market
75,000/1.5% 91 days after the date of this prospectus due to an agreement these
stockholders have with the underwriter. However, we and the
underwriters can waive this restriction and allow these stockholders to
sell their shares at any time.
468,916/9.5% Nine months after the date of this prospectus due to an agreement these
stockholders have with the underwriter. However, we and the
underwriters can waive this restriction and allow these stockholders to
sell their shares at any time.
2,917,812/58.8% 12 months after the date of this prospectus due to an agreement these
stockholders have with the underwriter. However, we and the
underwriters can waive this restriction and allow these stockholders to
sell their shares at any time.
459,000/8.5% These shares are issuable upon conversion of our Series E Preferred
Stock. They may be converted beginning in May 2000. Due to the
requirements of the federal securities laws, these shares may be publicly
sold beginning in May 2000.
</TABLE>
FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements that address, among
other things, our expectations with regard to the college market, the future of
the Internet and e-commerce, our planned on-line communities, other expansion
of our business, the future growth of our publishing business and potential
acquisitions. In addition to these statements, trend analysis and other
information including words such as "seek," "anticipate," "believe," "plan,"
"estimate," "expect" "intend" and other similar expressions are forward looking
statements. These statements maybe found in the sections of this prospectus
entitled "Risk Factors," "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Business." Some or all of the results
anticipated by the forward-looking statements will not occur as a result of
various factors including, but not limited to all of the risks discussed in
"Risk Factors" and elsewhere in this prospectus.
16
<PAGE>
USE OF PROCEEDS
We estimate that the net proceeds from the offering will be approximately
$14,940,000, after payment of underwriting discounts and expense allowance and
our other estimated expenses of this offering.
We expect to use approximately $600,000 to pay the balance of a loan to a
bank. This note bears interest at the bank's prime rate, plus one-half of one
percent. We obtained this loan from the bank in January 1999. We used the
proceeds from the January loan to pay a $600,000 loan from another bank and for
working capital. We obtained the first loan in June 1998 to enable us to
purchase College Directory Publishing, Inc. from The Publishing Company of
North America, Inc.
We expect to use $625,000 of the net proceeds to pay 5% notes due on
completion of this offering. We issued a $100,000 note to The Publishing
Company as part of the purchase price of College Directory Publishing. We
issued an additional $525,000 in June 1998 and used the funds as part of our
cost of acquiring College Directory Publishing. These notes were issued as part
of units that included shares of Series B Redeemable Preferred Stock.
We also are paying $250,000 in legal fees to Frank & Rosen for its services
in connection with the recent cancellation of 780,272 shares of common stock.
Alan L. Frank, a partner of Frank & Rosen, is a member of our board of
directors. See the discussion of this cancellation on page of this prospectus
under the heading "Related Party Transactions".
We also intend to use the balance of the proceeds for the working capital,
including the development of our new on-line college communities throughout the
United States, the marketing of our print directories and our aroundcampus.com
website on-campus and other general corporate purposes. We may use a portion of
the net proceeds to acquire other businesses. Although we are not contemplating
any specific acquisitions at this time, we expect that acquisition candidates
may include other college campus telephone directory publishers, companies
engaged in the publishing of coupon books for college students, companies which
supply Internet services to the college market and companies which market
products to college students. As of the date of this prospectus, we cannot
specify with certainty how we will use the remaining net proceeds. Accordingly,
our management will have broad discretion in how we spend these net proceeds.
To the extent that the underwriter exercises its over-allotment option, the
net proceeds from the sale of such shares will be used for working capital and
for acquisitions.
Pending our use of the proceeds, we intend to invest the net proceeds in
interest-bearing, investment-grade instruments, certificates of deposit or
direct or guaranteed obligations of the United States.
17
<PAGE>
CAPITALIZATION
Our capitalization is presented at March 31, 1999
. on an actual basis;
. on a pro forma basis to give effect to our recent sale of 68 shares of
Series E Preferred Stock and our use of such proceeds to pay bank debt;
and
. on an as-adjusted basis to also give effect to our receipt of the net
proceeds of this offering.
<TABLE>
<CAPTION>
March 31, 1999
---------------------------------
Actual Pro Forma As Adjusted
---------- ---------- -----------
<S> <C> <C> <C>
Short-term debt:
Notes payable.............................. $ 625,000 $ 625,000 $ --
Line of credit............................. 950,000 600,000 --
Current portion of capital leases.......... 4,293 4,293 4,293
---------- ---------- -----------
1,579,293 1,229,293 4,293
---------- ---------- -----------
Long-term debt:
Capital leases, net of current portion..... 7,283 7,283 7,283
Redeemable Preferred Stock:
Series B Preferred Stock, par value $1.00,
300,000 shares authorized, 300,000 issued
and no shares outstanding as adjusted..... 300,000 300,000 --
Stockholders' equity:
Series A Preferred Stock, par value $.001
per share; 1,000 shares authorized, 1,000
shares issued and outstanding at
December 31, 1998, no shares issued or
outstanding as adjusted................... 1 1 --
Series C Preferred Stock, par value $.001
per share; 1,000 shares authorized, 1,000
shares issued and outstanding at
December 31, 1998, no shares issued or
outstanding as adjusted; liquidation
preference $200,000....................... 1 1 --
Series D Preferred Stock, par value $.001
per share; 1,000 shares authorized, 1,000
shares issued and outstanding at
December 31, 1998, no shares issued or
outstanding as adjusted; liquidation
preference $75,000........................ 1 1 --
Series E Preferred Stock, par value $.001
per share; no shares authorized, issued or
outstanding at December 31, 1998, 68
shares authorized, shares issued and
outstanding as adjusted; liquidation
preference $1,549,125..................... -- 1 1
Common Stock, par value $.001 per share;
20,000,000 shares authorized, 2,121,000
shares issued and outstanding at December
31, 1998, 4,961,728 shares issued and
outstanding as adjusted................... 2,121 1,341 4,962
Contributed capital........................ 389,076 1,235,484 16,471,866
Retained earnings.......................... 105,757 105,757 105,757
---------- ---------- -----------
Total stockholders' equity................... 496,957 1,342,586 16,582,586
---------- ---------- -----------
Total capitalization......................... $2,383,533 $2,879,162 $16,594,162
========== ========== ===========
</TABLE>
18
<PAGE>
The outstanding shares of common stock do not include:
. 560,000 shares of common stock issuable under our 1999 stock option
plan, of which we have granted options to purchase 169,400 shares;
. 125,000 shares issuable upon exercise of options issued to a consultant;
. 225,000 shares of common stock which may be issued if the underwriter
exercises its over-allotment option;
. 150,000 shares of common stock which may be issued pursuant to the
underwriter's warrants; and
. 459,000 shares of common stock issuable upon conversion of the Series E
Preferred Stock.
19
<PAGE>
DILUTION
As of March 31, 1999, pro forma net tangible book value of the common stock
was $203,312, or approximately $.06 per share. Since our Series A, B, C and D
Preferred Stock automatically convert into common stock upon completion of this
offering, in computing net tangible book value per share we have treated the
shares of these series of preferred stock as having been converted on March 31,
1999. The pro forma net tangible book value per share at March 31, 1999
represents the amount of our tangible assets less our liabilities divided by
3,461,728, which is the number of shares of our common stock which will be
outstanding upon conversion of these series of preferred stock, but prior to
the completion of this offering. The net tangible book value, as adjusted for
this offering, does not reflect any change in our net book value which may
result from our operations subsequent to March 31, 1999.
Assuming that we sell the 1,500,000 shares of common stock that are offered
by this prospectus at $12.00 per share, after paying the underwriter's discount
and the estimated expenses of this offering, our pro forma net tangible book
value would be $3.11 per share. This change in pro forma net tangible book
value represents an immediate increase in net tangible book value per share of
approximately $3.05 to our present stockholders and an immediate dilution (the
difference between the offering price of the shares and the pro forma net
tangible book value per share after the offering) per share of approximately
$8.89 to investors purchasing shares of common stock in this offering.
The following table illustrates the dilution of one share of common stock as
of March 31, 1999:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share................ $12.00
Pro forma net tangible book value per share at December 31,
1998........................................................ $.06
Increase per share attributable to investors in this
offering.................................................... 3.05
----
Pro forma net tangible book value per share after this
offering.................................................... 3.11
------
Dilution to public investors................................... $ 8.89
======
</TABLE>
If the underwriter's over-allotment option is exercised in full, the net
tangible book value per share will be $3.44 per share, representing dilution to
the purchasers in this offering of $8.56 per share.
The following table summarizes on a pro forma basis, as of March 31, 1999,
the total consideration and average purchase price paid by our present
stockholders and by the investors who purchase common stock in this offering,
based on an assumed initial public offering price of $12.00 per share.
<TABLE>
<CAPTION>
Shares Purchased Total Consideration Average
----------------- ------------------- Price
Number Percent Amount Percent Per Share
--------- ------- ----------- ------- ---------
<S> <C> <C> <C> <C> <C>
Present stockholders............ 3,461,728 69.8% $ 691,200 3.7% $ .20
======
New investors................... 1,500,000 30.2% 18,000,000 96.3% $12.00
--------- ----- ----------- ----- ======
Total......................... 4,961,728 100.0% $18,691,200 100.0%
========= ===== =========== =====
</TABLE>
20
<PAGE>
SELECTED FINANCIAL DATA
We derived the selected historical and pro forma financial data presented
below from our historical consolidated financial statements and related notes
included in another part of this prospectus. You should read the selected
financial data together with our historical financial statements and the
section of the prospectus entitled "Management's Discussion and Analysis of
Financial Conditions and Results of Operations." The information for the three
months ended March 31, 1999 and 1998 is derived from our unaudited consolidated
financial statements. The unaudited financial statements include all
adjustments (which include only normal recurring adjustments) necessary to
present fairly the information for such periods.
Ernst & Young LLP, independent certified public accountants, audited our
historical financial statements for the years ended December 31, 1998 and
December 31, 1997. These financial statements include the results of operations
for our subsidiary, College Directory Publishing, for the following periods:
. College Directory Publishing as an independent company from January 1,
1997 through July 3, 1997;
. College Directory Publishing as a subsidiary of The Publishing Company
of North America, Inc. from July 4, 1997 through June 10, 1998; and
. College Directory Publishing as our operating subsidiary from June 11,
1998 through December 31, 1998.
We have combined the results of operations into pro forma statements for the
years ended December 31, 1998 and December 31, 1997. You should read the notes
accompanying the information below to understand the basis for the pro forma
presentation. We have presented this information to give you a better picture
of what we believe our business might have looked like if we had operated
College Directory Publishing as an independent entity since January 1, 1997
based on our actual operations during such period. However, we may have
performed differently if we had operated College Directory Publishing as an
independent operation for the entire period. You should not rely on the
unaudited pro forma information as indicating the historical results that would
have been achieved.
In preparing these pro forma statements of operations for the years ended
December 31, 1998 and December 31, 1997 the results of operations for these two
audited periods for each year were combined except as follows:
. for 1997, amortization expense was calculated as if the purchase of
College Directory Publishing by The Publishing Company was effective
January 1, 1997. For 1998, it assumes the purchase by us was effective
January 1, 1998;
. we eliminated the management fee allocated by The Publishing Company in
December 1997;
. in 1998, we capitalized certain costs that were expensed by The
Publishing Company as selling, general and administrative expenses ; and
. income tax expense was calculated based upon the results of operations
for the entire year.
21
<PAGE>
<TABLE>
<CAPTION>
Actual Actual
-------------------- ----------------------------------------
Period from Period from
Three Months June 11, January 1, 1998
Ended March 31, 1998 through through
-------------------- Pro Forma December 31, June 10,
1999 1998 1998 1998 1998
--------- --------- ---------- ------------ ---------------
<S> <C> <C> <C> <C> <C>
Statements of Operations
Data:
Net sales............. $ 170,793 $ (1,286) $4,499,254 $4,500,461 $ (1,207)
Expenses:
Publication........... 13,040 407 1,659,555 1,640,554 19,001
Selling, general and
Administrative....... 414,660 186,530 2,732,768 2,389,709 374,211
Amortization.......... 14,835 24,341 152,869 126,248 43,332
--------- --------- ---------- ---------- ---------
Operating income
(loss)................. (271,742) (212,564) (45,938) 343,950 (437,751)
Interest, net........... (21,479) (12,922) (66,910) (33,505) (33,405)
Other income............ -- -- 204,707 204,707 --
Income tax benefit
(expenses)............. 110,926 76,093 (39,499) (227,100) 161,837
--------- --------- ---------- ---------- ---------
Net income (loss)....... $(182,295) $(149,393) $ 52,360 $ 288,052 $(309,319)
========= ========= ========== ========== =========
Basic earnings (loss)
per share.............. $ (.08) $ (49.80) $ .02 $ .14 $ (103.11)
========= ========= ========== ========== =========
Shares outstanding used
in per share
calculation............ 2,121,000 3,000 2,121,000 2,121,000 3,000
========= ========= ========== ========== =========
Diluted earnings (loss)
per share.............. $ (.04) $ (49.80) $ .01 $ .07 $ (103.11)
========= ========= ========== ========== =========
Shares outstanding used
in per share
calculation............ 4,242,000 3,000 4,242,000 4,242,000 3,000
========= ========= ========== ========== =========
</TABLE>
<TABLE>
<CAPTION>
Actual
----------------------------------------
Period from
July 4, 1997 Period from
through January 1, 1997
Pro Forma December 31, through July 3,
1997 1997 1997(1)
---------- ------------ ---------------
<S> <C> <C> <C>
Statements of Operations Data:
Net sales.......................... $3,715,656 $3,692,208 $ 23,448
Expenses:
Publication........................ 1,450,419 1,419,955 30,464
Selling, general and
administrative.................... 2,181,745 1,661,806 519,939
Management Fee..................... -- 180,000 --
Amortization....................... 97,264 48,602 --
---------- ---------- ---------
Operating income (loss).............. (13,772) 381,845 (526,955)
Interest, net........................ (27,465) (14,142) (13,323)
Income tax benefit (expense)......... 17,732 (157,480) --
---------- ---------- ---------
Net income (loss).................... $ (23,505) $ 210,223 $(540,278)
========== ========== =========
Basic and diluted earnings (loss) per
share............................... $ (7.84) $ 70.07 $ (180.09)
========== ========== =========
Shares outstanding used in per share
calculation......................... 3,000 3,000 3,000
========== ========== =========
</TABLE>
- --------
(1) The actual results for this period do not reflect a pro forma tax benefit
of $204,376. If this benefit had been realized the net loss would have been
$335,902 and the basic and diluted loss per share would have been $111.97.
22
<PAGE>
The following balance sheet data is presented:
. on a historical basis; and
. for March 31, 1999, on a pro forma basis to reflect our receipt of the
net proceeds from our recent sale of 68 shares of Series E Preferred
stock and the use of a portion of the net proceeds to pay short-term
debt.
<TABLE>
<CAPTION>
March 31, 1999 December 31, 1998
-------------------- -----------------
Actual Pro Forma
--------- ---------
<S> <C> <C> <C>
Balance Sheet Data:
Cash and cash equivalents............. $ 205,380 $ 372,380 $265, 214
Working capital (deficit)............. (569,083) 276,546 (384,345)
Total assets.......................... 3,494,012 3,678,891 3,701,078
Short-term borrowings................. 1,579,293 1,229,293 1,229,293
Long-term debt, less current
maturities........................... 7,283 7,283 8,276
Redeemable preferred stock............ 300,000 300,000 300,000
Total stockholders' equity............ 496,957 1,342,586 679,252
</TABLE>
23
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion of our financial condition and results of
operations should be read together with the financial statements and related
notes included in another part of the prospectus.
Overview
We are a leading publisher of both print and on-line college campus
telephone directories. Our wholly-owned subsidiary, College Directory
Publishing (and its predecessor), have been publishing official college campus
telephone directories since 1986. Through 1998 the sale of local advertising
for our print directories has been our principal source of revenue.
We recognize print directory advertising revenue when we print and ship our
directories. Since we normally publish our directories during the fall
semester, until this year we have recognized all our revenue in the third and
fourth quarters of the calendar year. We defer related production and selling
expenses until we print and ship our directories. Deposits received from the
sale of advertising prior to publication are recorded as deferred revenue.
Advertising on our Virtual Directories is recognized as revenue when the
advertisement is placed on-line. For the past two years, we packaged the
Internet advertising with our print advertising. We only sold the Internet
advertising in the fourth quarter and recognized revenue at that time as it was
placed on-line. Commencing in 1999, we began selling Internet advertising and
placing the advertisements on-line throughout the year, and we are recognizing
this revenue as the advertisements are placed on-line.
Results of Operations
The following table sets forth the percentage of revenue represented by
certain items reflected in our statements of operations. The following
information is based upon the pro forma information.
<TABLE>
<CAPTION>
Year Ended
December
31,
-------------
1998 1997
----- -----
<S> <C> <C>
Net sales.................................................... 100.0 % 100.0 %
Expenses:
Publication costs.......................................... 36.9 39.0
Selling, general and administrative expenses............... 60.7 58.8
Amortization............................................... 3.4 2.6
----- -----
Operating loss............................................... (1.0) (.4)
Interest expense, net........................................ (1.5) (.7)
Other income................................................. 4.5 --
Income tax benefit (expense)................................. (.8) .5
----- -----
Net income (loss)............................................ 1.2 % (.6)%
===== =====
</TABLE>
Quarterly information is not presented in the table because of the
seasonality of our business.
Three Months Ended March 31, 1999 and 1998
Net sales. Net sales increased from a negative $1,286 for the three months
ended March 31, 1998 to $170,793 in the three months ended March 31, 1999. In
the three months ended March 31, 1998, we did not publish any directories or
sell any Internet advertising. The negative net sales resulted from refunds
made during the quarter. In the three months ended March 31, 1999, we published
one campus telephone directory,
24
<PAGE>
two discount coupon books, and sold Internet advertising. Print revenue was
$39,163 and Internet revenue was $131,630.
Publication. Publication costs include the composition, typesetting, and
printing of our print publications. The cost of printing publications for the
three months ended March 31, 1999 was $13,040.
Selling general and administrative expenses. Selling, general and
administrative expenses increased from $186,530 for the three months ended
March 31, 1998 to $414,660 for the three months ended March 31, 1999. The
major components in 1999 were an increase in sales commissions of $29,925 as a
result of the increased sales, an increase in bank fees and legal fees of
$24,992 as a result of the refinancing of our line of credit, an increase of
$20,383 in marketing expenses, an increase of $38,750 in management salaries
and a $75,000 increase in other administrative costs. The cost of revenue
sharing with collegestudent.com of $36,564 is also included as a selling,
general and administrative expenses for the three months ended March 31, 1999.
Interest, net. Interest expenses increased from $12,922 for the three
months ended March 31, 1998 to $25,436 for the three months ended March 31,
1999. The reason for the increase is the interest paid on $625,000 of debt
related to our purchase of College Directory Publishing on June 10, 1998 and a
greater average outstanding balance on our line of credit for the three months
ended March 31, 1999. For the period ended March 31, 1999, we earned $3,957 in
interest income. There was no interest income earned during the three months
ended March 31, 1998.
Income taxes. An income tax benefit was calculated for both periods, based
upon the losses incurred.
Years Ended December 31, 1998 and 1997
Net sales. Net sales increased from $3,715,656 for the year ended December
31, 1997 to $4,499,254 for the year ended December 31, 1998, which is a 21.1%
increase. The increase in net sales was due to an increase in the number of
directories published. We published 57 directories in 1997 and 68 directories
in 1998. The average advertising revenue per directory was constant in both
years. In addition, there were a greater number of our advertisers which
purchased the print and Internet package in 1998 than in 1997.
Publication. Publication costs include composition, typesetting, printing
and fees paid to colleges to obtain the right to publish their official
directories. The cost of printing and typesetting the directories increased
from $937,208 in 1997 to $1,059,668 in 1998. The increase in costs reflects
the increase in the number of directories published. However, the average cost
of printing a directory declined from 1997 to 1998 due to a decrease in the
price of paper. Fees paid to the colleges increased from $513,211 in 1997 to
$599,887 in 1998. For a large number of our print directories, our payment to
colleges is based on a guaranteed fee and a percentage of revenue from the
print directory. This increase in fees reflected the increase in the number of
directories published.
Selling, general and administrative expenses. Selling, general and
administration expenses increased 25.3%, from $2,181,745 for 1997 to
$2,732,768 for 1998. The increase is primarily the result of an increase in
commissions of $172,969 resulting from the sales increase, an increase of
$287,990 in salaries and an increase of $35,189 in bad debt expense. We
calculate bad debt as a percent of the advertising revenue sold.
Interest, net. Interest expense, net of income, increased from $27,465 in
1997 to $66,910 in 1998 as a result of the $625,000 in notes incurred in June
1998 to finance the acquisition of College Directory Publishing as well as
increased borrowings in 1998. In 1998, we earned interest income of $10,397.
No interest income was earned in 1997.
Other income. In December 1998, we settled litigation on a favorable basis.
The settlement resulted in a gain of $204,707, net of expenses.
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<PAGE>
Income taxes. Prior to July 3, 1997, College Directory Publishing was a
subchapter S corporation and therefore no income tax was payable at the
corporation level. After July 3, 1997, College Directory Publishing was a
subsidiary of The Publishing Company. Based upon the net income from July 3,
1997 to December 31, 1997 College Directory Publishing incurred a tax
liability. For the period from January 1, 1998 to June 10, 1998 as a subsidiary
of The Publishing Company, College Directory Publishing incurred a loss and
generated an income tax benefit. Subsequent to June 10, 1998, College Directory
Publishing generated a profit and was subject to both federal and state income
taxes for that period.
Quarterly Results of Operations
As shown in the following table of quarterly operating results, our
operating results have varied significantly as a result of the seasonality of
our print publishing business. As long as revenue from this business activity
continues to be a significant portion of our revenue, quarterly results will
continue to fluctuate significantly.
<TABLE>
<CAPTION>
Three Months Ended
-----------------------------------------------------------------------------------------------------
March 31, December 31, September 30, June 30, March 31, December 31, September 30, June 30, March 31,
1999 1998 1998 1998 1998 1997 1997 1997 1997
--------- ------------ ------------- -------- --------- ------------ ------------- -------- ---------
(In Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales......... $171 $3,662 $838 $ -- $ (1) $3,322 $371 $ -- $ 23
Operating
income (loss)..... (272) 387 (43) (225) (213) 625 (244) (378) (149)
Interest, net..... (21) (29) (5) (20) (13) (3) (11) (11) (2)
Income tax benefit
(expense)........ 111 (247) 20 85 77 (266) 109 147 57
Other income...... -- 205 -- -- -- -- -- -- --
Net income
(loss)........... (182) 316 (28) (160) (149) 356 (146) (242) (94)
</TABLE>
Liquidity and Capital Resources
Since our inception, we have primarily financed our operations with cash
flows generated from operations and borrowings. When College Directory
Publishing was acquired by The Publishing Company on July 3, 1997, they
advanced us $200,000 as working capital. We borrowed an additional $548,000
from The Publishing Company during 1997. We also owed them an additional
$212,000 for certain services including $180,000 for a management fee. From
January 1, 1998 to June 10, 1998, we borrowed an additional $320,000. These
borrowings were used for working capital.
On June 10, 1998, we repurchased College Directory Publishing from The
Publishing Company for $1,400,000 in cash, a $100,000 note, the issuance of
shares of Series C Preferred Stock and the return of all of the shares of The
Publishing Company's common stock which The Publishing Company issued when it
purchased College Directory Publishing in 1997. We financed the purchase with a
$600,000 line of credit from a bank and $825,000 from a private placement
consisting of 300,000 shares of Series B Preferred Stock and $525,000 principal
amount of 5% notes. The notes to The Publishing Company and the notes to the
investors are due on the earlier of December 1999 or the completion of this
offering.
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<PAGE>
At December 31, 1998, we had a working capital deficiency of $384,345. This
deficiency reflects the $625,000 notes described in the preceding paragraph.
In January 1999, we entered into a revolving line of credit with a bank to
replace our then outstanding $600,000 bank loan. The line of credit has a
borrowing limit of $1,200,000 based upon a formula by advancing up to 70% of
eligible receivables and 40% of gross advertising sales through July 1999. The
line of credit bears interest at the bank's prime rate plus one-half of one
percent. As of July 31, 1999, there was an outstanding balance of approximately
$600,000, and our borrowing formula permits us to borrow an additional
$540,000.
Subsequent to March 31, 1999, we sold 68 shares of our Series E Preferred
Stock in a private placement. We received net proceeds of approximately
$820,000 after paying the placement costs. The proceeds from this placement
were used to pay our income tax liability for 1998, to make a payment on
account of our line of credit and to pay expenses relating to this offering.
We believe that the net proceeds from the offering, together with the
increased borrowing available from the line of credit will be sufficient to
meet our anticipated working capital and expansion plans for the next 12
months. Additional financing may not be available when needed or, if available,
such financing may not be on terms favorable to us or our stockholders. If
financing is not available on acceptable terms, it could have a material
adverse effect on our business, financial condition or results of operations.
Year 2000 Compliance
The year 2000 problem is the inability of some software, hardware and
systems to determine the correct century commencing on January 1, 2000. For
example, software with date-sensitive functions that are not Year 2000
compliant may not be able to determine whether "00" means 1900 or 2000, which
may result in computer failures or the failure of the computer to produce
accurate information. Our business, operating results and financial position
could be materially and adversely affected if our computer systems and third
party suppliers are not Year 2000 compliant.
We have made a preliminary assessment of the Year 2000 readiness of our
internal software and hardware systems. This preliminary assessment includes
the hardware and software that support our systems. Our assessment plan
includes:
. contacting third party vendors from whom we purchase or license our
material hardware, software and services;
. assessing repair, upgrade or replacement requirements and implementing
repair, upgrade or replacement; and
. testing certain internal and third party, hardware, software and
systems.
We are currently reviewing the software, hardware and systems that we
believe may be affected by Year 2000 issues to determine the extent that such
software, hardware and systems are Year 2000 compliant and the effort necessary
to make such software, hardware and systems Year 2000 compliant. We anticipate
that we will be able to complete our assessment by the end of the third quarter
of 1999, although it is possible that such assessment may not be completed at
that time.
We have not incurred any material expense for Year 2000 compliance matters
to date. We have budgeted $100,000 in 1999 on Year 2000 compliance issues.
These expenses will be related to time spent by employees and consultants in
the evaluation process as well as any needed repair, upgrade or replacement.
However, since we have not completed our Year 2000 evaluation, it is possible
that our expenses could considerably exceed that amount. The failure of our
computer systems to be Year 2000 compliant by January 1, 2000 could have a
material adverse effect on our business, results of operations and financial
condition.
27
<PAGE>
Recent Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board (FASB) issued
Reporting Comprehensive Income (SFAS No. 130), which establishes standards for
reporting and display of comprehensive income and its components in the
financial statements. SFAS No. 130 is effective for fiscal years beginning
after December 15, 1997. SFAS No. 130 offers alternatives for presentation of
disclosures required by the standard. The adoption of SFAS No. 130 had no
impact on our results of operations, financial position or cash flows, as the
amount of comprehensive income (loss) is the same as the net income (loss) for
all periods presented.
In June 1997, the FASB issued Disclosures about Segments of an Enterprise
and Related Information (SFAS No. 131), which establishes standards for
reporting information about operating segments in annual financial statements.
It also establishes standards for related disclosures about products and
services, geographic areas and major customers. SFAS No. 131 is effective for
fiscal years beginning after December 15, 1997. The adoption of SFAS No. 131
had no impact on our results of operations, financial position or cash flows.
In February 1998, the FASB issued Employers' Disclosures about Pension and
Other Post Retirement Benefits (SFAS No. 132), which revises employers'
disclosures about pension and other postretirement benefit plans. SFAS No. 132
does not change the measurement or recognition of those plans. SFAS NO. 132 is
effective for fiscal years beginning after December 15, 1997. The adoption of
SFAS NO. 132 will not have an impact on our results of operations, financial
position or cash flows since we do not have any pension or post retirement
benefit plans.
In June 1998, the FASB issued Accounting for Derivatives and Hedging
Activities (SFAS 133) which establishes accounting and reporting standards for
derivative instruments, including certain derivative instruments embedded in
other contracts (collectively referred to as derivatives) and for hedging
activities. SFAS No. 133 is effective for all fiscal quarters of fiscal years
beginning after June 15, 1999. As we do not currently engage or plan to engage
in derivative or hedging activities, there will be no impact to our results of
operations, financial position or cash flows upon the adoption of this
standard.
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<PAGE>
BUSINESS
Our Business
We are a leading publisher of print and on-line campus telephone
directories. Our objective is to be the leading resource for businesses which
are seeking to reach the college market. Our official print campus telephone
directories provide listings of names, addresses and telephone numbers of
students and faculty members, departmental information, campus maps and other
information, all of which is provided to us by the colleges. Similar
information is contained in our on-line Virtual Directories. Both types of
directories include yellow page sections of listings of paid advertisers and
discount coupons. In addition, the Virtual Directories include banner ads
provided by advertisers. Through June 30, 1999, the sale of advertising in our
print directories has been our principal source of revenue.
During the 1998-1999 school year, we published 65 official print campus
telephone directories and three medical school directories. During the 1999-
2000 school year, we expect to publish at least 73 official print campus
telephone directories and four medical school directories. In addition, we are
the sales representative for more than 30 college directories published by
others. We believe that we publish more print campus telephone directories than
any of our competitors.
Industry Overview
The College Student Market
College students represent a large audience with particular needs and
interests. Students are exposed, often for the first time, to lifestyle
decisions and other challenges. Students generally form brand loyalties during
their college years.
The major characteristics of the four-year college market are:
. Total student enrollment in the United States is approximately 8,500,000
full-time students and is increasing annually.
. College students and their families have significant buying power.
. College students generally earn more money during their lifetime than
their peers who do not attend college.
. College students are major users of the Internet, and many colleges
offer high speed Internet access. According to a published report,
researchers at the University of California at Los Angeles estimate that
approximately 83% of college freshman use the Internet for research and
homework.
. A leading Internet consulting firm, Jupiter Communications, LLC,
estimated that, in 1998, approximately 5.6 million students used the
Internet, and these students have a combined on-line purchasing power in
the hundreds of millions of dollars.
. Greenfield Online, publisher of the Pulsefinder On-Campus Market Study,
found that as of May 1999 college students are increasing their usage of
the Internet and e-commerce purchases. In addition to similar findings
as the UCLA study, Greenfield Online's survey concluded that 32% of
college students visited e-commerce websites in 1999 in contrast to 16%
in 1998. Of the 1999 visitors, 62% of the students placed an order on-
line according to the survey.
Advertisers recognize the importance of college students and dedicate
significant resources to reach this market. College students have been
difficult to reach in a targeted fashion because:
. They attend more than 3,000 colleges throughout the United States.
. Each college has its own unique characteristics.
. Within each college community, groups of students have their own unique
interests.
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<PAGE>
. Students frequently change their addresses.
. The college student population has significant turnover as a new
freshman class replaces the graduating class each academic year.
Growth of the Internet, On-Line Advertising and E-Commerce
The rapid growth of the Internet is apparent to most casual observers. The
Internet has developed into an important mass medium for distributing and
collecting information, communicating, entertaining and conducting business.
The Internet allows on-line merchants to communicate with customers and
customers to communicate with merchants. Advertisers can use the Internet to
target people with specific needs and interests while measuring the use of
their websites. As a result, the Internet is emerging as an attractive medium
for advertising and for e-commerce.
A number of firms have projected significant Internet and e-commerce growth
in the future. We recognize that these projections may never be realized.
. The Internet Advertising Bureau recently estimated that Internet
advertising doubled from $906 million in 1997 to $1.92 billion in 1998.
. Forrester Research, Inc. estimates that in the United States spending
for Internet advertising will grow from $1.3 billion in 1998 to $10.5
billion in 2003.
. Jupiter Communications projects that Internet advertising will grow from
$1.9 billion in 1998 to $7.7 billion in 2002.
. According to Jupiter Communications, students will spend close to $2.6
billion per year through e-commerce by 2002.
. VISA estimates that in 1998 it processed $13 billion, or 1% of its total
credit card activity, for the purchase of goods and services through the
Internet. VISA expects that, by 2003, Internet charges will account for
11% of its total sales.
While these estimates and forecasts of Internet growth differ, they all
share the common belief that the growth will be dramatic.
Our Solution
Historically, the college market has been fragmented. We do not believe that
any business has been successful in capturing this market by offering a range
of services to businesses targeting college students. Recently, several
companies have emerged and sought to fill this void. We believe that the
Internet has emerged as an attractive medium for advertisers because it offers
advertisers the ability to target their messages to a specific market, to
interact with users and measure user preferences to a greater extent than
traditional media. However, we believe that traditional media will continue to
be important for businesses trying to reach college students. Our goal is to be
the leading source for providing services to businesses seeking to market their
goods and services to college students. To this end, we intend to offer
businesses a number of avenues to reach students including:
. Internet advertising on our website;
. advertising in our print directories;
. direct marketing opportunities to, and e-commerce opportunities for, our
members;
. on-campus promotions; and
. electronic and print coupon books.
We believe that our 13 years of experience in publishing official campus
telephone directories and selling advertising to businesses seeking to reach
the college market, our reputation with colleges and our recent experience in
using the Internet to sell advertising, gives us the experience to expand our
business and broaden the variety of services we can offer to the college-
oriented business community.
30
<PAGE>
Our Strategy
Our objective is to be the leading resource for businesses which are seeking
to reach the college market. The key strategies to achieve our objective
include:
We want to expand our position as a leading publisher of official print campus
telephone directories.
We believe that we can meet this objective by:
. offering attractive financial packages to colleges;
. providing prompt and efficient customer service to meet the needs of
colleges; and
. selectively acquiring other print directory publishers.
We want to increase our sale of print and on-line advertising.
We believe we can achieve this objective by:
. adding new features, including our "Job Seekers Recruitment" and
"Restaurant Menu" sections, in our print directories and our
aroundcampus.com website;
. creating on-line college communities that provide local content and
features that attract visits by college students;
. creating a membership base by offering free benefits designed to
encourage students to become members of and to visit our communities;
and
. entering into relationships with third parties who can provide content
and benefits we can offer to students.
We want to create a membership base for direct marketing opportunities.
We believe we can achieve this objective by:
. offering free benefits to members, including on-line tools attractive to
students such as e-mail, personal organizers and calendars;
. offering our members the opportunity to buy or win tickets to preferred
seating at sporting events, concerts and screenings of new movies;
. utilizing our official status with colleges to e-mail opportunities to
the entire student population;
. creating local content on our website to attract students;
. engaging in on-campus marketing to encourage students to become members
of our on-line communities; and
. as soon as practical, providing businesses with the ability to market
their products to our members through our website.
We want to use our focus on college students to capitalize on the growth of e-
commerce.
We are seeking to achieve this objective by:
. targeting the college market, which has a high rate of Internet usage;
. creating an e-commerce solution for local merchants by organizing local
Internet malls; and
. providing an on-line location for national vendors to market goods and
services to the college community.
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<PAGE>
We want to offer on-campus marketing opportunities for businesses.
We believe we can achieve this objective by:
. organizing special events for corporate sponsors at college campuses;
. engaging in on-campus distribution of samples; and
. providing coupons which are redeemable at local businesses.
Our Print Directory Business
Official Campus Telephone Directories
We have been publishing official campus telephone directories since 1986.
We believe that we publish more college print campus telephone directories in
the United States than any of our competitors. During the 1998-1999 school
year, we published 65 official print campus telephone directories and three
medical school directories. During the 1999-2000 school year, we expect to
publish 73 official print campus directories and four medical school
directories. In addition, we are sales representative for more than 30 college
directories which others publish.
We derive revenue from the sale of advertising in our directories. Our
print directories generated revenue of approximately $3,600,000 in 1998. We
negotiate an economic arrangement with each college which is designed to lower
or eliminate their costs. Often, based upon our success in selling
advertising, we share revenue with colleges. Other colleges pay us a fee for
publishing the directory. The amount and structure of the payments to the
colleges is a major factor considered by many colleges in selecting its campus
telephone directory publisher.
Generally, we enter into three to five year agreements with colleges
following a competitive bidding process. If we are unable to deliver a quality
directory on time, the college may not select us in the future.
In 1998, we broadened our market by publishing medical school directories.
The directory for one of the medical schools includes the listings for a
university hospital system which is one of the largest private employers in
the major metropolitan area in which its facilities are located. We believe
medical school directories provide additional advertising opportunities
because doctors are, in general, at the high end of the economic scale.
Moreover, doctors and medical students form brand loyalties with
pharmaceutical companies and consumer product companies.
Some of the colleges for which we will publish official campus telephone
directories during the 1999-2000 academic year are:
<TABLE>
<S> <C>
Pennsylvania State University Georgetown University
University of Miami University of Pennsylvania
Michigan State University University of Illinois at Urbana-Champaign
Clemson University Colorado State University
Auburn University University of California at San Diego
Purdue University University of California at Irvine
University of Maryland Louisiana State University
George Mason University University of Cincinnati
Lehigh University University of Arkansas
University of Virginia University of Pittsburgh
</TABLE>
Features of our Print Campus Telephone Directories
Each college has the ultimate decision on what features its directory
contains. As a result, the lay-out and content of directories vary. All of our
directories contain both white page telephone listings and yellow page
advertising. Some colleges have restrictions on the type of businesses that
may advertise in the directories. All colleges have the right to review the
advertising prior to publication.
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<PAGE>
A typical campus telephone directory contains the following:
White Pages
. An alphabetical index of faculty and staff telephone numbers, school
addresses and e-mail addresses.
. An alphabetical listing of students, their local and permanent addresses
and local telephone numbers, although students may delete all or part of
their listing.
. Telephone numbers for medical, fire and police emergencies.
. Campus maps.
. Public and private transportation information including schedules and
phone numbers.
. Instructions for campus telephones, voice mail and Internet resources.
. Information containing the names and campus telephone numbers of members
of each department and the mailing address for the department.
. A listing of campus services.
. A list of frequently dialed numbers including public utilities, post
offices, houses of worship and airlines.
. School and sports schedules, student programs and organizations, school
polices and other useful information.
Yellow Pages
. Alphabetical listing of paid advertisers, including display
advertisements, by category.
. A half-inch vertical top to bottom advertisement on the side of each
page.
. Advertisements on the inside front cover and inside and outside back
covers of each directory.
. Most of our print directories have advertising dividers between certain
advertising sections. These dividers are printed on heavier stock paper
and feature full and partial page advertisements.
. Discount coupons, principally from local businesses, including fast food
and pizza restaurants, dry cleaners and copy services.
. Occasionally, we include advertising inserts printed by businesses.
We recently reached an agreement with coolsavings.com, a leading Internet
provider of on-line discount coupons whose membership base includes college
students. Coolsavings.com has agreed to pay us a fee to sponsor our print
directory coupon section during the 1999-2000 school year. Each page in the
coupon section of our print directories containing coupons will have a half
inch vertical advertisement on the outside edge promoting its college website,
college.coolsavings.com. We have agreed to provide coolsavings.com with one
full page containing discount coupons sold to national advertisers by
coolsavings.com. for each print directory. We have also granted coolsavings.com
a favorable price option for additional coupon pages. We recently reached an
agreement with coolsavings.com concerning a combined college Internet coupon
website, as described later in this prospectus under "Business--On-Line College
Communities". We also are continuing our discussions with coolsavings.com
concerning a relationship for our print coupon books. We cannot assure you that
these discussions will lead to an agreement.
New Sections
Beginning with the 1999-2000 school year, we intend to include two new
sections--an employment advertising section called "Job Seekers Recruitment"
and a section called "Restaurant Menu Section." The Job Seekers Recruitment
will contain various-sized advertisements directed at students seeking part-
time or full-time jobs. Each page in this section will have a half-inch
vertical advertisement on the outside edge promoting jobs.com, a leading on-
line job matching service. Jobs.com paid us a fee to sponsor this section.
The "Restaurant Menu Section" will follow the restaurant category in the
yellow pages. It will contain full-page menus for fast food and other local
restaurants. Each page in this section will have a half-inch vertical
advertisement on the outside edge promoting food.com. The food.com website
permits on-line food ordering from menus provided by participating restaurants.
Food.com is paying us a fee to sponsor this section.
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<PAGE>
Reliance on Printers and Suppliers
We do not own or operate any printing facilities. We have been using three
unaffiliated printers to produce all of our directories. Consequently, we
depend on these printers to print and deliver the directories in accordance
with the colleges' schedules and specifications. We believe that our use of
outside printers avoids our having to make a significant investment in printing
equipment. We engaged two composition vendors to make camera ready copy for the
directories from the data supplied by most of the colleges. We also utilized
one supplier to produce the covers of most of our directories. We believe that
alternative printers and other suppliers for our print directories are readily
available on competitive terms.
Distribution of Discount Coupons
Since January 1999, we have published and distributed our coupon book called
Five Finger Campus Coupon Books. These books contain discount coupons provided
by paid advertisers. We distribute these books to students without charge. We
have distributed two coupon books, one at five campuses in suburban
Philadelphia, PA and the other at Pennsylvania State University in State
College, PA. We intend to distribute these books in two types of college
markets--college towns and areas where the same book can be marketed to several
campuses. During the 1999-2000 academic year, we intend to expand our coupon
business to other markets. Our coupon books feature discount coupons from local
advertisers.
Our former joint venture with collegestudent.com, Inc.
In August 1998, we entered into a joint venture agreement with
collegestudent.com, Inc., which has developed and maintains a website of on-
line college communities throughout the United States. We transferred all of
our Virtual Directories to the collegestudent.com website. We and
collegestudent.com terminated the joint venture by mutual agreement as of June
1, 1999.
We have:
. eliminated dependence on collegestudent.com for maintenance of our
Virtual Directories;
. created new Virtual Directories for our new website; and
. launched our new aroundcampus.com website containing our Virtual
Directories and features designed to attract students including
calendars and chat rooms.
We are in the process of:
. enhancing our Virtual Directories to offer new features, including local
maps and directions to advertisers' businesses; and
. creating on-line communities initially consisting of at least 20
Philadelphia area colleges which will include Virtual Directories and
the free membership features we are adding including special discounts
and promotions. Additionally, these communities will also provide local
content, including personals, news, sports and entertainment, personal
organizers and e-mail.
Our Internet Activities
Our Internet strategy is based on our acquisition and customization of
software by others. We recently reached agreements with providers of on-line
calendars and maps and directions. We are negotiating with other software
vendors and anticipate entering into an agreement with one or more of these
vendors in the near future.
Virtual Directories
We have been publishing our Virtual Directories since 1997. They are
available on-line at aroundcampus.com. We publish Virtual Directories for all
of the colleges for which we publish the official
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campus telephone directory. We intend to expand our Virtual Directories to the
additional colleges for which we will publish campus telephone directories this
fall and to college communities for which we do not publish the print
directories. The Virtual Directories follow a format similar to our print
campus telephone directories. They consist of:
. maps and directions to our advertisers which we are now adding;
. links to the college's official website including:
^ departmental information including the name, telephone number and
campus address of the chair and professors of each department;
^ campus maps; and
^ other useful information provided by each college;
. business listings which are accessible alphabetically by category and by
key word searches;
. various size banner paid advertisements; and
. on-line coupons which may be printed and redeemed at local businesses.
We recently introduced a job seekers section in our Virtual Directories.
Students can view job opportunities and e-mail their resumes to prospective
employers. This section will list those businesses that purchase advertisements
in the "Job Seekers Recruitment" section of our print directories and job
listings provided by jobs.com. We believe college students use the Internet to
seek information concerning future employment.
Our New On-Line College Communities
We are creating our new website, aroundcampus.com, in stages. In early
August we launched the first stage at 76 colleges where we are the official
directory publisher. We created our Virtual Directories and added membership
features consisting of calendars and chatrooms. We are continuing to add
membership features.
We plan to introduce communities for at least 20 colleges in the
Philadelphia, Pennsylvania metropolitan area for the 1999-2000 fall semester.
They will contain our Virtual Directories and new features. In early 2000, we
plan to begin expansion of our on-line communities to other colleges including
those for which we publish the official campus telephone directory. The
features of our new communities are described below.
Although we intend to offer free membership, anyone can visit the on-line
communities without being a member. Members will receive free benefits,
including e-mail, a personal calendar and a web page builder. We are also
offering our members the opportunity to win or buy screenings of new movies and
preferred seating at sporting events and concerts. Other membership benefits
will be a weekly newsletter, which we will distribute by e-mail, and access to
the community's personals section. In addition, only members will be able to
participate in the community's contests and other promotional events.
Over the last year, personalization has become an important goal for
websites seeking to attract visitors. The major Internet portals, including
Yahoo! and Excite, offer the ability to create personal websites for each
visitor consisting of features of interest to the visitor. Many special
interest communities have developed in response to this trend. College
communities are one type of personalized website.
Each of our new on-line communities will feature paid banner advertisements
and sponsorships. The home page will contain current headlines providing news
items of interest to students. There will also be connections to contests,
shopping information, sports, campus information and the Virtual Directories.
In addition to membership benefits discussed above, the communities will
include:
. a restaurant and bar guide,
. a movie guide,
. a music guide,
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. a sports guide,
. a shopping guide, and
. local news, weather and other community information.
Each of these guides will contain local information concerning the subject
matter. We intend to integrate our new local information with the yellow page
listings in our Virtual Directories.
We recently entered into an agreement with jobs.com which conducts an on-
line job matching service on behalf of employers and potential employees. The
agreement provides that:
. Jobs.com will create co-branded websites featuring jobs.com's employment
database;
. The employment web pages will permit college students to prepare and
deliver resumes and receive recruitment information;
. We can act as a reseller for jobs.com and sell job postings and banner
advertising for their website;
. We will receive fees from our sales on behalf of jobs.com.
We also intend, by the fall of 1999, to enter into signage programs with
large national service companies such as an issuer of credit cards and a long-
distance telephone carrier. Under these programs, we receive a set fee for each
person who signs up for the vendor's card or service through our website or
through our off-line marketing. Our first on-line signage program is with MBNA
Bank. MBNA currently offers the official college credit card at 15 colleges
where we publish the campus telephone directory. MBNA will be the exclusive
credit card advertiser for those colleges on our website. MBNA will pay us a
fee for each new person who obtains their credit card through our website.
However, we may never generate significant revenue from these programs.
We have an agreement with coolsavings.com that provides for the creation of
a joint Internet relationship which will be launched in September. The
agreement provides for the following:
. Our website will link to coolsavings.com's college website,
college.coolsavings.com and college coolsavings.com will link with our
website;
. There will be a co-branded website for each college featuring the local
discount coupons we sell;
. We will create new college.coolsavings.com members when visitors to our
website seek to look at coupons;
. Coolsavings.com will send monthly e-mails to its approximately 300,000
college members promoting our aroundcampus.com website and our on-line
coupons; and
. We will share on-line coupon revenues in the 2000-01 school year; we
will retain all on-line revenues for the 1999-2000 school year.
E-Commerce
Through July 31, 1999, we have only generated nominal revenue from e-
commerce. We do not have any agreements which will generate revenue from e-
commerce. We anticipate that our first major e-commerce venture will consist of
local Internet malls. These malls will offer local merchants without an e-
commerce capability the ability to sell goods and services to the college
community through the Internet. Revenue from the local Internet malls will
consist principally of transaction fees from sales made on the mall. Our
initial plan is to develop these malls in the communities where we sell local
advertising for our Virtual Directories. We will market the malls by links from
our website, direct e-mail to our members and on-campus marketing. We are
currently negotiating with a third-party software supplier to obtain the
software necessary to set up and operate an Internet mall. We believe that if
our negotiations with this software vendor are not successful, we will be able
to obtain the necessary software from a number of other software vendors.
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If we are able to develop a significant membership base from our website, we
may be able to develop programs to offer goods and services directly on our
website. We would buy the goods and services from third-party providers, which
would be responsible for maintaining inventory and fulfilling orders.
Direct Marketing
Direct marketing consists of providing businesses with the ability to e-mail
offers of goods and services to a targeted user base. This aspect of our
proposed business is also dependent upon creating a sufficiently large
membership base to be of interest to businesses. If we are able to develop a
large membership base, we will collect demographic information about our
members. We will use this information to solicit businesses that we believe
will be interested in offering their products and services on favorable terms
on the Internet to our members or groups of our members. We do not intend to
sell our membership lists to third parties. However, we expect to receive
transaction fees for providing this service to businesses.
We intend to send e-mails to a college's entire student body recommending
that students patronize our print directory and on-line advertisers and become
members of aroundcampus.com. We are initiating this program with 10 colleges
for which we will be publishing their print directories and will seek to expand
this program to the other colleges with which we have a relationship.
On-Campus Marketing
On-campus marketing includes a range of programs designed to build brand
awareness and loyalty. These programs occur regularly on college campuses
across the United States, and include:
. sponsoring concerts and other special events;
. distributing product samples;
. distributing fliers and discount coupons; and
. staging contests.
In addition to direct marketing through aroundcampus.com, we also engage in
direct marketing on campus by setting up tables, distributing product samples
and discount coupons on behalf of businesses and signing up members for
aroundcampus.com.
We believe that our role as the publisher of the official campus telephone
directory provides us with an advantage in soliciting businesses for on-campus
programs. As the official publisher of the campus telephone directory, we
believe that we have credibility with the college that awarded us the contract.
Since we distribute our campus telephone directories to students who live off
campus, we believe that we can encourage business to permit us to distribute
their samples. This distribution could be both at the time telephone
directories are distributed and at later times. However, colleges' regulations
may prohibit or restrict us from distributing certain kinds of samples and
other material.
Sales and Marketing
Through July 31, 1999, advertising has been our only significant source of
revenue, and we have generated only nominal revenue from e-commerce. In 1998,
we generated approximately $3,600,000, or 80% of our revenue, from the
advertising in our print campus telephone directories and approximately
$900,000, or 20% of our revenue, from Internet advertising.
Our principal advertisers have been local businesses seeking to sell their
goods and services to college students through our print campus telephone
directories. We are implementing a program to increase our sale of
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print and on-line national and regional advertising. We solicit advertising by
telephone and personal solicitation. Our sales and marketing staff consists of
the vice president-sales, a national accounts sales manager, a marketing
manager, a staff of nine managers and 25 full-time and 60 part-time personnel
and four independent sales representatives. The part-time salespersons are
primarily college students, whose efforts are directed at personal solicitation
of merchants in the college community and on-campus marketing.
Until February 1999, we did not engage in any significant marketing
activities. From February through May 1999, we directed our marketing effort at
promoting the collegestudent.com website. We intend to market our
aroundcampus.com website through on-campus promotional events beginning with
the 1999-2000 academic year. We also intend to market our campus telephone
directories to encourage students to patronize our advertisers. We intend to
use a significant portion of the net proceeds of this offering to expand our
marketing efforts.
Competition
Print Directory Competition
Our largest competitor is University Directories. We believe that we and
University Directories are the two largest campus telephone directory
publishers. Our next largest competitor is G.V. Publications, which, we
believe, publishes more than 50 campus telephone directories. We believe that
Campus Publishers publishes approximately 19 campus telephone directories. A
number of smaller regional companies also publish print directories. In
general, the amount and structure of the compensation paid to the college is
the most important factor in the selection of a print directory publisher.
However, since it is crucial to the college that the directories be delivered
on time, the past failure of a publisher to deliver a quality product in a
timely manner will offset any price advantage that it may offer the college. We
believe that we can compete by offering a favorable compensation package
combined with our experience in delivering a quality product in a timely
manner.
During 1998 we negotiated with University Directories about combining our
businesses. Although these discussions ended without an agreement, we signed a
confidentiality agreement with University Directories. This agreement restricts
our ability to use University Directories' confidential information to solicit
publishing agreements from colleges when their agreements with University
Directories are up for renewal.
Internet Competition
The key to generating revenue on the Internet is the ability to attract
students to a website and provide them with a reason to remain. Competition in
generating student visits to a website and competition to sell advertising and
e-commerce is intense. We expect the competition will grow because any person
can launch a new website at a relatively low cost. Many of our competitors are
better known and have significantly greater financial resources than we do.
We compete, directly and indirectly, for advertisers and e-commerce
opportunities with the following categories of companies:
. General purpose consumer on-line services such as America OnLine and
Microsoft Network, each of which provides access to student-related
content and services.
. Website portals or search engines, such as Yahoo!, AltaVista, Excite,
Infoseek, Lycos, and other high-traffic websites.
. Websites targeted to students generally or to students of a particular
school, including student advantage.com, mybytes.com, collegeclub.com,
animalhouse.com, student.com, collegestudent.com, ontap online, and
colleges.com.
. Publishers and distributors of traditional media including television,
radio and print, many of which have established or may establish
websites.
. Businesses which sell products and services of interest to college
students, many of which sell through both traditional media and the
Internet.
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We believe our status as the publisher of official print campus telephone
directories enhances our ability to sell advertising, particularly on the
Internet. To the extent that we can provide local information and other
features of interest, college students may use the website. Attracting and
retaining users on-line is crucial to selling on-line advertising and
developing e-commerce opportunities.
On-Campus Marketing Competition
We will compete with a number of experienced on-campus marketing businesses
which have greater capital and established relationships including Market
Source Corporation, Snyder Communications, the College Kit, Student Advantage,
Inc. and YouthStream Media Networks.
Future Acquisition Strategies
Following this offering, we may use a portion of the proceeds to acquire
companies serving the college market. In addition, we may enter into joint
ventures or other relationships, including joint marketing agreements, which we
believe would further our growth. Although we anticipate that any acquisitions
will be related to the college market, we may acquire other businesses that do
not target the college market. We may not generate net income from any future
acquisition or agreement. We have not identified any particular business that
we may acquire in the future, and we may not be able to make any acquisitions.
Employees
As of July 31, 1999, we had 58 full-time employees, including our three
executive officers. We also utilize the service of four independent sales
representatives and 60 college students. We do not have any agreements with
labor unions, and we consider our relationships with our employees and
independent contractors to be good.
Property
Our corporate headquarters are located at 1000 Conshohocken Road,
Conshohocken, Pennsylvania. We lease approximately 10,500 square feet at a
monthly rental of approximately $9,500. Our lease expires in May 2003. We
believe that our present facilities will meet our foreseeable requirements,
and, if we require additional space, we believe it will be available on
reasonable terms.
Legal Proceedings
We are not a party to any legal proceedings.
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MANAGEMENT
Directors and Executive Officers
The following table provides information concerning our directors and
executive officers.
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Michael S. Paul...................... 33 Chief executive officer, secretary and
chairman of the board of directors
John S. Rafanello.................... 32 President, chief operating officer,
treasurer and director
Larry M. Weaver...................... 49 Vice president of finance and chief
financial and chief accounting officer
Kenneth H. Byck(1)................... 33 Director
Alan L. Frank(1),(2)................. 43 Director
Leonard Schutzman(2)................. 52 Director
</TABLE>
- --------
(1) Member of the Compensation Committee.
(2) Member of the Audit Committee.
Michael S. Paul founded College Directory Publishing in 1986 while a student
at the University of Delaware. He has been the chief executive officer and
secretary of College Directory Publishing since inception, and he has been our
chief executive officer, secretary and chairman of the board of directors since
February 1999.
John S. Rafanello joined College Directory Publishing in 1987 while he was a
student at the University of Delaware and became president, chief operating
officer and treasurer of College Directory Publishing in 1988, and he has been
our president, treasurer and a director since February 1999.
Larry M. Weaver has been vice president of finance and chief financial
officer since December 1998. From June 1996 through August 1998, Mr. Weaver was
executive vice president and chief financial officer of Stratesec, Inc., a
publicly-held integrator of electronic security systems, for which he also was
chief operating officer from December 1996 through February 1998. From July
1995 to June 1996, Mr. Weaver was chief financial officer of the Conduit and
Foundation Corporation, a highway construction company. Mr. Weaver is a
certified public accountant.
Kenneth H. Byck joined our board of directors in April 1999. Since January
1997, Mr. Byck has been chief executive officer of Corporate Marketing
Partners, Inc., which offers marketing and fulfilling programs which increase
utilization of credit cards and rewards programs issued by First USA Bank. Mr.
Byck concentrates on creating sports and entertainment promotions. In 1997, the
Major League Baseball Players Association retained Corporate Marketing to co-
produce with ESPN the annual "MLB Players Choice" weekend, which features a two
hour prime time program broadcast on ESPN and local events created by Mr. Byck.
From 1986 through December 1996, Mr. Byck was employed by Dreamweek Inc., which
created fantasy sport camps for adults. From January 1992 through December
1996, Mr. Byck was executive vice-president of Dreamweek.
Alan L. Frank joined our board of directors in May 1999. Since April 1996,
Mr. Frank has been managing partner of Frank & Rosen, a law firm located in
Philadelphia, Pennsylvania. From January 1985 to April 1996, Mr. Frank has been
a partner in other law firms in the Philadelphia area. Mr. Frank received his
J.D. from Temple University School of Law in 1981 and his L.L.M. in taxation
from Temple University School of Law in 1985. Mr. Frank is an assistant
professor at Villanova University School of Commerce and Finance, where he
teaches graduate and undergraduate courses in accounting on a part-time basis.
Leonard Schutzman joined our board of directors in May 1999. Mr. Schutzman
is a principal in Venture Marketing Group, LLC, a private consulting firm. Mr.
Schutzman has been a director of Cendant Corporation, a
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consumer and business services company, since December 1997 and chairman of its
audit committee since August 1998. Previously Mr. Schutzman served as a
director of HFS, Incorporated from August 1993 until December 1997 when it
merged into Cendant. Mr. Schutzman is a professor at the William E. Simon
Graduate School of Business at the University of Rochester in Rochester, New
York on a part-time basis. Mr. Schutzman served as senior vice president of
Pepsico, Inc. from February 1987 to April 1995.
We have agreed that, during the five-year period following the date of this
prospectus, the underwriter will have the right to designate one member of or
advisor to our board of directors. As of the date of this prospectus, the
underwriter has not designated any person to serve in that capacity.
Committees of the Board of Directors
Our board of directors has two committees, an audit committee and a
compensation committee. At least a majority of the audit committee and all
members of the compensation committee are to be independent directors. The
audit committee will review the scope of our audit, recommend to the board the
engagement of our independent auditors, review our financial statements and
review any transactions between us and any of our officers, directors or other
related parties. Our compensation committee will evaluate our compensation
policies, approve executive compensation and executive employment contracts and
administer our stock option plan. The audit committee is comprised of Messrs.
Leonard Schutzman, who is chairman, and Mr. Alan L. Frank. The compensation
committee is comprised of Messrs. Kenneth M. Byck and Alan L. Frank. Our non-
employee directors receive options pursuant to our 1999 Stock Option Plan.
Executive Compensation
Set forth below is information with respect to compensation paid by us for
1998, 1997 and 1996 to our chief executive officer and to the only other
officer whose compensation exceeded $100,000 for 1998.
<TABLE>
<CAPTION>
Annual
Compensation(1)
---------------------
Name and Principal Position Year Salary Other(2)
--------------------------- ---- ------- --------
<S> <C> <C> <C>
Michael S. Paul, chief executive officer............. 1998 $88,269 $ 14,612
1997 62,769 116,344
1996 65,769 45,144
John S. Rafanello, president and chief operating
officer............................................. 1998 88,269 14,612
1997 62,769 116,344
1996 65,769 45,144
</TABLE>
- --------
(1) We paid no bonuses or long-term compensation to Messrs. Paul and
Rafanello during 1998, 1997 or 1996.
(2) Includes the following benefits for each of Messrs. Paul and Rafanello
for 1998, 1997 and 1996: automobile and related payments of $8,930 and
life, disability and health insurance benefits in excess of the
benefits provided to our employees generally of $5,682. During 1997 and
1996, College Directory Publishing was a Subchapter S corporation, and
other compensation for such years includes Subchapter S distributions
in excess of salary of $101,732 and $30,532, respectively, for each of
Messrs. Paul and Rafanello.
Messrs. Michael S. Paul, our chief executive officer, John S. Rafanello, our
chief operating officer, and Larry M. Weaver, our chief financial officer,
entered into three-year employment agreements, effective January 1, 1999, at
annual salaries of $115,000 for Messrs. Paul and Rafanello and $95,000 for Mr.
Weaver. Upon completion of this offering, Messrs. Paul's and Rafanello's
salaries will increase to $150,000, and Mr. Weaver's salary will increase to
$120,000. Messrs. Paul and Rafanello are each entitled to bonuses of
approximately $70,000, which will be paid from the proceeds of this offering.
The employment agreements with Messrs. Paul and Rafanello replace employment
agreements they entered into with College Directory Publishing in June 1998.
The earlier employment agreements provided for annual salaries of $85,000 for
each of them.
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Stock Options
In February 1999, we adopted the 1999 Stock Option Plan. We may issue
incentive stock options, as defined in the Internal Revenue Code of 1986, as
amended, or non-qualified stock options to purchase up to 560,000 shares of
common stock under the plan. We have granted incentive stock options to
purchase an aggregate of 85,400 shares of common stock at $2.25 per share to
six employees, including options to purchase 63,000 shares granted to Mr. Larry
M. Weaver. Under our stock option plan, each outside director receives options
to purchase 24,000 shares of common stock upon election or appointment to our
board of directors, and the chairman of our audit committee receives options to
purchase an additional 12,000 shares of common stock. The options we granted
this year to our outside directors are exercisable at $3.15 per share.
In addition to options granted under the plan, we also granted to Venture
Marketing options to purchase 125,000 shares of common stock exerciseable at a
weighted average of $8.31 per share. All options were granted at the fair
market value per share on the date of grant.
The options issued to our employees and directors vest, cumulatively, as to
one-sixth of the shares of common stock initially subject to the options, on
the last day of June and December in 1999, 2000 and 2001, provided that the
option holder is employed by us or acting as a director on such vesting date.
The options issued to Venture Marketing to purchase 25,000 shares of common
stock vest equally over the three-month period commencing in June 1999. The
options to purchase the remaining 100,000 shares of common stock vest as to
50,000 shares on each of December 31, 1999 and June 30, 2000, provided that
Venture Marketing is acting as a consultant on each applicable vesting date.
All outstanding options expire in 2009, except that, in the event of the death
or termination of employment, the incentive stock options terminate one year
from the date of death or termination of employment for a disability or three
months after any other termination of employment. If the option holder's
employment is terminated for cause, the options terminate immediately.
RELATED PARTY TRANSACTIONS
Prior to July 1997, Mr. Michael S. Paul and his wife and Mr. John S.
Rafanello owned College Directory Publishing. In July 1997, Mr. and Mrs. Paul
and Mr. Rafanello sold their stock in College Directory Publishing to The
Publishing Company of North America, Inc. in exchange for shares of The
Publishing Company's common stock and an aggregate of $300,000. A portion of
the shares of The Publishing Company common stock were issued to partners of
the law firm of Frank & Rosen and their wives. One of the partners, Mr. Alan L.
Frank, is now one of our directors.
In June 1998, we purchased the outstanding stock of College Directory
Publishing from The Publishing Company. As consideration for the College
Directory Publishing stock:
. We paid The Publishing Company $1,400,000, of which $1,100,000
represented loans due to The Publishing Company by College Directory
Publishing;
. We issued shares of Series C Preferred Stock to The Publishing Company;
. We issued to The Publishing Company our 5% promissory note in the
principal amount of $100,000, which is due on the earlier of completion
of this offering or December 15, 1999;
. Mr. and Mrs. Paul and Mr. Rafanello and the partners of Frank & Rosen
and their wives transferred to us, and we transferred to The Publishing
Company, the shares of The Publishing Company stock previously issued to
them; and
. Mr. and Mrs. Paul and Mr. Rafanello were not required by us to return
the cash they received from the sale of College Directory Publishing to
The Publishing Company.
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Upon completion of this offering, the Series C Preferred Stock will
automatically convert into the number shares of common stock determined by
dividing $1,000,000 by the initial public offering price of the common stock in
this offering. Based on an initial public offering price of $12.00 per share,
The Publishing Company will receive 83,333 shares of common stock.
The $1,400,000 cash portion of purchase price of the College Directory
Publishing stock was paid from the proceeds of a $600,000 bank loan and a
private placement of our securities and interim loans from Michael S. Paul for
$75,000, John S. Rafanello for $75,000 and Mark Golden for $100,000. We paid
the interim loans, with interest at 5% per annum, from the proceeds of the
balance of the private placement.
In order to complete the purchase of the College Directory Publishing stock
from The Publishing Company, we raised $825,000 by selling 15 units of our
securities to investors at a price of $55,000 per unit. We used the proceeds
from the sale of these units to pay the cash portion of the purchase price for
the College Directory Publishing stock. These units consisted of our 5%
promissory notes in the aggregate principal amount of $525,000, which are due
on the earlier of completion of this offering or December 10, 1999, and a total
of 300,000 shares of Series B Preferred Stock. Upon completion of this
offering, the shares of Series B Preferred Stock automatically convert into the
number of shares of common stock determined by dividing $1,650,000 by the
initial public offering price of our common stock. Based on an initial public
offering price of $12.00 per share, the Series B Preferred Stock would convert
into 137,500 shares of common stock. Mr. Alan L. Frank and his wife purchased
one-half unit on the same terms as the other investors.
When we purchased College Directory Publishing, two of our attorneys, Mr.
Alan L. Frank and his partner, and their wives, transferred to us The
Publishing Company common stock they owned in exchange for shares of Series D
Preferred Stock. Upon completion of this offering, the shares of Series D
Preferred Stock automatically convert into the number of shares of common stock
determined by dividing $250,000 by the initial public offering price of our
common stock. Based on an initial public offering price of $12.00 per share,
the Series D Preferred Stock would convert into 20,833 shares of common stock.
At the time of the organization of our predecessor in September 1996, it
issued to Mr. Mark Golden for nominal consideration, all of its common stock,
which became 2,121,000 shares of our common stock. In connection with the
purchase of the College Directory Publishing stock in June 1998, we issued
shares of Series A Preferred Stock to Mr. Michael S. Paul and his wife and Mr.
John S. Rafanello in consideration for their transfer to us of the shares of
Publishing Company common stock which were owned by them. Messrs. Golden, Paul
and Rafanello may be deemed to be our founders. Shortly after our purchase of
College Directory Publishing, Mr. Golden transferred his shares of common stock
to his wife, Mrs. Lee Golden, and other persons.
In July 1999, we entered into an agreement with Mrs. Golden and two other
principal common stockholders. Under this agreement, they transferred to us
780,272 shares of common stock. The agreement contemplates that, with the
consent of our underwriter, Mrs. Golden and the other two stockholders could
sell a total of 25,000 shares of common stock and Messrs. Michael S. Paul and
John S. Rafanello could sell a total of 50,000 shares at any time beginning 91
days after the date of this prospectus. Finally, Mrs. Golden and the other two
stockholders extended the voting proxy which Messrs. Paul and Rafanello had for
all outstanding common stock. The proxy now expires as shares are sold, except
that it terminates on the date of this prospectus as to 25,000 shares.
Following execution of this agreement, we amended our certificate of
incorporation to change the formula for converting Series A Preferred Stock
into common stock. Previously, the Series A Preferred Stock converted into
2,121,000 shares of common stock. The Series A holders and Mrs. Lee Golden
agreed to give back to us the shares of common stock issuable upon conversion
of the Series B, C and D Preferred Stock. Mrs. Golden's obligation terminated
as part of our agreement with her. Our Series A Preferred Stock converts into
2,121,000 shares of common stock less one-half of the common stock issuable to
the Series B, C and D Preferred Stock.
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<PAGE>
Upon completion of this offering, all of the shares of our Series A, B, C
and D Preferred Stock will automatically convert into common stock. The shares
of Series B, C and D Preferred Stock will convert into shares of common stock
having a value, based on the initial public offering price, of $2,900,000.
There are 1,340,728 shares of common stock currently outstanding. Assuming our
initial public offering price is $12.00, our Series B, C and D Preferred Stock
converts into 241,666 shares of common stock. Because our underwriter is
requiring us to have only 3,461,728 shares outstanding prior to this offering,
Messrs. Paul and Rafanello will each give back half of the shares necessary to
reduce the outstanding common stock to that number.
If the initial public offering price is more than $12.00 per share, the
number of shares of common stock issuable to the holders of the Series A
Preferred Stock will increase and the number of shares of common stock issuable
to the holders of the Series B, C and D Preferred Stock would decrease.
In January 1999, we entered into a revolving working capital line of credit
with a bank. The maximum borrowing under the line of credit is $1,200,000. As
of July 31, 1999, the outstanding balance on the line was approximately
$600,000. Mr. Michael S. Paul and his wife and Mr. John S. Rafanello guaranteed
our obligations under the bank line of credit. The initial proceeds from this
line of credit were used to pay the loan we incurred when we purchased College
Directory Publishing. We have borrowed additional funds for working capital. We
intend to eliminate the personal guarantees following completion of this
offering.
The law firm of Frank & Rosen has performed legal services not related to
securities matters for us since prior to 1997. Mr. Alan L. Frank, one of our
directors, is a partner of Frank & Rosen. In July 1999, we issued to Mr. Frank
and his wife one unit of our Series E Preferred Stock and one-half unit to Mr.
Frank's partner and his wife for legal services rendered. We valued the
services at approximately $45,500, or the same price paid by other investors in
our private placement. In connection with the July 1999 cancellation of 780,282
shares of common stock, we are paying Frank & Rosen a fee of $250,000 from the
proceeds of this offering.
In May 1999, Mr. Leonard Schutzman became a director and chairman of our
audit committee. Also in May 1999, we engaged Venture Marketing, as a
consultant. Mr. Schutzman is a member of Venture Marketing. As part of a 90-day
engagement, Venture Marketing is assisting us in strategic planning and
assisted us in terminating our agreement with collegestudent.com, Inc. We are
paying Venture Marketing for its services based on its customary hourly rates.
We have reached an agreement with Venture Marketing for it to provide ongoing
strategic alliance, acquisition, marketing and business development services.
The agreement is for one-year commencing in August 1999, cancelable on 30 days
notice. In addition to fees payable on an hourly basis, we granted Venture
Marketing 10-year non-qualified options to purchase 125,000 shares of common
stock as described in the section of this prospectus called "Management--Stock
Options." Our board of directors believes that the terms of our agreements with
related parties are no more favorable to us than would be available to us from
a non-affiliated party.
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<PAGE>
PRINCIPAL STOCKHOLDERS
The following table provides certain information as of August 6, 1999,
concerning the beneficial ownership our common stock (i) each director, (ii)
each person known by us to be the beneficial owner of at least 5% of the
outstanding shares of common stock, and (iii) all executive officers and
directors as a group. The table assumes that (a) the shares of Series A, B, C
and D Preferred Stock have been converted and (b) there are 3,461,728 shares of
common stock outstanding after giving effect to this conversion
contemporaneously with this offering. For the purpose of computing the number
of shares of common stock issuable upon conversion of the Series A, B, C and D
Preferred Stock, we have used an assumed initial public offering price of
$12.00 per share. Since the Series E Preferred Stock is not convertible until
May 2000, no effect is given to such conversion in the following table.
<TABLE>
<CAPTION>
Percentage of
Common Stock
Amount and Owned
Nature of ------------------
Beneficial Prior to After the
Name and Address of Beneficial Owner Ownership (1) Offering Offering
------------------------------------ ------------- -------- ---------
<S> <C> <C> <C>
Michael S. and Stephanie Paul (2) (3)
1000 Conshohocken Road, 4th Floor
Conshohocken, PA 19428....................... 2,255,395 65.2% 45.5%
John S. Rafanello (3) (4)
1000 Conshohocken Road, 4th Floor
Conshohocken, PA 19428....................... 2,255,395 65.2% 45.5%
Lee and Mark Golden (5)
1110 Southwest Ivanhoe Boulevard
Orlando, FL 32804............................ 534,414 15.4% 10.8%
Phillip S. Hofmann (7)
1079 West Morse Boulevard
Winter Park, FL 32789........................ 300,457 8.7% 6.1%
Alan Cohen (6)
560 Sylvan Avenue, #330
Englewood Cliffs, NJ 07632................... 278,607 8.0% 5.6%
Leonard Schutzman (8)........................ 31,000 * *
Alan L. and Robin Frank (9).................. 22,478 * *
Kenneth H. Byck (10)......................... 6,000 * *
All executive officers and directors as a
group (six persons) (2) (3) (4) (8)
(9)(10)(11)................................. 3,261,040 92.9% 65.1%
</TABLE>
- --------
(1) Beneficial ownership means that a person has either the power to sell or
vote shares of common stock. Because Messrs. Paul and Rafanello jointly
hold irrevocable voting proxies, the sum of the percentages listed above
prior to the offering exceeds 100%. Unless otherwise indicated, we believe
that all persons named in the table have sole voting and investment power
with respect to all securities beneficially owned by them. A person is
deemed to be the beneficial owner of securities that can be acquired by
such person within 60 days from August 6, 1999, whether upon the exercise
of warrants or options or the conversion of convertible securities or
otherwise.
(2) Represents (a) 1,340,728 shares of common stock subject to a proxy jointly
held by Messrs. Paul and Rafanello, (b) 875,067 shares of common stock
issuable upon conversion of Series A Preferred Stock held by Mr. and Mrs.
Paul, (c) an aggregate of 16,800 shares issuable upon conversion of Series
A Preferred Stock held by Mr. Paul, as custodian for the benefit of his
two minor children, and (d) 47,800 shares of common stock issuable upon
conversion of Series A Preferred Stock held by Mr. and Mrs. Paul's donees.
Mr. and Mrs. Paul hold an irrevocable proxy with respect to the shares
held by their donees.
45
<PAGE>
(3) Messrs. Michael S. Paul and John S. Rafanello jointly hold an irrevocable
proxy with respect to all outstanding shares of common stock, except that
the proxy expires as to 25,000 shares on the date of this prospectus. The
number of shares beneficially owned by them is as of the date of this
prospectus, but excludes the 25,000 shares. The proxy terminates as the
shares are sold. The shares of common stock subject to the proxy, except
the 25,000 shares, are included in the number of shares of common stock
beneficially owned by both Mr. and Mrs. Paul and Mr. Rafanello.
(4) Includes (a) 1,340,728 shares of common stock subject to a proxy jointly
held by Messrs. Paul and Rafanello (b) 879,667 shares of common stock
issuable upon conversion of Series A Preferred Stock held by Mr. Rafanello,
(c) a total of 16,800 shares issuable upon conversion of Series A Preferred
Stock held by Mr. Rafanello, as custodian for the benefit of his two minor
children, and (e) 43,200 shares of common stock issuable upon conversion of
Series A Preferred Stock held by Mr. Rafanello's donees. Mr. Rafanello
holds an irrevocable proxy with respect to the shares held by his donees.
Mr. Rafanello also beneficially owns a total of 1,000 shares of common
stock currently outstanding as custodian for his minor nephews. The 1,000
shares are included in the outstanding 1,340,728 shares referred to earlier
in this footnote.
(5) Includes 150,000 shares held in the name of The Lee Golden Charitable
Group to Benefit Disadvantaged Children, of which Mrs. Golden is deemed to
be the beneficial owner. 384,414 shares are held solely in the name of Lee
Golden. Mrs. Golden's husband Mark disclaims any beneficial interest in
the stock held in his wife's name and in the name of The Lee Golden
Charitable Group.
(6) The shares owned by Mr. Cohen include 13,000 shares of common stock held
by him, as custodian for his minor child, under the New Jersey Uniform
Trust for Minors Act.
(7) Includes 176,457 shares of common stock held by a trust for which Mr.
Hofmann is trustee, 8,000 shares of common stock held by Mr. Hofmann as
custodian for his minor child, 100,000 shares of common stock held by Mr.
Hofmann's fiancee and 8,000 shares of common stock for each of Mr.
Hofmann's fiancee's two minor sons, held by Mr. Hofmann and his fiancee as
custodians. Mr. Hofmann disclaims any beneficial ownership to the stock of
his son, his fiancee and his fiancee's sons.
(8) Represents 25,000 shares issuable upon the exercise of options held by
Venture Marketing, of which Mr. Schutzman is a member, and 6,000 shares of
common stock issuable upon exercise of options held by Mr. Schutzman.
(9) Represents 18,478 shares of common stock issuable upon conversion of
Series B and D Preferred stock held by Mr. Frank and his wife and 4,000
shares of common stock issuable upon exercise of options held by Mr.
Frank. Does not include 13,500 shares issuable upon conversion of Series E
Preferred Stock.
(10) Represents 2,000 shares of common stock issuable upon conversion of Series
A Preferred Stock received by Mr. Byck as a gift from Mr. Michael S. Paul
and his wife in February 1999 and 4,000 shares of common stock issuable
upon exercise of options held by Mr. Byck.
(11) Also includes 10,500 shares of common stock issuable upon exercise of
options held by our chief financial officer.
46
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The following summary of the material terms of our capital stock. It is not
complete and is subject in all respects to applicable Delaware law and to the
provisions of our certificate of incorporation. A copy has been filed as an
exhibit to the registration statement containing this prospectus.
Our authorized capital stock consists of 20,000,000 shares of common stock,
par value $.001 per share and 1,303,000 shares of preferred stock. Except for
our Series E Preferred Stock, our outstanding preferred stock will convert into
common stock upon completion of this offering.
Common Stock
Each holder of common stock is entitled to one vote per share on all matters
submitted to a vote of our stockholders including the election of directors.
Holders do not have cumulative voting rights.
In the event of any dissolution or liquidation or winding up, whether
voluntary or involuntary, holders of the common stock are entitled to share
ratably in all assets remaining after payment of our debts and other
liabilities, and preferential payments to the holders of any series of
preferred stock.
Each share of common stock has an equal right to receive dividends when and
if our board of directors decides to declare a dividend. We do not anticipate
paying cash dividends in the foreseeable future. The holders of common stock
are not entitled to preemptive rights.
Preferred Stock
As of the date of this prospectus, there are 303,068 shares of preferred
stock outstanding. All outstanding shares of the Series B, C and D Preferred
Stock will convert into a total of 241,666 shares of common stock upon the
completion of this offering, assuming an initial public offering price of
$12.00 per share. Currently there are five series of preferred stock
outstanding.
<TABLE>
<CAPTION>
Series Conversion and Other Rights
- ------ ---------------------------
<S> <C>
Series A................ Our Series A Preferred Stock converts into 1,879,334 shares of common
stock.
Series B................ The Series B Preferred Stock converts into 137,500 shares of common
stock. The number of shares is determined by dividing the sum of
$1,650,000 by our public offering price of $12.00 per share.
Series C................ Our Series C Preferred Stock converts into 83,333 shares of common
stock. The number of shares is determined by dividing $1,000,000 by our
public offering price of $12.00 per share.
Series D................ Our Series D Preferred Stock converts into 20,833 shares of common
stock. The number of shares is determined by dividing $250,000 by our
public offering price of $12.00 per share.
Series E................ Each share of Series E Preferred Stock is:
. convertible after May 1, 2000 into 6,750 shares of common stock,
which represents or an effective price of $2.25 per share of common
stock;
. is entitled to a preference of $22,781.25 per share in the event of
liquidation, including sale or merger of U.Link;
. is redeemable by us at $22,781.25;
. has no voting rights for directors; and
. is entitled to dividends at the same rate as
shares of our common stock as if the Series
E Preferred Stock were converted into
common stock.
</TABLE>
47
<PAGE>
Following conversion of the Series A, B, C and D Preferred Stock, our board
of directors will be authorized to issue, from time to time and without further
stockholder action, up to 303,000 shares of preferred stock in one or more
distinct series. There will be outstanding one series, the Series E Preferred
Stock, which consists of 68 authorized shares. The board of directors is
authorized to fix the following rights and preferences, among others, for each
series:
. The rate of dividends and whether such dividends shall be cumulative.
. The price at and the terms and conditions on which shares may be
redeemed.
. The amount payable upon shares in the event of voluntary or involuntary
liquidation.
. Whether or not a sinking fund shall be provided for the redemption or
purchase of shares.
. The terms and conditions on which shares may be converted.
. Whether, and in what proportion to any other series, a series shall have
voting rights other than required by law, and, if voting rights are
granted, the number of voting rights per share.
We have no plans, agreements or understandings with respect to the
designation of any series or the issuance of any shares of preferred stock.
Certain Anti-Takeover Effects of Delaware Law
Following this offering, we will be subject to the "business combination"
provisions of Section 203 of the Delaware General Corporation Law. In general,
such provisions prohibit a publicly-held Delaware corporation from engaging in
various "business combination" transactions such as a merger with any
"interested stockholder," which includes a stockholder owning 15% of a
corporation's outstanding voting securities, for a period of three years after
the date in which the person became an interested stockholder unless:
. the transaction is approved by the corporation's board of directors
prior to the date the stockholder became an interested stockholder;
. upon consummation of the transaction which resulted in the stockholder
becoming an interested stockholder, the stockholder owned at least 85%
of the shares of stock entitled to vote generally in the election of
directors of the corporation outstanding excluding those shares owned by
(a) persons who are both directors and officers and (b) specified types
of employee stock plans; or
. on or after such date, the business combination is approved by the board
of directors and at least 66 2/3% of outstanding voting stock not owned
by the interested stockholder.
Indemnification and Liability of our Directors and Officers
Section 145 of the Delaware General Corporation Law provides a corporation
with the power to indemnify any officer or director acting in his capacity as
our representative who is or is threatened to be made a party to any lawsuit or
other proceeding for expenses, judgment and amounts paid in settlement in
connection with such lawsuit or proceeding. The indemnity provisions apply
whether the action was instituted by a third party or was filed by one of our
stockholders. The Delaware General Corporation Law provides that Section 145 is
not exclusive of other rights to which those seeking indemnification may be
entitled under any bylaw, agreement, vote of stockholders or disinterested
directors or otherwise. We have provided for this indemnification in our
certificate of incorporation. We have also entered into indemnification
agreements with our directors and officers which agreements are designed to
indemnify them to the fullest extent permissible by law, subject to one
limitation described in the next sentence. We have further provided in our
certificate of incorporation that no indemnification shall be available,
whether pursuant to our certificate of incorporation or otherwise, arising from
any lawsuit or proceeding in which we assert a direct claim, as opposed to a
stockholders' derivative action, against any directors and officers.
Accordingly, if we sue a director or officer, we do not have to pay for
48
<PAGE>
his defense unless he prevails. We have been advised that the Securities and
Exchange Commission believes it is against public policy for us to indemnify
our directors and officers for violations of the Securities Act of 1933 and the
Securities Exchange Act of 1934. Accordingly, we have agreed that unless our
attorneys advise us that the courts have ultimately decided whether the SEC is
correct, we will let a court determine whether we can indemnify our directors
and officers under such laws.
Transfer Agent
American Stock Transfer & Trust Company, New York, NY will be the transfer
agent for our common stock.
Listing
We have applied for listing of our common stock on the Nasdaq SmallCap
Market under the symbol and the Pacific Exchange under the symbol . We
do not know if our applications will be approved. Even if one or both are
approved, an active trading market for our common stock may not develop.
Dividend policy
Our board of directors does not intend to pay dividends on our common stock
in the future. Instead, we intend to retain future income, if any, to finance
the growth of our business.
SHARES ELIGIBLE FOR FUTURE SALE
Sales of substantial amounts of common stock in the public market following
this offering could adversely affect our ability to raise capital at a time
when we need it or on terms favorable to us. Following this offering we will
have 4,961,728 shares of common stock outstanding. Of these shares, the
1,500,000 shares we are offering will be freely tradable without restriction.
The remaining outstanding shares of common stock are subject to restrictions
on public sale as a result of agreements between our stockholders, our
underwriter and us or as a result of restrictions imposed by the federal
securities laws. The remaining outstanding may be publicly sold after the dates
listed below:
<TABLE>
<CAPTION>
Number of Shares Date
- ---------------- ----
<S> <C>
75,000............................ 91 days from the date of this prospectus
468,916............................ 9 months from the date of this prospectus
2,917,812............................ 12 months from the date of this prospectus
459,000............................ beginning May 1, 2000 through July 7, 2000
</TABLE>
Following the expiration of these periods, all shares of common stock may be
publicly sold under Rule 144 under the Securities Act.
In general, Rule 144, as currently in effect, provides that, commencing 90
days after the date of this prospectus, any person who has held restricted
common stock for at least one year, is entitled to sell within any three-month
period a number of shares that does not exceed the greater of 1% of the total
number of outstanding shares or, the average weekly trading volume during the
four calendar weeks preceding the filing of a notice of sale. Sales under Rule
144 are also subject to manner of sale provisions, notice requirements and the
availability of current and public information about us. A person who has not
been an affiliate of for at least three months immediately preceding the sale
and who has owned such shares of common stock for at least two years is
entitled to sell the shares under Rule 144(k) without regard to any of the
limitations described above. Following 12 months from the date of this
prospectus, 1,652,916 shares of our common stock will be eligible for sale
under Rule 144(k).
49
<PAGE>
In addition, under our 1999 stock option plan, we have issued to certain of
our employees options to purchase 85,400 shares of our common stock exercisable
at $2.25 per share. We have also issued options to purchase 84,000 shares of
our common stock to independent directors exercisable at $3.15 per share. The
option holders have also agreed not to publicly sell the shares of common stock
issuable upon exercise of the options for a period of nine months, or 12 months
for the options held by our officers and directors, following the date of this
prospectus. These 169,400 options vest over a three year period provided that
the holders are our employees or are serving as directors on the vesting dates.
We intend to register the shares of common stock issuable under our stock
option such plan as soon as practicable following the date of this prospectus.
Venture Marketing, a consultant for U.Link, holds options to purchase 25,000
shares of common stock exercisable at $3.15 per share and 100,000 shares
exercisable at $9.60 per share. We intend to also register the 125,000 shares
of common stock which will be subject to a 12-month lock-up.
50
<PAGE>
UNDERWRITING
Our underwriter, HD Brous & Co., Inc. has agreed on the terms and subject to
the conditions of the underwriting agreement, to purchase from us, and we have
agreed to sell to the underwriter, 1,500,000 shares of common stock. The
underwriter is committed to purchase and pay for all of these shares on a "firm
commitment" basis if it purchases any shares.
The underwriter has advised us that it proposes to offer the common stock to
the public at the initial public offering price set forth on the cover page of
this prospectus. The underwriter may allow to certain dealers, or members of
the National Association of Securities Dealers, Inc. concessions not exceeding
$ per share, of which not more than $ per share may be reallowed to other
dealers who are members of the National Association of Securities Dealers.
After the initial public offering, the offering price, the concession and the
reallowance may be changed.
We have granted an option to the underwriter, exercisable during the 45 day
period from the date of this prospectus, to purchase up to a maximum of 225,000
additional shares of common stock at the public offering price set forth on the
cover page of this prospectus, less the underwriting discount, for the sole
purpose of covering over-allotments of the shares.
We have agreed to pay to the underwriter a non-accountable expense allowance
of 3% of the aggregate public offering price of all shares sold, including any
shares sold pursuant to the underwriter's over-allotment option. We have paid
the underwriter $50,000 to date.
The underwriting agreement also provides for us to pay the underwriter a fee
in the event that the underwriter introduces us to a party which enters into a
business combination or other business transaction with us.
All of our stockholders have agreed to restrictions on the public sale,
including any short sales, or otherwise publicly transfer, any of their shares
of common stock, including any shares issued upon exercise of options, without
the written consent of the underwriter. Stockholders owning less than 5% of our
outstanding common stock will be restricted for nine months and officers,
directors or 5% stockholders for 12 months from the date of this prospectus. We
have agreed that, during the 18 months following the date of this prospectus,
we will not register any securities pursuant to the Securities Act without the
consent of the underwriter. However, such restrictions do not apply to the
registration of 560,000 shares of stock issuable under our stock option plan on
a Form S-8 registration statement and the 125,000 shares issuable to Venture
Marketing which are not part of the plan.
The underwriting agreement provides for reciprocal indemnification between
us and the underwriter against certain liabilities in connection with the
registration statement, including liabilities under the Securities Act.
In connection with this offering, we have agreed to sell to the underwriter,
for nominal consideration, warrants to purchase from us up to 150,000 shares of
common stock at an exercise price of $ per share. The warrants are
exercisable for a four-year period commencing one year from the date of this
prospectus. During the one-year period commencing on the date of this
prospectus, the underwriter's warrants may not be sold, transferred, assigned
or hypothecated, except to the officers of the underwriter or to underwriting
or selling group members or their officers or partners, all of which shall be
bound by such restrictions. The underwriter's warrants will contain certain
anti-dilution provisions providing for adjustment under certain circumstances.
The holders of the underwriter's warrants have no voting, dividend or other
rights as stockholders until the warrants are exercised. The holders of the
underwriter's warrants have been given the opportunity to profit from a rise in
the market for our common stock at a nominal cost, with a resulting dilution in
the interests of stockholders. The holders of the underwriter's warrants can be
expected to exercise them at a time when we would, in all likelihood, be able
to obtain equity capital, if then needed, by a new equity offering
51
<PAGE>
on terms more favorable than those provided by the underwriter's warrants. Such
facts may adversely affect the terms in which we could obtain additional
financing. Any profit received by the underwriter on the sale of the
underwriter's warrants may be deemed additional underwriting compensation.
We have agreed during the term of the underwriter's warrants and for two
years thereafter to give advance notice to the holders of the underwriter's
warrants or the common stock obtained upon exercise of the warrants of our
intention to file a registration statement. In such case, the holders of the
warrants or the common stock obtained upon exercise of the warrants shall have
the right to require us to include the warrants or the common stock in such
registration statement at our expense. At the demand of the holders of a
majority of the underwriter's warrants and the underlying common stock we shall
be required to file two such registration statements. We shall pay for all
expenses in the first one, and the holders shall pay all expenses in connection
with the second registration statement.
The underwriting agreement provides that, during the five-year period
following the date of this prospectus, the underwriter will have the right to
designate one member of or advisor to our board of directors. The underwriting
agreement also requires us to use our best efforts to obtain key man life
insurance in the amount of $1,000,000 on the lives of three persons designated
by the underwriter. We have obtained this life insurance on the lives of our
chief executive and chief operating officers.
The underwriter was the placement agent for the recent sale of 61 shares of
our Series E Preferred Stock. We paid the underwriter a sales commission of
$92,644 and a non-accountable expenses allowance of $27,793 from the proceeds
we received from the offering. In connection with the sale of such shares, we
granted the underwriter a three-year right of first refusal in connection with
any public or private offering of securities by us. Such right of first refusal
means that we cannot sell securities except through the underwriter as long as
the underwriter is willing to match the terms of an offer provided by a third
party.
Prior to this offering, there has been no public market for our common
stock. The public offering price has been determined by negotiation between us
and the underwriter and is not related to our assets, book value, financial
condition or any other recognized criteria of value. In determining such price,
we and the underwriter considered a number of factors, including estimates of
our business potential, the amount of dilution to public investors, our future
prospects, and the general condition of the securities markets.
We have been informed by the underwriter that sales to any account over
which it exercises discretionary authority will not exceed 1% of this offering.
LEGAL MATTERS
The legality of the shares of common stock offered by this prospectus will
be passed upon for us by Michael Harris, P.A., West Palm Beach, Florida.
Lawyers employed by that firm beneficially own 18,583 shares of our common
stock and four shares of Series E Preferred Stock which convert into 27,000
shares of common stock. In addition, one lawyer holds a $17,500 promissory note
which is being paid with the proceeds of this offering. Certain legal matters
will be passed upon for the underwriter by Esanu Katsky Korins & Siger, LLP,
New York, New York.
EXPERTS
The consolidated financial statements of U.Link, Inc. (formerly College
Directory Publishing Corp. and MG Management, Inc.) at December 31, 1998, and
for the period from June 11, 1998 through December 31, 1998 and the
consolidated financial statements of College Directory Publishing, Inc. (the
Predecessor) at December 31, 1997, and for the periods January 1, 1997 through
July 3, 1997, July 4, 1997 through December 31, 1997, and January 1, 1998
through June 10, 1998, appearing in this Prospectus and Registration Statement
have been audited by Ernst & Young LLP, independent auditors, as set forth in
their report appearing elsewhere herein, and are included in reliance upon such
report given on the authority of such firm as experts in accounting and
auditing.
52
<PAGE>
ADDITIONAL INFORMATION
We will file annual, quarterly, and special reports, proxy statements and
other information with the Securities and Exchange Commission. These reports,
proxy statements and other information can be inspected and copied at the
public reference facilities maintained by the SEC, at Room 1024, Judiciary
Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 and at its regional
offices located at 7 World Trade Center, New York, New York 10048 and Northwest
Atrium Center, 500 W. Madison Street, Suite 1400, Chicago, Illinois 60661.
Copies of such material can be obtained from the Public Reference Section of
the SEC Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C.
20549 at prescribed rates. The SEC maintains a website that contains all
information filed by us. The address of the SEC website is www.sec.gov.
This prospectus constitutes a part of a registration statement on Form SB-2
filed by us with the SEC under the Securities Act with respect to the common
stock offered by this prospectus. This prospectus does not contain all the
information which is in the registration statement. Certain parts of the
registration statement are omitted as allowed by the rules and regulations of
the SEC. Please refer to the registration statement and to the exhibits in the
registration statement for further information with respect to us and the
common stock offered in this prospectus. Copies of the registration statement
are on file at the offices of the SEC and may be obtained upon payment of the
prescribed fee or may be examined without charge at the public reference
facilities of the SEC described above. Statements contained in this prospectus
concerning the provisions of documents are necessarily summaries of the
material provision of such documents, and each statement is qualified in its
entirety by reference to the copy of the applicable document filed with the
SEC.
REPORTS TO STOCKHOLDERS
We intend to distribute to our stockholders annual reports containing
audited financial statements, and we will make available to our stockholders
such other information as we deem appropriate.
53
<PAGE>
U. LINK, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
Contents
<TABLE>
<S> <C>
Report of Independent Certified Public Accountants.......................... F-2
Consolidated Financial Statements
Consolidated Balance Sheets............................................... F-3
Consolidated Statements of Operations..................................... F-5
Consolidated Statements of Stockholders' Equity (Deficit)................. F-6
Consolidated Statements of Cash Flows..................................... F-7
Notes to Consolidated Financial Statements................................ F-9
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
U. Link, Inc.
We have audited the accompanying consolidated balance sheet of U. Link, Inc.
(formerly College Directory Publishing Corp. and MG Management, Inc.) as of
December 31, 1998, and the related consolidated statements of operations,
stockholders' equity and cash flows for the period June 11, 1998 through
December 31, 1998 and the balance sheet of the College Directory Publishing,
Inc. (the Predecessor) as of December 31, 1997 and the statements of
operations, stockholders' equity (deficit) and cash flows of the Predecessor
for the periods January 1, 1997 through July 3, 1997, July 4, 1997 through
December 31, 1997 and January 1, 1998 through June 10, 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 consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of U. Link, Inc. at December 31, 1998, and the consolidated results of its
operations and its cash flows for the period June 11, 1998 through December 31,
1998 and the financial position of the Predecessor as of December 31, 1997 and
the Predecessor's results of operations and cash flows for the periods from
January 1, 1997 through July 3, 1997, July 4, 1997 through December 31, 1997
and January 1, 1998 through June 10, 1998 in conformity with generally accepted
accounting principles.
/s/ Ernst & Young LLP
Orlando, Florida
April 15, 1999
F-2
<PAGE>
U. LINK, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
The The
Company Predecessor Company Predecessor
---------- ----------- ---------- -----------
December 31 March 31
---------------------- ----------------------
1998 1997 1999 1998
---------- ----------- ---------- -----------
(Unaudited)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash........................... $ 265,214 $ 364,303 $ 205,380 $ 223,966
Accounts receivable, less
allowance for doubtful
accounts of $215,779 and
$157,967 at December 31, 1998
and 1997, respectively........ 1,610,941 1,054,469 846,291 455,419
Directories in progress........ 145,030 103,933 516,483 427,395
Deferred public offering
costs......................... 136,547 -- 357,302 --
Deferred income taxes.......... 80,676 39,762 92,084 --
Purchased contracts, less
accumulated amortization of
$93,528 at December 31, 1998
.............................. 74,745 -- 74,745 --
Income tax receivable.......... -- -- -- 203,785
Other current assets........... 9,161 -- 19,762 2,500
---------- ---------- ---------- ----------
Total current assets......... 2,322,314 1,562,467 2,112,047 1,313,065
Property and equipment, net...... 110,413 55,707 129,239 61,434
Goodwill, less accumulated
amortization of $32,720 and
$48,602 at December 31, 1998 and
1997,
respectively.................... 1,154,109 1,898,680 1,139,274 1,874,339
Purchased contracts.............. 110,447 -- 110,447 --
Other assets..................... 3,795 5,095 3,005 2,595
---------- ---------- ---------- ----------
$3,701,078 $3,521,949 $3,494,012 $3,251,433
========== ========== ========== ==========
</TABLE>
F-3
<PAGE>
<TABLE>
<CAPTION>
The The
Company Predecessor Company Predecessor
---------- ----------- ---------- -----------
December 31 March 31
---------------------- ----------------------
1998 1997 1999 1998
---------- ----------- ---------- -----------
(Unaudited)
<S> <C> <C> <C> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable........... $ 967,238 $ 966,388 $ 555,520 $ 256,748
Accrued expenses........... 176,445 77,100 84,747 30,489
Income taxes payable....... 317,743 23,000 216,474 23,000
Deferred revenue........... 15,940 -- 245,096 227,815
Current portion of
obligations under capital
lease..................... 4,293 3,506 4,293 3,506
Due to The Publishing
Company of North America,
Inc....................... -- 959,820 -- 1,280,014
Notes payable.............. 625,000 -- 625,000 --
Line of credit............. 600,000 -- 950,000 --
Deferred income taxes...... -- -- -- 87,308
---------- ---------- ---------- ----------
Total current
liabilities............. 2,706,659 2,029,814 2,681,130 1,908,880
Obligations under capital
lease....................... 8,276 12,568 7,283 11,757
Deferred income taxes........ 6,891 10,349 8,642 10,971
Series B Redeemable Preferred
Stock (par value $1.00;
300,000 shares authorized,
300,000 shares issued and
outstanding, $300,000
liquidation preference)..... 300,000 -- 300,000 --
Stockholders' equity:
Series A Preferred Stock
(par value $.001; 1,000
shares authorized, issued
and outstanding at
December 31, 1998)........ 1 -- 1 --
Series C Preferred Stock
(par value $.001; 1,000
shares authorized, issued
and outstanding, $200,000
liquidation preference at
December 31, 1998)........ 1 -- 1 --
Series D Preferred Stock
(par value $.001; 1,000
shares authorized, issued
and outstanding, $75,000
liquidation preference at
December 31, 1998)........ 1 -- 1 --
Common stock (par value $2;
3,000 shares authorized,
issued and outstanding at
December 31, 1997)........ -- 6,000 -- 6,000
Common stock (par value
$.001; 20,000,000 shares
authorized, 2,121,000
issued and outstanding at
December 31, 1998)........ 2,121 -- 2,121 --
Contributed capital........ 389,076 1,252,995 389,076 1,252,995
Retained earnings.......... 288,052 210,223 105,757 60,830
---------- ---------- ---------- ----------
Total stockholders'
equity.................. 679,252 1,469,218 496,957 1,319,825
---------- ---------- ---------- ----------
$3,701,078 $3,521,949 $3,494,012 $3,251,433
========== ========== ========== ==========
</TABLE>
See accompanying notes.
F-4
<PAGE>
U. LINK, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
The Company Predecessor The Company Predecessor
------------- ------------------------------------ ----------- ------------
Period from Period from Period from
Period from January 1, July 4, January 1, Three
June 11, 1998 1998 1997 1997 months Three months
through through through through ended ended
December 31 June 10 December 31 July 3 March 31, March 31,
1998 1998 1997 1997 1999 1998
------------- ----------- ----------- ----------- ----------- ------------
Unaudited
<S> <C> <C> <C> <C> <C> <C>
Net sales............... $4,500,461 $ (1,207) $3,692,208 $ 23,448 $ 170,793 $ (1,286)
Costs and expenses:
Publication........... 1,640,554 19,001 1,419,955 30,464 13,040 407
Selling, general and
administrative....... 2,389,709 374,211 1,661,806 519,939 414,660 186,530
Management fees....... -- -- 180,000 -- -- --
Amortization.......... 126,248 43,332 48,602 -- 14,835 24,341
---------- --------- ---------- --------- ---------- ---------
4,156,511 436,544 3,310,363 550,403 442,535 211,278
---------- --------- ---------- --------- ---------- ---------
Income (loss) from
operations............. 343,950 (437,751) 381,845 (526,955) (271,742) (212,564)
Interest income......... 10,397 -- -- -- 3,957 --
Interest expense........ (43,902) (33,405) (14,142) (13,323) (25,436) (12,922)
Gain on settlement of
litigation............. 204,707 -- -- -- -- --
---------- --------- ---------- --------- ---------- ---------
Income (loss) before
income taxes........... 515,152 (471,156) 367,703 (540,278) (293,221) (225,486)
Income tax expense
(benefit).............. 227,100 (161,837) 157,480 -- (110,926) (76,093)
---------- --------- ---------- --------- ---------- ---------
Net income (loss)....... $ 288,052 $(309,319) $ 210,223 $(540,278) $ (182,295) $(149,393)
========== ========= ========== ========= ========== =========
Net income (loss) per
share:
Basic................. $ .14 $ (.08)
========== ==========
Diluted............... $ .07 $ (.04)
========== ==========
Weighted average shares
outstanding:
Basic................. 2,121,000 2,121,000
========== ==========
Diluted............... 4,242,000 4,242,000
========== ==========
</TABLE>
See accompanying notes.
F-5
<PAGE>
U. LINK, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
Retained
Series A Series C Series D Earnings
Common Preferred Preferred Preferred Contributed (Accumulated
Stock Stock Stock Stock Capital Deficit) Total
------ --------- --------- --------- ----------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Predecessor
Balance at January 1,
1997................... $6,000 $ -- $ -- $ -- $ -- $ (48,902) $ (42,902)
Stockholder
distributions........ -- -- -- -- -- (269,000) (269,000)
Net loss.............. -- -- -- -- -- (540,278) (540,278)
------ ----- ----- ----- ---------- --------- ----------
Balance at July 3,
1997................... 6,000 -- -- -- -- (858,180) (852,180)
Application of push-
down accounting...... -- -- -- -- 1,089,102 858,180 1,947,282
Contributions by
Parent............... -- -- -- -- 163,893 -- 163,893
Net income............ -- -- -- -- -- 210,223 210,223
------ ----- ----- ----- ---------- --------- ----------
Balance at December 31,
1997................... 6,000 -- -- -- 1,252,995 210,223 1,469,218
Net loss.............. -- -- -- -- -- (309,319) (309,319)
------ ----- ----- ----- ---------- --------- ----------
Balance at June 10,
1998................... $6,000 $ -- $ -- $ -- $1,252,995 $ (99,096) $1,159,899
====== ===== ===== ===== ========== ========= ==========
The Company
Capitalization of the
Company.............. $2,121 $ 1 $ -- $ 1 $ 189,077 $ -- $ 191,200
Issuance of preferred
stock in
acquisition.......... -- -- 1 -- 199,999 -- 200,000
Net income............ -- -- -- -- -- 288,052 288,052
------ ----- ----- ----- ---------- --------- ----------
Balance at December 31,
1998................... 2,121 1 1 1 389,076 288,052 679,252
Net loss (unaudited).. -- -- -- -- -- (182,295) (182,295)
------ ----- ----- ----- ---------- --------- ----------
Balance at March 31,
1999 (unaudited)....... $2,121 $ 1 $ 1 $ 1 $ 389,076 $ 105,757 $ 496,957
====== ===== ===== ===== ========== ========= ==========
</TABLE>
See accompanying notes.
F-6
<PAGE>
U. LINK, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
The Company Predecessor The Company Predecessor
------------- -------------------------------------------- ------------ ------------
Period from
Period from Period from July 4, Period from
June 11, 1998 January 1, 1998 1997 January 1, 1997 Three months Three months
through through through through ended ended
December 31 June 10 December 31 July 3 March 31, March 31,
1998 1998 1997 1997 1999 1998
------------- --------------- ----------- --------------- ------------ ------------
(Unaudited)
<S> <C> <C> <C> <C> <C> <C>
Cash flows from operating activities
Net income (loss)................... $ 288,052 $(309,319) $ 210,223 $(540,278) $(182,295) $(149,393)
Adjustments to reconcile net income
(loss) to net cash used in operating
activities:
Depreciation....................... 15,380 10,899 9,537 5,160 8,576 5,261
Amortization....................... 126,248 43,332 48,602 -- 14,835 24,341
Bad debt expense................... 215,658 3,120 176,811 -- -- --
Provision for deferred income
taxes.............................. (73,785) -- (29,413) -- (9,657) 127,692
(Increase) decrease in accounts
receivable......................... (1,538,768) 763,517 (1,204,879) 473,052 764,650 599,050
(Increase) decrease in directories
in progress........................ 620,479 (661,576) 205,377 (304,515) (371,453) (323,462)
(Increase) in income tax
receivable......................... -- -- -- -- -- (203,785)
(Increase) decrease in other
assets............................. (109,869) (2,187) (2,499) 1,250 (230,566) --
Increase (decrease) in accounts
payable and accrued expenses....... 802,738 (702,559) 706,460 (664,297) (503,416) (756,251)
Increase (decrease) in income
taxes payable...................... 294,742 (161,837) 23,000 -- (101,269) --
Increase (decrease) in deferred
revenue............................ (658,478) 674,418 (438,608) 414,632 229,156 227,815
----------- --------- ----------- --------- --------- ---------
Net cash used in operating
activities....................... (17,603) (342,192) (295,389) (614,996) (381,439) (448,732)
Cash flows from investing activities
Acquisition of subsidiary, net of
cash balances....................... (1,093,344) -- -- -- -- --
Acquisition of property and
equipment........................... (46,798) (34,185) (24,541) (4,806) (27,402) (10,988)
----------- --------- ----------- --------- --------- ---------
Net cash used in investing
activities....................... (1,140,142) (34,185) (24,541) (4,806) (27,402) (10,988)
Cash flows from financing activities
Stockholder distributions........... -- -- -- (269,000) -- --
Contribution by The Publishing
Company of North America, Inc....... -- -- 163,893 -- -- --
Borrowings from The Publishing
Company of North America, Inc....... -- 320,194 747,679 -- -- 320,194
Increase in due to The Publishing
Company of North America, Inc....... -- -- 212,141 -- -- --
Borrowing note payables............. 525,000 -- -- -- -- --
Borrowing notes payable--
stockholder......................... 250,000 -- -- -- -- --
Repayment notes payables--
stockholder......................... (250,000) -- -- -- -- --
Borrowings (payments) on line of
credit.............................. 600,000 -- (450,000) 450,000 350,000 --
Sale of redeemable preferred stock.. 300,000 -- -- -- -- --
Payments on capital lease
obligations......................... (2,041) (1,464) (2,132) -- (993) (811)
----------- --------- ----------- --------- --------- ---------
Net cash provided by financing
activities.......................... 1,422,959 318,730 671,581 181,000 349,007 319,383
----------- --------- ----------- --------- --------- ---------
Net increase (decrease) in cash..... 265,214 (57,647) 351,651 (438,802) (59,834) (140,337)
Cash at beginning of period......... -- 364,303 12,652 451,454 265,214 364,303
----------- --------- ----------- --------- --------- ---------
Cash at end of period............... $ 265,214 $ 306,656 $ 364,303 $ 12,652 $ 205,380 $ 223,966
=========== ========= =========== ========= ========= =========
</TABLE>
F-7
<PAGE>
U. LINK, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS--(Continued)
<TABLE>
<CAPTION>
The Company Predecessor The Company Predecessor
------------- -------------------------------------------- ------------ ------------
Period from Period from Period from Period from
June 11, 1998 January 1, 1998 July 4, 1997 January 1, 1997 Three months Three months
through through through through ended ended
December 31 June 10 December 31 July 3 March 31, March 31,
1998 1998 1997 1997 1999 1998
------------- --------------- ------------ --------------- ------------ ------------
(Unaudited)
<S> <C> <C> <C> <C> <C> <C>
Supplemental disclosure
of cash flow
information
Cash paid for interest.. $ 38,610 $32,683 $ 25,437 $13,323 $16,888 $12,922
======== ======= ========== ======= ======= =======
Cash paid for income
taxes.................. $ 44,283 $ -- $ -- $ -- $ -- $ --
======== ======= ========== ======= ======= =======
Noncash transaction
Push-down of acquisition
by Parent.............. $ -- $ -- $1,947,282 $ -- $ -- $ --
======== ======= ========== ======= ======= =======
Property acquired
through capital lease.. $ -- $ -- $ 8,135 $10,071 $ -- $ --
======== ======= ========== ======= ======= =======
Note payable issued in
acquisition of
subsidiary............. $100,000 $ -- $ -- $ -- $ -- $ --
======== ======= ========== ======= ======= =======
Issuance of preferred
stock.................. $390,096 $ -- $ -- $ -- $ -- $ --
======== ======= ========== ======= ======= =======
</TABLE>
See accompanying notes.
F-8
<PAGE>
U. LINK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information as of March 31, 1999 and 1998
and for the three months then ended is unaudited)
1. Summary of Business and Significant Accounting Policies
Organization and Operations
U. Link, Inc. and its subsidiaries (the Company) are a leading publisher of
college on-line and print campus telephone directories. Its wholly-owned
subsidiary, College Directory Publishing, Inc. (and its predecessor) has been
publishing official print campus telephone directories in the United States
since 1986. Publication of on-line virtual directories began in 1997. The sale
of advertising on both print and on-line directories is the Company's principal
source of revenue. College Directory Publishing, Inc.'s wholly-owned
subsidiary, University Publishers, Inc., sells advertising in coupon books.
Publication of these books had not commenced as of December 31, 1998 and,
therefore, no revenues were recorded.
College Directory Publishing, Inc. (the Predecessor) is a Delaware
corporation, incorporated on July 17, 1988. On July 3, 1997, the Predecessor
was acquired by The Publishing Company of North America, Inc. through the
merger of a wholly-owned subsidiary of The Publishing Company of North America,
Inc. into the Predecessor. On June 10, 1998, College Directory Publishing
Corporation, a Florida corporation formerly known as MG Management, Inc.,
purchased all of the Predecessor's stock from The Publishing Company of North
America, Inc. University Publishers, Inc., a Pennsylvania corporation, was
acquired in October 1998. In February 1999, College Directory Publishing Corp.
was merged into U. Link, Inc., a Delaware corporation. The merger into U. Link,
Inc. effected a change in domicile and did not change the relative stock
ownership of the stockholders of College Directory Publishing Corp.
Basis of Presentation
Financial information for the Predecessor at dates and for periods prior to
June 11, 1998 is included at the Predecessor's historical cost basis.
Accordingly, the periods from January 1, 1997 to July 3, 1997, July 4, 1997
through December 31, 1997 and January 1, 1998 through June 10, 1998 are not
comparable to the period after June 10, 1998.
The Company effected a 15,149 for 1 stock dividend in February 1999 and a 7
for 5 stock distribution in March 1999. All stock related data in the financial
statements for the period subsequent to June 10, 1998 reflect the stock
dividend and distribution.
Period from January 1, 1997 through July 3, 1997
These financial statements reflect the results of operations of College
Directory Publishing, Inc., a Subchapter S Corporation.
Period from July 4, 1997 through December 31, 1997
These statements include the financial position and results of operations of
College Directory Publishing, Inc. as a subsidiary of The Publishing Company of
North America, Inc. and the effects of the purchase of College Directory
Publishing, Inc. by The Publishing Company of North America, Inc. The principal
accounting effect on College Directory Publishing, Inc. of the purchase was the
push-down of the excess of the purchase price over net assets acquired
(goodwill) which was amortized using the straight-line method over 20 years.
F-9
<PAGE>
U. LINK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information as of March 31, 1999 and 1998
and for the three months then ended is unaudited)
The statement of operations includes direct and indirect expenses of College
Directory Publishing, Inc. that were paid by The Publishing Company of North
America, Inc. and charged directly to College Directory Publishing, Inc.
Certain expenses including legal fees, corporate professional fees and
executive costs were recorded by The Publishing Company of North America, Inc.
and allocated to College Directory Publishing, Inc. through a management fee
based on a percentage of time spent by The Publishing Company of North America,
Inc. executive employees on College Directory Publishing, Inc. matters.
The financial position, results of operations and cash flows of College
Directory Publishing, Inc. as presented herein, may have been different if
College Directory Publishing, Inc. had been independent of The Publishing
Company of North America, Inc.
Period from January 1, 1998 through June 10, 1998
These statements include the results of operations of College Directory
Publishing, Inc. as a subsidiary of The Publishing Company of North America,
Inc. and the effects of the purchase of College Directory Publishing, Inc. by
The Publishing Company of North America, Inc. The principal accounting effect
on College Directory Publishing, Inc. of the purchase was the push-down of the
excess of the purchase price over net assets acquired (goodwill) which was
amortized using the straight-line method over 20 years.
The results of operations and cash flows of College Directory Publishing,
Inc. as presented herein, may have been different if College Directory
Publishing, Inc. had been independent of The Publishing Company of North
America, Inc.
Period from June 11, 1998 through March 31, 1999
These statements reflect the consolidated financial position and results of
operations of the Company and the Predecessor, as a subsidiary of the Company.
As a result of the purchase by the Company of College Directory Publishing,
Inc., the remaining pushed-down goodwill was written off and the management
fees to The Publishing Company of North America, Inc. were forgiven. The
acquisition by the Company of the stock of College Directory Publishing, Inc.
was accounted for as a purchase. Accordingly, the excess of the consideration
paid over the net assets acquired (goodwill) is being amortized using the
straight-line method over 20 years.
Principles of Consolidation
The accompanying consolidated financial statements subsequent to June 10,
1998 include the accounts of U. Link, Inc. and its wholly-owned subsidiaries,
College Directory Publishing, Inc. and University Publishers, Inc. All material
intercompany transactions have been eliminated in consolidation.
Interim Financial Information
The financial information as of March 31, 1999 and 1998 and for the three
months then ended is unaudited, but includes all adjustments (consisting of
normal recurring accruals) which in the opinion of management are necessary in
order to make the financial statements not misleading at such dates and for
those periods. Operating results for the three months ended March 31, 1999 are
not necessarily indicative of the results that may be expected for the entire
year.
F-10
<PAGE>
U. LINK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information as of March 31, 1999 and 1998
and for the three months then ended is unaudited)
Revenue Recognition
Revenues and related costs are recorded by the Company upon shipment of
directories. Costs incurred for directories in progress are stated at cost, not
in excess of estimated realizable value. Deferred revenue represents amounts
received from advertisers prior to shipment of the related directories. Revenue
on virtual directories is recognized when the advertisement is placed on-line.
Cash and Cash Equivalents
The Company considers all highly liquid investments with a maturity of three
months or less when purchased to be cash equivalents.
Accounts Receivable
Accounts receivable are comprised primarily of amounts due from advertisers
in the campus directories. The Company maintained allowances for doubtful
accounts of approximately $158,000 at December 31, 1997 and March 31, 1998 and
$216,000 at December 31, 1998 and March 31, 1999. Management believes all other
accounts receivable to be fully collectible.
Credit sales are made in the ordinary course of business after a credit
evaluation of the customers' financial condition. Generally these sales are
unsecured. The Company has not experienced any significant losses from
uncollectible accounts.
Intangible Assets
During the periods from July 3, 1997 to June 10, 1998 the goodwill recorded
is the push-down effect as a result of the purchase of College Directory
Publishing, Inc. by The Publishing Company of North America, Inc. The goodwill
was being amortized using the straight-line method over 20 years. Subsequent to
June 10, 1998, goodwill and purchased contracts are the result of the
acquisition of College Directory Publishing, Inc. by the Company. Goodwill is
being amortized using the straight-line method over 20 years. Purchased
contracts, which is the value of existing publishing contracts, are being
amortized in varying amounts over the respective lives of the contracts through
December 31, 2003.
Property and Equipment
Property and equipment are recorded at cost. Depreciation of office
equipment and furniture is computed using the straight-line method. Purchased
software costs are amortized on a straight-line basis over the remaining
estimated economic life of the product. Depreciation of property under capital
lease and leasehold improvements is computed using the straight-line method
over the life of the lease term. Expenditures for maintenance and repairs are
charged to expense as incurred.
Deferred Public Offering Costs
Deferred public offering costs consist primarily of legal and accounting
costs associated with effecting the Company's anticipated initial public
offering of its stock. These costs will continue to be deferred until the
initial public offering is effected at which time the entire amount will be
offset against the proceeds from the stock issuance.
F-11
<PAGE>
U. LINK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information as of March 31, 1999 and 1998
and for the three months then ended is unaudited)
Income Taxes
Predecessor
Until July 3, 1997, College Directory Publishing, Inc. was taxed under the
provisions of Subchapter S of the Internal Revenue Code. Under those
provisions, College Directory Publishing, Inc. did not pay federal corporate
income taxes on its taxable income; instead, the stockholders were liable for
individual federal income taxes on its taxable income. In connection with the
purchase of College Directory Publishing, Inc. by The Publishing Company of
North America, Inc., College Directory Publishing, Inc. terminated its S
Corporation status effective July 3, 1997. As a direct result of College
Directory Publishing, Inc.'s acquisition, net deferred tax assets of
approximately $154,000 were recorded and were fully offset by a valuation
allowance.
As a subsidiary, College Directory Publishing, Inc. was included in the
consolidated federal income tax return of The Publishing Company of North
America. In preparing its financial statements, College Directory Publishing,
Inc. determined its tax provision substantially on a separate return basis in
accordance with the provisions of Statement of Financial Accounting Standards
No. 109, Accounting for Income Taxes. The amount by which the current tax
provision exceeds the taxes paid for the period July 4, 1997 through December
31, 1997 is reflected as contributed capital by The Publishing Company of North
America, Inc. (See Note 7).
The Company
Subsequent to June 10, 1998, the Company follows the liability method of
accounting for income taxes. Deferred income taxes relate to the net tax
effects of temporary differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the amounts used for income
tax purposes.
Royalties
Royalties are expensed when the corresponding directory is published.
Royalties included in publication costs are paid to certain colleges pursuant
to publication contracts. The agreements have varying terms, typically
consisting of a flat fee for the rights to the publication and in some cases
additional payments for advertising sales in excess of agreed-upon amounts.
Advertising Costs
The costs of advertising are expensed as incurred. For the periods ended
March 31, 1999, December 31, 1998, June 10, 1998, March 31, 1998, December 31,
1997 and July 3, 1997, advertising costs included in selling general and
administrative expenses were approximately $23,000, $33,000, $18,000, $8,000,
$37,000 and $33,000, respectively.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
F-12
<PAGE>
U. LINK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information as of March 31, 1999 and 1998
and for the three months then ended is unaudited)
Computation of Earnings (Loss) Per Share
In accordance with Computation of Earnings Per Share (SFAS No. 128), basic
earnings per share is computed using the weighted average number of common and
dilutive common equivalent shares outstanding during the period. Net earnings
per share for the period June 11, 1998 to December 31, 1998 and three months
ended March 31, 1999 has been presented on the face of the statement of
operations. Prior period amounts have not been presented on the statement of
operations due to the recapitalization of the Company on June 10, 1998.
Diluted net earnings per share of the Company is computed using the weighted
average number of shares of common stock outstanding, including common
equivalent shares from the convertible preferred stock (using the if-converted
method) as if converted at the beginning of the period. Upon completion of an
initial public offering all of the shares of Series A, B, C and D Preferred
Stock will automatically convert into common stock based on the initial public
offering price. A maximum of 4,242,000 shares of common stock are to be
outstanding after conversion.
The Predecessor converted from an S Corporation to a C Corporation on July
3, 1997. The following pro forma amounts present the basic and diluted earnings
per share as if the Predecessor had recognized a tax benefit of $204,376 on a
separate return basis for the period from January 1, 1997 through July 3, 1997.
F-13
<PAGE>
U. LINK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information as of March 31, 1999 and 1998
and for the three months then ended is unaudited)
<TABLE>
<CAPTION>
Predecessor
The Company Predecessor (Pro Forma) The Company Predecessor
----------- ---------------------------- --------------- ----------- ------------
Period from
June 11, Period from Period from Period from Three
1998 January 1, 1998 July 4, 1997 January 1, 1997 months Three months
through through through through ended ended
December 31 June 10 December 31 July 3 March 31, March 31,
1998 1998 1997 1997 1999 1998
----------- --------------- ------------ --------------- ----------- ------------
(Unaudited)
<S> <C> <C> <C> <C> <C> <C>
Numerator:
Net income (loss)..... $ 288,052 $(309,319) $210,223 $(335,902) $ (182,295) $(149,393)
========== ========= ======== ========= ========== =========
Denominator:
Denominator for basic
loss per share
weighted-average
shares............... 2,121,000 3,000 3,000 3,000 2,121,000 3,000
Dilutive securities:
Convertible preferred
stock................ 2,121,000 -- -- -- 2,121,000 --
---------- --------- -------- --------- ---------- ---------
Denominator for
diluted earnings
(loss) per share
adjusted weighted
average shares....... 4,242,000 3,000 3,000 3,000 4,242,000 3,000
========== ========= ======== ========= ========== =========
Net income (loss) per
common share:
Basic................. $ .14 $ (103.11) $ 70.07 $ (111.97) $ (.08) $ (49.80)
========== ========= ======== ========= ========== =========
Diluted............... $ .07 $ (103.11) $ 70.07 $ (111.97) $ (.04) $ (49.80)
========== ========= ======== ========= ========== =========
</TABLE>
F-14
<PAGE>
U. LINK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information as of March 31, 1999 and 1998
and for the three months then ended is unaudited)
Recent Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board (FASB) issued
Reporting Comprehensive Income (SFAS No. 130), which establishes standards for
reporting and display of comprehensive income and its components in the
financial statements. SFAS No. 130 is effective for fiscal years beginning
after December 15, 1997. SFAS No. 130 offers alternatives for presentation of
disclosures required by the standard. The adoption of SFAS No. 130 had no
impact on the Company's results of operations, financial position or cash
flows, as the amount of comprehensive income (loss) is the same as the net
income (loss) for all periods presented.
In June 1997, the FASB issued Disclosures about Segments of an Enterprise
and Related Information (SFAS No. 131), which establishes standards for
reporting information about operating segments in annual financial statements.
It also establishes standards for related disclosures about products and
services, geographic areas and major customers. SFAS No. 131 is effective for
fiscal years beginning after December 15, 1997. The adoption of SFAS No. 131
had no impact on the Company's results of operations, financial position or
cash flows.
In February 1998, the FASB issued Employers' Disclosures about Pension and
Other Post Retirement Benefits (SFAS NO. 132), which revises employers'
disclosures about pension and other post retirement benefit plans. SFAS No. 132
does not change the measurement or recognition of those plans. SFAS No. 132 is
effective for fiscal years beginning after December 15, 1997. The adoption of
SFAS No. 132 will not have an impact on the Company's results of operations,
financial position or cash flows since the Company does not have any pension or
post retirement benefit plans.
In June 1998, the FASB issued Accounting for Derivatives and Hedging
Activities (SFAS 133), which establishes accounting and reporting standards for
derivative instruments, including certain derivative instruments embedded in
other contracts (collectively referred to as derivatives) and for hedging
activities. SFAS No. 133 is effective for all fiscal quarters of fiscal years
beginning after June 15, 2000. As the Company does not currently engage or plan
to engage in derivative or hedging activities, there will be no impact to the
Company's results of operations, financial position or cash flows upon the
adoption of this standard.
Reclassifications
Certain amounts in the financial statements for the periods ended July 3,
1997 and December 31, 1997 have been reclassified to conform to the
presentation adopted for the periods ended June 10, 1998 and December 31, 1998.
2. Sale and Acquisitions of Subsidiaries
College Directory Publishing, Inc.
On July 3, 1997, the Predecessor was acquired by The Publishing Company of
North America, Inc. through the merger of a wholly-owned subsidiary of The
Publishing Company of North America, Inc. into the Predecessor for cash and
shares of The Publishing Company of North America, Inc. common stock. The
Predecessor operated as a subsidiary of The Publishing Company of North
America, Inc. until June 10, 1998.
F-15
<PAGE>
U. LINK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information as of March 31, 1999 and 1998
and for the three months then ended is unaudited)
On June 10, 1998, the Company purchased all of the Predecessor's stock from
The Publishing Company of North America, Inc. The consideration for the
Predecessor's stock consisted of $1,400,000 in cash (which included the payment
of approximately $1,100,000 of operating loans made by The Publishing Company
of North America, Inc. to the Predecessor), a $100,000 5% promissory note (see
Note 6), $200,000 of Series C Preferred Stock (see Note 8), and the return of
the shares of The Publishing Company of North America, Inc. common stock which
had been issued in connection with the July 1997 acquisition of the Predecessor
which shares were valued at $190,000.
The acquisition by the Company of College Directory Publishing, Inc. was
accounted for under the purchase method of accounting, and accordingly, the
results of operations have been included in the Company's statement of
operations since the date of acquisition. The purchase price was allocated to
assets acquired and liabilities assumed based on fair market value at the date
of acquisition. This resulted in an excess of purchase price over net assets
acquired of $1,186,829 which is being amortized on a straight-line basis over
20 years. As of March 31, 1999 and December 31, 1998, $47,555 and $32,720,
respectively, of goodwill had been amortized.
University Publishers, Inc.
On October 28, 1998, College Directory Publishing, Inc. acquired 100% of the
stock of University Publishers, Inc. from a former employee in exchange for a
five year employment agreement which provides for minimum salary levels.
3. Property and Equipment
Property and equipment consists of the following:
<TABLE>
<CAPTION>
The The
Estimated Company Predecessor Company Predecessor
Useful -------- ----------- -------- -----------
Life December 31 March 31
(in -------------------- --------------------
Years) 1998 1997 1999 1998
--------- -------- ----------- -------- -----------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Office equipment.......... 5 $141,679 $ 72,252 $164,378 $ 82,918
Purchased software........ 3 19,633 18,607 19,633 18,928
Property under capital
lease.................... 5 18,206 18,206 18,206 18,206
Office furniture.......... 7 9,872 8,615 12,706 8,615
Leasehold improvements.... 5 9,274 -- 11,143 --
-------- -------- -------- --------
198,664 117,680 226,066 128,667
Less accumulated
depreciation............. 88,251 61,973 96,827 67,233
-------- -------- -------- --------
$110,413 $ 55,707 $129,239 $ 61,434
======== ======== ======== ========
</TABLE>
F-16
<PAGE>
U. LINK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information as of March 31, 1999 and 1998
and for the three months then ended is unaudited)
4. Income Taxes
The provisions for income taxes are as follows:
<TABLE>
<CAPTION>
The Company Predecessor The Company Predecessor
----------- --------------------------- ----------- ------------
Period from Period from
June 11, July 4, Three
1998 Period from 1997 months Three months
through January 1, 1998 through ended ended
December 31 through June 10 December 31 March 31, March 31,
1998 1998 1997 1999 1998
----------- --------------- ----------- ----------- ------------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Current:
Federal............... $254,752 $(167,980) $158,238 $(101,269) $(203,785)
State................. 46,133 -- 28,655 -- --
-------- --------- -------- --------- ---------
Total current........... 300,885 (167,980) 186,893 (101,269) (203,785)
Deferred:
Federal............... (62,472) 30,956 (24,903) 7,361 139,364
State................. (11,313) (24,813) (4,510) (17,018) (11,672)
-------- --------- -------- --------- ---------
Total deferred.......... (73,785) 6,143 (29,413) (9,657) 127,692
-------- --------- -------- --------- ---------
$227,100 $(161,837) $157,480 $(110,926) $ (76,093)
======== ========= ======== ========= =========
Reconciliations of income tax computed at the U.S. federal statutory rates
to income tax expense are as follows:
<CAPTION>
The Company Predecessor The Company Predecessor
----------- --------------------------- ----------- ------------
Period from Period from
June 11, Period from July 4, Three
1998 January 1, 1998 1997 months Three months
through through through ended ended
December 31 June 10 December 31 March 31, March 31,
1998 1998 1997 1999 1998
----------- --------------- ----------- ----------- ------------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Income taxes computed at
the federal statutory
rate of 34%............ $175,152 $(160,193) $125,019 $ (99,695) $ (76,665)
State income taxes, net
of federal benefit..... 19,719 (16,377) 15,936 (11,231) (7,704)
Goodwill amortization... -- 14,733 16,525 -- 8,276
Change in valuation
allowance.............. 32,229 -- -- -- --
-------- --------- -------- --------- ---------
Tax expense (benefit)... $227,100 $(161,837) $157,480 $(110,926) $ (76,093)
======== ========= ======== ========= =========
</TABLE>
F-17
<PAGE>
U. LINK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information as of March 31, 1999 and 1998
and for the three months then ended is unaudited)
The components of the deferred income tax assets and liabilities are as
follows:
<TABLE>
<CAPTION>
The The
Company Predecessor Company Predecessor
------- ----------- ------- -----------
December 31 March 31
-------------------- --------------------
1998 1997 1999 1998
------- ----------- ------- -----------
(Unaudited)
<S> <C> <C> <C> <C>
Deferred tax assets:
Allowance for doubtful accounts..... $81,625 $ 59,756 $81,625 $ 59,756
Accounts payable.................... -- 23,489 -- 19,574
Accrued expenses.................... -- 72,129 -- 60,107
Deferred revenue.................... -- 124,437 -- 103,696
Purchased contracts................. 31,280 -- 29,523 --
Net operating loss.................. -- -- 11,408 22,956
------- -------- ------- --------
112,905 279,811 122,556 266,089
Valuation allowance................. (32,229) (154,095) (32,229) (154,095)
------- -------- ------- --------
Total deferred tax assets............. 80,676 125,716 90,327 111,994
------- -------- ------- --------
Deferred tax liabilities:
Goodwill............................ (4,126) -- (5,997) --
Property and equipment.............. -- (10,349) -- (9,727)
Accounts receivable................. -- (46,638) -- (38,864)
Directories in progress............. -- (39,316) -- (161,682)
Depreciation........................ (2,765) -- (888) --
------- -------- ------- --------
Total deferred tax liabilities........ (6,891) (96,303) (6,885) (210,273)
------- -------- ------- --------
Total............................. $73,785 $ 29,413 $83,442 $(98,279)
======= ======== ======= ========
</TABLE>
In accordance with SFAS No. 109, Accounting for Income Taxes, valuation
allowances are provided against deferred tax assets if, based on the weight of
available evidence, it is more likely than not that some or all of the deferred
tax assets will not be realized. The Predecessor has evaluated the
realizability of the deferred tax assets on its balance sheets and has
established valuation allowances in the amount of $154,095 against its net
deferred tax assets at December 31, 1997 and March 31, 1998. The Company has
evaluated the realizability of the deferred tax assets on its balance sheets
and has established valuation allowances in the amount of $32,229 against its
net deferred tax assets at December 31, 1998 and March 31, 1999.
5. Line of Credit
At December 31, 1998, the Company had a $600,000 line of credit with a bank
which carried an interest rate of prime plus 1% (8.75% at December 31, 1998)
and expired on March 31, 1999. The line was secured by the Company's equipment
and receivables, and personally guaranteed by the stockholders. This note was
refinanced during 1999 as described in Note 14.
6. Notes Payable
The $100,000 note payable to The Publishing Company of North America, Inc.,
was consideration in connection with the acquisition of the Predecessor from
The Publishing Company of North America, Inc. (see
F-18
<PAGE>
U. LINK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information as of March 31, 1999 and 1998
and for the three months then ended is unaudited)
Note 2). Interest is due December 31 each year at a rate of five percent per
annum. The note is subordinated to the bank debt described in Notes 5 and 14
and due upon the earlier of the closing of an initial public offering or
December 10, 1999.
Notes payables in the amount of $525,000 were issued as part of a private
placement of units consisting of notes and Series B Preferred Stock (see Note
9). The notes pay interest at five percent due annually on December 31.
Principal and accrued interest are payable upon the earlier of the closing of
an initial public offering or December 1999. The notes are subordinated to the
bank debt described in Notes 5 and 14.
7. Related Party Transactions
Notes Payable
As a result of the acquisition of College Directory Publishing, Inc. from
The Publishing Company of North America, Inc. (see Note 2), the Company
borrowed $250,000 at five percent interest per annum from its Series A
Preferred and common stockholders. These notes were repaid at varying dates in
August through October 1998.
Due to The Publishing Company of North America, Inc.
In connection with the acquisition of College Directory Publishing, Inc. by
The Publishing Company of North America, Inc. as discussed in Note 2, The
Publishing Company of North America, Inc. advanced College Directory
Publishing, Inc. $200,000 for working capital. Additional borrowings during
1997 increased the amounts due to The Publishing Company of North America, Inc.
to approximately $748,000 at December 31, 1997. During the period ended June
10, 1998, College Directory Publishing, Inc. borrowed an additional $320,000.
The total amount due to The Publishing Company of North America, Inc. was paid
on June 10, 1998 in connection with the Company's acquisition of College
Directory Publishing, Inc.
Management Fees
During the period July 3, 1997 to December 31, 1997, The Publishing Company
of North America, Inc. provided certain accounting, legal and various other
administrative services to College Directory Publishing, Inc. and charged
College Directory Publishing, Inc. approximately $212,000 which it believed
allowed for a recovery of its costs for those services. Charges related to
specifically identified expenses in the amount of $32,142 are included in
general and administrative expenses. A $180,000 management fee allocated by The
Publishing Company of North America, Inc. is shown separately in the statement
of operations. Both amounts are included in due to The Publishing Company of
North America, Inc. at December 31, 1997. During the period January 1, 1998 to
June 10, 1998, The Publishing Company of North America, Inc. did not charge
College Directory Publishing, Inc. a management fee. The previously assessed
$180,000 management fee was forgiven in connection with the sale of College
Directory Publishing, Inc. by The Publishing Company of North America, Inc.
Contributions by Parent
For the six months ended December 31, 1997, The Publishing Company of North
America, Inc. had no tax liability other than a portion of state taxes related
to College Directory Publishing, Inc.'s stand-alone operations. The
approximately $164,000 excess of the current tax provision over amounts payable
by College
F-19
<PAGE>
U. LINK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information as of March 31, 1999 and 1998
and for the three months then ended is unaudited)
Directory Publishing, Inc. as of December 31, 1997 is treated as a contribution
of capital by The Publishing Company of North America, Inc.
8. Stockholders' Equity
Predecessor
College Directory Publishing, Inc. was authorized to issue 3,000 shares of
$2 par value common stock. At December 31, 1997 and March 31, 1998, there were
3,000 shares issued and outstanding.
The Company
The certificate-of-incorporation of U. Link, Inc., as amended, authorizes
the following stock.
Common Stock--The Company is authorized to issue 20,000,000 shares of $.001
par value common stock. As of December 31, 1998 and March 31, 1999, there are
2,121,000 shares issued and outstanding.
Series A Preferred Stock--The Company is authorized to issue 1,000 shares of
$.001 par value Series A Preferred Stock to the Company's officers and
founders. As of December 31, 1998 and March 31, 1999, there are 1,000 shares
issued and outstanding. The shares of Series A Preferred Stock have voting
rights equal in all matters to the common stock and automatically convert into
a number of shares of common stock determined at the time the Company effects
an initial public offering or closes a merger with a public company.
Series C Preferred Stock--The Company is authorized to issue 1,000 shares of
$.001 par value Series C Preferred Stock. As of December 31, 1998 and March 31,
1999, there are 1,000 shares issued and outstanding. Upon the Company effecting
an initial public offering or closing a merger with a public company all the
outstanding shares of Series C Preferred Stock convert into common stock having
an aggregate value of $1,000,000 with the number of shares based on the initial
public offering price. Pending such conversion, the shares of Series C
Preferred Stock have a liquidation preference of $200,000.
Series D Preferred Stock--The Company is authorized to issue 1,000 shares of
$.001 par value Series D Preferred Stock. As of December 31, 1998 and March 31,
1999, there are 1,000 shares issued and outstanding. The shares of Series D
Preferred Stock automatically convert into $250,000 worth of common stock based
on the initial public offering price or closes a merger with a public company.
Pending such conversion, the shares of Series D Preferred Stock have a
liquidation preference of $75,000.
9. Redeemable Preferred Stock
The Company is authorized to issue 300,000 shares of $1.00 par value Series
B Preferred Stock. As of December 31, 1998 and March 31, 1999, there are
300,000 shares issued and outstanding. Upon the Company effecting an initial
public offering or closing a merger with a public company all the outstanding
shares of Series B Preferred Stock convert into $1,650,000 worth of common
stock with the number of shares exchanged computed using the initial public
offering price. Pending such conversion, the shares of Series B Preferred Stock
have a liquidation preference of $1.00 per share. In addition, if the Company
has not effected an initial public offering or closed a merger with a public
company by June 10, 2000, the stockholders receive a put option entitling them
to require the Company to redeem their shares of Series B Preferred Stock at
$1.00 per share.
F-20
<PAGE>
U. LINK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information as of March 31, 1999 and 1998
and for the three months then ended is unaudited)
10. Employee Benefit Plan
The Company has a defined contribution 401(k) profit-sharing plan to provide
retirement benefits for eligible employees. To be eligible, an employee must be
at least 21 years of age, have worked at least 90 days, and be a full-time
employee working at least 1,000 hours. The Company may elect to make a
discretionary contribution annually to the profit sharing plan. No
contributions have been made to the plan for any periods through March 31,
1999.
11. Lease Agreements
The Company leases office space, equipment and vehicles under capital and
noncancellable operating leases expiring in various years through 2003. Minimum
future rental payments under these leases having remaining terms in excess of
one year as of December 31, 1998 are:
<TABLE>
<CAPTION>
Capital Operating
Year ended December 31, Leases Leases
----------------------- ------- ---------
<S> <C> <C>
1999.................................................... $ 6,421 $118,851
2000.................................................... 6,237 114,843
2001.................................................... 2,352 104,803
2002.................................................... 1,372 103,444
2003.................................................... -- 43,102
------- --------
Total minimum lease payments............................ 16,382 $485,043
========
Less amounts representing interest...................... 3,813
-------
Present value of net minimum lease payments............. $12,569
=======
</TABLE>
Rent expense for the periods ended March 31, 1999, December 31, 1998, June 10,
1998, March 31, 1998, December 31, 1997 and July 3, 1997 was approximately
$24,000, $41,000, $27,000, $8,000, $23,000 and $36,000, respectively.
12. Settlement of Litigation
During 1997, the Predecessor was in litigation with a bankrupt vendor. A
settlement of $204,707 net of expenses and fees, was reached in December 1998
and is included in the consolidated statement of operations for the period June
11, 1998 through December 31, 1998 as a gain on settlement of litigation.
13. Commitments and Contingencies
Revenue Sharing Agreement
In August 1998, the Company entered into an agreement with
collegestudent.com, Inc., the objective of which was to combine both parties'
Internet sites aimed at the college and university market into
collegestudent.com (the site), creating a single Internet site for the college
student market. The agreement called for net revenue (revenues collected less
sales commissions) and certain marketing costs to be split 60% to
collegestudent.com, Inc. and 40% to the Company. No business was transacted
under the agreement during the period ended December 31, 1998. This agreement
was terminated effective June 1, 1999.
F-21
<PAGE>
U. LINK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information as of March 31, 1999 and 1998
and for the three months then ended is unaudited)
14. Subsequent Events
Employment Agreements
Effective January 1, 1999, the Company and its two founders entered into
three year employment agreements at annual salaries of $115,000 each. Upon
completion of an initial public offering, salaries increase to $150,000 and
each founder will receive bonuses of up to $70,000. The Company also entered
into a three year employment agreement with its Chief Financial Officer,
effective January 1, 1999 which provides for an annual salary of $95,000 and
increases to $120,000 upon completion of an initial public offering.
Line of Credit
On January 28, 1999, the Company negotiated a new line of credit
arrangement. The total line is $1,200,000 with interest at prime plus .5%. The
borrowing limit in any month is based upon a formula advancing up to 70% of
eligible receivables and 40% of gross bookings through July of the current
year. As of March 31, 1999, $950,000 had been drawn on the line which is
secured by substantially all the assets of the Company and guaranteed
personally by the Company's founders. An additional $10,000 was available under
terms of the line at March 31, 1999. All other notes payable are subordinate to
this line of credit.
Stock Option Plan
In February 1999, the Company adopted a stock option plan. The plan provides
for grants of incentive stock options, nonqualified options to designated
employees and consultants, and automatic grants of 24,000 options to
nonemployee directors. The plan authorizes up to 560,000 shares of common stock
for issuance. All options must be granted at a price which is not less than the
fair market value of the Company's common stock on the date of issue. As of
March 31, 1999 there are currently 85,400 options outstanding with an exercise
price of $2.25 per share which is consistent with the sale of the Company's
Series E Preferred Stock discussed below. The options expire after 10 years and
vest in equal increments over a three year period on each June 30 and December
31.
In May 1999, the Company issued options to purchase 84,000 shares of common
stock to independent directors exercisable at $3.15 per share. In addition, the
Company issued options to purchase 25,000 shares of common stock to a
consultant exercisable at $3.15 per share. The fair market value of the shares
issued to a consultant was recorded as compensation expense.
Proposed Initial Public Offering
In February 1999, the Company signed a Letter of Intent with respect to a
proposed initial public offering of its common stock.
Private Placement
In April 1999, the Company sold in a private placement through an
independent underwriter 41 shares of Series E Preferred Stock for a total
consideration of approximately $623,000. This stock is convertible after May
2000 into 6,750 shares of common stock at a price of $2.25 per share of common
stock. There is a liquidation preference of 150% of the price of the Series E
stock and the stock is redeemable at the Company's option for 150% of the
price. The Series E stock is nonvoting and is entitled to dividends at the same
rate as the common stock into which it can be converted. Sixty-eight (68)
shares of Series E stock is authorized with a par value of $.001.
F-22
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
You should only rely on the information contained in this prospectus. We have
not authorized anyone to provide you with information different from that
contained in this prospectus. We are offering to sell, and seeking offers to
buy, shares of common stock only in states and other jurisdictions where
offers and sales are permitted. The information contained in this prospectus
is accurate only as of the date of this prospectus, regardless of the time of
delivery of this prospectus or of any sale of the common stock.
----------------
Table of Contents
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary....................................................... 3
Risk Factors............................................................. 9
Forward-Looking Statements............................................... 16
Use of Proceeds.......................................................... 17
Capitalization........................................................... 18
Dilution................................................................. 20
Selected Financial Data.................................................. 21
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 24
Business................................................................. 29
Management............................................................... 40
Related Party Transactions............................................... 42
Principal Stockholders................................................... 45
Description of Capital Stock............................................. 47
Shares Eligible for Future Sale.......................................... 49
Underwriting............................................................. 51
Legal Matters............................................................ 52
Experts.................................................................. 52
Additional Information................................................... 53
Reports to Stockholders.................................................. 53
Index to Financial Statements............................................ F-1
</TABLE>
Until 1999, all dealers selling shares of the common stock, whether or
not participating in this offering, may be required to deliver a prospectus.
This is in addition to the obligation of dealers to deliver a prospectus when
acting as underwriters and with respect to their unsold allotments or
subscriptions.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
[LOGO]
1,500,000 Shares
U.LINK, INC.
Common Stock
----------------
PROSPECTUS
----------------
HD Brous & Co., Inc.
, 1999
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. Indemnification of Directors and Officers.
Our amended and restated certificate of incorporation provides that we shall
indemnify our officers and directors, employees and agents and former officers,
directors, employees and agents against expenses (including attorney's fees),
judgments, fines and amounts paid in settlement arising out of his or her
services on behalf of us subject to the qualifications contained in Delaware
law as it now exists. We also cannot indemnify our officers and directors when
we assert a direct claim against them. We have entered into indemnification
agreements with our officers and directors providing for indemnification and
containing an advancement of expenses provision. Delaware law generally
provides that a corporation shall have such power to indemnify such persons to
the extent they acted in good faith in a manner they reasonably believed to be
in, or not opposed to, the best interests of the corporation and, with respect
to any criminal action or proceeding, had no reasonable cause to believe the
conduct was unlawful. In the event any such person shall be judged liable such
indemnification shall apply only if approved by the court in which the action
was brought. Any other indemnification shall be made by a majority vote of the
board of directors (excluding any directors who were party to such action), or
by a committee of directors designated by majority vote of the board of
directors or by independent legal counsel in a written opinion, or by a
majority vote of stockholders (excluding any stockholders who were parties to
such action).
INSOFAR AS INDEMNIFICATION FOR LIABILITIES ARISING UNDER THE SECURITIES ACT
OF 1933 MAY BE PERMITTED TO DIRECTORS, OFFICERS OR PERSONS CONTROLLING U.LINK,
INC. PURSUANT TO THE FOREGOING PROVISIONS, WE HAVE BEEN INFORMED 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.
Item 25. Other Expenses of Issuance and Distribution.
The expenses in connection with the issuance and distribution of the
securities being registered hereby (except for the Underwriting discounts and
commissions) will be borne by the Company and are estimated to be as follows:
<TABLE>
<S> <C>
Registration Fee................................................. $ 8,081.82
Nasdaq Listing Fee............................................... $10,000.00
Pacific Exchange Listing Fee..................................... $20,000.00
NASD Filing Fee..................................................
Transfer Agent Fee............................................... *
Printing Costs................................................... *
Legal Fees and Expenses.......................................... *
Accounting Fees and Expenses..................................... *
Blue Sky Fees and Expenses....................................... *
Underwriters' Non-Accountable Expense Allowance.................. *
Miscellaneous.................................................... *
----------
Total............................................................ $ *
==========
</TABLE>
- --------
* To be supplied by Amendment.
II-1
<PAGE>
Item 26. Recent Sales of Unregistered Securities.
During the past three years, the following persons and entities acquired
shares of stock and other securities from us or College Directory Publishing,
Inc. as set forth in the table below:
<TABLE>
<CAPTION>
Amount of
Stockholder Date Class of Securities Securities Sold Consideration
----------- ------- ------------------------ --------------- -------------------------
<S> <C> <C> <C> <C>
Mark I. Golden.......... 9/16/96 Common Stock 100 Shares $1,200
Michael S. and Stephanie
Paul, JTWROS........... 6/10/98 Series A Preferred Stock 500 Shares Common Stock
of The Publishing Company
of North America, Inc.
John S. Rafanello....... 6/10/98 Series A Preferred Stock 500 Shares Common Stock
of The Publishing Company
of North America, Inc.
Trinity American
Corporation............ 6/10/98 Note $17,500 $27,500
Series B Preferred Stock 10,000 Shares
Alan L and Robin Frank.. 6/10/98 Note $17,500 $27,500
Series B Preferred Stock 10,000 Shares
Michael Shabsels........ 6/10/98 Note $17,500 $27,500
Series B Preferred Stock 10,000 Shares
Michael S. Croft........ 6/10/98 Note $8,750 $13,750
Series B Preferred Stock 5,000 Shares
Donald Ratledge, Jr..... 6/10/98 Note $17,500 $27,500
Series B Preferred Stock 10,000 Shares
Gerald and Sara Stein,
JTWROS................. 6/10/98 Note $17,500 $27,500
Series B Preferred Stock 10,000 Shares
David H. and Connie N.
Popper, JTWROS......... 6/10/98 Note $17,500 $27,500
Series B Preferred Stock 10,000 Shares
Stephen Edgar and Mitzi
MacWhirter Deal........ 6/10/98 Note $35,000 $55,000
Series B Preferred Stock 20,000 Shares
David J. Kane........... 6/10/98 Note $35,000 $55,000
Series B Preferred Stock 20,000 Shares
Howard and Dale
Bannerman, JTWROS...... 6/10/98 Note $17,500 $27,500
Series B Preferred Stock 10,000 Shares
Johnathan E. Wilson..... 6/10/98 Note $35,000 $55,000
Series B Preferred Stock 20,000 Shares
Mark J. Gillis.......... 6/10/98 Note $8,750 $13,750
Series B Preferred Stock 5,000 Shares
Richard D. Sanderson.... 6/10/98 Note $17,500 $27,500
Series B Preferred Stock 10,000 Shares
Mitchell Zeifman........ 6/10/98 Note $17,500 $27,500
Series B Preferred Stock 10,000 Shares
Nicholas Iocco.......... 8/12/98 Note $17,500 $27,500
Series B Preferred Stock 10,000 Shares
Jeffrey A. Jonas........ 8/12/98 Note $8,750 $13,750
Series B Preferred Stock 5,000 Shares
Michael Shabsels........ 8/12/98 Note $17,500 $27,500
Series B Preferred Stock 10,000 Shares
Mitchell Zeifman........ 8/12/98 Note $17,500 $27,500
Series B Preferred Stock 10,000 Shares
David L. Swimmer........ 6/10/98 Note $35,000 $55,000
Series B Preferred Stock 20,000 Shares
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
Amount of
Stockholder Date Class of Securities Securities Sold Consideration
----------- -------- ------------------------ --------------- -------------------------
<S> <C> <C> <C> <C>
Diamond Carter
Securities............. 6/10/98 Note $35,000 $55,000
Series B Preferred Stock 20,000 Shares
Michael J. Wallace...... 6/10/98 Note $17,500 $27,500
Series B Preferred Stock 10,000 Shares
Alfredo and Maria $13,750
DoPico................. 6/10/98 Note $8,750
Series B Preferred Stock 5,000 Shares
Quality Concepts........ 6/10/98 Note $35,000 $55,000
Series B Preferred Stock 20,000 Shares
Delaware Charter
Guarantee & Trust Co.
Cust. for Michael D. Note $17,500 $27,500
Harris IRA............. Series B Preferred Stock 10,000 Shares
Paul Alford............. 10/31/98 Note $17,500 $27,500
Series B Preferred Stock 10,000 Shares
E. Jan Jacobi Revocable
Trust.................. 6/10/98 Note $17,500 $27,500
Series B Preferred Stock 10,000 Shares
The Publishing Company
of North America,
Inc.................... 6/10/98 Series C Preferred Stock 1,000 Shares Common Stock of
College Directory
Publishing, Inc.
Alan L. and Robin S.
Frank, JTWROS.......... 6/10/98 Series D Preferred Stock 666.66 Shares Common Stock
of The Publishing Company
of North America, Inc.
Lance and Lori Rosen,
JTWROS................. 6/10/98 Series D Preferred Stock 333.33 Shares Common Stock
of The Publishing Company
of North America, Inc.
Kevin & Gail Kology..... 4/23/99 Series E Preferred Stock 1 Share $15,187.50
Shobha Chheda........... 4/23/99 Series E Preferred Stock 2 Shares $30,375.00
Abbey Blatt............. 4/23/99 Series E Preferred Stock 2 Shares $30,375.00
Abingdon Trading
Ventures Limited....... 4/23/99 Series E Preferred Stock 2 Shares $30,375.00
Hy Ash.................. 4/23/99 Series E Preferred Stock 1 Share $15,187.50
Generation Capital
Associates............. 4/23/99 Series E Preferred Stock 4 Shares $60,750.00
Lee Glaser.............. 4/23/99 Series E Preferred Stock 2 Shares $30,375.00
Richard A. Jones........ 4/23/99 Series E Preferred Stock 2 Shares $30,375.00
Arline & Richard
McGowan................ 4/23/99 Series E Preferred Stock 4 Shares $60,750.00
Wayne Saker............. 4/23/99 Series E Preferred Stock 4 Shares $60,750.00
Michael B. Sladden...... 4/23/99 Series E Preferred Stock 2 Shares $30,375.00
C.M. Solomon............ 4/23/99 Series E Preferred Stock 4 Shares $60,750.00
Trade Circle Products,
Inc. Profit Sharing
Plan................... 4/23/99 Series E Preferred Stock 2 Shares $30,375.00
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
Amount of
Stockholder Date Class of Securities Securities Sold Consideration
----------- ------- ------------------------ --------------- -------------
<S> <C> <C> <C> <C>
Michael Batky........... 4/23/99 Series E Preferred Stock 1 Share $15,187.50
Robert Diamond.......... 4/23/99 Series E Preferred Stock 2 Shares $30,375.00
Irving Duboff........... 4/23/99 Series E Preferred Stock 1 Share $15,187.50
Mark Crafts............. 4/23/99 Series E Preferred Stock 2 Shares $30,375.00
Richard J. Rappaport.... 4/23/99 Series E Preferred Stock 1 Share $15,187.50
Philip R. Guibardo...... 4/23/99 Series E Preferred Stock 2 Shares $30,375.00
Arthur M. Virshup, M.D.
and Lorraine M.
Virshup, as tenants by
the entireties......... 6/30/99 Series E Preferred Stock 2 Shares $30,375.00
Edward E. Cohen......... 6/30/99 Series E Preferred Stock 1 Share $15,187.50
Lenny Finkel............ 6/30/99 Series E Preferred Stock 2 Shares $30,375.00
Sterling Furniture Co... 6/30/99 Series E Preferred Stock 5 Shares $75,937.50
Dereck Garner........... 6/30/99 Series E Preferred Stock 1 Share $15,187.50
Norman Rothstein........ 6/30/99 Series E Preferred Stock 4 Shares $60,750.00
Richard M. Zimmy........ 7/7/99 Series E Preferred Stock 1 Share $15,187.50
Donald S. Ratledge Jr... 7/7/99 Series E Preferred Stock 3 Shares $45,562.50
Robert A. Sanderson..... 7/7/99 Series E Preferred Stock 1 Share $15,187.50
Alan and Robin Frank,
JTROS.................. 7/7/99 Series E Preferred Stock 2 Shares $30,375.00
Lance and Lori Rosen,
JTROS.................. 7/7/99 Series E Preferred Stock 1 Share $15,187.50
Michael and Beth Harris,
tenants by the
entireties............. 7/7/99 Series E Preferred Stock 4 Shares $60,750.00
</TABLE>
We and our predecessors sold the securities listed above to accredited
investors in reliance upon exemptions from registration pursuant to Section
4(2) of the Securities Act of 1933 and Rule 506 thereunder.
<TABLE>
<CAPTION>
Item 27. Exhibits.
-------- ---------
<C> <S>
1.1 --Form of Underwriter's Agreement
1.2 --Form of Underwriter's Warrants
3.1 --Second Amended and Restated Certificate of Incorporation
3.22 --Certificate of Designation for the Series E Preferred Stock
3.3 --Bylaws
4.1 --Form of Common Stock Certificate
5. --Opinion of Michael Harris, P.A.
10.1 --Employment Agreement of Michael S. Paul
10.2 --Employment Agreement with John S. Rafanello
10.3 --Employment Agreement with Larry M. Weaver
10.4 --1999 Stock Option Plan
10.5 --Amendment No. 1 to Stock Option Plan
10.6 --Bank Loan Agreement
10.7 --Termination agreement with collegestudent.com.
10.8 --Agreement with Lee Golden and others
21 --Subsidiaries
23.1 --Consent of Ernst & Young LLP
23.2 --Consent Michael Harris, P.A(1)
</TABLE>
- --------
(1) Contained in Opinion Michael Harris, P.A.
II-4
<PAGE>
Item 28. Undertakings.
(a) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to our directors, officers and controlling persons
pursuant to the foregoing provisions or otherwise, we have been advised that,
in the opinion of the Commission, such indemnification is against public policy
as expressed in the Securities Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than the
payment by us of expenses incurred or paid by a director, officer or
controlling person of U.Link 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, we 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 of 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.
(b) The registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement to:
(i) Include any prospectus required by Section 10(a)(3) of the
Securities Act;
(ii) Reflect in the prospectus any facts or events which,
individually or together, represent a fundamental change in the
information in the registration statement; and
(iii) Include any additional or changed material information on the
plan of distribution.
(2) For determining liability under the Securities Act, treat each such
post-effective amendment as a new registration statement of the securities
offered, and the offering of the securities at that time to be the initial
bona fide offering.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(4) For purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of a
registration statement in reliance upon Rule 430A and contained in the 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 the
registration statement as of the time it was declared effective.
(5) For the purpose of determining any liability under the Securities
Act, 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
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements of filing on Form SB-2 and has authorized this
registration statement to be signed on its behalf by the undersigned, in the
City of Conshohocken, State of Pennsylvania, on the 11th day of July August,
1999.
U.Link, Inc.
Michael S. Paul
By: _________________________________
Michael S. Paul,
Chief Executive Officer
In accordance with the requirements of the Securities Act of 1933, this
registration statement on Form SB-2 was signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Michael S. Paul Chairman of the Board of August 11, 1999
______________________________________ Directors
Michael S. Paul
/s/ John S. Rafanello Director August 11, 1999
______________________________________
John S. Rafanello
/s/ Larry M. Weaver Vice President of Finance August 11, 1999
______________________________________ (Principal Financial
Larry M. Weaver Officer and Chief
Accounting Officer)
/s/ Leonard Schutzman Director August 11, 1999
______________________________________
Leonard Schutzman
/s/ Kenneth H. Byck Director August 11, 1999
______________________________________
Kenneth H. Byck
/s/ Alan L. Frank Director August 11, 1999
______________________________________
</TABLE> Alan L. Frank
II-6
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
EXHIBITS
TO
Form SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
U.LINK, Inc.
(Exact name of registrant as specified in its charter)
EXHIBIT INDEX
<TABLE>
<C> <S>
1.1 --Form of Underwriter's Agreement
1.2 --Form of Underwriter's Warrants
3.1 --Second Amended and Restated Certificate of Incorporation
3.2 --Certificate of Designation for the Series E Preferred Stock
3.3 --Bylaws
4.1 --Form of Common Stock Certificate
5. --Opinion of Michael Harris, P.A.
10.1 --Employment Agreement of Michael S. Paul
10.2 --Employment Agreement with John S. Rafanello
10.3 --Employment Agreement with Larry M. Weaver
10.4 --1999 Stock Option Plan
10.5 --Amendment No.1 to Stock Option Plan
10.6 --Bank Loan Agreement
10.7 --Termination agreement with collegestudent.com
10.8 --Agreement with Lee Golden and others
21 --Subsidiaries
23.1 --Consent of Ernst & Young LLP
23.2 --Consent Michael Harris, P.A.(1)
</TABLE>
- --------
(1) Contained in Opinion Michael Harris, P.A.
<PAGE>
Exhibit 1.1
1,500,000 Shares
U.LINK, INC.
Common Stock, par value $.001 per share
Underwriting Agreement
As of , 1999
HD Brous & Co, Inc.
40 Cuttermill Road
Great Neck, New York 11021
Dear Sirs:
U.Link, Inc., a Delaware corporation (the "Company"), proposes to issue
and sell to HD Brous & Co., Inc., a New York corporation ("Brous" or the
"Underwriter"), upon the basis of the representations, warranties, and
agreements of the Company contained in this Underwriting Agreement (the
"Agreement") and, subject to the terms and conditions of this Agreement, the
Underwriter proposes to purchase from the Company, an aggregate of 1,500,000
shares of the Company's common stock, par value $.001 per share ("Common
Stock"). The 1,500,000 shares of Common Stock are hereinafter collectively
referred to as the "Firm Shares." In addition, the Company proposes to grant the
Underwriter the option to purchase from the Company up to an additional 225,000
shares of Common Stock (collectively "Option Shares") solely for the purpose of
covering over-allotments, if any, in connection with the sale of the Firm
Shares. The Firm Shares and the Option Shares are collectively referred to as
the "Shares." The Company also proposes to issue and sell to the Underwriter or
its designees, Warrants (collectively, the "Warrants") to purchase 150,000
shares of Common Stock (collectively the "Warrant Shares") as more fully
described in Paragraph 5(a) of this Agreement. The Firm Shares, Option Shares,
the Warrants and Warrant Shares are referred to in this Agreement collectively
as the "Securities."
The Company hereby confirms the agreement made by it with respect to
the purchase of the Firm Shares and the Option Shares by the Underwriter, as
follows.
1. Purchase, Sale, and Delivery of the Securities
(a) Purchase and Sale of Firm Shares. Subject to the terms and
conditions of this Agreement, and upon the basis of the representations and
warranties contained in this Agreement, the Company agrees to issue and sell to
the Underwriter, and Underwriter agrees to purchase from the Company, the Firm
Shares at a price of and /100 dollars ($ . ) per Share. The
Underwriter plans to offer the Firm Shares for sale to the public at the price
and upon the terms set forth in the Prospectus (the "Public Offering") as soon
as practicable after the date the Registration Statement, as hereinafter
defined, is declared effective (the "Effective Date") by the Securities and
Exchange Commission (the "Commission"). The Company acknowledges
<PAGE>
that the Underwriter shall have the right to enter into agreements with selected
dealers for the sale of the Shares to the public.
(b) Over-Allotment Option.
(i) The Company hereby grants to the Underwriter
an option (the "Over-Allotment Option") to purchase from the Company, solely for
the purpose of covering over-allotments in connection with the sale of Firm
Shares, all or any portion of the Option Shares for a period of forty-five (45)
days from the date of this Agreement at the same purchase price payable by the
Underwriter for Firm Shares as provided in Paragraph 1(a) of this Agreement. The
Option Shares shall be purchased from the Company, for the account of
Underwriter.
(ii) The Over-Allotment Option may be exercised
during the term thereof by written notice to the Company from the Underwriter.
Such notice shall set forth the aggregate number of Option Shares as to which
the option is being exercised and the time and date of payment and delivery
therefor. Such time and date of delivery shall not be earlier than either the
Closing Date (as defined below) or the second business day after the day on
which the option shall have been exercised, nor later than the fifth business
day after the date of such exercise, as determined by the Underwriter (the
"Option Closing Date"). Delivery and payment for such Option Shares shall be at
the offices set forth below for delivery and payment of the Firm Shares.
(iii) The obligation of the Underwriter to
purchase and pay for any of the Option Shares is subject to the accuracy and
completeness (as of the date of this Agreement and as of the Option Closing
Date) of and compliance in all material respects with the representations and
warranties of the Company in this Agreement, to the accuracy and completeness of
the statements of the Company or its officers made in any certificate or other
documents to be delivered by the Company pursuant to this Agreement, to the
performance in all material respects by the Company of its obligations
hereunder, to the satisfaction by the Company of the conditions as of the date
of this Agreement and as of the Option Closing Date set forth in Paragraph 1(c)
of this Agreement and to the delivery to the Underwriter an opinion,
certificates and letters dated the Option Closing Date substantially similar in
scope to those specified in Paragraph 6 of this Agreement, but with each
reference to the "Closing Date" being deemed to be the "Option Closing Date."
Notwithstanding the exercise of the Over-Allotment Option, the Underwriter may,
at any time prior to the payment for the purchase price of the Option Shares,
cancel, in whole or in part, the exercise of the Over-Allotment Option, in which
event, the Underwriter shall only be obligated to purchase and pay for those
only Option Shares, if any, remaining subject to the exercise of the Over-
Allotment Option after such cancellation.
(c) Delivery of and Payment for Securities.
(i) Delivery of the certificates representing
the securities comprising the Firm Shares shall be made to the Underwriter at
the offices of Brous, 40 Cuttermill Road, Great Neck, New York 11021, or such
other location as you shall determine and advise the Company upon at least two
(2) full business days' notice in writing, against payment therefor by certified
or bank cashier's check drawn in New York clearing house funds or similar next
day funds or by wire transfer payable to the order of the Company, at 10:00
A.M., Eastern Time, on , 1999, or at such other time and business day
(Saturdays, Sundays, and legal holidays in New York, New York not being
considered business days for the purposes of this Agreement), not later
-2-
<PAGE>
than the 10th business day following the Effective Date, as shall be determined
by the Underwriter, which time and date are herein called the "Closing Date."
(ii) Delivery of certificates for the Shares
shall be made in registered form in such name or names and in such denominations
as you shall specify to the Company upon at least two (2) full business days'
notice in writing prior to the Closing Date or the Option Closing Date, as the
case may be. The Company will make the certificates available to the Underwriter
for examination at the offices of the Underwriter, 40 Cuttermill Road, Great
Neck, New York 11021, Attention: Howard D. Brous, Chairman, or at such other
location as you shall specify to the Company, not later than 2:00 P.M., Eastern
Time, on the business day immediately preceding the Closing Date or the Option
Closing Date, as the case may be. At the request of the Underwriter, delivery of
the Shares shall be made through the facilities of Depository Trust Company.
(d) Use of Preliminary Prospectus. The Company hereby confirms
its authorization to the Underwriter to use, and to make available for use by
prospective dealers, the Preliminary Prospectus, and the Company hereby
authorizes the Underwriter, all selected dealers, and all other dealers to whom
any of the Securities may be sold by the Underwriter or Selected Dealers, to use
the Prospectus, as from time to time amended or supplemented, in connection with
the sale of the Securities in accordance with the applicable provisions of the
Securities Act of 1933, as amended (the "Securities Act"), the rules and
regulations (the "Regulations") of the Commission thereunder, and applicable
state law until completion of the Public Offering and for such longer period as
Underwriter may request if the Prospectus is required to be delivered in
connection with sales of the Securities by Underwriter or a dealer.
2. Representations and Warranties of the Company. The Company
represents and warrants to, and agrees with, the Underwriter that:
(a) Filing of Registration Statement. The Company has prepared
in conformity with the requirements under the Securities Act and the
Regulations, and has filed with the Commission under the Securities Act, a
registration statement on Form SB-2, File No. 333- , including the related
preliminary prospectus, for the registration of the Securities. The conditions
for the use of a registration statement on Form SB-2 set forth in the General
Instructions thereto have been satisfied with respect to the Company, the
transactions contemplated by this Agreement, and the Registration Statement. As
used in this Agreement, the term "Registration Statement" means such
registration statement of the Company, as amended, on file with the Commission
at the time the registration statement becomes effective under the Securities
Act (including all financial statements and financial schedules, exhibits, all
other documents filed as a part thereof or incorporated by reference therein,
and all the information contained in any final prospectus filed with the
Commission pursuant to Rule 424(b) under the Securities Act or deemed by virtue
of Rule 430A of this Commission under the Securities Act to be part of the
Registration Statement). The term "Prospectus" as used in this Agreement means
the final prospectus included as part of the Registration Statement, including,
if applicable, the information contained in any final prospectus filed with the
Commission pursuant to Rule 424(b) of the Commission under the Securities Act or
deemed by virtue of Rule 430A of the Commission under the Securities Act to be
part of the Registration Statement. The term "Preliminary Prospectus" refers to
and means any prospectus included in the Registration Statement or any
-3-
<PAGE>
amendment thereto prior to the Registration Statement becoming effective under
the Securities Act.
(b) Use and Accuracy of Preliminary Prospectus. The Commission
has not issued any order preventing or suspending the use of any Preliminary
Prospectus or any part thereof, and each Preliminary Prospectus delivered to the
Underwriter for dissemination in connection with the offering, at the time of
filing thereof and delivery to the Underwriter for such dissemination, did not
contain any untrue statement of a material fact, or omit to state a material
fact required to be stated therein or necessary to make the statements therein,
in the light of the circumstances under which they were made, not misleading;
the foregoing shall not apply, however, to statements in, or omissions from, any
Preliminary Prospectus that are based upon and conform to written information
furnished to the Company with respect to Underwriter (or any affiliate or
associate thereof) by or on behalf of the Underwriter or such Underwriter
specifically for use in the preparation thereof.
(c) Effectiveness and Accuracy of Registration Statement. The
Registration Statement and the Prospectus, from the Effective Date through the
Closing Date and, if Option Shares are purchased, up to the Option Closing Date,
will comply as to form in all material respects with the applicable requirements
of the Securities Act and the Regulations, and neither the Registration
Statement nor the Prospectus will, on such dates, contain any untrue statement
of a material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, and, on such dates, no
event will have occurred that should have been set forth in an amendment or
supplement to the Registration Statement or the Prospectus that has not then
been set forth in such an amendment or supplement; the foregoing shall not
apply, however, to statements in, or omissions from, the Registration Statement
or Prospectus that are based upon and conform to written information furnished
to the Company with respect to the Underwriter (or any affiliate or associate
thereof) by or on behalf of the Underwriter specifically for use in the
preparation thereof. The descriptions in the Registration Statement and the
Prospectus of contracts and other documents of the Company are accurate and
present fairly the information required to be disclosed, and there are no
contracts or other documents required to be described in the Registration
Statement or Prospectus or to be filed as exhibits to the Registration Statement
under the Securities Act or the Regulations which have not been so described or
filed as required.
(d) Independent Public Accountants. Ernst & Young, LLP, the
accountants whose reports on the financial statements of the Company are filed
with the Commission as a part of the Registration Statement, are, and were
during the periods covered by its report, independent public accountants with
respect to the Company as required by the Securities Act and the Regulations.
(e) Organization and Qualification. Each of the Company and
its wholly-owned subsidiaries, College Directory Publishing, Inc., a Delaware
corporation, and University Publishing, Inc., a Pennsylvania corporation
(together, the "Subsidiaries"), is (i) a corporation duly organized and existing
in good standing under the laws of the state of its incorporation and has the
requisite corporate power to own its properties and to carry on its business as
now being conducted and (ii) qualified to conduct business as a foreign
corporation to do business and in good standing in every jurisdiction in which
the nature of the business conducted by it makes such qualification necessary
and where the failure so to qualify would have a Material Adverse
-4-
<PAGE>
Effect. Other than the Subsidiaries, the Company has no subsidiaries and has no
equity interest in, and no loans to or guarantee of obligations of, any other
corporation, limited liability company, partnership or other entity. As used in
this Agreement, the term "Material Adverse Effect" means any material adverse
effect on (A) the Common Stock and the Warrants; (B) the ability of the Company
to perform its obligations under this Agreement, or (C) the business,
operations, properties, financial condition or prospects of the Company or the
Subsidiaries. As used in this Agreement, the term "the Company's Knowledge" or
words of like import shall mean and include (i) actual knowledge of the Company
or either Subsidiary or any executive officer or director of the Company or
either of the Subsidiaries and (ii) that knowledge which a prudent
businessperson could reasonably have obtained in the management of such person's
business affairs after exercising reasonable due diligence.
(f) No Other Interests of Investments. Except for the
Company's ownership of and advances to the Subsidiaries, neither the Company nor
either Subsidiary controls, directly or indirectly, or has any direct or
indirect interest or investment in, any corporation, firm, partnership,
association, limited liability company, business trust or other business
organization, and does not own any shares of stock or any other securities of
(other than bank certificates of deposit, shares or units of interest in "money
market" funds, or as set forth in the Prospectus) and, except as set forth in
the Prospectus, neither the Company nor either Subsidiary has made any loans
(other than advances to employees in the ordinary course of business, none of
which are material or made to officers or directors) to or guaranteed any
obligations of, any other corporation, firm, partnership, association, limited
liability company, business trust or other business organization.
(g) Capitalization and Legality of Securities.
(i) The authorized, issued and outstanding
capital stock of the Company is as set forth in the Prospectus under the caption
"Capitalization." The capital stock and other securities of the Company conform
to the descriptions thereof contained in the Prospectus under the caption
"Description of Capital Stock." Except as otherwise set forth in the Prospectus,
there are no outstanding options, warrants, or other rights to purchase any
shares of Common Stock or other capital stock, or to purchase any other
securities convertible into or exchangeable for Common Stock. The outstanding
shares of Common Stock of the Company and the outstanding shares of stock of
each of the Subsidiaries have been duly authorized and validly issued and are
fully paid and non-assessable, and the shares of Common Stock issuable upon
exercise of outstanding options, including the stock option plan as described in
the Prospectus, have been duly authorized for issuance and, when issued pursuant
to the terms of the applicable option, will be duly and validly authorized and
issued, fully paid and nonassessable. All the shares of Common Stock which are
registered pursuant to the Registration Statement and issuable upon exercise of
the Warrants have been duly authorized and, when issued and delivered against
payment therefor as provided in this Agreement or the Warrants, as applicable,
will be validly issued, fully paid and nonassessable.
-5-
<PAGE>
(ii) All of the outstanding shares of Common
Stock and all of the outstanding shares of the Company's Series A Preferred
Stock, par value $.001 per share ("Series A Preferred Stock"), Series B
Preferred Stock, par value $1.00 per share ("Series B Preferred Stock"), Series
C Preferred Stock, par value $.001 per share ("Series C Preferred Stock"),
Series D Preferred Stock, par value $.001 per share ("Series D Preferred
Stock"), and Series E Convertible Redeemable Preferred Stock, par value $.001
per share ("Series E Preferred Stock"), are duly and validly authorized and
issued, fully paid and non-assessable, conform to the description set forth in
the Prospectus and do not have any, and were not issued in violation of any,
preemptive rights under the Company's certificate of incorporation or by-laws or
any other agreement. The shares of Common Stock issuable upon conversion of the
Series A, B, C, D and E Preferred Stock as described in the Prospectus, have
been duly authorized for issuance and, when issued upon conversion thereof will
be are duly and validly authorized and issued, fully paid and non-assessable,
and do not have any, and were not issued in violation of any, preemptive rights
under the Company's certificate of incorporation or by-laws or any other
agreement. At the Closing Date, the Series A, B, C, and D Preferred Stock are
automatically converted into Common Stock as described in the Prospectus.
(iii) The Company owns all of the issued and
outstanding capital stock of each of the Subsidiaries. Neither Subsidiary has
granted any options, warrants or rights or issued any convertible notes,
debentures, preferred stock or other securities or entered into any agreement or
understanding upon the exercise or conversion of which or pursuant to the terms
of which any shares of any class or series of capital stock of either Subsidiary
may be issued.
(iv) This Agreement constitutes, and the
Warrants, when issued pursuant to this Agreement, will constitute valid and
binding obligations of the Company enforceable in accordance with their
respective terms, except to the extent that enforcement thereof may be limited
by (i) bankruptcy, insolvency, reorganization, moratorium, fraudulent
conveyance, and similar laws and court decisions now or hereafter in effect
relating to or affecting creditors' rights and remedies generally and (ii)
general principles of equity (regardless of whether such enforcement is
considered in a proceeding at law or in equity). A sufficient number of shares
of Common Stock have been reserved for issuance upon sale of the Shares pursuant
to this Agreement and for issuance upon exercise of the Warrants.
(h) Financial Statements. The financial statements (audited
and unaudited) of the Company and the related financial exhibits and schedules
included in the Prospectus or filed with and as part of the Registration
Statement present fairly the financial position of the Company (and the
Subsidiaries and its predecessor as set forth in the Prospectus) as of the
balance sheet dates and the results of its operations and cash flows for the
respective periods covered thereby, and such financial statements have been
prepared in accordance with generally accepted accounting principles applied on
a consistent basis throughout the periods involved; all adjustments that are
necessary for a fair presentation of the results for such periods have been
made. The financial statements filed with the Registration Statement or included
in the Prospectus are the only financial statements required under the
Securities Act or the Regulations to be included in the Registration Statement
and Prospectus.
(i) Material Loss. Neither the Company nor either Subsidiary
has, since the date of the latest financial statements included in the
Prospectus, sustained any material loss or interference with its business from
fire, explosion, flood, or other calamity, whether or not covered by insurance,
or from any labor dispute or court or governmental action, order, or decree,
other
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than as set forth in the Prospectus. Since the respective dates as of which
information is set forth in the Prospectus, and except as otherwise set forth
therein: (i) there has not been any change in the capital stock, or material
increase in the long-term debt, of the Company or either Subsidiary; (ii) there
has not been any material adverse change in the condition (financial or
otherwise), business, results of operations, general affairs, or management of
the Company or either Subsidiary, whether or not arising in the ordinary course
of business; (iii) no event has occurred that would result in a material write-
down of assets of the Company or either Subsidiary; (iv) neither the Company nor
either Subsidiary has incurred any material liability or obligation, direct or
contingent, or entered into any material transaction, other than those in the
ordinary course of business; (v) neither the Company nor either Subsidiary has
purchased any of the Company's outstanding capital stock; (vi) there has been no
dividend or distribution of any kind declared, paid, or made by the Company in
respect of the Common Stock; (vii) there has not been any material interruption
in the availability of materials, supplies, or equipment necessary for the
conduct of the business of the Company, either Subsidiary or the Joint Venture;
and (viii) there has not been any execution or imposition of any material lien,
charge, or encumbrance upon any property or assets of the Company or either
Subsidiary.
(j) Compliance with Documents and Laws. Neither the Company
nor either Subsidiary is in violation of its certificate of incorporation,
by-laws, or other governing documents, or in material default in the due
performance of any material lease or other material contract, indenture,
mortgage, deed of trust, note, loan, or other material agreement or instrument
to which the Company or either Subsidiary is a party or by which it or any of
its properties or businesses are subject or bound, or, to the Knowledge of the
Company, any applicable material license, franchise, certificate, permit,
authorization, statute, rule or regulation of or from any public, regulatory, or
governmental agency or authority having jurisdiction over the Company or either
Subsidiary or any of their respective properties or assets, or any approval,
consent, order, judgment or decree, except such as could not reasonably be
expected to have a Material Adverse Effect. The execution and performance of
this Agreement by the Company will not conflict with or result in a breach or
violation of, or default under, any material lease or other material contract,
indenture, mortgage, deed of trust, note, loan, or other material agreement or
instrument to which the Company or either of its Subsidiaries is a party or by
which the Company, either of the Subsidiaries or any of their respective
properties or businesses are subject, and no consent, approval, authorization,
or order of any court or governmental authority or agency having jurisdiction
over any of the Company, either Subsidiary or any of their respective properties
or assets is required to be obtained by the Company for the consummation by the
Company of the transactions contemplated by this Agreement, except such as have
been obtained or may be required under the Securities Act, the Regulations, the
Securities Exchange Act of 1934, as amended (the "Exchange Act") and the
regulations of the Commission thereunder or state securities (or "Blue Sky")
laws or the applicable rules and regulations promulgated thereunder.
(k) Authorization of Agreements. Each of this Agreement and
the Warrants has been duly authorized, executed and delivered by the Company and
constitutes the valid, binding and enforceable obligation of the Company. The
execution, delivery and performance of this Agreement and the Warrants by the
Company, the consummation by the Company of the transactions herein and therein
contemplated, and the compliance by the Company with the terms of this Agreement
and the Warrants have been duly authorized by all necessary corporate action and
do not and will not, with or without the giving of notice or the lapse of time,
or both, (i) result in any violation of the certificate of incorporation and by-
laws of the Company, (ii) result in a breach of or conflict with any of the
terms or provisions of, or constitute a default under, or result
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<PAGE>
in the modification or termination of, or result in the creation or imposition
of any lien, security interest, charge or encumbrance upon any of the properties
or assets of the Company or either Subsidiary pursuant to any indenture,
mortgage, note, contract, commitment or other agreement or instrument to which
the Company or either Subsidiary is a party or which the Company or either
Subsidiary or any of their respective properties or assets are or may be bound
or affected, (iii) violate any existing applicable law, rule, regulation,
judgment, order or decree of any governmental agency or court, domestic or
foreign, having jurisdiction over the Company, either Subsidiary or any of their
respective properties or business, or (iv) violate any permit, certification,
registration, approval, consent, license or franchise applicable to the business
or properties of the Company or either Subsidiary.
(l) Title to Property. The Company has good title to, and
valid and enforceable leasehold estates in, all items of property described in
the Registration Statement or Prospectus as owned or leased by it, as the case
may be, or that are material to the conduct of the Company's businesses, free
and clear of all liens, encumbrances, claims, security interests, and other
restrictions, other than those described in the Prospectus and those that
individually or in the aggregate could not reasonably be expected to have a
Material Adverse Effect. The leases, licenses or other contracts or instruments
under which the Company leases, holds or is entitled to use any property, real
or personal, are valid, subsisting and enforceable as against the Company and,
to the Company's Knowledge, the other parties thereto, with only such exceptions
as are not material and do not interfere with the use of such property made, or
proposed to be made, by the Company, and all rentals, royalties or other
payments accruing thereunder which became due prior to the date of this
Agreement have been duly paid, and neither the Company nor, to its knowledge,
any other party is in default thereunder and, to the Company's knowledge, no
event has occurred which, with the passage of time or the giving of notice, or
both, would constitute a default thereunder. The Company has not received notice
of any violation of any applicable law, ordinance, regulation, order or
requirement relating to its owned or leased properties except any such violation
that could not reasonably be expected to have a Material Adverse Effect. The
Company has insured their respective properties against loss or damage by fire
or other casualty and maintain such other insurance which management of the
Company believes is adequate for the Company's present and proposed business
operations.
(m) Copyrights, Trademarks and Intellectual Property Rights.
Except as set forth in the Prospectus, the Company owns or possesses the
requisite licenses or rights to use all trademarks, copyrights, service marks,
service names, and trade names, if any, presently used in or necessary to
conduct their respective businesses as described in the Prospectus. Neither the
Company nor either Subsidiary has knowingly infringed the rights of another in
any trademark, copyright, service mark, service name, trade name, trade secret,
confidential information, or any other such intellectual property, and there is
no outstanding claim of others alleging any such infringement. To the Company's
Knowledge, there is no claim or action by any person pertaining to, or
proceeding pending, or threatened, which challenges the exclusive rights of the
Company or either Subsidiary with respect to any trademarks, copyrights, service
marks, service names and trade names used in the conduct of the Company's or
either Subsidiary's business.
(n) Litigation. There is no litigation or governmental or
other proceeding or investigation before any court or before or by any public,
regulatory, or governmental agency or authority (or any judgment, decree, or
order of such court, agency, or authority) pending or, to the Company's
Knowledge, threatened, to which the Company or either Subsidiary is a party or
of which the business or property of the Company is the subject that is material
to the Company and
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<PAGE>
is not disclosed in the Prospectus. There are no outstanding orders, judgments
or decrees of any court, governmental agency or other tribunal naming the
Company or either Subsidiary and enjoining the Company or either Subsidiary from
taking, or requiring the Company or either Subsidiary to take, any action, or to
which the Company, either Subsidiary, or their respective properties or
businesses are bound or subject.
(o) Prohibited Payments. Neither the Company nor either
Subsidiary nor any of their respective directors or officers acting in any
capacity on behalf of the Company or either Subsidiary nor, to the Company's
Knowledge, any of the Company's or its Subsidiaries' sales agents, directly or
indirectly, has used any corporate funds for unlawful contributions, gifts,
entertainment, or other unlawful expenses relating to political activity; made
any unlawful payment to foreign or domestic government officials or employees or
to foreign or domestic political parties or campaigns from corporate funds;
violated any provision of the Foreign Corrupt Practices Act of 1977, as amended;
or made any bribe, rebate, payoff, influence payment, kickback, or other
unlawful payment.
(p) Internal Accounting Controls. The Company and its
Subsidiaries maintain a system of internal accounting controls which, taken as a
whole, is sufficient to meet the broad objectives of preventing and detecting
errors or irregularities in amounts that would be material to the Company's and
each Subsidiary's financial statements, and neither the Company nor either
Subsidiary has received any formal or informal notice from its independent
accountants to the contrary. Except as specifically disclosed in the Prospectus,
neither the Company nor any of its employees or agents has made any payment or
transfer of any funds or assets of the Company, conferred any personal benefit
by the use of the assets of the Company or received any funds, assets, or
personal benefit in violation of any law, rule, or regulation, which is required
to be stated in the Prospectus or necessary to make the statements therein not
misleading.
(q) Tax Returns. The Company and each Subsidiary has filed all
Federal, state, and local tax returns required to be filed through the date of
this Agreement, including but not limited to franchise tax returns, or has
obtained valid extensions with respect to such filings not made; neither the
Company nor either Subsidiary is in default in the payment of any taxes or other
amounts that were payable pursuant to said returns or any assessments with
respect thereto; and neither the Company nor either Subsidiary is aware of any
tax or other payment deficiency outstanding, proposed, or assessed against the
Company or either Subsidiary that could, in the aggregate, have a Material
Adverse Effect. Except as disclosed in writing to the Underwriter, neither the
Company nor either Subsidiary has executed or filed with any taxing authority,
foreign or domestic, any agreement extending the period for assessment or
collection of any income taxes and is not a party to any pending action or
proceeding by and foreign or domestic governmental agency for assessment or
collection of taxes; and no claims for assessment or collection of taxes have
been asserted against the Company or either Subsidiary.
(r) Employee Plans. Except as set forth in the Prospectus, the
Company does not have any employee benefit plans (including, without limitation,
pension, profit sharing, and welfare benefit plans, but excluding health and
disability insurance plans and disability provisions of employment contracts) or
deferred compensation arrangements.
(s) Labor Disputes. No labor dispute exists or, to the
Company's Knowledge, is imminent with the employees or other persons engaged by
the Company or by either of its Subsidiaries which could reasonably be expected
to result in a Material Adverse Effect.
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<PAGE>
(t) Registration Rights. No person, firm or entity of any
nature whatsoever has any right to require the Company to register or attempt to
register under the Securities Act or any other securities law any shares of
Common Stock or securities convertible into or exchangeable or exercisable for
any shares of Common Stock, by reason of the filing of the Registration
Statement with the Commission, and no person, firm or entity has any rights
which may require the Company to file a registration statement within eighteen
(18) months from the Effective Date.
(u) Stabilization. Neither the Company nor any person that
controls, is controlled by or is under common control with the Company has taken
or will take, directly or indirectly, any action designed to, or that might
reasonably be expected to, cause or result in under the Exchange Act,
stabilization or manipulation of the price of any security in order to
facilitate the sale or resale of any of the Securities.
(v) Finder or Broker. The Company has not retained or dealt
with any broker or finder with respect to the transactions contemplated hereby,
and the Company knows of no outstanding claims for services in the nature of a
finder's fee or origination fee with respect to the sale of the Securities. The
Company will indemnify and hold harmless Underwriter with respect to any claim
for a finder's fee by any party claiming to be owed such fee based on contacts,
conversations or arrangements with the Company.
(w) Employment Agreements. The employment agreements between
the Company and its officers named under the caption "Management -- Employment
Agreements" in the Prospectus, are binding and enforceable obligations upon the
respective parties thereto in accordance with their respective terms, except as
such enforceability may be limited by applicable bankruptcy, insolvency,
moratorium or other similar laws or arrangements affecting creditors' rights
generally and subject to principles of equity, and public policy considerations.
(x) Contracts. Each material contract or other instrument
(however characterized or described) to which the Company or either Subsidiary
is a party or by which it or its property or business is or may be bound or
affected and to which reference is made in the Prospectus has been duly and
validly executed by the Company or by a Subsidiary, as applicable, is in full
force and effect in all material respects and, assuming that each other party
has full power, corporate or other, to execute, deliver and perform such
contracts, is enforceable against the parties thereto in accordance with its
terms, and none of such contracts or instruments has been assigned by the
Company or either Subsidiary, and neither the Company nor either Subsidiary nor,
to the Company's Knowledge, any other party is in default thereunder and, to the
Company's Knowledge, no event has occurred which, with the lapse of time or the
giving of notice, or both, would constitute a default thereunder. None of the
material provisions of such contracts or instruments violates any existing
applicable law, rule, regulation, judgment, order or decree of any governmental
agency or court having jurisdiction over the Company or either Subsidiary or any
of their assets or businesses, where such violation or default would have a
Material Adverse Effect.
(y) Year 2000 Compliance. Except as disclosed in the
Prospectus, the Company's and each Subsidiary's computer systems and products
are designed to be year 2000 compliant, and the disclosure in the Prospectus
concerning Year 2000 compliance is true and correct in all material respects.
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<PAGE>
3. Covenants of the Company. The Company and each Subsidiary, as
applicable, covenants and agrees with the Underwriter that:
(a) Effectiveness of Registration Statement. The Company will
use its best efforts to cause the Registration Statement and any subsequent
amendments thereto to become effective as promptly as possible. The Company will
notify you promptly (i) when the Registration Statement or any subsequent
amendment thereto has become effective or any supplement to the Prospectus has
been filed and (ii) of the receipt of any requests, and the nature and substance
thereof, by the Commission for any amendment or supplement to the Registration
Statement or Prospectus or for any other additional information. The Company
will prepare and file with the Commission, promptly upon your reasonable
request, any amendments or supplements to the Registration Statement or
Prospectus that may be necessary or advisable in connection with the
distribution of the Securities or any of the Securities. The Company will file
no amendment or supplement to the Registration Statement or Prospectus (other
than any document required to be filed under the Exchange Act that upon filing
is deemed to be incorporated by reference therein) to which you shall reasonably
object by notice to the Company after having been furnished a copy within a
reasonable time, but no later than three (3) business days, prior to the
proposed filing thereof. The Company will furnish to you at or prior to the
filing thereof a copy of any document that upon filing is deemed to be
incorporated by reference in whole or in part in the Registration Statement or
Prospectus.
(b) Notice of Stop Order. The Company will advise you
promptly, and confirm in writing, when and if it receives notice or obtains
Knowledge of (i) the issuance by the Commission of any stop order or other order
preventing or suspending the use of any Preliminary Prospectus or the Prospectus
or the effectiveness of the Registration Statement, (ii) the suspension of the
qualification of any of the Securities for offering or sale in any jurisdiction
in which they were previously qualified, or (iii) the initiation or threat of
any proceeding for that purpose. The Company will promptly use its best efforts
to prevent the issuance, and to obtain the withdrawal if such issuance is not
prevented, of any such stop order or other suspension.
(c) Compliance with the Securities Act and the Exchange Act.
Within the time during which a prospectus relating to the Securities is required
to be delivered under the Securities Act, the Company will use its best efforts
to comply with all requirements imposed upon it by the Securities Act and the
Exchange Act, as now and hereafter amended, and by the Regulations, as from time
to time in force to permit the continuance of sales of or dealings in the
distribution of the Securities as contemplated by the provisions therein, in
this Agreement, and in the Prospectus. If during such period any event as to
which the Company has Knowledge occurs as a result of which the Prospectus as
then amended or supplemented includes an untrue statement of a material fact or
omits to state a material fact necessary to make the statements therein, in the
light of the circumstances then existing, not misleading, or if during such
period it is necessary to amend the Registration Statement or supplement the
Prospectus to comply with the Securities Act, the Company will notify you
promptly, will amend the Registration Statement or supplement the Prospectus to
comply with the Securities Act, the Company will notify you promptly, will amend
the Registration Statement or supplement the Prospectus (at the expense of the
Company) so as to correct such statement or omission or otherwise to effect such
compliance, and will furnish without charge to Underwriter and to any dealer in
securities as many copies of such amended or supplemented Prospectus as you may
from time to time reasonably request.
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<PAGE>
(d) Copies of Registration Statement. The Company will deliver
to Underwriter, from time to time without charge, such number of copies of the
Registration Statement (at least one of which delivered to you shall be manually
signed and will include all exhibits), each Preliminary Prospectus, the
Prospectus, and all amendments and supplements thereto, in each case as soon as
available and in such quantities and to such persons as requested by you.
(e) Blue Sky Qualifications. The Company will use its best
efforts, in cooperation with you and your counsel, to register or qualify the
Securities for offering and sale under the securities laws of such jurisdictions
as you reasonably designate, and will continue such qualifications in effect for
so long as may be necessary to complete the distribution of such Securities;
provided that in no event shall the Company be required in connection therewith
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 general service of process in
any jurisdiction where it is not now so subject.
(f) Section 11(a) Earnings Statement. The Company will make
generally available to its security holders (within the meaning of Section 11(a)
of the Securities Act) and deliver to you as soon as practicable (but not later
than fifteen (15) months after the Effective Date), an earnings statement that
shall satisfy the requirements of Section 11(a) and Rule 158 under the
Securities Act, covering a period of at least twelve (12) consecutive months
after the Effective Date.
(g) Information to the Underwriter. Until the earlier of the
third (3rd) anniversary of the Effective Date or such date as of which the
Warrants have been exercised or have expired, the Company will, at its cost and
expense, furnish or cause to be furnished to you and your counsel, with
reasonable promptness, copies of (i) annual audited balance sheets and audited
statements of operations and changes in cash flows of the Company, and quarterly
balance sheets and statements of income of the Company (which need not be
audited), (ii) all reports, if any, to its stockholders, (iii) all reports filed
by the Company with the Commission, and any securities exchange or the National
Association of Securities Dealers, Inc. ("NASD"), and (iv) such other material
documents and information with respect to the Company and its affairs as you may
from time to time reasonably request and which the Company can produce at
reasonable cost; provided, however, that the Company shall not be required to
produce such information or documents if the Company has received the opinion of
its counsel that providing such information to Underwriter is reasonably likely
to create liability under applicable Federal and state securities laws. Upon
request, the Company shall also provide the Underwriter with current lists of
its stockholders. In addition to the foregoing, during the six months following
the Effective Date, the Company shall, at its cost and expense, furnish or cause
to be furnished to the Underwriter, (x) daily issuer transfer sheets by
Depository Trust Company ("DTC"), which shall be transmitted to the Underwriter
by fax daily, and (y) weekly transfer sheets provided by the Company's transfer
agent, which shall be provided to the Underwriter at the end of each week. For
the three years subsequent to such six month period, upon request of the
Underwriter, the Company shall furnish or cause to be furnished to the
Underwriter with copies of the Company's monthly DTC transfer sheets and
transfer sheets from the Company's transfer agent.
(h) Listing in Securities Manual; Investor Relations Firm. The
Company shall, as soon as practicable after the Effective Date, use its best
efforts to obtain listing on an
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expedited basis in Standard and Poor's Corporation Records or such other
recognized securities manuals for which it may qualify for listing, and the
Company shall use its best efforts to maintain such listings for at least three
(3) years after the Closing Date. The Company further agrees at any time during
the three (3) year period following the Closing Date, to engage within sixty
(60) days of a written request by you, the services of an investor relations
firm reasonably acceptable to you, who will act as investor relations liaison
during such three (3) year period, which spokesperson is not required to be the
same person during the duration of the three (3) year period, to consult with
and advise the Company regarding communications and relations with stockholders
and the financial and investment communities.
(i) Listing on Nasdaq and the Pacific Exchange. The Company
shall apply for the inclusion of the Common Stock on The Nasdaq SmallCap Market
(the "SmallCap Market") and the Pacific Exchange ("Pacific") as a Tier I Issuer
under proposed symbols acceptable to the Underwriter, to take effect on the
Effective Date. At such time as the Company meets the eligibility requirements
for the inclusion of the Common Stock on the Nasdaq National Market ("NNM"), the
Company shall use its commercially reasonable efforts to obtain such listing.
The Company shall use its best efforts to maintain the Nasdaq inclusion provided
for in this Paragraph 3(i) for at least three (3) years after the date of this
Agreement.
(j) Exchange Act Filings. The Company shall file such
registration statement and take such other reasonable action, including the
filing of a registration statement on Form 8-A and requesting concurrent
effectiveness with the Registration Statement, to register Common Stock and the
Warrants pursuant to Section 12(g) of the Exchange Act, such registration
statement to become effective simultaneously with the effectiveness of the
Registration Statement, and shall thereafter use its best efforts to keep such
registration effective. The Company shall comply with the Securities Act, the
Regulations, the Exchange Act and the rules and regulations promulgated
Commission under the Exchange Act, the applicable rules and regulations of the
NASD and Pacific, and applicable state securities laws so as to permit the
continuance of sales of and dealings in the Common Stock in compliance with
applicable provisions of such laws, rules, and regulations, including the filing
with the Commission and the NASD and Pacific of all reports required to be so
filed, and the Company will deliver to the holders of the Securities all reports
required to be provided to such holders pursuant to such laws, rules, or
regulations. The Company shall promptly file with the Commission and deliver to
you, from time to time as required to make the same reasonably current, such
statements and reports as are required under Rule 15c2-11 of the Exchange Act.
(k) Use of Proceeds. The Company shall apply the net proceeds
received from the sale of the Securities in the manner set forth under the
caption "Use of Proceeds" in the Prospectus. The Company shall report the use of
proceeds from the Offering in accordance with the Regulations and will provide a
copy of each such report to you and your counsel.
(l) Board Meetings and Membership.
(i) For a period of five (5) years commencing
on the Closing Date, the Underwriter shall have the right to designate one
nominee (reasonably acceptable to the Company) for election to the Company's
Board of Directors. The Company shall initially elect such designee as soon as
possible after the identity of such designee is provided to the Company and
thereafter shall include the Underwriter's designee as a member of the board of
directors' slate. Following the election of such nominee as a director, such
person shall receive the same
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compensation, including options, that is paid to other non-employee directors of
the Company and shall be entitled to receive reimbursement for all reasonable
costs incurred in attending such meetings including, but not limited to, food,
lodging and transportation. The Company agrees to indemnify and hold such
director harmless to the maximum extent permitted by law (to the extent not
precluded by the Company's certificate of incorporation), against any and all
claims, actions, awards and judgments arising out of his or her service as a
director and, in the event the Company maintains a liability insurance policy
affording coverage for the acts of its officers and directors, to include such
director as an insured under such policy. Such director shall also serve on the
Company's audit, compensation and, if such committees are appointed, nominating
and executive committees. The rights and benefits of such indemnification and
the benefits of such insurance shall, to the extent possible, extend to the
Underwriter insofar as it may be or may be alleged to be responsible for such
director, without additional cost to the Company.
(ii) In lieu of designating a member of the
board of directors pursuant to Paragraph 3(l)(i) of this Agreement, the
Underwriter shall have the right, during the five-year period commencing on the
Closing Date, to have one observer to attend all meetings of the Board of
Directors of the Company and its executive, audit, compensation and such other
committees as shall be designated by Underwriter. Such observer shall be
entitled to the same compensation and reimbursement for expenses of attending
meetings as is provided to non-employee directors and committee members and, to
the extent it may legally do so, such indemnity as is provided to the Company's
non-employee directors.
(m) Future Sales. Except for the permitted issuances described
below, for a period of one (1) year from the Effective Date, the Company shall
not sell or otherwise dispose of any Common Stock (or securities convertible
into or exercisable for Common Stock) or Preferred Stock of the Company or any
subsidiary of the Company without the Underwriter's prior written consent.
Permitted issuance shall mean shares of Common Stock issuable (i) upon the
exercise or conversion of options, warrants or shares of preferred stock
specifically contemplated in the Prospectus or provided for in this Agreement,
(ii) pursuant to and in order to consummate a merger with or acquisition of an
unaffiliated party in a transaction negotiated at arms' length and approved by
(A) a majority of the Company's Board of Directors, and (B) all of the
non-employee directors; (iii) in a public offering approved by the Underwriter,
and (iv) pursuant to a private placement, at a price per share, or, with respect
to convertible securities and warrants, having an exercise or conversion price,
not less than 80% of the average of the closing bid prices of the Common Stock
for ten (10) consecutive trading days ending not earlier than three (3) days
prior to the date of such sale or on other terms acceptable to the Underwriter.
(n) Press Releases. Prior to the later of the Closing Date or
the Option Closing Date, if any, the Company will not issue, directly or
indirectly, without your prior written consent (which consent shall not be
unreasonably withheld), any press release or other public communication or hold
any press conference with respect to the Company, its activities, or the public
offering, other than trade releases in the ordinary course of the Company's
business.
(o) Undertakings. The Company will comply with the provisions
of all undertakings contained in the Registration Statement or made in
connection with any application to register or qualify any of the Securities
under blue sky laws.
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(p) Certain Deliveries to the Underwriter. The Company will
obtain from its officers, counsel, and accountants those certificates, opinions,
and letters referred to in Paragraph 6 of this Agreement.
(q) Key Man Life Insurance. The Company will obtain on or
before the Closing Date, and use its reasonable best efforts to maintain
thereafter for the term of their respective employment with the Company, key man
life insurance policies insuring the lives of Messrs. Michael S. Paul and John
S. Rafanello, with the Company named as sole beneficiary, in a policy amount of
not less than $1,000,000.
(r) Employment Agreements. The Company has entered into
employment agreements with Messrs. Michael S. Paul, John S. Rafanello and Larry
Weaver on the terms that are disclosed in the Prospectus.
(s) Redemption and Dividends. For a period of two (2) years
from the Closing Date, the Company shall not redeem any of its securities (other
than redemptions that may be required in connection with possible termination of
employment agreements with the Company under the terms of Employment Agreements
in effect on the Effective Date or as otherwise provided in this Agreement), and
shall not pay any dividends or make any other cash distribution without
obtaining the Underwriter's prior written consent. The Underwriter shall either
approve or disapprove such contemplated redemption of securities or dividend
payment or distribution within ten (10) business days from the date the
Underwriter receives written notice of the Company's proposal with respect
thereto; a failure of the Underwriter to respond within the ten (10) business
day period shall be deemed approval of the transaction.
(t) Restrictions on Sales, Options by Affiliates. The Company
will cause each of its officers, directors and stockholders to agree in writing
that such person (i) will not, during the twelve (12) month (nine (9) month for
stockholders who are not officers, directors or 5% stockholders) period
immediately following the Effective Date (the "Lockup Period"), offer, pledge,
sell (which term includes a short sale or sale against the box), contract to
sell, grant any option for the sale of, or otherwise transfer or dispose of,
directly or indirectly, any shares of the Company's Common Stock without
obtaining the Underwriter's prior written approval.
(u) Outstanding Warrants, Options and Other Rights. There
shall not be outstanding on the Closing Date any warrants, options, or other
rights to purchase any shares of Common Stock, except as otherwise set forth in
the Prospectus. During the two (2) years following the Effective Date, the
Company shall not, without the prior written consent of the Underwriter, grant
options, rights or warrants or sell any securities to its officers, directors,
employees or consultants under its stock option plan as described in the
Prospectus or otherwise except at an exercise, purchase or conversion price
which is not less than the market price of the Common Stock on the date of
grant, issuance or sale, as the case may be.
(v) Restrictions on Filing Registration Statements. During the
eighteen (18) months following the Effective Date, the Company will not, without
the prior written consent of the Underwriter, register any securities pursuant
to the Securities Act, except that such restriction shall not apply to the
registration of Common Stock issuable pursuant to the Company's present stock
option plan, as described in the Prospectus, on a Form S-8 registration
statement.
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(w) Waiver of Registration Rights. The Company shall obtain a
waiver of so-called "piggy-back" registration rights from any holders of any
securities of the Company who have the right to require inclusion of any or all
of their securities in the Registration Statement contemplated by this
Agreement.
(x) Directors and Officers Liability Insurance. Within ninety
(90) days after the effective date of the Registration Statement, the Company
will use commercially reasonable efforts to obtain Directors and Officers
Liability Insurance in an amount no less than $5,000,000 per occurrence.
(y) Accounting Firm. The Company shall retain an independent
public accounting firm reasonably acceptable to the Underwriter for a period of
three (3) years from the Effective Date. The Underwriter agrees that the firm of
Ernst & Young, LLP is acceptable to the Underwriter. In addition, for a period
of two years from the Effective Date, the Company, at its expense, shall cause
its independent accounting firm to review, but not audit, the Company's
financial statements for each of the first three fiscal quarters prior to the
announcement of quarterly financial information, the filing of the Company's
quarterly report on Form 10-QSB and the mailing of quarterly financial
information to stockholders, if applicable.
(z) Restrictions on Acquisitions. During the one (1) year
following the Closing Date, without the prior consent of the Underwriter, the
Company shall not enter into any agreement to acquire any other business or the
assets of any other business. The term "acquire" shall be broadly construed and
shall include the acquisition of assets, the merger with or into another
corporation or entity, whether directly by the Company or through a subsidiary,
or the acquisition of stock or other equity interests, however defined, of
another corporation, partnership, limited liability company, business trust,
sole proprietorship or other entity of any kind or description.
4. Offering Expenses and Related Matters
(a) General. Whether or not the Public Offering is
consummated, the Company will pay all costs and expenses incident to the
performance of the obligations of the Company hereunder, including without
limiting the generality of the foregoing, (i) the preparation, printing, filing,
and copying of the Registration Statement, Prospectus, this Agreement, blue sky
memoranda, the Agreement Among Underwriter, if any, the Selected Dealers
Agreement, and other underwriting documents, if any, and any drafts, amendments
or supplements thereto, including the cost of all copies thereof supplied to the
Underwriter in such quantities as reasonably requested by the Underwriter, the
costs of mailing Prospectuses to offerees and purchasers of the Securities, and
the out-of-pocket travel expenses of the Underwriter and counsel to the
Underwriter or other professionals designated by the Underwriter to visit the
Company's facilities or its counsel's offices for purposes of discharging due
diligence responsibilities; (ii) the printing, engraving, issuance and delivery
of certificates representing Common Stock and Warrants, including any transfer
or other taxes payable thereon; (iii) the registration or qualification of the
Securities under state securities or "blue sky" laws, including the reasonable
fees and disbursements of counsel (regardless of whether such counsel is also
counsel to the Underwriter, subject to the limitation set forth in Paragraph
4(c) of this Agreement) and filing fees in connection therewith; (iv) all
reasonable fees and expenses of the Company's counsel and accountants; (v) all
filing fees in connection with review of the terms of the Public
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Offering by the NASD; (vi) all costs and expenses of any listing of the Common
Stock on the Pacific and the SmallCap Market or the NNM and/or any other stock
exchange and/or in Standard and Poor's Stock Guide and/or any other securities
manuals; (vii) all costs and expenses of four (4) bound volumes provided to the
Underwriter and its counsel of all closing documents, paper exhibits,
correspondence and records forming the materials included in the Public
Offering; (viii) the reasonable costs and expenses of all pre-closing and post-
closing advertisements relating to the Public Offering (such as tombstone adds),
in addition to fifteen (15) lucite cubes; (ix) all costs of holding
informational meetings and "road shows;" and (x) all other costs and expenses
incurred or to be incurred by the Company in connection with the transactions
contemplated by this Agreement. The obligations of the Company under this
Paragraph 4(a) shall survive any termination or cancellation of this Agreement.
(b) Non-Accountable Expense Allowance. In addition to the
Company's responsibility for payment of the foregoing expenses, the Company
shall pay to the Underwriter a non-accountable expense allowance equal to three
percent (3%) of the gross proceeds of the Public Offering, including in such
amount the proceeds from any sale of Option Shares. The non-accountable expense
allowance due shall be paid at the Closing Date and any Option Closing Date, as
applicable, and shall include fees and disbursements of Underwriter's counsel
(exclusive of legal fees for state registration and qualification as provided in
Paragraph 4(c) of this Agreement), but shall not include fees of the Company's
counsel, state registration filing fees, NASD filing fees, Nasdaq listing fees,
printing and mailing to members of the underwriting or selling group, and any
and all other expenses customarily paid by the issuer in a public offering of
securities.
You hereby acknowledge your prior receipt from the Company of
$50,000, which amount shall be applied to the non-accountable expense allowance
due when and if the Public Offering is closed. If the Public Offering does not
close, then any portion of such amount in excess of your accountable
reimbursable expenses shall be returned promptly by you to the Company.
(c) Compliance with Blue Sky Laws. You shall determine in
which states or jurisdictions the Securities shall be registered or qualified
for sale. Copies of all applications and related documents for the registration
or qualification of securities (except for the Registration Statement and
Prospectus) filed with the various states shall be supplied to the Company's
counsel not later than one business day following their transmission to the
various states, and copies of all comments and orders received from the various
states shall be made available promptly to the Company's counsel. Immediately
prior to the Effective Date, counsel for the Underwriter shall advise counsel
for the Company in writing of all states in which the offering has been
registered or qualified for sale or has been canceled, withdrawn, or denied, the
date of each such event, and the number of Securities registered or qualified
for sale in each such state. The Company shall be responsible for the cost of
state registration or qualification filing fees and the legal fees of
Underwriter's counsel in connection with such filings, which filing fees are
payable to Underwriter's counsel in advance of such filings. The legal fees
payable by the Company with respect to blue sky filings by Underwriter's counsel
shall be sixty thousand dollars ($60,000), of which twenty five thousand dollars
($25,000) has been paid. The Company hereby acknowledges that any remaining
balance with respect to legal fees or blue sky filing fees is immediately due
and payable.
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5. Warrants; Other Financial Arrangements
(a) Warrants. On the Closing Date, the Company will sell to
the Underwriter, for an aggregate price of $10, Warrants to purchase an
aggregate of one hundred fifty thousand (150,000) shares of Common Stock from
the Company at an exercise price equal to one hundred twenty percent (120%) of
the public offering price of the Shares. The Warrants and the underlying
securities shall be non-transferable (other than to officers or partners of
members of the underwriting or selling group or as otherwise may be permitted by
the NASD) during the one (1) year period commencing on the Effective Date. The
Warrants and the terms of the underlying securities shall be exercisable for a
period of four (4) years commencing one (1) year from the Effective Date. The
Warrants shall be in substantially the form provided by the Underwriter and
filed as an Exhibit to the Registration Statement.
(b) M/A Agreement.
(i) The Company hereby agrees that if, during
the five (5) year period commencing on the Effective Date, the Underwriter shall
introduce to the Company another party or entity (the "Introduced Party"), and,
as a result of such introduction, a Transaction is consummated with such
Introduced Party, the Company shall pay to the Underwriter a finder's fee (the
"Fee") equal to six percent (6%) of the first three million five hundred
thousand dollars ($3,500,000) of the consideration paid or received in such
Transaction; plus five percent (5%) of the consideration in excess of three
million five hundred thousand dollars ($3,500,000) and up to four million five
hundred thousand dollars ($4,500,000); plus four percent (4%) of the
consideration in excess of four million five hundred thousand dollars
($4,500,000) and up to five million five hundred thousand dollars ($5,500,000);
plus three percent (3%) of the consideration in excess of five million five
hundred thousand dollars ($5,500,000) and up to six million five hundred
thousand dollars ($6,500,000); plus two percent (2%) of the consideration in
excess of six million five hundred thousand dollars ($6,500,000). As used in
this Paragraph 5(b), a "Transaction" shall mean any of the following (i) the
sale of all or substantially all of the assets and properties of the Company or
all or substantially all of the stock of the Company, (ii) the merger or
consolidation of the Company with or into any other corporation or other entity
(other than a merger with a company owned or controlled by the Company), (iii)
the acquisition by the Company of the assets or stock of another business entity
in which the Company may be involved, or (iv) a joint venture, licensing or
marketing agreement or arrangement, however structured.
(ii) The Fee shall be paid in cash at the
closing of the particular Transaction, regardless of whether the Transaction
involves installment payments or the consideration paid includes securities or a
combination of securities and cash; provided, however, that in the event that
the Transaction is a marketing or license or other agreement pursuant to which a
stream of revenue or cash receipts may be generated or other Transaction where
it is impossible to determine the value of the consideration to be paid or
received or in the event that there are contingent payments, the Fee shall be
paid with respect to each payment at the same time as the payment is made or
received, as the case may be, regardless of when the payment is received as long
as the original agreement pursuant to which the payment is made was entered into
during the five (5) year period commencing on the Effective Date. No
modification of payment or other terms of any agreement shall impair the
Underwriter's right to the Fee. In the event that the Transaction involves a
merger or sale of assets or tender offer or sale of stock
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where the consideration is paid to any or all of the Company's stockholders, the
consideration paid to such stockholders shall be included in the consideration
paid or received for purposes of computing the Fee. All references to the
Company in the context of a Transaction shall include U.Link, Inc., any of its
present or future subsidiaries or any affiliate of the Company, regardless of
whether such party shall pay or receive the consideration paid in the
Transaction.
(iii) In determining the value of the consideration
paid or received, the following provisions shall apply:
(A) Any securities which are regularly
traded on a securities exchange or in the over-the-counter market shall be
valued at the average of the closing prices in the case of securities listed on
the New York or American Stock Exchange or the Nasdaq Stock Market (or the
closing bid price if there are no transactions on any of such days) or the
average of the closing bid prices, as reported by Nasdaq or the National
Quotation Bureau, Inc. or similar recognized reporting agency, in the case of
securities not traded on such exchanges or in such markets on the ten (10)
trading days prior to the earlier of (I) the date of the agreement or (II) in
the event that a press release or other announcement is made by the Company
and/or the Introduced Party concerning the Transaction and the consideration
provided for in the agreement includes the transfer of a fixed number of
securities, the date of such press release or announcement.
(B) Any debt securities which are not
regularly traded on a securities exchange or on the over-the-counter market
shall be valued at the principal amount thereof if such obligations bear a
stated interest rate or, if no interest rate is stated, at the present value of
the payments due, discounted using an interest rate equal to the prime rate of
Chemical Bank in effect on the second business day prior to the closing date.
(C) The consideration received in a joint
venture shall be based on the consideration paid to the joint venture by the
Introduced Party plus any additional consideration paid by or on behalf of the
joint venture partner to the Company.
(D) In the event that the Transaction
involves the receipt by the Company of property or equipment the consideration
shall be fair value of the property and equipment.
(E) In the event that the fair market value
of any property cannot be determined pursuant to the application of Paragraph
5(b)(iii) of this Agreement and the Company and the Underwriter shall not be
able to agree on a value, the value shall be determined by an appraiser jointly
selected by the Company and the Underwriter.
(iv) Notwithstanding anything in this Paragraph
5(b) to the contrary, if the Company shall, within one hundred eighty (180) days
immediately following the expiration of five (5) years from the Effective Date,
consummate a Transaction with an Introduced Party which was introduced by the
Underwriter to the Company during such five (5) year period, the Company shall
pay the Underwriter the Fee in the same manner as is otherwise provided in this
Paragraph 5(b).
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6. Conditions to the Obligations of the Underwriter. The obligation of
Underwriter to purchase and pay for the Securities shall be subject to the
accuracy in all material respects, as of the date of this Agreement and each
Closing Date (whether the Closing Date with respect to the Firm Shares or an
Option Closing Date with respect to the Option Shares), as if made on such
Closing Date, of the representations and warranties of the Company contained in
this Agreement and the following additional conditions:
(a) Effectiveness of Registration Statement.
(i) The Registration Statement shall have
become effective not later than 5:30 P.M., Eastern Time, on the date of this
Agreement, or such later time or date as shall have been consented to by you in
writing (the "Effective Date").
(ii) On the Closing Date, no stop order
suspending the effectiveness of the Registration Statement or the qualification
or registration of the Securities under the blue sky laws of any jurisdiction
(whether or not a jurisdiction specified by the Underwriter) shall have been
issued, and no proceeding for that purpose shall have been initiated or shall be
threatened or contemplated by the Commission or the authorities of any such
jurisdiction.
(iii) Any request of the Commission or any such
authorities for additional information to be included in the Registration
Statement or Prospectus or otherwise shall have been complied with to the
reasonable satisfaction of counsel for the Underwriter.
(b) Representations; Compliance with Agreement. The
representations and warranties of the Company in this Agreement shall be true
and correct on and as of the Closing Date, with the same effect as if made on
the Closing Date, and the Company shall have complied with all the agreements
and satisfied all the obligations required to be performed or satisfied by each
of them at or prior to the Closing Date.
(c) No Untrue Statements. The Registration Statement and the
Prospectus shall contain all statements required to be stated therein in
accordance with the Securities Act and the Regulation and the Registration
Statement and the Prospectus shall not contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading, and, since the
Effective Date, there shall not have occurred any event required to be set forth
in an amended or supplemented Prospectus that has not been so set forth (except
any such statement or omission based upon information furnished in writing by or
on behalf of the Underwriter for inclusion in the Registration Statement).
(d) No Material Change. Subsequent to the respective dates as
of which information is given in the Registration Statement and Prospectus, and
except as set forth or contemplated in the Prospectus, (i) there shall have been
no material adverse changes with respect to the officers, directors, operations,
capitalization, contractual obligations, legal proceedings, proposed use of
proceeds from the sale of the Securities, business, plans or prospects, net
assets or liabilities or obligations, properties, or any other aspect of the
financial condition or results of operations of the Company or either of the
Subsidiaries, (ii) neither the Company nor either Subsidiary shall have entered
into any material transaction not in the ordinary course of business,
(iii)neither the Company nor either Subsidiary shall have paid or declared any
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dividends or other distributions on its capital stock, (iv) the conduct of the
business and operations of the Company and each Subsidiary shall not have been
materially interfered with by strike, fire, flood, hurricane, accident or other
calamity (whether or not insured), or by any court or governmental action, order
or decree, and the properties of the Company and of each Subsidiary shall not
have sustained any material loss or damage (whether or not insured) as a result
of any such occurrence, and (v) except as set forth in the Prospectus, there are
no actions, suits, proceedings or investigations pending before any arbitrator,
court or governmental agency, authority or body or, to the Company's Knowledge,
threatened, to which the Company or either Subsidiary is a party or of which the
business or property of the Company or either Subsidiary is the subject and
which, if adversely decided, could reasonably be expected to have a material
adverse affect on the business, property, condition (financial or otherwise),
results of operations or general affairs of the Company or either Subsidiary,
and there have been no material adverse development in any such suits, actions,
proceedings or investigations.
(e) NASD. The NASD shall have indicated that it has no
objection to the underwriting arrangements pertaining to the sale of the Shares
by the Underwriter. No action shall have been taken by the Commission or the
NASD the effect of which would make it improper, at any time prior to the
Closing Date, for any member firm of the NASD to execute transactions (as
principal or as agent) in the Securities, Common Stock or Warrants and no
proceedings for the purpose of taking such action shall have been instituted or
shall be pending, or, to the Underwriter's or the Company's Knowledge, shall be
contemplated by the Commission or the NASD. The Company represents at the date
of this Agreement, and shall represent as of the Closing Date or Option Closing
Date, as the case may be, that it has no Knowledge that any such action is in
fact contemplated by the Commission or the NASD.
(f) Certificates, Bylaws and Proceedings. The Company's
Certificate of Incorporation and By-Laws, and all proceedings taken in
connection with the authorization, issuance, or sale of the Securities as herein
contemplated, shall be reasonably satisfactory in form and substance to you.
(g) Officers' Certificate. The Company shall have furnished to
the Underwriter a certificate of the President and of the Chief Financial
Officer of the Company, dated the day of the Closing Date, to the effect that
each signer of such certificate has examined the Registration Statement, the
Prospectus, and this Agreement, and confirming, in form satisfactory to the
Underwriter, that the compliance by the Company of the conditions set forth in
Paragraphs 6(a) through (d) of this Agreement have been satisfied.
(h) Opinion of Company Counsel. The Company shall have
furnished to the Underwriter the opinion of Michael Harris, PA, counsel for the
Company, dated the Closing Date, in form and substance reasonably satisfactory
to counsel to the Underwriter and substantially in the form of Exhibit A
attached hereto. In rendering the opinion, such counsel may rely as to matters
of fact, to the extent they deem proper, upon certificates of the Company's
officers and governmental officials.
(i) Accountants' Letter. At the time this Agreement is
executed and as of the Closing Date, Ernst & Young, LLP, independent public
accountants for the Company, shall have furnished to you a letter addressed to
the Underwriter and dated the date of this Agreement or the Closing Date, as
applicable, in form and substance previously approved by the Underwriter and its
counsel.
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(j) Agreements with Stockholders. The Underwriter shall have
received the agreements, in form and substance satisfactory to the Underwriter,
as contemplated by Paragraph 3(t) of this Agreement.
(k) Change in Capitalization. Subsequent to the respective
dates as of which information is given in the Registration Statement and the
Prospectus, there shall not have been any material adverse change or decrease in
the capital stock or long-term debt obligations of the Company or any decreases
in stockholders' equity, net assets or current net assets of the Company or any
material adverse change in the financial position, revenues, expenses or results
of operations of the Company or either of the Subsidiaries, each as compared
with the amounts shown in the most recent financial statements included in the
Registration Statement, except as disclosed in the Prospectus, that makes it
impractical or inadvisable in the reasonable judgment of the Underwriter to
proceed with the Public Offering or the delivery of the Securities, as the case
may be, as contemplated in the Prospectus.
(l) Warrants. The Company shall have executed and delivered to
the Underwriter the Warrants to purchase one hundred fifty thousand (150,000)
Shares.
(m) Opinion of Underwriter's Counsel. The Underwriter shall
have received an opinion from Esanu Katsky Korins & Siger, LLP, counsel for the
Underwriter, as to the organization of the Company, the validity of the
Securities, the form of the Registration Statement and the Prospectus, and such
other related matters as you may request, and such counsel shall have been
furnished by the Company such papers and information as they request to enable
them to pass upon such matters. It is understood that such counsel will express
no opinion with respect to the financial statements and other financial,
accounting, and statistical data included in the Registration Statement and the
Prospectus. In rendering the foregoing opinion, such counsel shall be entitled
to rely upon the opinion delivered to the Underwriter pursuant to Paragraph 6(h)
of this Agreement as to matters of Federal securities law, and may rely as to
matters of fact upon such certificates and other documents and information as
they may reasonably request for purposes of such opinion.
(n) Other Information. Prior to the Closing Date, the Company
shall have furnished to the Underwriter such further information, certificates,
and documents in connection with the Company's obligations set forth in this
Agreement as you may reasonably request.
If any of the conditions specified in this Paragraph 6 shall
not have been fulfilled when and as required by this Agreement, this Agreement
and all obligations of the Underwriter hereunder may be terminated by you at, or
at any time prior to, the Closing Date. Notice of such termination shall be
given to the Company in writing, or by facsimile transmission or telephone and
confirmed in writing.
7. Indemnification
(a) Indemnification by the Company. The Company agrees to
indemnify and hold harmless Underwriter and each person who controls any
Underwriter within the meaning of the Securities Act, from and against any and
all losses, claims, damages or liabilities, joint or several, to which they or
any of them may become subject under the Securities Act, the Exchange Act, or
other Federal or state statutory law or regulation, at common law or otherwise,
insofar as
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such losses, claims, damages or liabilities (or actions in respect thereof)
arise out of or are based upon (i) any untrue statement or alleged untrue
statement of a material fact made by the Company in this Agreement, (ii) any
untrue statement or alleged untrue statement of a material fact made by the
Company contained in the Registration Statement, or any amendment thereof, or in
any Preliminary Prospectus or the Prospectus, or 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 written information
furnished by the Company) filed in any state or other jurisdiction in order to
qualify any of the Securities or other Securities under the securities laws
thereof (any such application, document or information being referred to as a
"Blue Sky Application"); or (iii) the omission or alleged omission to state in
any such Registration Statement, Preliminary Prospectus or Prospectus, or
amendment thereof or supplement thereto, or Blue Sky Application a material fact
required to be stated therein or necessary to make the statements made therein
not misleading, and agrees to reimburse each such indemnified party for any
legal or other expenses reasonably incurred by it in connection with
investigating or defending against any such loss, claim, damage, liability or
action; provided, however, that the Company will not be liable in any such case
to the extent that any such loss, 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 or omitted therefrom in reliance upon and in
conformity with written information furnished to the Company by or on behalf of
you or such Underwriter specifically for use in connection with the preparation
thereof, and further provided, however, that the foregoing indemnity with
respect to any untrue statement, alleged untrue statement, omission, or alleged
omission contained in any Preliminary Prospectus shall not inure to the benefit
of any Underwriter from whom the person asserting any such loss, claims any of,
damage, or liability purchased any of the securities that are the subject
thereof (or to the benefit of any person who controls such Underwriter), if a
copy of the Prospectus was not delivered to such person with or prior to the
written confirmation of the sale of such security to such person. This indemnity
agreement will be in addition to any liability that the Company may otherwise
have.
(b) Indemnification by Underwriter. Underwriter agrees to
indemnify and hold harmless the Company, each of its directors, each of its
officers who has signed or signs the Registration Statement, and each person who
controls the Company within the meaning of the Securities Act, from and against
any and all losses, claims, damages or liabilities, joint or several, to which
they or any of them may become subject under the Securities Act, the Exchange
Act, or other Federal or state statutory law or regulation, at common law or
otherwise, insofar as such losses, claims, damages, or liabilities (or actions
in respect thereof) 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 any amendment thereof, or in any Preliminary Prospectus or the
Prospectus, or any amendment thereof or supplement thereto, or in a Blue Sky
Application, or (ii) the omission or the alleged omission to state in any such
Registration Statement, Preliminary Prospectus or Prospectus, amendment thereof
or supplement thereto, or Blue Sky Application a material fact required to be
stated therein or necessary to make the statements made therein not
misleading, in each case to the extent, but only to the extent, that the same
was made therein or omitted therefrom in reliance upon and in conformity with
written information furnished to the Company by or on behalf of you or such
Underwriter specifically for use in the preparation thereof, and agrees to
reimburse each such indemnified party for any legal or other expenses reasonably
incurred by it in connection with investigating or defending against any such
loss, claim, damage, liability or action. This indemnity agreement will be in
addition to any liability that the Underwriter may otherwise have.
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(c) Claims. Within five (5) days after receipt by an
indemnified party under Paragraph 7(a) or (b) of this Agreement of notice of the
commencement of any action, such indemnified party shall, if a claim in respect
thereof is to be made against an indemnifying party under such subsection,
notify the indemnifying party in writing of the commencement thereof; the
failure so to notify the indemnifying party shall relieve the indemnifying party
from any liability under this Paragraph 7 as to the particular item for which
indemnification is then being sought, unless such indemnifying party has
otherwise received actual notice of the action at least thirty (30) days before
any answer or response is required by the indemnifying party in its defense of
such action, but will not relieve it from any liability that it may have to any
indemnified party otherwise than under this Paragraph 7. If any such action is
brought against any indemnified party and it notifies the indemnifying party of
the commencement thereof, the indemnifying party will be entitled to participate
therein and, to the extent that it may elect by written notice delivered to the
indemnified party promptly after receiving the aforesaid notice from such
indemnified party, to assume the defense thereof; provided, that if the
defendants in any such action include both the indemnified party and the
indemnifying party and either (i) the indemnifying party or parties agree, or
(ii) representation of both the indemnifying party or parties and the
indemnified party or parties by the same counsel is inappropriate under
applicable standards of professional conduct because of actual or potential
conflicting interests between them, then the indemnified party or parties shall
have the right to select separate counsel to assume such legal defense and to
otherwise participate in the defense of such action. The indemnifying party will
not be liable to such indemnified party under this Paragraph 7 for any legal or
other expenses subsequently incurred by such indemnified party in connection
with the defense thereof unless (i) the indemnified party shall have employed
counsel in connection with the assumption of legal defenses in accordance with
the proviso to the immediately preceding sentence (it being understood, however,
that the indemnifying party shall not be liable for the expenses of more than
one separate counsel approved by the indemnifying party for all indemnified
parties), (ii) the indemnifying party shall not have employed counsel to
represent the indemnified party within a reasonable time after notice of
commencement of the action, or (iii) the indemnifying party has authorized the
employment of counsel for the indemnified party at the expense of the
indemnifying party. In no event shall an indemnifying party be liable under this
Paragraph 7 for any settlement, effected without its written consent, which
consent shall not be unreasonably withheld, of any claim or action against an
indemnified party.
(d) Contribution. In order to provide for just and equitable
contribution under the Securities Act in any case in which (i) an indemnified
party makes a claim for indemnification pursuant to Paragraphs 7(a) or (b) of
this Agreement (subject to the limitations thereof) but is judicially
determined, by the entry of a final judgment or decree by a court of competent
jurisdiction and the expiration of time to appeal or the denial of the last
right of appeal, that such indemnification may not be enforced in such case
notwithstanding that the provisions of this Paragraph 7 provide for
indemnification in such case, or (ii) contribution under the Securities Act
may be required on the part of any indemnified or indemnifying party in
circumstances for which indemnification is provided under Paragraphs 7(a) or (b)
of this Agreement, then, and in each such case, the Company and the Underwriter
shall contribute to the aggregate losses, claims, damages, or liabilities to
which they may be subject (after contribution from all others) in such
proportion so that the Underwriter is responsible for that portion represented
by the percentage that the underwriting discount appearing on the cover page of
the Prospectus bears to the Public Offering Price appearing thereon, and the
Company is responsible for the remaining portion; provided, however, that if
such allocation is not permitted by applicable law, then the relative fault of
the Company and the Underwriter in connection with the statements or omissions
that resulted
-24-
<PAGE>
in such losses, liabilities, claims, and damages and other relevant equitable
considerations shall also be considered. The relative fault shall be determined
by reference to, among other things, whether in the case of an untrue statement
of a material fact or the omission to state a material fact, such statement or
omission relates to information supplied by the Company or by the Underwriter
and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such untrue statement or omission. The Company
and the Underwriter agree that it would not be just and equitable if the
respective obligations of the Company and the Underwriter to contribute pursuant
to this Paragraph 7(d) were to be determined by pro rata or per capita
allocation of the aggregate damages (even if the Underwriter and their
respective controlling persons in the aggregate were treated as one entity for
such purpose) or by any other method of allocation that does not take account of
the equitable considerations referred to in the first sentence of this Paragraph
7(d). For purposes of this Paragraph 7(d), the term "damages" shall include any
legal or other expenses reasonably incurred by the indemnified party in
connection with investigating or defending against or appearing as a third party
witness in any action or claim that is the subject of the contribution
provisions of this Paragraph 7(d). Notwithstanding the provisions of this
Paragraph 7(d), an Underwriter and its controlling persons collectively shall
not be required to contribute any amount in excess of the difference between the
total price of the Securities purchased by the Underwriter, directly or
indirectly, from the Company pursuant to this Agreement and the amount of any
damages that such Underwriter and its controlling persons collectively have been
required to pay by reason of such untrue statement or omission other than
pursuant to this Paragraph 7(d). No person guilty of a fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. For the purposes of this Paragraph 7(d), any
person who controls an Underwriter within the meaning of Section 15 of the
Securities Act or Section 20(a) of the Exchange Act shall have the same rights
to contributions as the Underwriter and each director of the Company, each
officer of the Company who signed the Registration Statement, and each person,
if any, who controls the Company within Section 15 of the Securities Act or
Section 20(a) of the Exchange Act shall have the same rights to contribution as
the Company.
The foregoing contribution agreement shall in no way
affect the contribution liabilities of any person having liability under Section
11 of the Securities Act other than the Company and the Underwriter and persons
controlling the Company or the Underwriter.
After receipt by any party to this Agreement of
notice of the commencement of any action, suit, or proceeding, such person will,
if a claim for contribution in respect thereof is to be made against another
party (the "contributing party"), notify the contributing party of the
commencement thereof within a reasonable time thereafter, but the failure so to
notify the contributing party will not relieve the contributing party from any
liability that it may have to any party other than for contribution pursuant to
this Paragraph 7(d). Any notice given pursuant to any other provision of this
Paragraph 7 shall be deemed to be like notice pursuant to this Paragraph 7(d).
If any such action, suit or proceeding is brought against any party, and such
person notifies a contributing party of the commencement thereof, the
contributing party will be entitled to participate therein with the notifying
party and any other contributing party similarly notified, subject to the
provisions of Paragraph 7(c) of this Agreement.
(e) Survival. The respective indemnity and contribution
agreements by the Underwriter and the Company contained in this Paragraph 7, and
the covenants, representations and warranties of the Company set forth in this
Agreement, shall remain operative and in full force
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<PAGE>
and effect regardless of (i) any investigation made by the Underwriter or on
their behalf or by or on behalf of any person who controls any Underwriter, by
the Company or any controlling person of the Company or any director or any
officer of the Company, (ii) acceptance of the Securities and payment therefor,
or (iii) any termination of this Agreement, and shall survive the delivery of
the Securities, and any successor to the Company or to any Underwriter or any
person who controls any Underwriter or the Company, as the case may be, shall be
entitled to the benefit of such respective indemnity and contribution
agreements.
8. Effectiveness. This Agreement shall become effective
contemporaneously with the effectiveness of the Registration Statement, or at
such date after the effective time of the Registration Statement as you, in your
discretion, shall first release the Securities for sale to the public; provided,
--------
however, that the provisions of Paragraphs 4, 6, and 7 of this Agreement shall
- -------
at all times be in full force and effect. For the purposes of this Paragraph 8,
the Securities shall be deemed to have been released for sale to the public upon
release by you after effectiveness of the Registration Statement of a newspaper
advertisement relating to the Securities or upon release by you thereafter of
telegrams advising securities dealers of the effectiveness of the Registration
Statement, whichever shall first occur.
9. Termination. This Agreement may be terminated, in your absolute
discretion, by notice given to the Company prior to the Closing Date if the
Company shall have failed, refused, or been unable, prior to the Closing Date,
to perform any material agreement required to be performed by it hereunder, or
if any other condition of the Underwriter's obligations hereunder required to be
fulfilled by the Company is not fulfilled. In addition, this Agreement may be
terminated, as set forth above, if, prior to the Closing Date, any of the
following shall have occurred: (a) material governmental restrictions (not in
force and effect on the date of this Agreement) have been imposed on trading in
securities on the New York Stock Exchange or American Stock Exchange or in the
over-the-counter market; (b) the determination by you that there shall have
occurred a material adverse change, beyond normal fluctuations, in general
financial market or economic conditions from such conditions on the date of this
Agreement; (c) a material interruption in mail or telecommunications service or
other general means of communications within the United States after the
execution and delivery of this Agreement; (d) a banking moratorium has been
declared by Federal or New York state authorities; (e) an outbreak of major
international hostilities or other national or international calamity has
occurred; (f) the passage by the Congress of the United States or by any state
legislative body of any act or measure, or the adoption of any orders, rules, or
regulations by any governmental body or executive or any authoritative
accounting institute or board, that you believe will have a Material Adverse
Effect on the business, financial condition, or financial statements of the
Company or the distribution of the Securities or market for the Securities; or
(g) any material adverse change has occurred, since the respective dates of
which information is given in the Registration Statement and Prospectus, in the
condition of the Company, financial or otherwise, whether or not arising in the
ordinary course of business. Any such termination shall be without liability of
any party to any other party, except as provided in Paragraph 7 in this
Agreement and except that the Company shall remain obligated to pay costs and
expenses pursuant to Paragraph 4 in this Agreement. If you elect to prevent this
Agreement from becoming effective, or to terminate this Agreement, as provided
in this Paragraph 9, you shall promptly notify the Company by telecopier or
telephone, and confirm by letter, and the Underwriter shall not be under any
liability to the Company.
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<PAGE>
10. Survival of Representations, Warranties, and Indemnities. The
respective agreements, representations, warranties, and indemnities contained in
this Agreement will remain in full force and effect regardless of any
investigation made by or on behalf of you, any Underwriter or the Company, or
any of your or their respective officers or directors or controlling persons,
and will survive delivery of and payment for the Securities.
11. Notices. All notices and other communications hereunder (unless
otherwise expressly provided for in this Agreement) shall be in writing and
shall be deemed given when delivered in person or by overnight courier service
or Express Mail, on the business day (before 5:00 P.M.) transmitted if sent by
facsimile transmission or similar means of communication if receipt if confirmed
or if transmission is confirmed as otherwise provided in this Paragraph 11, or
the fifth (5th) day after mailing if mailed if sent by registered or certified
mail (return receipt requested) to the party to receive the same at the
following addresses (or at such other address for a party as shall be specified
by like notice):
If to the Company: U.Link, Inc.
1000 Conshohocken Road
Conshohocken, PA 19428
Facsimile: (610) 940-1520
Attention: Michael S. Paul,
Chief Executive Officer
With a copy to: Michael Harris, P.A.
1645 Palm Beach Lakes Blvd., Suite 550
West Palm Beach, FL 33401
Facsimile: (561) 478-1817
Attention: Michael D. Harris, Esq.
If to the Underwriter: HD Brous & Co., Inc.
40 Cuttermill Road
Great Neck, New York 11021
Facsimile: (516) 773-1829
Attention: Mr. Howard D. Brous,
Chairman
With a copy to: Esanu Katsky Korins & Siger, LLP
605 Third Avenue
New York, New York 10158
Facsimile: (212) 953-6899
Attention: Asher S. Levitsky P.C.
12. Successors. This Agreement will inure to the benefit of and be
binding upon the parties hereto and their respective successors. The terms
"successor" and "successors and assigns" as used in this Agreement shall not
include any buyer, as such, of any of the Securities from the Underwriter.
13. Entire Understanding. This Agreement contains the entire
understanding between the parties to this Agreement and supersedes any prior or
contemporaneous oral or prior written agreement, understandings or letter of
intent, and may not be modified or amended nor may any right be waived except by
a writing signed by all parties in the case of a modification or
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<PAGE>
amendment or the party to be charged in the case of a waiver. No course of
conduct or dealing and no trade custom or practice shall be construed to modify
any of the provisions of this Agreement.
14. Counterparts. This Agreement may be executed in multiple
counterparts, each of which shall be an original but all of which taken together
shall constitute one and same agreement.
15. Governing Law. This Agreement shall be governed by and construed
and enforced in accordance with the laws of the State of New York applicable to
agreements executed and to be performed wholly within such State.
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<PAGE>
Please confirm, by signing and returning to the Company
counterparts of this Underwriting Agreement, that the foregoing correctly sets
forth the understanding between the Company and you, whereupon this Agreement
will constitute a binding agreement among us.
Very truly yours,
U.LINK, INC.
By:________________________________________
Michael S. Paul, Chief Executive Officer
Confirmed and Accepted as of
the date first above-written:
HD BROUS & CO, INC.
By:__________________________________
Howard D. Brous, Chairman
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<PAGE>
Exhibit A
Opinion of Company Counsel
--------------------------
1. The Company and each Subsidiary (a) has been duly incorporated and
is a validly existing corporation in good standing under the laws of the state
of its incorporation, with full corporate power and authority to own and operate
its properties and to carry on its business as set forth in the Registration
Statement and Prospectus; (b) on the Effective Date has authorized and
outstanding capital stock as set forth in the Prospectus, and (c) is duly
licensed or qualified as a foreign corporation in Pennsylvania and all other
jurisdictions in which by reason of owning or leasing real property in such
jurisdiction it is required to be so licensed or qualified except where failure
to be so qualified or licensed would have no Material Adverse Effect.
2. All of the outstanding shares of Common Stock, including the shares
of Common Stock issued upon conversion of the Company's Series A, B, C and D
Preferred Stock, as described in the Prospectus, and all of the outstanding
shares of Series E Preferred Stock, are duly and validly authorized and issued
and outstanding, fully paid and non-assessable, conform to the description set
forth in the Prospectus and do not have any, and were not issued in violation of
any, preemptive rights under the Company's certificate of incorporation or
by-laws or any other agreement known to such counsel. As of the Closing Date,
there are no shares of Series A, B, C and D Preferred Stock outstanding.
3. The Company has authorized and reserved for issuance the shares of
Common Stock issuable upon exercise of the outstanding options or warrants,
including the Warrants, in accordance with their respective terms, and, when
issued upon such exercise, such shares of Common Stock will be duly and validly
authorized and issued, fully paid and non-assessable and not subject to any
preemptive rights or rights of first refusal pursuant to the Company's
certificate of incorporation or by-laws or other agreement known to such
counsel.
4. The Shares offered pursuant to the Prospectus (a) are duly and
validly authorized and issued, fully paid and non-assessable, (b) have not been
issued in violation of the pre-emptive rights or rights of first refusal
pursuant to the Company's certificate of incorporation or any agreement known to
such counsel and (c) are not subject to any liens, encumbrances, claims,
security interests, stockholders agreements, voting trusts or restrictions on
voting or transfer other than as disclosed in the Prospectus or as may be
imposed under Federal and state securities laws.
5. The Warrants constitute the valid, binding and enforceable
obligations of the Company, subject to bankruptcy, insolvency and other laws of
general applications affecting the enforceability of creditors' rights and
subject to the discretionary nature of any remedies in the nature of equitable
relief and except that no opinion is given with respect to the indemnification
and contribution provisions of the Warrants.
6. Except as set forth in or contemplated by the Prospectus, to such
counsel's knowledge, as of the date of this Agreement, there were no outstanding
options, warrants or other rights providing for the issuance of any class of
capital stock of the Company, or any security convertible into, or exchangeable
for, any shares of any class of capital stock of the Company.
A-1
<PAGE>
7. To such counsel's knowledge, neither the filing of the Registration
Statement nor the offering of the Shares as contemplated by this Agreement gives
rise to any registration rights or other rights, other than those which have
been waived or satisfied, relating to the registration under the Securities Act
of any shares of Common Stock.
8. The certificates evidencing the Shares are in proper legal form.
9. To such counsel's knowledge, no consents, approvals, authorizations
or orders of agencies, officers or other regulatory authorities are necessary
for the valid authorization, issue or sale of the Securities pursuant to this
Agreement, except such as may be required under the Securities Act, the Exchange
Act or state securities or blue sky laws or pursuant to the NASD's rules,
regulations and policies or as required under the regulations of the Nasdaq
SmallCap Market and the Pacific.
10. This Agreement and the Warrants have been duly authorized and
executed by the Company and constitute the valid and binding agreements of the
Company, enforceable in accordance with their respective terms, subject to
bankruptcy, insolvency and other laws of general applications affecting the
enforceability of creditors' rights and subject to the discretionary nature of
any remedies in the nature of equitable relief and except that no opinion is
given with respect to the provisions of Paragraph 7 of this Agreement.
11. The Company has corporate power and authority to authorize, issue
and sell the Securities on the terms and conditions set forth in this Agreement
and the Warrants, as the case may be, and in the Registration Statement and in
the Prospectus, and the execution and delivery of this Agreement, the
consummation of the transactions contemplated by this Agreement and the Warrants
and compliance by the Company with the terms of this Agreement and the Warrants
will not conflict with, or constitute a default under, the certificate of
incorporation or by-laws of the Company or any indenture, mortgage, deed or
trust, note or any other agreement or instrument known to such counsel to which
the Company or either Subsidiary is a party or by which they or their respective
businesses or properties are bound, or, to such counsel's knowledge, any law,
order, rule or regulation, writ, injunction or decree of any government,
governmental instrumentality, or court having jurisdiction over the Company, the
Subsidiaries or their respective businesses or properties.
12. Such counsel knows of no actions, suits or proceedings at law or in
equity of a material nature pending, or to such counsel's knowledge, threatened,
against the Company before or by any state commission, regulatory body, or
administrative agency or other governmental body, wherein an unfavorable ruling,
decision or finding would materially adversely affect the business or financial
condition of the Company or which question either (a) the validity of the
issuance of the Securities, the execution of the Underwriting Agreement or the
Warrants by the Company, or (b) any action taken or to be taken by the Company
pursuant to the Underwriting Agreement or the Warrants, which are not disclosed
in or contemplated by the Prospectus.
13. The Registration Statement has become effective under the Act.
Furthermore, the Registration Statement and the Prospectus (except as
to the financial statements and other financial, statistical and accounting
information contained therein or omitted therefrom, as to which no opinion is
expressed), comply as to form in all material respects with
A-2
<PAGE>
the requirements of the Act and the rules and regulations (the "Rules") of the
Commission under the Securities Act. In passing upon the form of such documents,
such counsel has assumed the correctness and completeness of the statements made
or included therein by the Company and take no responsibility for the accuracy,
completeness or fairness of the statements contained therein except insofar as
such statements relate to the description of the Securities or relate to such
counsel. However, in the course of the preparation by the Company of the
Registration Statement and the Prospectus, such counsel had conferences with
officers and directors of the Company in connection with the preparation of the
Registration Statement and Prospectus, and, without independently verifying the
accuracy, completeness or fairness of the statements contained in the
Registration Statement and the Prospectus and relying on the Company's officers
regarding materiality, no facts have come such counsel's attention which gave
such counsel reason to believe that the Registration Statement, as of the
effective date thereof (except as to the financial statements and other
financial, statistical and accounting information contained therein or omitted
therefrom, as to which no opinion is expressed), contained any untrue statement
of a material fact or omitted to state any material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading; or that the Prospectus
(except as to the financial statements and other financial, statistical and
accounting information contained therein or omitted therefrom, as to which no
opinion is expressed) contained any untrue statement of a material fact or omits
to state a material fact necessary to make the statements therein, in the light
of the circumstances under which they were made, not misleading. Such counsel
does not know of any documents which are required to be filed as exhibits to the
Registration Statement which have not been so filed.
A-3
<PAGE>
Exhibit 1.2
WA- Warrant to Purchase
Shares of
Common Stock
U.LINK, INC.
Series A Common Stock Purchase Warrant
--------------------------------------
Dated: , 1999
THIS CERTIFIES THAT and its registered assigns
(herein sometimes called the "Holder") is entitled to purchase from U.Link,
Inc., a Delaware corporation (hereinafter called the "Company"), at the price
and during the period as hereinafter specified, up to shares of
the Company's Common Stock, par value $.001 per share ("Common Stock"), at an
exercise price (the "Exercise Price") of and /100 dollars
($ . ) per share, subject to adjustment as hereinafter provided.
1. This warrant (this "Warrant"), together with warrants of like tenor,
constituting in the aggregate warrants (the "Warrants") to purchase an aggregate
of one hundred fifty thousand (150,000) shares of Common Stock, was originally
issued pursuant to an underwriting agreement (the "Underwriting Agreement")
between the Company and HD Brous & Co., Inc. ("Brous" or the "Underwriter") in
connection with a public offering of one million five hundred thousand
(1,500,000) shares of Common Stock, at an aggregate price of $10 for the
Warrants. The Holder shall have registration rights under the Securities Act of
1933, as amended (the "Securities Act"), for this Warrant and the shares of
Common Stock issuable upon exercise of this Warrant, as more fully described in
Paragraph 7 of this Warrant.
2. (a) During the four-year period commencing one year from the
Effective Date until 5:30 P.M., New York City time, on , 2004,
inclusive (the "Term"), the Holder shall have the warrant to purchase the Units
pursuant to this Warrant at a price of and /100 dollars ($ . ) per share of
Common Stock (the "Initial Exercise Price"), representing one hundred twenty
percent (120%) of the initial public offering price of the Common Stock offered
pursuant to the Registration Statement.
<PAGE>
(b) As used in this Warrant, the term "Registration
Statement" shall mean the Company's registration statement on Form SB-2, File
No. 333- which was declared effective by the Securities and Exchange
Commission(the "Commission") on , 1999 (the "Effective Date").
3. This Warrant may be exercised at any time during the Term, in whole
or in part, by the surrender of this Warrant (with the purchase form at the end
of this Warrant properly executed) at the principal executive office of the
Company (or such other office or agency of the Company as it may designate by
notice in writing to the Holder at the address of the Holder appearing on the
books of the Company) accompanied by payment to the Company of the Warrant
Exercise Price, as hereinafter defined, for the number of shares of Common Stock
specified in the above-mentioned purchase form together with applicable stock
transfer taxes, if any, and delivery to the Company of a duly executed agreement
(an "Assumption Agreement"), which may be incorporated in the purchase form,
signed by the person(s) designated in the purchase form as the person in whose
name the underlying securities are to be issued (the "Purchaser") to the effect
that such person(s) agree(s) to be bound by the provisions of Paragraphs 8(b),
(c) and (d) of this Warrant. This Warrant shall be deemed to have been
exercised, in whole or in part to the extent specified in said purchase form,
immediately prior to the close of business on the date this Warrant is
surrendered and payment is made in accordance with the foregoing provisions of
this Paragraph 3, and the person or persons in whose name or names the
certificates for shares of Common Stock shall be issuable upon such exercise
shall become the holder or holders of record of such Common Stock at that time
and date. The Common Stock and the certificates for the Common Stock so
purchased shall be delivered to the Holder or other Purchaser within a
reasonable time, not exceeding ten (10) days, after this Warrant shall have been
so exercised; provided, that the Company shall not be required to deliver
certificates for the securities unless the Purchaser shall have delivered the
Assumption Agreement to the Company. If the Warrant is exercised subsequent to
expiration or redemption of the Warrants (including any extensions thereof), the
Holder of this Warrant shall exercise this Warrant contemporaneously with the
exercise of the Warrant.
4. Neither this Warrant nor the Common Stock issuable upon exercise of
this Warrant shall be transferred, sold, assigned, or hypothecated during the
one-year period commencing on
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<PAGE>
the Effective Date, except that such securities may be transferred during such
period to successors of the Holder, and may be assigned in whole or in part to
any person who is an officer of the Underwriter, a member of the underwriting or
selling group or any officer or partner of a member of the underwriting or
selling group. Any person who is a permitted transferee may transfer the Warrant
by will or trust or pursuant to the laws of descent and distribution. Any such
assignment during such period shall be effected by the Holder executing the form
of assignment at the end of this Warrant and surrendering this Warrant for
cancellation at the office of the Company or other office or agency as provided
in Paragraph 3 of this Agreement accompanied by a certificate (signed by an
officer of the Holder if the Holder is a corporation), stating that each
transferee is a permitted transferee under this Paragraph 4; whereupon the
Company shall issue, in the name or names specified by the Holder (including the
Holder) a new Warrant or Warrants of like tenor and representing in the
aggregate rights to purchase the same number of shares of Common Stock as are
purchasable hereunder. Commencing one year from the Effective Date, this Warrant
and the shares of Common Stock issuable upon exercise of this Warrant may be
transferred without restriction as long as such transfer is in compliance with
applicable Federal and state securities laws.
5. The Company covenants and agrees that all shares of Common Stock
which may be issued upon exercise of the Warrants have been, and will be, duly
authorized and, will, upon issuance, be duly and validly issued, fully paid and
non-assessable and no personal liability will attach to the holder thereof. The
Company further covenants and agrees that during the period within which this
Warrant may be exercised, the Company will at all times have authorized and
reserved a sufficient number of shares of its Common Stock to provide for the
exercise of this Warrant.
6. This Warrant shall not entitle the Holder to any voting rights or
other rights as a stockholder of the Company.
7. (a) The Company shall advise the Holder, whether the Holder holds
this Warrant or has exercised this Warrant and holds shares of Common Stock, by
written notice (certified or registered mail) at least twenty (20) days prior to
the filing of any post-effective amendment to the Registration Statement or of
any new registration statement or post-effective amendment thereto
-3-
<PAGE>
under the Securities Act covering any securities of the Company (other than a
registration statement on Form S-8, S-4 or subsequent similar forms), and will
during the term of the Warrant and for a period of two years thereafter, upon
the request of the Holder, at the Company's cost and expense, include in any
such post-effective amendment (if permitted by law) or registration statement,
such information as may be required to permit a public offering of all or any of
the Warrants and/or the shares of Common Stock issuable upon exercise of the
Warrants, which shares of Common Stock are referred to as the "Warrant Shares."
In connection with any such registration statement, the Company shall supply
prospectuses, use its best efforts to qualify any of the described securities
for sale in such states as such Holder reasonably designates and furnish
indemnification in the manner provided in Paragraph 8 of this Warrant. The
Holder(s) participating in any such registration shall furnish information and
indemnification as set forth in said Paragraph 8.
(b) In connection with any underwritten public offering
relating solely to an offering of the Company's securities by the Company, the
Holder will agree to defer any sale of such securities for up to ninety (90)
days from the effective date of the applicable registration statement, unless
the applicable registration statement is filed pursuant to Paragraph 7(c) of
this Warrant, provided that the underwriter or managing underwriter has
requested such deferral on the grounds that the offering by the Company would be
materially adversely affected by the earlier sale of such securities and the
Company agrees to keep the registration statement current for twelve (12) months
after the effective date of the registration statement or such longer period as
such registration statement is otherwise being kept effective. This Paragraph
7(b) shall not be applicable with respect to any registration statement filed
pursuant to Paragraph 7(c) of this Warrant.
(c) If any majority holder (as defined below) shall give
notice to the Company at any time to the effect that such holder desires to
register under the Securities Act the Warrants or Warrant Shares under such
circumstances that a public distribution (within the meaning of the Securities
Act) of any such securities will be involved then the Company will promptly, but
no later than thirty (30) business days after date such notice is given (the
"Notice Date"), time being of the essence, file a post-effective amendment to
the Registration Statement or a new registration statement pursuant to the
Securities Act, to the end that the Warrants and/or any Warrant Shares, as the
Holder shall determine, may be publicly sold under the Securities Act as
promptly as practicable thereafter, and the Company will use its best efforts to
cause such registration to
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<PAGE>
become effective; provided, that such holder shall furnish the Company with
appropriate written information as to the Holder and the proposed plan of
distribution and indemnification as set forth in Paragraph 8. The majority
holder may, at its election, request the filing of a post-effective amendment to
the Registration Statement or a new registration statement under the Securities
Act on two occasions during the term of the Warrant. Within ten (10) business
days after receiving any such notice pursuant to this Paragraph 7(c), the
Company shall give notice to the other Holders of the Warrants, advising that
the Company is proceeding with such post-effective amendment or registration
statement and offering to include therein the Warrants and/or the Warrant Shares
of the other Holders, provided that they shall furnish the Company with such
appropriate information (relating to the intentions of such holders) in
connection therewith as the Company shall request in writing. The costs and
expense of the first such post-effective amendment or new registration statement
(including reasonable fees and expenses of one firm of legal counsel on behalf
of all Holders of Warrants or Warrant Shares being included in such registration
statement, such counsel to be designated by th Underwriter) shall be borne by
the Company, except that each Holder shall pay any underwriting discounts or
commissions applicable to any of the securities sold by him. The costs and
expenses of the second such registration statement shall be borne by the
Holders. The Company will maintain and keep such registration statement current
under the Securities Act for a period of at least twelve (12) months from the
effective date of such registration statement. The Company shall supply
prospectuses, use its best efforts to qualify any of the described securities
for sale in such states as such holder reasonably designates and furnish
indemnification in the manner provided in Paragraph 8 of this Agreement. If the
Company is eligible to register the Warrants and Warrant Shares on a Form S-3 or
subsequent similar form, the Company shall use a Form S-3 in registering the
Warrants and Warrant Shares.
(d) If, on the date of receipt by the Company of notice from
any majority holder requesting registration of Warrants and/or Warrant Shares
pursuant to Paragraph 7(c) of this Warrant, the Company has previously notified
the Holder pursuant to Paragraph 7(a) of this Warrant that the Company intends
to file a post-effective amendment to the Registration Statement or a new
registration statement under the Securities Act covering any securities of the
Company and offering to include the Warrants and the Warrant Shares of the
Holder in such Registration Statement or provides notice to the Holder pursuant
to Paragraph 7(a) of this Warrant within seven (7) days after receipt of such
notice from any majority holder, the Holder
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<PAGE>
agrees that the demand registration request shall be withdrawn and that if he so
elects, he may participate in the Registration Statement filed by the Company
pursuant to Paragraph 7(a) of this Warrant; provided that (x) the Registration
Statement or post-effective amendment to the Registration Statement covering the
Holder's Warrants and Warrant Shares is filed within sixty (60) days and
declared effective within one hundred fifty (150) days after the earlier of the
date of such notice to the Company from the majority holder pursuant to
Paragraph 7(c) or the date of such notice to the Holder from the Company
pursuant to Paragraph 7(a); and (y) the majority holder will not be deemed to
have exercised any demand registration right pursuant to Paragraph 7(c) of this
Warrant.
(e) The term "majority holder" as used in this Paragraph 7
shall mean the holder of at least a majority of the Common Stock (including the
Common Stock issued or issuable upon exercise of the Warrants) for which the
Warrants (considered in the aggregate) are exercisable and shall include any
owner or combination of owners of such securities, which ownership shall be
calculated by determining the number of shares of Common Stock held by such
owner or owners resulting from the exercise of any Warrant after giving effect
to any stock dividend, split, reverse split or other recapitalization.
(f) In connection with any registration described in Paragraph
7(a) of this Warrant, the Holder may request inclusion of the Warrant in such
registration statement; provided, however, that the Company shall not be
required to maintain any public market in the Warrants.
8. (a) Whenever, pursuant to Paragraph 7 of this Warrant, a
registration statement relating to this Warrant or any Warrant Shares is filed
under the Securities Act or is amended or supplemented, the Company will
indemnify and hold harmless each holder of the securities covered by such
registration statement, amendment or supplement (such holder being hereinafter
called the "Distributing Holder"), and each person, if any, who controls (within
the meaning of the Securities Act) the Distributing Holder, and each underwriter
(within the meaning of the Securities Act) of such securities and each person,
if any, who controls (within the meaning of the Securities Act) any such
underwriter, against any losses, claims, damages or liabilities, joint or
several, to which the Distributing Holder, any such controlling person or any
such underwriter may become subject, under the Securities Act or otherwise,
insofar as such losses, claims, damages or liabilities (or action in respect
thereof) arise out of or are based upon any untrue statement or
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<PAGE>
alleged untrue statement of any material fact contained in any such registration
statement or any preliminary prospectus or final prospectus constituting a part
thereof or any amendment or supplement thereto, or arise out of or are based
upon the omission to state therein a material fact required to be stated therein
or necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading; and will reimburse the Distributing Holder
and each such controlling person and underwriter for any legal or other expenses
reasonably incurred by the Distributing Holder or such controlling person or
underwriter in connection with investigating or defending any such loss, claim,
damage, liability or action; provided, however, that the Company will not be
liable in any such case to the extent that any such loss, claim, damage or
liability arises out of or is based upon an untrue statement or alleged untrue
statement or omission or alleged omission made in said registration statement,
said preliminary prospectus, said final prospectus or said amendment or
supplement in reliance upon and in conformity with written information furnished
by such Distributing Holder or for any other Distributing Holder, expressly for
use in the preparation thereof.
(b) The Distributing Holder will indemnify and hold harmless
the Company, each of its directors, each of its officers who have signed said
registration statement and such amendments and supplements thereto, each person,
if any, who controls the Company (within the meaning of the Securities Act) and
each underwriter participating in such offering (within the meaning of the
Securities Act) and each person, if any, who controls (within the meaning of the
Securities Act) any such underwriter, against any losses, claims, damages or
liabilities to which the Company or any such director, officer, controlling
person or underwriter may become subject, under the Securities Act or otherwise,
insofar as such losses, claims, damages or liabilities arise out of or are based
upon any untrue or alleged untrue statement of any material fact contained in
said registration statement, said preliminary prospectus, said final prospectus,
or said amendment or supplement, or arise out of or are based upon the omission
or the alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, in each case
to the extent, but only to the extent, that such untrue statement or alleged
untrue statement or omission or alleged omission was made in said registration
statement, said preliminary prospectus, said final prospectus or said amendment
or supplement in reliance upon and in conformity with written information
furnished by such Distributing Holder expressly for use in the preparation
thereof; and will reimburse the Company or any such director, officer or
controlling person for any legal or other expenses reasonably
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<PAGE>
incurred by them in connection with investigating or defending any such loss,
claim, damage, liability or action.
(c) Promptly after receipt by an indemnified party under this
Paragraph 8 of notice of the commencement of any action, such indemnified party
will, if a claim in respect thereof is to be made against any indemnifying
party, give the indemnifying party notice of the commencement thereof.
(d) In case any such action is brought against any indemnified
party, and it notifies an indemnifying party of the commencement thereof, the
indemnifying party will be entitled to participate in, and, to the extent that
it may wish, join with any other indemnifying party similarly notified to assume
the defense thereof, with counsel reasonably satisfactory to such indemnified
party, and, after notice from the indemnifying party to such indemnified party
of its election so to assume the defense thereof, the indemnifying party will
not be liable to such indemnified party under this Paragraph 8 for any legal or
other expenses subsequently incurred by such indemnified party in connection
with the defense thereof other than reasonable costs of investigation; provided,
that if the defendants in any such action include both the indemnified party and
the indemnifying party and either (i) the indemnifying party or parties agree,
or (ii) in the opinion of counsel for the indemnified parties, representation of
both the indemnifying party or parties and the indemnified party or parties by
the same counsel is inappropriate under applicable standards of professional
conduct because of actual or potential conflicting interests between them, then
the indemnified party or parties shall have the right to select separate counsel
to assume such legal defense and to otherwise participate in the defense of such
action, the fees and expenses of such counsel to be paid by the indemnifying
party. The indemnifying party will not be liable to such indemnified party under
this Paragraph 8 for any legal or other expenses subsequently incurred by such
indemnified party in connection with the defense thereof unless (i) the
indemnified party shall have employed counsel in connection with the assumption
of legal defenses in accordance with the proviso to the immediately preceding
sentence (it being understood, however, that the indemnifying party shall not be
liable for the expenses of more than one separate counsel approved by the
Underwriter, if the Underwriter is an indemnified party, otherwise by all of the
indemnified parties), (ii) the indemnifying party shall not have employed
counsel to represent the indemnified party within a reasonable time after notice
of commencement of the action, or (iii) the indemnifying party has authorized
the employment of counsel for the indemnified party at the expense of the
indemnifying party. In no event shall an indemnifying
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<PAGE>
party be liable under this Paragraph 8 for any settlement, effected without its
written consent, which consent shall not be unreasonably withheld, of any claim
or action against an indemnified party.
9. The number and kind of securities purchasable upon the exercise of
the Warrant shall be subject to adjustment from time to time upon the happening
of certain events as hereinafter provided.
(a) In case the Company shall pay a dividend or make a
distribution or a split with respect to its shares of Common Stock in shares of
Common Stock, subdivide or reclassify its outstanding Common Stock into a
greater number of shares, or combine or reclassify its outstanding Common Stock
into a smaller number of shares or otherwise effect a reverse split, the number
of shares of Common Stock issuable upon exercise of this Warrant shall, as of
the time of the record date for such dividend or distribution or of the
effective date of such subdivision, combination or reclassification, be
proportionately adjusted so that the Holder of any Warrant exercised after such
date shall be entitled to receive the aggregate number and kind of shares which,
if such Warrant had been exercised immediately prior to such time, he would have
owned upon such exercise and such shares as he would have been entitled to
receive upon such dividend, subdivision, combination or reclassification. Such
adjustment shall be made successively whenever any event listed in this
Paragraph 9(a) shall occur.
(b) In case the Company shall, at any time or from time to
time after the initial issuance of the Warrants (the "Initial Issuance Date"),
issue rights or warrants to all holders of its Common Stock entitling them to
subscribe for or purchase shares of Common Stock (or securities convertible into
Common Stock) at a price (or having a conversion price per share) less than the
current market price of the Common Stock (as defined in Paragraph 9(e) of this
Warrant) on the record date mentioned below, the Exercise Price shall be
adjusted so that the same shall equal the price determined by multiplying the
Exercise Price in effect immediately prior to the date of such issuance by a
fraction, of which the numerator shall be the number of shares of Common Stock
outstanding on the record date mentioned below plus the number of additional
shares of Common Stock which the aggregate offering price of the total number of
shares of Common Stock so offered (or the aggregate conversion price of the
convertible securities so offered) would purchase at such current market price
per share of the Common Stock, and of which the denominator shall be the number
of shares of Common Stock outstanding on such record date
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<PAGE>
plus the number of additional shares of Common Stock offered for subscription or
purchase (or into which the convertible securities so offered are convertible).
Such adjustment shall be made successively whenever such rights or warrants are
issued and shall become effective immediately after the record date for the
determination of stockholders entitled to receive such rights or warrants; and
to the extent that shares of Common Stock are not delivered (or securities
convertible into Common Stock are not delivered) after the expiration of such
rights or warrants, the Exercise Price shall be readjusted to the Exercise Price
which would then be in effect had the adjustments made upon the issuance of such
rights or warrants been made upon the basis of delivery of only the number of
shares of Common Stock (or securities convertible into Common Stock) actually
delivered.
(c) In case the Company shall, at any time or from time to
time after the Initial Issuance Date, distribute to all holders of Common Stock
evidences of its indebtedness or assets (excluding cash dividends or
distributions paid out of current earnings and dividends or distributions
referred to in Paragraph 9(a) of this Warrant) or subscription rights or
warrants (excluding those referred to in Paragraph 9(b) of this Warrant), then
in each such case the Exercise Price in effect thereafter shall be determined by
multiplying the Exercise Price in effect immediately prior thereto by a
fraction, of which the numerator shall be the total number of shares of Common
Stock outstanding multiplied by the current market price per share of Common
Stock (as defined in Paragraph 9(e) of this Warrant), less the fair market value
(as determined by the Company's Board of Directors) of said assets or evidences
of indebtedness so distributed or of such rights or warrants, and of which the
denominator shall be the total number of shares or Common Stock outstanding
multiplied by such current market price per share of Common Stock. Such
adjustment shall be made whenever any such distribution is made and shall become
effective immediately after the record date for the determination of
stockholders entitled to receive such distribution.
(d) Whenever the Exercise Price payable upon exercise of each
Warrant is adjusted pursuant to Paragraphs 9(a), (b) or (c) of this Warrant, the
number of shares of Common Stock purchasable upon exercise of each Warrant shall
simultaneously be adjusted by multiplying the number of shares issuable upon
exercise of each Warrant in effect on the date thereof by the Exercise Price in
effect on the date thereof and dividing the product so obtained by the Exercise
Price, as adjusted.
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<PAGE>
(e) For the purpose of any computation pursuant to Paragraphs
9(b) and (c) of this Warrant, the current market price per share of Common Stock
at any date shall be deemed to be the average of the daily closing prices for
fifteen (15) consecutive trading days commencing five (5) trading days before
such date. The closing price for each day shall be the reported last sale price
or, in case no such reported sale takes place on such day, the average of the
last reported high bid and low asked prices regular way, in either case on the
principal national securities exchange on which the Common Stock is admitted to
trading or listed, if the Common Stock is admitted to trading or listing on the
New York or American Stock Exchange or on The Nasdaq Stock Market if included in
such system or if not listed or admitted to trading on such exchange or system,
the average of the highest bid and lowest asked prices as reported by Nasdaq, or
the National Quotation Bureau, Inc. or another similar organization if Nasdaq is
no longer reporting such information, or if not so available, the fair market
price as determined by the Board of Directors of the Company.
(f) No adjustment in the Warrant Exercise Price shall be
required unless such adjustment would require an increase or decrease of at
least five cents ($.05) in such price; provided, however, that any adjustments
which by reason of this Paragraph 9(b) are not required to be made shall be
carried forward and taken into account in any subsequent adjustment. All
calculations under this Paragraph 9 shall be made to the nearest cent or to the
nearest one-hundredth of a share of Common Stock as the case may be. Anything in
this Paragraph 9 to the contrary notwithstanding, the Company shall be entitled,
but shall not be required, to make such changes in the Warrant Exercise Price,
in addition to those required by this Paragraph 9, as it in its discretion shall
determine to be advisable in order that any dividend or distribution in shares
of Common Stock, subdivision, reclassification or combination of Common Stock,
issuance of warrants to purchase Common Stock or distribution of evidences of
indebtedness or other assets (excluding cash dividends) referred to hereinabove
in this Paragraph 9 hereafter made by the Company to the holders of its Common
Stock shall not result in any tax to the holders of its Common Stock or
securities convertible into Common Stock.
(g) Whenever the Warrant Exercise Price is adjusted, as herein
provided, the Company shall promptly cause a notice setting forth the adjusted
Warrant Exercise Price and adjusted number of shares of Common Stock issuable
upon exercise of the Warrant to be mailed to the Holder at the Holder's last
address appearing in the Warrant register maintained by the Company, and shall
cause a certified copy thereof to be mailed to its transfer agent. The
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Company may retain a firm of independent public accountants of recognized
standing selected by the Board of Directors (who may be the regular accountants
employed by the Company) to make any computation required by this Paragraph 9,
and a certificate signed by such firm shall be evidence of the correctness of
such adjustment.
(h) In the event that at any time, as a result of an
adjustment made pursuant to Paragraph 9(a) of this Warrant, the Holder of any
Warrant thereafter shall become entitled to receive any shares of the Company,
other than Common Stock, thereafter the number of such other shares so
receivable upon exercise of any Warrant shall be subject to adjustment from time
to time in a manner and on terms as nearly equivalent as practicable to the
provisions with respect to the Common Stock contained in this Paragraph 9.
(i) Irrespective of any adjustments in the Warrant Exercise
Price or the number or kind of shares purchasable upon exercise of Warrants,
Warrants theretofore or thereafter issued may continue to express the same price
and number and kind of shares as are stated in the similar Warrants initially
issuable pursuant to this Warrant.
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by
its duly authorized officers this th day of , 1999.
U.LINK, INC.
Attest:
By:______________________________
Michael S. Paul
Chief Executive Officer
- ---------------------------------
John Rafanello, Treasurer
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<PAGE>
PURCHASE FORM
-------------
(To be signed only upon exercise of Warrant)
The undersigned, the holder of the foregoing Warrant, hereby
irrevocably elects to exercise the purchase rights represented by such Warrant
for, and to purchase thereunder, Units of U.LINK, INC., each Unit
consisting of one share of Common Stock and one Class A Redeemable Common Stock
Purchase Warrant (the "Warrants") to purchase one-half (1/2) share of Common
Stock and herewith makes payment of $ thereof, agrees to be bound by the
provisions of Paragraphs 8(b), (c) and (d) of the Warrant, and requests that the
certificates for shares of Common Stock and Warrants be issued in the name(s)
of, and delivered to ___________________________________________________________
whose address(es) is (are) _____________________________________________________
________________________________________________________________________________
______________.
Dated: , 19 .
________________________
By: ____________________
Address: ______________________________
______________________________
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<PAGE>
TRANSFER FORM
-------------
(To be signed only upon transfer of the Warrant)
For value received, the undersigned hereby sells, assigns, and
transfers unto the right to purchase shares of Common Stock, and appoints
attorney to transfer such rights on the books of U.LINK, INC. with full
power of substitution in the premises.
Dated: , 19 .
____________________________
By:_________________________
Signature Medallion Guaranteed
____________________________
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<PAGE>
EXHIBIT 3.1
SECOND AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION OF
U.LINK, INC.
1. The name of the corporation is U.Link, Inc. (the "Company") and the
date of filing the original certificate of incorporation was February 4, 1999.
2. This Second Amended and Restated Certificate of Incorporation was duly
adopted in accordance with the provisions of Sections 242 and 245 of the
Delaware General Corporation Law (the "DGCL") by unanimous written consent of
the board of directors and by the written consent of the holders of a majority
of each class of capital stock entitled to vote.
3. The address of its registered office in the State of Delaware, County
of New Castle, is 1013 Centre Road, Wilmington, Delaware 19805-1297. The name of
its registered agent at such address is Corporation Service Company.
4. The nature of the business or purposes to be conducted or promoted are
to engage in any lawful act or activity for which corporations may be organized
under the DGCL.
5. The total number of shares of stock of all classes and series the
Company shall have authority to issue is 20,303,068 shares, consisting of (i)
20,000,000 shares of common stock, par value of $0.001 per share (the "Common
Stock"), and (ii) 303,068 shares of preferred stock. The powers, preferences and
relative, participating, optional and other special rights, and the
qualifications, limitations or restrictions thereof, of each series of preferred
stock are as follows:
(a) Series A Preferred Stock. The Company is authorized to issue
------------------------
1,000 shares of Series A Preferred Stock, $.001 par value ("Preferred A").
The Preferred A shares shall have a voting preference providing the holders
of all outstanding Preferred A shares with a number of votes equal to
2,121,000 votes, or 2,121 votes per share, except where may otherwise be
required by law. At the time the Company closes either an initial public
offering or closes a merger or similar transaction with a public company
(either an "IPO") all outstanding Preferred A shares shall automatically
convert into a number of shares of Common Stock equal to 2,121,000 less
one-half the number of shares of Common Stock which the Series B, C, and D
Preferred Stock shall convert into, as described in Sections 5(b) - (d)
below, as adjusted by subsequent stock dividends or distributions, stock
splits, recapitalizations or similar events. The time of such IPO closing
is referred to as the "Effective Date".
(b) Series B Preferred Stock. The Company is authorized to issue
------------------------
300,000 shares of Series B Preferred Stock, $1.00 par value ("Preferred
B"). Upon the Effective Date, all outstanding shares of Preferred B shall
automatically convert into Common Stock of the Company with each Preferred
B share converting into $5.50 of Common Stock. The number of shares shall
be computed by using the IPO Price, as defined. IPO Price means the public
offering price or the 30 calendar day average closing price of the
publicly-traded issuer following the closing of the merger or similar
transaction. Pending such conversion,
<PAGE>
the Preferred B shares shall have a liquidation preference of $1.00 per
share. Additionally, the holders of Preferred B shares, if the Company has
not closed an IPO by June 10, 2000 at 6:00 p.m., New York time, shall each
have a put entitling them to require the Company to purchase their
Preferred B shares at a price of $1.00 per share. Once effective, this put
may be exercisable at any time on five days' prior written notice. The
Preferred B shares shall have no voting or dividend rights except as
otherwise required by law.
(c) Series C Preferred Stock. The Company is authorized to issue
------------------------
1,000 shares of Series C Preferred Stock, $.001 par value ("Preferred C").
Upon the Effective Date, all outstanding shares of Preferred C shall
automatically convert into Common Stock of the Company having an aggregate
value of $1,000,000 with the number of shares based upon the IPO Price.
Pending such conversion, the Preferred C shares shall have a $200,000
liquidation preference. The Preferred C shares shall have no voting or
dividend rights except as otherwise required by law.
(d) Series D Preferred Stock. The Company is authorized to issue
------------------------
1,000 shares of Series D Preferred Stock, $.001 par value ("Preferred D").
Upon the Effective Date, all outstanding Preferred D shares shall
automatically convert into Common Stock of the Company having an aggregate
value of $250,000 based upon the IPO Price. If there is no Effective Date
by June 10, 2000 at 6:00 p.m., New York time, the Preferred D shares shall
have a $75,000 liquidation preference. The Preferred D shares shall have
no voting or dividend rights except as otherwise required by law.
(e) Effect of Conversion of Preferred Stock. Once any series of
---------------------------------------
preferred stock has been issued and subsequently converts to Common Stock
as provided for in Section 5 (a) through (d) above or otherwise, the
preferred shares shall not be issued again without approval of the
Company's Board of Directors.
(f) Effect on Series E Preferred Stock. The filing of this Second
----------------------------------
Amended and Restated Certificate of Incorporation shall have no effect on
the Certificate of Designation for the Company's Series E Preferred Stock.
6. The Company is to have perpetual existence.
7. In furtherance and not in limitation of the powers conferred by
statute, the board of directors is expressly authorized to make, amend, alter or
repeal the bylaws of the Company.
8. Elections of directors need not be by written ballot unless the bylaws
of the Company shall so provide.
Meetings of stockholders may be held within or without the State of
Delaware as the bylaws may provide. The books of the Company may be kept
(subject to any provision contained in the statutes) outside the State of
Delaware at such place or places as may be designated from time to time by the
board of directors or in the bylaws of the Company.
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9. The Company reserves the right to amend, alter, change or repeal any
provision contained in this certificate of incorporation, in the manner now or
hereafter prescribed by statute, and all rights conferred upon stockholders
herein are granted subject to this reservation.
10. No director of this Company shall be personally liable to the Company
or its stockholders for monetary damages for breach of fiduciary duty as a
director. Nothing in this Section 10 shall serve to eliminate or limit the
liability of a director (a) for any breach of the director's duty of loyalty to
this Company or its stockholders, (b) for acts or omissions not in good faith or
which involves 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. If the DGCL is amended after approval by
the stockholders to authorize corporate action further eliminating or limiting
the personal liability of directors, then the liability of a director of the
Company shall be eliminated or limited to the fullest extent permitted by the
DGCL, as so amended.
Any repeal or modification of the foregoing paragraph by the stockholders
of the Company shall not adversely affect any right or protection of a director
of the Company existing at the time of such repeal or modification.
11. (a) Each person who was or is made a party or is threatened to be
made a party to or is otherwise involved in any action, suit or proceeding
(except as provided in Section 11(f)) whether civil, criminal or
administrative, (a "Proceeding"), or is contacted by any governmental or
regulatory body in connection with any investigation or inquiry (an
"Investigation"), by reason of the fact that he or she is or was a director
or executive officer (as such term is utilized pursuant to interpretations
under Section 16 of the Securities Exchange Act of 1934) of the Company or
is or was serving at the request of the Company as a director, officer,
employee or agent of another corporation or of a partnership, joint
venture, trust or other enterprise, including service with respect to
employee benefit plans (an "Indemnitee"), whether the basis of such
Proceeding or Investigation is alleged action in an official capacity or in
any other capacity as set forth above shall be indemnified and held
harmless by the Company to the fullest extent authorized by the DGCL, as
the same exists or may hereafter be amended (but, in the case of any such
amendment, only to the extent that such amendment permits the Company to
provide broader indemnification rights than such law permitted the Company
to provide prior to such amendment), against all expense, liability and
loss (including attorneys' fees, judgments, fines, ERISA excise taxes or
penalties and amounts paid in settlement) reasonably incurred or suffered
by such Indemnitee in connection therewith and such indemnification shall
continue as to an Indemnitee who has ceased to be a director, officer,
employee or agent and shall inure to the benefit of the Indemnitee's heirs,
executors and administrators. The right to indemnification conferred in
this Section shall be a contract right and shall include the right to be
paid by the Company the expenses incurred in defending any such Proceeding
in advance of its final disposition (an "Advancement of Expenses");
provided, however, that such Advancement of Expenses shall be made only
upon delivery to the Company of an undertaking, by or on behalf of such
Indemnitee, to repay all amounts so advanced if it shall ultimately be
determined by final judicial decision from which there is no further
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<PAGE>
right to appeal that such Indemnitee is not entitled to be indemnified for
such expenses under this Section or otherwise (an "Undertaking").
(b) If a claim under Section 11(a) is not paid in full by the Company
within 60 days after a written claim has been received by the Company,
except in the case of a claim for an Advancement of Expenses, in which case
the applicable period shall be 20 days, the Indemnitee may at any time
thereafter bring suit against the Company to recover the unpaid amount of
the claim. If successful in whole or in part in any such suit or in a suit
brought by the Company to recover an Advancement of Expenses pursuant to
the terms of an Undertaking, the Indemnitee shall be entitled to be paid
also the expense of prosecuting or defending such suit. In
(i) any suit brought by the Indemnitee to enforce a right to
indemnification hereunder (but not in a suit brought by the Indemnitee
to enforce a right to an Advancement of Expenses) it shall be a
defense that, and
(ii) any suit by the Company to recover an Advancement of
Expenses pursuant to the terms of an Undertaking the Company shall be
entitled to recover such expenses upon a final adjudication that,
the Indemnitee has not met the applicable standard of conduct set forth in the
DGCL. Neither the failure of the Company (including its board of directors,
independent legal counsel, or its stockholders) to have made a determination
prior to the commencement of such suit that indemnification of the Indemnitee is
proper in the circumstances because the Indemnitee has met the applicable
standard of conduct set forth in the DGCL, nor an actual determination by the
Company (including its board of directors, independent legal counsel, or its
stockholders) that the Indemnitee has not met such applicable standard of
conduct or, in the case of such a suit brought by the Indemnitee, be a defense
to such suit. In any suit brought by the Indemnitee to enforce a right
hereunder, or by the Company to recover an Advancement of Expenses pursuant to
the terms of an undertaking, the burden of proving that the Indemnitee is not
entitled to be indemnified or to such Advancement of Expenses under this Section
or otherwise shall be on the Company.
(c) The rights to indemnification and to the Advancement of Expenses
conferred in this Section shall not be exclusive of any other right which
any person may have or hereafter acquire under any statute, this
certificate of incorporation, bylaw, agreement, vote of stockholders or
disinterested directors or otherwise.
(d) The Company may maintain insurance, at its expense, to protect
itself and any director, officer, employee or agent of the Company or
another corporation, partnership, joint venture, trust or other enterprise
against any expense, liability or loss, whether or not the Company would
have the power to indemnify such person against such expense, liability or
loss under the DGCL.
(e) The Company may, to the extent authorized from time to time by
the board of directors, grant rights to indemnification and to the
Advancement of Expenses, to any
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<PAGE>
employee or agent of the Company to the fullest extent of the provisions of
this Section with respect to the indemnification and Advancement of
Expenses of directors, and executive officers of the Company.
(f) Notwithstanding the indemnification provided for by this Section
11, the Company's bylaws, or any written agreement, such indemnity shall
not include any expenses, liabilities or losses incurred by such
Indemnitees relating to or arising from any Proceeding in which the Company
asserts a direct claim (as opposed to a stockholders' derivative action)
against the Indemnitees, whether such claim by the Company is termed a
complaint, counterclaim, crossclaim, third-party complaint or otherwise.
I, THE UNDERSIGNED, HEREBY ACKNOWLEDGE that I have read the foregoing
Second Amended and Restated Certificate of Incorporation and affirm and
acknowledge under penalty of perjury that the instrument is the act and deed of
the Company, and that all facts contained therein are true and correct.
Dated: August 12, 1999 U.Link, Inc.,
a Delaware corporation
By: /s/ Michael S. Paul
_______________________________
Michael S. Paul,
Chief Executive Officer
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<PAGE>
Exhibit 3.2
CERTIFICATE OF DESIGNATION
OF
U.LINK, INC.
Series E Convertible Redeemable Preferred Stock
Pursuant to Section 151(g) of the Delaware General Corporation Law,
U.Link, Inc., a Delaware corporation (the "Corporation"), does hereby certify as
follows:
1. The following resolution was duly adopted by the Board of Directors of
the Corporation on March 24, 1999:
RESOLVED, that pursuant to Section 5(f) of the Restated and Amended
Certificate of Incorporation of this Corporation, there be created a
series of the Preferred Stock, par value $.001 per share ("Preferred
Stock"), of this Corporation, consisting of sixty eight (68) shares, to be
designated as the Series E Convertible Redeemable Preferred Stock ("Series
E Preferred Stock"), the holders of such shares to have the rights,
preferences and privileges set forth in the Statement of Designation
attached as Exhibit A to this Resolution; and be it further
RESOLVED, that the officers of this Corporation be, and they hereby
are, authorized and empowered to execute and file with the Secretary of
State of the State of Delaware, a certificate of designation setting forth
the rights, preferences and privileges of the holders of the Series E
Preferred Stock.
2. Set forth as an Exhibit to this Certificate of Designation is a true
and correct copy of Exhibit A to the resolution duly adopted by the Board of
Directors of the Corporation on March 24, 1999, setting forth the rights,
preferences and privileges of the holders of the Series E Preferred Stock.
IN WITNESS WHEREOF, U.Link, Inc. has caused this certificate to be signed
by its chief executive officer this 21st day of April, 1999.
By: /s/ Michael S. Paul
----------------------------------------
Michael S. Paul, Chief Executive Officer
<PAGE>
Exhibit A
STATEMENT OF DESIGNATION
The designation of, the number of shares constituting, and the rights,
preferences, privileges and restrictions relating to, the Series E Convertible
Redeemable Preferred Stock are as follows:
1. Designation and Number of Shares. The designation of this series of
sixty eight (68) shares of preferred stock, par value $.001 per share
("Preferred Stock"), created by the Board of Directors of the Corporation
pursuant to the authority granted to it by the certificate of incorporation of
the Corporation is "Series E Convertible Redeemable Preferred Stock," which is
hereinafter referred to as the "Series E Preferred Stock." In the event that the
Corporation does not issue the maximum number of shares of Series E Preferred
Stock or in the event of the conversion of shares of Series E Preferred Stock
into this Corporation's common stock, par value $.001 per share ("Common
Stock"), pursuant to Section 4 of this Statement of Designation, or in the event
that the Corporation shall acquire (whether by purchase, redemption or
otherwise) and cancel any shares of Series E Preferred Stock, the Corporation
may, from time to time, by resolution of the Board of Directors, reduce the
number of shares of Series E Preferred Stock authorized, provided, that no such
reduction shall reduce the number of authorized shares to a number which is less
than the number of shares of Series E Preferred Stock then issued or reserved
for issuance. The number of shares by which the Series E Preferred Stock is
reduced shall have the status of authorized but unissued shares of Preferred
Stock, without designation as to series until such stock is once more designated
as part of a particular Series of Preferred Stock by the Corporation's Board of
Directors. The Series E Preferred Stock shall be senior to the Series A
Preferred Stock, par value $.001 per share, the Series B Preferred Stock, par
value $1.00 per share, the Series C Preferred Stock, par value $.001 per share,
and the Series D Preferred Stock, par value $.001 per share, upon liquidation,
dissolution and winding up.
2. Dividend Rights.
(a) If cash dividends are declared with respect to the Common Stock,
each holder of shares of Series E Preferred Stock shall have the right to
receive, at the time and in the manner such dividends are paid to the holders of
the Common Stock, dividends in an amount equal to the amount such holder would
receive if such holder held the number of shares of Common Stock issuable upon
conversion of the Series E Preferred Stock held on the record date for
determining such dividend on the Common Stock, based on the Conversion Rate, as
hereinafter defined, in effect on such record date, but without regard to
whether the shares of Series E Preferred Stock are then convertible into Common
Stock, as if the shares of Series E Preferred Stock and Common Stock of the
Corporation were a single class. References to Common Stock in this Section 2,
but not elsewhere in this Statement of Designation, shall include any class of
capital stock of the Corporation the holders of which are entitled to the same
dividends per share as the Common Stock.
(b) Any dividend, distribution, stock split or other
recapitalization or event described in Section 4(e) of this Statement of
Designation shall not be deemed a dividend for purposes of Section 2(a) of this
Statement of Designation. Any dividend or distribution which is part of the
liquidation, dissolution or winding up shall be governed by the provisions of
Section 6 of this Statement of Designation and not by this Section 2.
<PAGE>
3. Voting Rights.
(a) Except as otherwise provided by law or as otherwise expressly
provided in this Statement of Designation, holders of Series E Preferred Stock
shall not be entitled to any voting rights.
(b) The Corporation shall not increase the number of authorized
shares of Series E Preferred Stock without the prior approval of the holders of
a majority of the shares of Series E Preferred Stock then outstanding.
(c) The Corporation shall not create other series of Preferred Stock
or other class or series of capital stock which is senior to or on a parity with
the Series E Preferred Stock as to voluntary or involuntary dissolution,
liquidation or winding up of the Corporation without the consent of the holders
of the Series E Preferred Stock. The Corporation is not restricted from creating
other series of Preferred Stock which may be senior to, on a parity with or
junior to the Series E Preferred Stock as to dividends or voting or which are
junior to the Series E Preferred Stock as upon the voluntary or involuntary
dissolution, liquidation or winding up of the Corporation without the consent of
the holders of the Series E Preferred Stock.
4. Conversion into Common Stock.
(a) (I) Subject to the prior redemption of the Series E Preferred
Stock, commencing on the first anniversary of the first issuance of shares of
Series E Preferred Stock or earlier upon the happening of a Conversion Event, as
hereinafter defined, each holder of the Series E Preferred Stock will have the
right to convert any or all of such holder's shares of Series E Preferred Stock
into shares of Common Stock at the conversion rate hereinafter defined (the
"Conversion Rate"). In the event that the Corporation shall give a notice of
redemption, the shares of Series E Preferred Stock shall become immediately
convertible into Common Stock, and such right shall continue even if the
Corporation shall default in the payment of the Redemption Price, as hereinafter
defined.
(i) The Conversion Event shall mean (A) the sale, conveyance,
exchange or transfer (for cash, shares of stock, securities or other
consideration) of all or substantially all of the property and assets of the
Corporation or of its interest in its joint venture with collegestudent.com,
Inc. or (B) the merger or consolidation of the Corporation into another
corporation, or (C) the merger of any other entity (other than a subsidiary of
the Corporation) into the Corporation or the acquisition by the Corporation of
another corporation or other entity if, as a result of such merger or
acquisition, the holders of voting stock of the Corporation prior to the merger
or acquisition (exclusive of stockholders who acquired such shares in connection
with the merger or acquisition) own less than fifty percent (50%) of the voting
stock, in terms of either value or number of shares, immediately after the
effective time of the merger or acquisition.
(b) The Conversion Rate shall mean the number of shares of Common
Stock issuable upon conversion of one (1) share of Series E Preferred Stock. The
Conversion Rate shall be six thousand seven hundred fifty (6,750) shares of
Common Stock, subject to adjustment as provided in Section 4(e) of this
Statement of Designation.
(c) Conversion of the Series E Preferred Stock shall be effected by
surrender of the certificate representing the shares of Series E Preferred Stock
being converted to the transfer agent for the
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<PAGE>
Series E Preferred Stock, or, if none shall have been appointed, to the
Corporation, together with the form of notice of election to convert as may be
provided from time to time by the Corporation.
(d) Shares of Series E Preferred Stock shall be deemed to have been
converted immediately prior to the close of business on the day of the surrender
for conversion of the certificate therefor, together with the form of notice of
election provided by the Corporation duly signed by the holder thereof, and the
person or persons entitled to receive shares of Common Stock issuable upon such
conversion shall be treated for all purposes as the record holder of such shares
of Common Stock as of such time. As promptly as practicable on or after the
conversion date, the Corporation or its transfer agent shall issue and shall
deliver a certificate or certificates for the number of full shares of Common
Stock issuable upon such conversion, together with a cash payment in lieu of any
fraction of any share, as hereinafter provided, to the person or persons
entitled to receive the same.
(e) The Conversion Rate shall be subject to adjustment as follows:
(i) In case the Corporation shall after the date the
Certificate of Designation, of which this Statement of Designation is an
exhibit, is filed (the "Filing Date"), (A) pay a dividend or make a distribution
on its shares of Common Stock in shares of Common Stock, (B) subdivide, split or
reclassify its outstanding Common Stock into a greater number of shares, (C)
effect a reverse split or otherwise combine or reclassify its outstanding Common
Stock into a smaller number of shares, or (D) issue any shares by
reclassification of its shares of Common Stock, the Conversion Rate in effect at
the time of the record date for such dividend or distribution or of the
effective date of such subdivision, combination or reclassification shall be
proportionately adjusted so that the holder of the shares of Series E Preferred
Stock converted after such date shall be entitled to receive the aggregate
number and kind of shares which, if such shares had been converted immediately
prior to such time, he would have owned upon such conversion and been entitled
to receive upon such dividend, subdivision, combination or reclassification.
Such adjustment shall be made successively whenever any event listed in this
Section 4(e)(i) shall occur.
(ii) In case the Corporation shall, subsequent to the Filing
Date, issue rights or warrants to all holders of its Common Stock entitling them
to subscribe for or purchase shares of Common Stock (or securities convertible
into Common Stock) at a price (or having a conversion price per share) less than
the current market price of the Common Stock (as defined in Section 4(e)(iv) of
this Statement of Designation) on the record date mentioned below, the
Conversion Rate shall be adjusted by multiplying the Conversion Rate in effect
immediately prior to the date of such issuance by a fraction, of which the
numerator shall be the number of shares of Common Stock outstanding on the
record date mentioned below plus the number of additional shares of Common Stock
offered for subscription or purchased (or into which the convertible securities
so offered are convertible) and of which the denominator shall be the number of
shares of Common Stock outstanding on such record date plus the number of shares
determined by multiplying the price or the conversion price at which additional
shares of Common Stock are offered by the number of shares of Common Stock being
offered by the number of shares being issued, including shares being issued upon
conversion of any convertible securities, and dividing the result so obtained by
the current market price of the Common Stock. Such adjustment shall be made
successively whenever such rights or warrants are issued and shall become
effective immediately after the record date for the determination of
stockholders entitled to receive such rights or warrants; and to the extent that
shares of Common Stock or securities convertible into Common Stock are not
delivered after the expiration of such rights or warrants, the Conversion Rate
shall be readjusted to the Conversion Rate which would then be in effect had the
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<PAGE>
adjustments made upon the issuance of such rights or warrants been made upon the
basis of delivery of only the number of shares of Common Stock (or securities
convertible into Common Stock) actually delivered.
(iii) In case the Corporation shall, subsequent to the Filing
Date, distribute to all holders of Common Stock evidences of its indebtedness or
assets (excluding cash dividends or distributions paid out of current earnings
and dividends or distributions referred to in Section 4(e)(i) of this Statement
of Designation) or subscription rights or warrants (excluding those referred to
in Section 4(e)(ii) of this Statement of Designation), then in each such case
the Conversion Rate shall be multiplied by a fraction, of which the numerator
shall be shall be the total number of shares of Common Stock outstanding
multiplied by such current market price per share of Common Stock (as defined in
Section 4(e)(iv) of this Statement of Designation), and the denominator of which
shall be the total number of shares of Common Stock outstanding multiplied by
such current market price per share of Common Stock, less the fair market value
(as determined in good faith by the Corporation's Board of Directors) of said
assets or evidences of indebtedness so distributed or of such rights or
warrants. Such adjustment shall be made successively whenever such a record date
is fixed. Such adjustment shall be made whenever any such distribution is made
and shall become effective immediately after the record date for the
determination of stockholders entitled to receive such distribution.
(iv) For the purpose of any computation under Sections
4(e)(ii) and (iii) of this Statement of Designation, the current market price
per share of Common Stock at any date shall be deemed to be the average of the
daily closing prices for five (5) consecutive trading days commencing twenty
(20) trading days before such date, as reported by the principal stock exchange
or market on which the Common Stock is listed; provided, however, that if, on
any of such days there are no reported sales of the Common Stock, the closing
low bid price shall be used for such day. If the Common Stock is not listed or
admitted to listed on any stock exchange or market, the closing low bid prices
as reported by the National Quotation Bureau, Inc. or other similar organization
if Nasdaq is no longer reporting such information, or if not so available, the
fair market price as determined by the Board of Directors.
(v) No increase or decrease in the Conversion Rate shall be
required unless such adjustment would require an increase or decrease of at
least one percent (1%); provided, however, that any adjustments which by reason
of this Section 4(e)(v) are not required to be made shall be carried forward and
taken into account in any subsequent adjustment. All calculations under this
Section 4(e) shall be made to the nearest one-hundredth (1/100) of a share.
(vi) The Corporation may retain a firm of independent public
accountants of recognized standing selected by the Board of Directors (who may
be the regular accountants employed by the Corporation) to make any computation
required by this Section 4(e), and a certificate signed by such firm shall be
conclusive evidence of the correctness of such adjustment.
(vii) In the event that at any time, as a result of an
adjustment made pursuant to this Section 4(e), the holder of shares of Series E
Preferred Stock thereafter shall become entitled to receive any shares of the
Corporation, other than Common Stock, thereafter the number of such other shares
so receivable upon conversion of shares of Series E Preferred Stock shall be
subject to adjustment from time to time in a manner and on terms as nearly
equivalent as practicable to the provisions with respect to the Common Stock
contained in this Section 4.
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<PAGE>
(viii) In addition to the adjustments provided for in this
Section 4(e), the Corporation may modify the Conversion Rate in a manner which
will increase the number of shares of Common Stock issuable upon conversion of
the Series E Preferred Stock if the Corporation believes that such adjustment is
necessary or desirable in order to avoid adverse Federal income tax consequences
to the holders of the Common Stock.
(f) Whenever the Conversion Rate shall be adjusted as required by
the provisions of Section 4(e) of this Statement of Designation, the Corporation
shall forthwith file in the custody of its Secretary or an Assistant Secretary
at its principal office and with its stock transfer agent, if any, an officer's
certificate showing the adjusted Conversion Rate, setting forth in reasonable
detail the facts requiring such adjustment. Each such officer's certificate
shall be made available at all reasonable times for inspection by any holder of
shares of Series E Preferred Stock, and the Corporation shall, forthwith after
each such adjustment, mail a copy of such certificate by first class mail to the
holders of Series E Preferred Stock at such holders' addresses set forth in the
Corporation's books and records.
(A) In case:
(i) the Corporation shall pay any dividend or make any
distribution upon Common Stock (other than a regular cash dividend payable out
of retained earnings); or
(ii) the Corporation shall offer to the holders of Common
Stock for subscription or purchase by them any share of any class or any other
rights, or
(iii) any reclassification of the capital stock of the
Corporation, consolidation or merger of the Corporation with or into another
corporation, sale, lease or transfer of all or substantially all of the property
and assets of the Corporation to another corporation, or voluntary or
involuntary dissolution, liquidation or winding up of the Corporation shall be
effected;
then in any such case, the Corporation shall cause to be mailed by first class
mail to the record holders of Series E Preferred Stock at least ten (10) days
prior to the date specified in (A) and (B) below, as the case may be, a notice
containing a brief description of the proposed action and stating the date on
which (A) a record is to be taken for the purpose of such dividend, distribution
or rights, or (B) such reclassification, consolidation, merger, conveyance,
lease, dissolution, liquidation or winding up is to take place and the date, if
any is to be fixed, as of which the holders of Common Stock or other securities
shall receive cash or other property deliverable upon such reclassification,
reorganization, consolidation, merger, conveyance, dissolution, liquidation or
winding up.
(g) In case of any reclassification, capital reorganization or other
change of outstanding shares of Common Stock of the Corporation, or in case of
any consolidation or merger of the Corporation into another corporation (other
than a merger with a subsidiary in which merger the Corporation is the
continuing corporation and which does not result in any reclassification,
capital reorganization or other change of outstanding shares of Common Stock or
the class issuable upon conversion of Series E Preferred Stock) or in case of
any sale, lease or conveyance to another corporation of the property of the
Corporation as an entirety, the Corporation shall, as a condition precedent to
such transaction, cause effective provisions to be made so that the holder of
the Series E Preferred Stock shall have the right thereafter by converting the
Series E Preferred Stock, to receive the kind and amount of shares of stock and
other securities and property receivable upon such reclassification, capital
reorganization and other change, consolidation,
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<PAGE>
merger, sale or conveyance by a holder of the number of shares of Common Stock
which might have been received upon conversion of the Series E Preferred Stock
immediately prior to such reclassification, change, consolidation, merger, sale
or conveyance. Any such provision shall include provision for adjustments which
shall be as nearly equivalent as may be practicable to the adjustments provided
for in this Statement of Designation. The foregoing provisions of this Section
4(h) shall similarly apply to successive reclassifications, capital
reorganizations and changes of shares of Common Stock and to successive
consolidations, mergers, sales or conveyances. This Section 4(h) shall not apply
to the extent that Section 6 of this Statement of Designation shall apply.
(h) No fractional shares or script representing fractional shares
shall be issued upon the conversion of shares of Series E Preferred Stock. If,
upon conversion of any shares of Series E Preferred Stock as an entirety, the
holder would, except for the provisions of this Section 4(i), be entitled to
receive a fractional share of Common Stock, then an amount equal to such
fractional share multiplied by the fair market value per share of the
Corporation's Common Stock on the last business day prior to the date of
conversion shall be distributed to the holder. The fair market value per share
shall mean the closing price (or average of the closing high bid and low asked
prices if there is no sale on such date) on the Nasdaq Stock Market or the New
York or American Stock Exchange, if the Common Stock is admitted to trading or
listed on such market or stock exchange, or if not so listed or admitted to
trading, the average of the reported highest bid and lowest asked prices as
reported by the Over The Counter Bulletin Board or the National Quotation
Bureau, Inc. or similar reporting service selected by the Board of Directors, or
if no such prices are available, the current market value shall be determined in
good faith by the Board of Directors.
(i) The Corporation shall at all times reserve and keep available,
free from preemptive rights, out of its authorized but unissued Common Stock the
full number of shares of Common Stock then issuable upon the conversion of all
shares of Series E Preferred Stock then outstanding.
(j) The Common Stock issuable upon conversion of the Series E
Preferred Stock shall, when so issued, be duly and validly authorized and
issued, fully paid and non-assessable.
(k) Any shares of Series E Preferred Stock which shall at any time
have been converted shall, after such conversion, have the status of authorized
but unissued shares of Preferred Stock, without designation as to series until
such stock is once more designated as part of a particular Series of Preferred
Stock by the Corporation's Board of Directors.
5. Redemption.
(a) The Corporation may, at any time, redeem the Series E Preferred
Stock, in whole only and not in part, at any time upon not less than ten (10)
nor more than thirty (30) days' prior written notice at the redemption price per
share of twenty two thousand seven hundred eighty one and 25/100 dollars
($22,781.25), plus any dividends which shall have been declared but not paid on
the Series E Preferred Stock. The Corporation is not required to provide for the
redemption of any shares of Series E Preferred Stock through the operation of a
sinking fund.
(b) The date on which the Corporation is to redeem any Series E
Preferred Stock pursuant to Section 5(a) is referred to as the "Redemption
Date." From and after the close of business on the business day immediately
preceding the Redemption Date, the shares of Series E Preferred Stock shall
cease to have any voting, dividend, conversion or other rights, and the holder
of such shares shall only have
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<PAGE>
the right to receive payment of the redemption price; provided, however, that
this Section 5(b) shall not apply if the Corporation shall default in the
payment of the redemption price on the Redemption Date.
(c) If any dividends shall have been declared by the Board of
Directors on Series E Preferred Stock and are in arrears, no purchase or
redemption shall be made of any stock ranking junior to or on a parity with
Series E Preferred Stock as to dividends or upon liquidation, dissolution or
winding up (other than a purchase or redemption made by issuance for delivery of
such junior stock); provided, however, that any monies theretofore deposited in
any sinking fund with respect to any series of Preferred Stock of the
Corporation in compliance with the provisions of such sinking fund thereafter
may be applied to the purchase or redemption of such Preferred Stock in
accordance with the terms of such sinking fund regardless of whether at the time
of such application the full amount of all dividends that have been declared
upon shares of Series E Preferred Stock shall have been paid or set aside for
payment; and provided, further, that the foregoing shall not prevent the
purchase of shares of Preferred Stock ranking on a parity with Series E
Preferred Stock as to dividends and upon liquidation, dissolution or winding up
pursuant to a purchase or exchange offer made on the same terms to the holders
of all the outstanding Preferred Stock so ranking on a parity with Series E
Preferred Stock as to dividends and upon liquidation, dissolution or winding up.
(d) Any shares of Series E Preferred Stock which shall at any time
have been redeemed shall, after such redemption, have the status of authorized
but unissued shares of Preferred Stock, without designation as to series until
such stock is once more designated as part of a particular Series of Preferred
Stock by the Corporation's Board of Directors.
6. Liquidation Rights.
(a) (i) In the event of the liquidation, dissolution or winding up
of the Corporation, whether voluntary or involuntary, holders of the Series E
Preferred Stock shall be entitled to receive out of the assets of the
Corporation an amount per share equal to of twenty two thousand seven hundred
eighty one and 25/100 dollars ($22,781.25), plus any dividends which shall have
been declared but not paid on the Series E Preferred Stock before any payment or
distribution upon dissolution, liquidation or winding up shall be made on any
series or class of capital stock ranking junior to Series E Preferred Stock as
to such payment or distribution, and after all such payments or distributions
have been made on any series or class of capital stock ranking senior to the
Series E Preferred Stock as to such payment or distribution.
(ii) After payment in full of the preference set forth in
Section 6(a)(i) of this Statement of Designation, the holders of the Series E
Preferred Stock shall have no further rights on liquidation, dissolution or
winding up.
(b) (i) The sale, conveyance, exchange or transfer (for cash, shares
of stock, securities or other consideration) of all or substantially all of the
property and assets of the Corporation or of its interest in its joint venture
with collegestudent.com, Inc. or the merger or consolidation of the Corporation
into another corporation shall be deemed a voluntary dissolution, liquidation or
winding up of the Corporation for purposes of this Section 6.
(ii) Notwithstanding the provisions of Section 6(b)(i) of this
Statement of Designation, in the event of any transaction described in said
Section 6(b)(i), any holder of shares of Series E Preferred Stock may elect
that, as to all, and not less than all, of such holder's shares of Series E
Preferred
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<PAGE>
Stock, this Section 6 shall not apply, and such holder's shares of Series E
Preferred Stock shall be treated in the manner provided in Section 4(h) of this
Statement of Designation.
(c) In the event the assets of the Corporation available for
distribution to the holders of shares of Series E Preferred Stock upon
dissolution, liquidation or winding up of the Corporation, whether voluntary or
involuntary, shall be insufficient to pay in full all amounts to which such
holders are entitled pursuant to Section 6(a)(i) of this Statement of
Designation, no such distribution shall be made on account of any shares of any
other class or series of capital stock of the Corporation ranking on a parity
with the shares of Series E Preferred Stock upon such dissolution, liquidation
or winding up unless proportionate distributive amounts shall be paid on account
of the shares of Series E Preferred Stock, ratably, in proportion to the full
distributable amounts for which holders of all such parity shares are
respectively entitled upon such dissolution, liquidation or winding up.
(d) Upon the dissolution, liquidation or winding up of the
Corporation, the holders of shares of Series E Preferred Stock then outstanding
shall be entitled to be paid out of the assets of the Corporation available for
distribution to its stockholders all amounts to which such holders are entitled
pursuant to Section 6(a)(i) of this Statement of Designation before any payment
shall be made to the holders of any class of capital stock of the Corporation
ranking junior upon liquidation to Series E Preferred Stock.
7. Rank of Series. For purposes of this Statement of Designation, any
stock of any series or class of the Corporation shall be deemed to rank:
(a) prior to the shares of Series E Preferred Stock, as to dividends
or upon liquidation, dissolution or winding up, as the case may be, if the
holders of such class or classes shall be entitled to the receipt of dividends
or of amounts distributable upon dissolution, liquidation or winding up of the
Corporation, as the case may be, in preference or priority to the holders of
shares of Series E Preferred Stock;
(b) on a parity with shares of Series E Preferred Stock, as to
dividends or upon liquidation, dissolution or winding up, as the case may be,
whether or not the dividend rates, dividend payment dates or redemption or
liquidation prices per share or sinking fund provisions, if any, be different
from those of Series E Preferred Stock, if the holders of such stock shall be
entitled to the receipt of dividends or of amounts distributable upon
dissolution, liquidation or winding up of the Corporation, as the case may be,
in proportion to their respective dividend rates or liquidation prices, without
preference or priority, one over the other, as between the holders of such stock
and the holders of shares of Series E Preferred Stock;
(c) junior to shares of Series E Preferred Stock as to dividends or
upon liquidation, dissolution or winding up, as the case may be, if such class
shall be Common Stock or if the holders of shares of Series E Preferred Stock
shall be entitled to receipt of dividends or of amounts distributable upon
dissolution, liquidation or winding up of the Corporation, as the case may be,
in preference or priority to the holders of shares of such class or classes.
7. No Preemptive Rights. No holder of the Series E Preferred Stock shall,
as such holder, be entitled as of right to purchase or subscribe for any shares
of stock of the Corporation of any class or any series now or hereafter
authorized or any securities convertible into or exchangeable for any shares, or
any warrants, options, rights or other instruments evidencing rights to
subscribe for or purchase any such shares,
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whether such shares, securities, warrants, options, rights or other instruments
be unissued or issued and thereafter acquired by the Corporation.
8. Transfer Agent and Registrar. The Corporation may appoint a transfer
agent and registrar for the issuance, transfer and conversion of the Series E
Preferred Stock and for the payment of dividends to the holders of the Series E
Preferred Stock.
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Exhibit 3.3
BYLAWS
OF
U.LINK, INC.
As Adopted on
February 4, 1999
Article I. Meetings of Stockholders
-----------------------------------
Section 1. Annual Meeting. The annual meeting of the stockholders of this
--------------------------
Corporation shall be held at the time and place designated by the Board of
Directors of the Corporation. Business transacted at the annual meeting shall
include the election of directors of the Corporation.
Section 2. Special Meetings. Special meetings of the stockholders shall
----------------------------
be held when directed by the Board of Directors, or when requested in writing by
the holders of not less than 10 percent of all the shares entitled to vote at
the meeting.
Section 3. Place. Meetings of stockholders may be held within or without
-----------------
the State of Delaware.
Section 4. Notice. Written notice stating the place, day and hour of the
------------------
meeting and, in the case of a special meeting, the purpose or purposes for which
the meeting is called, shall be delivered not less than 10 nor more than 60 days
before the meeting, either personally or by first class mail, by or at the
direction of the chairman, the secretary, or the officer or persons calling the
meeting to each stockholder of record entitled to vote at such meeting. If
mailed, such notice shall be deemed to be delivered when deposited in the United
States mail addressed to the stockholder at his address as it appears on the
stock transfer books of the Corporation, with postage there on prepaid.
<PAGE>
The provisions of Section 229 of the Delaware General Corporation Law (the
"DGCL") as to waiver of notice are applicable.
Section 5. Notice of Adjourned Meetings. When a meeting is adjourned to
----------------------------------------
another time or place, it shall not be necessary to give any notice of the
adjourned meeting if the time and place to which the meeting is adjourned are
announced at the meeting at which the adjournment is taken, and at the adjourned
meeting any business may be transacted that might have been transacted on the
original date of the meeting. If, however, after the adjournment the Board of
Directors fixes a new record date for the adjourned meeting, a notice of
adjourned meeting, shall be given as provided in this section to each
stockholder of record on the new record date entitled to vote at such meeting.
Section 6. Closing of Transfer Books and Fixing Record Date. For the
------------------------------------------------------------
purpose of determining 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 in order to make a determination of stockholders for
any other purpose, the Board of Directors may provide that the stock transfer
books shall be closed for a stated period but not to exceed, in any case, 60
days. If the stock transfer books shall be closed for the purpose of
determining stockholders entitled to notice of or to vote at a meeting of
stockholders, such books shall be closed for at least 10 days immediately
preceding such meeting.
In lieu of closing the stock transfer books, the Board of Directors may fix
in advance a date as the record date for the determination of stockholders, such
date in any case to be not more than 60 days and, in case of a meeting of
stockholders, not less than 10 days prior to the date on which the particular
action requiring such determination of stockholders is to be taken.
2
<PAGE>
If the stock transfer books are not closed and no record date is fixed for
the determination of stockholders entitled to notice or to vote at a meeting of
stockholders, or stockholders entitled to receive payment of a dividend, the day
preceding the day on which notice of the meeting is mailed or the date on which
the resolution of the Board of Directors declaring such dividend is adopted, as
the case may be, shall be the record date for such determination of
stockholders.
When a determination of stockholders entitled to vote at any meeting of
stockholders has been made as provided in this section, such determination shall
apply to any adjournment thereof, unless the Board of Directors fixes a new
record date for the adjourned meeting.
Section 7. Stockholder Quorum and Voting. A majority of the outstanding
-----------------------------------------
shares of each class or series of voting stock then entitled to vote,
represented in person or by proxy, shall constitute a quorum at a meeting of
stockholders. When a specified item of business is required to be voted on by a
class or series of stock, a majority of the outstanding shares of such class or
series shall constitute a quorum for the transaction of such item of business by
that class or series.
If a quorum is present, the affirmative vote of the majority of those
shares present at the meeting in person or by proxy of each class or series of
voting stock and entitled to vote on the subject matter shall be the act of the
stockholders unless otherwise provided by law provided however that the
directors of the Corporation shall be elected by a plurality of such shares.
After a quorum has been established at a stockholders' meeting, the
subsequent withdrawal of stockholders, so as to
3
<PAGE>
reduce the number of stockholders entitled to vote at the meeting below the
number required for a quorum, shall not affect the validity of any action taken
at the meeting or any adjournment thereof.
Section 8. Voting of Shares. Each outstanding share, regardless of class,
----------------------------
shall be entitled to one vote on each matter submitted to a vote at a meeting of
stockholders.
Treasury shares, shares of stock of this Corporation owned by another
corporation, the majority of the voting stock of which is owned or controlled by
this Corporation, and shares of stock of this Corporation, held by it in a
fiduciary capacity shall not be voted, directly or indirectly, at any meeting,
and shall not be counted in determining the total number of outstanding shares
at any given time.
A stockholder may vote either in person or by proxy executed in writing by
the stockholder or his duly authorized attorney-in-fact.
At each election for directors every stockholder entitled to vote at such
election shall have the right to vote, in person or by proxy, the number of
shares owned by him for as many persons as there are directors to be elected at
that time and for whose election he has a right to vote.
Shares standing in the name of another corporation, domestic or foreign,
may be voted by the officer, agent, or proxy designated by the bylaws of the
corporate stockholder; or, in the absence of any applicable bylaw, by such
person as the Board of Directors of the corporate stockholder may designate.
Proof of such designation may be made by presentation of a certified copy of the
bylaws or other instrument of the corporate stockholder.
4
<PAGE>
In the absence of any such designation, or in case of conflicting designation by
the corporate stockholder, the chairman of the board, president, any vice
president, secretary and treasurer of the corporate stockholder shall be
presumed to possess, in that order, authority to vote such shares.
Shares held by an administrator, executor, guardian or conservator may be
voted by him, either in person or by proxy, without a transfer of such shares
into his name. Shares standing in the name of a trustee may be voted by him,
either in person or by proxy, but no trustee shall be entitled to vote shares
held by him without a transfer of such shares into his name.
Shares standing in the name of a receiver may be voted by such receiver,
and shares held by or under the control of a receiver may be voted by such
receiver without the transfer thereof into his name if authority to do so is
contained in an appropriate order of the court by which such receiver was
appointed.
A stockholder whose shares are pledged shall be entitled to vote such
shares until the shares have been transferred into the name of the pledgee, and
thereafter the pledgee or his nominee shall be entitled to vote the shares so
transferred.
On and after the date on which written notice of redemption of redeemable
shares has been mailed to the holders thereof and a sum sufficient to redeem
such shares has been deposited with a bank or trust company with irrevocable
instruction and authority to pay the redemption price to the holders thereof
upon surrender of certificates therefor, such shares shall not be entitled to
vote on any matter and shall not be deemed to be outstanding shares.
5
<PAGE>
Section 9. Proxies. Every stockholder entitled to vote at a meeting of
-------------------
stockholders or to express consent or dissent without a meeting of a
stockholders' duly authorized attorney-in-fact may authorize another person or
persons to act for him by proxy.
Every proxy must be signed by the stockholder or his attorney in-fact. No
proxy shall be valid after the expiration of three years from the date thereof
unless otherwise provided in the proxy. Every proxy shall be revocable at the
pleasure of the stockholder executing it, except as otherwise provided by law.
The authority of the holder of a proxy to act shall not be revoked by the
incompetence or death of the stockholder who executed the proxy unless, before
the authority is exercised, written notice of an adjudication of such
incompetence or of such death is received by the corporate officer responsible
for maintaining the list of stockholders.
If a proxy for the same shares confers authority upon two or more persons
and does not otherwise provide, a majority of them present at the meeting, or if
only one is present then that one, may exercise all the powers conferred by the
proxy; but if the proxy holders present at the meeting are equally divided as to
the right and manner of voting in any particular case, the voting of such shares
shall be prorated.
If a proxy expressly provides, any proxy holder may appoint in writing a
substitute to act in his place.
Section 10. Action by Stockholders without a Meeting. Any action required
-----------------------------------------------------
by law, these bylaws, or the certificate of incorporation of this Corporation to
be taken at any annual or special meeting of stockholders of the Corporation, or
any action which may be taken at any annual or special meeting of such
6
<PAGE>
stockholders, may be taken without a meeting, without prior notice and without a
vote, if a consent in writing setting forth the action so taken, shall be signed
by the holders of outstanding stock having not less than the minimum number of
votes that would be necessary to authorize or take such action at a meeting at
which all shares entitled to vote thereon were present and voted. If any class
of shares is entitled to vote thereon as a class, such written consent shall be
required of the holders of a majority of the shares of each class of shares
entitled to vote as a class thereon and of the total shares entitled to vote
thereon.
Promptly after obtaining such authorization by written consent, notice
shall be given to those stockholders who have not consented in writing. The
notice shall fairly summarize the material features of the authorized action,
and, if the action be a merger or consolidation for which appraisal rights are
provided under the DGCL, be given in accordance with Section 262(d)(2) of the
Act, as amended.
Article II. Directors
---------------------
Section 1. Function. All corporate powers shall be exercised by or under
--------------------
the authority of, and the business and affairs of the Corporation shall be
managed under the direction of, the Board of Directors.
Section 2. Qualification. Directors need not be residents of this state
-------------------------
or stockholders of this Corporation.
Section 3. Compensation. The Board of Directors shall have authority to
------------------------
fix the compensation of directors.
Section 4. Duties of Directors. A director shall perform his duties as a
-------------------------------
director, including his duties as a member of any
7
<PAGE>
committee of the board upon which he may serve, in good faith, in a manner he
reasonably believes to be in the best interests of the Corporation, and with
such care as an ordinarily prudent person in a like position would use under
similar circumstances.
In performing his duties, a director shall be entitled to rely on
information, opinions, reports or statements, including financial statements and
other financial data, in each case prepared or presented by:
(a) one or more officers or employees of the Corporation whom the
director reasonably believes to be reliable and competent in the matters
presented,
(b) counsel, public accountants or other persons as to matters which
the director reasonably believes to be within such person's professional or
expert competence, or
(c) a committee of the board upon which he does not serve, duly
designated in accordance with a provision of the certificate of incorporation or
the bylaws, as to matters within its designated authority, which committee the
director reasonably believes to merit confidence.
A director shall not be considered to be acting in good faith if he has
knowledge concerning the matter in question that would cause such reliance
described above to be unwarranted.
A person who performs his duties in compliance with this section shall have
no liability by reason of being or having been a director of the Corporation.
Section 5. Presumption of Assent. A director of the Corporation who is
---------------------------------
present at a meeting of its Board of Directors
8
<PAGE>
at which action on any corporate matter is taken shall be presumed to have
assented to the action taken unless he votes against such action or abstains
from voting in respect thereto because of an asserted conflict of interest.
Section 6. Number. This Corporation shall have no less than two nor
------------------
greater than nine directors. The number of directors may be established from
time to time by resolution of the Board of Directors, but no decrease shall have
the effect of shortening the terms of any incumbent director.
Section 7. Election and Term. Each person named in the certificate of
-----------------------------
incorporation as a member of the initial Board of Directors and all other
directors appointed by the Board of Directors to fill vacancies thereof shall
hold office until the first annual meeting of stockholders, and until his
successor shall have been elected and qualified or until his earlier
resignation, removal from office or death.
At the first annual meeting of stockholders and at each annual meeting
thereafter the stockholders shall elect directors to hold office until the next
succeeding annual meeting. Each director shall hold office for the term for
which he is elected and until his successor shall have been elected and
qualified or until his earlier resignation, removal from office or death.
Section 8. Vacancies. Any vacancy occurring in the Board of Directors,
---------------------
including any vacancy created by reason of an increase in the number of
directors, may be filled by the affirmative vote of a majority of the remaining
directors though less than a quorum of the Board of Directors. A director
elected to fill a vacancy shall hold office only until the next election of
directors by the stockholders.
9
<PAGE>
Section 9. Removal of Directors. At a meeting of the stockholders called
-------------------------------
expressly for that purpose, any director or the entire Board of Directors may be
removed, with or without cause, by a vote of the holders of a majority of the
shares of each class or series of voting stock, present in person or by proxy,
then entitled to vote at an election of directors.
Section 10. Quorum and Voting. A majority of the number of directors
------------------------------
fixed by these bylaws shall constitute a quorum for the transaction of business.
The act of the majority of the directors present at a meeting at which a quorum
is present shall be the act of the Board of Directors.
Section 11. Director Conflicts of Interest. No contract or other
-------------------------------------------
transaction between this Corporation and one or more of its directors or any
other corporation, firm, association or entity in which one or more of the
directors are directors or officers or are financially interested, shall be
either void or voidable because of such relationship or interest or because such
director or directors are present at the meeting of the Board of Directors or a
committee thereof which authorizes, approves or ratifies such contract or
transaction or because his or their votes are counted for such purpose, if:
(a) The fact of such relationship or interest is disclosed or known to
the Board of Directors or committee which authorizes, approves or ratifies the
contract or transaction by a vote or consent sufficient for the purpose without
counting the votes or consents of such interested directors; or
(b) The fact of such relationship or interest is disclosed or known to
the stockholders entitled to vote and they authorize, approve or ratify such
contract or transaction by vote or written consent; or
10
<PAGE>
(c) The contract or transaction is fair and reasonable as to the
Corporation at the time it is authorized by the board, a committee or the
stockholders. Common or interested directors may be counted in determining the
presence of a quorum at a meeting of the Board of Directors or a committee
thereof which authorizes, approves or ratifies such contract or transaction.
Section 12. Place of Meeting. Regular and special meetings by the Board
-----------------------------
of Directors may be held within or without the State of Delaware.
Section 13. Time, Notice and Call of Meetings. Regular meetings of the
----------------------------------------------
Board of Directors shall be held without notice on the second Monday of March,
June, September and December of each year. Written notice of the time and place
of special meetings of the Board of Directors shall be given to each director by
either personal delivery, first class mail, facsimile transmission, e-mail or
telegram at least two days before the meeting.
Notice of a meeting of the Board of Directors need not be given to any
director who signs a waiver of notice either before or after the meeting.
Attendance of a director at a meeting shall constitute a waiver of notice of
such meeting and waiver of any and all obligations to the place of the meeting,
the time of the meeting, or the manner in which it has been called or convened,
except when a director states, at the beginning of the meeting, any objection to
the transaction of business because the meeting is not lawfully called or
convened.
Neither the business to be transacted at, nor the purpose of, any regular
or special meeting of the Board of Directors need be specified in the notice or
waiver of notice of such meeting.
11
<PAGE>
A majority of the directors present, whether or not a quorum exists, may
adjourn any meeting of the Board of Directors to another time and place. Notice
of any such adjourned meeting shall be given to the directors who were not
present at the time of the adjournment and, unless the time and place of the
adjourned meeting are announced at the time of the adjournment, to the other
directors.
Meetings of the Board of Directors may be called by the president of the
Corporation or by any director.
Members of the Board of Directors may participate in a meeting of such
Board by means of a conference telephone or similar communications equipment by
means of which all persons participating in the meeting can hear each other at
the same time. Participation by such means shall constitute presence in person
at a meeting.
Section 14. Action Without a Meeting. Any action required to be taken at
-------------------------------------
a meeting of the directors of the Corporation, or any action which may be taken
at a meeting of the directors, may be taken without a meeting if a consent in
writing, setting forth the action to be taken, signed by all of the directors,
is filed in the minutes of the proceedings of the Board. Such consent shall
have the same effect as a unanimous vote.
Section 15. Committees. The Board of Directors may designate from among
-----------------------
its members such committees it deems prudent, such as, but not limited to, an
executive committee, audit committee, compensation committee, finance committee
and a litigation committee.
12
<PAGE>
Article III. Officers
---------------------
Section 1. Officers. The officers of this Corporation shall consist of a
--------------------
chief executive officer, president, vice-president of finance and any other vice
presidents designated by the Board of Directors, secretary, treasurer, and such
other officers as may be designated by the Board of Directors, each of whom
shall be elected by the Board of Directors from time to time. Any two or more
offices may be held by the same person. The failure to elect any of the above
officers shall not affect the existence of this Corporation.
Section 2. Duties. The officers of this Corporation shall have the
------------------
following duties and such other duties as delegated by the chief executive
officer.
The chief executive officer of the Corporation shall have general and
active management of the business and affairs of the Corporation subject to the
directions of the Board of Directors and shall preside at all meetings of the
stockholders and the Board of Directors.
The president shall be the chief operating officer of the Corporation and
shall act whenever the chief executive officer is unavailable.
The vice president of finance shall be the chief financial officer and
chief accounting officer of the Corporation and shall be responsible for
maintaining policies and procedures with regard to the Corporation's finances,
establishing and maintaining a system of internal controls sufficient to meet
all requirements of the Securities Exchange Act of 1934 and requirements imposed
or recommended by the Corporation's independent auditors and shall be generally
responsible for overseeing the finances of the
13
<PAGE>
Corporation. He shall keep correct and complete records of account, showing
accurately at all times the financial condition of the Corporation. He shall
furnish at meetings of the Board of Directors, or whenever requested, a
statement of the financial condition of the Corporation and shall perform such
other duties as the bylaws provide or the Board of Directors may prescribe.
Any other vice president(s) shall perform such duties as may be prescribed
by the Board of Directors, the president or Chief Executive Officer.
The treasurer shall be the legal custodian of all monies, notes, securities
and other valuables that may from time to time come into the possession of the
Corporation. He shall immediately deposit all funds of the Corporation coming
into his hands in some reliable bank or other depositary to be designated by the
Board of Directors and shall keep this bank account in the name of the
Corporation.
The secretary shall have custody of and maintain all of the corporate
records except the financial records, shall record the minutes of all meetings
of the stockholders and whenever else required by the Board of Directors or the
president, and shall perform such other duties as may be prescribed by the Board
of Directors.
Section 3. Removal of Officers. Any officer or agent elected or appointed
-------------------------------
by the Board of Directors may be removed by the Board whenever in its judgment
the best interests of the Corporation will be served thereby.
Any officer or agent elected by the stockholders may be removed only by
vote of the stockholders, unless the stockholders
14
<PAGE>
shall have authorized the directors to remove such officer or agent.
Any vacancy, however, occurring, in any office may be filled by the Board
of Directors, unless the bylaws shall have expressly reserved such power to the
stockholders.
Removal of any officer shall be without prejudice to the contract rights,
if any, of the person so removed; however, election or appointment of an officer
or agent shall not of itself create contract rights.
Article IV. Stock Certificates
------------------------------
Section 1. Issuance. Every holder of shares in this Corporation shall be
--------------------
entitled to have a certificate, representing all shares to which he is entitled.
No certificate shall be issued for any share until such share is fully paid.
Section 2. Form. Certificates representing shares in this Corporation
----------------
shall be signed by the president or vice president and the secretary or an
assistant secretary or treasurer or assistant treasurer and may be sealed with
the seal of this Corporation or a facsimile thereof. The signature of the
president or vice president and the secretary or assistant secretary or
treasurer or assistant treasurer may be facsimiles if the certificate is
manually signed on behalf of a transfer agent or a registrar, other than the
Corporation itself or an employee of the Corporation. In case any officer who
signed or whose facsimile signature has been placed upon such certificate shall
have ceased to be such officer before such certificate is issued, it may be
issued by the Corporation with the same effect as if he were such officer at the
date of its issuance.
15
<PAGE>
Every certificate representing shares issued by this Corporation shall set
forth or fairly summarize upon the face or back of the certificate, or shall
state that the Corporation will furnish to any stockholder upon request and
without charge a full statement of, the designations, preferences, limitations
and relative rights of the shares of each class or series authorized to be
issued, and the variations in the relative rights and preferences between the
shares of each series so far as the same have been fixed and determined, and the
authority of the Board of Directors to fix and determine the relative rights and
preferences of subsequent series.
Every certificate representing shares which are restricted as to the sale,
disposition, or other transfer of such shares shall state that such shares are
restricted as to transfer and shall set forth or fairly summarize upon the
certificate, or shall state that the Corporation will furnish to any stockholder
upon request and without charge a full statement of, such restrictions.
Each certificate representing shares shall state upon its face: the name
of the Corporation; that the Corporation is organized under the laws of this
state; the name of the person or persons to whom issued; the number and class of
shares, and the designation of the series, if any, which such certificate
represents; and the par value of each share represented by such certificate, or
a statement that the shares are without par value.
Section 3. Transfer of Stock. Except as provided in Section 4 of this
-----------------------------
Article, the Corporation shall register a stock certificate presented to it for
transfer if the certificate is properly endorsed by the holder of record or by
his duly authorized attorney, and the signature of such person has been
guaranteed by a commercial bank or trust company or by a member of the New York
or American Stock Exchange.
16
<PAGE>
Section 4. Off-Shore Offerings. In all offerings of equity securities
-------------------------------
pursuant to Regulation S of the Securities Act of 1933 (the "Act"), the
Corporation shall require that its stock transfer agent refuse to register any
transfer of securities not made in accordance with the provisions of Regulation
S, pursuant to registration under the Act or an available exemption under the
Act.
Section 5. Lost, Stolen or Destroyed Certificates. The Corporation shall
--------------------------------------------------
issue a new stock certificate in the place of any certificate previously issued
if the holder of record of the certificate (a) makes proof in affidavit form
that it has been lost, destroyed or wrongfully taken; (b) requests the issuance
of a new certificate before the Corporation has notice that the certificate has
been acquired by a purchaser for value in good faith and without notice of any
adverse claim; (c) gives bond in such form as the Corporation may direct, to
indemnify the Corporation, the transfer agent, and registrar against any claim
that may be made on account of the alleged loss, destruction, or theft of a
certificate; and (d) satisfies any other reasonable requirements imposed by the
Corporation.
Article V. Books and Records
----------------------------
Section 1. Books and Records. This Corporation shall keep correct and
-----------------------------
complete records and books of account and shall keep minutes of the proceedings
of its stockholders, Board of Directors and committees of directors.
This Corporation shall keep at its registered office or principal place of
business, or at the office of its transfer agent or registrar, a record of its
stockholders, giving the names and addresses of all stockholders, and the
number, class and
17
<PAGE>
series, if any, of the shares held by each.
Any books, records and minutes may be in written form or in any other form
capable of being converted into written form within a reasonable time.
Section 2. Stockholder's Inspection Rights. Any person who shall have
----------------------------------------------
been a holder of record of shares or of voting trust certificates therefor at
least six months immediately preceding his demand or shall be the holder of
record of, or the holder of record of voting trust certificates for, at least
five percent of the outstanding shares of any class or series of the
Corporation, upon written demand stating the purpose thereof, shall have the
right to examine, in person or by agent or attorney, at any reasonable time or
times, for any proper purpose its relevant books and records of accounts,
minutes and records of stockholders and to make extracts therefrom.
Section 3. Financial Information. Not later than three months after the
---------------------------------
close of each fiscal year, this Corporation shall prepare a balance sheet
showing in reasonable detail the financial condition of the Corporation as of
the close of its fiscal year, and a profit and loss statement showing the
results of the operations of the Corporation during its fiscal year.
Upon the written request of any stockholder or holder of voting trust
certificates for shares of the Corporation, the Corporation shall mail to such
stockholder or holder of voting trust certificates a copy of the most recent
such balance sheet and profit and loss statement.
The balance sheets and profit and loss statements shall be filed in the
registered office of the Corporation in this state, shall be kept for at least
five years, and shall be subject to
18
<PAGE>
inspection during business hours by any stockholder or holder of voting trust
certificates, in person or by agent.
Article VI. Dividends
---------------------
The Board of Directors of this Corporation may, from time to time, declare
and the Corporation may pay dividends on its shares in cash, property or its own
shares, except when the Corporation is insolvent or when the payment thereof
would render the Corporation insolvent or when the declaration or payment
thereof would be contrary to any restrictions contained in the certificate of
incorporation, subject to the following provisions:
a. Dividends in cash or property may be declared and paid, except
as otherwise provided in this section, only out of the unreserved and
unrestricted earned surplus of the Corporation or out of capital surplus,
howsoever arising but each dividend paid out of capital surplus shall be
identified as a distribution of capital surplus, and the amount per share
paid from such surplus shall be disclosed to the stockholders receiving the
same concurrently with the distribution.
b. Dividends may be declared and paid in the Corporation's own
treasury shares.
c. Dividends may be declared and paid in the Corporation's own
authorized but unissued shares out of any unreserved and unrestricted
surplus of the Corporation upon the following conditions:
(1) If a dividend is payable in shares having a par value,
such shares shall be issued at not less than the par value thereof and
there shall be
19
<PAGE>
transferred to stated capital at the time such dividend is paid an
amount of surplus equal to the aggregate par value of the shares to be
issued as a dividend.
(2) If a dividend is payable in shares without a par value,
such shares shall be issued at such stated value as shall be fixed by
the Board of Directors by resolution adopted at the time such dividend
is declared, and there shall be transferred to stated capital at the
time such dividend is paid an amount of surplus equal to the aggregate
stated value so fixed in respect of such shares; and the amount per
share so transferred to stated capital shall be disclosed to the
stockholders receiving such dividend concurrently with the payment
thereof.
d. No dividend payable in shares of any class shall be paid to
the holders of shares of any other class unless the certificate of
incorporation so provide or such payment is authorized by the affirmative
vote or the written consent of the holders of at least a majority of the
outstanding shares of the class in which the payment is to be made.
e. A split-up or division of the issued shares of any class into
a greater number of shares of the same class without increasing the stated
capital of the Corporation shall not be construed to be a share dividend
within the meaning of this section.
Article VII. Corporate Seal
---------------------------
The Board of Directors shall provide a corporate seal which shall be
circular in form and shall have inscribed thereon the
20
<PAGE>
following:
Article VIII. Amendment
-----------------------
These bylaws may be repealed or amended, and new bylaws maybe adopted, by
the Board of Directors.
21
<PAGE>
Exhibit 4.1
- --------------------------------------------------------------------------------
Number Incorporated Under the Laws of Shares
Delaware
- --------------------------------------------------------------------------------
U.LINK, INC.
This Certifies that __________________________________________ is
the registered Holder of _________________ Shares of the Capital
Stock of
U.LINK, INC.
fully-paid and non-assessable transferable only on the books of
the Corporation by the holder hereof in person or by Attorney
upon surrender of this Certificate properly endorsed. In Witness
Whereof, the said Corporation has caused this Certificate to be
signed by its duly authorized officers and its Corporate Seal to
be hereto affixed this _______________ day of __________________
A.D. 19___.
______________________________ _____________________________
Secretary President
- --------------------------------------------------------------------------------
<PAGE>
Exhibit 5
(561) 689-441
[email protected]
August 11 1999
U.Link, Inc.
1000 Conshohocken Road 4/th/ Floor
Conshohocken, PA 19428
Attention: Mr. John S. Rafanello, President
RE: U.LINK, INC.
Dear Mr. Rafanello:
You have advised us that U.Link, Inc. (the "Company") has filed with the
United States Securities and Exchange Commission a Registration Statement on
Form SB-2 with respect to 1,725,000 shares of common stock, $.001 par value,
offered for sale by the Company.
In connection with the filing of this Registration Statement, you have
requested us to furnish you with our opinion as to the legality of (i) such of
the Company's shares of common and preferred stock as are presently outstanding;
and (ii) such securities as shall be offered by the Company itself pursuant to
the Prospectus which is part of the Registration Statement.
You have advised us that as of August 11, 1999, the Company's authorized
capital consists of 20,000,000 shares of common stock, $.001 par value per share
and 303,068 shares of preferred stock, of which 1,340,728 shares of common stock
have been issued and are outstanding, and 1,000, 300,000, 1,000, 1,000 and 68
shares of Series A, B, C, D and E Preferred Stock respectively, are issued and
outstanding. You have further advised us that the Company has received valid
consideration for the issuance of these shares.
After having examined the Company's Second Amended and Restated Certificate
of Incorporation, Certificate of Designation, bylaws, minutes, subscription
agreements and the financial statements contained in the Prospectus, we are of
the opinion that (i) the 1,340,728 and 303,068 shares of common and preferred
stock respectively are, and (ii) the 1,725,000 shares of common stock to be
offered by the Company will be when offered and sold and valid consideration
received, fully paid and nonassessable, duly authorized and validly issued.
We consent to the use of our name in the Prospectus under the caption
"Legal Matters".
Very truly yours,
/s/ Michael Harris, P.A.
Michael Harris, P.A.
<PAGE>
EXHIBIT 10.1
EMPLOYMENT AGREEMENT
--------------------
THIS EMPLOYMENT AGREEMENT (the "Agreement") entered into as of this 1st day
of January , 1999, between College Directory Publishing Corporation (the
"Company"), and Michael S. Paul (the "Executive").
WHEREAS, the Company desires to employ the Executive and to ensure the
continued availability to the Company of the Executive's services, and the
Executive is willing to accept such employment and render such services, all
upon and subject to the terms and conditions contained in this Agreement;
NOW, THEREFORE, in consideration of the premises and the mutual covenants
set forth in this Agreement, and intending to be legally bound, the Company and
the Executive agree as follows:
1. Term of Employment.
------------------
(a) Term. The Company hereby employs the Executive, and the
----
Executive hereby accepts employment with the Company for a period
commencing on the date of this Agreement and ending upon the earlier of (i)
three years from the date of the Company completing an initial public
offering of its securities ("IPO"), or (ii) five years from the date of
this Agreement. As used in this Agreement, the term IPO means the closing
of a registered public offering of securities in which the Company receives
gross proceeds of at
1
<PAGE>
least $5,000,000 or the closing of a merger or similar transaction with a
public company which is required to file reports with the Securities and
Exchange Commission.
(b) Continuing Effect. Notwithstanding any termination of this
-----------------
Agreement except for termination under Section 5(c), at the end of the Term
or otherwise, the provisions of Sections 6 and 7 shall remain in full force
and effect and the provisions of Section 7 shall be binding upon the legal
representatives, successors and assigns of the Executive.
2. Duties.
------
(a) General Duties. The Executive shall serve as chief executive
--------------
officer of the Company, with duties and responsibilities that are customary
for such executives. The Executive will also perform services for such
subsidiaries as may be necessary. In addition to the foregoing duties, the
Executive shall have those duties and rights and the authority referred to
in that certain Agreement entered into on May 4, 1998 among Mark Golden,
M.G. Management, Inc. and certain other parties (the "Golden Agreement"), a
copy of which is in file at the offices of the Company and the amendment to
the Golden Agreement entered into as of February 12, 1999 a copy of which
is file at the offices of the Company. The Executive will use his best
efforts to perform his duties and discharge his responsibilities pursuant
to this Agreement competently, carefully and faithfully. In determining
whether or not the Executive has used his best efforts hereunder, the
Executive's
2
<PAGE>
and the Company's delegation of authority and all surrounding circumstances
shall be taken into account and the best efforts of the Executive shall not
be judged solely on the Company's earnings or other results of the
Executive's performance.
(b) Devotion of Time. Subject to the last sentence of this Section
----------------
2(b), the Executive shall devote all of his time, attention and energies
during normal business hours (exclusive of periods of sickness and
disability and of such normal holiday and vacation periods as have been
established by the Company) to the affairs of the Company. The Executive
shall not enter the employ of or serve as a consultant to, or in any way
perform any services with or without compensation to, any other persons,
business or organization without the prior consent of the board of
directors of the Company; provided, that the Executive shall be permitted
to devote a limited amount of his time, without compensation, to
professional, charitable or similar organizations.
(c) Location of Office: Except for usual and customary business
------------------
travel, the Executive's principal business office shall be in Conshohocken,
Pennsylvania. In no event shall the Company relocate its principal offices
to any area outside a 50 mile radius of its current location without the
Executive's express written consent.
3. Compensation and Expenses.
-------------------------
(a) Salary. For the services of the Executive to be rendered under
------
this
3
<PAGE>
Agreement, the Company shall pay the Executive an annual salary of $115,000
(the "Base Salary") which Base Salary shall be increased each year by an
amount equal to the greater of (i) 3% in excess of the prior year's Base
Salary, or (ii) the cost of living increase based upon the Consumer Price
Index calculated upon the commencement of each year of the Agreement using
the prior month as the measuring month published by the Bureau of Labor
Statistics (or similar successor index). At such time as the Company
completes an IPO, the Base Salary shall be increased to $150,000. The
Consumer Price Index increase calculation shall be calculated as follows:
Commencing with the one year anniversary of the commencement
of the term and the beginning of each year thereafter during
the term of this Agreement, the Executive's annual salary
shall be adjusted in accordance with the Consumer Price
Index, all Urban Consumers issued by the Bureau of Labor
Statistics of the U.S. Department of Labor using the years
1982-84 as a base of 100 (the "Index"). At the commencement
of the second year, and of each year thereafter, the
Executive's adjusted Base Salary shall be multiplied each
year by a fraction, the numerator of which shall be the
published Index number for the month preceding the
commencement of the new year, i.e. November 1999, and the
---
denominator of which shall be the published Index number for
the month of November, 1998. The resulting increase to the
Executive's Base Salary shall be added to the prior year's
Base Salary and become a part thereof for the current year.
In the event that the
4
<PAGE>
Index herein referred to ceases to be published during the
term of this Agreement, or if a substantial change is made
in the method of establishing such Index, then the
determination of the adjustment in the Executive's
compensation shall be made with the use of such conversion
factor, formula or table as may be published by the Bureau
of Labor Statistics, or if none is available, the parties
shall accept comparable statistics on the cost of living in
the United States as shall then be computed and published by
an agency of the United States, or if not by a respected
financial periodical selected by the Company.
(b) Expenses. In addition to any compensation received pursuant to
Section 3(a) and (c), the Company will reimburse or advance funds to the
Executive for all reasonable travel, entertainment and miscellaneous
expenses incurred in connection with the performance of his duties under
this Agreement, provided that the Executive properly accounts for such
expenses to the Company in accordance with the Company's practices. Such
reimbursement or advances will be made in accordance with policies and
procedures of the Company in effect from time to time relating to
reimbursement of or advances to executive officers.
(c) Incentive Bonus. The Executive shall be eligible to receive an
---------------
annual bonus in an amount to be determined by a majority of the
Company's independent directors.
5
<PAGE>
(d) Signing Bonus. In order to induce the Executive to enter into
-------------
this Agreement and subject to the Executive being employed by the Company
as of January 1, 1999, the Company shall pay the Executive on or after
January 1, 1999 $30,000.
(d) Tax Offset Bonus. The Company shall pay to the Executive a sum
----------------
equal to the gross taxes including penalties and interest, if any, required
to be paid by the Executive in connection with the purchase by the Company
of College Directory Publishing, Inc. as of June 10,1998. The bonus shall
be paid prior to April 1, 1999. In connection with the calculation of such
tax off-set bonus, the alternative minimum tax credit of the Executive
shall not off-set the amount of taxes due.
(e) IPO Bonus. At such time as the Company closes an IPO, the Company
---------
shall pay the Executive an amount equal to the product of (i) $35,000 times
(ii) the number of days that elapse following December 31, 1998 divided by
365. Such amount shall not accrue and the Executive shall only be entitled
to this amount as a bonus if the Company closes an IPO.
6
<PAGE>
4. Benefits.
--------
(a) Vacation. For each 12-month period during the Term, the Executive
--------
will be entitled to three weeks of vacation without loss of compensation or
other benefits to which he is entitled under this Agreement, to be taken at
such times as the Executive may select and the affairs of the Company may
permit. Any unused vacation will be paid for by the Company in addition to
regular salary at the annual rate in effect during 12 month period.
(b) Employee Benefit Programs. The Executive is entitled to
-------------------------
participate in any pension, 401(k), insurance or other employee benefit
plan that is maintained by the Company for its executive officers,
including programs of life and medical insurance and reimbursement of
membership fees in civic, social and professional organizations. The
Company shall provide disability insurance for the Executive or reimburse
the Executive for disability insurance covering the Executive's disability
which insurance shall have only a 30-day waiting period.
(c) Insurance. The Company shall provide to Executive a $1,000,000
---------
key man life insurance policy. The Company shall pay the premiums on the
policy and assign the benefits of the policy to those person(s) or
entity(ies) the Executive directs as beneficiary(ies). The Company shall
also pay premiums on the Company's medical insurance policy covering
Executive and Executive's dependents and pay the premiums on disability
insurance in an amount equal to the maximum allowed by the insurance
company.
7
<PAGE>
(d) Automobile. The Company shall pay for the current or equivalent
----------
automobile lease and insurance payments and pay for or reimburse the
Executive for all related automobile expenses upon receipt of written
documentation thereof. At the end of the Executive's current automobile
lease, the Executive shall receive reimbursement of (i) automobile lease of
up to $600 per month, and (ii) the cost of insurance for such automobile.
5. Termination.
-----------
(a) Termination for Cause. The Company may terminate the Executive's
---------------------
employment pursuant to the terms of this Agreement at any time for cause by
giving written notice of termination. Such termination will become
effective upon the giving of such notice. Upon any such termination for
cause, the Executive shall have no right to compensation, bonus or
reimbursement under Section 3, or to participate in any employee benefit
programs under Section 4, except as provided by law, for any period
subsequent to the effective date of termination. For purposes of this
Section 5(a), "cause" shall mean: (i) the Executive is convicted of a
felony which is related to the Executive's employment or the business of
the Company; (ii) the Executive, in carrying out his duties hereunder, has
been found in a civil action to have committed gross negligence or
intentional misconduct resulting in either case in material harm to the
Company; or (iii) the Executive has been found in a civil action to have
materially breached any provision of Section 6 or Section 7 and to have
caused material harm
8
<PAGE>
to the Company. The term "found in a civil action" shall not apply until
all appeals permissible under the applicable rules of procedure or statutes
have been determined and no further appeals are permissible.
(b) Death or Disability. Except as otherwise provided in this
-------------------
Agreement, it shall terminate upon the death, or disability of the
Executive. For purposes of this Section 5(b), "disability" shall mean that
for a period of four consecutive months in any 12-month period the
Executive is incapable of substantially fulfilling the duties set forth in
Section 2 because of physical, mental or emotional incapacity resulting
from injury, sickness or disease. In the event of death of the Executive,
the Executive's estate shall receive the Executive's compensation and
benefits for the remainder of the term of this Agreement or 24 months
whichever is greater.
(c) Special Termination. In the event that (i) the Executive, with or
-------------------
without change in title or formal corporate action, shall no longer
exercise all of the duties and responsibilities and shall no longer possess
substantially all the authority set forth in Section 2; or (ii) the Company
materially breaches this Agreement or the performance of its duties and
obligations hereunder; or (iii) any entity or person not now an executive
officer or director (or spouse) of the Company becomes either individually
or as part of a group the beneficial owner of 30% or more of the Company's
common stock, in any such event the Executive, by written notice to the
Company, may elect to deem the Executive's employment hereunder to have
been terminated by the Company without cause, in which
9
<PAGE>
event the Executive shall be entitled at the time of termination to be paid
an amount equal to three years compensation and benefits as defined under
this Agreement pursuant to Sections 3 and 4 herein for such three-year
period and all of Executive's remaining unvested options shall vest
immediately upon such termination. In such event, the Executive, by written
notice to the Company, may elect to refuse all further obligations of the
Company under Sections 3 and 4 and to release the Company with respect
thereto, in which event the Company shall release the Executive from the
provisions of Section 6.
6. Non-Competition Agreement.
-------------------------
(a) Competition with the Company. Until termination of his
----------------------------
employment and for a period of 12 months commencing on the date of
termination, the Executive, directly or indirectly, in association with or
as a stockholder, director, officer, consultant, employee, partner, joint
venturer, member or otherwise of or through any person, firm, corporation,
partnership, association or other entity, will not compete with the Company
or any of its affiliates in the offer, sale or marketing of products or
services that are competitive with the products or services offered by the
Company, within any metropolitan area in the United States or elsewhere in
which the Company is then engaged in the offer and sale of competitive
products or services; provided, however, the foregoing shall not prevent
Executive from accepting employment with an enterprise engaged in two or
more lines of business, one of which is the same or similar to the
Company's business (the "Prohibited Business") if Executive's employment is
totally unrelated to the Prohibited Business;
10
<PAGE>
provided, further, the foregoing shall not prohibit Executive from owning
up to 5% of the securities of any publicly-traded enterprise provided
Executive is not an employee, director, officer, consultant to such
enterprise or otherwise reimbursed for services rendered to such
enterprise.
(b) Solicitation of Customers. During the periods in which the
-------------------------
provisions of Section 6(a) shall be in effect, the Executive, directly or
indirectly, will not seek Prohibited Business from any Customer (as defined
below) on behalf of any enterprise or business other than the Company,
refer Prohibited Business from any Customer to any enterprise or business
other than the Company or receive commissions based on sales or otherwise
relating to the Prohibited Business from any Customer, or any enterprise or
business other than the Company. For purposes of this Section 6(b), the
term "Customer" means any person, firm, corporation, partnership,
association or other entity to which the Company or any of its affiliates
sold or provided goods or services during the 24-month period prior to the
time at which any determination is required to be made as to whether any
such person, firm, corporation, partnership, association or other entity is
a Customer.
(c) No Payment. The Executive acknowledges and agrees that no
----------
separate or additional payment will be required to be made to him in
consideration of his undertakings in this Section 6.
7. Non-Disclosure of Confidential Information.
------------------------------------------
11
<PAGE>
(a) Confidential Information. Confidential Information includes, but
------------------------
is not limited to, trade secrets as defined by the common law in
Pennsylvania or any future Pennsylvania statute, processes, policies,
procedures, techniques, designs, drawings, know-how, show-how, technical
information, specifications, computer software (including, but not limited
to, computer programs developed, improved or modified by the Company for or
on behalf of the Company for use in the Company's business, and source
code), information and data relating to the development, research, testing,
manufacturing, costs, marketing and uses of the Products (as defined
herein), the Company's budgets and strategic plans, and the identity and
special needs of customers for the Products, databases, data, all
technology relating to the Company's college and university directory and
Internet businesses, systems, methods of operation, customer lists,
customer information, solicitation leads, marketing and advertising
materials, methods and manuals and forms, all of which pertain to the
activities or operations of the Company, names, home addresses and all
telephone numbers and e-mail addresses of the Company's employees and
former employees. Confidential Information also includes, without
limitation, Confidential Information received from the Company's
subsidiaries and affiliates. For purposes of this Agreement, the following
will not constitute Confidential Information (i) information which is or
subsequently becomes generally available to the public through no act of
the Executive, (ii) information set forth in the written records of the
Executive prior to disclosure to the Executive by or on behalf of the
Company, and (iii) information which is lawfully obtained by the Executive
in writing from a third party (excluding any affiliates of the Executive)
who did not acquire such confidential
12
<PAGE>
information or trade secret, directly or indirectly, from Executive or the
Company. As used herein, the term "Products" shall include all computer
software researched, developed, tested, manufactured, sold, licensed,
leased or otherwise distributed or put in to use by the Company, together
with all services provided by the Company during the term of Executive's
employment.
(b) Legitimate Business Interests. The Executive recognizes that the
-----------------------------
Company has legitimate business interests to protect and as a consequence,
the Executive agrees to the restrictions contained in this Agreement
because they further the Company's legitimate business interests. These
legitimate business interests include, but are not limited to (i) trade
secrets as defined in Section 7(b), (ii) valuable confidential business or
professional information that otherwise does not qualify as trade secrets
including all Confidential Information; (iii) substantial relationships
with specific prospective or existing customers or clients; (iv) customer
or client goodwill associated with the Company's business; and (v)
specialized training relating to the Company's technology, methods and
procedures.
(c) Confidentiality. For a period of three years, the Confidential
---------------
Information shall be held by the Executive in the strictest confidence and
shall not, without the prior written consent of the Company, be disclosed
to any person other than in connection with Executive's employment by the
Company. The Executive further acknowledges that such Confidential
Information as is acquired and used by the Company or its affiliates is a
special, valuable and unique asset. The Executive shall exercise all due
and diligence precautions to
13
<PAGE>
protect the integrity of the Company's Confidential Information and to keep
it confidential whether it is in written form, on electronic media or oral.
The Executive shall not copy any Confidential Information except to the
extent necessary to his employment nor remove any Confidential Information
or copies thereof from the Company's premises except to the extent
necessary to his employment and then only with the authorization of an
officer of the Company. All records, files, materials and other
Confidential Information obtained by the Executive in the course of his
employment with the Company are confidential and proprietary and shall
remain the exclusive property of the Company or its customers, as the case
may be. The Executive shall not, except in connection with and as required
by his performance of his duties under this Agreement, for any reason use
for his own benefit or the benefit of any person or entity with which he
may be associated or disclose any such Confidential Information to any
person, firm, corporation, association or other entity for any reason or
purpose whatsoever without the prior written consent of an executive
officer of the Company (excluding the Executive, if applicable).
8. Equitable Relief.
----------------
(a) The Company and the Executive recognize that the services to be
rendered under this Agreement by the Executive are special, unique and of
extraordinary character, and that in the event of the breach by the
Executive of the terms and conditions of this Agreement or if the
Executive, without the prior consent of the board of directors of the
Company, shall leave his employment for any reason and take any action in
violation of
14
<PAGE>
Section 6 or Section 7, the Company will be entitled to institute and
prosecute proceedings in any court of competent jurisdiction referred to in
Section 8(b) below, to enjoin the Executive from breaching the provisions
of Section 6 or Section 7. In such action, the Company will not be required
to plead or prove irreparable harm or lack of an adequate remedy at law.
Nothing contained in this Section 8 shall be construed to prevent the
Company from seeking such other remedy in arbitration in case of any breach
of this Agreement by the Executive, as the Company may elect.
(b) Any proceeding or action must be commenced in Pennsylvania. The
Executive and the Company irrevocably and unconditionally submit to the
exclusive jurisdiction of such courts and agree to take any and all future
action necessary to submit to the jurisdiction of such courts. The
Executive and the Company irrevocably waive any objection that they now
have or hereafter irrevocably waive any objection that they now have or
hereafter may have to the laying of venue of any suit, action or proceeding
brought in any such court and further irrevocably waive any claim that any
such suit, action or proceeding brought in any such court has been brought
in an inconvenient forum. Final judgment against the Executive or the
Company in any such suit shall be conclusive and may be enforced in other
jurisdictions by suit on the judgment, a certified or true copy of which
shall be conclusive evidence of the fact and the amount of any liability of
the Executive or the Company therein described, or by appropriate
proceedings under any applicable treaty or otherwise.
15
<PAGE>
9. Assignability. The rights and obligations of the Company under this
-------------
Agreement shall inure to the benefit of and be binding upon the successors and
assigns of the Company, provided that such successor or assign shall acquire all
or substantially all of the securities or assets and business of the Company.
The Executive's obligations hereunder may not be assigned or alienated and any
attempt to do so by the Executive will be void.
10. Severability.
------------
(a) The Executive expressly agrees that the character, duration and
geographical scope of the non-competition provisions set forth in this
Agreement are reasonable in light of the circumstances as they exist on the
date hereof. Should a decision, however, be made at a later date by a
court of competent jurisdiction that the character, duration or
geographical scope of such provisions is unreasonable, then it is the
intention and the agreement of the Executive and the Company that this
Agreement shall be construed by the court in such a manner as to impose
only those restrictions on the Executive's conduct that are reasonable in
the light of the circumstances and as are necessary to assure to the
Company the benefits of this Agreement. If, in any judicial proceeding, a
court shall refuse to enforce all of the separate covenants deemed included
herein because taken together they are more extensive than necessary to
assure to the Company the intended benefits of this Agreement, it is
expressly understood and agreed by the parties hereto that the provisions
of this Agreement that, if eliminated, would permit the remaining separate
provisions to be enforced in such proceeding shall be deemed eliminated,
for the purposes of such proceeding, from this
16
<PAGE>
Agreement.
(b) If any provision of this Agreement otherwise is deemed to be
invalid or unenforceable or is prohibited by the laws of the state or
jurisdiction where it is to be performed, this Agreement shall be
considered divisible as to such provision and such provision shall be
inoperative in such state or jurisdiction and shall not be part of the
consideration moving from either of the parties to the other. The remaining
provisions of this Agreement shall be valid and binding and of like effect
as though such provision were not included.
11. Notices and Addresses. All notices, offers, acceptance and any other
---------------------
acts under this Agreement (except payment) shall be in writing, and shall be
sufficiently given if delivered to the addressees in person, by Federal Express
or similar receipted delivery, by facsimile delivery or, if mailed, postage
prepaid, by certified mail, return receipt requested, as follows:
To the Company: College Directory Publishing
Corporation
1000 Conshohocken Road, 4th Floor
Conshohocken, PA 19428
Facsimile: (610)940-1520
With a Copy to: Michael D. Harris, Esq.
Michael Harris, P.A.
1645 Palm Beach Lakes, Blvd.
Suite 550
West Palm Beach, FL 33401
Facsimile (561)478-1817
With a Copy to: Alan L. Frank, Esquire
Frank & Rosen
17
<PAGE>
1835 Market Street, Suite 320
Philadelphia, PA 19103
Facsimile (215)864-2929
To the Executive: Mr. Michael S. Paul
4055 Arbour Circle
Lafayette Hill, P.A. 19444
or to such other address as either of them, by notice to the other may designate
from time to time. The transmission confirmation receipt from the sender's
facsimile machine shall be conclusive evidence of successful facsimile delivery.
Time shall be counted to, or from, as the case may be, the delivery in person or
by mailing.
12. Counterparts. This Agreement may be executed in one or more
------------
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument. The execution of this
Agreement may be by actual or facsimile signature.
13. Arbitration. Except for a claim for equitable relief, any controversy,
-----------
dispute or claim arising out of or relating to this Agreement, or its
interpretation, application, implementation, breach or enforcement which the
parties are unable to resolve by mutual agreement, shall be settled by
submission by either party of the controversy, claim or dispute to binding
arbitration in Philadelphia, Pennsylvania the parties agree in writing to a
different location), before the arbitrators in accordance with the rules of the
American Arbitration Association then in effect. In any such arbitration
proceeding the parties agree to provide all discovery deemed necessary by the
arbitrators. The decision and award made by the arbitrators shall be final,
binding and conclusive on all parties
18
<PAGE>
hereto for all purposes, and judgment may be entered thereon in any court having
jurisdiction thereof.
14. Attorney's Fees. In the event that there is any controversy or claim
---------------
arising out of or relating to this Agreement, or to the interpretation, breach
or enforcement thereof, and any action or proceeding is commenced to enforce the
provisions of this Agreement, the prevailing party shall be entitled to a
reasonable attorney's fee, costs and expenses.
15. Governing Law. This Agreement and any dispute, disagreement, or issue
-------------
of construction or interpretation arising hereunder whether relating to its
execution, its validity, the obligations provided therein or performance shall
be governed or interpreted according to the internal laws of the State of
Pennsylvania without regard to choice of law considerations.
16. Entire Agreement. This Agreement constitutes the entire Agreement
----------------
between the parties and supersedes all prior oral and written agreements between
the parties hereto with respect to the subject matter hereof. Neither this
Agreement nor any provision hereof may be changed, waived, discharged or
terminated orally, except by a statement in writing signed by the party or
parties against which enforcement or the change, waiver discharge or termination
is sought.
17. Additional Documents. The parties hereto shall execute such additional
--------------------
instruments as may be reasonably required by their counsel in order to carry out
the purpose and intent of this Agreement and to fulfill the obligations of the
parties hereunder.
19
<PAGE>
18. Section and Paragraph Headings. The section and paragraph headings in
------------------------------
this Agreement are for reference purposes only and shall not affect the meaning
or interpretation of this Agreement.
19. Prior Agreement. The prior Employment Agreement among The Publishing
---------------
Company of North America, Inc., New College Directory Publishing, Inc., and the
Executive dated June 21, 1998 is null and void.
IN WITNESS WHEREOF, the Company and the Executive have executed this
Agreement as of the date and year first above written.
COLLEGE DIRECTORY PUBLISHING
CORPORATION
_________________________
/s/ John S. Rafanello
_________________________ By:_______________________________
John S. Rafanello, President and Chief
Operating Officer
_________________________
/s/ Michael S. Paul
_________________________ __________________________________
Michael S. Paul
20
<PAGE>
EXHIBIT 10.2
EMPLOYMENT AGREEMENT
--------------------
THIS EMPLOYMENT AGREEMENT (the "Agreement") entered into as of this 1st day
of January , 1999, between College Directory Publishing Corporation (the
"Company"), and John S. Rafanello (the "Executive").
WHEREAS, the Company desires to employ the Executive and to ensure the
continued availability to the Company of the Executive's services, and the
Executive is willing to accept such employment and render such services, all
upon and subject to the terms and conditions contained in this Agreement;
NOW, THEREFORE, in consideration of the premises and the mutual covenants
set forth in this Agreement, and intending to be legally bound, the Company and
the Executive agree as follows:
1. Term of Employment.
------------------
(a) Term. The Company hereby employs the Executive, and the Executive
----
hereby accepts employment with the Company for a period commencing on the
date of this Agreement and ending upon the earlier of (i) three years from
the date of the Company completing an initial public offering of its
securities ("IPO"), or (ii) five years from the date of this Agreement. As
used in this Agreement, the term IPO means the closing of a registered
public offering of securities in which the Company receives gross proceeds
of at
1
<PAGE>
least $5,000,000 or the closing of a merger or similar transaction with a
public company which is required to file reports with the Securities and
Exchange Commission.
(b) Continuing Effect. Notwithstanding any termination of this
-----------------
Agreement except for termination under Section 5(c), at the end of the Term
or otherwise, the provisions of Sections 6 and 7 shall remain in full force
and effect and the provisions of Section 7 shall be binding upon the legal
representatives, successors and assigns of the Executive.
2. Duties.
------
(a) General Duties. The Executive shall serve as chief operating
--------------
officer of the Company, with duties and responsibilities that are customary
for such executives. The Executive will also perform services for such
subsidiaries as may be necessary. In addition to the foregoing duties, the
Executive shall have those duties and rights and the authority referred to
in that certain Agreement entered into on May 4, 1998 among Mark Golden,
M.G. Management, Inc. and certain other parties (the "Golden Agreement"), a
copy of which is in file at the offices of the Company and the amendment to
the Golden Agreement entered into as of February 12, 1999 a copy of which
is file at the offices of the Company. The Executive will use his best
efforts to perform his duties and discharge his responsibilities pursuant
to this Agreement competently, carefully and faithfully. In determining
whether or not the Executive has used his best efforts hereunder, the
Executive's
2
<PAGE>
and the Company's delegation of authority and all surrounding circumstances
shall be taken into account and the best efforts of the Executive shall not
be judged solely on the Company's earnings or other results of the
Executive's performance.
(b) Devotion of Time. Subject to the last sentence of this Section
----------------
2(b), the Executive shall devote all of his time, attention and energies
during normal business hours (exclusive of periods of sickness and
disability and of such normal holiday and vacation periods as have been
established by the Company) to the affairs of the Company. The Executive
shall not enter the employ of or serve as a consultant to, or in any way
perform any services with or without compensation to, any other persons,
business or organization without the prior consent of the board of
directors of the Company; provided, that the Executive shall be permitted
to devote a limited amount of his time, without compensation, to
professional, charitable or similar organizations.
(c) Location of Office: Except for usual and customary business
-------------------
travel, the Executive's principal business office shall be in Conshohocken,
Pennsylvania. In no event shall the Company relocate its principal offices
to any area outside a 50 mile radius of its current location without the
Executive's express written consent.
3. Compensation and Expenses.
-------------------------
(a) Salary. For the services of the Executive to be rendered under
------
this
3
<PAGE>
Agreement, the Company shall pay the Executive an annual salary of $115,000
(the "Base Salary") which Base Salary shall be increased each year by an
amount equal to the greater of (i) 3% in excess of the prior year's Base
Salary, or (ii) the cost of living increase based upon the Consumer Price
Index calculated upon the commencement of each year of the Agreement using
the prior month as the measuring month published by the Bureau of Labor
Statistics (or similar successor index). At such time as the Company
completes an IPO, the Base Salary shall be increased to $150,000. The
Consumer Price Index increase calculation shall be calculated as follows:
Commencing with the one year anniversary of the commencement
of the term and the beginning of each year thereafter during
the term of this Agreement, the Executive's annual salary
shall be adjusted in accordance with the Consumer Price
Index, all Urban Consumers issued by the Bureau of Labor
Statistics of the U.S. Department of Labor using the years
1982-84 as a base of 100 (the "Index"). At the commencement
of the second year, and of each year thereafter, the
Executive's adjusted Base Salary shall be multiplied each
year by a fraction, the numerator of which shall be the
published Index number for the month preceding the
commencement of the new year, i.e. November 1999, and the
---
denominator of which shall be the published Index number for
the month of November, 1998. The resulting increase to the
Executive's Base Salary shall be added to the prior year's
Base Salary and become a part thereof for the current year.
In the event that the
4
<PAGE>
Index herein referred to ceases to be published during the
term of this Agreement, or if a substantial change is made
in the method of establishing such Index, then the
determination of the adjustment in the Executive's
compensation shall be made with the use of such conversion
factor, formula or table as may be published by the Bureau
of Labor Statistics, or if none is available, the parties
shall accept comparable statistics on the cost of living in
the United States as shall then be computed and published by
an agency of the United States, or if not by a respected
financial periodical selected by the Company.
(b) Expenses. In addition to any compensation received pursuant to
--------
Section 3(a) and (c), the Company will reimburse or advance funds to the
Executive for all reasonable travel, entertainment and miscellaneous
expenses incurred in connection with the performance of his duties under
this Agreement, provided that the Executive properly accounts for such
expenses to the Company in accordance with the Company's practices. Such
reimbursement or advances will be made in accordance with policies and
procedures of the Company in effect from time to time relating to
reimbursement of or advances to executive officers.
(c) Incentive Bonus. The Executive shall be eligible to receive an
---------------
annual bonus in an amount to be determined by a majority of the
Company's independent directors.
5
<PAGE>
(d) Signing Bonus. In order to induce the Executive to enter into
-------------
this Agreement and subject to the Executive being employed by the Company
as of January 1, 1999, the Company shall pay the Executive on or after
January 1, 1999 $30,000.
(e) Tax Offset Bonus. The Company shall pay to the Executive a sum
----------------
equal to the gross taxes including penalties and interest, if any, required
to be paid by the Executive in connection with the purchase by the Company
of College Directory Publishing, Inc. as of June 10,1998. The bonus shall
be paid prior to April 1, 1999. In connection with the calculation of such
tax off-set bonus, the alternative minimum tax credit of the Executive
shall not off-set the amount of taxes due.
(f) IPO Bonus. At such time as the Company closes an IPO, the Company
---------
shall pay the Executive an amount equal to the product of (i) $35,000 times
(ii) the number of days that elapse following December 31, 1998 divided by
365. Such amount shall not accrue and the Executive shall only be entitled
to this amount as a bonus if the Company closes an IPO.
6
<PAGE>
4. Benefits.
--------
(a) Vacation. For each 12-month period during the Term, the Executive
--------
will be entitled to three weeks of vacation without loss of compensation or
other benefits to which he is entitled under this Agreement, to be taken at
such times as the Executive may select and the affairs of the Company may
permit. Any unused vacation will be paid for by the Company in addition to
regular salary at the annual rate in effect during 12 month period.
(b) Employee Benefit Programs. The Executive is entitled to
-------------------------
participate in any pension, 401(k), insurance or other employee benefit
plan that is maintained by the Company for its executive officers,
including programs of life and medical insurance and reimbursement of
membership fees in civic, social and professional organizations. The
Company shall provide disability insurance for the Executive or reimburse
the Executive for disability insurance covering the Executive's disability
which insurance shall have only a 30-day waiting period.
(c) Insurance. The Company shall provide to Executive a $1,000,000
---------
key man life insurance policy. The Company shall pay the premiums on the
policy and assign the benefits of the policy to those person(s) or
entity(ies) the Executive directs as beneficiary(ies). The Company shall
also pay premiums on the Company's medical insurance policy covering
Executive and Executive's dependents and pay the premiums on disability
insurance in an amount equal to the maximum allowed by the insurance
company.
7
<PAGE>
(d) Automobile. The Company shall pay for the current or equivalent
----------
automobile lease and insurance payments and pay for or reimburse the
Executive for all related automobile expenses upon receipt of written
documentation thereof. At the end of the Executive's current automobile
lease, the Executive shall receive reimbursement of (i) an automobile lease
of up to $600 per month, and (ii) the cost of insurance for such
automobile.
5. Termination.
-----------
(a) Termination for Cause. The Company may terminate the Executive's
---------------------
employment pursuant to the terms of this Agreement at any time for cause by
giving written notice of termination. Such termination will become
effective upon the giving of such notice. Upon any such termination for
cause, the Executive shall have no right to compensation, bonus or
reimbursement under Section 3, or to participate in any employee benefit
programs under Section 4, except as provided by law, for any period
subsequent to the effective date of termination. For purposes of this
Section 5(a), "cause" shall mean: (i) the Executive is convicted of a
felony which is related to the Executive's employment or the business of
the Company; (ii) the Executive, in carrying out his duties hereunder, has
been found in a civil action to have committed gross negligence or
intentional misconduct resulting in either case in material harm to the
Company; or (iii) the Executive has been found in a civil action to have
materially breached any provision of Section 6 or Section 7 and to have
caused material harm
8
<PAGE>
to the Company. The term "found in a civil action" shall not apply until
all appeals permissible under the applicable rules of procedure or statutes
have been determined and no further appeals are permissible.
(b) Death or Disability. Except as otherwise provided in this
-------------------
Agreement, it shall terminate upon the death, or disability of the
Executive. For purposes of this Section 5(b), "disability" shall mean that
for a period of four consecutive months in any 12-month period the
Executive is incapable of substantially fulfilling the duties set forth in
Section 2 because of physical, mental or emotional incapacity resulting
from injury, sickness or disease. In the event of death of the Executive,
the Executive's estate shall receive the Executive's compensation and
benefits for the remainder of the term of this Agreement or 24 months
whichever is greater.
(c) Special Termination. In the event that (i) the Executive, with or
-------------------
without change in title or formal corporate action, shall no longer
exercise all of the duties and responsibilities and shall no longer possess
substantially all the authority set forth in Section 2; or (ii) the Company
materially breaches this Agreement or the performance of its duties and
obligations hereunder; or (iii) any entity or person not now an executive
officer or director (or spouse) of the Company becomes either individually
or as part of a group the beneficial owner of 30% or more of the Company's
common stock, in any such event the Executive, by written notice to the
Company, may elect to deem the Executive's employment hereunder to have
been terminated by the Company without cause, in which
9
<PAGE>
event the Executive shall be entitled at the time of termination to be paid
an amount equal to three years c ompensation and benefits as defined under
this Agreement pursuant to Sections 3 and 4 herein for such three-year
period and all of Executive's remaining unvested options shall vest
immediately upon such termination. In such event, the Executive, by written
notice to the Company, may elect to refuse all further obligations of the
Company under Sections 3 and 4 and to release the Company with respect
thereto, in which event the Company shall release the Executive from the
provisions of Section 6.
6. Non-Competition Agreement.
-------------------------
(a) Competition with the Company. Until termination of his employment
----------------------------
and for a period of 12 months commencing on the date of termination, the
Executive, directly or indirectly, in association with or as a stockholder,
director, officer, consultant, employee, partner, joint venturer, member or
otherwise of or through any person, firm, corporation, partnership,
association or other entity, will not compete with the Company or any of
its affiliates in the offer, sale or marketing of products or services that
are competitive with the products or services offered by the Company,
within any metropolitan area in the United States or elsewhere in which the
Company is then engaged in the offer and sale of competitive products or
services; provided, however, the foregoing shall not prevent Executive from
accepting employment with an enterprise engaged in two or more lines of
business, one of which is the same or similar to the Company's business
(the "Prohibited Business") if Executive's employment is totally unrelated
to the Prohibited Business;
10
<PAGE>
provided, further, the foregoing shall not prohibit Executive from owning
up to 5% of the securities of any publicly-traded enterprise provided
Executive is not an employee, director, officer, consultant to such
enterprise or otherwise reimbursed for services rendered to such
enterprise.
(b) Solicitation of Customers. During the periods in which the
-------------------------
provisions of Section 6(a) shall be in effect, the Executive, directly or
indirectly, will not seek Prohibited Business from any Customer (as defined
below) on behalf of any enterprise or business other than the Company,
refer Prohibited Business from any Customer to any enterprise or business
other than the Company or receive commissions based on sales or otherwise
relating to the Prohibited Business from any Customer, or any enterprise or
business other than the Company. For purposes of this Section 6(b), the
term "Customer" means any person, firm, corporation, partnership,
association or other entity to which the Company or any of its affiliates
sold or provided goods or services during the 24-month period prior to the
time at which any determination is required to be made as to whether any
such person, firm, corporation, partnership, association or other entity is
a Customer.
(c) No Payment. The Executive acknowledges and agrees that no
----------
separate or additional payment will be required to be made to him in
consideration of his undertakings in this Section 6.
7. Non-Disclosure of Confidential Information.
------------------------------------------
11
<PAGE>
(a) Confidential Information. Confidential Information includes, but
------------------------
is not limited to, trade secrets as defined by the common law in
Pennsylvania or any future Pennsylvania statute, processes, policies,
procedures, techniques, designs, drawings, know-how, show-how, technical
information, specifications, computer software (including, but not limited
to, computer programs developed, improved or modified by the Company for or
on behalf of the Company for use in the Company's business, and source
code), information and data relating to the development, research, testing,
manufacturing, costs, marketing and uses of the Products (as defined
herein), the Company's budgets and strategic plans, and the identity and
special needs of customers for the Products, databases, data, all
technology relating to the Company's college and university directory and
Internet businesses, systems, methods of operation, customer lists,
customer information, solicitation leads, marketing and advertising
materials, methods and manuals and forms, all of which pertain to the
activities or operations of the Company, names, home addresses and all
telephone numbers and e-mail addresses of the Company's employees and
former employees. Confidential Information also includes, without
limitation, Confidential Information received from the Company's
subsidiaries and affiliates. For purposes of this Agreement, the following
will not constitute Confidential Information (i) information which is or
subsequently becomes generally available to the public through no act of
the Executive, (ii) information set forth in the written records of the
Executive prior to disclosure to the Executive by or on behalf of the
Company, and (iii) information which is lawfully obtained by the Executive
in writing from a third party (excluding any affiliates of the Executive)
who did not acquire such confidential
12
<PAGE>
information or trade secret, directly or indirectly, from Executive or the
Company. As used herein, the term "Products" shall include all computer
software researched, developed, tested, manufactured, sold, licensed,
leased or otherwise distributed or put in to use by the Company, together
with all services provided by the Company during the term of Executive's
employment.
(b) Legitimate Business Interests. The Executive recognizes that the
-----------------------------
Company has legitimate business interests to protect and as a consequence,
the Executive agrees to the restrictions contained in this Agreement
because they further the Company's legitimate business interests. These
legitimate business interests include, but are not limited to (i) trade
secrets as defined in Section 7(b), (ii) valuable confidential business or
professional information that otherwise does not qualify as trade secrets
including all Confidential Information; (iii) substantial relationships
with specific prospective or existing customers or clients; (iv) customer
or client goodwill associated with the Company's business; and (v)
specialized training relating to the Company's technology, methods and
procedures.
(c) Confidentiality. For a period of three years, the Confidential
---------------
Information shall be held by the Executive in the strictest confidence and
shall not, without the prior written consent of the Company, be disclosed
to any person other than in connection with Executive's employment by the
Company. The Executive further acknowledges that such Confidential
Information as is acquired and used by the Company or its affiliates is a
special, valuable and unique asset. The Executive shall exercise all due
and diligence precautions to
13
<PAGE>
protect the integrity of the Company's Confidential Information and to keep
it confidential whether it is in written form, on electronic media or oral.
The Executive shall not copy any Confidential Information except to the
extent necessary to his employment nor remove any Confidential Information
or copies thereof from the Company's premises except to the extent
necessary to his employment and then only with the authorization of an
officer of the Company. All records, files, materials and other
Confidential Information obtained by the Executive in the course of his
employment with the Company are confidential and proprietary and shall
remain the exclusive property of the Company or its customers, as the case
may be. The Executive shall not, except in connection with and as required
by his performance of his duties under this Agreement, for any reason use
for his own benefit or the benefit of any person or entity with which he
may be associated or disclose any such Confidential Information to any
person, firm, corporation, association or other entity for any reason or
purpose whatsoever without the prior written consent of an executive
officer of the Company (excluding the Executive, if applicable).
8. Equitable Relief.
----------------
(a) The Company and the Executive recognize that the services to be
rendered under this Agreement by the Executive are special, unique and of
extraordinary character, and that in the event of the breach by the
Executive of the terms and conditions of this Agreement or if the
Executive, without the prior consent of the board of directors of the
Company, shall leave his employment for any reason and take any action in
violation of
14
<PAGE>
Section 6 or Section 7, the Company will be entitled to institute and
prosecute proceedings in any court of competent jurisdiction referred to in
Section 8(b) below, to enjoin the Executive from breaching the provisions
of Section 6 or Section 7. In such action, the Company will not be required
to plead or prove irreparable harm or lack of an adequate remedy at law.
Nothing contained in this Section 8 shall be construed to prevent the
Company from seeking such other remedy in arbitration in case of any breach
of this Agreement by the Executive, as the Company may elect.
(b) Any proceeding or action must be commenced in Pennsylvania. The
Executive and the Company irrevocably and unconditionally submit to the
exclusive jurisdiction of such courts and agree to take any and all future
action necessary to submit to the jurisdiction of such courts. The
Executive and the Company irrevocably waive any objection that they now
have or hereafter irrevocably waive any objection that they now have or
hereafter may have to the laying of venue of any suit, action or proceeding
brought in any such court and further irrevocably waive any claim that any
such suit, action or proceeding brought in any such court has been brought
in an inconvenient forum. Final judgment against the Executive or the
Company in any such suit shall be conclusive and may be enforced in other
jurisdictions by suit on the judgment, a certified or true copy of which
shall be conclusive evidence of the fact and the amount of any liability of
the Executive or the Company therein described, or by appropriate
proceedings under any applicable treaty or otherwise.
15
<PAGE>
9. Assignability. The rights and obligations of the Company under this
-------------
Agreement shall inure to the benefit of and be binding upon the successors
and assigns of the Company, provided that such successor or assign shall
acquire all or substantially all of the securities or assets and business
of the Company. The Executive's obligations hereunder may not be assigned
or alienated and any attempt to do so by the Executive will be void.
10. Severability.
------------
(a) The Executive expressly agrees that the character, duration and
geographical scope of the non-competition provisions set forth in this
Agreement are reasonable in light of the circumstances as they exist on the
date hereof. Should a decision, however, be made at a later date by a
court of competent jurisdiction that the character, duration or
geographical scope of such provisions is unreasonable, then it is the
intention and the agreement of the Executive and the Company that this
Agreement shall be construed by the court in such a manner as to impose
only those restrictions on the Executive's conduct that are reasonable in
the light of the circumstances and as are necessary to assure to the
Company the benefits of this Agreement. If, in any judicial proceeding, a
court shall refuse to enforce all of the separate covenants deemed included
herein because taken together they are more extensive than necessary to
assure to the Company the intended benefits of this Agreement, it is
expressly understood and agreed by the parties hereto that the provisions
of this Agreement that, if eliminated, would permit the remaining separate
provisions to be enforced in such proceeding shall be deemed eliminated,
for the purposes of such proceeding, from this
16
<PAGE>
Agreement.
(b) If any provision of this Agreement otherwise is deemed to be
invalid or unenforceable or is prohibited by the laws of the state or
jurisdiction where it is to be performed, this Agreement shall be
considered divisible as to such provision and such provision shall be
inoperative in such state or jurisdiction and shall not be part of the
consideration moving from either of the parties to the other. The remaining
provisions of this Agreement shall be valid and binding and of like effect
as though such provision were not included.
11. Notices and Addresses. All notices, offers, acceptance and any other
---------------------
acts under this Agreement (except payment) shall be in writing, and shall
be sufficiently given if delivered to the addressees in person, by Federal
Express or similar receipted delivery, by facsimile delivery or, if mailed,
postage prepaid, by certified mail, return receipt requested, as follows:
To the Company: College Directory Publishing
Corporation
1000 Conshohocken Road, 4th Floor
Conshohocken, PA 19428
Facsimile: (610)940-1520
With a Copy to: Michael D. Harris, Esq.
Michael Harris, P.A.
1645 Palm Beach Lakes, Blvd.
Suite 550
West Palm Beach, FL 33401
Facsimile (561)478-1817
With a Copy to: Alan L. Frank, Esquire
Frank & Rosen
17
<PAGE>
1835 Market Street, Suite 320
Philadelphia, PA 19103
Facsimile (215)864-2929
To the Executive: Mr. John S. Rafanello
2811 West Crossing Circle
Norristown, PA 19403
or to such other address as either of them, by notice to the other may designate
from time to time. The transmission confirmation receipt from the sender's
facsimile machine shall be conclusive evidence of successful facsimile delivery.
Time shall be counted to, or from, as the case may be, the delivery in person or
by mailing.
12. Counterparts. This Agreement may be executed in one or more
------------
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument. The execution of this
Agreement may be by actual or facsimile signature.
13. Arbitration. Except for a claim for equitable relief, any controversy,
-----------
dispute or claim arising out of or relating to this Agreement, or its
interpretation, application, implementation, breach or enforcement which the
parties are unable to resolve by mutual agreement, shall be settled by
submission by either party of the controversy, claim or dispute to binding
arbitration in Philadelphia, Pennsylvania the parties agree in writing to a
different location), before the arbitrators in accordance with the rules of the
American Arbitration Association then in effect. In any such arbitration
proceeding the parties agree to provide all discovery deemed necessary by the
arbitrators. The decision and award made by the arbitrators shall be final,
binding and conclusive on all parties
18
<PAGE>
hereto for all purposes, and judgment may be entered thereon in any court having
jurisdiction thereof.
14. Attorney's Fees. In the event that there is any controversy or claim
---------------
arising out of or relating to this Agreement, or to the interpretation, breach
or enforcement thereof, and any action or proceeding is commenced to enforce the
provisions of this Agreement, the prevailing party shall be entitled to a
reasonable attorney's fee, costs and expenses.
15. Governing Law. This Agreement and any dispute, disagreement, or issue
-------------
of construction or interpretation arising hereunder whether relating to its
execution, its validity, the obligations provided therein or performance shall
be governed or interpreted according to the internal laws of the State of
Delaware without regard to choice of law considerations.
16. Entire Agreement. This Agreement constitutes the entire Agreement
----------------
between the parties and supersedes all prior oral and written agreements between
the parties hereto with respect to the subject matter hereof. Neither this
Agreement nor any provision hereof may be changed, waived, discharged or
terminated orally, except by a statement in writing signed by the party or
parties against which enforcement or the change, waiver discharge or termination
is sought.
17. Additional Documents. The parties hereto shall execute such additional
--------------------
instruments as may be reasonably required by their counsel in order to carry out
the purpose and intent of this Agreement and to fulfill the obligations of the
parties hereunder.
19
<PAGE>
18. Section and Paragraph Headings. The section and paragraph headings in
------------------------------
this Agreement are for reference purposes only and shall not affect the meaning
or interpretation of this Agreement.
19. Prior Agreement. The prior Employment Agreement among The Publishing
---------------
Company of North America, Inc., New College Directory Publishing, Inc., and the
Executive dated June 21, 1998 is null and void.
IN WITNESS WHEREOF, the Company and the Executive have executed this
Agreement as of the date and year first above written.
COLLEGE DIRECTORY PUBLISHING
CORPORATION
_________________________
/s/ Michael S. Paul
_________________________ By:_______________________________
Michael S. Paul, Chief Executive Officer
_________________________
/s/ John S. Rafanello
_________________________ __________________________________
John S. Rafanello
20
<PAGE>
EXHIBIT 10.3
EMPLOYMENT AGREEMENT
--------------------
THIS EMPLOYMENT AGREEMENT (the "Agreement") entered into as of this ____
day of February , 1999, between U.LINK, Inc., (the "Company"), and Larry Weaver
(the "Executive").
WHEREAS, the Company desires to employ the Executive and to ensure the
continued availability to the Company of the Executive's services, and the
Executive is willing to accept such employment and render such services, all
upon and subject to the terms and conditions contained in this Agreement;
NOW, THEREFORE, in consideration of the promises and the mutual covenants
set forth in this Agreement, and intending to be legally bound, the Company and
the Executive agree as follows:
1. Term of Employment.
------------------
(a) Term. The Company hereby employs the Executive, and the Executive
----
hereby accepts employment with the Company for a period commencing on the
date of this Agreement and ending upon the later of (i) three years from
the date of this Agreement, or (ii) three years from the date of the
Company completing an initial public offering of its securities ("IPO"). As
used in this Agreement, the term IPO means the closing of a registered
public offering of securities in which the Company receives gross proceeds
of at least $5,000,000 or the closing of a merger or similar transaction
with a public company which is required to file reports with the Securities
and Exchange Commission.
(b) Continuing Effect. Notwithstanding any termination of this
-----------------
Agreement except for termination under Section 5(c), at the end of the Term
or otherwise, the provisions of Sections 6 and 7 shall remain in full force
and effect and the provisions of Section 7 shall be binding upon the legal
representatives, successors and assigns of the Executive.
2. Duties.
------
(a) General Duties. The Executive shall serve as chief financial
--------------
officer of the Company with duties and responsibilities that are customary
for such executives. The Executive will also perform services for such
subsidiaries as may be necessary. The Executive shall report directly to
the Company's President or such persons designated by the President. The
Executive shall use his best efforts to perform his duties and discharge
his responsibilities pursuant to this Agreement competently, carefully and
faithfully.
(b) Devotion of Time. Subject to the last sentence of this Section
----------------
2(b), the Executive shall devote all of his time, attention and energies
during normal business hours
1
<PAGE>
(exclusive of periods of sickness and disability and of such normal holiday
and vacation periods as have been established by the Company) to the
affairs of the Company. The Executive shall not enter the employ of or
serve as a consultant to, or in any way perform any services with or
without compensation to, any other persons, business or organization
without the prior consent of the board of directors of the Company;
provided, that the Executive shall be permitted to devote a limited amount
of his time, without compensation, to professional, charitable or similar
organizations.
(c) Location. The services shall be rendered primarily in the
--------
Conshohocken, Pennsylvania area as long as the Company or any subsidiary
maintains an office in such area. Nothing contained in this Agreement shall
require the Company to maintain an office in the Conshohocken, Pennsylvania
area. Executive shall be required to travel as may be necessary in order to
carry out his duties.
(d) Adherence to Inside Information Policies. The Executive
----------------------------------------
acknowledges that the Company intends to effect a public offering and
become publicly-held and, as a result, has implemented inside information
policies designed to preclude its executives and those of its subsidiaries
from violating the federal securities laws by trading on material, non-
public information or passing such information on to others in breach of
any duty owed to the Company. The Executives shall promptly execute any
agreements generally distributed by the Company to its executives requiring
such executives to abide by its inside information policies.
3. Compensation and Expenses.
-------------------------
(a) Salary. For the services of the Executive to be rendered under
------
this Agreement, the Company shall pay the Executive an annual salary of
$95,000 (the "Base Salary") which Base Salary shall be increased each year
by an amount equal to the greater of (i) 3% in excess of the prior year's
Base Salary, or (ii) the cost of living increase based upon the Consumer
Price Index calculated upon the commencement of each year of the Agreement
using the prior month as the measuring month published by the Bureau of
Labor Statistics (or similar successor index). At such time as the Company
completes an IPO, the Base Salary shall be increased to $120,000 .The
Consumer Price Index increase calculation shall be calculated as follows:
Commencing with the one year anniversary of the commencement
of the term and the beginning of each year thereafter during
the term of this Agreement, the Executive's annual salary
shall be adjusted in accordance with the Consumer Price
Index, all Urban Consumers issued by the Bureau of Labor
Statistics of the U.S. Department of Labor using the years
1982-84 as a base of 100 (the "Index"). At the commencement
of the second year, and of each year thereafter, the
Executive's adjusted Base Salary shall be multiplied each
year by a
2
<PAGE>
fraction, the numerator of which shall be the published
Index number for the month preceding the commencement of the
new year, i.e. November 1999, and the denominator of which
---
shall be the published Index number for the month of
November, 1998. The resulting increase to the Executive's
Base Salary shall be added to the prior year's Base Salary
and become a part thereof for the current year. In the event
that the Index herein referred to ceases to be published
during the term of this Agreement, or if a substantial
change is made in the method of establishing such Index,
then the determination of the adjustment in the Executive's
compensation shall be made with the use of such conversion
factor, formula or table as may be published by the Bureau
of Labor Statistics, or if none is available, the parties
shall accept comparable statistics on the cost of living in
the United States as shall then be computed and published by
an agency of the United States, or if not by a respected
financial periodical selected by the Company.
(b) Expenses. In addition to any compensation received pursuant to
--------
Section 3(a) and (c), the Company will reimburse or advance funds to the
Executive for all reasonable travel, entertainment and miscellaneous
expenses incurred in connection with the performance of his duties under
this Agreement, provided that the Executive properly accounts for such
expenses to the Company in accordance with the Company's practices. Such
reimbursement or advances will be made in accordance with policies and
procedures of the Company in effect from time to time relating to
reimbursement of or advances to executive officers.
(c) Bonus. During the term of this Agreement, the Board of Directors
-----
(the "Board") shall review the Executive's performance annually and have
the discretion to grant to Executive a management bonus based on any
criteria or factors the Board deems appropriate.
4. Benefits.
--------
(a) Vacation. For each 12-month period during the Term, the Executive
--------
will be entitled to three weeks of vacation without loss of compensation or
other benefits to which he is entitled under this Agreement, to be taken at
such times as the Executive may select and the affairs of the Company may
permit. Any unused vacation will be paid for by the Company in addition to
regular salary at the annual rate in effect during 12 month period.
(b) Employee Benefit Programs. The Executive is entitled to
-------------------------
participate in any pension, 401(k), insurance or other employee benefit
plan that is maintained by the Company for its executive officers,
including programs of life and medical insurance and reimbursement of
membership fees in civic, social and professional organization. Effective
with the closing of the IPO, the Company shall provide disability insurance
for the
3
<PAGE>
Executive or reimburse the Executive for disability insurance covering the
Executive's disability which insurance shall have a 90-day waiting period.
(c) Insurance. The Company shall provide the Executive with medical
---------
and dental insurance and pay the premiums on policies covering Executive
and Executive's dependents upon closing of the Company's IPO. Until such
time, the Executive waives all coverage associated with such insurance.
5. Termination.
-----------
(a) Termination for Cause. The Company may terminate the Executive's
---------------------
employment pursuant to the terms of this Agreement at any time for cause by
giving written notice of termination. Such termination will become
effective upon the giving of such notice. Upon any such termination for
cause, the Executive shall have no right to compensation, bonus or
reimbursement under Section 3, or to participate in any employee benefit
programs under Section 4, except as provided by law, for any period
subsequent to the effective date of termination. For purposes of this
Section 5(a), "cause" shall mean: (i) the Executive is convicted of a
felony or misdemeanor or commits a criminal act; (ii) the Executive, in
carrying out his duties hereunder, has acted with ordinary negligence,
gross negligence or intentional misconduct resulting, in any case, in harm
to the Company; (iii) the Executive misappropriates Company funds or
otherwise defrauds the Company; (iv) the Executive breaches his fiduciary
duty to the Company resulting in profit to him, directly or indirectly; (v)
the Executive materially breaches any agreement with the Company; (vi) the
Executive breaches any provision of Section 6 or Section 7; (vii) the
Executive fails to competently perform his duties under Section 2 as
determined by a majority of the board of directors; (viii) the Executive
suffers from alcoholism or drug addiction or otherwise uses alcohol to
excess or uses drugs in any form except strictly in accordance with the
recommendation of a physician or dentist; or (ix) the Executive's license
as a certified public accountant is suspended or revoked.
(b) Death or Disability. Except as otherwise provided in this
-------------------
Agreement, it shall terminate upon the death, or disability of the
Executive. For purposes of this Section 5(b), "disability" shall mean that
for a period of four consecutive months in any 12-month period the
Executive is incapable of substantially fulfilling the duties set forth in
Section 2 because of physical, mental or emotional incapacity resulting
from injury, sickness or disease. In the event of death of the Executive,
the Executive's estate shall receive the Executive's compensation and
benefits for the remainder of the term of this Agreement or 24 months
whichever is greater.
(c) Special Termination. any entity or person not now an executive
-------------------
officer or director (or spouse) of the Company becomes either individually
or as part of a group the beneficial owner of 30% or more of the Company's
common stock, in any such event the Executive, by written notice to the
Company, may elect to deem the Executive's
4
<PAGE>
employment hereunder to have been terminated by the Company without cause,
in which event the Executive shall be entitled at the time of termination
to be paid an amount equal to three years compensation and benefits as
defined under this Agreement pursuant to Sections 3 and 4 herein for such
three-year period and all of Executive's remaining unvested options shall
vest immediately upon such termination. In such event, the Executive, by
written notice to the Company, may elect to refuse all further obligations
of the Company under Sections 3 and 4 and to release the Company with
respect thereto, in which event the Company shall release the Executive
from the provisions of Section 6.
6. Non-Competition Agreement.
-------------------------
(a) Competition with the Company. Until termination of his employment
----------------------------
and for a period of 12 months commencing on the date of termination, the
Executive, directly or indirectly, in association with or as a stockholder,
director, officer, consultant, employee, partner, joint venturer, member or
otherwise of or through any person, firm, corporation, partnership,
association or other entity, will not compete with the Company or any of
its affiliates in the offer, sale or marketing of products or services that
are competitive with the products or services offered by the Company,
within any metropolitan area in the United States or elsewhere in which the
Company is then engaged in the offer and sale of competitive products or
services; provided, however, the foregoing shall not prevent Executive from
accepting employment with an enterprise engaged in two or more lines of
business, one of which is the same or similar to the Company's business
(the "Prohibited Business") if Executive's employment is totally unrelated
to the Prohibited Business; provided, further, the foregoing shall not
prohibit Executive from owning up to 5% of the securities of any publicly-
traded enterprise provided Executive is not an employee, director, officer,
consultant to such enterprise or otherwise reimbursed for services rendered
to such enterprise.
(b) Solicitation of Customers. During the periods in which the
-------------------------
provisions of Section 6(a) shall be in effect, the Executive, directly or
indirectly, will not seek Prohibited Business from any Customer (as defined
below) on behalf of any enterprise or business other than the Company,
refer Prohibited Business from any Customer to any enterprise or business
other than the Company or receive commissions based on sales or otherwise
relating to the Prohibited Business from any Customer, or any enterprise or
business other than the Company. For purposes of this Section 6(b), the
term "Customer" means any person, firm, corporation, partnership,
association or other entity to which the Company or any of its affiliates
sold or provided goods or services during the 24-month period prior to the
time at which any determination is required to be made as to whether any
such person, firm, corporation, partnership, association or other entity is
a Customer.
5
<PAGE>
(c) No Payment. The Executive acknowledges and agrees that no
----------
separate or additional payment will be required to be made to him in
consideration of his undertakings in this Section 6.
7. Non-Disclosure of Confidential Information.
------------------------------------------
(a) Confidential Information. Confidential Information includes, but
------------------------
is not limited to, trade secrets as defined by the common law in
Pennsylvania or any future Pennsylvania statute, processes, policies,
procedures, techniques, designs, drawings, know-how, show-how, technical
information, specifications, computer software (including, but not limited
to, computer programs developed, improved or modified by the Company for or
on behalf of the Company for use in the Company's business, and source
code), information and data relating to the development, research, testing,
manufacturing, costs, marketing and uses of the Products (as defined
herein), the Company's budgets and strategic plans, and the identity and
special needs of customers for the Products, databases, data, all
technology relating to the Company's college and university directory and
Internet businesses, systems, methods of operation, customer lists,
customer information, solicitation leads, marketing and advertising
materials, methods and manuals and forms, all of which pertain to the
activities or operations of the Company, names, home addresses and all
telephone numbers and e-mail addresses of the Company's employees and
former employees. Confidential Information also includes, without
limitation, Confidential Information received from the Company's
subsidiaries and affiliates. For purposes of this Agreement, the following
will not constitute Confidential Information (i) information which is or
subsequently becomes generally available to the public through no act of
the Executive, (ii) information set forth in the written records of the
Executive prior to disclosure to the Executive by or on behalf of the
Company, and (iii) information which is lawfully obtained by the Executive
in writing from a third party (excluding any affiliates of the Executive)
who did not acquire such confidential information or trade secret, directly
or indirectly, from Executive or the Company. As used herein, the term
"Products" shall include all computer software researched, developed,
tested, manufactured, sold, licensed, leased or otherwise distributed or
put in to use by the Company, together with all services provided by the
Company during the term of Executive's employment.
(b) Legitimate Business Interests. The Executive recognizes that the
-----------------------------
Company has legitimate business interests to protect and as a consequence,
the Executive agrees to the restrictions contained in this Agreement
because they further the Company's legitimate business interests. These
legitimate business interests include, but are not limited to (i) trade
secrets as defined in Section 7(b), (ii) valuable confidential business or
professional information that otherwise does not qualify as trade secrets
including all Confidential Information; (iii) substantial relationships
with specific prospective or existing customers or clients; (iv) customer
or client goodwill associated with the Company's business; and (v)
specialized training relating to the Company's technology, methods and
procedures.
6
<PAGE>
(c) Confidentiality. For a period of five years, the Confidential
---------------
Information shall be held by the Executive in the strictest confidence and
shall not, without the prior written consent of the Company, be disclosed
to any person other than in connection with Executive's employment by the
Company. The Executive further acknowledges that such Confidential
Information as is acquired and used by the Company or its affiliates is a
special, valuable and unique asset. The Executive shall exercise all due
and diligence precautions to protect the integrity of the Company's
Confidential Information and to keep it confidential whether it is in
written form, on electronic media or oral. The Executive shall not copy any
Confidential Information except to the extent necessary to his employment
nor remove any Confidential Information or copies thereof from the
Company's premises except to the extent necessary to his employment and
then only with the authorization of an officer of the Company. All records,
files, materials and other Confidential Information obtained by the
Executive in the course of his employment with the Company are confidential
and proprietary and shall remain the exclusive property of the Company or
its customers, as the case may be. The Executive shall not, except in
connection with and as required by his performance of his duties under this
Agreement, for any reason use for his own benefit or the benefit of any
person or entity with which he may be associated or disclose any such
Confidential Information to any person, firm, corporation, association or
other entity for any reason or purpose whatsoever without the prior written
consent of an executive officer of the Company (excluding the Executive, if
applicable).
8. Equitable Relief.
----------------
(a) The Company and the Executive recognize that the services to be
rendered under this Agreement by the Executive are special, unique and of
extraordinary character, and that in the event of the breach by the
Executive of the terms and conditions of this Agreement or if the
Executive, without the prior consent of the board of directors of the
Company, shall leave his employment for any reason and take any action in
violation of Section 6 or Section 7, the Company will be entitled to
institute and prosecute proceedings in any court of competent jurisdiction
referred to in Section 8(b) below, to enjoin the Executive from breaching
the provisions of Section 6 or Section 7. In such action, the Company will
not be required to plead or prove irreparable harm or lack of an adequate
remedy at law. Nothing contained in this Section 8 shall be construed to
prevent the Company from seeking such other remedy in arbitration in case
of any breach of this Agreement by the Executive, as the Company may elect.
(b) Any proceeding or action must be commenced in Pennsylvania. The
Executive and the Company irrevocably and unconditionally submit to the
exclusive jurisdiction of such courts and agree to take any and all future
action necessary to submit to the jurisdiction of such courts. The
Executive and the Company irrevocably waive any objection that they now
have or hereafter irrevocably waive any objection that they now have or
hereafter may have to the laying of venue of any suit, action or proceeding
brought in any such court and further irrevocably waive any claim that any
such suit, action or
7
<PAGE>
proceeding brought in any such court has been brought in an inconvenient
forum. Final judgment against the Executive or the Company in any such
suit shall be conclusive and may be enforced in other jurisdictions by suit
on the judgment, a certified or true copy of which shall be conclusive
evidence of the fact and the amount of any liability of the Executive or
the Company therein described, or by appropriate proceedings under any
applicable treaty or otherwise.
9. Assignability. The rights and obligations of the Company under this
-------------
Agreement shall inure to the benefit of and be binding upon the successors and
assigns of the Company, provided that such successor or assign shall acquire all
or substantially all of the securities or assets and business of the Company.
The Executive's obligations hereunder may not be assigned or alienated and any
attempt to do so by the Executive will be void.
10. Severability.
------------
(a) The Executive expressly agrees that the character, duration and
geographical scope of the non-competition provisions set forth in this
Agreement are reasonable in light of the circumstances as they exist on the
date hereof. Should a decision, however, be made at a later date by a
court of competent jurisdiction that the character, duration or
geographical scope of such provisions is unreasonable, then it is the
intention and the agreement of the Executive and the Company that this
Agreement shall be construed by the court in such a manner as to impose
only those restrictions on the Executive's conduct that are reasonable in
the light of the circumstances and as are necessary to assure to the
Company the benefits of this Agreement. If, in any judicial proceeding, a
court shall refuse to enforce all of the separate covenants deemed included
herein because taken together they are more extensive than necessary to
assure to the Company the intended benefits of this Agreement, it is
expressly understood and agreed by the parties hereto that the provisions
of this Agreement that, if eliminated, would permit the remaining separate
provisions to be enforced in such proceeding shall be deemed eliminated,
for the purposes of such proceeding, from this Agreement.
(b) If any provision of this Agreement otherwise is deemed to be
invalid or unenforceable or is prohibited by the laws of the state or
jurisdiction where it is to be performed, this Agreement shall be
considered divisible as to such provision and such provision shall be
inoperative in such state or jurisdiction and shall not be part of the
consideration moving from either of the parties to the other. The remaining
provisions of this Agreement shall be valid and binding and of like effect
as though such provision were not included.
11. Notices and Addresses. All notices, offers, acceptance and any other
---------------------
acts under this Agreement (except payment) shall be in writing, and shall be
sufficiently given if delivered to the addressees in person, by Federal Express
or similar receipted delivery, by facsimile delivery or, if mailed, postage
prepaid, by certified mail, return receipt requested, as follows:
8
<PAGE>
To the Company: U.LINK, Inc.
1000 Conshohocken Road, 4th Floor
Conshohocken, PA 19428
Facsimile: (610)940-1520
With a Copy to: Michael D. Harris, Esq.
Michael Harris, P.A.
1645 Palm Beach Lakes, Blvd.
Suite 550
West Palm Beach, FL 33401
Facsimile (561)478-1817
With a Copy to: Alan Frank, Esquire
Frank & Rosen
1835 Market Street, Suite 320
Philadelphia, PA 19103
Facsimile (215)864-2929
To the Executive: Mr. Larry Weaver
U.LINK, INC.
1000 Conshohocken Road, 4th Floor
Conshohocken, PA 19428
Facsimile: (610)940-1520
or to such other address as either of them, by notice to the other may designate
from time to time. The transmission confirmation receipt from the sender's
facsimile machine shall be conclusive evidence of successful facsimile delivery.
Time shall be counted to, or from, as the case may be, the delivery in person or
by mailing.
12. Counterparts. This Agreement may be executed in one or more
------------
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument. The execution of this
Agreement may be by actual or facsimile signature.
13. Arbitration. Except for a claim for equitable relief, any controversy,
-----------
dispute or claim arising out of or relating to this Agreement, or its
interpretation, application, implementation, breach or enforcement which the
parties are unable to resolve by mutual agreement, shall be settled by
submission by either party of the controversy, claim or dispute to binding
arbitration in Philadelphia, Pennsylvania the parties agree in writing to a
different location, before three arbitrators in accordance with the rules of the
American Arbitration Association then in effect. In any such arbitration
proceeding, the parties agree to provide all discovery deemed necessary by the
arbitrators. The decision and award made by the arbitrators shall be final,
binding and conclusive on
9
<PAGE>
all parties hereto for all purposes, and judgment may be entered thereon in any
court having jurisdiction thereof.
14. Attorney's Fees. In the event that there is any controversy or claim
---------------
arising out of or relating to this Agreement, or to the interpretation, breach
or enforcement thereof, and any action or proceeding is commenced to enforce the
provisions of this Agreement, the prevailing party shall be entitled to a
reasonable attorney's fee, costs and expenses.
15. Governing Law. This Agreement and any dispute, disagreement, or issue
-------------
of construction or interpretation arising hereunder whether relating to its
execution, its validity, the obligations provided therein or performance shall
be governed or interpreted according to the internal laws of the State of
Pennsylvania without regard to choice of law considerations.
16. Entire Agreement. This Agreement constitutes the entire Agreement
----------------
between the parties and supersedes all prior oral and written agreements between
the parties hereto with respect to the subject matter hereof. Neither this
Agreement nor any provision hereof may be changed, waived, discharged or
terminated orally, except by a statement in writing signed by the party or
parties against which enforcement or the change, waiver discharge or termination
is sought.
17. Additional Documents. The parties hereto shall execute such additional
--------------------
instruments as may be reasonably required by their counsel in order to carry out
the purpose and intent of this Agreement and to fulfill the obligations of the
parties hereunder.
18. Section and Paragraph Headings. The section and paragraph headings in
------------------------------
this Agreement are for reference purposes only and shall not affect the meaning
or interpretation of this Agreement.
IN WITNESS WHEREOF, the Company and the Executive have executed this
Agreement as of the date and year first above written.
Witnesses: U.LINK, Inc.
/s/ John S. Rafanello
________________________ By:____________________________________
John S. Rafanello, President and Chief
Operating Officer
________________________
/s/ Larry Weaver
________________________ _______________________________________
Larry Weaver
10
<PAGE>
________________________
11
<PAGE>
EXHIBIT 10.4
U.LINK, INC
1999 STOCK OPTION PLAN
1. Purpose and Eligibility. This Stock Option Plan (the "Plan") is intended
-----------------------
to advance the interests of U.Link, Inc. (the "Company"), and its Related
Corporations, as defined below, by enhancing the ability of the Company to
attract and retain qualified employees, consultants, officers and directors by
creating incentives and rewards for their contributions to the success of the
Company. This Plan will provide to: (a) officers and other employees of the
Company and its Related Corporations opportunities to purchase stock in the
Company pursuant to options granted hereunder which qualify as incentive stock
options ("ISOs") under Section 422(b) of the Internal Revenue Code of 1986, as
amended (the "Code") and (b) directors, officers, employees and consultants of
the Company and Related Corporations opportunities to purchase stock in the
Company pursuant to options granted hereunder which do not qualify as ISOs
("Non-Qualified Options"). ISOs and Non-Qualified Options are referred to
hereafter as "Options".
For purposes of the Plan, the term "Related Corporations" shall mean a
corporation which is a subsidiary corporation with respect to the Company within
the meaning of Section 424(f) of the Code.
This Plan is intended to comply in all respects with Rule 16b-3 and its
successor rules as promulgated under Section 16(b) of the Securities Exchange
Act of 1934 ("Rule 16b-3") for participants who are subject to Section 16 of the
Securities Exchange Act of 1934 (the "Exchange Act"). To the extent any
provision of the Plan or action by the Plan administrators fails to so comply,
it shall be deemed null and void to the extent permitted by law and deemed
advisable by
<PAGE>
the Plan administrators. Provided, however, such exercise of discretion by the
Plan administrators shall not interfere with the contract rights of any
participant. In the event that any interpretation or construction of this Plan
is required, it shall be interpreted and construed in order to insure, to the
maximum extent permissible by law, that such participant does not violate the
short-swing profit provisions of Section 16(b) of the Exchange Act and that any
exemption available under Rule 16b-3 is available.
2. Stock. The stock subject to Options shall be authorized but unissued
------
shares of common stock (the "Common Stock"), or shares of Common Stock
reacquired by the Company in any manner. The aggregate number of shares of
Common Stock which may be issued pursuant to the Plan is 400,000, subject to
adjustment as provided in Section 14. Any such shares may be issued as ISOs or
Non-Qualified Options so long as the number of shares so issued does not exceed
the limitations in this Section. If any Options granted under the Plan shall
expire or terminate for any reason without having been exercised in full or
shall cease for any reason to be exercisable in whole or in part the unexercised
shares subject to such Options shall again be available for grants of Options
under the Plan.
3. Administration of the Plan.
--------------------------
a. The Plan may be administered by the entire board of directors of the
Company (the "Board") or by a committee composed solely of two or more Non-
Employee Directors as that term is defined by Rule 16b-3(b)(3) of the Exchange
Act, or the Company shall
2
<PAGE>
otherwise act in accordance with the permissible interpretations of Rule 16b-3
(the "Committee"). Once appointed, such Committee shall continue to serve
until otherwise directed by the Board. A majority of the members of any such
Committee shall constitute a quorum, and all determinations of the Committee
shall be made by the majority of its members present at a meeting. Any
determination of the Committee under the Plan may be made without notice or
meeting of the Committee by a writing signed by all of the Committee members.
Subject to ratification of the grant by the Board (but only if so required by
applicable state law), and subject to the terms of the Plan, the Committee shall
have the authority to (i) determine the employees of the Company and Related
Corporations (from among the class of employees eligible under Section 3 to
receive ISOs) to whom ISOs may be granted, and to determine (from among the
class of individuals and entities eligible under Section 3 to receive Non-
Qualified Options) to whom Non-Qualified Options may be granted; (ii) determine
the time or times at which Options may be granted; (iii) determine the exercise
price of shares subject to each Option which price for any ISO shall not be less
than the minimum price specified in Section 7; (iv) determine whether each
Option granted shall be an ISO or a Non-Qualified Option; (v) determine (subject
to Section 8) the time or times when each Option, except for non-discretionary
Options, shall become exercisable, the duration of the exercise period and when
each Option shall vest; (vi) determine whether restrictions such as repurchase
options are to be imposed on shares subject to Options and the nature of such
restrictions, if any, and (vii) interpret the Plan and promulgate and rescind
rules and regulations relating to it. Such determination, whether made by the
Committee or the Board shall be made in advance of a grant and may be ratified
after the fact only by the Company's stockholders at or before the next annual
meeting of stockholders held subsequent to the grant. The interpretation and
construction by the Committee of any provisions of the Plan or of any Options
granted under it shall be final, binding
3
<PAGE>
and conclusive unless otherwise determined by the Board. The Committee may from
time to time adopt such rules and regulations for carrying out the Plan as it
may deem appropriate.
No members of the Committee or the Board shall be liable for any action or
determination made in good faith with respect to the Plan or any Options granted
under it. No member of the Committee or the Board shall be liable for any act
or omission of any other member of the Committee or the Board or for any act or
omission on his own part, including but not limited to the exercise of any power
and discretion given to him under the Plan, except those resulting from his own
gross negligence or willful misconduct.
(b) The Committee may select one of its members as its chairman and
shall hold meetings at such time and places as it may determine. All references
in this Plan to the Committee shall mean the Board if no Committee has been
appointed. From time to time the Board may increase the size of the Committee
and appoint additional members thereof, remove members (with or without cause)
and appoint new members in substitution therefor, fill vacancies however caused
or remove all members of the Committee and thereafter directly administer the
Plan.
(c) Options may be granted to members of the Board, whether such
grants are in their capacity as directors, employees or consultants. Members of
the Board who are either (i) eligible for Options pursuant to the Plan or (ii)
have been granted Options may vote on any matters affecting the administration
of the Plan or the grant of any Options pursuant to the Plan.
4
<PAGE>
(d) Notwithstanding any other provision of Section 2, any
discretionary grants to a person who is a member of the Board shall be made only
by the Committee. The requirements imposed by this Section 2(d) shall also apply
with respect to grants to officers who are also directors.
(e) In addition to such other rights of indemnification as he may
have as a member of the Board, and with respect to administration of the Plan
and the granting of Options under it, each member of the Board and of the
Committee (the "Indemnitee") shall be entitled without further act on the
Indemnitees part to indemnification from the Company for all expenses (including
advances of litigation expenses, the amount of judgment and the amount of
approved settlements made with a view to the curtailment of costs of litigation)
reasonably incurred by the Indemnitee in connection with or arising out of any
action, suit or proceeding, including any appeal thereof, with respect to the
administration of the Plan or the granting of Options under it in which the
Indemnitee may be involved by reason of the Indemnitee being or having been a
member of the Board or the Committee, whether or not the Indemnitee continues to
be such member of the Board or the Committee at the time of the incurring of
such expenses; provided, however, that such indemnity shall not include any
expenses incurred by the Indemnitee (i) in respect of matters as to which the
Indemnitee shall be finally adjudged in such action, suit or proceeding to have
been guilty of or liable for gross negligence or willful misconduct in the
performance of his duties as a member of the Board or the Committee; (ii) in
respect of any matter in which any settlement is effected to an amount in excess
of the amount approved by the Company on the advice of its legal counsel or
(iii) arising from any action in which the Indemnitee asserts a claim against
the Company whether such claim is termed a complaint, counterclaim, crossclaim,
third party
5
<PAGE>
complaint or otherwise and, provided further, that no right of indemnification
under the provisions set forth herein shall be available to any such member of
the Board or the Committee unless within 10 days after institution of any such
action, suit or proceeding the Indemnitee shall have offered the Company in
writing the opportunity to handle and defend such action, suit or proceeding at
its own expense. The foregoing right of indemnification shall inure to the
benefit of the heirs, executors or administrators of each such Indemnitee and
shall be in addition to all other rights to which such Indemnitee would be
entitled to as a matter of law, contract or otherwise. Provided, however, the
exception in Section 3 (e) (iii) shall not apply to an action for
indemnification under circumstances where the Company has failed to provide
indemnification to the Indemnitee which indemnification is required by this
Plan.
(e) Notwithstanding the indemnification provided for by this Section
3, the Company's bylaws, or any written agreement, such indemnity shall not
include any expenses, liabilities or losses incurred by such Indemnitees
relating to or arising from any Proceeding in which the Company asserts a direct
claim (as opposed to a stockholders' derivative action) against the Indemnitees,
whether such claim by the Company is termed a complaint, counterclaim,
crossclaim, third-party complaint or otherwise.
4. Eligible Employees and Others.
-----------------------------
(a) ISOs may be granted to any employee of the Company or any Related
Corporation. Those officers and directors of the Company who are not
employees may not be granted ISOs under the Plan unless they are employees
of the Company or any Related
6
<PAGE>
Corporation. Subject to compliance with Rule 16b-3 and other applicable
securities laws, Non-Qualified Options may be granted to any director (whether
or not an employee), officer, employee or consultant of the Company or any
Related Corporation. The Committee may take into consideration a recipient's
individual circumstances in determining whether to grant an ISO or a Non-
Qualified Option. Granting of any Option to any individual or entity shall
neither entitle that individual or entity to, nor disqualify him from
participation in any other grant.
(b) All directors of the Company who are not employees of the Company
or Related Corporations shall automatically receive grants of 12,000 Non-
Qualified Options (i) at the time this Plan is adopted by the Board; (ii) upon
election or appointment to the Board if not a member of the Board at the time
this Plan is adopted by the Board; and (iii) after all Options previously
granted have vested.
(1) The exercise price of all Options shall be fair market value
on the date of grant as defined by Section 7.
(2) The Options shall vest in six equal increments of 2,000
Options per director on June 30 and December 31 of each year, provided that
the director is still serving as a director of the Company. To the extent
that any Options which have not been exercised do not vest, the Options
shall lapse.
(c) All Options shall be exercisable for a period of 10 years from the
date of
7
<PAGE>
grant, except where a shorter period is required by the Code for certain
ISOs or where the board or committee selects a shorter period at the time
of any discretionary grant.
5. Granting of Options.
-------------------
(a) Options may be granted under the Plan at any time on and after
February 5, 1999, provided, however, that no ISO shall be granted more than
10 years after the effective date of this Plan. The date of grant of
Options under the Plan will be the date specified by the Committee at the
time it grants the Options; provided, however, that such date shall not be
prior to the date on which the Committee acts to approve the grant. The
Committee shall have the right, with the consent of the optionee, to
convert ISOs granted under the Plan to Non-Qualified Options pursuant to
Section 15.
(b) The Board or Committee shall grant Options to participants that
it, in its sole discretion, selects. Options shall be granted on such terms
as the Board or Committee shall determine except that ISOs shall be granted
on terms that comply with the Code and regulations thereunder.
(c) Notwithstanding any provision of this Plan, the Board or the
Committee may impose conditions and restrictions on any grant of Options
including forfeiture of vested Options, cancellation of Common Stock
acquired upon exercise of Options and forfeiture of profits from the sale
of Common Stock.
8
<PAGE>
6. Sale of Shares Acquired Upon Exercise of Options. Any shares of the
------------------------------------------------
Company's Common Stock acquired pursuant to Options granted hereunder as set
forth herein, cannot be sold by any officer, director or other person, subject
to Section 16 of the Exchange Act, until at least six months elapse from the
date of grant of the Options or unless the grant is otherwise exempt under Rule
16b-3 and the Board permits the sale. Nothing in this Section 6 shall be
deemed to reduce the holding period set forth under the applicable securities
laws.
7. ISO Minimum Option Price and Other Limitations.
----------------------------------------------
(a) The exercise price per share of all Options granted under the
Plan shall not be less than the fair market value per share of Common Stock
on the date of such grant For purposes of determining the exercise price
grants of ISOs, the date of the grant shall be the later of (i) the date of
approval by the Committee or the Board or (ii) the date the recipient
becomes an employee of the Company. In the case of ISOs to be granted to an
employee owning stock which represents more than 10 percent of the total
combined voting power of all classes of stock of the Company or any Related
Corporation, the price per share shall not be less than 110 percent of the
fair market value per share of Common Stock on the date of grant and such
ISOs shall not be exercisable after the expiration of five years from the
date of grant.
(b) In no event shall the aggregate fair market value (determined at
the time any ISOs are granted) of Common Stock for which ISOs granted to
any employee are exercisable for the first time by such employee during any
calendar year (under all stock
9
<PAGE>
option plans of the Company and any Related Corporation) exceed $100,000.
(c) If, at the time Options are granted under the Plan, the Company's
Common Stock is publicly traded, "fair market value" shall be determined as
of the last trading day prior to the date such Options are granted and
shall mean:
(1) the closing price of the Company's Common Stock appearing on
a national securities exchange if the principal market for the common
stock is such an exchange, or, if not listed or not the principal
market, the closing price on The Nasdaq Stock Market ("Nasdaq").
(2) if the Company's shares are not listed on Nasdaq, then the
closing price for its Common Stock as listed on the National
Association of Securities Dealers Regulation, Inc.'s electronic
bulletin board; or
(3) if the Company's Common Stock is not listed on the
electronic bulletin board, then the average bid and asked price for
the Company's shares as listed in the National Quotation Bureau's
"pink sheets"; or
(4) if there are no listed bid and asked prices published in the
pink sheets, then the fair market value shall be based upon the
average closing bid and asked price as determined following a polling
of all dealers making a market in the Company's Common Stock.
10
<PAGE>
8. Duration of Options. Subject to earlier termination as provide in
-------------------
Sections 5, 9 and 10, all Options shall expire on the date specified in the
original grant of such Options (except with respect to any ISOs that are
converted into Non-Qualified Options pursuant to Section 17) provided, however,
that such grant must comply with Section 422 of the Code with regard to ISOs and
Rule 16b-3 with regard to all Options granted pursuant to this Plan to officers,
directors and 10% stockholders of the Company. For the purpose of this Plan,
the term "officer" shall have the same meaning as defined in Rule 16a-1(f)
promulgated under the Exchange Act.
9. Exercise of Options. Subject to the provisions of Sections 4(b)
-------------------
and 9 through 13, all Options granted under the Plan shall be exercisable as
follows:
(a) The Options shall either be fully vested and exercisable
from the date of grant or shall become vested and exercisable in such
installments as the Committee may specify.
(b) Once an installment becomes exercisable, it shall remain
exercisable until expiration or termination of the Options, unless
otherwise specified by the Committee.
(c) All Options, once exercisable and vested, may be exercised
at any time or from time to time, in whole or in part, for up to the total
number of shares with respect to which they are then exercisable.
11
<PAGE>
(d) The Committee shall have the right to accelerate the vesting
date to allow exercise of any installment of any Options; provided that the
Committee shall not accelerate the vesting and exercisability date of any
installment of any Options granted to any employee as an ISO (and not
previously converted into Non-Qualified Options pursuant to Section 17) if
such acceleration would violate the annual vesting limitation contained in
Section 422 of the Code as described in Section 6(b).
(e) The vesting date of all Options shall accelerate in the
event of any of the following: (i) the Company is to merge or consolidate
with or into any other corporation or entity except a transaction where the
Company is the surviving corporation or a change of domicile merger or
similar transaction exempt from registration under the Securities Act of
1933, (ii) the sale of all or substantially all of the Company's assets,
(iii) the sale of at least 90% of the outstanding Common Stock of the
Company to a third party (subsections (i), (ii) and (iii) collectively
referred to as an "Acquisition"); or (iv) the Company is dissolved. Upon a
minimum of 20 days prior written notice to the optionees, the
exercisability of such Options shall commence two business days prior to
the earlier of (A) the scheduled closing of an Acquisition or proposed
dissolution or (B) the actual closing of an Acquisition or proposed
dissolution.
10. Termination of Employment. Subject to any greater restrictions or
-------------------------
limitations as may be imposed by the Committee upon the granting of any ISOs, if
an ISO optionee ceases to be employed by the Company and all Related
Corporations other than by reason of death or disability as defined in Section
11, no further installments of such ISOs shall become exercisable, and such
12
<PAGE>
ISOs shall terminate on the day three months after the day of the termination of
employment, but in no event later than on their specified expiration dates,
except to the extent that such ISOs (or unexercised installments thereof) have
been converted into Non-Qualified Options pursuant to Section 17. Employment
shall be considered as continuing uninterrupted during any bona fide leave of
absence (such as those attributable to illness, military obligations or
governmental service) provided that the period of such leave does not exceed
three months or, if longer, any period during which such optionee's right to re-
employment is guaranteed by statute. A leave of absence with the written
approval of the Company's Board shall not be considered an interruption of
employment under the Plan, provided that such written approval contractually
obligates the Company or any Related Corporation to continue the employment of
the optionee after the approved period of absence. ISOs granted under the Plan
shall not be affected by any change of employment within or among the Company
and Related Corporations so long as the optionee continues to be an employee of
the Company or any Related Corporation.
11. Death; Disability. Subject to any greater restrictions or limitations
-----------------
as may be imposed by the Committee upon the granting of any ISOs:
(a) If an ISO optionee ceases to be employed by the Company and all
Related Corporations by reason of death, such person's ISOs may be
exercised to the extent of the number of shares with respect to which he
could have exercised it on the date of his death, by his estate, personal
representative or beneficiary who has acquired the ISO by will or by the
laws of descent and distribution, at any time prior to the earlier of the
ISO's specified expiration date or three months from the date of the
optionee's death.
13
<PAGE>
(b) If an ISO optionee ceases to be employed by the Company and all
Related Corporations by reason of his disability, he shall have the right
to exercise any ISOs held by him on the date of termination of employment
until the earlier of (i) the ISOs' specified expiration date or (ii) one
year from the date of the termination of the optionee's employment. For the
purposes of the Plan, the term "disability" shall mean "permanent and total
disability" as defined in Section 22(e)(3) of the Code, as amended, or
successor statute.
12. Assignment, Transfer or Sale.
----------------------------
(a) No ISOs and no Options granted to an employee who is an officer,
director or beneficial owner of 10% or more of the Company's Common Stock
("10% Owner") shall be assignable or transferable by the grantee except as
provided below or by will or by the laws of descent and distribution, and
during the lifetime of the grantee, each Option shall be exercisable only
by him, his guardian or legal representative. The shares underlying the
ISOs cannot be assigned, transferred or sold until at least two years from
the date of the granting of the ISOs and one year after the transfer of
such shares to the optionee.
(b) No ISOs shall be assignable or transferable by the grantee.
(c) Provided however, any officer, director or 10% Owner may transfer
Non-Qualified Options to members of his or her immediate family (i.e.
---
children, grandchildren or spouse), to trusts for the immediate benefit of
such family members and to partnerships
14
<PAGE>
in which such family members are the only partners, upon approval of the
Committee so long as no consideration is received for the transfer.
15
<PAGE>
(d) Notwithstanding the terms of this Section 12, subject to approval
by the Committee, any executive officer, director or 10% Owner may transfer
Non-Qualified Options, granted under circumstances where the exemption
provided by Rule 16b-3 promulgated under the Exchange Act is not
applicable, to a spouse or former spouse if such transfer is made in
connection with a divorce proceeding and the specific terms of the transfer
are incorporated into a final divorce decree. The shares of Common Stock
underlying such Options may not be sold prior to the entry of the divorce
decree.
13. Terms and Conditions of Options. Options shall be evidenced by
-------------------------------
instruments (which need not be identical) in such forms as the Committee may
from time to time approve. Such instruments shall conform to the terms and
conditions set forth in Sections 7 through 12 hereof and may contain such other
provisions as the Committee deems advisable which are not inconsistent with the
Plan, including restrictions applicable to shares of Common Stock issuable upon
exercise of Options and forfeiture provisions. In granting any Non-Qualified
Options, the Committee may specify that such Non-Qualified Options shall be
subject to the restrictions set forth herein with respect to ISOs, or to such
other termination and cancellation provisions as the Committee may determine.
The Committee may from time to time confer authority and responsibility on one
or more of its own members and/or one or more officers of the Company to execute
and deliver such instruments. The proper officers of the Company are authorized
and directed to take any and all action necessary or advisable from time to time
to carry out the terms of such instruments.
16
<PAGE>
14. Adjustments. Upon the occurrence of any of the following events, an
-----------
optionee's rights with respect to Options granted to him hereunder shall be
adjusted as hereinafter provided unless otherwise specifically provided in the
written agreement between the optionee and the Company relating to such Options:
(a) If the shares of Common Stock shall be subdivided or combined
into a greater or smaller number of shares or if the Company shall issue
any shares of its Common Stock as a stock dividend on its outstanding
Common Stock, the number of shares of Common Stock deliverable upon the
exercise of Options shall be appropriately increased or decreased
proportionately, and appropriate adjustments shall be made in the purchase
price per share to reflect such subdivision, combination or stock dividend.
Provided, however, no adjustment shall occur upon (i) the merger of the
Company with College Directory Publishing Corporation, (ii) the stock
dividend of 15,149 shares of Common Stock to be paid on each share of
Common Stock resulting in 1,515,000 shares of Common Stock being
outstanding, or (iii) the conversion of any series of preferred stock of
the Company as the result of an initial public offering or merger or
similar transaction with a public company.
(b) If the Company is to be consolidated with or acquired by another
entity pursuant to an Acquisition, the Committee or the board of directors
of any entity assuming the obligations of the Company hereunder (the
"Successor Board") shall, as to outstanding Options not exercised pursuant
to Section 10, either (i) make appropriate provision for the continuation
of such Options by substituting on an equitable basis for the shares then
subject to such Options the consideration payable with respect to the
outstanding shares of
17
<PAGE>
Common Stock in connection with the Acquisition; or (ii) terminate all
Options in exchange for a cash payment equal to the excess of the fair
market value of the shares subject to such Options over the exercise price
thereof.
(c) In the event of a recapitalization or reorganization of the
Company (other than a transaction described in Section 14(b) above)
pursuant to which securities of the Company or of another corporation are
issued with respect to the outstanding shares of Common Stock, an optionee
upon exercising Options shall be entitled to receive for the purchase price
paid upon such exercise the securities he would have received if he had
exercised his Options prior to such recapitalization or reorganization.
(d) Notwithstanding the foregoing, any adjustments made pursuant to
Section 14(a), (b) or (c) with respect to ISOs shall be made only after the
Committee, after consulting with counsel for the Company, determines
whether such adjustments would constitute a "modification" of such ISOs (as
that term is defined in Section 424(h) of the Code) or would cause any
adverse tax consequences for the holders of such ISOs. If the Committee
determines that such adjustments made with respect to ISOs would constitute
a modification of such ISOs it may refrain from making such adjustments.
(e) Except as expressly provided herein, no issuance by the Company
of shares of Common Stock of any class or securities convertible into
shares of Common Stock of any class shall affect, and no adjustment by
reason thereof shall be made with respect to, the number or price of shares
subject to Options. No adjustments shall be made for dividends
18
<PAGE>
or other distributions paid in cash or in property other than securities of
the Company.
(f) No fractional shares shall be issued under the Plan and the
optionees shall receive from the Company cash in lieu of such fractional
shares.
(g) Upon the happening of any of the foregoing events described in
Section 14(a), (b) or (c) above, the class and aggregate number of shares
set forth in Section 14 hereof that are subject to Options which previously
have been or subsequently may be granted under the Plan shall also be
appropriately adjusted to reflect the events described therein. The
Committee or the Successor Board shall determine the specific adjustments
to be made under this Section 14 and, subject to Section 3, its
determination shall be conclusive. If any person or entity owning
restricted Common Stock obtained by exercise of Options made hereunder
receives securities or cash in connection with a corporate transaction
described in Section 14(a), (b) or (c) above as a result of owning such
restricted Common Stock, such securities or cash shall be subject to all of
the conditions and restrictions applicable to the restricted Common Stock
with respect to which such securities or cash were issued, unless otherwise
determined by the Committee or the Successor Board.
15. Means of Exercising Options.
---------------------------
(a) An Option (or any part or installment thereof) shall be exercised
by giving written notice to the Company at its principal office address.
Such notice shall identify the Option being exercised and specify the
number of shares as to which such Option is being
19
<PAGE>
exercised, accompanied by full payment of the purchase or exercise price
therefor either (i) in United States dollars in cash or by check; (ii) at
the discretion of the Committee, through delivery of shares of Common Stock
having a fair market value equal as of the date of the exercise to the cash
exercise price of the Option; (iii) at the discretion of the Committee, by
delivery of the grantee's personal recourse note bearing interest payable
not less than annually at no less than 100% of the lowest applicable
federal rate, as defined in Section 1274(d) of the Code; (iv) at the
discretion of the Committee, by delivery of a letter from the grantee to
his broker and the Company directing his broker to send all proceeds of the
sale of his securities to the Company so the Company can deduct the
exercise price and withholding taxes prior to disbursement of the remaining
proceeds to grantee; or (v) at the discretion of the Committee, by any
combination of (i), (ii), (iii) and (iv) above. If the Committee exercises
its discretion to permit payment of the exercise price of an ISO by means
of the methods set forth in clauses (ii), (iii), (iv) or (v) of the
preceding sentence, such discretion shall be exercised in writing anytime
prior to exercise of the ISO in question. The holder of an Option shall not
have the rights of a stockholder with respect to the shares covered by his
Option until the date of issuance of a stock certificate to him for such
shares. Except as expressly provided above in Section 14 with respect to
changes in capitalization and stock dividends, no adjustment shall be made
for dividends or similar rights for which the record date is before the
date such stock certificate is issued.
(b) Each notice of exercise shall, unless the Common Stock underlying
the Options (the "Option Shares") are covered by a then current
registration statement under the Securities Act of 1933, as amended (the
"Act"), contain the optionee's acknowledgment in
20
<PAGE>
form and substance satisfactory to the Company that (i) such Option Shares
are being purchased for investment and not for distribution or resale
(other than a distribution or resale which, in the opinion of counsel to
the Company, may be made without violating the registration provisions of
the Act), (ii) the optionee has been advised and understands that (1) the
Option Shares have not been registered under the Act and are "restricted
securities" within the meaning of Rule 144 under the Act and are subject to
restrictions on transfer, and (2) the Company is under no obligation to
register the Option Shares under the Act or to take any action which would
make available to the optionee any exemption from such registration, and
(iii) such Option Shares may not be transferred without compliance with all
applicable federal and state securities laws. Notwithstanding the above,
should the Company be advised by counsel that issuance of Option Shares
should be delayed pending registration under federal or state securities
laws or the receipt of an opinion that an appropriate exemption therefrom
is available, the Company may defer exercise of any Options granted
hereunder until either such event has occurred.
16. Term and Amendment of Plan. This Plan was adopted by the Board
--------------------------
and the sole stockholder on February 4, 1999. This Plan shall have no expiration
date, provided however that no ISOs shall be granted more than 10 years after
the Plan's effective date. The Board may terminate or amend the Plan in any
respect at any time. If stockholder approval is required by any national
securities exchange or Nasdaq, such approval must be obtained in accordance with
the appropriate rules requiring approval which may include: (a) increase of the
total number of shares that may be issued under the Plan (except by adjustment
pursuant to Section 14); and (b) modification of the provisions of Section 3
regarding eligibility for grants of ISOs. Except as
21
<PAGE>
provided herein or as specified in the original instrument granting such
Options, no action of the Board or stockholders may alter or impair the rights
of a grantee, without his consent, under any Options previously granted to him.
17. Conversion of ISOs into Non-Qualified Options; Termination of
-------------------------------------------------------------
ISOs. The Committee, at the written request of any optionee, may in its
- ----
discretion take such actions as may be necessary to convert such optionee's ISOs
(or any installments or portions of installments thereof) that have not been
exercised on the date of conversion into Non-Qualified Options at any time prior
to the expiration of such ISOs, regardless of whether the optionee is an
employee of the Company or a Related Corporation at the time of such conversion.
Such actions may include, but not be limited to, extending the exercise period
or reducing the exercise price of the appropriate installments of such Options.
At the time of such conversion, the Committee (with the consent of the optionee)
may impose such conditions on the exercise of the resulting Non-Qualified
Options as the Committee in its discretion may determine, provided that such
conditions shall not be inconsistent with this Plan. Nothing in the Plan shall
be deemed to give any optionee the right to have such optionee's ISOs converted
into Non-Qualified Options, and no such conversion shall occur until and unless
the Committee takes appropriate action. The Committee, with the consent of the
optionee, may also terminate any portion of any ISOs that have not been
exercised at the time of such termination.
18. Application of Funds. The proceeds received by the Company from
--------------------
the exercise of Options granted under the Plan shall be used for general
corporate purposes.
22
<PAGE>
19. Governmental Regulations. The Company's obligation to sell and
------------------------
deliver shares of Common Stock under this Plan is subject to the approval of any
governmental authority required in connection with the authorization, issuance
or sale of such shares.
20. Withholding of Additional Income Taxes. Upon the exercise of Non-
--------------------------------------
Qualified Options or the making of a Disqualifying Disposition (as defined in
Section 21) the Company, in accordance with Section 3402(a) of the Code may
require the optionee to pay additional withholding taxes in respect of the
amount that is considered compensation includable in such person's gross income.
The Committee in its discretion may condition the exercise of Options on the
payment of such withholding taxes.
To the extent that the Company is required to withhold taxes for
federal income tax purposes in connection with the exercise of any Options, the
Company shall have the discretion to determine if any optionee may elect to
satisfy such withholding requirement by (i) paying the amount of the required
withholding tax to the Company; (ii) delivering to the Company shares of its
Common Stock previously owned by the optionee; or (iii) having the Company
retain a portion of the Option Shares. If permitted by the Company, the number
of shares to be delivered to or withheld by the Company times the fair market
value of such shares shall equal the cash required to be withheld. To the extent
that the participant is authorized to either deliver or have withheld shares of
the Company's Common Stock, the Board, or the Committee, may require him to make
such election only during a certain period of time as may be necessary to comply
with appropriate exemptive procedures regarding the "short-swing" profit
provisions of Section 16(b) of the Exchange Act or to meet certain Code
requirements.
23
<PAGE>
21. Notice to Company of Disqualifying Disposition. Each employee who
----------------------------------------------
receives ISOs must agree to notify the Company in writing immediately after the
employee makes a Disqualifying Disposition of any Common Stock acquired pursuant
to the exercise of such ISOs. A Disqualifying Disposition is any disposition
(including any sale) of such Common Stock before the later of (i) two years
after the date of employee was granted the ISOs, or (ii) one year after the date
the employee acquired Common Stock by exercising the ISO. If the employee has
died before such Common Stock is sold, these holding period requirements do not
apply and no Disqualifying Disposition can occur thereafter.
22. Continued Employment. The grant of Options pursuant to the Plan
--------------------
shall not be construed to imply or to constitute evidence of any
agreement, express or implied, on the part of the Company or any Related
Corporation to retain the optionee as an employee of the Company or a Related
Corporation, as a member of the Company's Board or in any other capacity,
whichever the case may be.
23. Bonuses or Loans to Exercise Options. If requested by any person
------------------------------------
to whom a grant of Options has been made, the Company or any Related Corporation
may, upon full Board approval, loan such person, guarantee a bank loan, or pay
such person additional compensation of the amount of money necessary to pay the
federal income taxes incurred as a result of the exercise of any Non-Qualified
Options, assuming that such person is in the maximum federal income tax bracket
and assuming that such person has no deductions which would reduce the amount of
such tax owed. The tax loan shall be made or tax offset bonus paid on or after
April 15th of the year
24
<PAGE>
following the year in which the tax is incurred and any loan shall be made on
such terms as the Company or lending bank determines.
24. Governing Law; Construction. The validity and construction of the
---------------------------
Plan and the instruments evidencing Options shall be governed by the laws of the
State of Delaware. In construing this Plan, the singular shall include the
plural and the masculine gender shall include the feminine and neuter, unless
the context otherwise requires.
25
<PAGE>
Exhibit 10.5
AMENDMENT NO. 1
TO THE U.LINK, INC.
1999 STOCK OPTION PLAN
Section 4 of the 1999 Stock Option Plan is hereby amended by deleting
Section 4 thereof and replacing it to read as follows:
4. Eligible Employees and Others.
-----------------------------
(a) ISOs may be granted to any employee of the Company or any Related
Corporation. Those officers and directors of the Company who are not
employees may not be granted ISOs under the Plan unless they are employees
of the Company or any Related Corporation. Subject to compliance with Rule
16b-3 and other applicable securities laws, Non-Qualified Options may be
granted to any director (whether or not an employee), officer, employee or
consultant of the Company or any Related Corporation. The Committee may
take into consideration a recipient's individual circumstances in
determining whether to grant an ISO or a Non-Qualified Option. Granting of
any Option to any individual or entity shall neither entitle that
individual or entity to, nor disqualify him from participation in any other
grant.
(b) (i) All directors of the Company who are not employees of the
Company or Related Corporations shall automatically receive grants of
24,000 Non-Qualified Options (A) at the time Amendment No. 1 to this Plan
is adopted by the Board; (B) upon election or appointment to the Board if
not a member of the Board at the time Amendment No. 1 to this Plan is
adopted by the Board; and (C) after all Options previously granted have
vested, and (ii) that director appointed chairman of the audit committee
shall automatically receive an additional grant of 12,000 Non-Qualified
Options.
(1) The exercise price of all Options shall be fair market value
on the date of grant as defined by Section 7.
(2) The Options shall vest in six equal increments on June 30
and December 31 of each year, provided that the director is still
serving as a director of the Company or as chairman of the audit
committee, as applicable. To the extent that any Options which have
not been exercised do not vest, the Options shall lapse.
(c) All Options shall be exercisable for a period of 10 years from
the date of grant, except where a shorter period is required by the Code
for certain ISOs or where the board or committee selects a shorter period
at the time of any discretionary grant.
<PAGE>
EXHIBIT 10.6
LINE OF CREDIT AND SECURITY AGREEMENT
-------------------------------------
THIS LINE OF CREDIT AND SECURITY AGREEMENT (this "Agreement"), is made
this ___ day of January, 1999, by and between FIRST REPUBLIC BANK, a state
chartered Bank with an office at 1608 Walnut Street, Philadelphia, Pennsylvania
19103 ("Bank"), and COLLEGE DIRECTORY PUBLISHING, INC., a Delaware Corporation
("Borrower"), having its principal place of business at 1000 Conshohocken Road,
4th Floor, Conshohocken, PA 19428.
The Borrower has requested that the Bank extend to it a revolving line
of credit facility to be used for working capital in support of accounts
receivable. The Bank has agreed to extend such line of credit facility pursuant
to the terms and conditions of this Agreement.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, and intending to be legally bound
hereby, Bank and Borrower hereby agree as follows:
ARTICLE 1
DEFINITIONS
-----------
1.1 Definitions. For purposes of this Agreement, the following terms
-----------
shall have the following meanings:
Advances. The meaning given to such term in Section 2.1(a)
--------
hereof.
Agreement. This Line of Credit and Security Agreement and all
---------
amendments, modifications and supplements hereto and restatements hereof.
Bank. First Republic Bank, a state chartered bank, or any
----
successor bank.
Bankruptcy Code. Title 11 of the United States Code and all
---------------
similar or successor statutes, and all rules and regulations of Federal agencies
and authorities promulgated under those statutes, all as they have been amended
from time to time.
Borrowing Base. At any time, an amount equal to (i) seventy
--------------
percent (70%) of all Eligible Accounts Receivable aged less than or equal to
ninety (90) days beyond their date of shipment, (ii) forty percent (40%) of all
Eligible Accounts Receivable aged from ninety-one (91) days to one hundred
eighty (180) days from the shipped date, and (iii) forty percent (40%) of Gross
Bookings during the months of January through July of each year.
Borrowing Date. Each date upon which the Bank makes an Advance
--------------
to the Borrower.
Business Day. A day other than a Saturday, Sunday or Holiday on
------------
which the Bank is open for the transaction of banking business.
<PAGE>
Code. The Internal Revenue Code of 1986, as amended.
----
Collateral. The meaning given to such term in Section 3.1
----------
hereof.
Commitment Letter. The Revised Commitment Letter relating to the
-----------------
Line of Credit issued by the Bank to the Borrower dated January 20, 1999.
Control. The possession, directly or indirectly, of the power to
-------
direct or cause the direction of the management and policies of a Person,
whether through the ownership of voting securities, by contract or otherwise.
Debt. All items of indebtedness or liability (including the
----
Liabilities), all indebtedness secured by any pledge, lien or security interest
existing on property owned by Borrower and other contingent obligations of a
type described in this Agreement.
Debt Service. Interest only.
------------
Default. Any event specified in Section 8.1 of this Agreement,
-------
whether or not any requirement for notice or passage of time or any other
conditions has been satisfied.
Demand. A date which is ten (10) days after written notice to
------
Borrower by Bank that all Liabilities for an Advance are due and payable.
Eligible Accounts Receivable. Those accounts receivable that have
----------------------------
aged less than or equal to ninety (90) days beyond their date of shipment, which
shall be limited to a seventy percent (70%) advance; and those accounts
receivable aged from ninety-one (91) days to one hundred eighty (180) days from
the shipped date, which shall be limited to a forty percent (40%) advance.
ERISA. The Employee Retirement Income Security Act of 1974, as
-----
amended, together with the rules and regulations promulgated thereunder.
Event of Default. Any event specified in Section 8.1 of this
----------------
Agreement, provided that any requirement for notice, passage of time and any
other condition has been satisfied.
Eligible Gross Bookings. Those gross bookings for advertising
-----------------------
sold by Borrower, for use in its publications, made during the months of January
through July of each year.
Ineligible Accounts Receivable. Those accounts receivable which
------------------------------
have aged one hundred eighty one (181) days or more beyond their date of
shipment.
Ineligible Gross Bookings. Those Gross Bookings for advertising
-------------------------
during the months of August through December of each year.
-2-
<PAGE>
Liabilities. The obligations of the Borrower to the Bank:
-----------
(1) To pay the principal of and all interest on the Note in
accordance with the terms thereof, to pay all other amounts due by the Borrower
in accordance with the terms hereof, and to satisfy all of the Borrower's
liabilities to the Bank hereunder, whether now existing or hereafter incurred
pursuant to the Line of Credit Documents, matured or unmatured, direct or
contingent, primary or secondary, joint or several, including any extensions,
modifications, renewals thereof and substitutions therefor;
(2) To repay the Bank all amounts (other than those described in
subparagraph (a) above) advanced by the Bank hereunder or otherwise on behalf of
the Borrower in accordance with the terms of the Agreement, including, but
without limitation, advances for interest, payments to prior secured parties,
registration fees, or agency fees for any of the Collateral; and
(3) To reimburse the Bank, promptly upon Bank's submission of a
statement to Borrower, for all of the Bank's out-of-pocket expenses and costs,
including the actual fees and expenses of its counsel, in connection with the
preparation of and closing under this Agreement and each Debt incurred by
Borrower and the administration, amendment, modification, or enforcement of this
Agreement and the documents required hereunder, including, without limitation
any proceeding brought to enforce payment of any of the obligations referred to
in the foregoing paragraphs (a) and (b).
Line of Credit. The meaning provided in Section 2.1 hereof.
--------------
Line of Credit Documents. Individually and collectively, the
------------------------
Commitment Letter, this Agreement, the Note, the Financing Statements, Lockbox
Agreement, Suretyship Agreements, and all other existing and future agreements,
pledges, instruments, documents, assignments, leases, guarantees and contracts
(including amendments, modifications and supplements to and restatements of any
of the foregoing) delivered by or on behalf of the Borrower in connection with
this Agreement, all of which shall be in form and substance satisfactory to
Bank.
Loan Account. The account of the Borrower on the books of the
------------
Bank in which is recorded, inter alia, the Advances and the payments of
----- ----
principal and interest made by the Borrower to the Bank under the Line
of Credit.
Loan. That certain loan in the amount of $1,200,000.00 made by
----
Bank on the date hereof for use by Borrower which is secured by, inter alia, all
----------
accounts receivable, inventory and equipment of Borrower.
Note. The line of credit note executed by the Borrower in the
----
principal amount of the Line of Credit and evidencing the Borrower's obligation
to repay Advances.
Permitted Liens. The meaning provided in Section 7.2 hereof.
---------------
-3-
<PAGE>
Person. Any individual, corporation, partnership, association,
------
joint-stock company, trust, unincorporated organization, joint venture, court or
government or political subdivision or agency thereof.
Surety collectively refers to John S. Rafanello, an individual,
------
Michael S. Paul, an individual, Stephanie Paul, an individual and College
Directory Publishing Corporation, a Florida Corporation.
Suretyship. The Suretyship Agreement of even date herewith
----------
executed by the Surety in favor of the Bank with respect to the Line of Credit.
1.1 Undefined Terms; Accounting Terms. Unless expressly provided in
---------------------------------
this Agreement, or unless the context requires otherwise, terms used in this
Agreement without definition which are defined in the Pennsylvania Uniform
Commercial Code shall have the meanings assigned to them in the Pennsylvania
Uniform Commercial Code as amended from time to time.
ARTICLE 2
LINE OF CREDIT
--------------
2.1 Line of Credit Facility.
-----------------------
(4) Subject to, and in accordance with, the terms and conditions
of this Agreement, the Bank agrees to make a revolving line of credit facility
available to the Borrower in the aggregate outstanding amount not to exceed One
Million Two Hundred Thousand Dollars ($1,200,000.00) at any one time (the "Line
of Credit"). Bank shall make advances (the "Advances") to the Borrower upon
request at any time and from time to time, subject in all respects to the
approval of Bank which may be withheld in Bank's absolute and sole discretion,
made in good faith, during the period commencing on the date hereof and ending
on the earlier of (i) the occurrence of an Event of Default that continues
beyond the expiration of applicable notice and grace periods, or (ii) a demand
by the Bank for the repayment of all sums then outstanding under the Note
pursuant to the terms thereof. The proceeds of the Line of Credit shall be used
for the Borrower to provide funds for working capital in support of accounts
receivable and advertising bookings.
(5) The Borrower may request an Advance by written notice to the
Bank at least 3 days prior to the date on which the Borrower desires an Advance.
Borrower may request Advances no more than four times per month.
(6) The Borrower, subject to the terms and conditions of this
Agreement, may reborrow any amount repaid by the Borrower at any time and from
time to time on or before the Demand for payment of the Note.
-4-
<PAGE>
(7) Reference is hereby made to the Note for the interest
payable thereunder, the time and manner of payment of principal outstanding
thereunder and accrued interest thereon, and such other terms and conditions as
may be set forth therein.
(8) The principal outstanding under the Note shall be reduced to
$0.00 for thirty (30) consecutive days annually.
2.2 Confirmation of the Borrower's Liabilities. Each and every
------------------------------------------
statement of account transmitted by the Bank to the Borrower hereunder, whether
in person, or by ordinary mail or otherwise, shall be final, conclusive and
binding upon the Borrower in all respects as to all loans, fees, interest,
charges, payments, receipts, balances, Collateral and all other matters
reflected therein unless the Borrower, within twenty (20) Business Days after
the receipt thereof, shall give notice to the Bank in writing of all objections
to any such statement of account specifying those items considered by the
Borrower to be in dispute.
1.2 Repayment of Advances. At no time will the Bank advance funds
---------------------
against Ineligible Accounts Receivable or against Ineligible Gross Bookings. If
after an advance, the amount borrowed under this Line of Credit exceeds the
Borrowing Base, the Borrower must pay Bank all sums advanced by Bank under this
Line of Credit until the amount borrowed under this Line of Credit is less than
or equal to seventy (70%) percent of Eligible Accounts Receivable and is less
than or equal to forty percent (40%) Eligible Gross Bookings.
ARTICLE 3
SECURITY INTERESTS
------------------
3.1 Grant of Security Interest and Assignment of Accounts.
-----------------------------------------------------
(1) To secure the payment to the Bank of the Borrower's
Liabilities under the Note, to further secure the obligations of the Surety to
the Bank under the Line of Credit Loan, and to secure performance of all to its
obligations under this Agreement, the Borrower hereby grants to the Bank:
(1) A Security Agreement and U.C.C.-1 Financing Statements
constituting a first lien upon all accounts, receivables, accounts receivable,
goods, machinery, fixtures, equipment, inventory, furnishings, tools, parts,
supplies, work in process, finished products, leases of personal property,
bailments, conditional sales agreement, franchises, service marks, trademarks,
trade styles, trade names, trademark licences, copyrights, chooses in action,
computer programs, computer tapes and disks, general intangibles, Gross
Bookings, warehouse receipts chattel paper and all personal property, whether
now in existence or hereafter created including all proceeds thereof and any
replacements, additions, accessions or substitutions thereof belonging to
Borrower, filed with the Secretary of State of the Commonwealth of Pennsylvania,
the Prothonotary of Montgomery County, the State of Delaware and the
Prothonotary of New Castle county identifying Bank as a secured party. The
Borrower grants to the Bank a security interest in all of the Borrower's present
and future deposits, rents or other monies due from instruments, documents,
policies and certificates of
-5-
<PAGE>
insurance, title policies, securities, accounts receivable, Gross Bookings,
chooses in action, chattel paper, currency, property and the proceeds thereof,
owned by the Borrower or in which it has an interest, now or hereafter in the
possession or control of the Bank or in transit by mail or carrier to or from
the Bank or in the possession of any other person acting in the Bank's behalf,
without regard to whether the Bank received the same in pledge, for safekeeping,
as agent for collection or transmission or otherwise, or whether the Bank has
conditionally released the same. The property described in this paragraph shall
constitute part of the Collateral for all purposes under this Agreement; and
(1) Bank and the Borrower agree that the Collateral described in
this Section 3.1 shall be collectively defined as the "Collateral".
(2) The Bank shall have all of the rights available under the
Line of Credit Documents and the Pennsylvania Uniform Commercial Code and
hereunder with respect to the Collateral (except that the parties agree that
reasonable notice as required under the Pennsylvania Uniform Commercial Code
shall be at least ten (10) calendar days). This Agreement and the security
interests granted herein shall stand as general and continuing security for all
Liabilities and may be retained by the Bank until all Liabilities have been
satisfied in full; provided, however, that this Agreement shall not he rendered
void by the fact that no commitment by the Bank to make Advances to the Borrower
exists as of any particular date, but shall continue in full force and effect
until all Liabilities have been satisfied in full and upon such satisfaction
neither party hereto has any material obligation to the other under any of the
Line of Credit Documents.
(3) As additional security for the Liabilities, the Borrower
conveys, assigns and grants a security interest to the Bank in and to all
present and future files, books, ledgers, records, bills, invoices, receipts,
deeds, certificates or documents of ownership, warranties, bills of sale and all
other data and data storage systems and media pertaining to any of the
Collateral.
The pledge of the Collateral shall be under and subject only
to such liens and encumbrances as shall be acceptable to Bank.
1.3 Future Advances. Liabilities secured hereby include all future
---------------
Advances, including payments to cure defaults of Borrower or Surety, made by the
Bank at any time or times to or for the benefit of the Borrower in accordance
with the terms of this Agreement.
1.4 Perfection of Security Interest. The Borrower shall execute and
-------------------------------
deliver to the Bank concurrently with the execution of this Agreement, and at
any time or times hereafter at the request of the Bank, all assignments,
financing statements, renewal financing statements, affidavits, notices and all
other agreements, instruments and documents that the Bank may reasonably
request, in form satisfactory to the Bank, and shall take any and all other
steps reasonably requested by the Bank, in order to perfect and maintain the
security interests and liens granted herein by the Borrower to the Bank and in
order to fully consummate all of the transactions contemplated herein and under
this Agreement.
-6-
<PAGE>
1.5 Power of Attorney. The Borrower does hereby irrevocably make,
-----------------
constitute and appoint the Bank and any of its officers, employees or agents as
the true and lawful attorneys of the Borrower with power to:
(1) sign the name of the Borrower on any renewal financing
statement, notice or other similar document which in the Bank's reasonable
opinion must be filed in order to continue perfected the security interests
granted in this Agreement;
(1) upon the occurrence and during the continuance of an Event
of Default, receive, endorse, assign and deliver, in the name of the Borrower or
in the name of the Bank, all checks, notes, drafts and other instruments
relating to any Collateral including but not limited to receiving, opening and
properly disposing of all mail addressed to the Borrower concerning Accounts;
(2) upon the occurrence and during the continuance of an Event
of Default, take or bring at the Borrower's cost, in its name or in the name of
the Bank, all steps, actions and suits deemed by the Bank necessary to effect
collections of the accounts receivable, to settle, compromise, sell, assign,
discharge or release, in whole or in part, any amounts owing, to prosecute any
action or proceeding with respect to accounts receivable or moneys due, to
extend the time of payment of any and all accounts receivable, and to make
allowances and adjustments with respect thereto;
(3) upon the occurrence and during the continuance of an Event
of Default, secure credit in the ordinary course of Borrower's business in the
name of the Borrower or in the name of the Bank; and
(4) upon the occurrence and during the continuance of an Event
of Default, do all other things reasonably necessary to preserve the Collateral.
Neither the Bank nor any attorney will be liable for any act of commission or
omission nor for any error of judgment or mistake of fact or law (other than an
act of wilful misconduct by the Bank). This power, being coupled with an
interest, is irrevocable so long as any of the Liabilities remain unpaid.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES
------------------------------
To induce the Bank to enter into this Agreement, and to make the Line
of Credit available to Borrower, the Borrower represents and warrants to the
Bank that:
1.6 Organization, Qualification.
---------------------------
(1) Borrower is a corporation duly organized, validly existing
and in good standing under the laws of the Commonwealth of Pennsylvania.
-7-
<PAGE>
(1) Borrower is duly licensed or qualified as a foreign entity
and in good standing under the laws of each jurisdiction in which the nature of
the business transacted by it and the character of the property owned or leased
by it make such licensing or qualification necessary and where the failure to be
so licensed or qualified would have a material adverse effect on the business of
Borrower.
(2) Except as set forth on Schedule 4.2, Borrower does not have
any subsidiaries.
4.2 Affiliations; Fictitious Names.
------------------------------
(3) Borrower is not a member of any partnership or joint
venture.
(4) Borrower has never conducted business under or otherwise
used any fictitious names or trade names except as set forth on Schedule 4.2.
4.3 Authority; Authorization.
------------------------
(5) Borrower has the corporate power to execute, deliver and
perform the Line of Credit Documents to which it is a party, and to borrow under
this Agreement.
(6) Borrower has taken all necessary corporate action to
authorize the borrowing provided for in this Agreement and the execution,
delivery and performance of the Line of Credit Documents to which Borrower is a
party.
(7) No consent of any party and no consent, license, approval or
authorization of, or registration or declaration with, any governmental
authority, bureau or agency is required in connection with the execution,
delivery, performance, validity or enforceability of this Agreement or any Line
of Credit Documents to which Borrower is a party.
4.4 Enforceability.
--------------
(8) This Agreement has been duly and validly executed by
Borrower and constitutes a legal, valid and binding contract of Borrower,
enforceable in accordance with its terms, except as enforceability may be
limited by bankruptcy, insolvency or other similar laws of general application
relating to or affecting the enforcement of creditors' rights.
(9) All other Line of Credit Documents executed by Borrower are
legal, valid and binding obligations enforceable in accordance with their terms,
except as the enforcement of any of them may be limited by bankruptcy,
insolvency or other similar laws of general application relating to or affecting
the enforcement of creditors' rights.
4.5 Conflicts.
---------
(10) The execution, delivery and performance of the Line of
Credit Documents to which Borrower is a party will not conflict with, result in
a breach of, or constitute a default under any provision of:
-8-
<PAGE>
(0) any existing material law or regulation or order of any
court, governmental authority, bureau or agency having jurisdiction; or
(1) the Articles or Certificate of Incorporation or By-Laws
of Borrower; or
(2) any material agreement or instrument to which Borrower
is a party or which purports to be binding upon it or any of its assets.
(2) The execution, delivery and performance of the Line of
Credit Documents to which Borrower is a party will not result in the creation or
imposition of any lien on any of its assets pursuant to the provisions of any
material agreement or instrument to which Borrower is a party or which purports
to be binding upon it or any of its assets other than such liens as are created
by the Line of Credit Documents.
4.6 Litigation.
----------
(11) There is no litigation or governmental proceeding pending
or, to the knowledge of the Borrower, threatened which if determined adversely
would:
(1) have a material adverse effect on the financial
condition or business of Borrower; or
(1) prohibit, restrict or limit payment of the Note or
performance of this Agreement by Borrower.
(3) Borrower is not in default with regard to any order of any
court or governmental authority, and there has been no material adverse change
in the financial condition of Borrower which would cause it to be in default of
such order of court or governmental authority.
4.7 Compliance with Laws. The Borrower's business is, and will be
--------------------
kept, in compliance in all material respects with all laws, ordinances and other
governmental regulations; there is no outstanding notice of any material
uncorrected violation of any such law, ordinance or governmental regulation; the
Borrower has all permits, licenses, approvals and other authorizations from
federal, state and local authorities that are necessary and material for the
conduct of its business as now conducted or currently intended to be conducted
in the future and no claim is pending or, to the best of Borrower's knowledge,
threatened to revoke any of said permits, licenses, approvals and other
authorizations or to declare them invalid in any respect.
1.7 Taxes.
-----
(1) Borrower will file or cause to be filed (or will obtain
extensions to file) all tax returns (including, without limitation, those
relating to Federal and State income taxes) required to be filed and will pay
all taxes shown to be due and payable on those returns or on any assessments
made against it (other than those being contested in good faith by appropriate
-9-
<PAGE>
proceedings for which adequate reserves have been provided on its books). The
Borrower does not know of any proposed additional tax assessment against it not
adequately covered by reserves.
(1) The reserves and provisions for taxes on the books of
Borrower are adequate for all open years and for its current fiscal period, or
to if Borrower is a Subchapter S corporation, adequate funds are available for
the distribution to shareholders to provide for the payment of taxes.
(2) No tax liens have been filed against the assets of Borrower,
and to the best knowledge of Borrower no claims are being asserted with respect
to such taxes which, if adversely determined, would have a material adverse
effect upon the financial condition, business or operations of the Borrower.
4.8 Financial Condition. The balance sheets, profit and loss
-------------------
statements, and other financial statements of Borrower which have heretofore
been delivered to the Bank, and all financial statements of Borrower which will
hereafter be furnished to the Bank, are or will be (when furnished) true and
correct in all material respects and do or will (when furnished) present fairly,
accurately and completely, in all material respects, the financial position of
Borrower and the results of its operations as of the dates and for the periods
for which the same are furnished. All such financial statements of Borrower
have been and will be prepared in accordance with generally accepted accounting
principles and practices applied on a consistent basis. Except as disclosed on
Borrower's financial statements previously delivered to Bank, Borrower does not
possess and will not possess any "loss contingency" (as that term is defined in,
and required to be disclosed under, Financial Accounting Standards Board,
Statement of Financial Accounting Standards No. 5 - "FASB 51") which is not or
will not be accrued, reflected, or reserved against in its audited balance sheet
or disclosed in the footnotes to such audited balance sheet. There has been no
material adverse change in the business, properties, operations or condition
(financial or otherwise) of Borrower since the date of the financial statements
which were most recently furnished by the Borrower to the Bank. No event has
occurred which could reasonably be expected to have a material adverse effect on
the business operations of Borrower, except as disclosed in writing to the Bank
heretofore or concurrently herewith or therewith.
1.8 Accounts Receivable, Receivables, Accounts. Borrower represents
------------------------------------------
and warrants that it is now and at all times hereafter shall be the absolute
owner, free and clear of all liens, encumbrances and security interests, except
the liens and security interests granted or permitted herein, if any, and the
potential liens of any state government to enforce possible sales tax
liabilities, of indefeasible title to its accounts receivable, receivables, or
accounts.
4.9 Equipment and Inventory. Borrower represents and warrants that:
-----------------------
(1) it is now, and at all times hereafter shall be, the sole
owner, free and clear of all liens, encumbrances and security interests with
respect to its equipment; and
(2) except for depreciation and obsolescence, Borrower will keep
its properties and equipment necessary for the conduct of its business in good
repair.
-10-
<PAGE>
4.10 Collateral. Borrower represents and warrants that:
----------
(3) it is the owner of the Collateral and has the right to
pledge, sell, assign and transfer the same and grant a security interest
therein; no Collateral has been or will be pledged, sold, assigned or
transferred to, or in any way encumbered by, any person, firm or corporation,
Borrower will warrant and defend all Collateral against the claims and demands
of all persons, firms or corporations;
(4) all written representations made by the Borrower to the Bank
with reference to the description or content of any and all of the Collateral
are true and correct in all material respects; and any and all other
instruments, memoranda and documents presented or delivered to the Bank shall be
valid, genuine and, at the time of delivery to the Bank, not subject to any
known dispute or defense.
(5) as of the execution of this Agreement, and as of the date of
each Advance, no other financing agreements covering any of the Collateral are
in force and no claim of any security interest, lien or encumbrance in or on the
Collateral is known by Borrower to be on file in any public office.
(6) There is no known fact that the Borrower has not disclosed
to the Bank in writing that could materially adversely affect the accounts
receivable, receivables, accounts, business or financial condition of Borrower
or of the Collateral or the Line of Credit facility provided for in this
Agreement.
(7) This Agreement, upon the filing of financing statements in the
appropriate governmental offices, will create in favor of the Bank valid and
perfected security interests in the Collateral.
(8) The Collateral and all of the records, ledger sheets,
correspondence and invoice documents and instruments, relating to or evidencing
the Collateral shall be kept on the premises described in Section 9.15 of this
Agreement, such records to be kept in appropriate containers in safe places. The
Bank at all reasonable times, upon reasonable notice, shall have full access to
and the right to audit the Borrower's books and records.
4.11 Contingent Liabilities. There are no suretyship agreements,
----------------------
guarantees or other contingent liabilities of the Borrower that are not or will
not be disclosed in the financial statements described in Section 4.9, except
such liabilities as are created by the Line of Credit Documents. Under no
circumstances will Bank have any requirement to complete the college directory
books for which advertising contracts have been accepted.
1.9 Trademarks, Trade Names, Patents and Copyrights. All trademarks,
-----------------------------------------------
trade names, patents and copyrights owned by Borrower, as well as all
applications for any of the foregoing, are described in Schedule 4.14 attached
hereto and made a part hereof.
1.10 ERISA. No Reportable Event has occurred with respect to any Plan.
-----
Each Plan has been maintained, in all material respects, in accordance with its
terms and with all provisions of ERISA applicable thereto. The Borrower has not
incurred any liability to PBGC.
-11-
<PAGE>
1.11 Operations of the Borrower and Affiliates. All operations of the
-----------------------------------------
Borrower have been and shall be carried on in accordance with all applicable
material laws, statutes, ordinances, rules and regulations, including, but not
limited to, those relating to degradation of the environment. No investigation
by any governmental authority, federal, state or local, is pending or, to the
best knowledge of Borrower, threatened against Borrower.
1.12 Labor. Borrower is not involved in any strike, lockout, boycott
-----
or any other material labor trouble, similar or dissimilar. Borrower is not
involved in union negotiations.
1.13 COBRA Continuation Coverage. At all times that the Borrower is
---------------------------
required by law to do so, the Borrower provides COBRA Continuation coverage
under group health plans (if any) for separating employees in accordance with
the provisions of Section 162(k) of the Code.
1.14 Environmental Representations, Obligations and Covenants.
--------------------------------------------------------
(1) Borrower represents and warrants that to the best of its
knowledge, there is no activity at any real property leased or owned by Borrower
(collectively, the "Real Property") which is in violation of any federal, state
or local statutes, ordinances, regulations or orders respecting environmental
matters ("Environmental Statutes").
(2) Borrower shall cause all activities at the Real Property to
be conducted in compliance with all Environmental Statutes. Borrower shall cause
all permits, licenses or approvals to be obtained, and shall cause all
notifications to be made, as required by Environmental Statutes. Borrower shall
at all times cause compliance with the terms and conditions of any such
approvals or notifications.
(3) Borrower hereby agrees to indemnify and to hold harmless the
Bank, from and against any and all expenses, loss or liability suffered by the
Bank by reason of Borrower's breach of any of the provisions of this Section.
This indemnification shall survive payment of the Note and the termination of
the Line of Credit.
ARTICLE 5
CONDITIONS OF LENDING
---------------------
The obligation of the Bank to make any Advances is subject to the
compliance with the conditions contained in the Commitment Letter, the
performance by the Borrower of its obligations to be performed under this
Agreement before the date hereof and before the date of each of the Advances,
and the satisfaction of the following conditions:
5.1 Line of Credit Documents. The Borrower shall have executed and
------------------------
delivered or caused to be executed and delivered to the Bank all Line of Credit
Documents.
1.15 Representations, Warranties. The representations and warranties
---------------------------
contained in Article 5 of this Agreement shall be true in all material respects
at and as of the date
-12-
<PAGE>
hereof and as of the date of the making of any Advance with the same effect as
if made at and as of such time, except to the extent that the facts upon which
such representations and warranties are based may be changed in the ordinary
course by the transactions permitted or contemplated by this Agreement.
1.16 Defaults. There shall exist no Default or condition which, with
--------
the giving of notice or the passage of time or both, would result in an Event of
Default upon consummation of any Advance.
1.17 Certificates, Supporting Documents. The Bank shall have received
upon execution of this Agreement:
(1) copies, certified by the Secretary of Borrower, of the
resolutions of the Board of Directors of Borrower authorizing the execution,
delivery and performance of the Line of Credit Documents to which the Borrower
is a party and the borrowing under this Agreement;
(2) a certificate of the Secretary of Borrower as to the incumbency
and signatures of the officers of Borrower signing the Line of Credit Documents
to which it is a party;
(3) a certificate of the Secretary of State of the Commonwealth of
Pennsylvania as to the good standing of Borrower in such Commonwealth and
certificates of the Secretaries of State of each other jurisdiction in which
Borrower is qualified to do business as to the good standing of Borrower in each
such jurisdiction;
(4) evidence, satisfactory to the Bank, that there has been no
material adverse change in the financial condition of Borrower since the date
hereof and the date of each Advance.
1.18 Collateral Security Documents. The Borrower shall have delivered
-----------------------------
or shall have caused to be delivered to the Bank such collateral security
documents as shall be required by the Bank and provided for in this Agreement.
Financing Statements describing the Collateral shall have been filed or readied
for filing in each jurisdiction and in each office as shall have been required
by the Bank.
1.19 Insurance. The Borrower shall have provided the Bank with
---------
certificates of insurance evidencing the Borrower's compliance with the
requirements of Section 6.5 hereof.
1.20 Officers' and Shareholders' Debt; Subordination Agreement. The
---------------------------------------------------------
Bank, the Borrower and such officers and/or shareholders shall have entered into
a subordination agreement with respect to its debt in form and substance
satisfactory to Bank.
ARTICLE 6
AFFIRMATIVE COVENANTS
---------------------
-13-
<PAGE>
6.1 Financial Information.
---------------------
(1) The Borrower and each Affiliate will furnish to the Bank the
financial information described below:
(1) copies of all annual federal tax returns of the
Borrower and Surety within fifteen (15) days after filing thereof.
(2) upon request by Bank on a review basis, and annually on
an audited basis, Borrower shall provide Bank with a current Financial
Statement.
(3) upon request by Bank and in any event at least
annually, Borrower shall provide Bank with current Financial Statements of
Surety on Bank's form of financial statement.
(4) copies of all notices or reports, if any furnished to
the Borrower or Surety by its independent certified public accountant in
connection with each fiscal year review of the books of Borrower or Surety made
by such accountant.
(5) such other information regarding the business,
operations and finances of Borrower and/or Surety as Bank may reasonably from
time to time request, including, but not limited to, information required in
reports to governmental agencies having jurisdiction over Borrower's or Surety's
operations or business affairs;
(6) immediate notice of any material adverse change in the
finances of Borrower and/or Surety or of any development which might cause a
material adverse change in the finances of Borrower and/or any Surety.
(7) accounts receivable audits prepared in the month of
November of each year by an independent accounting firm acceptable to Bank, at
Borrower's cost.
(8) Gross Booking audits prepared each February, March,
April, May, June, July and August of each year by an independent accounting firm
acceptable to Bank, at Borrower's cost.
6.2 Liabilities. Borrower and Affiliate will pay and discharge, at
-----------
or before their maturity, all of its obligations and liabilities (including,
without limitation, tax liabilities), except those which may be contested in
good faith, and maintain in accordance with generally accepted accounting
principles and practices adequate reserves for any of the same.
1.21 Notice of Default, Labor, Troubles, Litigation. The Borrower and
----------------------------------------------
Surety will promptly give notice in writing to the Bank of the occurrence of any
Event of Default or Default under this Agreement known by Borrower or Surety, or
of any event of default under any instrument or other agreement of Borrower or
Surety, known by Borrower or Surety, or of the occurrence of any strike, lock-
out, boycott or any other labor dispute affecting Borrower or Surety, and any
dispute between Borrower or Surety, or any other party, if such litigation,
-14-
<PAGE>
proceeding or dispute might substantially and adversely interfere with the
normal business operations of Borrower or Surety, or, if resolved other than in
the favor of Borrower or Surety, such litigation, proceeding or dispute would
have a material adverse effect on Borrower's or Surety's financial condition.
1.22 Corporate Existence, Properties. Borrower will maintain, (a) its
-------------------------------
corporate existence or limited partnership existence, as the case may be, its
qualification to do business and its good standing in each jurisdiction in which
qualification is necessary and material for the proper conduct of its business,
and (b) all material licenses, permits and other authorizations necessary for
the ownership and operation of its business.
1.23 Insurance. Borrower will maintain, with respect to all its
---------
properties, assets and businesses, insurance with financially sound and
reputable insurers against loss or damage of the kinds customarily insured
against by corporations or other business entities of established reputation
engaged in the same or similar business and similarly constituted, in such types
and amounts as are customarily carried under similar circumstances by such other
corporations or other business entities, including fire and extended coverage
insurance on all insurable assets which will contain standard loss payee clauses
in favor of the Bank, will be in an amount not less than 100% of the Replacement
value of such assets, and will provide for thirty (30) days' notice of
cancellation to the Bank.
1.24 Policies; Proceeds. The Borrower shall deliver to the Bank on
------------------
demand certificates evidencing coverage of the risks set forth in Section 6.5
above, with loss payable clauses in a form satisfactory to the Bank naming the
Bank and Borrower as their interests may appear as loss payee with respect to
casualty insurance covering the Collateral and naming Bank as an additional
insured on such other insurance as Bank shall reasonably request. All proceeds
payable under any of said casualty policies shall be payable in all events to
the Bank, but at the request of the Borrower any such proceeds may at Bank's
absolute and sole discretion be released to the Borrower for repair or
replacement of the damaged property provided there are no Events of Default in
existence at the time such request is made. The Borrower hereby grants to the
Bank a continuing security interest in and to all said policies and the proceeds
thereof subject to the foregoing to secure the repayment of the Liabilities and
agrees that the Bank shall have the right, upon the occurrence and during the
continuance of an Event of Default and subject to the foregoing in the name of
the Borrower or in the name of the Bank, to file claims under any insurance
policies, to receive, receipt and give acquittance for any payments that may be
made thereunder, and to execute any and all endorsements, receipts, releases,
assignments, reassignments or other documents that may be necessary to effect
the collection, compromise or settlement of any such claims under any such
insurance policies.
1.25 Books, Records, Audits.
----------------------
(1) Borrower will maintain accurate and complete records and
books of account with respect to all its operations in accordance with generally
accepted accounting principles consistently applied.
(2) Borrower will permit at all reasonable times upon reasonable
prior notice officers and representatives of the Bank to examine and make copies
from its books and
-15-
<PAGE>
records, to discuss the affairs, finances and accounts of the Borrower with its
officers and public accountants, and to visit and inspect its real and personal
property.
(3) Borrower to submit to Bank monthly, no later than the 10th
day of each month, a Borrowing Base Certificate for the prior month, certified
as true and correct by the Chief Financial Officer of Borrower, in such form and
content as the Bank shall require. A true and correct copy of a form of
Borrowing Base Certificate is attached hereto as Exhibit "A".
1.26 Taxes, Etc. Borrower will pay when due all taxes, assessments and
----------
charges imposed upon it or its property or that it is required to withhold and
pay over, except where contested in good faith and where adequate reserves have
been set aside. Upon the Bank's request, the Borrower shall furnish the Bank
with proof satisfactory to the Bank of the making of the payment or deposit of
all Federal, state and local withholding taxes required of the Borrower by
applicable law.
1.27 Compliance with Laws. Borrower will comply in all respects with
--------------------
all laws and regulations applicable to it in the operation of its business.
1.28 Financial Condition. The Borrower will immediately give the Bank
-------------------
written notice of any material adverse change in its financial condition,
operations or collateral from the date of each Advance.
1.29 Use of Proceeds. The proceeds of the Line of Credit shall be used
---------------
for those purposes set forth in Section 2.1.
1.30 Demand Deposit Accounts. Borrower shall maintain its demand
-----------------------
deposit accounts with the Bank and not with any other financial institution.
ARTICLE 7
NEGATIVE COVENANTS
------------------
On or after the date of this Agreement and so long as any sums remain
outstanding under the Note, or so long as the credit availability evidenced
thereby remains in effect, whichever is longer, the Borrower will observe the
following covenants unless the Bank shall otherwise consent in writing:
7.1 Debt. The borrower will not create, incur, assume, guarantee or
----
in any manner become or remain liable with regard to any Debt, except the Line
of Credit or other Debt to the Bank. All existing and future notes payable to
officers, stockholders or related entities are subordinated to the Line of
Credit Documents pursuant to a Subordination Agreement in form and substance
satisfactory to Bank.
7.2 Liens. The Borrower will not create, incur, assume or suffer to
-----
exist any lien upon any of its existing or future tangible or intangible, real,
personal or mixed property.
-16-
<PAGE>
1.31 Change in Business; Mergers, Consolidations. Borrower will not
-------------------------------------------
make any substantial change in the general nature of the business of Borrower,
or merge or consolidate with any other entity. Borrower has advised Lender that
College Directory Publishing Corp., a Florida Corporation, will be merged into a
newly formed Delaware Corporation to be known as Ulink, Inc., c/o Corporation
Service Company, registered agent for Ulink, Inc. with its address at 1013
Centre Road, Wilmington, Delaware 19805. A copy of the Draft Articles of
Incorporation is attached as Exhibit "B". In the event that Ulink, Inc. has not
been incorporated as of the date hereof, Borrower and Sureties agree that they
will immediately, upon formation of Ulink, Inc., cause Ulink, Inc. to execute
and deliver to Bank a Suretyship Agreement in the form attached hereto and
provide the filed Articles of Incorporation. Failure by Borrower and/or Sureties
to provide the Bank with an executed Suretyship Agreement and Articles of
Incorporation from Ulink, Inc. within 5 days from the date that Ulink, Inc. is
formed, shall constitute an Event of Default under this Agreement.
1.32 Disposition of Assets. Borrower will not liquidate or dissolve
---------------------
itself (or suffer any liquidation or dissolution), or convey, sell, lease,
pledge, or otherwise transfer or dispose of all or any substantial part of its
property, without payment in full of each Advance made for such properties.
ARTICLE 8
EVENTS OF DEFAULT, REMEDIES
---------------------------
1.33 Events of Default. Each of the following shall constitute an
-----------------
Event of Default:
(1) Payment. Failure by the Borrower to pay any sums due under
-------
the Note or any other instrument or obligation of Borrower to the Bank when such
sums are due.
(1) Representations, Warranties. Any representation or warranty
---------------------------
made by the Borrower in any of the Line of Credit Documents shall prove to be
false or misleading in any material respect as of the date when made.
(2) Covenants. Failure by the Borrower to observe or perform any
---------
covenants, conditions or provisions contained in the Line of Credit Documents
(other than as described in paragraph (a)) within thirty (30) days after receipt
of written notice from the Bank to the Borrower of such failure; provided,
however, that if such default cannot be cured within the aforesaid thirty (30)
day period and Borrower has commenced to cure the same and is diligently
pursuing such cure, Borrower shall have a reasonable period of additional time
within which to effect such cure, but in no event more than an additional thirty
(30) days.
(3) Other Obligations. Borrower defaults in:
-----------------
(1) any payment of principal of, or interest on, any
obligations for borrowed money (other than under the Note or any other
obligation payable to the Bank), beyond any grace period provided with regard to
such payment,
-17-
<PAGE>
(1) the performance of any other agreement, term or
condition contained in any such obligation or in any agreement relating to such
obligation beyond any grace period provided for therein, or
(2) the performance of any lease of other contract
material to the Borrower's business beyond any grace period provided for
therein, if the effect of such default is to cause the holder or holders of such
obligation or the other party to such lease or contract (or trustee on behalf of
such holder or holders or parties) to then cause all or any substantial part of
such obligation to become due or such lease or contract to be terminated prior
to its stated maturity and such result would have a material adverse effect on
Borrower.
(2) Voluntary Bankruptcy. Filing by Borrower or Surety of a
--------------------
voluntary petition in bankruptcy or a voluntary petition or any answer seeking
reorganization, arrangement, readjustment of its or their debts or for any other
relief under the Bankruptcy Code, or under any other existing or future federal
or state insolvency act or law, or any formal written consent to, approval of,
or acquiescence in, any such petition or proceeding by Borrower or the Surety,
the application by Borrower or the Surety for, or the appointment by consent or
acquiescence of, a receiver or trustee of, Borrower or the Surety or for all or
a substantial part of its or their property, or the making by Borrower or the
Surety of an assignment for the benefit of creditors.
(4) Involuntary Bankruptcy. Filing of any involuntary petition
----------------------
against Borrower or the Surety in bankruptcy or seeking reorganization,
arrangement or readjustment of its or their debts or for any other relief under
the Bankruptcy Code, or under any other existing or future federal or state
insolvency act or law; or the involuntary appointment of a receiver or trustee
of Borrower or the Surety, or for all or a substantial part of the property of
Borrower or the Surety; and the continuance of any of such events for a period
of sixty (60) days undismissed, unbounded or undischarged.
(5) Other Indebtedness to Bank. The occurrence of a default
under the terms of any other credit facility from Bank to Borrower or Surety,
including the Mortgage and Security Agreement, that continues beyond the
expiration of applicable notice and grace periods.
8.3 Acceleration and Termination of Commitment.
------------------------------------------
(1) upon the occurrence and during the continuance of an Event
of Default specified in paragraphs (a) through (d), or (g) of Section 8.1 of
this Agreement, the Bank may:
(1) terminate immediately and irrevocably the unused
portions of the credit availability evidenced by the Note;
(2) declare the unpaid principal balance of, all accrued,
unpaid interest on, and all other sums payable with regard to, the Note and all
other Liabilities from the Borrower to the Bank to be immediately due and
payable whereupon the Note, all such accrued interest and all such Liabilities
shall become and be forthwith due and payable, without presentment, demand,
protest or further notice of any kind, all of which are hereby expressly
-18-
<PAGE>
waived by the Borrower and to exercise all rights to collect and foreclose upon
the Collateral including the notification of any third party owing money to
Borrower under a pledged Account to make direct payments to Bank; and
(3) pursue all other remedies of the Bank provided for in
the Line of Credit Documents as well as those available at law and in equity.
(2) upon the occurrence and during the continuance of an Event of
Default specified in paragraphs (e) or (f) of Section 8.1 of this Agreement, the
unused portions of the credit availability evidenced by the Note shall
automatically and immediately terminate and the unpaid principal balance of, all
accrued, unpaid interest on, and all other sums payable with regard to, the Note
and all other instruments of obligation of the Borrower to the Bank shall
automatically and immediately become due and payable, in all cases without any
action on the part of the Bank.
(6) Upon the occurrence and during the continuance of an Event
of Default hereunder, the rate of interest payable under the Note shall be
increased to the Default Rate (as defined in the Note). Interest at the Default
Rate, shall continue to accrue and continue to be paid even after default,
maturity, acceleration, recovery of judgment, bankruptcy or insolvency
proceeding of any kind until such monetary default has been cured.
1.34 Right of Set-Off. Upon the occurrence and during the continuance
----------------
of an Event of Default, the Bank shall have the right, in addition to all other
rights and remedies available to it, to set-off against the unpaid balance of
the Note, any debt owing to Borrower by the Bank and any funds in any deposit
account maintained by Borrower with the Bank.
1.35 Marshaling.
----------
(1) If an Event of Default shall have occurred and be
continuing, the Bank shall not be required to marshal any present or future
security for, or guarantees of, the Liabilities or to resort to any such
security or guarantees in any particular order.
(1) Borrower waives, to the fullest extent it lawfully can, any
right it might have to require the Bank to pursue any particular remedy before
proceeding against it, and any right to the benefit of, or to direct the
application of the proceeds of, any Collateral until the Note and all other
Liabilities have been paid in full.
8.4 Cumulative Remedies. The rights and remedies provided in the
-------------------
Line of Credit Documents are cumulative and not exclusive of any rights or
remedies provided by law or in equity.
ARTICLE 9
MISCELLANEOUS
-------------
9.1 Waivers.
-------
-19-
<PAGE>
(2) No failure or delay on the part of the Bank in exercising
any right, power or privilege under the Line of Credit Documents shall operate
as a waiver of any right, power or privilege, except as and to the extent that
the assertion of such right, power or privilege shall be barred by an applicable
statute of limitations.
(3) No single or partial exercise of, or abandonment or
discontinuance of steps to enforce, any right, power or privilege under the Line
of Credit Documents shall preclude any other or further exercise of such right,
power or privilege, or the exercise of any other right, power or privilege.
(4) BORROWER HEREBY EXPRESSLY WAIVES THE RIGHT TO TRIAL BY JURY
IN ANY ACTION OR PROCEEDING OF ANY KIND WHETHER ARISING OUT OF, UNDER OR BY
REASON OF THE LINE OF CREDIT DOCUMENTS OR ANY ASSIGNMENT OR TRANSACTION
THEREUNDER. BORROWER UNDERSTANDS THAT THE BANK IS RELYING ON THIS WAIVER IN
MAKING THE LINE OF CREDIT AVAILABLE TO BORROWER.
9.2 Notices. All notices, requests and demands to or upon the
-------
parties shall be deemed to have been given or made on the day of personal
service or on the day they are deposited in the mails, postage prepaid,
registered mail, return receipt requested, or, in the case of telefaxed notice,
when confirmation of transmission is received by the transmitting party,
addressed to the parties at the addresses set forth below or to such other
address as may be hereafter designated in writing in accordance herewith:
The Borrower:
College Directory Publishing, Inc.
1000 Conshohocken Road, 4th Floor
Conshohocken, PA 19428
Attention: John S. Rafanello, COO
With a copy to:
Frank and Rosen
11 Penn Center
1835 Market Street, Suite 320
Philadelphia, PA 19103
Attention: Alan L. Frank, Esquire
The Bank:
First Republic Bank
1608 Walnut Street
Philadelphia, PA 19103
Attention: Mark Kane, Vice President
-20-
<PAGE>
With a copy to:
Spector Gadon & Rosen, P.C.
Seven Penn Center, 7th Floor
1635 Market Street
Philadelphia, PA 19103
Attention: David M. Giles, Esquire
1.36 Legal Costs; Filing Costs. If at any time or times hereafter the
-------------------------
Bank employs outside counsel to prepare or consider approvals, waivers or
consents, or to intervene, file a petition, answer, motion or other pleading in
any suit or proceeding relating to this Agreement or relating to any Collateral
or to protect, take possession of, or liquidate any Collateral, or to attempt to
enforce any mortgage and security agreement, security interest or lien in any
Collateral or against any other person, firm or corporation which may be
obligated to the Bank by virtue of the Line of Credit Documents, then in any
such events, all of the reasonable attorneys fees arising from such services,
and any out-of-pocket expenses, costs and charges relating thereto, shall become
a part of the Borrower's Liabilities secured by the Collateral, payable on
demand. The Borrower further agrees to reimburse the Bank for its out-of-pocket
expenses, including, but not limited to, reasonable attorneys' fees and other
costs of preparation and filing of the Line of Credit Documents and other
documents as required by law or deemed necessary by the Bank, including, but not
limited to, the cost of all lien searches deemed necessary by the Bank. Such
costs and expenses shall be paid simultaneously with the execution of this
Agreement and all such expenses hereafter incurred shall be paid within ten (10)
days after notice by the Bank.
1.37 Right of Entry. Upon the occurrence and during the continuance of
--------------
an Event of Default, the Bank shall have the right to enter and remain upon the
premises of the Borrower without cost or charge to the Bank, and to use the
same, together with materials, supplies, books and records of the Borrower, for
the purpose of liquidating or collecting the Collateral, or for the purpose of
preparing for and conducting the sale of Collateral, whether by foreclosure,
auction or otherwise.
1.38 No Waiver. The Bank's failure at any time or times hereafter to
---------
require strict performance by the Borrower of any of the provisions, warranties,
terms and conditions contained in this Agreement shall not waive, affect or
diminish any right of the Bank at any time or times hereafter to demand strict
performance therewith and with respect to any other provisions, warranties,
terms and conditions contained in this Agreement and any waiver of any Event of
Default shall not waive or affect any other Event of Default, whether prior or
subsequent thereto, and whether of the same or a different type. None of the
warranties, conditions, provisions and terms contained in this Agreement shall
be deemed to have been waived by any act or knowledge of the Bank, its agents,
officers or employees except by an instrument in writing signed by an officer of
the Bank and directed to the Borrower specifying such waiver.
1.39 Application of Proceeds.
-----------------------
-21-
<PAGE>
(1) On and after the date, which is ten (10) days after written
demand to Borrower for payment, the Borrower irrevocably waives the right to
direct the application of all subsequent payments (including proceeds of
Collateral) which the Bank receives from or for the benefit of the Borrower.
(1) The proceeds of any sale or other disposition of any Collateral
shall be applied by the Bank in the following order:
(1) first, to the payment of all costs and expenses due under
the Line of Credit Documents, including without limitation all costs and
expenses of collecting the Borrower's Liabilities and reasonable attorneys,
fees;
(1) second, to the payment in full of all accrued unpaid
interest on the Borrower's Liabilities;
(2) third, to the payment in full of the principal balance of
the Borrower's Liabilities;
(3) fourth, to the payment in full of the balance of the Loan,
if the same has also been accelerated by Bank;
(4) fifth, to the Borrower to the extent of any surplus.
(2) The Borrower shall remain liable to the Bank for any deficiency
in payment of the Borrower's Liabilities after application of the proceeds in
accordance with paragraph (b).
1.40 Conditions of an Advance.
------------------------
(1) Before Bank shall make any Advance under this Agreement,
Borrower shall provide all of the documents and information required under this
Agreement as well as the documents and information set forth below to the Bank,
all which must be satisfactory to Bank in its absolute and sole discretion of
Bank made in good faith;
(1) Articles of Incorporation of Borrower.
(2) Any and all Contracts between Borrower and Surety.
(3) Current Financial Statements and Tax Returns of Borrower
and Surety.
(2) Bank has the right to decline any request for an Advance under
the Line of Credit at its absolute and sole discretion. Bank shall have no
obligation to allow an
-22-
<PAGE>
Advance under the Line of Credit if such advance or the purpose of such advance
does not meet its underwriting criteria in existence at the time the Advance is
requested.
(3) Prior to Bank making any Advance under this Agreement, Borrower
must have satisfied all of the conditions set forth below:
(1) All credit reports and property searches are favorable
according to Bank at Bank's absolute and sole discretion.
(2) Documentation prepared by legal counsel approved by Bank
must have been executed and paid for by Borrower, Affiliate(s) and any sureties
or guarantors.
1.41 Commitment Fees.
---------------
(1) Borrower shall pay to Bank an annual commitment fee on the
anniversary date of this Agreement of the higher of one half of one percent
(1/2%) of the commitment amount or $250.00 for the use of the Line of Credit.
(2) Upon the execution of this Agreement, Borrower shall pay Bank a
non-refundable commitment fee of Eighteen Thousand Dollars ($18,000.00) and a
recording fee of $225.00.
1.42 Survival.
--------
(1) All representations, warranties, covenants and agreements made
in the Line of Credit Documents shall survive the execution and delivery of
this Agreement, the making of the Advances under this Agreement and the
issuance of the Note until they lapse by their terms or, if later, the
repayment by Borrower to Bank of all Liabilities and the termination of
Borrower's ability to receive Advances.
(2) The provisions of Section 9.5 of this Agreement shall survive
payment of the Note and all other Liabilities of the Borrower to the Bank and
the termination of Borrower's ability to receive Advances.
9.3 Successors. This Agreement shall be binding upon and inure to
----------
the benefit of the Borrower, the Bank and their respective successors and
assigns, except that the Borrower may not assign or transfer its rights under
this Agreement without the prior written consent of the Bank.
1.43 Governing Law. The Line of Credit Documents, and the rights and
-------------
obligations of the parties under the Line of Credit Documents, shall be governed
by, and construed and interpreted in accordance with, the domestic, internal
laws, but not the law of conflict of laws, of the Commonwealth of Pennsylvania.
-23-
<PAGE>
1.44 Headings. The section, subsection, paragraph and other headings in
--------
this Agreement are for reference purposes only and shall not control or affect
the construction or interpretation of this Agreement in any respect.
1.45 Severability. The parties intend the provisions of this Agreement to
------------
be severable. If any provision of this Agreement is held to be invalid or
unenforceable in whole or in part in any jurisdiction, such provision, as to
such jurisdiction, shall be ineffective to the extent of such invalidity or
unenforceability without in any manner affecting the validity or enforceability
of that provision in any other jurisdiction, or the remaining provisions of this
Agreement in any jurisdiction.
1.46 Entire Agreement. This Agreement and the Line of Credit Documents
----------------
represent the entire agreement and understanding of the parties, and may not be
amended subsequently by oral statements of, or courses of dealing between, the
parties.
1.47 Location of Business; Records. The Borrower maintains its only places
-----------------------------
of business and all of its records and assets at the following locations:
1000 Conshohocken Road
Conshohocken, PA 19428
The Borrower will notify the Bank in advance of any change in the location of
any business of Borrower, including any change in the location of records and
equipment, whether by reason of the establishment of a new place of business or
the discontinuance of a present place of business.
9.4 Conflicting Provisions. In the event of any direct conflict
----------------------
between the provisions of this Agreement and the provisions of other Line of
Credit Documents, the provisions of this Agreement shall control.
1.48 Submission to Jurisdiction. The Borrower hereby irrevocably and
--------------------------
unconditionally waives any right to claim immunity in respect of itself or any
of its property or assets, including immunity from jurisdiction, immunity from
attachment prior to entry of judgment, immunity from attachment in aid of
execution of judgment, in any suit, action or proceeding arising out of or
relating to this Agreement. In addition, the Borrower and the Bank agree that
any suit, action or proceeding may be instituted in the Courts of Common Pleas
of Montgomery or Philadelphia County, Pennsylvania or in the United States
District Court of the Eastern District of Pennsylvania, and irrevocably and
unconditionally submit to the jurisdiction of any such court for such purpose.
1.49 Definitions; Number and Gender. For purposes of this Agreement, the
------------------------------
singular shall be deemed to include the plural and the neuter shall be deemed to
include the masculine and feminine, as the context may require.
1.50 Time of the Essence. All dates and times for the performance of the
-------------------
Borrower's obligations set forth herein shall be deemed to be of the essence of
this Agreement.
-24-
<PAGE>
1.51 Schedules. The Schedules attached hereto are hereby incorporated by
---------
reference into, and made a part of, this Agreement. The disclosures contained
in any one Schedule if, by its description, is applicable to other sections of
this Agreement, will also be deemed to have been made with respect to such other
sections even if such disclosures are not repeated in any other Schedules.
-25-
<PAGE>
IN WITNESS WHEREOF, the parties hereto, intending to be legally bound
hereby, have caused this Agreement to be duly executed by their respective
authorized officers the day and year first above written.
BORROWER: COLLEGE DIRECTORY PUBLISHING, INC.
a Delaware Corporation
/s/ John S. Rafanello
BY: _______________________________________
John S. Rafanello, President
/s/ Michael S. Paul
ATTEST: ____________________________________
Michael S. Paul, Vice President
BANK: FIRST REPUBLIC BANK
BY: /s/ Mark A. Kane
_______________________________________
Mark A. Kane, Vice-President
-26-
<PAGE>
SCHEDULE 4.2
Subsidiaries; Affiliations; Fictitious and Trade Names
------------------------------------------------------
None
<PAGE>
SCHEDULE 4.5
Conflicts
---------
None
<PAGE>
SCHEDULE 4.14
Trademarks, Trade Names, Patents and Copyrights
-----------------------------------------------
None
<PAGE>
SCHEDULE 7.1
Other Existing Debt
-------------------
None
-30-
<PAGE>
Exhibit 10.7
TERMINATION AGREEMENT
This Termination Agreement (this "Agreement") is made effective June 1,
1999 (the "Effective Date") by and between collegestudent.com, Inc., a Texas
business corporation ("CSC") and College Directory Publishing, Inc., a Delaware
corporation ("CDP").
Whereas, CSC and CDP have heretofore entered into agreements for the
purpose of developing, marketing and selling into Internet sites directed at the
college and university community and agreed upon certain rights and obligations
with regard thereto;
Whereas, CSC and CDP have agreed to terminate their relationship, with the
exception only of certain financial obligations which have accrued up to the
Effective Date; and
Whereas, the parties wish to set out in writing their agreement with regard
to terminating their relationship;
Now, Therefore, for good and valuable consideration, the parties agree as
follows:
1. Prior Agreements Canceled. Except as specifically provided herein, all
-------------------------
obligations of the parties with respect to development and marketing of
worldwide web or Internet sites and sales of advertising in such media are
hereby terminated as of the Effective Date. The parties specifically agree that,
except as provided in Section 2 below, their written agreements dated on or
about August 12, 1998, as amended (the "1998 Agreement") and July 1, 1998 and
all other agreements are canceled in their entirety.
2. Continuing Obligations. The parties acknowledge that certain financial
----------------------
obligations relating to the marketing expenses and the allocation of revenue set
forth in detail in Sections 7 and 8 of the 1998 Agreement are due and owing
between the parties. Such financial obligations, to the extent accrued and
unpaid as of the Effective Date, shall continue in force until paid. The
parties agree that on or before June 30, 1999, they will discuss and reach
agreement such financial obligations between the parties as of the Effective
Date and will pay to the respective parties any amounts so owing.
3. Mutual Releases. The parties agree to the following releases of
---------------
claims.
(a) CSC hereby releases and discharges CDP and its principals,
shareholders, directors and officers, individually and as stockholders,
agents, representatives, employees and affiliated entities of and from any
and all claims, causes of action, suits, debts, contracts, agreements,
promises, liabilities, demands, damages and other expense of any nature
whatsoever at law or equity, known or unknown, fixed or contingent,
contemplated or uncontemplated, whether asserted or assertable, arising out
of any manner whatsoever which has occurred up through and including the
date hereof; provided, however, that the foregoing provision does not and
should not be construed so as to alter, amend or negate the enforceability
of this Agreement or the right to sue for damages for breach of any of the
provisions hereunder.
<PAGE>
(b) CDP hereby releases and discharges CSC its principals,
shareholders, directors and officers, individually and as stockholders,
agents, representatives, employees and affiliated entities of and from any
and all claims, causes of action, suits, debts, contracts, agreements,
promises, liabilities, demands, damages and other expense of any nature
whatsoever at law or equity, known or unknown, fixed or contingent,
contemplated or uncontemplated, whether asserted or assertable, arising out
of any manner whatsoever which has occurred up through and including the
date hereof; provided, however, that the foregoing provision does not and
should not be construed so as to alter, amend or negate the enforceability
of this Agreement or the right to sue for damages for breach of any of the
provisions hereunder.
4. General Provisions.
------------------
(a) Reasonable Costs. In the event of any controversy concerning or
----------------
related to this Agreement or the performance of this Agreement, the
prevailing party shall be entitled to recover its reasonable expenses
(including reasonable attorneys' fees) incurred in resolving such
controversy, in addition to any other relief that may be available.
(b) Dispute Resolution. Any controversy, dispute or claim arising out
------------------
of or relating to this Agreement or its interpretation, application,
implementation, breach or enforcement which the parties are unable to
resolve by mutual agreement shall be settled by submission by either party
of the controversy, claim or dispute to binding arbitration before three
arbitrators in accordance with the rules of the American Arbitration
Association then in effect. In any such arbitration proceeding, the parties
agree to provide all discovery deemed necessary by the arbitrators. The
decision and award made by the arbitrators shall be final, binding and
conclusive on all parties hereto for all purposes, and judgment may be
entered therein in any court having jurisdiction thereof. All such
arbitration shall take place in Atlanta, Georgia and the prevailing parties
shall be awarded reasonable attorney's fees. Both parties agree to expedite
any such arbitration proceedings.
(c) Severability. If any provision of this Agreement is held invalid,
------------
void or unenforceable under any applicable statute or rule of law, it shall
to that extent be deemed omitted, and the balance of this Agreement shall
be enforceable in accordance with its terms.
(d) Time of the Essence. Time is of the essence in the performance of
-------------------
the covenants of the parties hereunder, including without limitation
delivery covenants to be performed by either party.
2
<PAGE>
5. Option to Terminate Agreement.
(a) CDP may by fax or email, on or before 6:00 PM Philadelphia time
on June 4 1999, give notice to CSC that it terminates this Agreement
because it's parent, U.LINK, Inc., has failed, despite in good faith
exercising its best efforts, to obtain the consent of its Series E
Preferred stockholders that the termination of the Joint Venture does not
require U.LINK, Inc. to redeem such stock. U.Link, Inc. shall not be
required to offer its Series E Preferred stockholders any consideration to
obtain such consents.
(b) CSC may by fax or email, on or before 6:00 PM Philadelphia time
on June 4, 1999, give notice to CDP that it terminates this Agreement
because it's management has failed, despite good faith exercising its best
efforts, to obtain the consent of its Board of Directors to terminate the
previous agreements.
Each party represents and warrants that on this date they are duly
authorized to bind their respective companies by their signatures below.
CSC: CDP:
COLLEGESTUDENT.COM, INC. COLLEGE DIRECTORY PUBLISHING, INC.
By: /s/ Eben Miller By: /s/ John Rafanello
____________________________ __________________________________
Eben Miller, President John Rafanello, President
<PAGE>
LERNER & PEARCE, P.A.
2888 EAST OAKLAND PARK BLVD.
FORT LAUDERDALE, FLORIDA 33308
TELEPHONE (954) 563-8111
FACSIMILE (954) 563-8522
July 22, 1999
Exhibit 10.8
Via Facsimile
(215) 864-2929
and U.S. Mail
Alan L. Frank, Esq.
Frank & Rosen
Eleven Penn Center
1835 Market Street, Suite 320
Philade1phia, P A 19103
Re: U.Link, Inc./IPO/Golden/Paul/Settlement Agreement
Dear Alan:
This Settlement Agreement ("Agreement") will confirm the substantive details
of the settlement proposal of all outstanding disputes between Mark and Lee
Golden, Phillip Hofmann and Alan Cohen (collectively, the "Golden Group") and
U.Link, Inc. and its principals, John Rafanello, Michael S. Paul, Stephanie
Paul, Alan L. Frank, Robin S. Frank, Lance S. Rosen, and Laurie Rosen
(collectively, the "Paul Group").
l. The equity ownerships shall be adjusted such that the Golden Group shall
cause 780,272 of their common shares to be canceled ab initio and rescinded by
U.Link. Said shares shall be immediately retired by U.Link. These shares may
under no circumstances be reissued by U .Link unless and until the contemplated
initial public offering ("IPO") underwriting has been satisfactorily completed.
2. The Golden and Paul Groups shall be entitled to sell, without
restriction, up to 25,000 shares and 50,000 shares of common stock,
respectively, ninety-one (91) days after the effective date of the offering.
U.Link shall use its best efforts to register all of the above shares in the SB-
2 Registration Statement (.'Registration Statement"), for the purpose of
immediate sale. With respect to this item, share certificates shall be issued in
the following manner:
Lee Golden 12,500 shares
Alan Cohen 6,250 shares
Phillip s. Hofmann
Revocable Trust 6,250 shares
<PAGE>
Alan L. Frank, Esq.
July 22, 1999
Page 2
- --------------------------------------------------------------------------------
John Rafanello 25,000 shares
Michael S. Paul 25,000 shares
3. All remaining shares owned by officers, directors and 5% shareholders
shall be subject to the identical lock-up period imposed by the Underwriters,
subject to the best efforts of the Paul Group to cause such restrictions on the
transfer of the shares to be removed at the earliest possible time. In this
regard the Paul Group shall use its best efforts to obtain from the Underwriter,
a reduction of the lock-up agreement for all U.Link shareholders to six (6)
months or less.
4. The Golden Group shall tender to the Paul Group a proxy for their
shares, which proxy shall immediately terminate to the extent such shares are
sold to third parties.
5. The Registration Statement on Form SB-2 or U.Link shall be filed with
the Securities and Exchange Commission within thirty (30) business days from
the date of the execution of this Settlement Agreement, with time being of the
essence.
6. Intentionally omitted
7. The Golden Group shall not be required, following the adjustment of
their shares, to "give back" any of their shares for the purposes of satisfying
the conversion rights of any of the preferred shareholders.
8. The Paul Group represents that there has been no material change to the
capital stock of U.Link since April 21, 1999 (the date of the last SB-2draft
received by the Golden Group); and there will be no material change to the
capital stock of U.Link from the date of the execution of this Agreement to the
completion of the IPO, except that U.Link has sold sixty-eight (68) shares of E
Preferred stock. U.Link shall not sell or issue any shares of its capital stock
until the effective date of the SB-2, unless H.D. Brous & Co., notifies U.Link
that it cannot complete the public offering at a price of $10.00 per share or
better, and U.Link elects to withdraw the Registration Statement. In such event
U.Link reserves the right to sell equity securities in order to meet its working
capital needs and pay its indebtedness. The Golden Group consents to the
amendment by U.Link to its Certificate of Incorporation in order provide that
the Series A Preferred Stock shall be converted into 2,121,000 shares of common
stock, subject to adjustment in the event of stock splits, stock dividends
and/or similar events, minus 1/2 of the shares of common stock necessary to be
issued upon conversion of the Series B, C and D Preferred stock. Provided,
further, that in the event there is a stock split, stock dividend or similar
event, the Golden Group shall be treated in a like manner.
9. Any directives from the Paul Group to Brous & Company, forbidding it to
communicate with Golden Group, shall be limited to matters regarding the U.Link
Registration
<PAGE>
Alan L. Frank, Esq.
July 22, 1999
Page 3
- --------------------------------------------------------------------------------
Statement. This restriction is not intended to limit the Golden Group's access
to Brous & Company or its principals, or visa versa, for business or other
matters related to U.Link.
10. All individual parties to this Agreement may, without interference from
any other party to this Agreement, sell their shares in a private transaction at
any time. In addition, no party to this Agreement shall, in any way, impede or
obstruct the ability of any other party to sell, transfer, encumber, or
otherwise dispose of his/her shares in accordance with the Registration
Statement and this Agreement.
11. The final price at which the shares shall be offered pursuant to this
Registration Statement is intended to be no less than $10 per share.
12. Upon the execution of this Settlement Agreement, the Golden Group, and
each of its members, including Mark Golden and the Paul Group, and each of its
members, shall exchange general releases. The general release shall also cover
all of the U.Link attorneys, its management, board of directors, subsidiaries,
in all capacities, and all prior signatories to the letter agreements which
preceded this Agreement. All releases required and contemplated by this
paragraph shall be reciprocal and shall except from their terms the conditions,
terms and provisions of this Agreement. This Agreement shall be held in escrow
by respective counsel, pending receipt by Golden Group of the general releases
satisfactory to all parties hereto.
13. All prior agreements -- including May 4, 1998, May 4, 1998 (addendum),
Feb. 12,1999, Feb.19, 1999, -- between the parties hereto shall remain in full
force and effect except to the extent inconsistent with this Agreement, in which
case the latter shall control; provided however should the Registration
Statement not be timely filed in accordance with paragraph 5 above, or should
the underwriter fail or refuse to complete the public offering and U.Link
withdraws the Registration Statement, then this Agreement shall be deemed a
nullity and the status of all parties shall be as if this Agreement was never
drawn, with all rights preserved.
14. In the event of a dispute arising from this Agreement, resolution shall
be by arbitration consistent with May 4, 1998 letter agreement.
15. Solely for informational purposes, the Paul Group shall E Mail to Mark
Golden at [email protected], the most recent draft of the SB-2, as well as the
final version simultaneously with filing with the SEC.
For the purposes of binding the parties to this Agreement, please have this
letter countersigned by yourself and your clients in the space provided, if the
terms and conditions are consistent with our previous understandings, and you
are agreeable to the new terms added by the Golden Group. Other than the
preparation of the general releases, I do not believe it would be necessary to
execute a more formalized agreement. This Agreement may be signed in
counterparts;
<PAGE>
Alan L. Frank, Esq.
July 22, 1999
Page 4
- --------------------------------------------------------------------------------
facsimile signatures shall be acceptable and binding, with original signatures
to follow. One original Agreement fully executed shall be provided to the Golden
Group and one to the Paul Group.
Very truly yours,
/s/Allan M. Lerner
Allan M. Lerner (executed as to form only)
Accepted and Agreed To Accepted and Agreed To
this ___________ day of July, 1999. this 22nd day of July, 1999.
/s/ Alan L. Frank /s/ Mark Golden
- ------------------------------------ ---------------------------------
By: Alan L. Frank, Esq. Individually Mark Golden, individually
and as to form
/s/ John Rafanello /s/ Lee Golden
- ----------------------------------- ---------------------------------
John Rafanello, individually and as Lee Golden, individually
President of U.Link, Inc
/s/ Michael S. Paul /s/ Phillip S. Hofmann
- ------------------------------------ ---------------------------------
Michael S. Paul, individually and as Phillip S. Hofmann, individually
CEO of U.Link, Inc
/s/ Lance S. Rosen /s/ Alan Cohen
- ------------------------------------ ---------------------------------
Lance S. Rosen, individually Alan Cohen, individually
/s/ Stephanie Paul
- ------------------------------------
Stephanie Paul, individually
/s/ Robin S. Frank
- ------------------------------------
Robin S. Frank, individually
/s/ Laurie Rosen
- ------------------------------------
Laurie Rosen, individually
AML:pb
<PAGE>
Exhibit 21
Exhibit 21
List of Subsidiaries
1. College Directory Publishing, Inc.
2. University Publishers, Inc.
3. AroundCampus, Inc.
<PAGE>
Exhibit 23.1
Consent of Independent Certified Public Accountants
We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated April 15, 1999, in the Registration Statement (Form SB-2
No. 333-00000) and related Prospectus of U.Link, Inc. for the registration of
1,500,000 shares of its common stock.
/s/ Ernst & Young LLP
Orlando, Florida
August 9, 1999
