<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 29, 1999
REGISTRATION NO.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
---------------------
CALLNOW.COM, INC.
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 5961 87-0360333
(State or other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
50 BROAD STREET
NEW YORK, NEW YORK 10004-2307
(212) 686-2000
(Address, including zip code, and telephone number,
including area code, of Registrant's principal executive offices)
CHRISTIAN BARDENHEUER
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
50 BROAD STREET
NEW YORK, NEW YORK 10004-2307
(212) 686-2000
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
With copies to:
<TABLE>
<S> <C>
NEIL P. PARENT, ESQ. STEPHEN J. GULOTTA, JR., ESQ.
STAIRS DILLENBECK FINLEY & MERLE SQUADRON, ELLENOFF, PLESENT & SHEINFELD, LLP
330 MADISON AVENUE, SUITE 2900 551 FIFTH AVENUE
NEW YORK, NY 10017-1005 NEW YORK, NY 10176-0001
(212) 697-2700 (212) 661-6500
</TABLE>
---------------------
Approximate date of commencement of proposed sale to the public: As soon
as practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, 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,
check the following box. [ ]
---------------------
CALCULATION OF REGISTRATION FEE
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TITLE OF EACH CLASS PROPOSED MAXIMUM PROPOSED MAXIMUM
OF SECURITIES TO BE AMOUNT TO OFFERING PRICE AGGREGATE AMOUNT OF
REGISTERED BE REGISTERED PER SHARE OFFERING PRICE (1) REGISTRATION FEE
<S> <C> <C> <C> <C>
Common Stock (2) .......... 5,284,297 $ 8.00 $42,274,376 $ 12,470.94
Representatives' Warrants . 400,000 .0001 $ 40 (3)
Common Stock Underlying
The Representatives'
Warrants (4) .............. 400,000 $ 9.60 $ 3,840,000 $ 1,132.80
Totals .................... $46,114,416 $ 13,603.74
</TABLE>
- --------------------------------------------------------------------------------
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457.
(2) Includes 624,734 shares of Common Stock subject to the Underwriters'
over-allotment option and 659,563 shares of Common Stock owned by
existing stockholders.
(3) No fee due pursuant to Rule 457(g).
(4) Pursuant to Rule 416, this Registration Statement also covers such
additional shares of Common Stock as may be issued as a result of the
anti-dilution provisions of the Representatives' Warrants.
---------------------
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.
<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 THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY JURISDICTION WHERE THE OFFER OR SALE IS NOT PERMITTED.
---------------------------------
SUBJECT TO COMPLETION--SEPTEMBER 29, 1999
PROSPECTUS
- --------------------------------------------------------------------------------
4,164,891 SHARES
[CALLNOW.COM, INC. LOGO]
COMMON STOCK
---------------------------------
We are offering 4,000,000 shares of our common stock in a public offering.
In addition, certain of our existing stockholders (the "Selling Stockholders")
are offering 164,891 shares. Prior to this offering, our common stock has been
traded in the National Quotation Bureau, LLC's Pink Sheets under the symbol
"CALN". Although our common stock is traded in the Pink Sheets, such trading
has been limited and sporadic. The last reported bid price of our common stock
on September 22, 1999 was $1.125 per share. See "Price Range Of Our Common
Stock." It is currently estimated that the public offering price will be
between $6.00 and $8.00 per share. See "Underwriting" for the factors to be
considered in determining the public offering price. We intend to file an
application for our shares to be included for quotation on the Nasdaq National
Market System under the symbol "CALN".
An additional 494,672 shares of common stock are also being registered by
us on behalf of certain of our stockholders ("Registering Stockholders"). These
shares are subject to an agreement between the Registering Stockholders and the
underwriters whereby such shares may not be sold by the Registering
Stockholders without the consent of Kaufman Bros., L.P. until 180 days after
the date of this prospectus. See "Shares Eligible for Future Sale" and
"Underwriting." We will not receive any of the proceeds of the sale of shares
of common stock by the Selling Stockholders or the Registering Stockholders. We
are paying all costs incurred in the registration of shares of common stock
offered hereby.
<TABLE>
<CAPTION>
PER SHARE TOTAL
----------- ------
<S> <C> <C>
Public offering price ........................ $ $
Underwriting discount & commissions .......... $ $
Proceeds, before expenses, to us ............. $ $
Proceeds to Selling Stockholders ............. $ $
</TABLE>
SEE "RISK FACTORS" BEGINNING ON PAGE 8 FOR FACTORS THAT YOU SHOULD CONSIDER
BEFORE INVESTING IN OUR SHARES.
---------------------------------
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
accuracy or adequacy of this prospectus. Any representation to the contrary is
a criminal offense.
---------------------------------
The underwriters may purchase up to 624,734 additional shares from us at the
public offering price, less underwriting discount and commissions, to cover
over-allotments.
KAUFMAN BROS., L.P. JOHN G. KINNARD & CO.
<PAGE>
INSIDE FRONT COVER
[Picture of CallNOW.com home page.]
FORWARD-LOOKING STATEMENTS
This prospectus includes forward-looking statements based largely on our
current expectations and projections about future events and financial trends
affecting the financial condition of our business. The words "believe," "may,"
"will," "estimate," "continue," "anticipate," "intend," "expect" and similar
expressions identify these forward-looking statements. These forward-looking
statements are subject to a number of risks, uncertainties and assumptions,
including those described below under the caption "Risk Factors." In light of
these risks and uncertainties, the forward-looking events and circumstances
discussed in this prospectus may not occur and actual results could differ
materially from those anticipated in the forward-looking statements. We
undertake no obligation to publicly update or revise any forward-looking
statements, whether as a result of new information, future events or otherwise.
<PAGE>
PROSPECTUS SUMMARY
This summary sets forth the material highlights of the information
contained elsewhere in this prospectus. It does not contain all the information
that you should consider before investing in us, and you should read the entire
prospectus carefully.
Except as otherwise noted or where the context otherwise requires, all
information in this prospectus assumes no exercise of the underwriters'
over-allotment option.
Unless the context otherwise requires, all references to "we" or "us"
refer to CallNOW.com, Inc. and its wholly-owned subsidiary, AXICOM
Communications Group, Inc.
OUR BUSINESS
We offer telecommunications services through our e-commerce Web site
(www.callnow.com). Our Web site is a communications portal with a look and feel
that is tailored to local markets in approximately 230 countries, territories,
dependencies and other locations, currently with a choice of four languages.
Our services are provided globally and consist of international long distance,
national long distance, and a free global online telephone directory, which
currently generates over 1.5 million page impressions (page views) and over
400,000 user sessions (unique visitors) per month. Our customers currently
consist primarily of individuals and small businesses, 80% of whom are located
outside of the U.S.
The principal service we offer is international and national long distance
calling through call re-origination or "call-back", which we refer to on our
Web site as "ReturnCall". Generally, this service offers our customers
significant savings on international and national long distance calls. With the
proceeds of this offering, we plan to add direct dial service in Europe, Japan
and Australia and to expand the choice of languages available on our Web site.
In addition, we intend to add calling cards, paging, fax service, a global
online directory for renting cellular phones, and other telecommunications
services and value-added features designed to make our Web site a single source
solution for all of our customers' telecommunications needs.
Our Web site is driven by our software that provides value-added features
to enable our customers in real time to:
o Survey global telephone rates;
o Sign up online for international and national long distance telephone
service;
o Have their credit cards automatically validated and pre-authorized;
o Activate their accounts;
o Review the details of each of their calls from the date of inception
of their account;
o Review current account information, including cumulative amounts,
through the last call made; and
o Review monthly invoices.
We launched our telecommunications services using the Internet in
September 1998. We have over 4,000 active subscribers who have signed up for
service on our Web site. This was achieved with limited funding and with little
advertising or promotional programs.
3
<PAGE>
OUR MARKET OPPORTUNITY
We are benefiting from four converging trends:
o Explosive growth in access to and use of the Internet worldwide,
particularly outside the U.S.;
o Deregulation of telephony in overseas markets;
o Growing consumer awareness in these markets of low-cost alternatives to
the high cost of their national telephone company services; and
o Increasing transmission capacity of carriers globally.
We believe that the convergence of these trends has created a significant
opportunity for us to offer our one-stop shop for telecommunications services
in an e-commerce platform.
OUR STRATEGY
Our goal is to establish ourselves as a leading Web portal providing
access to international and national telecommunications services enhanced by
value-added features. Our strategy is to drive traffic to our CallNOW.com Web
site and to develop the CallNOW.com brand through traditional marketing and
advertising and through Internet related promotion and advertising. We are
developing a network of affiliates to promote and drive traffic to our site.
Our affiliates are compensated monthly with a percentage of revenue derived
from customers that have signed up for our services from their sites. Our
affiliate network currently includes:
o Major global search engines, which are accessed in many languages;
o Country and language specific search engines aimed at country nationals
and others who use non-English language sites;
o Web sites of telecommunications resellers who are looking for
interactive enhancements to their static sites; and
o Web-based e-commerce retailers and other Web sites, including those
that want to add an interactive service for telecommunications.
We are targeting those countries with substantial amounts of international
and national long distance traffic and that also account for the deepest
non-U.S. Internet penetration. For example, in June, we entered into contracts
with Lycos-Bertelsmann GmbH, a Pan European joint venture between Lycos Inc.
and Bertelsmann GmbH, and with Lycos Japan, a joint venture between Lycos Inc.,
Sumitomo Corporation and Internet Initiative Japan. In both Europe and Japan,
these Lycos affiliates will periodically place banners, promotional buttons,
text links and other hyperlinks from their home pages to our Web site.
Additionally, they will place promotional items on their search results pages.
In return, these Lycos affiliates will share in the recurring monthly revenue
derived from each customer they deliver to us.
Telecommunications services are recurring monthly purchases. Accordingly,
we expect our subscribers and others to visit our Web site frequently to review
their call detail reports and monthly invoices and to use our free global
telephone directory and the other telecommunications services we will offer.
This will provide us with the opportunity to cross sell other products and
services and sell targeted advertising that will reach our subscribers while
they navigate our Web site.
We currently provide our customers international and national long
distance telecommunications services through our own switch. We intend to
subcontract most of the switching services to facilities based providers in
order to focus our resources on the execution of our strategy to become a
leading Internet portal for the telecommunications market.
4
<PAGE>
OUR HISTORY
We were incorporated in August 1994, and began operations in 1995 as
AXICOM Communications Group, Inc. In April 1999, all of the common stock of
Axicom was acquired by the American Ostrich Corporation, a non-reporting
company that was publicly traded on the OTC Bulletin Board under the symbol
"AOC". As a result of this transaction, Axicom stockholders became the majority
stockholders of American Ostrich Corporation, and American Ostrich Corporation
reincorporated in Delaware and changed its name to CallNOW.com, Inc.
Based upon an alphabetical phase in schedule established by the National
Association of Securities Dealers, Inc., we were required to file current
financial information with the Securities and Exchange Commission by August 1,
1999 in order to allow our common stock to continue to be quoted on the OTC
Bulletin Board. We did not make the required filings by such date. As of August
2, 1999, quotations in the shares of our common stock can only be made in the
National Quotation Bureau, LLC's Pink Sheets until we are able to complete our
required filing. Once we respond satisfactorily to all SEC comments to the
registration statement of which this prospectus is a part, we will satisfy the
filing requirement. We intend to file an application for our shares to be
included for quotation on the Nasdaq National Market System under the symbol
"CALN".
Our principal executive offices are located at 50 Broad Street, New York,
New York 10004, and our telephone number is (212) 686-2000.
5
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Shares offered by us ........................... 4,000,000 Shares
Shares offered by Selling Stockholders ......... 164,891 Shares
Total shares outstanding after this offering 10,314,666 Shares (1)
Use of proceeds ................................ For working capital and other general corporate
purposes, including advertising and promotion,
hiring of additional personnel, repayment of
accrued liabilities owed to senior management
and upgrading our computer hardware and
software. We will not receive any proceeds
from the shares sold by the Selling
Stockholders. See "Use of Proceeds."
Symbol in National Quotation Bureau,
LLC's Pink Sheets (2) ......................... CALN
</TABLE>
- ----------
(1) Based on shares outstanding as of the date of this prospectus. Excludes
(i) 282,825 shares of common stock issuable upon exercise of options at
exercise prices ranging from $.01 to $2.75 per share, which options
include an anti-dilution provision which will result in the additional
issuance of options to purchase 200,000 shares of common stock at the
offering price; (ii) 2,200,000 shares of common stock reserved for
future issuance under a stock option plan which our Board of Directors
has adopted, subject to stockholder approval, of which options to
purchase 958,000 shares of common stock at exercise prices of $2.75 per
share have been granted (such granted options are subject to an increase
in exercise price if our compensation committee determines that such
increase is necessary based on third party determinations of fair market
value); (iii) 400,000 shares of common stock issuable upon exercise of
the Representatives' Warrants at an assumed exercise price of $8.40 per
share; and (iv) a maximum of 181,232 shares of common stock issuable
upon conversion of $1,279,500 in principal amount of convertible
debentures outstanding as of the date of this prospectus at an effective
conversion price of $7.06 See "Capitalization," "Management--Employment
and Consulting Agreements," "Related Party Transactions" and "Notes to
Consolidated Financial Statements."
(2) We intend to file an application for our shares to be included for
quotation on the Nasdaq National Market System under the symbol "CALN".
See "Risk Factors--Risks Related To This Offering--Market For Common
Stock."
6
<PAGE>
SUMMARY FINANCIAL DATA
The following tables present summary financial data derived from our
financial statements included elsewhere in this prospectus. The balance sheet
data for June 30, 1999, and the statement of operations data for the six-month
periods ended June 30, 1999 and 1998, have not been audited by independent
auditors, but in the opinion of our management, all adjustments (consisting of
normal recurring accruals) necessary for a fair presentation have been
included. The following data should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
our financial statements and related notes thereto.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------------------------------------- -----------------------------
1995 1996 1997 1998 1998 1999
------------- ------------- ------------- ------------- ------------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total revenues ............... $ 453,273 $1,674,955 $5,010,027 $2,295,202 $1,385,666 $ 542,689
Loss from operations ......... (253,087) (929,640) (858,771) (550,942) (231,932) (442,195)
Interest expense ............. -- 1,154 58,568 90,436 23,763 36,848
Net loss ..................... (253,087) (930,794) (917,339) (641,378) (255,695) (525,965)
Net loss per share ........... (0.08) (0.24) (0.24) (0.17) (0.07) (0.11)
Common shares ................ 3,055,525 3,875,000 3,875,000 3,875,000 3,875,000 4,577,162
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 1999
--------------------------------------------------
(UNAUDITED)
PRO FORMA, AS
ACTUAL PRO FORMA(1) ADJUSTED(1)(2)
--------------- -------------- ---------------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash ................................... $ 152,565 $2,156,162 $17,176,162
Current assets ......................... 262,121 2,265,718 17,285,718
Current liabilities .................... 1,583,360 1,583,360 1,083,360
Working capital (deficit) .............. (1,321,239) 682,358 16,202,358
Total assets ........................... 1,269,064 3,272,661 27,692,661
Long-term debt and other liabilities 1,713,747 1,234,747 1,234,747
Stockholders' equity (deficit) ......... (2,028,043) 454,554 25,374,554
</TABLE>
- ----------
(1) Adjusted to reflect the sale of 691,853 shares of common stock in private
placements and the issuance of 40,000 shares in connection with the sale
of technology agreements that were consummated subsequent to June 30,
1999 but prior to the date of this prospectus. Also, reflects the
conversion of $479,000 principal amount of convertible debenture into
343,662 shares of our common stock and the exercise of warrants to
purchase 100,000 shares of our common stock.
(2) Adjusted for the sale of the common stock offered hereby and application
of the estimated net proceeds therefrom.
7
<PAGE>
RISK FACTORS
This offering involves a high degree of risk. You should carefully
consider the following risk factors, in addition to the other information in
this prospectus, before purchasing shares of our common stock. Each of these
risk factors could adversely affect our business, operating results and
financial condition and the price of our common stock.
RISKS RELATED TO ESTABLISHMENT OF OUR BUSINESS
OUR REVENUES HAVE FALLEN, WE HAVE INCURRED LOSSES AND WE ANTICIPATE LOSSES WILL
CONTINUE
In the process of implementing our Internet strategy in September 1998, we
abandoned certain lines of business which generated approximately $2.5 million
in revenue in the preceding fiscal year. As a result, our revenues have fallen
from approximately $5.0 million in 1997 to approximately $2.3 million in 1998,
and from approximately $1.4 million in the first six months of 1998 to
approximately $0.5 million in the first six months of 1999. While we believe
that the Internet strategy we have implemented and plan to finance with the
proceeds of this offering will result in a growth in revenues, we have not yet
experienced any significant increase.
We have recorded a substantial net loss for each fiscal period since our
inception and expect to continue to incur substantial net losses for the
foreseeable future. We incurred net losses of approximately $0.6 million in
1998 and approximately $0.9 million in 1997, approximately $0.5 million in the
first six months of 1999 and approximately $0.3 million in the first six months
of 1998. Furthermore, if the implementation of our Internet strategy is
successful and we achieve the growth we anticipate in our business, we expect
our cost of sales and operating expenses to increase significantly, especially
in the areas of sales, marketing and brand promotion. We will, therefore, need
to generate significant revenues to achieve profitability. See "Selected
Financial Data" and Management's Discussion and Analysis of Financial Condition
and Results of Operations."
WE MAY NEVER ACHIEVE PROFITABILITY OR THE ABILITY TO REMAIN A GOING CONCERN
Our revenues may not grow as anticipated, or at all. We may continue to
incur losses and may never achieve profitability or be able to maintain
ourselves as a going concern. Even if we do, we may be unable to sustain or
increase profitability in the future. See "Selected Financial Data" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
WE MAY NEED ADDITIONAL CAPITAL TO FINANCE GROWTH AND CAPITAL REQUIREMENTS
We must continue to enhance and expand our services and build out our
Internet infrastructure in order to respond to competitive pressures and to
meet our customers' increasing demands for service quality, availability and
competitive pricing. We believe that, based upon our present business plan, our
existing cash resources, the cash resources provided by the proceeds of this
offering, and the expected cash flow from operating activities will be
sufficient to meet our currently anticipated working capital and capital
expenditure requirements for at least the next 12 months. If our growth exceeds
current expectations or we expedite or expand our growth plan, or if our cash
flow from operations is insufficient to meet our working capital and capital
expenditure requirements, we will need to raise additional capital from equity
or debt sources. We cannot assure you that we will be able to raise such
capital on favorable terms or at all. If we are able to obtain such capital, as
and when necessary, the terms of such financing may contain restrictive
covenants that might affect our common stock, such as limitations or
prohibitions on payment of dividends or, in the case of a debt financing,
reduced earnings due to interest expenses. Any further issuance of equity
securities would likely have a dilutive effect on the holders of our common
stock.
RISKS OF EXPANSION AND IMPLEMENTATION OF GROWTH STRATEGY
Our expansion into new businesses has placed, and may continue to place, a
strain on our management, administrative, operational, financial and technical
resources and increased demands on
8
<PAGE>
our systems and controls. A failure to effectively provide customer and
technical support services will adversely affect our ability to maintain our
existing customer base and attract new customers. Expected increases in our
telecommunications customer base and Internet subscriber base will produce
increased demands on our sales, marketing and administrative resources, our
engineering and technical resources, and our customer and technical support
resources, as well as on our switching and routing capabilities and network
infrastructure. As of September 27, 1999, we had 15 employees. We will need to
hire additional sales and marketing, technical, administrative and management
personnel. In addition, we will need to hire or retrain managerial and support
personnel for the new services we intend to offer. Although we have hired
additional personnel and upgraded certain of our systems, we cannot assure you
that our administrative, operating and financial control systems,
infrastructure, personnel and facilities will be adequate to support our future
operations or maintain and effectively adapt to future growth.
RISKS THAT COULD IMPEDE GROWTH
Our ability to continue to grow may also be affected by various factors,
many of which are not within our control, including U.S. and foreign regulation
of the telecommunications and Internet industries, competition and
technological developments. Part of our growth strategy is dependent upon the
continued deregulation of foreign telecommunications markets. We cannot assure
you that such deregulation will occur when or to the extent anticipated. The
effect of foreign deregulation on us is also uncertain. While we expect that
deregulation will give rise to new opportunities, the increase in competition
expected to result from deregulation could cause our ReturnCall services and
other services we intend to offer to suffer and could have other material
adverse effects on our business, financial condition or results of operations.
BOTH INVESTORS AND OUR MANAGEMENT WILL HAVE VERY LIMITED INFORMATION AVAILABLE
TO THEM IN MAKING DECISIONS RELATING TO US BECAUSE OF OUR LIMITED OPERATING
HISTORY
Historically, we marketed our services through independent local
representatives called agents, through one of whom we sold our services on a
"wholesale" basis, and others who recruited and collected bills from our base
of existing customers, which consists primarily of individuals, small and
medium-sized companies and foreign subsidiaries of large corporations. We
determined in mid-1997 to abandon the wholesale business and to expand our
retail marketing efforts beyond our network of agents by developing an
interactive e-commerce platform to offer ReturnCall with value-added telephone
service enhancements directly to our customers.
We have a very limited operating history in offering our services through
the Internet upon which an investor may evaluate us with respect to our current
business and our prospects. Our business model is evolving and an investor must
consider the substantial and sometimes unforeseeable expenses frequently
encountered by early stage companies, companies that are in the midst of
significant business changes and companies that are in new and rapidly evolving
markets, such as the retail marketing of telephone services and online
commerce. Similarly, our management has only a limited operating history in
this rapidly evolving industry on which to base important business decisions.
This lack of information will make these management decisions very difficult
and the outcome of the decisions uncertain. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and
"Business--Business Strategy."
WE MAY NOT BE ABLE TO GROW OUR CUSTOMER BASE AND GENERATE SALES IF WE ARE
UNABLE TO POSITION THE CALLNOW.COM BRAND AND MAINTAIN OUR REPUTATION AND THE
CREDIBILITY OF OUR SERVICES
We believe that we must position the CallNOW.com name as a leading brand
and maintain our reputation as a provider of low-cost value-added telephone
services to under-served markets. Promoting and positioning the brand will
depend largely on the success of our marketing efforts and our ability to
provide access to high quality products and customer service. We cannot assure
you that we will be successful in this regard. Building the CallNOW.com brand
will require substantial marketing expenditures. Our sales and marketing
expenses were approximately $0.4 million for 1998
9
<PAGE>
and approximately $0.2 million in the first six months of 1999. We cannot
assure you that our brand promotion activities will result in increased
revenues or that any such revenues will offset our marketing expenditures. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business--Business Strategy."
WE MAY NOT BE ABLE TO GROW OUR CUSTOMER BASE AND GENERATE SALES IF WE ARE
UNABLE TO BROADEN OUR SERVICES
Through the date of this prospectus, our consumer service offerings have
consisted almost solely of ReturnCall services. With the proceeds of this
offering, we plan to offer a limited number of other services to individual
consumers and small businesses. See "Business--Future and Planned Services." In
order to grow our customer base and generate sales, we must broaden our
offerings to include other value-added telephone services and other related
services. We cannot assure you that we will be able to do so. We do not intend
to provide actual telephone service ourselves apart from the billing and
monitoring available through our proprietary software, but rather will sell
services provided by others under the CallNOW.com brand or through our
affiliate network. Accordingly, we will need to establish relationships with
increasing numbers of third parties to provide our customers access to those
services through our Web site. Our experience in providing ReturnCall services
may not be effective in purchasing and marketing other telephone services. We
cannot assure you that we will be able to establish the third-party
relationships necessary to broaden our service offerings as we plan. Moreover,
the commercial availability of some of the services that we hope to offer is
dependent on technological advances. We cannot assure you when or even that
such advances will occur, that we will be able to develop profitably a
sufficient selection of value-added telephone services or other services or
that any of our services will achieve market acceptance.
WE MAY BE ADVERSELY AFFECTED BY RAPID TECHNOLOGICAL CHANGE
The online commerce industry is characterized by:
o rapid technological changes;
o frequent emergence of new industry standards and practices; and
o continual changes in user and customer requirements and preferences.
Failure to adapt to the evolving technologies, industry standards and user
requirements and preferences on an ongoing basis could have a material adverse
effect on our ability to attract customers to, and make sales through, our Web
site. We cannot assure you that we will be successful in this regard. See
"Business--Business Strategy."
OUR FAILURE TO DEVELOP AND MAINTAIN RELATIONSHIPS WITH MASTER AFFILIATES AND
OTHER STRATEGIC WEB SITES COULD ADVERSELY AFFECT OUR ABILITY TO ATTRACT
CUSTOMERS
We believe that in order to attract significant traffic and thereby grow
our customer base we will need to establish and maintain relationships with
master affiliates, Internet portals (which are Web sites that offer a broad
array of resources and services on the Internet to attract traffic to their
sites, such as e-mail, discussion forums, search engines and online shopping
malls) and other high-traffic Web sites that will carry links to our Web site.
We will also need to establish and maintain relationships with content
providers that will provide their Web sites with content that appeals to
consumers who also have an interest in our services. Competition exists for
these types of relationships and we likely will have to pay significant fees to
establish and maintain these relationships. We cannot assure you that we will
be able to enter into or maintain appropriate relationships on terms favorable
to us, or that, even if we do, we will attract significant traffic to grow our
customer base or generate sales.
WE MAY NOT BE ABLE TO IMPLEMENT ONGOING IMPROVEMENTS TO OUR WEB SITE
Our ability to attract consumers and sell them our services over the
Internet will depend on our ability to design and maintain a state-of-the-art
Web site. We cannot assure you that our Web site will
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be successful in attracting customers. Our Web site could contain errors that
are discovered in the future. We may be required to modify our Web site to
correct these errors. We cannot assure you that we will be able to do so or
that we will be able to implement the ongoing improvements that we believe are
required for the continued success of a Web site. Moreover, we cannot estimate
the related costs with any certainty.
RISKS RELATED TO THE TELECOMMUNICATIONS BUSINESS
RISKS OF THE INTERNATIONAL TELECOMMUNICATIONS BUSINESS
We have generated, and plan to continue to generate, a substantial
majority of our revenues by providing international telecommunications services
to our customers on an individual consumer basis. The international nature of
our operations will involve certain risks, such as changes in U.S. and foreign
government regulations and telecommunications standards, dependence on foreign
firms, tariffs, taxes and other trade barriers, the potential for
nationalization and economic downturns and political instability in foreign
countries. In addition, our business could be adversely affected by a reversal
in the current trend toward deregulation of telecommunications carriers. We
will be increasingly subject to these risks to the extent that we proceed with
the planned expansion of our international operations.
WE ARE INVOLVED IN NEW AND UNCERTAIN MARKETS
Many of the overseas markets in which we currently market
telecommunications services are undergoing dramatic changes as a result of
privatization and deregulation. The European Union has mandated competitive
markets for the European telecommunications industry and the various European
countries are at different stages of opening their telecommunications markets.
As a result of privatization and deregulation, a new competitive environment is
emerging in which major European telephone companies, media companies and
utilities are entering the telecommunications market and forming new alliances
which are radically changing the landscape for domestic and international
telephone services. Open markets for telecommunications services are expected
to evolve in other parts of the world as well. While we are focused on
exploiting the imbalances that may be brought about by the often fragmented
nature of deregulation, we are entering new and often unknown markets and,
therefore, are unable to predict how such deregulating markets will evolve. We
cannot assure you that changes in the marketplace and new strategic alliances
among companies with greater resources and experience than ours will not
adversely affect our ability to continue to offer and sell ReturnCall services
and other services we intend to offer or our efforts to increase our overseas
telecommunications customer base.
The markets for Internet connectivity, telephony and content services and
related software products are relatively new and current and future competitors
are likely to introduce competing Internet connectivity and/or online services
and products. Therefore, it is difficult to predict either the rates at which
the markets will grow (if at all) or at which new or increased competition will
result in market saturation, or the direction of development of the Internet
and online services. If demand for Internet services and e-commerce fails to
grow, grows more slowly than anticipated, or becomes saturated with
competitors, our business, financial condition or results of operations could
be materially adversely affected.
DEPENDENCE ON CARRIERS AND OTHER TELECOMMUNICATIONS COMPANIES
We depend on other carriers and third party telecommunications companies,
including foreign government-owned post and telephone authorities ("PTTs"), for
many of our key functions and services, including local switching of long
distance telephone traffic and carriage of telephone traffic.
We do not carry telephone calls over our own long distance networks, but
resell lines on other carriers' networks. We generally do not have long-term
contracts with carriers and pricing and access to their lines and networks can
change suddenly and frequently. We may be unable to extend or
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replace our existing contracts with our carriers on terms comparable to our
existing agreements. These carriers are not restricted from competing against
us. We are currently dependent primarily upon Facilicom International LLC,
which is our primary provider of leased network capacity and data
communications facilities. Under our contracts, our suppliers provide telephone
capacity, usually denominated in numbers of minutes priced on an initial 30
seconds and then subsequent intervals of 6 seconds. The reseller or the carrier
may not be able to, or for competitive reasons may refuse to, provide a
sufficient amount of minutes of capacity. In such an event, we may be required
to route the traffic to another carrier providing service at a less
advantageous rate or with lesser quality and our profit margins or network
service quality may be reduced. A reduction of our service quality could result
in a loss of customers.
We route international telephone calls using the networks of third parties
that operate or that may plan to operate in countries in which local laws or
regulations limit their ability to provide basic international service in
competition with state-owned or state-sanctioned monopoly carriers. We have no
control over the manner in which these companies operate in these countries.
Future regulatory, judicial, legislative or political considerations may not
permit these companies to offer their services to residents of these countries.
In addition, foreign telecommunications regulators or third parties may raise
issues regarding the compliance of these companies with local laws or
regulations. These regulatory, judicial, legislative or political decisions
could limit the ability of these companies to route calls to or from our
network. If these companies become unable to provide the services which they
presently provide to us or may provide in the future due to their inability to
obtain or retain the required governmental approvals or for any other reason
related to regulatory compliance, we may need to obtain similar services from
other carriers for higher prices or we may not be able to provide our services
at all.
LEGALITY OF RETURNCALL
We are authorized by the U.S. Federal Communications Commission to offer
call re-origination services, which we refer to as ReturnCall, throughout the
world, subject to certain conditions. In some countries the use of call
re-origination is restricted or prohibited. In the U.S., the FCC has determined
that call re-origination services using uncompleted call signaling does not
violate U.S. or international law, but has held that U.S. companies providing
such services must comply with the laws of the countries in which they operate
as a condition of their Section 214 Switched Voice Authorization. The FCC
reserves the right to condition, modify or revoke any Section 214
Authorizations and impose fines for violations of the Communications Act of
1934, as amended, or the FCC's regulations, rules or policies promulgated
thereunder, or for violations of the clear and explicit telecommunications laws
of other countries that are unable to enforce their laws against U.S. carriers.
FCC policy provides that foreign governments that satisfy certain conditions
may request FCC assistance in enforcing their laws against U.S. carriers. To
date, thirty-five countries have formally submitted information to the FCC
stating that certain call re-origination services violate their laws. In
November 1996, 57 countries reported to the International Telecommunications
Union that call re-origination services are prohibited in their country. Except
for the Philippines and Saudi Arabia, the FCC has stated that it has not
determined whether these submissions by foreign governments to the FCC are
sufficient evidence of illegality for purposes of the FCC taking enforcement
action against U.S. carriers. To date, the FCC has only ordered carriers to
cease providing call re-origination services to the Philippines and Saudi
Arabia.
Future FCC enforcement action could include an order to cease providing
call re-origination services to any country ultimately found to have provided
sufficient information to the FCC, the imposition of one or more restrictions
on us, monetary fines or, ultimately, the revocation of our Section 214
Switched Voice Authorization. We cannot give any assurances that our ReturnCall
services, as presently configured, will continue to be regulated throughout the
world in the same manner as they are today. Depending on the actions of various
foreign regulators and the FCC, our ReturnCall services could become affected,
which could result in a material adverse effect on our business, financial
condition and results of operations. To date, however, we have not been
notified by any regulator or government agency that our service is not in
compliance with their applicable regulations.
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DOING BUSINESS IN FOREIGN COUNTRIES
As we expand into additional foreign countries, such countries may assert
that we are required to qualify to do business in the particular foreign
country, that we are otherwise subject to regulation, or that we are prohibited
from conducting our business in that country. Our failure to qualify as a
foreign corporation in a jurisdiction in which we are required to do so or to
comply with foreign laws and regulations could materially adversely affect our
business, financial condition, operating results and future prospects,
including by subjecting us to taxes and penalties or may affect our ability to
enforce contracts in such jurisdictions.
AFFILIATES
We are dependent upon our network of independent affiliates, particularly
for the sales of our international long distance telecommunications services in
key foreign markets. Many of our affiliates are located in foreign
jurisdictions and also sell other services or products, frequently those of
other companies. As a result, we cannot control whether these affiliates will
devote sufficient efforts to selling our services. In addition, we may not
succeed in finding capable affiliates in new markets which we may enter in the
future. If any of our significant affiliates fails to effectively market our
services and value-added features, our ability to generate revenues could be
substantially impaired, and our customer base may not grow.
We cannot be certain that our affiliates are currently in compliance with
regulatory or other legal requirements in their respective countries, that they
will be able to comply with existing or future requirements, and/or that they
will continue in compliance with any requirements. The failure of our
affiliates to comply with these requirements could materially adversely affect
our business, financial condition or results of operations.
INTERNET TELEPHONY
Many companies are now offering Internet telephony, a service that allows
for phone-to-phone, computer-to-computer, and computer-to-phone calling over
the Internet, enabling users to benefit from substantially reduced long
distance rates. Internet telephony could prove to be a viable alternative to,
and to be extremely competitive with, our services. If the Internet telephony
market develops or develops more rapidly than we expect, then our future
revenues may decrease unless we are able to offer such services from third
parties. We cannot assure you that we will be able to do so.
RAPID TECHNOLOGICAL CHANGE AND FREQUENT NEW PRODUCT INTRODUCTIONS IN OUR
MARKETS COULD RENDER OUR SERVICES AND VALUE-ADDED FEATURES OBSOLETE
The markets for our services and value-added features experience rapid
technological change, frequent new product introductions and evolving industry
standards. In addition to competing services developing through technological
change, such as Internet telephony, operation of our Web site and our Internet
sales platform can be affected by rapid technological change. For example,
during the past several years, operators of Web sites have been forced to use
more sophisticated equipment with greater bandwidth and reliability. Rapid
technological change and new product introduction could render one or more of
our products or services obsolete or place us at a competitive disadvantage.
Accordingly, we believe that our success depends upon our ability to anticipate
changes in consumer preferences, develop and market services and value-added
features that use new technologies and enhance and expand our existing services
to keep pace with competing services. We might not be able to do so.
Fundamental changes in the technologies for telecommunications, Internet
access and content, and Internet telephony services expose us to substantial
risks. If there are advancements in the delivery of telephony services, we will
need to develop new technology, modify our existing technology to accommodate
these developments, or acquire the service capability from others. Our pursuit
of these advances may require substantial time and expense. We cannot provide
any assurance that we will succeed in adapting our businesses to alternate
access devices or other technological developments.
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WE MAY FACE INCREASING COMPETITION
The markets in which we operate are extremely competitive and can be
significantly influenced by the marketing and pricing decisions of the larger
industry participants. There are no substantial barriers to entry in either the
Internet e-commerce or any of the telecommunications markets in which we
compete. We expect competition in these markets to intensify in the future.
Competition for customers in the telecommunication markets in which we
compete is primarily on the basis of price and, to a lesser extent, on the
basis of the type and quality of service offered. Increased competition could
force us to reduce our prices and profit margins.
PTTs, newly-privatized former PTTs and other home country competitors are
positioned to pressure us directly in their home countries by influencing
regulatory authorities to outlaw the provision of ReturnCall services or by
blocking access to our ReturnCall services or other services we intend to
offer. We cannot assure you that such behavior will not cause a material
adverse effect on our business, financial condition or results of operations.
With the increasing privatization and deregulation of international
telecommunications in foreign countries, PTTs may increasingly become free to
compete more effectively with us at competitive rates. Deregulation in foreign
countries also could result in competition from other service providers with
large, established customer bases and close ties to governmental authorities in
their home countries, and in decreased prices for direct-dial international
calls such that customers are no longer willing to use our international
ReturnCall services. The ability of a deregulated PTT or another home country
service provider to compete on the basis of greater size and resources, pricing
flexibility and long-standing relationships with customers in its own country
could have a material adverse effect on our business, financial condition or
results of operations.
In addition, the FCC recently adopted rules granting greater flexibility
for U.S. carriers when they negotiate agreements with foreign PTTs for
terminating international calls. Agreements negotiated under the new rules may
reduce the costs and price of international direct-dial services and reduce or
eliminate the disparity between inbound and outbound rates upon which the
profitability of ReturnCall services depends.
We could also face significant pricing pressure because we cannot assure
you that we will be able to maintain the volume of domestic and international
long-distance traffic necessary to obtain favorable rates and tariffs. In
addition, significant pricing pressure would result if currency exchange rates
fluctuate such that local services, denominated in local currency, are less
expensive compared to our services which are denominated in U.S. dollars. We
are aware that our ability to market our long-distance resale services depends
upon the existence of spreads between the rates offered by us and those offered
by the international carriers with whom we compete as well as those from whom
we obtain service. A decrease in such spreads or price competition in our
markets could have a material adverse effect on our business, financial
condition or results of operations.
RISKS RELATED TO THE INTERNET AND ONLINE COMMERCE ASPECTS OF OUR BUSINESS
OUR ABILITY TO GENERATE SALES DEPENDS ON CONTINUED GROWTH OF ONLINE COMMERCE
Our ability to generate sales of our services and value-added features
through our Web site depends on continued growth in the use of the Internet and
in the acceptance and volume of commerce transactions on the Internet. We
cannot assure you that the number of Internet users will continue to grow or
that commerce over the Internet will become more widespread or that our sales
will grow at a comparable rate. If the development of the Internet as a
commercial medium does not continue on its current course, or if alternate
systems supplant all or part of the currently anticipated functionality of the
Internet and we are not able to react in a cost-effective and timely manner,
then such changes could have a material adverse effect on our business,
financial condition or results of operations. Although we intend to support
emerging standards in the market for Internet based e-commerce, we cannot
assure you that industry standards will emerge or if they become established,
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that we will be able to conform to these new standards in a timely fashion and
maintain a competitive position in the market. As is typical in the case of a
new and rapidly evolving industry, demand and market acceptance for recently
introduced services are subject to a high level of uncertainty. The Internet
may not prove to be a viable commercial marketplace for a number of reasons,
including:
o lack of acceptable security technologies;
o lack of access and ease of use;
o congestion of traffic;
o inconsistent quality of service and lack of availability of
cost-effective, high-speed service;
o potentially inadequate development of the necessary infrastructure;
o governmental regulation; and
o uncertainty regarding intellectual property ownership.
WE MAY LOSE CUSTOMERS AND REVENUE OPPORTUNITIES IF WE ARE NOT ABLE TO MAINTAIN
AN EFFECTIVE WEB ADDRESS
We currently hold the domain name "CallNOW.com" as well as other related
names. We may not be able to prevent third parties from acquiring Web addresses
that are similar to ours. If that should occur, we could lose customers and
revenue opportunities to those third parties.
Domain names generally are regulated by Internet regulatory bodies and
their designees. The regulation of domain names in the U.S. and in foreign
countries is subject to change. As a result, we may not acquire or maintain the
"CallNOW.com" domain name in all of the countries in which we may conduct
business in the future. Furthermore, the relationship between regulations
governing such addresses and laws protecting trademarks is not clear. The loss
of our domain name could have a material adverse effect on our business.
FAILURE OR INADEQUATE PERFORMANCE OF OUR TECHNOLOGY SYSTEMS MAY INTERRUPT OUR
OPERATIONS AND RESULT IN THE LOSS OF CUSTOMERS AND REVENUE OPPORTUNITIES
Our ability to grow our customer base and generate sales of our services
over the Internet will depend on the efficient and uninterrupted operation of
our Web-related technology systems that are required to accommodate a high
volume of traffic. We cannot assure you that our Web site infrastructure will
be able to accommodate the volume of traffic that could develop or that upgrade
requirements will not have an adverse impact on our business. Although we
intend to implement security measures, our systems will be vulnerable to
physical damage or interruption from human error, natural disasters,
telecommunication failures, break-ins, sabotage, hackers, computer viruses,
intentional acts of vandalism and similar events. We are planning to have
redundant systems but have not yet adopted a formal disaster recovery plan.
Therefore, any system failure, including network, software or hardware failure,
that causes an interruption in our service or a decrease in responsiveness of
our Web site could cause us to lose customers and revenue opportunities and
could harm our reputation and brand.
SECURITY CONCERNS COULD HINDER OUR ONLINE SALES AND MAY REQUIRE SIGNIFICANT
EXPENDITURES
Concern about the transmission of confidential information over the
Internet has been a significant barrier to online commerce over the Internet.
We cannot assure you that consumers will not limit their use of the Internet to
purchase services or products because of security concerns. We rely on
encryption and authentication technology licensed from third parties to provide
the security and authentication necessary to effect secure transmission of
confidential information, such as customer credit card numbers. We cannot
assure you that advances in computer capabilities, new discoveries in the field
of cryptography or other events or developments will not result in a compromise
or breach of the security measures that we use to protect customer transaction
data. In addition, we may be required to make significant expenditures to
protect against the threat of security breaches or to alleviate problems caused
by such breaches.
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SUPPLIERS OF INTERNET ACCESS
We depend on Internet Service Providers ("ISPs") to provide our customers
with dial-up service and Internet access to our Web site. Many of these ISPs
operate outside the U.S. over older telephone lines and switches. If a
significant number of the networks operated by these companies suffer capacity
or operational problems or failure, fail to serve new accounts, or are unable
to expand to satisfy our customer demand, customers will be unable to access
our Web site and our business could be materially adversely affected.
INFORMATION DISPLAYED ON OUR WEB SITE MAY SUBJECT US TO LITIGATION AND THE
RELATED COSTS
We may be subject to claims for defamation, libel, copyright or trademark
infringement or for other causes of action relating to information published on
our Web site. We could also be subject to claims based upon the content that is
accessible from our Web site through links to other Web sites. Defending
against any such claims could be costly and divert the attention of management
from the operation of our business.
GOVERNMENT REGULATION OF THE INTERNET AND ONLINE COMMERCE IS STILL DEVELOPING
AND COULD INCREASE OUR OPERATING COSTS OR OTHERWISE ADVERSELY AFFECT OUR
BUSINESS
There are existing laws and regulations that specifically regulate
communications or commerce on the Internet. Further, laws and regulations that
address issues such as user privacy, pricing, content, taxation and the
characteristics and quality of online products and services are under
consideration by federal, state, local and foreign governments and agencies.
New laws or regulations relating to the Internet, or new applications or
interpretations of existing laws, could adversely affect our business by
increasing our operating costs, requiring us to change the manner in which we
conduct business or otherwise.
OTHER RISKS RELATED TO OUR BUSINESS GENERALLY
DEPENDENCE ON SENIOR MANAGEMENT
Our success is dependent to a significant extent on the efforts of members
of senior management, including Christian Bardenheuer, our Chairman and Chief
Executive Officer, Warner Johnson, Jr., our President, and Christopher R.
Seelbach, our Chief Operating Officer and Acting Chief Financial Officer. Our
ability to retain well-qualified senior management and other key personnel is
crucial to our operations. The loss of any member of our senior management
could have a material adverse effect upon us. We maintain key-man life
insurance on Messrs. Bardenheuer and Johnson in the amount of $250,000 each. We
currently do not have employment agreements with Messrs. Bardenheuer and
Johnson. Our relationships with Messrs. Bardenheuer and Johnson can be
terminated at any time. See "Management--Employment and Consulting
Arrangements."
FAILURE TO PROTECT OUR INTELLECTUAL PROPERTY COULD ADVERSELY AFFECT OUR BRAND
AND OUR BUSINESS
We intend to rely on a combination of patent and copyright law, trade
secret protection, confidentiality and license agreements with our employees,
strategic partners and others to protect our rights to our intellectual
property. Although we have filed a U.S. patent application and an international
Patent Cooperation Treaty patent application on our proprietary software, no
patents have yet been granted. We have not yet applied for registration of our
service marks in the United States or abroad. Effective trademark, copyright
and trade secret protection may not be available in every country in which we
offer our services. Despite our efforts, we cannot assure you that our rights
will be enforceable even if our patent is granted, and we may be unable to
deter misappropriation of our intellectual property. Misappropriation could
have a material adverse effect on our brand and our business by causing us to
lose customers and revenue opportunities. In addition, pursuing persons who
might misappropriate our intellectual property could be costly and divert the
attention of management from the operation of our business. See "Business--Our
Intellectual Property."
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CLAIMS OF OUR INFRINGEMENT ON THE INTELLECTUAL PROPERTY RIGHTS OF OTHERS COULD
BE COSTLY AND DISRUPTIVE TO OUR BUSINESS OPERATIONS
Other parties may assert claims against us that we have violated a patent
or infringed a copyright, trademark or other proprietary right belonging to
them directly or through the use of software or technology that we license from
others. Defending against any such claim could be costly and divert the
attention of management from the operation of our business. In addition, the
inability to obtain or maintain the use of licenses or other technology could
adversely affect our business operations.
YEAR 2000 COMPLICATIONS COULD BE DISRUPTIVE TO OUR BUSINESS OPERATIONS
On January 1, 2000, many currently installed computer systems and software
products could fail or malfunction because they may not be able to distinguish
between 20th century dates and 21st century dates. We are subject to external
Year 2000-related failures or disruptions that might generally affect industry
and commerce, such as failures by long distance telephone carriers, local
exchange companies, Internet access providers and related service providers.
These failures or disruptions are especially critical to us as a seller of
telephone services. Notwithstanding our Year 2000 efforts, the failure of our
systems or those of any of our information technology service providers,
outsourcing partners or suppliers, or the failure of the Internet generally, to
be Year 2000 ready could harm the operation of our systems or have unforeseen,
material adverse consequences to us. These consequences could include power
supply interruptions to our customers or the inability to bill our customers.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations--Year 2000 Statement."
RISKS RELATED TO THIS OFFERING
OUR EXISTING STOCKHOLDERS WILL EXERCISE SIGNIFICANT CONTROL AND COULD MAKE
DECISIONS THAT ADVERSELY AFFECT NEW INVESTORS
We expect that our founders will continue to exercise significant control
over our direction and management following the closing of this offering. In
addition, our directors and executive officers and their affiliates will, in
the aggregate, own approximately 23% of the outstanding shares upon the closing
of this offering. As a result of their share ownership, these stockholders will
have a significant influence on all matters requiring stockholder approval,
including the election of directors. This concentration of ownership could
delay or prevent another person from acquiring control or causing a change in
control of us, which may affect your ability to resell your shares at a
favorable price. See "Principal and Selling Stockholders."
MANAGEMENT WILL HAVE BROAD DISCRETION IN USE OF PROCEEDS AND IT MAY NOT
EFFECTIVELY UTILIZE THOSE FUNDS.
Our management will have broad discretion in how we use the net proceeds
of this offering. Investors will be relying on the judgment of our management
regarding the application of the net proceeds of this offering. See "Use of
Proceeds."
INVESTORS WILL EXPERIENCE IMMEDIATE AND SUBSTANTIAL DILUTION AND MAY EXPERIENCE
FURTHER DILUTION.
The offering price of the common stock in this offering will be
substantially higher than the net tangible book value per share of the common
stock immediately after this offering. Therefore, assuming a public offering
price of $7.00 per share, if you purchase shares of common stock in this
offering, you will incur immediate and substantial dilution of $4.54 per share
in the net tangible book value per share of common stock from the price you
paid. The exercise prices of all of our outstanding options are below the
anticipated public offering price. To the extent these options are exercised or
debentures converted, you will experience further dilution. See "Dilution."
MARKET FOR COMMON STOCK
On January 4, 1999, the SEC approved amendments to NASD 6530 and 6540,
known as the Eligibility Rule, to limit quotations on the OTC Bulletin Board to
the securities of companies that
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report their current financial information to the SEC, banking, or insurance
regulators. Issuers like us, whose securities were quoted on the OTC Bulletin
Board as of January 4, 1999, and have continued to be quoted, are required to
comply with the Eligibility Rule according to a phase-in schedule starting in
July 1999 and continuing through June 2000. The Eligibility Rule provides that,
in order for a security to continue being quoted on the OTC Bulletin Board, the
issuer is required to make periodic filings with the SEC or with banking or
insurance regulators, and be current with those filings. Under its terms, the
Eligibility Rule was applied to companies which are subject to its provisions
according to an alphabetical phase in period which was established based upon
the OTC Bulletin Board symbol being used on January 6, 1999.
On June 3, 1999, the SEC granted an exemption from SEC Rule 15c2-11 for
securities that were quoted on the OTC Bulletin Board on or before January 4,
1999, that will no longer be eligible to be quoted on the OTC Bulletin Board
due to the phase-in implementation of the Eligibility Rule. This exemption will
permit broker-dealers to publish or submit quotations in other quotation
mediums, including the National Quotation Bureau, LLC's Pink Sheets, for
securities being removed from the OTC Bulletin Board pursuant to NASD Rule
6530, subject to certain conditions with which we have complied.
We became listed on the OTC Bulletin Board through a transaction on April
6, 1999, that resulted from a reorganization with American Ostrich Corporation
which was a non-reporting OTC Bulletin Board company whose symbol was "AOC".
Based upon the phase in schedule established by the NASD for American Ostrich
Corporation, we were required to file current financial information with the
SEC by August 1, 1999, in order for our common stock to continue to be quoted
on the OTC Bulletin Board. We did not make the required filings by such date.
As a result, market makers are not permitted to quote us on the OTC Bulletin
Board until the financial information has been filed and the SEC has completed
its review.
As of August 2, 1999, quotations in our shares of common stock can only be
made in the National Quotation Bureau, LLC's Pink Sheets until we are able to
complete our required filing. Our stock price experienced a significant decline
when our stock became quoted in the National Quotation Bureau, LLC's Pink
Sheets. Once we respond satisfactorily to all SEC comments to the registration
statement of which this prospectus is a part, we will satisfy the filing
requirement.
We intend to file an application for our shares to be included for
quotation on the Nasdaq National Market System. However, there can be no
assurance that we will be successful in our efforts to list our shares on the
Nasdaq National Market System and may trade only on the OTC Bulletin Board or
in the National Quotation Bureau, LLC's Pink Sheets.
OUR STOCK PRICE IS LIKELY TO BE VOLATILE AND THIS VOLATILITY COULD AFFECT YOUR
ABILITY TO RESELL YOUR SHARES AT A PROFIT
The trading price of our common stock is likely to be volatile. The stock
market has experienced significant price and volume fluctuations, and the
market prices of technology company stocks, particularly those of
Internet-related companies, have been highly volatile. Since the completion of
the Axicom-American Ostrich transaction, our stock has been quoted at a high
ask price of $8.25 per share and a low bid price of $0.03 per share. Our stock
could be considered to be highly volatile and thinly traded. As a result, you
may not be able to resell your shares at a price equal to or greater than the
price of this offering. In the past, following periods of volatility in the
market price of a company's securities, securities class action litigation has
often been instituted against the issuing company, resulting in substantial
costs and a diversion of management's attention from the operation of its
business.
SHARES ELIGIBLE FOR FUTURE SALE BY OUR EXISTING STOCKHOLDERS MAY ADVERSELY
AFFECT OUR STOCK PRICE
The market price of our stock could drop due to the sales of a large
number of shares of our stock or the perception that such sales could occur.
These factors could also make it more difficult to raise funds through future
offerings of stock. After this offering, 10,314,666 shares of common stock
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will be outstanding. Of these shares, 5,758,595 shares, including the 4,164,891
shares sold in this offering, will be freely tradable without restrictions
under the Securities Act of 1933, as amended, except for any shares purchased
by our "affiliates," as defined in Rule 144 under the Securities Act. In
addition, 494,672 shares of outstanding common stock are being registered in
the registration statement of which this prospectus is a part, but are subject
to a lock-up agreement as described below. The remaining 4,556,071 shares of
common stock are "restricted securities," as that term is defined in Rule 144
under the Securities Act, and in the future may only be sold pursuant to a
registration statement under the Securities Act, in compliance with the
exemption provisions of Rule 144 or pursuant to another exemption under the
Securities Act. We expect all of our officers and directors and stockholders to
enter into lock-up agreements pursuant to which they agree not to offer or sell
any shares of common stock for a period of 180 days after the date of this
prospectus without the prior written consent of Kaufman Bros., L.P. on behalf
of the underwriters. Upon expiration of this lock-up period, the shares owned
by these persons prior to completion of this offering may be sold into the
public market without registration under the Securities Act, provided such
sales are in compliance with the volume limitations and other applicable
restrictions of Rule 144 under the Securities Act. After the date of this
prospectus, we intend to file one or more registration statements under the
Securities Act to register all shares of common stock issuable upon the
exercise of outstanding stock options or options reserved for issuance under
our stock option plan which was adopted by our Board of Directors, subject to
stockholder approval. Those registration statements are expected to become
effective immediately upon filing, and subject to the vesting requirements and
exercise of the related options and the grant of stock awards (as well as the
terms of the lock-up agreements), shares covered by those registration
statements will be eligible for sale in the public markets, except for any
shares held by our affiliates. In addition, holders of our convertible
debentures have the right to demand registration of the shares of common stock
issuable to them upon conversion at any time from the date of this prospectus
to June 1, 2000. See "Shares Eligible for Future Sale."
19
<PAGE>
USE OF PROCEEDS
The net proceeds to us from the sale of our common stock offered hereby
are estimated to be $24,920,000, assuming an offering price of $7.00 per share
($28,943,287 if the underwriters' over-allotment option is exercised in full).
We plan to spend a total of $9.0 million of the net proceeds of this offering
on advertising and promotion, including $3.7 million on portal contracts which
will provide advertising of our services on a variety of Web sites for an
extended period. We expect to use approximately $0.4 million to upgrade our
computer hardware and software and $0.5 million to reduce trade debt. The
balance of approximately $15.0 million will be added to working capital and be
available for general corporate purposes, including hiring additional
personnel, repayment of accrued liabilities owed to senior management
(including $50,000 to Mr. Seelbach and approximately $30,800 to each of Messrs.
Bardenheuer and Johnson, Jr.) and possible future acquisitions. Pending such
uses, the net proceeds will be invested in short-term, interest bearing
securities. See "Risk Factors--Risks Related To This Offering--Management Will
Have Broad Discretion In Use Of Proceeds And May Not Effectively Utilize Those
Funds," "Management--Employment and Consulting Agreements," "Management--
Executive Compensation" and "Related Party Transactions."
PRICE RANGE OF OUR COMMON STOCK
Although our common stock is traded in the National Quotation Bureau,
LLC's Pink Sheets under the symbol "CALN", such trading has been limited and
sporadic. The following table shows the high and low ask prices per share of
our common stock as reported in the National Quotation Bureau, LLC's Pink
Sheets (and prior to August 2, 1999, on the OTC Bulletin Board) for the periods
indicated:
<TABLE>
<CAPTION>
HIGH LOW
------------ -----------
<S> <C> <C>
Fiscal Year 1997(1)
First Quarter .................................. $ 0.375 $ 0.375
Second Quarter ................................. 0.375 0.375
Third Quarter .................................. 0.375 0.375
Fourth Quarter ................................. 0.375 0.375
Fiscal Year 1998(1)
First Quarter .................................. $ 0.375 $ 0.375
Second Quarter ................................. 0.50 0.375
Third Quarter .................................. 0.50 0.50
Fourth Quarter ................................. 0.50 0.50
Fiscal Year 1999(1)
First Quarter .................................. $ 0.50 $ 0.50
Second Quarter(2) .............................. 8.25 0.50
Third Quarter (through Sept. 21, 1999) ......... 4.6875 2.50
</TABLE>
- ----------
(1) Prior to April 6, 1999, the high and low ask prices per share reflect
only the operations of American Ostrich Corporation before the
acquisition of Axicom. Also, in April 1999, American Ostrich Corporation
effected a reverse stock split of 32,000 to 1 and the prices commencing
in the Second Quarter of 1999 reflect such split.
(2) The high and low bid prices per share of our common stock were $7.00 and
$0.03, respectively for the second quarter of 1999 and $2.75 and $1.125,
respectively, for the third quarter (through September 21, 1999).
On September 22, 1999, the last reported bid price of our common stock in
the National Quotations Bureau LLC's Pink Sheets was $1.125. As of September
20, 1999, there were approximately 221 stockholders of record of our common
stock.
20
<PAGE>
DIVIDEND POLICY
We have not declared or paid any cash dividends on our common stock, and
we do not anticipate declaring or paying any cash dividends on our common stock
in the foreseeable future. We intend to retain any future earnings for use in
the operation of our business.
CAPITALIZATION
The following table sets forth the current portion of long-term debt and
other short-term debt obligations and our capitalization (i) as of June 30,
1999, (ii) pro forma, adjusted to reflect (a) repayment of a loan payable to an
officer in the amount of $51,522 in September 1999, (b) the sale of 691,853
shares of common stock in private placements and the issuance of 40,000 shares
in connection with the sale of technology agreements that were consummated
subsequent to June 30, 1999 but prior to the date of this prospectus and (c)
the conversion of $479,000 principal amount of a convertible debenture into
343,662 shares of our common stock and the exercise of warrants to purchase
100,000 shares of our common stock and (iii) pro forma as adjusted, adjusted to
reflect the sale of the common stock offered hereby and the application of the
estimated net proceeds as described in "Use of Proceeds." This table should be
read in conjunction with the financial statements and related notes thereto
included elsewhere in this prospectus.
<TABLE>
<CAPTION>
JUNE 30, 1999
---------------------------------------------------
(UNAUDITED)
PRO FORMA,
ACTUAL PRO FORMA AS ADJUSTED
--------------- --------------- ---------------
<S> <C> <C> <C>
Current portion of long-term debt (1) .............. $ 85,333 $ 85,333 $ 85,333
Loan payable--officer (1) .......................... 51,522 -- --
------------ ------------ ----------
Total current debt obligations .................. $ 136,855 $ 85,333 $85,333
============ ============ ==========
Long-term debt, net of current portion (1) ......... $ 479,000 $ -- $ --
Other long-term liabilities ........................ 1,234,747 1,234,747 1,234,747
------------ ------------- -----------
Total long-term obligations ..................... 1,713,747 1,234,747 1,234,747
------------ ------------- -----------
Stockholders' equity (deficit):
Common stock, $.001 par value; 50,000,000
shares authorized; 5,139,151 shares issued
and outstanding; 6,314,666 shares issued
and outstanding, pro forma; 10,314,666
shares issued and outstanding, pro forma as
adjusted (2) .................................... 5,139 6,315 10,315
Additional paid-in capital ........................ 1,261,691 3,743,112 28,659,112
Accumulated deficit ............................... (3,294,873) (3,294,873) (3,294,873)
------------ ------------- -----------
Total stockholders' equity (deficit) ............ (2,028,043) 454,554 25,374,554
------------ ------------- -----------
Total capitalization ............................ $ (314,296) $ 1,689,301 $26,609,301
============ ============= ===========
</TABLE>
- ----------
(1) See Notes 3, 4 and 5 of Notes to Financial Statements for a description
of our debt obligations.
(2) Excludes (i) 282,825 shares of common stock issuable upon exercise of
options at exercise prices ranging from $.01 to $2.75 per share, which
options include an anti-dilution provision which will result in the
additional issuance of options to purchase 200,000 shares of common stock
at the offering price; (ii) 2,200,000 shares of common stock reserved for
future issuance under a stock option plan which our Board of Directors
has adopted, subject to stockholder approval, of which options to
purchase 958,000 shares of common stock at exercise prices of $2.75 per
share have been granted (such granted options are subject to an increase
in exercise price if our compensation committee determines that such
increase is necessary based on third party determinations of fair market
value); (iii) 400,000 shares of common stock issuable upon exercise of
the Representatives' Warrants at an assumed exercise price of $8.40 per
share; and (iv) a maximum of 181,232 shares of common stock issuable upon
conversion of $1,279,500 in principal amount of convertible debentures
outstanding as of the date of this prospectus at an effective conversion
price of $7.06. See "Capitalization," "Management--Employment and
Consulting Agreements," "Related Party Transactions" and "Notes to
Consolidated Financial Statements."
21
<PAGE>
DILUTION
Our net tangible book value (deficit) at June 30, 1999 was $(2,028,043),
or $(.39) per share. "Net tangible book value per share" represents our total
tangible assets less our total liabilities, divided by the number of shares of
common stock outstanding. After giving effect to the sale of 691,853 shares of
common stock in private placements, the issuance of 40,000 shares in connection
with sale of technology agreements that were consummated subsequent to June 30,
1999, but prior to the date of this prospectus, the conversion of $479,000
principal amount debenture into 343,662 shares of our common stock, the
exercise of warrants to purchase 100,000 shares of our common stock and the
sale of the common stock offered hereby at an assumed offering price of $7.00
per share and application of net proceeds therefrom, our pro forma net tangible
book value at June 30, 1999 would have been approximately 25,374,554, or $2.46
per share. This represents an immediate increase in net tangible book value per
share of $2.85 to existing stockholders and an immediate dilution of $4.54 per
share to the investors purchasing shares of our common stock at the assumed
public offering price. The following table illustrates this dilution in net
tangible book value to new investors:
<TABLE>
<S> <C> <C>
Assumed public offering price per share ............................... $ 7.00
Net tangible book value (deficit) per share before offering ......... $ (0.39)
Increase per share attributable to new investors .................... 2.85
-------
Pro forma net tangible book value per share after offering ............ 2.46
-------
Dilution to new investors ............................................. $ 4.54
=======
</TABLE>
The following table sets forth the number of shares of common stock
purchased from us, the effective cash contribution made and the average price
per share paid by existing stockholders and by purchasers of the common stock
offered hereby (assuming a public offering price of $7.00 per share):
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
------------------------ ------------------------- PRICE PER
NUMBER PERCENT AMOUNT PERCENT SHARE
------------ --------- ------------- --------- ----------
<S> <C> <C> <C> <C> <C>
Existing Stockholders ......... 6,314,666 61.2% $ 3,838,363 12.1% $ 0.61
New Investors ................. 4,000,000 38.8% 28,000,000 87.9% $ 7.00
--------- ----- ----------- -----
Total ........................ 10,314,666 100.0% $31,838,363 100.0%
========== ===== =========== =====
</TABLE>
The foregoing table excludes (i) 282,825 shares of common stock issuable
upon exercise of options at exercise prices ranging from $.01 to $2.75 per
share, which options include an anti-dilution provision which will result in
the additional issuance of options to purchase 200,000 shares of common stock
at the offering price; (ii) 2,200,000 shares of common stock reserved for
future issuance under a stock option plan which our Board of Directors has
adopted, subject to stockholder approval, of which options to purchase 958,000
shares of common stock at exercise prices of $2.75 per share have been granted
(such granted options are subject to an increase in exercise price if our
compensation committee determines that such increase is necessary based on
third party determinations of fair market value); (iii) 400,000 shares of
common stock issuable upon exercise of the Representatives' Warrants at an
assumed exercise price of $8.40 per share; and (iv) a maximum of 181,232 shares
of common stock issuable upon conversion of $1,279,500 in principal amount of
convertible debentures outstanding as of the date of this prospectus at an
effective conversion price of $7.06. See "Capitalization," "Management--
Employment and Consulting Agreements," "Related Party Transactions" and "Notes
to Consolidated Financial Statements."
22
<PAGE>
SELECTED FINANCIAL DATA
The following selected financial data as of and for the three-year period
ended December 31, 1998 are derived from our audited financial statements. The
selected financial data for the year ended December 31, 1995 and the six-month
periods ended June 30, 1999 and 1998 are derived from our unaudited financial
statements. In the opinion of our management, our unaudited financial
statements contain all adjustments (consisting of only normal recurring
accruals) necessary for a fair presentation of our consolidated financial
condition and result of operations as of and for the periods presented.
Operating results for the six months ended June 30, 1999 are not necessarily
indicative of the results that may be expected for the entire fiscal year
ending December 31, 1999. The financial data below should be read in
conjunction with our financial statements and related notes contained elsewhere
in this prospectus and "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
----------------------------------------------------------- -------------------------------
1995 1996 1997 1998 1998 1999
------------- ------------- --------------- --------------- --------------- ---------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Net sales ......................... $ 453,273 $1,674,955 $ 5,010,027 $ 2,295,202 $ 1,385,666 $ 542,689
Cost of sales ..................... 395,121 1,276,934 4,293,524 1,681,978 1,101,200 390,587
---------- ---------- ------------ ------------ ------------ ------------
Gross profit ...................... 58,152 398,021 716,503 613,224 284,466 152,102
---------- ---------- ------------ ------------ ------------ ------------
Operating expenses:
Administrative .................. 230,097 654,009 570,500 518,546 205,575 308,094
Sales and marketing ............. 77,688 475,432 807,989 438,430 198,249 159,322
Technical ....................... -- 178,652 143,134 101,330 75,734 50,444
Depreciation and
amortization ................... 3,454 19,568 53,651 105,860 36,840 76,437
---------- ---------- ------------ ------------ ------------ ------------
311,239 1,327,661 1,575,274 1,164,166 516,398 594,297
---------- ---------- ------------ ------------ ------------ ------------
Loss from operations .............. (253,087) (929,640) (858,771) (550,942) (231,932) (442,195)
Interest expense .................. -- (1,154) (58,568) (90,436) (23,763) (36,848)
Litigation settlement ............. -- -- -- -- -- (46,922)
---------- ---------- ------------ ------------ ------------ ------------
Net loss .......................... $ (253,087) $ (930,794) $ (917,339) $ (641,378) $ (255,695) $ (525,965)
========== ========== ============ ============ ============ ============
Net loss per share ................ $ (0.08) $ (0.24) $ (0.24) $ (0.17) $ (0.07) $ (0.11)
========== ========== ============ ============ ============ ============
Weighted average common
shares ............................ 3,055,525 3,875,000 3,875,000 3,875,000 3,875,000 4,577,162
========== ========== ============ ============ ============ ============
DECEMBER 31, JUNE 30,
--------------------------------------------------------- --------------------------------
1995 1996 1997 1998 1998 1999
----------- ---------- ------------ ------------ ------------- ------------
(UNAUDITED)
BALANCE SHEET DATA:
Cash .............................. $ 47,849 $ 71,260 $ 107,832 $ 7,565 $ 24,013 $ 152,565
Current assets .................... 259,591 358,843 375,106 130,265 175,665 262,121
Current liabilities ............... 200,281 806,912 1,825,485 1,250,301 1,950,054 1,583,360
Working capital (deficit) ......... 59,310 (448,069) (1,450,379) (1,120,036) (1,774,389) (1,321,239)
Total assets ...................... 299,887 653,557 686,645 679,353 493,096 1,269,064
Long-term debt and other
liabilities ..................... -- 227,433 147,756 1,357,026 85,333 1,713,747
Stockholders' equity
(deficit) ....................... 99,606 (380,788) (1,286,596) (1,927,974) (1,542,291) (2,028,043)
</TABLE>
23
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the financial
statements and the notes to those statements included elsewhere in this
prospectus. The following discussion contains forward-looking statements that
reflect our plans, estimates and beliefs. Forward-looking statements include,
but are not limited to, statements concerning anticipated trends in revenue and
net income, projections concerning operations, and available cash flow. Our
actual results could differ materially from those discussed in these
forward-looking statements. Factors that could cause or contribute to such
differences include, but are not limited to, those discussed below and
elsewhere in this prospectus, particularly in "Risk Factors."
OVERVIEW
We began operations in 1995 as AXICOM Communications Group, Inc., an
alternative international telephone service company. In mid-1997, we recognized
the opportunity of offering multiple telephone services using the Internet and
changed our strategy. We decreased the number of customers that we acquired and
billed through independent agents and reduced our wholesale business which had
accounted for approximately half our revenues, but which was not profitable. We
filed a patent for our proprietary Internet software in August 1998, and
implemented our new Internet strategy in September 1998. In April 1999, as a
result of a reorganization, Axicom became a subsidiary of CallNOW.com, Inc.
Today, CallNOW.com is a Web-based provider of telecommunications services
in approximately 230 countries, territories, dependencies and other locations.
We believe that our technology is an excellent means to deliver competitively
priced dial tone to Web-based customers in virtually all the countries of the
world in a cost-effective manner. In addition, we have a free global online
telephone directory, which currently generates over 1.5 million page
impressions and over 400,000 user sessions per month.
Revenue is generated primarily from international and national ReturnCall
services and is based on the minutes of customer use billed by us on completed
calls. Our ReturnCall revenue represents the majority of our revenue. Our
ReturnCall customer base of individuals and small businesses is diversified
geographically with about 58% of our customers located in Europe, 21% in North
America, 11% in Latin America and 10% in the rest of the world.
Since the implementation of our Web-based strategy in 1998, approximately
70% of our revenue has been collected through automatic charges to pre-approved
customer credit cards. This is increasing as more of our customers sign up
through our Web site. All Web-based customers are credit card customers.
We have recruited approximately 170 affiliates. Our affiliate program
includes many telecommunication related Web sites, international and national
search engines and general e-commerce sites. Under the terms of their
agreements, affiliates are responsible for marketing our services on their Web
sites and are compensated on a commission basis. We also have agents, though we
expect that the use of agents will be phased out over a period of time in favor
of affiliates.
Cost of revenue consists primarily of costs paid to carriers for the
origination and transmission of voice and data telecommunications services.
Currently, our telecommunications revenue is derived from services that are
accessed through the facilities of long distance carriers. Accordingly, the
vast majority of our cost of telecommunications services is variable, based on
the number of minutes of use, with transmission costs being our most
significant expense.
Sales and marketing expense represents commissions paid for sales by
affiliates and agents. In addition, we include in sales and marketing expense
the costs of bad debts, recruiting affiliates, advertising, and promotion of
the CallNOW.com brand.
24
<PAGE>
General and administrative expense primarily represents the cost of
customer service, executive and employee compensation, overall administrative
costs, professional fees, and other operating and corporate overhead.
Technical costs include the costs associated with the operation and
maintenance of our switch, and costs related to the technical development of
our Web site and our global telephone directory Web site.
Depreciation expense includes depreciation of switching and network
equipment, software, computers, furniture, and fixtures. We provide for
depreciation using the straight line method of depreciation over the estimated
useful lives of the assets, which range from three to ten years.
Interest and debt discount expense includes interest expense on
indebtedness and non-cash financing expenses.
RESULTS OF OPERATIONS
Six Months Ended June 30, 1999 Compared to Six Months Ended June 30, 1998
Our Internet strategy gained more momentum in the first half of 1999 even
without significant advertising or promotion. The number of Web customers
increased from 355 to 2,500 during the first half of 1999. The implementation
of the Internet strategy resulted in planned decreases in revenue from our
prior agent based business while gross profit margins increased with a more
profitable mix of retail business and the reduction in wholesale business.
Further, we incurred additional costs in acquiring Telephone Directories on the
Web and hiring additional personnel.
Revenue decreased $842,977 from $1,385,666 for the six months ended June
30, 1998 to $542,689 for the six months ended June 30, 1999. This decrease in
revenue was due to our change in strategy which resulted in reduction of
revenues from both (i) our low margin wholesale business to approximately
$32,000 in the first six months of 1999 from approximately $290,000 in the
first six months of 1998, and (ii) our agent retail business to approximately
$260,000 in the first six months of 1999 from approximately $750,000 in the
first six months of 1998. This decrease was offset by approximately $176,000 in
revenue from Internet customers in the first half of 1999. We did not launch
this business until the second half of 1998.
Our cost of revenue decreased $710,613 from $1,101,200 for the six months
ended June 30, 1998 to $390,587 for the six months ended June 30, 1999. The
decrease in cost of revenue was due primarily to the decline in usage, although
about 20% of the decrease was due to lower carrier costs. As a percentage of
revenue, these costs decreased from approximately 80% for the six month period
ended June 30, 1998 to approximately 72% for the six month period ended June
30, 1999, reflecting a greater percentage of higher priced, retail revenue and
a significantly lower volume of wholesale revenue.
Sales and marketing expense decreased $38,927 from $198,249 for the six
months ended June 30, 1998 to $159,322 for the six months ended June 30, 1998.
The decrease was due in part to a decrease in agent commissions caused by the
decrease in revenue, as well as a lower commission rate paid for Web-based
business.
General and administrative expense increased $102,519, from $205,575 for
the six months ended June 30, 1998 to $308,094 for the six months ended June
30, 1999. The increase in cost was due to additional costs associated with the
acquisition of Telephone Directories on the Web, the hiring of additional
personnel, and increases in other general administrative expenses.
Depreciation and amortization expense increased $39,597, from $36,840 for
the six months ended June 30, 1998 to $76,437 for the six months ended June 30,
1999. These costs increased primarily as a result of higher software
amortization costs during the six months ended June 30, 1999 as compared to the
six months ended June 30, 1998.
Interest expense increased $13,085, from $23,763 for the six months ended
June 30, 1998 to $36,848 for the six months ended June 30, 1999. This increase
is primarily due to additional interest on payables.
25
<PAGE>
As a result of the foregoing, we had a net loss from operations of
$231,932 for the six months ended June 30, 1998 compared to a net loss of
$442,195 for the six months ended June 30, 1999. This increased loss reflects
the planned change in strategy we implemented in 1999, a decline in wholesale
and non-credit card retail sales from our previous business strategy and
additional expenses incurred in implementing our Internet strategy.
We had a net loss of $255,695, or $.07 per share, for the six months ended
June 30, 1998 compared to a net loss of $525,965, or $.11 per share, for the
six months ended June 30, 1999. The increase in net loss was due primarily to
the increased net loss from operations, additional interest charges and the
settlement of an outstanding litigation. The change in per share results was
due primarily to the Internet strategy change and an increase in weighted
average shares outstanding.
Fiscal Year Ended December 31, 1998 Compared to Fiscal Year Ended December
31, 1997
Revenue decreased $2,714,825 from $5,010,027 for the fiscal year ended
December 31, 1997 to $2,295,202 for the fiscal year ended December 31, 1998.
This decrease in net revenue resulted from a shift in focus to our Internet
strategy and a corresponding de-emphasis of wholesale and non-Web-based
business. In order to reposition ourselves as an e-commerce company and to
retrain our staff, we ceased marketing of wholesale contracts and phased out
customers who did not pay by credit cards; consequently, our revenue from
ReturnCall also declined. At the same time, ReturnCall revenue represented
41.6% and 70.3% of fiscal year 1997 and 1998 revenue, respectively, while
carrier and reseller revenue represented 58.4% and 29.7% of fiscal year 1997
and 1998 revenue, respectively.
Our cost of revenue decreased $2,611,546 from $4,293,524 for the fiscal
year ended December 31, 1997 to $1,681,978 for the fiscal year ended December
31, 1998. As a percentage of revenue, these costs decreased from approximately
86% for 1997 to approximately 74% for 1998. The decrease in costs as a
percentage of revenue is attributable to the change in revenue mix from lower
margin wholesale activity to higher margin retail sales.
Sales and marketing expense decreased $369,559 from $807,989 for the
fiscal year ended December 31, 1997 to $438,430 for the fiscal year ended
December 31, 1998. This decrease was attributable to lower commissions due to
our lower revenue.
Our technical expenses are comprised of the costs of maintaining our
switch and telecommunications network and the costs of developing and
maintaining our Web site, servers and related databases. These costs decreased
$41,804 from $143,134 for the fiscal year ended December 31, 1997 to $101,330
for the fiscal year ended December 31, 1998. The lower costs in 1998 reflect a
reduction in personnel because of the decline in revenues in 1998, offset in
part by expenses associated with our efforts to complete the Internet software
in 1998.
General and administrative expense declined $51,594, from $570,500 for the
fiscal year ended December 31, 1997 to $518,546 for the fiscal year ended
December 31, 1998. The decrease in general and administrative expenses was a
function of the reduction in sales but was partially offset by costs associated
with implementing our e-commerce strategy.
Depreciation and amortization expense increased $52,209, from $53,651 for
the fiscal year ended December 31, 1997 to $105,860 for the fiscal year ended
December 31, 1998. The increase is the result of significant investment during
1998, principally to acquire our Internet software.
Interest expense increased $31,868, from $58,568 for the fiscal year ended
December 31, 1997 to $90,436 for the fiscal year ended December 31, 1998. The
increase was the result of financing costs arising from increasing balances
payable to trade creditors.
Our net loss was $917,339 for the fiscal year ended December 31, 1997
compared to a net loss of $641,378 for the fiscal year ended December 31, 1998.
The reduction in loss was the result of a decline in total revenues and
resulting lower sales and marketing costs, higher gross profit margins because
of a higher mix of retail business, and significantly lower bad debt expense in
1998 as we billed more customers by credit card versus having agents collect
from them locally. However, administrative and technical costs did not fall as
much as revenue. In addition, depreciation and amortization increased as we
wrote off more development costs and interest costs increased as we borrowed
more short term funds for operations.
26
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Our capital resources have been used to fund operating losses, debt
service and capital expenditures associated with development of our customer
base and the establishment and upgrade of our network infrastructure. We have
historically satisfied our capital requirements principally through extended
trade agreements with carriers and other suppliers. At June 30, 1999, we had a
working capital deficit of $1,321,239.
During the six-month period ended June 30, 1999, we effected a number of
revisions to our capital structure. Such revisions included raising a total of
$979,000 in capital through the issuance of convertible debentures and the
subsequent conversion of all of those debentures into 972,247 shares of our
common stock. We also negotiated agreements with trade creditors that converted
approximately $1,279,500 of trade debt into 5% convertible debentures with
three-year maturities. In addition, during July 1999, we completed a private
placement of 545,454 shares of our common stock, raising an aggregate of
$1,500,000 and providing additional liquidity. In September 1999, we issued an
aggregate of 146,399 shares of our common stock in private placements for a
total of approximately $402,600. We also have outstanding loans in the original
aggregate principal amount of $300,000 of which approximately $55,000 is
outstanding as of September 27, 1999. These loans bear interest at a rate of
12% and mature in January and March 2000.
We intend to devote considerable personnel and marketing resources to
promote our Internet strategy by increasing advertising and promotion as well
as expanding our affiliate strategy. We believe that cash on hand, together
with cash flow from our operating activities and cash available from this
offering, will be sufficient to fund our existing operations at least for the
next 12 months. If our growth exceeds current expectations or we expedite or
expand our growth plan, or if our cash flow from operations is insufficient to
meet our working capital and capital expenditure requirements, we will need to
raise additional capital from equity or debt sources. There can be no assurance
that we will be able to raise additional capital on acceptable terms or at all.
If we are unable to obtain such additional capital, we may have to curtail our
expansion of operations, growth and other strategic initiatives, which could
adversely affect our business, financial condition or results of operations and
our ability to compete. See "Risk Factors--Risks Related To Establishment Of
Our Business--We May Need Additional Capital To Finance Growth And Capital
Requirements."
EFFECTS OF INFLATION
We do not believe that inflation has had a significant effect on our
operations to date.
SEASONALITY
Our business exhibits a degree of seasonality. Historically, our revenue
(as well as sales in the telecommunications industry in general) has decreased
slightly in July, August and December, which we attribute to vacations and
holidays in our European and Latin American markets and in the U.S.
ACCOUNTING PRONOUNCEMENTS
In April 1998, the American Institute of Certified Public Accountants
issued Statement of Position ("SOP") 98-5, "Reporting on the Costs of Start-Up
Activities," which requires costs of start-up activities and organization costs
to be expensed as incurred. The SOP is effective for financial statements with
fiscal years beginning after December 15, 1998, although earlier application is
encouraged. The adoption of the SOP is not expected to have a material adverse
effect on us.
YEAR 2000 COMPLIANCE
Year 2000 issues exist when computer systems and applications fail to
recognize date information correctly when the year changes to 2000. If those
computer programs are not corrected, many computer systems could fail or create
erroneous results. To date, we have experienced no year 2000 issues with any of
our internal systems or our services.
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State of Readiness
We have completed an assessment of year 2000 compliance for our critical
operating and application systems, specifically our information systems,
analysis tools, and supporting operation system infrastructure. We consider a
product to be year 2000 compliant if the product's performance and
functionality are unaffected by the processing of dates before, during and
after the year 2000. As a result of our assessment, we have determined that
through normal recurring system upgrades, the vast majority of our systems are
currently, or will be by November 1999, year 2000 compliant.
The potential impact of the year 2000 issue will depend not only on our
internal year 2000 compliance, but also on the way in which the year 2000 is
addressed by vendors, service utilities, government and other external
entities. We are communicating with our key vendors to determine how they are
addressing the year 2000 issue and to evaluate any likely impact on our
business. However, the efforts of third parties are not within our control and
their failure to remedy year 2000 issues successfully could result in business
disruption, loss of revenue and increased operating cost.
Costs Associated with Year 2000 Compliance
Since year 2000 compliance with regard to our internal systems has been,
or will be, significantly achieved through normal system upgrades and not
through accelerated or dedicated efforts, the cost of becoming year 2000
compliant has not had and is not expected to have a material effect on our
financial position, operations or cash flow.
Risks Associated with Year 2000 Issues
While it is impossible to evaluate every aspect of year 2000 compliance,
we believe that either of two events would be our most likely year 2000 worst
case scenario. The first would be from one or more of our sole or limited
source suppliers to fail to be year 2000 compliant or to have its business
negatively impacted by year 2000 issues of others. The second would be delays
in receiving orders or payments on credit cards from customers due to year 2000
problems. At the present time, it is not possible to determine whether any of
these events is likely to occur, or to quantify any potential negative impact
they may have on our future results of operations and financial condition.
Additional Risks
Any failure by us to make our services year 2000 compliant could result in
a decrease in sales of our services, an increase in allocation of resources to
address year 2000 problems of our customers without additional revenue
corresponding to our dedication of resources, or an increase in litigation
costs relating to losses suffered by our customers due to year 2000 problems.
Failure of our internal systems could temporarily prevent us from providing our
services, issuing invoices, and developing services, and could require us to
devote significant resources to correcting these problems.
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BUSINESS
OUR BUSINESS
We offer telecommunications services through our e-commerce Web site
(www.callnow.com). Our Web site is a communications portal with a look and feel
that is tailored to the local markets in approximately 230 countries,
territories, dependencies and other locations, currently with a choice of four
languages. Our services are provided globally and consist of international long
distance, national long distance, and a free global online telephone directory,
which currently generates over 1.5 million page impressions (page views) and
over 400,000 user sessions (unique visitors) per month. Our customers consist
primarily of individuals and small businesses located outside of the U.S.
The principal service we offer is international and national long distance
calling through ReturnCall. This service offers our customers, particularly
outside the U.S., significant savings on international and national long
distance calls. With the proceeds of this offering, we plan to add direct dial
service in Europe, Japan and Australia and to expand the choice of languages
available on our Web site. In addition, we intend to add calling cards, paging,
fax service, a global online directory for renting cellular phones, and other
telecommunications services and value-added features designed to make our Web
site a single source solution for all of our customers' telecommunications
needs.
Our Web site is driven by our software that provides value-added features
to enable our customers in real time to:
o Survey global telephone rates;
o Sign up online for international and national long distance telephone
service;
o Have their credit cards automatically validated and pre-authorized;
o Activate their accounts;
o Review the details of each of their calls from the date of inception
of their account;
o Review current account information, including cumulative amounts,
through the last call made; and
o Review monthly invoices.
THE INTERNATIONAL TELECOMMUNICATIONS INDUSTRY
Historically, telephone service within individual countries has been
monopolized by large, typically government-owned post and telephone authorities
("PTTs"). As a result, international callers have had little choice but to use
the services provided, and pay the prices charged, by national PTTs.
Deregulation on a regional basis, together with decreases in the cost of
providing services and the introduction of more sophisticated enhanced
services, has made it possible for new entrants to compete with the PTTs in
providing alternative telecommunications services. The resulting decrease in
non-regulated rates has produced a resale market for long distance
telecommunications services permitting companies to obtain favorable
volume-based rates from third-party providers and to resell services at
competitive rates to other providers and users. These and other factors have
contributed to an increase in telecommunications usage and the growth of
enhanced telecommunications services in these markets. The combination of a
continually expanding global telecommunications market, demand for lower prices
and improved quality, and ongoing deregulation has created competitive
opportunities for new telecommunications companies in many countries.
The international long distance industry, which involves the transmission
of voice and data from the domestic telephone network of one country to
another, is undergoing a period of fundamental change that has resulted, and is
expected to continue to result, in significant growth in usage of international
telecommunications services. According to TeleGeography, an independent
research and publishing company, in 1997, the international long distance
industry accounted for $66 billion in revenues and 82 billion minutes of use.
That is an increase from $27 billion in revenues and 22 billion
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minutes of use in 1988. TeleGeography has estimated that, under one set of
assumptions, by the year 2001 this market will have expanded to $80 billion in
revenues and 159 billion minutes of use.
We believe that growth of traffic originated in markets outside the United
States will continue to be higher than growth in traffic originated within the
United States due to recent deregulation in many foreign markets and increasing
access to competitive telecommunications facilities in emerging markets.
The competition spurred by privatization and deregulation has resulted in
a wider choice of products and services and lower prices. In recent years,
prices for long distance services have decreased substantially and are expected
to continue to decrease in most of the markets in which we currently compete.
We believe that the lower price environment and resulting revenue losses from
increased competition have been more than offset by cost decreases and the
increase in telecommunications usage. For example, based on the FCC data for
the period 1989 through 1996, per minute settlement payments by U.S.-based
carriers to foreign PTTs fell 38.6%, from $0.70 per minute to $0.43 per minute.
Over this same period, however, per minute international billed revenue fell
only 27.5%, from $1.02 in 1989 to $0.74 in 1996. We believe that, as settlement
rates and costs for leased capacity continue to decline, international long
distance will continue to provide high revenue and gross profit per minute. See
"Risk Factors--Risks Related To The Telecommunications Business--We May Face
Increasing Competition."
We believe that the international telecommunications market will continue
to experience strong growth for the foreseeable future as a result of the
following developments and trends:
Global economic development and increased access to telecommunications
services. The dramatic increase in the number of telephone lines around
the world, stimulated by economic growth and development, government
initiatives and technological advancements, is expected to lead to
increased demand for international telecommunications services in those
markets.
Liberalization of telecommunications markets. The continuing
liberalization and privatization of telecommunications markets has
provided, and continues to provide, opportunities for new carriers who
desire to penetrate those markets, thereby increasing competition and
resulting in a further decrease in prices for international long
distance services in many of the markets in which we currently compete.
Reduced rates stimulating higher traffic volumes. The reduction of
outbound international long distance rates resulting from increased
competition and technological advancements has made, and continues to
make, international calling available to a much larger customer base
thereby stimulating increased traffic volumes.
Increased capacity and quality. The increased availability of additional
higher-quality digital fiber optic cable has enabled international long
distance carriers to provide more services at a higher quality while
reducing costs.
Bandwidth needs. The demand for bandwidth-intensive data transmission
services, including Internet-based demand, has increased rapidly and is
expected to continue to increase in the future.
Internet telephony. Technology trends over the past decade have removed
the distinction between voice and data segments. In order to satisfy the
high demand for low-cost communication, software and hardware developers
began to develop technologies capable of allowing the Internet to be
utilized for voice communications. This is called Internet telephony. We
are evaluating Internet telephony for our customer base and intend to
integrate it into our services as appropriate.
Popularity and acceptance of technology. The proliferation of
communications devices, including cellular telephones and facsimile
machines, as well as the increased level of Internet usage, has led to a
general increase in the use of telecommunications services and
stimulated demand for faster transmission of data. The following chart
from IDC, as printed in TeleGeography 1998, shows the expected number of
Internet users in certain geographical regions through the year 2002:
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REGIONAL INTERNET GROWTH
[GRAPHIC OMITTED]
INTERNET USERS (MILLIONS)
----------------------------------------
1997 2002
----------- ---------------
JAPAN......................... 4.9 22.1
ASIA-PACIFIC ................. 3.8 36.8
WESTERN EUROPE ............... 16.8 82.0
UNITED STATES ................ 38.7 135.8
CORPORATE HISTORY
We began operations in 1995 as Axicom, an alternative international
telephone service company. We have used ReturnCall technology for our primary
calling service, international and national long distance telephone calls.
ReturnCall essentially works as follows: once our customers have subscribed to
our service, when they want to make an international or national long distance
call, they dial a unique U.S. telephone number and hang up after one ring
before the call is answered, thus avoiding any charge. These calls are made to
our switch which identifies the customers, then calls them back at their own
pre-programmed number, providing them with U.S. dial-tone. Customers can now
call their desired telephone number. The rates we offer for international and
national long distance telephone services are typically significantly below the
rates offered by PTTs. Through this technology, we can provide telephone
service to virtually any country in the world. We have over 4,000 active
subscribers who have signed up for service on our Web site.
In mid-1997, we recognized the opportunity of offering multiple telephone
services using the Internet and changed our strategy. We decreased the number
of customers that we acquire and bill through independent agents and abandoned
our "wholesale" business which had accounted for approximately half our
revenues, but which was not profitable. We filed a patent for our proprietary
Internet software in August 1998, and implemented our new Internet strategy in
September 1998.
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In April 1999, all of the common stock of Axicom was acquired by the
American Ostrich Corporation, a non-reporting company which was publicly traded
on the OTC Bulletin Board under the symbol "AOC". As a result of this
transaction, Axicom stockholders became the majority stockholders of American
Ostrich Corporation, and American Ostrich Corporation reincorporated in
Delaware and changed its name to CallNOW.com, Inc.
BUSINESS STRATEGY
Our goal is to establish ourselves as a leading Web portal providing
access to international and national telecommunications services enhanced by
value-added features. We plan to:
Establish www.CallNOW.com as a Leading Telecommunications "Portal" on the
Internet. We believe that there is currently no global e-commerce brand for
telecommunications. A large portion of the proceeds of this offering will be
used to establish ourselves as a leading portal for telecommunications -- a
one-stop shop on the Web where Internet users can sign up for international
long distance, national long distance, calling cards, cellular rentals and
other services. We believe that our traditional business, ReturnCall, makes us
ideally suited to quickly service multiple markets. We plan to introduce
country specific services in the approximately 230 markets that we serve to
reinforce our image as a local-based company. We will spend a portion of the
proceeds of this offering on country-specific branding of the site. We are
targeting countries with a large amount of international and national long
distance traffic and which also account for the deepest non-U.S. Internet
penetration.
Focus on International Opportunities. We anticipate that approximately 80%
of our customers will continue to reside outside the U.S. In addition, we
expect that the majority of our new Web-based customers will be individuals and
small-sized companies with monthly international long distance bills between
$50 and $5,000. Because of the relatively small account size, these individuals
and corporations are generally not the primary targets of national carriers or
large resellers.
Leverage Multiple Distribution Channels. In order to reach the broadest
potential group of customers rapidly, we are executing a broadly based
affiliate program. This program will create local brand recognition and expand
the reach of our marketing efforts while offering other global e-commerce
organizations the opportunity of selling our telecommunications services in
local markets. We expect that this program will be particularly important in
geographic territories and market segments where populations of potential
customers are too diffuse to support traditional forms of advertising.
Create a "Sticky" Web Site for Cross Selling Products/Services and
Generating Incremental Advertising Revenues. Due to the nature of the services
available through our Web site, we believe customers will have reason to visit
our Web site frequently. This will provide us with the opportunity of cross
selling other products and services and enable us to sell targeted advertising
which will reach customers while they navigate our site. We expect advertising
to be a modest percentage of our revenue.
Develop Additional Services and Value-Added Features. We plan to expand
the services and value-added features we offer our customers through our Web
site to provide additional telecommunications services. For example, in the
next six to 18 months, we plan to offer direct dial service in Europe, Japan
and Australia for national and international long distance through one or a
number of networks. We intend within one year to include Internet fax and
paging. As Internet telephony improves and achieves greater acceptance, we may
offer it through our site. We are also developing unique Internet value-added
telephone services aimed at international corporate customers.
Additionally, we plan to expand the global online telephone directory
services we currently offer to include more countries and features, including
language options. In the next six months, we will provide customers who locate
a number on the directory with the ability to find out the cost to place a call
to the number and, if desired, to place the call immediately.
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Utilize Strategic Acquisitions to Augment Portal Strategy. We intend to
use strategic acquisitions to augment our internally developed services and
value-added features in order to achieve our goal of becoming a leading
telecommunications "portal" on the Internet. For example, in May 1999, we
acquired Telephone Directories on the Web, (www.teldir.com), an online assembly
of international, national, regional, and local telephone directories.
OUR TELECOMMUNICATIONS SERVICES
International Long Distance. We are a switched reseller of traditional and
enhanced telephone services, licensed by the FCC. We target a market consisting
of customers who are primarily located outside the United States. Our target
market consists of individuals and smaller businesses who historically have
been considered by the international long distance carriers and the large
resellers to be too small a segment to cater to cost-effectively, or whose
access to low-cost and value-added enhanced services is restricted by
monopolistic national telephone companies. We are able to benefit from the
relatively low cost of international telephone service in the United States and
further from an arbitrage in rates created by the present over-capacity of high
speed voice and data lines and networks around the world. Long distance
carriers who own the networks have long sold hundreds of millions of telephone
"minutes" annually to resellers. We purchase large blocks of the minutes,
directly or indirectly, from the carriers at prices discounted from U.S. rates
and we are able to pass along a significant portion of those discounts to our
customers.
National Long Distance. In certain of our markets our customers are able
to use ReturnCall to make calls within their country. We believe the customers
also save on these calls compared to the rates charged by their PTTs. Following
the experience in the U.S., many countries around the world are starting to
deregulate their long distance markets. We have identified these countries and
their key telecommunications providers. We are approaching these providers to
negotiate reseller agreements that will enable us to provide direct dial
service for national long distance locally through our Web site.
Free Global Online Telephone Directory. We recently acquired Telephone
Directories on the Web, an online assembly of international, national, regional
and local telephone directories, and provide it as a free service on our Web
site. Currently, we are generating over 1.5 million page impressions per month.
We believe that Telephone Directories on the Web will draw many potential
subscribers to our Web site. As a future service, we intend to offer potential
customers the opportunity to complete a call to any number they have located.
If potential customers attempt calls, we will then follow up with an e-mail
message encouraging them to sign up for our services.
OUR SOURCES OF REVENUE
Traditional Phone Calls. We expect that ReturnCall or direct dial service
for international and national long distance services will continue to provide
us with a substantial proportion of our revenues. Because we transmit customer
traffic through our proprietary software, we know the wholesale cost that we
pay and can control the retail prices we charge, subject to the competitive
pressures of the marketplace. In the international long distance business, we
have experienced a growth in retail gross margins which can be attributed to
wholesale prices declining faster than retail rates in markets where we provide
services. We provide our services over the Internet only to customers with
major international credit cards. Charges are pre-authorized based upon each
customers requested monthly limit which significantly reduces our exposure to
fraud.
Other Telecommunications Services. We intend to offer other
telecommunications services on our Web site, including calling cards, paging,
Internet fax and an online directory for renting cellular phones. We intend to
negotiate wholesale, reseller or override agreements with various companies
offering these services. In addition, we plan on adding services to our global
online telephone directory, including the ability to dial any telephone number
accessed through the directory immediately.
Advertising. We expect to generate revenue through a variety of different
advertising and promotional opportunities. We intend to offer prospective
advertisers the opportunity to place
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customized ads on our Web site through branding entire sections on our Web
site, rotating and permanent placement of buttons, logos and Web site links,
integrated gateway ads and multimedia banner ads. The data generated from
customers' invoices and other sources will enable us to sell targeted
advertising space at a higher cost per thousand hits because of the detailed
information we have about our customers. We will also sell traditional
Web-based advertising through banners and advertising displays on our Web site
to companies seeking to reach customers meeting the profile of our subscribers.
DISTINCTIVE FEATURES OF OUR SERVICE
Prior to implementing our Internet strategy, we sold our services largely
through local agents. These agents were primarily individuals and small
businesses which signed up customers for our services, and in many cases,
maintained accounts and collected bills. This system had many inefficiencies
and risks, including lack of a universal brand identity, high agent
commissions, lagging cash flows and the risks of collecting from the agents.
By selling our services through the Internet, we bill our customers
directly against credit cards, thus avoiding lagging cash flow and collection
risks. We are able to establish universal brand identity and are able to
operate at a much lower cost while reaching a significantly wider universe of
potential customers. Traffic is driven to our Web site by our affiliates and we
typically pay them a commission based on referrals -- after we have been paid
by our customer.
Most importantly, however, the Internet platform and our proprietary
software enable us to offer an array of features and value-added enhancements.
The fully-automated, real-time features that distinguish our services include:
Ability to Survey Country Specific Rates. When potential customers enter
our Web site, a pull-down screen is presented which prompts them to input
the country from which they are calling. Our rate calculator then
determines the per minute rate for a call to any country selected.
Immediate Account Sign Up, Credit Card Validation and Account
Information. Upon entering our site, a customer may submit a completed
application for our service with credit card information to our corporate
database server. The server creates an account for the customer after
identity, password, payment method and credit limit are checked and
validated during the registration process. The customer is then assigned an
access number which identifies the customer and which can be used
immediately to initiate calls. Our communications switch routes all details
of the call to our platform. All this information is stored in our
corporate database.
Immediate Call Information. A customer can review a report of a call
immediately upon termination of the call. This report includes the detail
of the date and time, country and number called, length and cost of the
call. Our communications switch tracks all details of the call and provides
the information to the billing platform. All this information is stored in
real time in our corporate database. Customers can also review details of
each of their calls from the date of inception of their account. To the
best of our knowledge, customers' ability to access interim account
information is not widely available outside the U.S.
Monthly Invoicing. At the end of each billing period, an invoice and the
related call detail information is automatically generated and e-mailed to
customers after their credit cards have been charged and, based upon the
credit limit, pre-approved for the next billing period. We believe that our
Web-based software enables customers to administer their telecommunications
needs with an ease and functionality that is innovative and user-friendly,
particularly compared to alternatives in overseas markets.
Automated Credit Card Billing and Pre-approval. Our software also
automatically validates and bills customers' credit cards every four weeks.
The bill is itemized and upon billing, the account is automatically
pre-approved for the next billing cycle.
While we are aware of several companies that offer customers the ability
to sign up for services online, their customers must still typically submit a
completed application form online or fax the
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printed form, and then wait to be contacted by an operator to set up the
account (which could take a few days). More importantly, we are not aware of
any other telecommunications company currently providing the combination of
services we provide in real-time on the Internet on a global basis.
We believe our automated method of signing up, provisioning, activating
and providing account information with a cost effective customer acquisition
and administration system in real time on a 24 hour, 7 day per week basis can
be adapted to other online or e-commerce businesses. Accordingly, we believe
that with adaptation of the application specific codes, our proprietary
software has the potential to be used by and licensed to companies in other
industries.
FUTURE AND PLANNED SERVICES
We plan to introduce several new services in the future. These services
include:
Direct Dial Service. In the next six to 18 months, we intend to offer
direct dial service from Australia, Austria, Denmark, Finland, France, Germany,
Italy, Japan, Netherlands, Norway, Spain, Sweden and the United Kingdom. Users
of direct dial service do not hang up and wait for a return telephone call.
Instead, they dial a PIC code or local number (similar to 10-10-321 in the
U.S.) prior to completing the call. Subscribers will sign up for this service
on our Web site in the same manner as our ReturnCall service. We intend to
expand the countries from which a caller can use direct dial service as markets
in other countries further deregulate and this service becomes available in
those countries.
Calling Cards. We have contracted with Interconnect, a U.S.-based calling
and debit card reseller for AT&T, to provide discounted AT&T calling card
services to our customers. We will sell co-branded AT&T/CallNOW.com calling
cards with access from 165 countries. These services will be provisioned in the
same manner as our international and national long distance service.
Telephone Directory/Single Calls. We offer a free global online telephone
directory. Once customers find their desired telephone number in our directory,
a pop-up form will appear asking them if they want to be connected to this
telephone number. This is similar to U.S. national directory assistance
automated dialing services offered by U.S. long distance carriers. By entering
their own telephone number in the pop-up form, the connection will occur
automatically without having to dial the telephone number.
CallNOW.com Members' Services Customized Web Page. We plan to provide each
customer with a customized Web page which, in addition to call monitoring and
billing information, will contain the following services:
o International and national long distance account. Each customer will
be assigned an account number for our international long distance
service.
o Virtual calling card. Customers will be given a pre-selected
CallNOW.com calling card displaying their name on their personalized
site. By clicking on various icons next to the card, customers will be
able to see a list of toll free access numbers, request a hard copy of
the card, or review their calling card charges.
o Virtual phone book. Customers will be able to store their frequently
called numbers under this service. Customers will be able to click on a
CallNOW.com button to initiate a call to one of their frequently called
numbers.
o Virtual conference calls. Customers will be able to select from their
virtual phone book or enter numbers manually on a field that will
automatically set up conference calls at a time specified by them. At the
designated time, all parties will be called and customers will be able to
verify that connections have been made to the desired telephone numbers
by looking at their computer screens.
o Free e-mail account. A free e-mail account will be set up for every
customer with an address, such as [email protected].
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o Customer Account Information. Access to a customer's invoice and call
detail report will be provided under this service.
o Other Services. We believe that we have the ability to use our existing
technology to enhance international customer service offered by potential
sponsors and our affiliates. We are exploring opportunities to provide
such a service.
SALES AND MARKETING
CallNOW.com Branding Strategy
To support our affiliate network and to promote CallNOW.com as a leading
portal for telecommunications, we plan to initiate an advertising campaign in
countries with a large amount of international and national long distance
traffic and which also account for the deepest non-U.S. Internet penetration.
This campaign will seek to establish CallNOW.com as the site to go to for a
single source solution for telecommunications needs. We plan to utilize
multiple advertising media, such as print, television, radio and Web-based
advertising in order to build our brand, increase traffic and raise our profile
among potential advertisers. Our advertising will be country specific.
Our advertising program will highlight the advantages of our services in
their targeted markets as well as emphasize CallNOW.com as the online resource
for finding telephone numbers. In markets in which telecommunications have just
recently been deregulated, we will educate customers about new services
available to them. In addition, this branding will assist local and regional
affiliates who promote our services.
Affiliate Strategy
We believe that establishing affiliate relationships with other parties in
the Internet and telecommunications industries is an effective means of
generating sales of our services on a global basis. We currently have over 170
affiliates. We believe that these affiliates are key to creating brand
recognition in many disparate markets that we would have difficulty accessing
purely by traditional advertising alone. The sponsorship of our service by
affiliates gives a local-based flavor to our services which is important in
establishing ourselves in many markets around the world. We have various types
of affiliates, such as:
Premier search engines and portals--We recently entered into agreements
with each of the European and Japanese affiliates of Lycos to be a premier
telecom partner in those geographical areas. They will periodically place
banners, promotional buttons, text links and other hyperlinks from their home
pages and Web guides to our Web site resulting in having our name and services
prominently displayed and offered in some of the most high-traffic sites on the
Internet. Additionally, a similar presence will periodically be provided on
search results pages. Also, during any keyword search relating to our industry
or services, our name and services should appear in prominent positions. These
agreements expire in the first half of 2001, unless terminated earlier by
mutual consent or after one year upon 90 days' prior written notice or upon
certain other conditions. We are obligated to make certain guaranteed payments
to these Lycos affiliates in the next 18 months. In addition, we are obligated
to pay Lycos a commission which is offset by these guaranteed payments. These
transactions are not exclusive for either party and we are actively seeking
similar agreements with other prominent search engines.
On August 26, 1999, we entered into a two year agreement with Orientation
Global Network, Inc, which operates Orientation.com, a growing network of
regional Internet portals. Orientation will receive a commission on recurring
revenue for customers that Orientation provides to us.
National and local search engines--In most countries outside the U.S.,
e-commerce is still in a development stage and local sites are looking for ways
to generate revenue and traffic. Currently, we have agreements with a few
overseas search engines who are promoting our services on their home pages.
Master affiliates--Master affiliates are Internet businesses which provide
a number of telecommunications (and other) services to a large number of retail
sub-affiliates. We recently signed
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agreements with a telecommunications association representing 10,000 Web-based
affiliates and with another group that has over 20,000 telecom related Web
sites. We are constantly in discussions with other parties who may want to
become Master affiliates who we believe offer us the possibility of greatly
expanding our number of customers. However, no assurance can be given that any
of our discussions will actually result in signed agreements.
Telecom related sites--Some traditional resellers of telecom services have
developed static Web sites to promote their business. These resellers are eager
to turn their Web sites into interactive sites allowing customers to sign up 24
hours per day, anywhere in the world. We are focused on this opportunity
because the existing customer base for these sites is looking specifically for
telecom services.
E-commerce sites--We have been contacted by travel sites, hotel search
engines and e-commerce retailers that wish to market our services as an added
feature for their customers. We intend to pursue these opportunities with the
proceeds from this offering.
For the majority of our affiliates, we provide a standard, co-branded site
that is designed to yield an immediate sign up for our international and
national long distance services by their customers. These sites include:
o a rate calculator;
o an online sign up application;
o a service description;
o a link to customer service; and
o four language capability.
Affiliates are attracted by the recurring revenue stream and the ability
to provide more services to their customers who visit their sites and will then
want to return to their sites. Our affiliate agreements are structured on a
revenue sharing basis. We offer our affiliates a percentage of sales revenues
generated by the affiliates' customers. Affiliates generally introduce and
market our services to their customers via strategic placement of a permanent
click-through CallNOW.com icon on their Web sites. In addition to revenue from
sales, we gain a valuable list of customers with e-mail and regular addresses,
telephone numbers and other demographic information about them.
OUR INTELLECTUAL PROPERTY
Our Internet strategy, based upon our Web platform and our enhanced
services, are all enabled and driven by software, the principal components of
which are proprietary to us. The proprietary software was custom designed to
our specifications. We filed a U.S. patent application for our proprietary
software on August 28, 1998, and an international patent application under the
Patent Cooperation Treaty on August 27, 1999. Our international patent
application, which designates all treaty jurisdictions (about 100 countries),
gives us the right to file Patent Cooperation Treaty national stage
applications at any time prior to February 28, 2001, in all treaty
jurisdictions in which we elect to seek patents for our proprietary software.
We are continuously developing refinements and new features to our
software. We believe our proprietary software contains unique and innovative
features that enable us to offer to our customers the distinctive combination
of services and features that we currently provide and that we plan to provide
in the future. We believe the technology resident in our software and switches
should allow us to differentiate our service offerings and provide us with a
competitive advantage in the marketplace. However, we cannot assure you that
others will not be able to develop software solutions or methods to deliver
services and combinations of services similar to ours without infringing on our
intellectual property rights. See "Risk Factors--Other Risks Related To Our
Business Generally--Failure To Protect Our Intellectual Property Could
Adversely Affect Our Brand And Our Business."
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COMPETITION
Most of our competition in the international telecommunications market is
from traditional communications common carriers and PTTs (first tier), other
carriers and resellers (second and third tier), all of whom are using the
conventional Public Switched Telephone Network. Additionally, in the last ten
years, alternative carriers have emerged who operate globally using ReturnCall
technology and, more recently, voice over Internet protocol ("IP") technology.
Other potential competitors include cable television companies, wireless
telephone companies, large end users who have private networks and electric and
other utilities with rights of way such as railways and microwave carriers.
The first tier carriers are companies such as AT&T, MCI-Worldcom, British
Telecom and other PTTs, international and local. Without exception, these
companies are very large, have vast financial resources, and service most of
the current end users today. These companies have multi-billion dollar
investments in, and control most of, the existing infrastructure.
Some of the alternative carriers and resellers who have emerged include
RSL, Viatel, Espirit Telecom, Ursus and IDT. These companies serve retail
markets in direct competition with us. For example, Ursus has recently
announced an Internet approach to selling and administering some of their
services in a manner that may be similar to ours. We are also aware of other
resellers (for example, Talk.com, formerly TelSav) that have a similar approach
to ours in the U.S. domestic market. We expect to see other competitors emerge.
These carriers serve the small to mid-sized business markets using various
technologies, including their own fiber networks and resale of others'
capacity, through direct dial service in deregulating markets, by ReturnCall
and, more recently, by IP telephony. Other tier carriers are strictly wholesale
carriers such as Facilicom International, our primary carrier.
Competition for customers in the telecommunications industry is primarily
based on price and, to a lesser extent, on value-added services and on the type
and quality of services offered. In most markets in which we compete, and in
particular, those markets that have been deregulated, prices to the end-user
customer have been decreasing and are expected to continue to decrease. Thus,
we have experienced declining revenue per billable minute in all of our
markets, in part as a result of increased worldwide competition within the
telecommunications industry. We have no control over the prices set by our
competitors, and some of our competitors may be able to use their financial
resources to cause severe price competition in the countries in which we
operate. Any such price competition would have a material adverse effect on our
business, financial condition and results of operations.
Our services are currently marketed to individuals and small businesses
and thus, we generally do not compete with large-carrier alliances who
generally target larger corporate customers. In addition, many smaller carriers
have emerged, most of which specialize in offering national and international
telephone services utilizing dial up access methods. Although many of these
represent potential resale providers for us, others may choose to go directly
to end-users and compete with us.
We should not be confused with a new class of service provider using the
Internet rather than traditional switched-circuit voice networks to provide
call completion, sometimes known as Internet telephony. Internet telephony
services are marketed as a low-cost way to make phone calls over the Internet
using personal computers and/or traditional telephones. We view Internet
telephony as a new technology for voice calls and intend to offer it as an
option in the future based on the price/quality considerations of our
customers. Whether or not we offer Internet telephony, certain Internet
telephony providers will compete with future features we may offer such as
allowing the user to speak with sales or customer service representatives of
online retailers and other Web-based businesses while visiting their Web sites,
including pop-up video phone capability at the computer.
GOVERNMENTAL REGULATION
We are subject to regulation as a telecommunications service provider in
some jurisdictions. In some countries where we operate or plan to operate,
local laws or regulations limit or require prior government approval for the
provision of international telecommunications service in competition with
authorized carriers. For example, we provide our services by purchasing minutes
from other
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carriers for resale to our customers. As a result, we may be affected by
increased regulatory requirements in foreign jurisdictions. Also, local laws
and regulations differ significantly among the jurisdictions in which we
operate or plan to operate, and, within such jurisdictions, the interpretation
and enforcement of such laws and regulations can be unpredictable. There can be
no assurance that future regulatory, judicial, legislative or political changes
will permit us to offer to residents of such countries all or any of our
services or will not have a material adverse effect on us, that regulators or
third parties will not raise material issues regarding our compliance with
applicable laws or regulations, or that governmental decisions will not have a
material adverse effect on our business.
If we are unable to provide the services which we presently provide or
intend to provide or to use our existing or contemplated transmission methods
due to our inability to obtain or retain the requisite governmental approvals
for such services or transmission methods, or for any other reason related to
regulatory compliance or lack thereof, such developments could have a material
adverse effect on our business, financial condition and results of operations.
Regulation of the telecommunications industry is changing rapidly both
domestically and globally. The FCC is considering a number of international
service issues in the context of several policy rulemaking proceedings in
response to specific petitions and applications filed by other international
carriers. We are unable to predict how the FCC will resolve the pending
international policy issues or how such resolution will effect our
international business. In addition, the World Trade Organization Basic Telecom
Agreement (the "WTO Agreement"), which reflects efforts to eliminate
government-owned telecommunications monopolies throughout Asia, Europe and
Latin America may affect us. Although we believe that these deregulation
efforts will create opportunities for new entrants in the telecommunications
service industry, there can be no assurance that they will be implemented in a
manner that would benefit us.
The regulatory framework in certain jurisdictions in which we provide
services is described below:
United States
Pursuant to the Communications Act of 1934, as amended (the
"Communications Act"), the FCC is empowered to regulate the telecommunications
industry in the U.S. Under current FCC policy, telecommunications carriers
reselling the services of other carriers, and not owning domestic
telecommunications transmission facilities of their own, are considered
non-dominant and, as a result, are subject to streamlined regulation. The
degree of regulation varies between domestic interstate telecommunications
services (services which originate and terminate within the U.S.) and
international telecommunications services (services which originate in the U.S.
and terminate in a foreign country or vice versa).
Non-dominant providers of domestic interstate telecommunications services
do not require prior authorization from the FCC to provide service, they only
need to have a tariff on file with the FCC setting forth the terms, conditions
and rates of their interstate telecommunications services. Conversely,
non-dominant providers of international services must obtain authorization to
provide service from the FCC pursuant to Section 214 of the Communications Act.
Carriers providing international service also must file a tariff with the FCC,
setting forth the terms, conditions and rates under which they provide
international services. The FCC has determined that it no longer will require
non-dominant providers of domestic services to file tariffs. That decision has
been stayed, pending appeal by the U.S. Court of Appeals for the District of
Columbia Circuit.
We provide both domestic interstate and international services to and from
the U.S. and therefore must possess authority under Section 214 of the
Communications Act and must file tariffs for domestic interstate and
international services with the FCC. We have held a 214 Authorization to
provide international switched resale services since March 1996. We also have
tariffs on file with the FCC setting forth the terms and conditions under which
we provide domestic interstate and international services.
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We must also conduct our international business in compliance with the
FCC's International Settlements Policy, the rules that establish the
permissible boundaries for U.S.-based carriers and their foreign correspondents
to settle the cost of terminating each others' traffic over their respective
networks.
In addition to these authorization and tariff requirements, the FCC
imposes a number of additional requirements on all telecommunications carriers,
such as prior approval of transfers of control, including pro forma transfers
of control (without public notice), corporate reorganizations, and assignments
of regulatory authorizations. Such requirements may delay, prevent or deter a
change in our control or our acquisition of another company.
The FCC also imposes certain restrictions on U.S.-licensed
telecommunications companies that are affiliated with foreign
telecommunications carriers, especially if the foreign telecommunications
carrier obtains a greater than 25% interest in a licensed carrier. If we become
controlled by or under common control with a foreign telecommunications
carrier, or we obtain a greater than 25% interest in or control over a foreign
telecommunications carrier, the FCC could restrict our ability to provide
service on certain international routes.
The regulatory requirements in force today impose a relatively minimal
burden on us. There can be no assurance, however, that the current regulatory
environment and the present level of FCC regulation will continue, or that we
will continue to be considered non-dominant. Any changes in the current
regulatory framework may adversely affect our business, financial condition or
results of operations.
International Regulation
Under the WTO Agreement concluded on February 15, 1997, 69 countries
comprising 95% of the global market for basic telecommunications services
agreed to permit competition from foreign carriers. In addition, 59 of these
countries have subscribed to specific pro-competitive regulatory principles.
The WTO Agreement became effective on February 5, 1998, and has been
implemented, to varying degrees, by the signatory countries. We believe that
the WTO Agreement will increase opportunities for us and our competitors.
However, we cannot assure you that the WTO Agreement will result in beneficial
regulatory liberalization in all signatory countries.
On November 26, 1997, the FCC adopted the Foreign Participation Order to
implement the U.S. obligations under the WTO Agreement. In this order, the FCC
adopted an open entry standard for carriers from World Trade Organization
member countries, generally facilitating market entry for such applicants by
eliminating certain existing tests. These tests remain in effect, however, for
carriers from non-World Trade Organization member countries. Requests for
reconsideration of the Foreign Participation Order are pending at the FCC.
Increasing regulatory liberalization in many countries' telecommunications
markets now permits more flexibility in the way we can route calls. Some
countries, however, continue to restrict carriers from providing ReturnCall
services.
European Union
In Europe, the regulation of the telecommunications industry is governed
at a supra-national level by the European Union (EU) formed by: Austria,
Belgium, Denmark, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg,
the Netherlands, Portugal, Spain, Sweden and the United Kingdom. The EU was
established by the Treaty of Rome and subsequent conventions and is authorized
by such treaties to issue EU directives. EU member states are required to
implement these directives through national legislation. If an EU member state
fails to adopt such directives, the European Commission may take action,
including referral to the European Court of Justice, to enforce the directives.
In March 1996, the EU adopted the Full Competition Directive which
requires EU member states to allow the creation of alternative
telecommunications infrastructures by July 1, 1996, and affirms the
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obligations of EU member states to abolish the PTTs' monopolies in voice
telephony by 1998. The Full Competition Directive also allows certain EU
countries to delay the abolition of their voice telephony monopoly. Countries
that still have temporary exemption include Portugal which expires on January
1, 2000 and Greece which expires on December 31, 2000.
Each EU member state in which we plan to begin offering direct dial
service has a different regulatory regime and such differences have continued
beyond January 1998. Most EU member states require companies to obtain a
license in order to provide voice telephony services or construct and operate
telecommunications networks. However, the EU generally does not permit its
member states to require individual licenses for other types of services. As a
result, we may be delayed in obtaining or may not be able to obtain licenses in
certain countries that would allow us to compete effectively. Failure to obtain
regulatory authority in any European country may adversely affect our business,
financial condition or results of operations.
Australia
Two federal regulatory authorities have control over the operation of the
Australian telecommunications industry. The Australian Communications Authority
is the authority regulating matters such as the licensing of carriers and
technical matters, and the Australian Competition and Consumer Commission has
the role of promoting competition and consumer protection.
Under the Australian regulatory framework, we will not be required to
maintain a carriage license in order to supply carriage services to the public
using network facilities owned by another carrier. Instead, we must comply with
legislated "service provider" rules contained in the Australian
Telecommunications Act of 1997 covering matters such as operator services,
regulation of access, directory assistance, provision of information to allow
maintenance of an integrated public number database, and itemized billing. In
addition, other federal legislation, various regulations pursuant to delegated
authority, ministerial declarations, codes, directions and court decisions
affecting telecommunications carriers may also apply to us.
There can be no assurances that we can obtain regulatory authority in
Australia. Failure to obtain regulatory authority in the future may adversely
affect our business, financial condition or results of operations.
Japan
Japan's regulatory authority is the Ministry of Post and
Telecommunications which enforces the Telecommunications Business Law. Under
this law, we may be required to obtain a Special Type II license allowing us to
provide additional services in Japan. There can be no assurance that we will
obtain a Special Type II license. Our failure to obtain a Special Type II
license could have an adverse effect on our ability to expand our operations in
Japan and could adversely affect our business, financial condition or results
of operations.
Latin America
During recent years, several Latin American countries have taken steps to
liberalize their telecommunications markets. Chile, El Salvador, Guatemala,
Mexico and Peru are among the most liberalized. Several other countries,
including Argentina and Venezuela, have partially or totally privatized their
dominant local carriers and partially opened their markets to competition.
Some important developments in the Latin American telecommunications
markets include: (i) Argentina has recently issued new licensing regulations
for telecommunications providers, and is currently licensing new competitive
voice carriers that may begin providing services in November 2000; (ii) Brazil
established an independent regulator, and partially opened its
telecommunications market to competition; (iii) the Mexican local and long
distance markets have been opened to competition and Telmex, the dominant local
carrier, has been required to interconnect with the networks of competing
carriers; and (iv) other countries such as Chile, Guatemala, El Salvador and
Peru have fully liberalized their market for all telecommunications services.
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The degree of regulation and liberalization in the region varies
significantly among countries. There can be no assurance that we will obtain
regulatory authority in any of these countries. Failure to obtain regulatory
authority in any country may adversely affect our business, financial condition
or results of operations.
RETURNCALL
We offer service by means of call re-origination, which we refer to as
ReturnCall, pursuant to an FCC Section 214 Switched Voice Authorization. The
FCC has determined that call re-origination service using uncompleted call
signaling does not violate U.S. or international law, but has held that U.S.
companies providing such services must comply with the laws of the countries in
which they operate as a condition of such companies' Section 214 Switched Voice
Authorizations. The FCC reserves the right to condition, modify or revoke any
Section 214 Authorizations and impose fines for violations of the
Communications Act or the FCC's regulations, rules or policies promulgated
thereunder, or for violations of the clear and explicit telecommunications laws
of other countries that are unable to enforce their laws against U.S. carriers.
FCC policy provides that foreign governments that satisfy certain conditions
may request FCC assistance in enforcing their laws against U.S. carriers.
Thirty-five countries have formally submitted information to the FCC
stating that certain call re-origination services violate their laws. In
November 1996, 57 countries reported to the International Telecommunications
Union that call re-origination services are prohibited in their country. Except
for the Philippines and Saudi Arabia, the FCC has stated that it has not
determined whether these submissions by foreign governments to the FCC or the
ITU are sufficient evidence of illegality for purposes of the FCC taking
enforcement action against U.S. carriers.
To date, the FCC has only ordered carriers to cease providing call
re-origination services to the Philippines and Saudi Arabia. Future FCC
enforcement action could include an order to cease providing call
re-origination services to any other country ultimately found to have provided
sufficient information to the FCC, the imposition of one or more restrictions
on us, monetary fines or, ultimately, the revocation of our Section 214
Switched Voice Authorization, and could have a material adverse effect on our
business, financial condition and results of operations. See "Risk
Factors--Risks Related To The Telcommunications Business--Legality of
ReturnCall."
INTERNET TELEPHONY
United States
While we currently do not offer Internet telephony, we may offer it to our
customers in the future. We believe that under U.S. law the Internet-related
services that we provide and those that we may provide including IP telephony
constitute information services, rather than telecommunications services. As
such, our Internet-related services are not currently regulated by the FCC or
state agencies responsible for regulating telecommunications carriers (although
some parts of our future operations may be subject to state or federal
regulation such as universal service, confidentiality of communications,
copyright, and excise taxes). However, several efforts have been made to enact
federal legislation that would either regulate or exempt from regulation
services provided over the Internet. Therefore, we cannot assure you that
Internet-related services will not be regulated in the future. Increased
regulation of the Internet may slow its growth by negatively impacting the cost
of doing business over the Internet.
We also cannot assure you that Internet telephony will continue to be
lightly regulated by the FCC and state regulatory agencies. The FCC has
determined that, at present, information service providers, including Internet
telephony providers, are not telecommunications carriers; however, we cannot be
certain that this position will continue. On April 10, 1998, the FCC issued a
report to Congress discussing its implementation of certain universal service
provisions contained in the 1996 amendments to the Communications Act. In its
report, the FCC stated that it would examine whether phone-to-phone Internet
telephony should be considered an information service or a
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telecommunications service. The FCC noted that certain forms of phone-to-phone
Internet telephony appeared to lack the characteristics of an information
service and to have the same functionality as non-Internet protocol
telecommunications services. In addition, the FCC is currently considering
whether to impose surcharges and/or other common carrier regulations upon
certain providers of Internet telephony. If the FCC or Congress determines that
Internet telephony is subject to regulation as a telecommunications service, it
could adversely affect our business, financial condition or results of
operations.
International
The regulatory treatment of Internet telephony in other countries varies
widely and is subject to constant change. Some countries treat Internet
telephony as does the U.S. and currently impose little or no regulation.
Conversely, countries that prohibit or limit competition for traditional voice
telephony services generally do not permit Internet telephony or strictly limit
the terms under which it may be provided. Other countries regulate Internet
telephony like traditional voice telephony services or determine on a
case-by-case basis whether to regulate Internet telephony as a voice service or
as another telecommunications service. Finally, in many countries, legislation
or the regulatory authorities have not addressed Internet telephony. The
varying and constantly changing regulation of Internet telephony in the
countries where we plan to begin providing services may adversely affect our
business, financial condition or results of operations.
The EU, for example, distinguishes between voice telephony, which may be
regulated by the member states, and other telecommunications services, which
are fully liberalized. As concerns Internet telephony, the European Commission
concluded in a Communication to the member states that, at present, Internet
telephony should not be considered voice telephony and thus should not be
regulated as such by the member states. However, the Commission noted that
providers of Internet telephony whose services satisfied the EU's definition of
voice telephony could be considered providers of voice telephony and could be
regulated by the member states. Moreover, Commission Communications are not
binding on the member states.
OTHER REGULATION AFFECTING THE INTERNET
United States
Congress has recently adopted legislation that regulates certain aspects
of the Internet, including content, user privacy, and taxation. In addition,
Congress and other federal agencies are considering other proposals that would
further regulate use of the Internet. For example, Congress is currently
considering legislation on a wide range of issues including Internet spamming,
database privacy, gambling, pornography and child protection, Internet fraud,
privacy, and digital signatures. Similarly, various states have adopted or are
considering Internet-related legislation. Increased regulation of the Internet
may slow its growth, which may negatively impact the cost of doing business
over the Internet and adversely affect our business, financial condition or
results of operations.
International
The EU has also enacted legislation affecting the Internet. In particular,
the EU imposes restrictions on the collection and use of personal data and
grants. EU citizens have broad rights to access and limit the use of their
personal data. U.S. companies that collect or transmit information over the
Internet from individuals in EU member states are subject to EU legislation,
which imposes restrictions that are more stringent than existing Internet
privacy standards in the U.S. The potential effect on us of the EU legislation
or similar legislation elsewhere is uncertain. A prohibition on the export of
personal data could adversely affect our business, financial condition or
results of operations.
EMPLOYEES
As of September 27, 1999, we had 15 employees. In addition, we use
independent contractors and consultants when needed. We currently lack the
personnel that will be necessary for our expected
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growth. We intend to use a significant portion of the proceeds of the offering
to add additional personnel, including management, sales personnel, technical
personnel and business development personnel. See "Use of Proceeds." In order
to attract qualified personnel, we may be required to offer incentives such as
stock options, stock awards or other additional non-cash compensation or may be
required to allocate a greater portion of the proceeds of the offering for this
purpose than is currently anticipated. None of our employees is represented by
a labor union, and we consider our employee relations to be satisfactory.
PROPERTIES
We lease an aggregate of approximately 4,000 square feet of office space
in New York, New York pursuant to two leases, both of which were entered into
in 1999, for our executive and administrative offices, at a total annual rental
of approximately $89,000. Both leases expire on April 30, 2002.
LEGAL PROCEEDINGS
Viatel, Inc. commenced an arbitration with the American Arbitration
Association, New York Regional Office, alleging that it is owed $194,672.40 by
us for "telecommunications services" provided by Viatel. We have asserted
counterclaims against Viatel alleging that Viatel has engaged in unjust and
unreasonable charges and/or practices in violation of the Communications Act.
We have requested that we be awarded our actual damages, in an amount to be
determined at arbitration, as well as an award of costs and reasonable
attorneys' fees. Arbitration took place on August 31, 1999 and the parties are
in the process of exchanging Post-Arbitration Briefs. A decision is expected by
the beginning of November, 1999.
Reid Bernstein has alleged that he was offered an opportunity by us to
assist in the location of a potential candidate for merger or acquisition, or a
related financing. Mr. Bernstein claims to be owed a five percent interest in
us and a consulting fee of $60,000. Our position is that no agreement was ever
executed and delivered between the parties, and, in any event, Mr. Bernstein
did not perform. No arbitration demand or summons and complaint has been
served, either by or upon us. The parties are currently discussing an amicable
resolution of the situation.
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MANAGEMENT
OUR EXECUTIVE OFFICERS AND DIRECTORS
Our executive officers and directors are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---------------------------------- ----- ---------------------------------------
<S> <C> <C>
Christian Bardenheuer ............ 39 Chairman of the Board of Directors and
Chief Executive Officer
Warner R. Johnson, Jr. ........... 37 President and Director
Christopher R. Seelbach .......... 60 Chief Operating Officer, Acting Chief
Financial Officer and Director
Martin Casanova .................. 45 Chief Technical Officer
Edward Cabot ..................... 34 Director
Todd A. Goergen .................. 27 Director
Robert S. Tolmach, Jr. ........... 44 Director
</TABLE>
Christian Bardenheuer has served as our Chairman of the Board of Directors
and Chief Executive Officer since April 1999 and as Managing Director of our
subsidiary, Axicom, since its inception in August 1994. Prior to his
co-founding Axicom, from early 1993 to August 1994, Mr. Bardenheuer served as
President of Intertel Communications S.A., a Paris based, value-added telephone
services company and was responsible for forming strategic alliances with
international carriers and its marketing strategy. In addition, from 1992 to
1993, he was an independent consultant to senior management at Viatel Inc., an
international telecommunications company, consulting on opportunities in Latin
America. From 1990 to 1992, he worked as Vice President International at FM
International, an international management consulting firm. Prior to that, he
worked with Reseal International Limited Partnership, a high-tech packaging
company, as Vice President in the International Business Development
Department. Mr. Bardenheuer studied architecture at Universidad Piloto de
Colombia from 1978 to 1981, and continued his studies at the Universidad de los
Andes for a General Managing Program until 1982. He became a U.S. resident in
1982.
Warner R. Johnson, Jr. has served as our President and as a Director since
April 1999 and as Managing Director of Axicom, which he co-founded with
Christian Bardenheuer, since August 1994. Mr. Johnson was Director of Finance
of Viatel, Inc. from October 1992 through August 1994. From 1984 to 1990, he
held various capital markets and investment banking positions at PaineWebber,
Inc. in New York. Mr. Johnson received an A.B. in History/American Civilization
from Brown University in 1984 and an M.B.A. from Columbia University in 1987.
Christopher R. Seelbach has served as our Chief Operating Officer and
Acting Chief Financial Officer since June 1999 and as a Director since August
1999. Mr. Seelbach began consulting for Axicom in May 1998. From 1994 to 1998,
Mr. Seelbach was an independent consultant and served as President and Chief
Executive Officer of Belcom, Inc., a COMSAT telecommunications investment, and
as Acting President of Skysat Communications Network Corporation, a
telecommunications business development company. From 1992 to 1994, he was Chief
Operating Officer of Viatel, Inc. Prior to that, he was an executive with a
number of technology-based companies and venture capital firms. Mr. Seelbach
also was a consultant at McKinsey & Co. from 1967 to 1970. Mr Seelbach received
a B.S. in engineering from the U.S. Naval Academy in 1961 and an M.B.A. from
Columbia University in 1967.
Martin Casanova has served as our Chief Technical Officer since February
1996. From July 1993 to January 1996, Mr. Casanova was the Technical Director
for development of communications software of Sitel, Inc. From October 1992 to
June 1993, he was an assistant in software development at Brainstorm Monitoring
Corporation. From 1980 to 1992, Mr. Casanova was on the teaching staff of the
National University of Mar Del Plata in Buenos Aires, Argentina. He completed
his studies in electrical engineering at the National University of Mar Del
Plata in 1979.
Edward Cabot was appointed as a Director in September 1999. Mr. Cabot has
served as the principal of Cabot Design, an interior design firm, which he
founded in 1995. From 1991 to 1995, he
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was a principal at Lesser Frich Cabot, an architectural and design firm. Mr.
Cabot received a B.A. in 1987 and a Masters of Architecture in 1991, both from
Columbia University.
Todd A. Goergen was appointed as a Director in September 1999. Mr. Goergen
has served as the Director of Acquisitions and Corporate Development at Blyth
Industries, Inc., a NYSE company, since 1999. Mr. Goergen also serves as a
Manager for ROPART Investments LLC, a family investment partnership. He sits on
the board of directors of several private companies, including Surfree.com, an
Internet service provider. From 1994 to 1999, he was an Associate and an
Analyst in the Mergers and Acquisitions Group of Donaldson, Lufkin & Jenrette.
Mr. Goergen received a B.A. with a double major in Economics and Political
Science from Wake Forest University in 1994.
Robert S. Tolmach, Jr. was appointed as a Director in September 1999.
Since 1998, Mr. Tolmach has served as a Managing Director of Environmental
Property Group, LLC, a fund that invests in remediating environmentally
sensitive properties. In 1998, he founded Verrazzano Partners LLC, which is
developing a Staten Island Ferry as a New York City Expo in Japan. From 1987 to
1991, Mr. Tolmach served as senior real estate manager for James D. Wolfensohn,
Incorporated. From 1986 to 1987, he was an associate at Carodan Corporation, a
real estate development and consulting firm, and from 1982 to 1986, he was a
principal at Arquitectonica International Corporation, an architectural firm,
and headed the firm's Texas office. From 1984 to 1986, he owned and developed
real estate in Houston and from 1980 to 1982, he was an architectural designer
in Houston. He received a B.A. with a double major in architecture and fine
arts from Rice University in 1978, and a B. Arch. from Rice University in 1980.
Pursuant to a letter agreement entered into in connection with its
investment in us, ROPART Investments LLC has the right to appoint one member of
our Board of Directors. However, such appointment is limited to one of either
Robert B. Goergen, Todd A. Goergen or Robert B. Goergen, Jr. On September 14,
1999, Todd A. Goergen was appointed to our Board of Directors as the initial
nominee of ROPART Investments LLC.
BOARD COMMITTEES
Executive Committee
Between meetings of our full board of directors, the Executive Committee
may exercise all of the power and authority of the board in the oversight of
the management of our business and affairs, subject to limitations imposed
under Delaware law. The members of the Executive Committee are Messrs.
Bardenheuer, Johnson and Seelbach, and Mr. Bardenheuer serves as Chairman of
the Executive Committee.
Audit Committee
The Audit Committee will review our internal accounting procedures and
controls and consult with and review the services provided by our independent
accountants. The members of the Audit Committee are Messrs. Cabot and Goergen.
Compensation Committee
The Compensation Committee will review and determine the stock option
grants for all employees, consultants, directors and other individuals and
review and determine the salaries of the Chief Executive Officer and the other
executive officers. The members of the Compensation Committee are Messrs.
Cabot, Goergen and Tolmach, Jr.
DIRECTOR COMPENSATION
As compensation for their services, we expect to make annual grants of
options to purchase shares of our common stock to our independent directors. In
connection with the appointment of Messrs. Cabot, Goergen and Tolmach, Jr. as
directors, we awarded each of them an initial grant of options to purchase
10,000 shares of our common stock pursuant to our stock option plan at an
exercise price of $2.75 per share (subject to an increase in exercise price
if our compensation committee determines that such increase is
46
<PAGE>
necessary based on third party determinations of fair market value) vesting
ratably over three years. We will also reimburse directors for out-of-pocket
expenses incurred in connection with attending board of directors and committee
meetings.
EMPLOYMENT AND CONSULTING AGREEMENTS
In November 1998, we entered into a consulting agreement with Christopher
R. Seelbach, now our Chief Operating Officer and Acting Chief Financial
Officer. Pursuant to the terms of the agreement, Mr. Seelbach was to have been
paid consulting fees of $5,000 per month from August 1998 through February
1999, and $10,000 per month from March 1999 until revenues reach $1.0 million
per month at which time his compensation will be increased to $15,000 per
month. As of the date of this prospectus, we owe Mr. Seelbach approximately
$15,000 representing consulting fees, which we intend to pay from the net
proceeds of this offering. See "Use of Proceeds" and "Related Party
Transactions."
In addition, pursuant to the terms of the agreement, in 1998 and 1999, Mr.
Seelbach has been granted options to purchase 282,825 shares of our common
stock at exercise prices ranging from $.01 to $2.75 per share, representing
approximately 4.3% of our outstanding common stock prior to the offering
(assuming the exercise of such options). The consulting agreement requires us to
grant additional options to Mr. Seelbach in the event of any issuances of equity
by us (or securities convertible into equity) in connection with a financing so
that, if his options are exercised, he will maintain his five percent interest.
Thus, as part of this offering, Mr. Seelbach will be granted options to purchase
200,000 shares at the public offering price. This anti-dilution provision
remains in effect until October 31, 2000. See "Related Party Transactions."
In July 1999, we entered into an employment agreement with Martin
Casanova. This agreement terminates in July 2001 and is automatically renewed
from year to year unless terminated by mutual agreement or by either party upon
60 days' notice. As our Chief Technical Officer, Mr. Casanova's duties include
operating, maintaining, and upgrading the hardware and software necessary for
the telecommunications services we provide and developing additional services,
such as calling cards and IVR services. He receives an annual base salary of
$120,000. In addition, subject to the discretion of our Board, Mr. Casanova may
be awarded an annual bonus of up to 20% of his annual base salary. He has been
granted options to purchase 45,000 shares of our common stock pursuant to our
stock option plan. See "Related Party Transactions."
EXECUTIVE COMPENSATION
The following table sets forth the annual and long-term compensation for
services in all capacities paid by us during 1996, 1997 and 1998 to our Chief
Executive Officer. No executive officer's compensation exceeded $100,000 during
such years. For 1999, Messrs. Bardenheuer and Johnson will each receive an
annual salary of $180,000, effective upon the consummation of this offering and
retroactive to January 1, 1999, and a bonus of up to 20% of their annual
salary. For 1999, Mr. Seelbach will receive an annual salary of $110,000 in
accordance with his consulting/employment agreement. See "--Employment and
Consulting Agreements."
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<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM
---------------------------------------------------- COMPENSATION:
OTHER SHARES
NAME AND PRINCIPAL ANNUAL UNDERLYING ALL OTHER
POSITION YEAR SALARY BONUS COMPENSATION OPTIONS COMPENSATION
- ------------------------- ------ ---------------- ------- -------------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Christian Bardenheuer 1998 $ 98,000(1) -- -- -- --
Chairman of the Board 1997 $ 90,000(2) -- -- -- --
of Directors and Chief 1996 $ 35,144 -- -- -- --
Executive Officer
</TABLE>
- ----------
(1) $15,500 of such salary was deferred and will be paid out of the net
proceeds from this offering.
(2) Approximately $15,300 of such salary was deferred and will be paid out of
the net proceeds from this offering.
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth information regarding options granted in
the last fiscal year to an executive officer.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
-------------------------------------
POTENTIAL REALIZABLE
VALUE AT
PERCENT OF ASSUMED ANNUAL RATES
NUMBER OF TOTAL OF
SECURITIES OPTIONS STOCK PRICE
UNDERLYING GRANTED TO APPRECIATION FOR
OPTIONS EMPLOYEES EXERCISE OF OPTION TERM
GRANTED IN FISCAL BASE PRICE EXPIRATION ---------------------
NAME (#) YEAR ($/SH) DATE 5% ($) 10% ($)
- --------------------------------- ------------ ----------- ------------ ------------------ ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Christopher Seelbach(1) ......... 96,875 100% $ 1.00 October 31, 2003 $26,765 $59,143
</TABLE>
- ----------
(1) See "--Employment and Consulting Agreements."
Our Board of Directors has adopted a stock option plan, subject to
stockholder approval, pursuant to which we have reserved 2,200,000 shares of
common stock for issuance upon exercise of options which may be granted under
the plan. In September 1999, Mr. Casanova was granted options to purchase
45,000 shares and each of Messrs. Bardenheuer and Johnson were granted options
to purchase 300,000 shares of common stock at exercise prices of $2.75 per
share (subject to an increase in exercise price if our compensation committee
determines that such increase is necessary based on third party determinations
of fair market value), pursuant to this plan. See "--1999 Stock Option Plan."
In 1999, Mr. Seelbach was granted options to purchase 189,950 shares of
our common stock at exercise prices ranging from $.01 to $2.75 per share,
representing approximately 2.9% of our outstanding common stock prior to this
offering (assuming the exercise of such options). As part of this offering, Mr.
Seelbach will be granted options to purchase 200,000 shares at the public
offering price. See "--Employment and Consulting Agreements."
1999 STOCK OPTION PLAN
In September 1999, our Board of Directors adopted the 1999 Stock Option
Plan. The 1999 Plan is subject to approval by our stockholders which we intend
to seek prior to the closing of this offering.
The 1999 Plan provides for the grant of options to purchase up to, but not
in excess of, 2,200,000 shares of common stock to our officers, directors,
agents, consultants and independent contractors. Options may be either
"incentive stock options" within the meaning of Section 422 of the Internal
48
<PAGE>
Revenue Code of 1986, as amended, or non-qualified options. Incentive stock
options may be granted only to our employees or employees of our subsidiary,
while non-qualified options may be granted to such persons and to non-employee
directors and consultants.
The 1999 Plan is administered by our Board of Directors or by our
Compensation Committee (the "Administrator"), which determines, among other
things, those individuals who receive options, the time period during which the
options may be exercised, the number of shares of common stock issuable upon
the exercise of each option and the option exercise price. The exercise price
per share of common stock subject to an incentive option may not be less than
the fair market value per share of common stock on the date the option is
granted (110% in the case of an incentive stock option granted to a person who
owns, directly or indirectly, at the time of the granting of an incentive stock
option to such person, 10% or more of the total combined voting power of all
classes of stock of us (a "10% Shareholder")). The exercise price per share of
the common stock subject to a non-qualified option may be established by the
Administrator. The aggregate fair market value, determined as of the date the
option is granted, of common stock for which any person may be granted
incentive stock options which first become exercisable in any calendar year
cannot exceed $100,000.
No stock option may be transferred by an optionee other than by will or
the laws of descent and distribution, and, during the lifetime of an optionee,
the option will be exercisable only by the optionee. In the event of
termination of employment other than by death, retirement or permanent and
total disability, the optionee will have no more than three months after such
termination during which the optionee shall be entitled to exercise all or any
part of such employee's option, unless otherwise determined by the
Administrator. Upon termination of employment of an optionee by reason of
death, retirement or permanent or total disability, such optionee's options
remain exercisable for one year thereafter to the extent such options were
exercisable on the date of such termination.
Options under the 1999 Plan must be issued within ten years from the
effective date of the Plan. Incentive stock options granted under the 1999 Plan
cannot be exercised more than ten years from the date of grant (five years in
the case of an incentive stock option issued to a 10% Shareholder). All options
granted under the 1999 Plan will provide for the payment of the exercise price
in cash or check or by delivery to us of shares of common stock having a fair
market value equal to the exercise price of the options being exercised, or by
a combination of such methods, or by such other methods approved by the
Administrator pursuant to the 1999 Plan. Therefore, an optionee may be able to
tender shares of common stock to purchase additional shares of common stock and
may theoretically exercise all of such optionee's stock options with no
investment.
Any unexercised options that expire or that terminate upon an employee's
ceasing to be employed by us become available again for issuance under the 1999
Plan. To date, options to purchase 958,000 shares of our common stock at
exercise prices of $2.75 per share (subject to an increase in exercise price if
our compensation committee determines that such increase is necessary based on
third party determinations of fair market value), have been granted under the
1999 Plan. All such options will be subject to the approval of the 1999 Plan by
our stockholders.
49
<PAGE>
RELATED PARTY TRANSACTIONS
REORGANIZATION TRANSACTION
On March 19, 1999, Axicom issued a convertible debenture in the principal
amount of $500,000 to GEM France, S.A. (the "March Debenture"). The March
Debenture was convertible by its terms into 628,585 shares of our common stock.
GEM France subsequently assigned $50,000 principal amount of the March
Debenture to Turbo International Inc.
On April 6, 1999, in a series of related transactions, GEM France and
Turbo converted the March Debenture into 628,585 shares of our common stock as
part of the Axicom-American Ostrich transaction. Of this amount, 565,726
shares, or approximately 11.25%, were issued to GEM France. In connection with
the Axicom-American Ostrich transaction, Axicom's shareholders received
3,875,000 shares, or 88% of the issued and outstanding common stock of American
Ostrich Corporation, on a fully-diluted basis. Also, GEM Global Fund received
251,433 shares, or approximately 5% of our fully-diluted common stock, as a fee
for arranging for and structuring this transaction. Immediately after this
transacation, American Ostrich Corporation reincorporated in Delaware and
changed its name to CallNOW.Com, Inc.
In June 1999, we issued to GEM Investments Ltd. a convertible debenture in
the principal amount of $479,000 (the "June Debenture"). The June Debenture was
issued in tandem with warrants entitling the holder to purchase 100,000 shares
of our common stock at an exercise price of $0.01 per share (the "GEM
Warrants"). In September 1999, GEM Investments Ltd. converted the June
Debenture into 343,662 shares of our common stock and exercised the GEM
Warrants for 100,000 shares of our common stock.
All of the shares of common stock issued or issuable to GEM France, Turbo,
GEM Investments Ltd. and certain other shareholders of American Ostrich
Corporation are exempt from registration under the Securities Act and are
freely tradable pursuant to Rule 504 of Regulation D promulgated under the
Securities Act.
As of the date of this prospectus, GEM France no longer owns any shares of
our common stock and GEM Investments Ltd. owns approximately 7% of our
outstanding common stock.
SEELBACH FINDERS FEES
In November 1998, we entered into a finders fee agreement with Christopher
R. Seelbach, now our Chief Operating Officer and Acting Chief Financial
Officer. Pursuant to the finders fee agreement, Mr. Seelbach was to be paid
$35,000 in connection with the $500,000 extension of credit by one of our
suppliers. As of the date of this Prospectus, we still owe Mr. Seelbach this
$35,000 fee, which we intend to pay from the net proceeds of this offering. See
"Use of Proceeds" and "Management--Employment and Consulting Agreements."
CASANOVA SALE OF TECHNOLOGY AGREEMENT
On July 28, 1999, we entered into an agreement with Smart Software, a
corporation controlled by Mr. Martin Casanova, the engineer that designed our
telephone switching, account activation and billing software (the "Software").
The agreement provides that, over a period of two years, Mr. Casanova will
create a manual for the software and a manual for the switching system. Smart
Software will receive an aggregate of $400,000 in eight quarterly installments.
In addition, we purchased the Software for an aggregate of 30,000 shares of our
common stock. See "Management--Employment and Consulting Agreements."
SALARY OWED TO SENIOR MANAGEMENT
As of June 30, 1999, we owed Messrs. Bardenheuer and Johnson an aggregate
of approximately $151,000 for accrued and unpaid salary relating to 1997 and
1998. In August 1999, we paid Messrs. Bardenheuer and Johnson, in the
aggregate, approximately $90,000 of this amount. We intend to pay the balance
of approximately $61,000 out of the net proceeds of this offering. See "Use of
Proceeds."
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<PAGE>
OPTIONS GRANTED TO OUR FOUNDERS
In September 1999, Messrs. Bardenheuer and Johnson were each granted
options to purchase 300,000 shares of common stock at an exercise price of
$2.75 per share (subject to an increase in exercise price if the Compensation
Committee determines that such increase is necessary based on third party
determinations of fair market value), pursuant to our stock option plan.
See "Management--Options Grants In Last Fiscal Year."
51
<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information, as of the date of this
prospectus and as adjusted to reflect the sale of 4,000,000 shares of common
stock by us in this offering, regarding beneficial ownership of our common
stock by (i) all persons known by us to beneficially own more than 5% of our
common stock, (ii) the Selling Stockholders (adjusted to include the sale of
their respective shares), (iii) each director and executive officer and (iv)
all directors and executive officers as a group. The following table gives
effect to the shares of common stock that could be issued upon the exercise of
outstanding options and warrants which are or will become exercisable within 60
days of the date of this prospectus. Unless otherwise indicated in the
footnotes to the table, the following individuals have sole voting and sole
investment control with respect to the shares they beneficially own, subject to
community property laws where applicable.
<TABLE>
<CAPTION>
PRINCIPAL AND SELLING STOCKHOLDERS
-------------------------------------------------------------------------
SHARES NUMBER OF SHARES
BENEFICIALLY SHARES TO BE BENEFICIALLY
NAME AND ADDRESS OF OWNED PRIOR TO SOLD IN OWNED AFTER THE
BENEFICIAL OWNER OFFERING OFFERING OFFERING
- --------------------------------------- --------------------------- -------------- --------------------------
NUMBER PERCENTAGE NUMBER PERCENTAGE
------------ ------------ ------------ -----------
<S> <C> <C> <C> <C> <C>
Christian Bardenheuer (1) ............. 969,539 15.35% -- 969,539 9.40%
Warner Johnson, Jr. (1), (2) .......... 1,036,477 16.41% -- 1,036,477 10.05%
Christopher Seelbach (1), (3) ......... 193,750 2.98% -- 193,750 1.84%
Martin Casanova (1), (4) .............. 30,000 * -- 30,000 *
Todd A. Goergen (5)
c/o ROPART Investments LLC
100 Field Point Rd
Greenwich, CT 06830 .................. 90,909 1.43% -- 90,909 *
Edward Cabot
c/o McAlpine Associates
394 Broadway, 5th Floor
New York, NY 10013 ................... 125,510 1.99% -- 125,510 1.22%
Robert S. Tolmach, Jr.
c/o Verrazzano
Development Partners
330 East 38th Street
Apt. 54-O
New York, NY 10016 ................... 9,090 * -- 9,090
GEM Investments Ltd.
11 Gloucester Court
Marlton, NJ 08053 .................... 443,662 7.03% -- 443,662 4.30%
Upper Brook Ltd.
c/o Citco Bank and Trust Company
(Bahamas) Limited
P.O. Box CB-13136
Nassau Bahamas ....................... 507,272 8.03% 126,818 380,454 3.69%
Eden Capital Fund Limited
18 Upper Brook Street
London W1Y 1PD
England .............................. 38,182 * 9,546 28,636 *
New York Community Investment
Company L.L.C.
120 Broadway, 36th Floor
New York, NY 10271 ................... 114,109 1.81% 28,527 85,582 *
Executive Officers and Directors as a
group (7 persons) (6) ................ 2,229,766 37.72% -- 2,229,766 23.36%
</TABLE>
- ----------
52
<PAGE>
* less than 1%
(1) Except as otherwise indicated, the address for the referenced
stockholders is c/o CallNOW.com, Inc., 50 Broad Street, New York, NewYork
10004.
(2) Includes 33,469 shares of common stock held by Mr. Johnson's parents and
33,469 shares of common stock held by Mr. Johnson's brother. Mr. Johnson
disclaims beneficial ownership of such shares.
(3) Includes 193,750 shares of common stock which are issuable pursuant to
options exercisable within 60 days.
(4) Restricted shares which become vested in four semi-annual installments
commencing January 28, 2000.
(5) ROPART Investments LLC is the beneficial owner of 90,909 shares of common
stock and Mr. Goergen is a Manager of ROPART Investments LLC.
(6) See footnotes 2 through 5 above.
53
<PAGE>
DESCRIPTION OF SECURITIES
The following summary description of our capital stock and selected
provisions of our certificate of incorporation and bylaws is qualified in its
entirety by reference to our certificate of incorporation and bylaws.
COMMON STOCK
We are authorized to issue up to 50,000,000 shares of common stock, par
value $.001 per share, of which 6,314,366 shares are outstanding as of the date
of this prospectus. Holders of common stock are entitled to one vote for each
share held of record on each matter submitted to a vote of stockholders. There
is no cumulative voting for election of directors. Subject to the prior rights
of any series of preferred stock which may from time to time be outstanding, if
any, holders of common stock are entitled to receive ratably dividends when, as
and if declared by the Board of Directors out of funds legally available
therefore and, upon our liquidation, dissolution or winding up, are entitled to
share ratably in all assets remaining after payment of liabilities and payment
of accrued dividends and liquidation preferences on the preferred stock, if
any. Holders of common stock have no preemptive rights and have no rights to
convert their common stock into any other securities. Our outstanding shares of
common stock are, and the shares offered by us in this offering will be, when
issued and paid for, fully paid and nonassessable.
REGISTRATION RIGHTS
After the closing of this offering, the holders of 90,909 outstanding
shares of common stock hold registration rights that allow them to "piggyback"
the registration of their shares under the Securities Act on future
registrations of our securities and holders of a maximum of 181,232 shares of
our common stock in the event of the conversion of our outstanding convertible
debentures have registration rights that allow them to "demand" the
registration of their shares under the Securities Act. Accordingly, whenever we
propose to register any shares of our common stock under the Securities Act
(other than registrations on Forms S-4 or S-8), these stockholders have the
right to include their shares of common stock in that registration. However,
the number of shares that those stockholders may include in any registration
will be reduced if the underwriters for that offering advise us that the
aggregate number of shares should be reduced. We are generally obligated to
bear all expenses, other than underwriting discount and sales commissions, of
the registration of all shares of common stock of those stockholders. The
registration rights require those stockholders to indemnify us in some
circumstances. Registration of any of the shares of common stock held by
holders of registration rights generally would result in those shares becoming
freely tradable without restriction under the Securities Act immediately
following their distribution in the manner described in the applicable
registration statement.
The holders of the Representatives' Warrants will have certain demand and
"piggyback" registration rights with respect to the shares of common stock
underlying such warrants, commencing one year after the effective date of this
offering. If the Representatives should exercise registration rights to effect
the distribution of the securities underlying the Representatives' Warrants,
they will be unable to make an active market in our securities prior to and
during such distribution. If they cease making a market in the common stock,
the market and market prices for the common stock may be materially adversely
affected, and holders thereof may be unable to sell or otherwise dispose of
their shares of common stock. See "Underwriting."
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
Our certificate of incorporation limits the liability of our directors to
the maximum extent permitted by Delaware law. Delaware law provides that a
director of a corporation will not be personally liable for monetary damages
resulting from a breach of that individual's fiduciary duties as a director
except for liability for a breach of director's duty of loyalty, any act or
omission not in good faith or that involves intentional misconduct or a knowing
violation of the law, unlawful payments of
54
<PAGE>
dividends or unlawful stock repurchases or redemptions, or for any transaction
from which the director derived an improper personal benefit. This limitation
of liability does not apply to liabilities arising under federal securities
laws and does not affect the availability of equitable remedies such as
injunctive relief or rescission.
Section 145 of the Delaware General Corporation Law permits
indemnification by a corporation of certain officers, directors, employees and
agents. Our bylaws contain provisions which require us to indemnify our
officers and directors against liabilities in their capacities as such to the
maximum extent permitted by law. We believe that the provisions of our
certificate of incorporation and bylaws described above are necessary to
attract and retain qualified persons as directors and officers.
We have also obtained a policy of insurance under which our directors and
officers will be insured, subject to the limits of the policy, against certain
losses arising from claims made against such directors and officers by reason
of any acts or omissions covered under such policy in their respective
capacities as directors or officers, including liabilities under the Securities
Act.
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.
DELAWARE ANTI-TAKEOVER LAW
We are subject to the provisions of Section 203 of the Delaware General
Corporation Law. Section 203 prohibits a Delaware corporation from engaging in
any "business combination" with any "interested stockholder" for a period of
three years following the date that such stockholder became an interested
stockholder, unless (i) prior to such date, the board of directors of the
corporation approved either the business combination or the transaction which
resulted in the stockholder becoming an interested stockholder; (ii) upon
consummation of the transaction which resulted in the stockholder becoming an
interested stockholder, the interested stockholder owned at least 85% of the
voting stock of the corporation outstanding at the time the transaction
commenced (for the purposes of determining the number of shares outstanding,
those shares owned (x) by persons who are directors and also officers and (y)
by employee stock plans in which employee participants do not have the right to
determine confidentially whether shares held subject to the plan will be
tendered in a tender or exchange offer, are excluded from the calculation); or
(iii) on or subsequent to such date, the business combination is approved by
the board of directors and authorized at an annual or special meeting of
stockholders, and not by written consent, by the affirmative vote of at least
66 2/3% of the outstanding voting stock which is not owned by the interested
stockholder.
For purposes of Section 203, a "business combination" includes (i) any
merger or consolidation involving the corporation and the interested
stockholder; (ii) any sale, transfer, pledge or other disposition of 10% or
more of the assets of the corporation involving the interested stockholder;
(iii) subject to certain exceptions, any transaction which results in the
issuance or transfer by the corporation of any stock of the corporation to the
interested stockholder; (iv) any transaction involving the corporation which
has the effect of increasing the proportionate share of the stock of any class
or series of the corporation beneficially owned by the interested stockholder;
or (v) the receipt by the interested stockholder of the benefit of any loans,
advances, guarantees, pledges or other financial benefits provided by or
through the corporation. Section 203 defines an "interested stockholder" as any
entity or person beneficially owning 15% or more of the outstanding voting
stock of the corporation and any entity or person affiliated with or
controlling or controlled by such entity or person.
55
<PAGE>
MARKET INFORMATION
From May 11, 1999 to July 30, 1999, our common stock was traded on the OTC
Bulletin Board. Since August 2, 1999, our common stock has traded in the Nasdaq
Quotation Bureau LLC's Pink Sheets. We plan to file an application to include
our common stock on the Nasdaq National Market System under the symbol "CALN".
TRANSFER AGENT
Atlas Stock Transfer Corporation, 5899 South State Street, Murray, Utah
84107, is the Transfer Agent for our common stock.
56
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon the consummation of the offering, we will have outstanding 10,314,666
shares of common stock, of which 5,758,595 shares, including the 4,164,891
shares offered hereby, will be freely tradable without restriction or further
registration under the Securities Act. In addition, 494,672 shares of
outstanding common stock are being registered in the registration statement of
which this prospectus is a part, but are subject to a lock-up agreement as
described below. The remaining 4,556,071 shares of common stock are "restricted
securities," as that term is defined in Rule 144 under the Securities Act, and
in the future may only be sold pursuant to a registration statement under the
Securities Act, in compliance with the exemption provisions of Rule 144 or
pursuant to another exemption under the Securities Act. Commencing in April
2000, substantially all of these restricted securities will be eligible for
sale in the public market pursuant to Rule 144 subject to the lock-up agreement
described below.
In general, under Rule 144, as currently in effect, a person, including a
person who may be deemed our "affiliate" as that term is defined under the
Securities Act, who has beneficially owned shares for at least one year would
be entitled to sell within any three-month period a number of shares that do
not exceed the greater of (i) 1% of the then outstanding shares of our common
stock, or (ii) the average weekly trading volume of our common stock during the
four calendar weeks preceding such sale. Sales under Rule 144 are further
subject to certain restrictions relating to the manner of sale, notice and the
availability of current public information about us. After two years have
elapsed from the date of the issuance of restricted securities by us or their
acquisition from an affiliate, such shares may be sold without limitation by
persons who have not been our affiliates for at least three months.
We expect the beneficial owners of all shares of common stock to agree not
to sell shares for a period of 180 days after the date of this prospectus
without the consent of Kaufman Bros., L.P. In addition, without the consent of
Kaufman Bros., L.P., we have agreed not to sell or offer for sale any of our
securities for a period of 180 days following the date of this prospectus,
except in connection with strategic transactions or mergers and acquisitions
for which no consent is required.
No prediction can be made as to the effect, if any, that sales of
securities, or whether pursuant to Rule 144 or otherwise, the availability of
such securities for sale, will have on the market prices prevailing from time
to time for our common stock. However, even the possibility that a substantial
number of our securities may, in the near future, be sold in the public market
may adversely affect prevailing market prices for the common stock and could
impair our ability to raise capital through the sale of our equity securities.
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<PAGE>
UNDERWRITING
Subject to the terms and conditions set forth in the Underwriting
Agreement, we and the Selling Stockholders have agreed to sell an aggregate of
4,164,891 shares of common stock to the Underwriters named below, for whom
Kaufman Bros., L.P. and John G. Kinnard & Co. are acting as the
Representatives, and the Underwriters have severally agreed to purchase the
number of shares set forth opposite their respective names in the table below
at the offering price, less the underwriting discount set forth on the cover
page of this prospectus:
<TABLE>
<CAPTION>
UNDERWRITERS NUMBER OF SHARES
- ----------------------------------- -----------------
<S> <C>
Kaufman Bros., L.P. ...........
John G. Kinnard & Co. .........
Total ......................... 4,164,891
=========
</TABLE>
The Underwriting Agreement provides that the obligation of the
Underwriters to purchase the shares of common stock is subject to certain
conditions. The Underwriters are committed to purchase all of the shares of the
common stock, other than those covered by the over-allotment option described
below, if any are purchased.
The Underwriters propose to offer the shares to the public initially at
the public offering price set forth on the cover page of this prospectus, and
to certain dealers at such price less a concession not in excess of $ per
share. The Underwriters may allow, and such dealers may reallow, discounts not
in excess of $ per share; and the Underwriters may allow, and such dealers
may reallow, a concession of not more than $ per share to certain other
dealers. After this offering, the public offering price, the concession to
selected dealers and the reallowance to other dealers may be changed by the
Representatives.
We have also granted to the Underwriters, exercisable for 45 days from the
date of this prospectus, an option to purchase up to 624,734 additional shares
of common stock at the public offering price less the underwriting discount. To
the extent such option is exercised, each Underwriter will become obligated,
subject to certain conditions, to purchase additional shares of common stock
proportionate to such Underwriters' initial commitment as indicated in the
preceding table. The Underwriters may exercise such right of purchase only for
the purpose of covering over-allotments, if any, made in connection with the
sale of the shares.
We have also granted to the Representatives of the Underwriters, and their
respective designees, for nominal consideration, the Representatives' Warrants
to purchase up to an aggregate of 400,000 shares of our common stock. The
Representatives' Warrants will be exercisable for a period of four years,
commencing upon the first anniversary of the date of this prospectus, at an
initial exercise price equal to 120% of the public offering price per share.
The Representatives' Warrants are not redeemable by us under any circumstances.
Neither the Representatives' Warrants nor the shares of common stock issuable
upon exercise thereof may be transferred, assigned or hypothecated for a period
of 180 days after the date of this prospectus, except that they may be
assigned, in whole or in part, to any successor, officer or partner of the
Representatives, to the respective officers, partners or stockholders or any
successor of members of the selling group. The Representatives' Warrants will
contain anti-dilution provisions for appropriate adjustment of the exercise
price and number of shares which may be purchased upon the occurrence of
certain events, including the issuance of stock dividends, stock splits,
subdivisions or combinations of outstanding stock and reclassifications.
The holder(s) of a majority of the Representatives' Warrants and/or the
underlying shares shall have the right, during the five year period beginning
on the first anniversary date of this prospectus, on two occasions (one of
which will be at our sole expense), to require us to register the common stock
underlying the Representatives' Warrants by means of a registration statement
pursuant to the Securities Act, or a post-effective amendment thereto, as
appropriate, so as to enable such holders to publicly offer the underlying
shares. Moreover, if during the five year period beginning on the first
58
<PAGE>
anniversary date of this prospectus, we register any of our securities for sale
pursuant to a post-effective amendment or new registration statement, upon
request by any of the holders of the outstanding shares underlying the
Representatives' Warrants, we will be required to include such shares in such
registration.
We have agreed to pay the Representatives a non-accountable expense
allowance equal to 3% of the gross proceeds received by us from the sale of the
shares offered hereby. We have also agreed to pay certain expenses in
connection with this offering, including expenses in connection with qualifying
the shares offered hereby for sale under the laws of such states as the
Underwriters may designate and the placement of tombstone advertisements. We
have paid $25,000 to the Representatives as an advance for expenses.
We have agreed to indemnify the Underwriters against certain liabilities,
including civil liabilities under the Securities Act, or to contribute to
payments the Underwriters may be required to make in respect thereof.
We have agreed to give notice to the Representatives of meetings of our
Board of Directors and to permit a nominee of the Representatives to attend the
meetings as an observer. Kaufman Bros., L.P., on behalf of the Representatives,
also has the right, but not the obligation, to nominate one director to our
Board of Directors for four years from the closing of this offering.
We expect all of our directors and officers and stockholders, together
with the holders of options to purchase shares of our common stock, to agree
with the Underwriters not to publicly sell or otherwise dispose of any of their
shares of common stock or securities exercisable for shares of common stock for
a period of 180 days after the date of this prospectus without the prior
written consent of Kaufman Bros., L.P. In addition, we have agreed with the
Underwriters not to offer, sell or otherwise dispose of any shares of common
stock except for the shares of common stock offered hereby, the shares of
common stock issuable upon exercise of the Representatives' Warrants and the
shares of common stock issuable upon exercise of outstanding options granted
pursuant to our stock option plan for a period of 180 days after the date of
this prospectus without the prior written consent of Kaufman Bros., L.P.
Although our common stock is traded in the National Quotation Bureau,
LLC's Pink Sheets, such trading has been limited and sporadic. See "Price Range
of Common Stock." The offering price of the common stock will be determined by
negotiation between us, the Selling Stockholders and the Representatives.
Factors to be considered in such negotiation, in addition to the prices
prevailing in the National Quotation Bureau, LLC's Pink Sheets, include the
history of and prospects for the industry in which we compete, an assessment of
our management, our prospects, our capital structure and certain other factors
as are deemed relevant. The public offering price of the common stock does not
necessarily bear any relationship to our assets, net worth, earnings, book
value, or other criteria of value applicable to us and should not be considered
an indication of the actual value of the common stock. Such price is subject to
change as a result of market conditions and other factors, and the common stock
may not be able to be resold at the offering price.
During and after this offering, the Underwriters may purchase and sell
common stock in the open market. These transactions may include over-allotment
and stabilizing transactions and purchases to cover syndicate short positions
created in connection with the offering. The Underwriters also may impose a
penalty bid, whereby selling concessions allowed to syndicate members or other
broker-dealers in respect of the shares sold in the offering for their account
may be reclaimed by the syndicate if such shares are repurchased by the
syndicate in stabilizing or covering transactions. These activities may
stabilize, maintain or otherwise affect the market price of the common stock
which may be higher than the price that might otherwise prevail in the open
market. Neither we nor any of the Underwriters make any representation or
prediction as to the direction or magnitude of any effect that the transactions
described above may have on the price of the common stock. In addition, neither
we nor any of the Underwriters makes any representation that the Underwriters
will engage in such transactions or that such transactions, once commenced,
will not be discontinued at any time.
59
<PAGE>
LEGAL MATTERS
The validity of the shares offered hereby will be passed upon by Stairs
Dillenbeck Finley & Merle, New York, New York. Certain legal matters in
connection with the offering will be passed upon for the Underwriters by
Squadron, Ellenoff, Plesent & Sheinfeld, LLP, New York, New York.
EXPERTS
Our financial statements and schedules as of December 31, 1998 and 1997
and for the years then ended, included in this prospectus and elsewhere in the
registration statement, have been audited by Horton & Company, L.L.C.,
independent public accountants, as indicated in their reports with respect
thereto, and are included herein in reliance upon the report of such firm given
upon their authority as experts in accounting and auditing.
Ernst & Young LLP, independent auditors, have audited our financial
statements and schedules for the year ended December 31, 1996, as set forth in
their report. We have included our financial statements and schedules in the
prospectus and elsewhere in the registration statement in reliance on Ernst &
Young LLP's report, given on their authority as experts in accounting and
auditing.
ADDITIONAL INFORMATION
We have filed with the Commission a registration statement on Form S-1
(herein, together with all amendments and exhibits, referred to as the
"Registration Statement") under the Securities Act, with respect to the common
stock offered hereby. This prospectus does not contain all of the information
set forth in the registration statement, certain parts of which are omitted in
accordance with the rules and regulations of the Commission. For further
information with respect to us and our common stock, reference is hereby made
to the Registration Statement which may be examined without charge at the
public reference facilities maintained by the Commission at Room 1024, 450
Fifth Street, NW, Washington, DC 20549. Copies thereof may be obtained from the
Commission upon payment of the prescribed fees. Statements contained in this
prospectus as to the contents of any contract, agreement, or other document
referred to herein are not necessarily complete, and in each instance, if such
contract, agreement or other document is filed as an exhibit to the
Registration Statement, each such statement is qualified in all respects by
reference to such exhibit.
Upon completion of this offering, we will be subject to the informational
requirements of the Securities Exchange Act of 1934, as amended, and, in
accordance therewith, will file periodic reports, proxy statements and other
information with the Securities and Exchange Commission. Such reports, proxy
statements and other information can be inspected and copied at prescribed
rates at the public reference facilities maintained by the Commission at Room
1024, 450 Fifth Street, NW, Washington, DC 20549, and at the Commission's
Regional Offices at 7 World Trade Center, Suite 1300, New York, New York 10048;
and 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Electronic
filings made via EDGAR are publicly available through the Commission's Web site
at http://www.sec.gov. Copies of such material can be obtained at prescribed
rates by writing to the Public Reference Section of the Commission, Room 1024,
450 Fifth Street, NW Washington, DC 20549.
60
<PAGE>
CALLNOW.COM, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
------------
<S> <C>
Independent Auditors' Reports ..................................................... F-2 - F-3
Balance sheets as of December 31, 1998 and 1997 and June 30, 1999 ................. F-4
Statements of operations for the years ended December 31, 1998, 1997 and 1996
and for the six-month periods ended June 30, 1999 and 1998 ....................... F-5
Statements of stockholders' deficit for the years ended December 31, 1998, 1997
and 1996 and for the six-month periods ended June 30, 1999 and 1998 .............. F-6
Statements of cash flows for the years ended December 31, 1998, 1997 and 1996
and for the six-month periods ended June 30, 1999 and 1998 ....................... F-7
Notes to financial statements ..................................................... F-8 - F-15
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors
CallNOW.com, Inc.
New York, New York
We have audited the accompanying balance sheets of CallNOW.com, Inc. as of
December 31, 1998 and 1997, and the related statements of operations,
stockholders' deficit and cash flows for the years then ended. 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 audits to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of CallNOW.com, Inc. at December
31, 1998 and 1997, and the results of its operations and its cash flows for the
years then ended, in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that
CallNOW.com, Inc. will continue as a going concern. As more fully described in
Note 1, the Company has incurred recurring operating losses, has a working
capital deficiency, and has a net capital deficiency. These conditions raise
substantial doubt about the Company's ability to continue as a going concern.
Management's plans in regard to these matters are also described in Note 1. The
financial statements do not include any adjustment to reflect the possible
future effects on the recoverability and classification of assets or the
amounts and classification of liabilities that may result from the outcome of
this uncertainty.
HORTON & COMPANY, L.L.C.
April 28, 1999, except for Note 9 and the last paragraph of
of Note 3, as to which the date is May 12, 1999
F-2
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
CallNOW.com, Inc.
We have audited the accompanying consolidated statements of operations,
stockholders' equity and cash flows of CallNOW.com, Inc. (formerly Axicom
Communications Group, Inc.) for the year ended December 31, 1996. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated results of
operations and consolidated cash flows of CallNOW.com, Inc. for the year ended
December 31, 1996, in conformity with generally accepted accounting principles.
The statements of operations, stockholders' equity and cash flows for the
year ended December 31, 1996 of CallNOW.com, Inc. (formerly Axicom
Communications Group, Inc.), appearing in this Prospectus and Registration
Statement have been audited by Ernst & Young LLP, independent auditors, as set
forth in their report thereon (which contain an explanatory paragraph
describing conditions that raise substantial doubt about the Company's ability
to continue as a going concern as described in Note 1 to the financial
statements) appearing elsewhere herein, and are included in reliance upon such
report given on the authority of such firm as experts in accounting and
auditing.
ERNST & YOUNG LLP
New York, New York
June 6, 1997
F-3
<PAGE>
CALLNOW.COM, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
------------------------------- ---------------
1998 1997 1999
--------------- --------------- ---------------
ASSETS
(UNAUDITED)
<S> <C> <C> <C>
Current assets:
Cash .......................................................... $ 7,565 $ 107,832 $ 152,565
Accounts receivable, net of allowances of $6,000 in 1998
and $6,500 in 1997 .......................................... 122,700 267,274 109,556
------------ ------------ ------------
Total current assets ........................................ 130,265 375,106 262,121
Property and equipment, net of accumulated depreciation ........ 512,303 277,835 565,558
Other assets ................................................... 36,785 33,704 441,385
------------ ------------ ------------
Total assets ................................................ $ 679,353 $ 686,645 $ 1,269,064
============ ============ ============
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Current portion of long-term debt ............................. $ 128,688 $ 114,204 $ 85,333
Accounts payable and accrued expenses ......................... 1,034,382 1,584,176 1,446,505
Loan payable-officer .......................................... 87,231 127,105 51,522
------------ ------------ ------------
Total current liabilities ................................... 1,250,301 1,825,485 1,583,360
Long-term debt, net of current portion ......................... 19,069 147,756 479,000
Other long-term liabilities .................................... 1,337,957 -- 1,234,747
------------ ------------ ------------
Total liabilities ........................................... 2,607,327 1,973,241 3,297,107
------------ ------------ ------------
Stockholders' deficit:
Common stock, $.001 par value;
50,000,000 shares authorized;
3,875,000 shares issued and outstanding in 1998 and 1997;
5,139,151 shares issued and outstanding in 1999 ............. 3,875 3,875 5,139
Additional paid-in capital .................................... 837,059 837,059 1,261,691
Accumulated deficit ........................................... (2,768,908) (2,127,530) (3,294,873)
------------ ------------ ------------
Total stockholders' deficit ................................. (1,927,974) (1,286,596) (2,028,043)
------------ ------------ ------------
Total liabilities and stockholders' deficit ................. $ 679,353 $ 686,645 $ 1,269,064
============ ============ ============
</TABLE>
See notes to financial statements
F-4
<PAGE>
CALLNOW.COM, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
SIX-MONTH PERIODS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
--------------------------------------------- -----------------------------
1998 1997 1996 1999 1998
------------- ------------- ------------- ------------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net sales .............................. $2,295,202 $5,010,027 $1,674,955 $ 542,689 $1,385,666
Cost of sales .......................... 1,681,978 4,293,524 1,276,934 390,587 1,101,200
---------- ---------- ---------- ---------- ----------
Gross profit ........................... 613,224 716,503 398,021 152,102 284,466
---------- ---------- ---------- ---------- ----------
Operating expenses:
Administrative ........................ 518,546 570,500 654,009 308,094 205,575
Sales and marketing ................... 438,430 807,989 475,432 159,322 198,249
Technical ............................. 101,330 143,134 178,652 50,444 75,734
Depreciation and amortization ......... 105,860 53,651 19,568 76,437 36,840
---------- ---------- ---------- ---------- ----------
Total operating expenses ............ 1,164,166 1,575,274 1,327,661 594,297 516,398
---------- ---------- ---------- ---------- ----------
Loss from operations ................... (550,942) (858,771) (929,640) (442,195) (231,932)
Interest expense ....................... (90,436) (58,568) (1,154) (36,848) (23,763)
Litigation settlement .................. -- -- -- (46,922) --
---------- ---------- ---------- ---------- ----------
Net loss ............................... $ (641,378) $ (917,339) $ (930,794) $ (525,965) $ (255,695)
========== ========== ========== ========== ==========
Net loss per share ..................... $ (0.17) $ (0.24) $ (0.24) $ (0.11) $ (0.07)
========== ========== ========== ========== ==========
Weighted average common
shares outstanding .................... 3,875,000 3,875,000 3,875,000 4,577,162 3,875,000
========== ========== ========== ========== ==========
</TABLE>
See notes to financial statements
F-5
<PAGE>
CALLNOW.COM, INC.
STATEMENTS OF STOCKHOLDERS' DEFICIT
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
AND FOR THE SIX-MONTH PERIODS ENDED JUNE 30, 1999 AND 1998
(INFORMATION FOR SIX-MONTH PERIODS ENDED JUNE 30, 1999 AND 1998 IS UNAUDITED)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
---------------------- PAID-IN ACCUMULATED
SHARES AMOUNT CAPITAL DEFICIT TOTAL
----------- -------- ------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Balance, January 1, 1996, as restated
for reverse acquisition accounting ......... 3,055,525 $3,055 $ 375,948 $ (279,397) $ 99,606
Shares issued during 1996 ................... 801,852 802 449,598 -- 450,400
Net loss .................................... -- -- -- (930,794) (930,794)
--------- ------ ---------- ------------ ------------
Balance, December 31, 1996 .................. 3,857,377 3,857 825,546 (1,210,191) $ (380,788)
Shares issued during 1997 ................... 17,623 18 11,513 -- 11,531
Net loss .................................... -- -- -- (917,339) (917,339)
--------- ------ ---------- ------------ ------------
Balance, December 31, 1997 .................. 3,875,000 3,875 837,059 (2,127,530) (1,286,596)
Net loss .................................... -- -- -- (641,378) (641,378)
--------- ------ ---------- ------------ ------------
Balance, December 31, 1998 .................. 3,875,000 $3,875 $ 837,059 $ (2,768,908) $ (1,927,974)
========= ====== ========== ============ ============
Balance at January 1, 1998 .................. 3,875,000 $3,875 $ 837,059 $ (2,127,530) $ (1,286,596)
Net loss (unaudited) ........................ -- -- -- (255,695) (255,695)
--------- ------ ---------- ------------ ------------
Balance at June 30, 1998 .................... 3,875,000 $3,875 $ 837,059 $ (2,383,225) $ (1,542,291)
========= ====== ========== ============ ============
Balance at January 1, 1999 .................. 3,875,000 $3,875 $ 837,059 $ (2,768,908) $ (1,927,974)
Shares issued during 1999 ................... 1,264,151 1,264 424,632 -- 425,896
Net loss (unaudited) ........................ -- -- -- (525,965) (525,965)
--------- ------ ---------- ------------ ------------
Balance at June 30, 1999 .................... 5,139,151 $5,139 $1,261,691 $ (3,294,873) $ (2,028,043)
========= ====== ========== ============ ============
</TABLE>
See notes to financial statements
F-6
<PAGE>
CALLNOW.COM, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------
1998 1997 1996
--------------- --------------- --------------
<S> <C> <C> <C>
Net loss .................................................. $ (641,378) $ (917,339) $ (930,794)
----------- ----------- ----------
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization .......................... 105,860 53,651 19,568
Bad debts .............................................. 59,458 197,109 113,000
Consulting fees paid through issuance of stock ......... -- 11,531 --
Changes in operating assets and liabilities:
Accounts receivable ................................... 85,116 (176,800) (226,130)
Other assets .......................................... (3,081) 36,538 (86,832)
Accounts payable ...................................... (549,794) 906,593 426,855
Commissions payable ................................... -- -- 50,447
Other long-term liabilities ........................... 1,137,957 (56,762) 56,762
----------- ----------- ----------
Net cash provided by (used in)
operating activities ............................... 194,138 54,521 (577,124)
----------- ----------- ----------
Cash flows from investing activities:
Capital expenditures ..................................... (140,328) (168,556) (149,865)
----------- ----------- ----------
Net cash used in investing activities ............... (140,328) (168,556) (149,865)
----------- ----------- ----------
Cash flows from financing activities:
Proceeds from long-term debt financing ................... -- 100,000 200,000
Principal payments on loan obligations ................... (114,203) (38,040) --
Proceeds from officer loans (repayments) ................. (39,874) 88,647 100,000
Proceeds from stock issuance ............................. -- -- 450,400
----------- ----------- ----------
Net cash provided by (used in)
financing activities ............................... (154,077) 150,607 750,400
----------- ----------- ----------
Net increase (decrease) in cash ........................... (100,267) 36,572 23,411
Cash, beginning of period ................................. 107,832 71,260 47,849
----------- ----------- ----------
Cash, end of period ....................................... $ 7,565 $ 107,832 $ 71,260
=========== =========== ==========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid ...................................... $ 75,193 $ 32,430 $ --
=========== =========== ==========
<PAGE>
<CAPTION>
SIX-MONTH
PERIODS
ENDED JUNE 30,
-----------------------------
1999 1998
-------------- --------------
(UNAUDITED)
<S> <C> <C>
Net loss .................................................. $ (525,965) $ (255,695)
---------- ----------
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization .......................... 76,437 36,840
Bad debts .............................................. 3,012 --
Consulting fees paid through issuance of stock ......... -- --
Changes in operating assets and liabilities:
Accounts receivable ................................... 10,132 115,622
Other assets .......................................... (404,600) (8,332)
Accounts payable ...................................... 412,123 144,544
Commissions payable ................................... -- --
Other long-term liabilities ........................... (103,210) --
---------- ----------
Net cash provided by (used in)
operating activities ............................... (532,071) 32,979
---------- ----------
Cash flows from investing activities:
Capital expenditures ..................................... (129,692) (34,400)
---------- ----------
Net cash used in investing activities ............... (129,692) (34,400)
---------- ----------
Cash flows from financing activities:
Proceeds from long-term debt financing ................... 479,000 --
Principal payments on loan obligations ................... (62,424) (55,398)
Proceeds from officer loans (repayments) ................. (35,709) (27,000)
Proceeds from stock issuance ............................. 425,896 --
---------- ----------
Net cash provided by (used in)
financing activities ............................... 806,763 (82,398)
---------- ----------
Net increase (decrease) in cash ........................... 145,000 (83,819)
Cash, beginning of period ................................. 7,565 107,832
---------- ----------
Cash, end of period ....................................... $ 152,565 $ 24,013
========== ==========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid ...................................... $ 36,848 $ 23,763
========== ==========
</TABLE>
See notes to financial statements
F-7
<PAGE>
CALLNOW.COM, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996
(INFORMATION FOR SIX-MONTH PERIODS ENDED JUNE 30, 1999 AND 1998 IS UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
This summary of significant accounting policies of CallNOW.com, Inc.
(hereinafter "CallNOW" or the "Company") is presented to assist in
understanding the financial statements. The financial statements and notes are
representations of the Company's management, which is responsible for their
integrity and objectivity. These accounting policies conform to generally
accepted accounting principles and have been consistently applied in the
preparation of the financial statements.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
BASIS OF PRESENTATION
Effective April 6, 1999, pursuant to the terms of a plan of
reorganization, American Ostrich Corporation ("AOC") acquired all of the
outstanding common stock of AXICOM Communications Group, Inc. ("Axicom"), a New
York corporation, in exchange for 3,875,000 unregistered shares of AOC's common
stock. As a result of the transaction, the former shareholders of Axicom
received shares representing an aggregate of 88% of AOC's outstanding common
stock, resulting in a change in control of AOC. As a result of the merger,
Axicom became the wholly-owned subsidiary of AOC. Simultaneously therewith, AOC
amended its articles of incorporation to reflect a change in name to
CallNOW.com, Inc. ("CallNOW"), a Delaware corporation. References to the
"Company" refer to CallNOW together with its predecessor, Axicom.
The acquisition of Axicom by AOC has been accounted for as a reverse
acquisition. Under the accounting rules for a reverse acquisition, Axicom is
considered the acquiring entity and AOC the acquired entity. As a result,
historical financial statements presented for periods prior to the date of the
transaction are those of Axicom. However, the capital structure has been
retroactively restated to reflect the number of shares received by Axicom
shareholders in the acquisition and AOC's par value. Under purchase method
accounting, balances and results of operations of AOC (now CallNOW) will be
included in the Company's financial statements from the date of the
transaction, April 6, 1999.
In the reverse acquisition, the Company recorded assets and liabilities at
their historical cost basis which was deemed to approximate fair market value.
The reverse acquisition transaction is treated as a non-cash transaction,
except to the extent of cash acquired, since all consideration given was in the
form of common stock. Pro forma results of operations (assuming the business
combination had been effected in January 1997) are not presented because AOC
was inactive for the periods presented. As a result, pro forma results of
operations for the years ended December 31, 1998, 1997 and 1996, would be no
different than the historical statements of operations presented herewith.
INTERIM FINANCIAL REPORTING
The unaudited financial statements for the six-month periods ended June
30, 1999 and 1998 reflect all adjustments which are, in the opinion of
management, necessary to a fair statement of financial position, results of
operations and cash flows of the interim periods presented.
BUSINESS ACTIVITY
The Company began operations in 1995 as Axicom Communications Group, Inc.
which provided low cost international telephone service globally. The Company's
principal operations were in providing
F-8
<PAGE>
CALLNOW.COM, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996 (CONTINUED)
(INFORMATION FOR SIX-MONTH PERIODS ENDED JUNE 30, 1999 AND 1998 IS UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
clients in overseas locations with low cost communication originated from a U.
S. switch. The vast majority of the Company's traffic is generated from small
to mid-size businesses and individuals. In addition, the Company has been
involved in wholesale arrangements with accounts in France and Hong Kong. The
Company maintains a global presence in the form of representative offices in
about fifteen countries and generates business in approximately equal portions
from Europe, Latin America and the rest of the world.
During 1997, the Company changed its principal strategy to that of
providing multiple telephone services using the Internet. In 1998, the Company
filed a patent for its proprietary Internet software which provides automated,
instant sign-up for services, real-time monitoring of call detail reports, and
on-line billing. The Company operates from its offices and switching facility
in New York City's financial district.
To market its services, CallNOW has developed an international affiliate
network of Internet search engines, Web-based e-commerce retailers and telecom
related Web sites where customers click for immediate sign up for global
telephone services. Affiliates are compensated on a revenue sharing basis
derived from the usage of customers that have signed up for service from their
sites.
GOING CONCERN
The Company's initial capitalization provided the necessary funds to set
up the platform to provide services for clients. The cash flows from results of
operations were intended to be used for development and growth. The Company has
incurred operating losses, has a working capital deficiency and a net capital
deficiency as of December 31, 1998, 1997 and 1996. These conditions raise doubt
about the Company's ability to continue as a going concern for the next fiscal
year. Management's plans in regard to these matters include taking the Company
public through the business combination described above, by raising additional
capital through private placements of convertible debt and equity and through a
planned public offering of the Company's common stock.
REVENUE RECOGNITION
The Company recognizes revenue on sales when services are performed.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost and are depreciated on the
straight-line basis using the estimated useful lives of the assets which range
from three to ten years.
INTERNET-ASSISTED RETURNCALL SOFTWARE
During November 1998, the Company acquired the rights, including the
copyright, to certain computer software and related documents. The software
enables customers and the Company to perform a series of tasks in real time.
Such procedures can be accessed from the Company's Internet Web site and
interact with the Company's database and telecommunications switch in order to
provide the following features:
o Automatic sign-up of customers, including
o Credit card authorization
o Customer account creation on the Company's database
o Activation with the telecommunications switch to enable immediate
access to the service
F-9
<PAGE>
CALLNOW.COM, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996 (CONTINUED)
(INFORMATION FOR SIX-MONTH PERIODS ENDED JUNE 30, 1999 AND 1998 IS UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
o Customer survey of country specific rates
o Customer review of call detail reports
o Automatic monthly invoicing to customers via e-mail
o Trigger call back service through the Internet
The Company has submitted an application for a patent on this software.
CONCENTRATION OF CREDIT RISK
Financial instruments, which potentially subject the Company to
concentration of credit risk, consist principally of accounts receivable. The
Company's policies do not require collateral to support accounts receivable.
However, because of the diversity and credit worthiness of individual accounts
which compromise the total balance, management does not believe that the
Company is subject to any significant credit risk.
At December 31, 1998, the Company had accounts receivable from one
customer which represented 18% of the accounts receivable balance at that date.
At December 31, 1997, the Company had accounts receivable from one customer
which represented 14% of the accounts receivable balance at that date.
During 1998, two customers represented approximately 25% and 17%,
respectively, of the Company's revenues. The same two customers accounted for
approximately 49% and 12%, respectively, of the Company's revenues in 1997.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's receivables and payables are current and on normal terms
and, accordingly, are believed by management to approximate fair value.
Management also believes that long-term debt obligations approximate fair value
when current interest rates for similar debt securities are applied.
SUPPLEMENTARY DISCLOSURES OF NON-CASH INVESTING AND FINANCING ACTIVITIES
During the year ended December 31, 1998, the Company financed property and
equipment purchases as follows:
<TABLE>
<S> <C>
Property and equipment purchased ......... $ 340,328
Long-term liability incurred ............. (200,000)
----------
Capital expenditures ..................... $ 140,328
==========
</TABLE>
LOSS PER COMMON SHARE
Loss per common share is computed by dividing the net loss applicable to
common stockholders by the weighted average number of shares of common stock
outstanding during the period.
F-10
<PAGE>
CALLNOW.COM, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996 (CONTINUED)
(INFORMATION FOR SIX-MONTH PERIODS ENDED JUNE 30, 1999 AND 1998 IS UNAUDITED)
2. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------- JUNE 30,
1998 1997 1999
------------- ----------- ------------
(UNAUDITED)
<S> <C> <C> <C>
Telecommunications equipment ........... $ 132,778 $ 128,750 $ 132,778
Software ............................... 541,411 205,111 666,122
Office furniture and equipment ......... 21,057 21,057 26,038
---------- --------- ----------
695,246 354,918 824,938
Less accumulated depreciation .......... (182,943) (77,083) (259,380)
---------- --------- ----------
Net property and equipment ............. $ 512,303 $ 277,835 $ 565,558
========== ========= ==========
</TABLE>
3. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------ JUNE 30,
1998 1997 1999
---------- ----------- ------------
(UNAUDITED)
<S> <C> <C> <C>
Note to a finance company, payable in 30 equal
monthly installments of $7,750, including
principal and interest at 12%, through
January 2000 .................................. $ 94,033 $170,671 $ 52,141
Note to a finance company, payable in monthly
installments of $3,875, including interest at
12%, through March 2000 ....................... 53,724 91,289 33,192
2% convertible debenture, due June 2004 ......... -- -- 479,000
-------- -------- --------
147,757 261,960 564,333
Less current portion ............................ 128,688 114,204 85,333
-------- -------- --------
$ 19,069 $147,756 $479,000
======== ======== ========
</TABLE>
As of December 31, 1998, maturities of long-term debt are as follows:
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31,
- ----------------
<S> <C>
1999 ......... $128,688
2000 ......... 19,069
--------
$147,757
========
</TABLE>
The notes are secured by substantially all of the Company's assets and by
the collateral assignment of life insurance on the lives of Messrs. Bardenheuer
and Johnson in the amount of $250,000 each. In addition, the loans are subject
to a number of affirmative and negative covenants. The Lender also received
warrants to purchase up to 2.9% of the Company's common stock. Such warrants
are exercisable for a period of ten years from the original date of the loans
for total consideration of $999. Such warrants include anti-dilutive
provisions.
During May 1999, the above warrants were exercised, resulting in the
issuance of 114,109 shares of the Company's common stock.
F-11
<PAGE>
CALLNOW.COM, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996 (CONTINUED)
(INFORMATION FOR SIX-MONTH PERIODS ENDED JUNE 30, 1999 AND 1998 IS UNAUDITED)
4. OTHER LONG-TERM LIABILITIES
Other long-term liabilities consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------- JUNE 30,
1998 1997 1999
------------ ------------ --------------
(UNAUDITED)
<S> <C> <C> <C>
Payable to an individual for purchase of
Internet assisted ReturnCall software
(Note 1). The liability is payable in four
semi-annual installments of $43,750 and a fifth
payment of $25,000 due 90 days thereafter.
The first payment is due based on the
delivery date of user manuals related to the
software technology. As of April 28, 1999,
such manuals had not been delivered.
Therefore, the earliest date for the initial
installment would be due no sooner than
January 2000. However, $25,000 of this
obligation was paid in March 1999 ................. $ 200,000 $ -- $ 175,000
Payable to a trade creditor under a $700,000
credit line. The trade credits are collateralized
by a security interest in substantially all of the
Company's assets. This trade payable was
exchanged for a long-term convertible
debenture subsequent to year-end (Note 9) ......... 629,203 -- 700,000
Payable to a corporation in six quarterly
installments of $50,000 without interest
commencing August 1999 ............................ -- -- 300,000
Payable to a trade creditor under a $576,300
credit line. This trade payable was exchanged
for a long-term convertible debenture
subsequent to year end (Note 9) ................... 576,297 -- 576,297
---------- --------- -----------
1,405,500 -- 1,751,297
Less: current portion included in accounts
payable ........................................... 67,543 -- 516,550
---------- --------- -----------
$1,337,957 $ -- $ 1,234,747
========== ========= ===========
</TABLE>
At December 31, 1998, estimated maturities of other long-term liabilities
are as follows:
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31,
- ----------------
<S> <C>
1999 ......... $ 67,543
2000 ......... 573,020
2001 ......... 623,020
2002 ......... 141,917
----------
$1,405,500
==========
</TABLE>
F-12
<PAGE>
CALLNOW.COM, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996 (CONTINUED)
(INFORMATION FOR SIX-MONTH PERIODS ENDED JUNE 30, 1999 AND 1998 IS UNAUDITED)
5. LOAN PAYABLE--OFFICER
Loan payable--officer represents an unsecured demand loan payable to one
of the Company's officers. The loan bears interest at 12%. In addition, the
Company is responsible for any interest and penalties incurred by the officer
arising from unpaid tax liabilities resulting from a gain on marketable
securities sold by the officer to fund the loan. Interest and other expenses
incurred by the Company in connection with this loan totaled $12,093, $26,137
and $1,154 for 1998, 1997 and 1996, respectively.
6. STOCKHOLDERS' DEFICIT
CAPITALIZATION
As discussed in Note 1, on April 6, 1999, the Company issued 3,875,000
shares of its common stock in connection with the reverse acquisition of
Axicom. The total shares of common stock issued and outstanding immediately
subsequent to the business combination was 4,396,457. The capital structure for
all periods presented has been retroactively restated to assume the capital
structure of CallNOW. The number of common shares shown outstanding is based on
the number of common shares received by shareholders of Axicom in connection
with such reverse acquisition (3,875,000 shares).
OPTIONS AND WARRANTS
In addition to the options and warrants issued in conjunction with a
long-term debt obligation (Note 3) and a consulting agreement (Note 7), the
seller of software technology described in Note 1 was granted the right to
receive 10,000 shares of the Company's common stock in lieu of a $25,000
payment.
7. COMMITMENTS AND CONTINGENCIES
LEASE AGREEMENTS
The Company leases office space and certain office equipment under
non-cancelable operating lease agreements through 1999. Future minimum rental
payments required under such agreements are as follows:
<TABLE>
<CAPTION>
YEAR ENDING EQUIPMENT
DECEMBER 31, OFFICELEASES LEASES
- ---------------------- -------------- ----------
<S> <C> <C>
1999 ............... $ 50,617 $ 26,015
2000 ............... 56,250 25,946
2001 ............... 56,250 23,197
2002 ............... 18,750 15,806
-------- --------
$181,867 $ 90,964
======== ========
</TABLE>
Total rental expense for all operating leases totaled $77,534, $71,068 and
$49,600 for the years ended December 31, 1998, 1997 and 1996, respectively.
CONSULTING AGREEMENT
During 1998, the Company entered into a consulting agreement. Such
agreement provides for compensation of $5,000 per month commencing August 1998.
Such compensation increased to $10,000 per month effective March 1999.
Compensation will be increased to $15,000 per month upon the Company achieving
revenue of $1,000,000 per month.
F-13
<PAGE>
CALLNOW.COM, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996 (CONTINUED)
(INFORMATION FOR SIX-MONTH PERIODS ENDED JUNE 30, 1999 AND 1998 IS UNAUDITED)
7. COMMITMENTS AND CONTINGENCIES (CONTINUED)
In addition, the Company agreed to grant the consultant options to
purchase 5% of the Company. Effective November 1998, options representing 2.5%
of the Company were granted. These options are exercisable at $1 per share and
vest in May 1999. The options include anti-dilutive provisions so that the
number of options granted will be increased in the event of an equity financing
so that the consultant maintains his 2.5% ownership position. Such additional
options will be granted at the price of the equity financing and will vest six
months after such financing. Additional options for another 2.5% of the Company
will be granted at the next round of financing. Such options will be granted at
the price of the financing and will vest twelve months after the financing. The
consultant will be granted additional options (at the then stock price) upon
subsequent financing over the next two years to prevent dilution of his 5%
ownership. The options will remain in effect as long as the consultant remains
with the Company and are exercisable over five years. In the event the
consultant is terminated, the options will vest immediately.
The consultant is also entitled to receive a $35,000 finder's fee for the
extension of the $700,000 vendor credit line described in Note 4.
SOFTWARE SUPPORT
Effective November 1998, the Company entered into an agreement with a
computer consultant to provide ongoing support and maintenance for its
proprietary Internet-assisted ReturnCall software. This agreement is for a
two-year period ending November 2000. The consultant receives a monthly fee of
$5,000 for the support and maintenance services.
FINANCIAL ADVISORY SERVICES
During February 1999, the Company discussed an agreement for an individual
to provide financial advisory services to the Company. Such services were to be
rendered in connection with the possible business combination with a public
company. Under the terms of the agreement, the advisor was to receive 5% of the
fully-diluted shares of the Company, or its successor, upon consummation of
such business combination, as well as a one-year consulting agreement for
$60,000. While the agreement was not finalized, a potential liability exists.
TELECOMMUNICATION SERVICES
The Company routinely enters into agreements with long distance carriers
to provide telecommunications services to the Company for its customer traffic
at specified rates. Such agreements are typically short-term in duration and
automatically renewable.
LITIGATION
The Company is the defendant in an arbitration proceeding concerning a
1997 agreement to purchase customer accounts from the claimant. The claimant
alleges that the Company breached its agreement and is seeking relief in the
amount of $90,272. The Company counter-claimed against the seller alleging
fraud, negligent misrepresentation and breach of contract. During July 1999,
the Company settled this arbitration and counter-claim for a total cost of
$46,922.
The Company is also a defendant in a litigation proceeding brought by a
former vendor which supplied telecommunication switching service and customer
billing and collection services. The 1996 suit claims that the Company owes the
plaintiff $97,134 plus interest for such services. The Company has denied the
allegations and filed a counterclaim alleging breach of contract, breach of
fiduciary responsibilities and right of set-off based on the plaintiff's
failure to bill and collect from the
F-14
<PAGE>
CALLNOW.COM, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996 (CONTINUED)
(INFORMATION FOR SIX-MONTH PERIODS ENDED JUNE 30, 1999 AND 1998 IS UNAUDITED)
7. COMMITMENTS AND CONTINGENCIES (CONTINUED)
Company's customers. During 1996, the plaintiff filed for bankruptcy. During
July 1999, the litigation was settled at no cost to the Company.
8. INCOME TAXES
The Company accounts for income taxes using the liability method in
accordance with Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes." Under this method, deferred tax assets and
liabilities are determined based on differences between financial reporting and
tax bases of assets and liabilities and are measured using enacted tax rates
and laws that will be in effect when the differences are expected to reverse.
There were no significant temporary differences leading to deferred tax assets
or liabilities as of December 31, 1998 and 1997. Deferred tax assets arising
from net operating loss carryforwards have been reduced to zero through
valuation allowances.
9. SUBSEQUENT EVENTS
CONVERTIBLE DEBENTURES
Effective May 1999, two trade creditors agreed to exchange approximately
$1,279,000 of trade credits for three-year, 5% convertible debentures. Interest
only will be payable for the first six months. Thereafter, principal is payable
in thirty equal monthly installments plus interest. In the event that the
Company raises a minimum of $5,000,000 in debt or equity, each creditor has the
right to have its debt and accumulated interest paid in four equal monthly
installments. The debentures are convertible at any time, in whole or in part,
at the option of the creditor, into common stock of the Company at a discount
to the average closing bid price of the Company's stock for five trading days
preceding the conversion, but not less than $7.06. Such conversion shares are
subject to transfer restrictions under the Securities Act of 1933 and under the
terms of the agreement. The Company agreed that upon the earlier of nine-months
from the issuance of the convertible debenture, or the filing of any
registration statement, that it will register all of the conversion shares, at
the creditors' option.
During March 1999, the Company sold $500,000 of 2% convertible debentures,
due April 2004. The debentures and any unpaid interest thereon are convertible
into shares of the Company's common stock at the option of the holders. The
conversion price shall be the lesser of an amount which results in the
debentures being converted into 12.5% of the fully diluted common stock or 80%
of the average closing bid price for the Company's common stock for the seven
trading days immediately preceding the conversion. Such shares issued in
conversion shall not exceed 628,585 shares. The debentures contain
anti-dilutive provisions. During May 1999, the debentures were converted in
full into 628,585 shares of the Company's common stock.
STOCK WARRANTS
During May 1999, the warrants issued in tandem with the long-term debt
described in Note 3 were exercised by the creditor.
F-15
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE INFORMATION DIFFERENT FROM THAT
CONTAINED IN THIS PROSPECTUS. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR SALE
OF COMMON STOCK MEANS THAT INFORMATION CONTAINED IN THIS PROSPECTUS IS CORRECT
AFTER THE DATE OF THIS PROSPECTUS. THIS PROSPECTUS IS NOT AN OFFER TO SELL OR
SOLICITATION OF AN OFFER TO BUY THESE SHARES OF COMMON STOCK IN ANY
CIRCUMSTANCES UNDER WHICH THE OFFER OR SOLICITATION IS UNLAWFUL.
-----------------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Prospectus Summary .......................... 3
Risk Factors ................................ 8
Use of Proceeds ............................. 20
Price Range of Our Common Stock ............. 20
Dividend Policy ............................. 21
Capitalization .............................. 21
Dilution .................................... 22
Selected Financial Data ..................... 23
Management's Discussion and Analysis of
Financial Condition and Results of
Operations ............................... 24
Business .................................... 29
Management .................................. 45
Related Party Transactions .................. 50
Principal and Selling Stockholders .......... 52
Description of Securities ................... 54
Shares Eligible for Future Sale ............. 57
Underwriting ................................ 58
Legal Matters ............................... 60
Experts ..................................... 60
Additional Information ...................... 60
Financial Statements ........................ F-1
</TABLE>
-----------------------------------
UNTIL , 1999 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS
THAT EFFECT TRANSACTIONS IN THESE SECURITIES, WHETHER OR NOT PARTICIPATING IN
THIS OFFERING, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO
THE DEALERS' OBLIGATION TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND
WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
4,164,891 SHARES
[LOGO]
CALLNOW.COM, INC.
COMMON STOCK
--------------------------------------------
PROSPECTUS
--------------------------------------------
KAUFMAN BROS., L.P.
JOHN G. KINNARD & CO.
1999
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The expenses of this offering are as follows:
<TABLE>
<S> <C>
S.E.C. Registration Fee (1) ................................ 13,603.74
N.A.S.D. Filing Fee (1) .................................... 5,111.44
Nasdaq National Market System Qualification Fee ............
Representative's Non-Accountable Expense Allowance .........
Accounting Fees ............................................
Legal Fees and Expenses ....................................
Blue Sky Qualification Fees and Expenses ...................
Printing and Engraving .....................................
Transfer Agent's Fees and Expenses .........................
Miscellaneous Expenses .....................................
-----------
Total ..................................................... $
</TABLE>
- ----------
(1) Assuming a public offering price of $8.00 per share.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Registrant's certificate of incorporation limits the liability of the
Registrant's directors to the maximum extent permitted by Delaware law.
Delaware law provides that a director of a corporation will not be personally
liable for monetary damages for breach of that individual's fiduciary duties as
a director except for liability for (i) a breach of the director duty of
loyalty to the corporation or its stockholders, (ii) any act or omission not in
good faith or that involves intentional misconduct or a knowing violation of
the law, (iii) unlawful payments of dividends or unlawful stock repurchases or
redemption, or (iv) any transaction from which the director derived an improper
personal benefit.
This limitation of liability does not apply to liabilities arising under
federal securities laws and does not affect the availability of equitable
remedies such as injunctive relief or recission.
Section 145 of the Delaware General Corporation Law provides that a
corporation may indemnify directors and officers, as well as other employees
and individuals, against attorneys fees and other expenses, judgments, fines
and amounts paid in settlement actually and reasonably incurred by such person
in connection with any threatened, pending or completed actions, suits or
proceedings in which such person was or is a party or is threatened to be made
a party by reason of such person being or having been a director, officer,
employee or agent of the corporation. 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.
The Registrant's certificate of incorporation and bylaws provide that the
Registrant is required to indemnify its directors and officers to the maximum
extent permitted by law. The Registrant's bylaws also require the Registrant to
advance expenses incurred by an officer or director in connection with the
defense of any action or proceeding arising out of that party's status or
service as a director of officer of the Registrant or as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust,
employee benefit plan or other enterprise, if serving as such at the
Registrant's request. The Registrant has procured insurance on behalf of any
director or officer for any liability arising out of his or her actions in a
representative capacity.
Reference is also made to the Underwriting Agreement to be filed as
Exhibit 1.1 to this Registration Statement for information concerning the
underwriters' obligation to indemnify the Registrant and its officers and
directors in certain circumstances.
II-1
<PAGE>
ITEM 15.
Recent Sales of Unregistered Securities
Since September 15, 1996, the Registrant issued and sold the following
securities:
In December 1996, Axicom entered into a loan agreement with New York
Community Investment Company L.L.C. ("NYCIC"). As part of such agreement,
Axicom issued warrants to purchase 74,665 shares of Axicom common stock at an
aggregate exercise price of $999. The issuance of the warrants was exempt from
registration pursuant to Section 4 (2) of the Securities Act of 1933, as
amended (the "Securities Act"). The warrant was exercised in April 1999 and, as
a result of the Axicom-American Ostrich transaction, NYCIC received 114,109
shares of CallNOW.com stock.
From November 1998 to the present, the Registrant granted an aggregate of
282,825 options to Chris Seelbach pursuant to his Consulting/Employment
Agreement. Of these 282,825 options, 5,870 have an exercise price of $0.01 per
share, 31,429 have an exercise price of $0.795 per share, 193,750 have an
exercise price of $1.00 per share, 17,183 have an exercise price of $1.39 per
share and 34,593 have an exercise price of $2.75 per share. The issuance of
these options was exempt from registration pursuant to Section 4(2) of the
Securities Act.
On March 30, 1999, American Ostrich Company issued 12,555,317 shares of
its common stock to Jenson Services, Inc. a Utah corporation and financial
consulting firm in exchange for $37,500. In April 1999, American Ostrich
Company declared a 32,000 to one reverse stock split (17,400 shares
post-split). This issuance was exempt from registration pursuant to Section
4(2) of the Securities Act.
On April 6, 1999, Axicom issued $500,000 principal amount 2% Convertible
Debenture due April 2004 to GEM France, S.A. ("GEM") in exchange for $500,000
in cash. The issuance of this Convertible Debenture was exempt from
registration pursuant to Rule 504 promulgated under the Securities Act. GEM
subsequently assigned $50,000 principal amount of this $500,000 Convertible
Debenture to Turbo International Inc. ("Turbo"). In April 1999, GEM and Turbo
converted these Convertible Debentures into 628,585 shares of the Registrant's
common stock which shares were issued under exemptions from registration
pursuant to Rule 504 promulgated under the Securities Act.
In April 1999, American Ostrich Company, a Delaware corporation whose
stock was publicly traded on the Over The Counter Bulletin Board, acquired all
of the issued and outstanding common stock of Axicom (the "Acquisition"). In
consideration of the Acquisition, Axicom's shareholders received 3,875,000
shares of American Ostrich Company common stock. In addition, GEM Global Fund
received warrants to purchase 251,433 shares of American Ostrich Company common
stock at an exercise price of $.01 per share as a fee for arranging for and
structuring the Acquisition.
On April 6, 1999, American Ostrich Company also issued warrants to
purchase its common stock at an exercise price of $.01 per share to the
following companies for services rendered as finder's fees:
<TABLE>
<S> <C>
Cicero Cinzano Ltd. Warrant to purchase 40,000 shares
Camisado Venturos Ltd. Warrant to purchase 69,852 shares
Out Back Ltd. Warrant to purchase 69,852 shares
New York, New York, Ltd. Warrant to purchase 54,328 shares
</TABLE>
All of the foregoing warrants to purchase in the aggregate 485,465 shares
of common stock of the Registrant were exercised in April 1999 and the shares
were issued pursuant to Rule 504.
In June 1999, the Registrant issued a $479,000 principal amount 2%
Convertible Debenture due June 2004 plus a Warrant to purchase 100,000 shares of
the Registrant's common stock at an exercise price of $.01 per share, to GEM
Investments Ltd. in exchange for $479,000 in cash. In September 1999, GEM
Investments Ltd. converted this Debenture into 343,662 shares of the
Registrant's common stock and exercised the Warrant to purchase 100,000 shares
of the Registrant's common stock. All such shares were issued pursuant to Rule
504 promulgated under the Securities Act.
II-2
<PAGE>
In July 1999, the Registrant sold an aggregate of 545,454 shares of its
common stock to Eden Capital Fund Limited and Upper Brook Ltd. at a price of
$2.75 per share. These shares were issued pursuant to Section 4(2) of the
Securities Act, including Regulation D promulgated thereunder.
In connection with the purchase of technology by the Registrant, the
Registrant paid a combination of cash and stock, including the issuing of 30,000
shares and 10,000 shares of its common stock to Mr. Martin Casanova and Mr.
Guibert Englebienne, in July 1999 and September 1999, respectively.
In September 1999, the Registrant sold 9,090, 36,400, 10,000 and 90,909
shares of its common stock to Robert Tolmach, Jr., David Ford, Peter Williams
and ROPART Investments LLC, respectively, at a price of $2.75 per share. These
shares were issued pursuant to Section 4(2) of the Securities Act, including
Regulation D promulgated thereunder.
ITEM 16. EXHIBITS
<TABLE>
<S> <C>
(a) Exhibits:
1 Form of Underwriting Agreement.
3.1 Certificate of Incorporation of Registrant, dated April 8, 1999.
3.1a Certificate of Ownership and Merger of American Ostrich Corporation, a Utah corporation, into
CallNOW.com, Inc., a Delaware corporation.
3.2 Bylaws of Registrant.
4.1 Form of specimen Common Stock Certificate of Registrant.*
4.2 5% Convertible Debenture Due August 31, 2002, issued to New Media Corporation, in the principal
amount of $576,300.
4.3 5% Convertible Debenture Due August 26, 2002, issued to Facilicom International, Inc., in the
principal amount of $700,000.
4.4 Form of Lock-up Agreement.
4.5 Form of Representatives' Warrants.
5.1 Opinion of Stairs Dillenbeck Finley & Merle, as to legality of the securities being offered hereby.*
5.2 Opinion of Swidler Berlin Shereff Friedman, LLP.*
10.1 Sale of Technology Agreement, dated November 30, 1998, by and between AXICOM
Communications Group, Inc. ("Axicom") and Mr. Guibert Englebienne.*
10.2 Consulting/Employment Agreement, dated November 1, 1998, between Axicom and Mr. Chris
Seelbach.
10.3 Consulting Agreement dated as of November 30, 1998, between Mr. Guibert Englebienne and
Axicom.*
10.4 Asset Purchase Agreement made as of May 19, 1999, between Buttle & Tuttle Ltd and Registrant.
10.5 Agreement dated March 2, 1999, between Lloyd Layton Golding and Christian Bardenheuer;
Axicom.*
10.6 Loan Agreement between Axicom and New York Community Investment Company L.L.C., dated
December 27, 1996.
10.7 Security Agreement made on December 27, 1996, between Axicom and New York Community
Investment Company L.L.C.
10.8 Promissory Notice, dated December 27, 1996, made by Axicom to New York Community Investment
Company L.L.C. in the face amount of $200,000.
10.9 Promissory Note, dated March , 1997, made by Axicom to New York Community Investment
Company L.L.C. in the face amount of $100,000.
</TABLE>
II-3
<PAGE>
<TABLE>
<S> <C>
10.10 Lease Agreement, dated as of March 25, 1999, between Fifty Broad Street, Inc. and Fifty New
Street, Inc. and Axicom (Re: Room 520 in the building known as 50 Broad St.)*
10.11 Lease Agreement, dated as of March 25, 1999, between Fifty Broad Street, Inc. and Fifty New
Street, Inc. and Axicom (Re: Room 501 in the building known as 50 Broad St.)*
10.12 Agreement, dated May 12, 1999, between Lycos-Bertelsmann GmbH and Registrant.*
10.13 Agreement, dated May 26, 1999, between Lycos Japan and Registrant.*
10.14 International Carrier Voice Service Agreement, dated October 14, 1997, between Facilicom
International, L.L.C. and Axicom.*
10.15 Long Distance Reseller Service Agreement, dated April 6, 1999, between Interoute, Inc. and
Axicom.*
10.16 Carrier Services Agreement, dated June 21, 1999, between International Telecom, Inc. and
Registrant.*
10.17 1999 Stock Option Plan.
10.18 Form of Agreement With Respect to Option Grant.
10.19 Employment Agreement, dated as of , 1999, between the Registrant and Ann K.
McShea.*
10.20 Employment Agreement, dated as of July 28, 1999, between the Registrant and Martin Casanova.*
10.21 Employment Agreement, dated as of June 1, 1999, between the Registrant and Josune Garcia
Yauguas.
10.22 Sale of Technology Agreement, dated July 28, 1999, between the Registrant and Smart Software.*
10.23 Stock Purchase Agreement, dated September 16, 1999, between the Registrant and ROPART
Investments LLC.
10.24 Letter Agreement, dated September 16, 1999, between the Registrant and ROPART Investments
LLC.
10.25 Stock Purchase Agreement, dated July 30, 1999, by and among the Registrant, Upper Brook Ltd.
and Eden Capital Fund Limited.*
21 Subsidiaries.
23.1 Consent of Ernst & Young, L.L.P. (included on page II-7)
23.2 Consent of Horton & Company, L.L.C. (included on page II-8)
23.3 Consent of Stairs Dillenbeck Finley & Merle (included in Exhibit 5.1).
23.4 Independent Auditors' Report on Other Financial Information.
24 Power of Attorney (included on Page II-6).
27.1 Financial Data Schedule for twelve months ended December 31.
27.2 Financial Data Schedule for six months ended June 30.
</TABLE>
- ----------
* To be filed by amendment.
(b) Financial Statement Schedules:
99 Schedule II -- Valuation and Qualifying Accounts.
ITEM 17. UNDERTAKINGS.
Registrant hereby undertakes to provide to the Underwriters at the closing
specified in the Underwriting Agreement certificates in such denominations and
registered in such names as required
II-4
<PAGE>
by the Underwriters to permit prompt delivery to each purchaser. Insofar as
indemnification for liabilities arising under the Securities Act may be
permitted to directors, officers and controlling persons of Registrant pursuant
to the foregoing provisions, or otherwise, Registrant has been advised that in
the opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by Registrant for expenses incurred or paid
by a director, officer or controlling person of Registrant in the successful
defense of any action, suit or proceeding) is asserted by such director, officer
or controlling person in connection with the securities being registered,
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
Registrant hereby further undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most
recent post-effective amendment thereof) which, individually or
in the aggregate, represent a fundamental change in the
information set forth in the registration statement.
Notwithstanding the foregoing, any increase or decrease in volume
of securities offered (if the total dollar value of securities
offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum
offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424 (b) if, in the
aggregate, the changes in volume and price represent no more than
20 percent change in the maximum aggregate offering price set
forth in the "Calculation of Registration Fee" table in the
effective registration statement.
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment 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.
(3) To remove from registration by means of a post-effective amendment any
securities being registered which remain unsold at the termination of the
offering.
(4) That, for purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form of
prospectus filed by Registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective.
(5) That, for purposes 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 for the securities offered in the
registration statement, and the offering of the securities at that time shall
be deemed to be the initial bona fide offering of these securities.
II-5
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF NEW YORK, STATE OF NEW
YORK, ON THE 29TH DAY OF SEPTEMBER, 1999.
CallNOW.com, Inc.
By: /s/ Christian Bardenheuer
------------------------------------
Christian Bardenheuer
Chairman of the Board of Directors
and Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below does hereby constitute and appoint Christian Bardenheuer and Christopher
R. Seelbach, and each of them, with full power to act without the other, his
true and lawful attorney-in-fact and agent for him and in his name, place and
stead, in any and all capacities, to sign any or all amendments to this
Registration Statement and to file the same, with all exhibits thereto, and
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises in order to
effectuate the same, as fully, for all intents and purposes, as he might or
could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or any of them, may lawfully do or cause to be
done by virtue hereof.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------ --------------------------------------- -------------------
<S> <C> <C>
/s/ Christian Bardenheuer Chairman of the Board of Directors, September 29, 1999
--------------------------- Chief Executive Officer and Director
Christian Bardenheuer (Principal Executive Officer)
/s/ Christopher R. Seelbach Chief Operating Officer, Acting Chief September 29, 1999
--------------------------- Financial Officer and Director
Christopher R. Seelbach (Principal Financial and Accounting
Officer)
/s/ Warner R. Johnson, Jr. President and Director September 29, 1999
---------------------------
Warner R. Johnson, Jr.
/s/ Edward Cabot Director September 29, 1999
---------------------------
Edward Cabot
/s/ Todd A. Goergen Director September 29, 1999
---------------------------
Todd A. Goergen
/s/ Robert S. Tolmach, Jr. Director September 29, 1999
---------------------------
Robert S. Tolmach, Jr.
</TABLE>
II-6
<PAGE>
CONSENT OF INDEPENDENT AUDITORS
CallNOW.com, Inc.
New York, New York
We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated June 6, 1997, in the Registration Statement (Form S-1)
and related Prospectus of CallNOW.com, Inc. (formerly Axicom Communications
Group, Inc.) for the registration of shares of its common stock.
/s/ Ernst & Young LLP
-------------------------------
ERNST & YOUNG LLP
New York, New York
September 28, 1999
II-7
<PAGE>
CONSENT OF INDEPENDENT AUDITORS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-1 of our report dated April 28, 1999, except
for Note 9 and the last paragraph of Note 3, as to which the date is May 12,
1999, relating to the consolidated financial statements of CallNow.com Inc.,
which appears in such Prospectus. We also consent to the references to us under
the headings "Experts" in such Prospectus.
/S/ HORTON & COMPANY, LLC
Wayne, New Jersey
September 29, 1999
II-8
<PAGE>
FORM OF UNDERWRITING AGREEMENT
UNDERWRITING AGREEMENT
4,164,891 Shares of Common Stock
of
CallNOW.com, Inc
______ __, 1999
Kaufman Bros., L.P.
John G. Kinnard & Co.
As Representatives of the
several Underwriters named
in Schedule I attached hereto
800 Third Avenue - 25th Floor
New York, New York 10022
Ladies and Gentlemen:
The undersigned, CallNOW.com, Inc., a Delaware corporation
(the "Company") and the undersigned stockholders of the Company (the "Selling
Stockholders"), hereby confirm their agreement with the several underwriters
named in Schedule I hereto (collectively, the "Underwriters") for whom you have
been authorized to act as representatives (in such capacity, the
"Representatives"), as set forth below.
1. Introduction. The Company proposes to issue and sell to the
Underwriters 4,000,000 shares (the "Company Stock") and the Selling Stockholders
propose to sell an additional 164,891 shares (the "Selling Stockholders Stock",
and together with the Company Stock, the "Stock") of the common stock, par value
$.001 per share, of the Company (the "Common Stock"). In addition, solely for
the purpose of covering over-allotments, the Company proposes to grant the
Underwriters the option to purchase from it, on a pro rata basis, within 45 days
from the date of the public offering of the Common Stock, up to an additional
15% of the Stock from the Company (the "Additional Stock"). The Common Stock is
more fully described in the Prospectus (as hereinafter defined).
2. Representations and Warranties of the Company and the Selling
Stockholders.
(a) The Company represents and warrants to, and agrees with, each
of the several Underwriters that:
<PAGE>
(i) The Company has filed with the Securities and Exchange
Commission (the "Commission") under the Securities Act of 1933, as amended (the
"Act"), a registration statement, and may have filed one or more amendments
thereto, on Form S-1 (File No. 333-_____)(the "Original Registration
Statement"), including in such registration statement and each such amendment a
related Preliminary Prospectus (as hereinafter defined), for the registration of
(A) the Stock, (B) the Additional Stock, (C) the Common Stock purchase warrant
referred to in Section 5(q) hereof (the "Representatives' Warrant"), and (D) the
shares of Common Stock underlying the Representatives' Warrant (the "Warrant
Stock") (the Stock, the Additional Stock, the Representatives' Warrant and the
Warrant Stock are collectively referred to as the "Securities"). After the
execution of this Agreement: (i) if the Original Registration Statement, as it
may have been amended, has been declared by the Commission to be effective under
the Act, then the Company will file with the Commission (X) if the Company
relies on Rule 434 of the Act, a Term Sheet (as hereinafter defined) relating to
the Securities, that shall identify the Preliminary Prospectus that it
supplements containing such information as is required or permitted by Rules
434, 430A and 424(b) under the Act, or (Y) if the Company does not rely Rule 434
under the Act, a prospectus in the form most recently included in an amendment
to the Original Registration Statement (or, if no such amendment shall have been
filed, in the Original Registration Statement), with such changes or insertions
as are required by Rule 430A under the Act or permitted by Rule 424(b) under the
Act, and, in the case of either clause (i)(X) or (i)(Y) of this sentence, as
shall have been provided to and approved by the Representatives prior to the
execution of this Agreement, or (ii) if the Original Registration Statement, as
it may have been amended, has not been declared by the Commission to be
effective under the Act, then the Company will file with the Commission an
amendment to the Original Registration Statement, including a form of
prospectus, a copy of which amendment shall have been furnished to and approved
by the Representatives prior to the execution of this Agreement, which approval
shall not be unreasonably withheld. The Company, with the prior consent of the
Representatives, may have also filed a related registration statement with the
Commission pursuant to Rule 462(b) under the Act for the purpose of registering
a portion of the Securities (a "Rule 462(b) Registration Statement"), which
shall become effective upon filing. As used in this Agreement, the term
"Registration Statement" means collectively, (aa) the Original Registration
Statement, as amended at the time when it was or is declared effective,
including all financial schedules and exhibits thereto and including any
information omitted therefrom pursuant to Rule 430A under the Act and included
in the Prospectus, and if any post-effective amendment thereto becomes effective
prior to the Closing Date (as defined in Section 3 hereof), such registration
statement as so amended, and (bb) any related Rule 462(b) Registration Statement
which may have been filed with the Commission pursuant to the Rule 462(b) under
the Act (including the Original Registration Statement and any Preliminary
Prospectus or Prospectus incorporated therein at the time such Rule 462(b)
Registration Statement becomes effective); the term "Preliminary Prospectus"
means each prospectus subject to completion filed with the Commission with such
registration statement or any amendment thereto (including the prospectus
subject to completion, if any, included in the Registration Statement or any
amendment thereto at the time it was or is declared effective); the term
"Prospectus" means:
(A) if the Company relies on Rule 434 under the Act, the
Term Sheet relating to the Securities that is first filed with the Commission
pursuant to Rule 424(b)(7) under
- 2 -
<PAGE>
the Act, together with the Preliminary Prospectus identified therein that such
Term Sheet supplements;
(B) if the Company does not rely on Rule 434 under the Act,
the prospectus first filed with the Commission pursuant to Rule 424(b) under the
Act; or
(C) if the Company does not rely on Rule 434 under the Act
and if no prospectus is required to be filed pursuant to Rule 424(b) under the
Act, the prospectus included in the Registration Statement;
and the term "Term Sheet" means any term sheet that satisfies the requirements
of Rule 434 under the Act. Any reference herein to the "date" of a Prospectus
that includes a Term Sheet shall mean the date of such Term Sheet.
(ii) When any Preliminary Prospectus was filed with the
Commission it (A) contained all statements required to be stated therein in
accordance with, and complied in all material respects with the requirements of,
the Act and the rules and regulations of the Commission thereunder, and (B) did
not include any untrue statement of a material fact or omit to state any
material fact necessary in order to make the statements therein, in the light of
the circumstances under which they were made, not misleading. When the
Registration Statement or any amendment thereto was or is declared effective, as
the case may be, it (X) contained or will contain all statements required to be
stated therein in accordance with, and complied or will comply in all material
respects with the requirements of, the Act and the rules and regulations of the
Commission thereunder, and (Y) did not or will not include any untrue statement
of a material fact or omit to state any material fact necessary in order to make
the statements therein, in the light of the circumstances under which they were
made, not misleading. When the Prospectus or any Term Sheet that is a part
thereof or any amendment or supplement to the Prospectus is filed with the
Commission pursuant to Rule 424(b) (or, if the Prospectus or any part thereof or
such amendment or supplement is not required to be so filed, when the
Registration Statement or the amendment thereto containing such amendment or
supplement to the Prospectus was or is declared effective) and on the Closing
Date and any Additional Closing Date (both as hereinafter defined in Section 3),
the Prospectus, as amended or supplemented at any such time, (aa) contained or
will contain all statements required to be stated therein in accordance with,
and complied or will comply in all material respects with the requirements of,
the Act and the rules and regulations of the Commission thereunder, and (bb) did
not or will not include any untrue statement of a material fact or omit to state
any material fact necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading. The
foregoing provisions of this paragraph (ii) do not apply to statements or
omissions made in any Preliminary Prospectus, the Registration Statement or any
amendment thereto or the Prospectus or any amendment or supplement thereto in
reliance upon and in conformity with written information furnished to the
Company as stated in Section 8(b) with respect to any Underwriter through the
Representatives specifically for use therein.
(iii) If the Company has elected to rely on Rule 462(b),
then (A) the Company has filed a Rule 462(b) Registration Statement in
compliance with and that is effective
- 3 -
<PAGE>
upon filing with the Commission pursuant to Rule 462(b) and has received
confirmation of its receipt, and (B) the Company has given irrevocable
instructions for transmission of the applicable filing fee in connection with
the filing of the Rule 462(b) Registration Statement in compliance with Rule 111
promulgated under the Act or the Commission has received payment of such filing
fee.
(iv) Neither the Commission nor the "blue sky" or securities
authority of any jurisdiction has issued an order (a "Stop Order") suspending
the effectiveness of the Registration Statement, preventing or suspending the
use of any Preliminary Prospectus, the Prospectus, the Registration Statement,
or any amendment or supplement thereto, refusing to permit the effectiveness of
the Registration Statement, or suspending the registration or qualification of
any of the Securities, nor has any of such authorities instituted or threatened
to institute any proceedings with respect to a Stop Order.
(v) Any contract, agreement, instrument, lease, or license
required to be described in the Registration Statement and the Prospectus (or if
the Prospectus is not in existence, the most recent Preliminary Prospectus) has
been properly described therein. Any contract, agreement, instrument, lease, or
license required to be filed as an exhibit to the Registration Statement has
been filed with the Commission as an exhibit to or has been incorporated as an
exhibit by reference into the Registration Statement.
(vi) The only subsidiary (as defined in the general rules
and regulations promulgated under the Act (the "Regulations")) of the Company is
AXICOM Communications Group, Inc., a Delaware corporation ("Axicom"). Each of
the Company and Axicom are corporations duly organized, validly existing, and in
good standing under the laws of their jurisdictions of incorporation, with full
power and authority, and all necessary consents, authorizations, approvals,
orders, licenses, certificates, and permits of and from, and declarations and
filings with, all federal, state, local, and other governmental authorities and
all courts and other tribunals, to own, lease, license, and use their properties
and assets and to carry on the business in the manner described in the
Registration Statement and Prospectus (or, if the Prospectus is not in
existence, the most recent Preliminary Prospectus). Each of the Company and
Axicom are duly qualified to do business and is in good standing in every
jurisdiction in which their ownership, leasing, licensing, or use of property
and assets or the conduct of its business makes such qualification necessary.
Except as otherwise disclosed in the Registration Statement, neither the Company
nor Axicom owns, and at the Closing Date and any Additional Closing Date neither
will own, directly or indirectly, any shares of stock or any other equity or
long-term debt securities of any corporation or have any equity interest in any
firm, partnership, joint venture, association or other entity.
(vii) The authorized capital stock of the Company consists
of 50,000,000 shares of Common Stock, of which 5,139,151 shares are outstanding.
Each outstanding share of Common Stock and each outstanding share of capital
stock of Axicom is validly authorized, issued, fully paid, and nonassessable,
without any personal liability attaching to the ownership thereof, has not been
issued and is not owned or held in violation of any preemptive rights of
stockholders and in the case of Axicom is owned of record and beneficially by
the Company free and clear of all
- 4 -
<PAGE>
liens, security interests, pledges, charges, encumbrances, stockholders'
agreements and voting trusts. There is no commitment, plan, or arrangement to
issue, and no outstanding option, warrant, or other right calling for the
issuance of, any share of capital stock of either the Company or Axicom or any
security or other instrument which by its terms is convertible into, exercisable
for, or exchangeable for capital stock of the Company or Axicom, except as may
be set forth in the Prospectus (or, if the Prospectus is not in existence, the
most recent Preliminary Prospectus). Except as set forth in the Prospectus (or,
if the Prospectus is not in existence, the most recent Preliminary Prospectus),
there is outstanding no security or other instrument which by its terms is
convertible into or exchangeable for capital stock of the Company or Axicom.
(viii) The consolidated financial statements of the Company
included in the Registration Statement and the Prospectus (or, if the Prospectus
is not in existence, the most recent Preliminary Prospectus) fairly present the
financial position, the results of operations, and the other information
purported to be shown therein at the respective dates and for the respective
periods to which they apply. Such financial statements have been prepared in
accordance with generally accepted accounting principles (except to the extent
that certain footnote disclosures regarding any stub period may have been
omitted in accordance with the applicable rules of the Commission under the
Securities Exchange Act of 1934, as amended (the "Exchange Act")) consistently
applied throughout the periods involved, are correct and complete, and are in
accordance with the books and records of the Company. The accountants whose
reports on the audited financial statements are filed with the Commission as a
part of the Registration Statement are, and during the periods covered by their
report(s) included in the Registration Statement and the Prospectus (or, if the
Prospectus is not in existence, the most recent Preliminary Prospectus) were,
independent certified public accountants within the meaning of the Act and the
Regulations. No other financial statements are required by Form S-1 or otherwise
to be included in the Registration Statement or the Prospectus (or, if the
Prospectus is not in existence, the most recent Preliminary Prospectus). There
has at no time been a material adverse change in the financial condition,
results of operations, business, properties, assets, liabilities, or future
prospects of the Company from the latest information set forth in the
Registration Statement or the Prospectus (or, if the Prospectus is not in
existence, the most recent Preliminary Prospectus), except as may be properly
described in the Prospectus (or, if the Prospectus is not in existence, the most
recent Preliminary Prospectus).
(ix) There is no litigation, arbitration, claim,
governmental or other proceeding (formal or informal), or investigation pending,
or threatened, or in prospect (or any basis therefor) with respect to the
Company or Axicom or any of their respective operations, business, properties,
or assets except as may be properly described in the Prospectus (or, if the
Prospectus is not in existence, the most recent Preliminary Prospectus) or such
as individually or in the aggregate do not now have and will not in the future
have a material adverse effect upon the operations, business, properties, or
assets of the Company and Axicom taken as a whole. Neither the Company nor
Axicom is in violation of, or in default with respect to, any law, rule,
regulation, order, judgment, or decree except as may be properly described in
the Prospectus (or, if the Prospectus is not in existence, the most recent
Preliminary Prospectus) or such as in the aggregate do not now have and will not
in the future have a material adverse effect upon the operations,
- 5 -
<PAGE>
business, properties, or assets of the Company and Axicom taken as a whole; nor
is either the Company or Axicom required to take any action in order to avoid
any such violation or default.
(x) Each of the Company and Axicom has good and marketable
title in fee simple absolute to all real properties and good title to all other
properties and assets which the Prospectus (or, if the Prospectus is not in
existence, the most recent Preliminary Prospectus) indicates are owned by it,
free and clear of all liens, security interests, pledges, charges, encumbrances,
and mortgages (except as may be properly described in the Prospectus, or, if the
Prospectus is not in existence, the most recent Preliminary Prospectus) or such
as do not materially affect the value of such property and do not interfere with
the use made of such property by the Company or Axicom. No real property owned,
leased, licensed, or used by the Company or Axicom lies in an area which is
subject to zoning, use, or building code restrictions which would prohibit, and
no state of facts relating to the actions or inaction of another person or
entity or his or its ownership, leasing, licensing, or use of any real or
personal property exists or will exist which would prevent, the continued
effective ownership, leasing, licensing, or use of such real property in the
business of the Company and Axicom as presently conducted or as the Prospectus
indicates it contemplates conducting (except as may be properly described in the
Prospectus, or if the Prospectus is not in existence, the most recent
Preliminary Prospectus).
(xi) Neither the Company, Axicom nor any other party, is
now, or is expected by the Company to be, in violation or breach of, or in
default with respect to, complying with any material provision of any contract,
agreement, instrument, lease, license, arrangement, or understanding which is
material to the Company, and each such contract, agreement, instrument, lease,
license, arrangement, and understanding is in full force and is the legal,
valid, and binding obligation of the parties thereto and is enforceable as to
them in accordance with its terms (subject to applicable bankruptcy, insolvency
and other laws affecting the enforceability of creditors' rights generally).
Each of the Company and Axicom enjoys peaceful and undisturbed possession under
all leases and licenses under which it operates. Except as may be properly
described in the Prospectus (or if the Prospectus is not in existence, the most
recent Preliminary Prospectus), neither the Company nor Axicom are a party to or
bound by any contract, agreement, instrument, lease, license, arrangement, or
understanding, or subject to any charter or other restriction, which has had or
may in the future have a material adverse effect on the financial condition,
results of operations, business, properties, assets, liabilities, or future
prospects of either the Company or Axicom. Neither the Company nor Axicom is not
in violation or breach of, or in default with respect to, any term of their
respective certificates of incorporation (or other charter documents) or
by-laws.
(xii) All patents, patent applications, trademarks,
trademark applications, trade names, service marks, copyrights, franchises, and
other intangible properties and assets (all of the foregoing being herein called
"Intangibles") that the Company or Axicom owns or has pending, or under which it
is licensed, are in good standing and uncontested. There is no right under any
Intangible necessary to the business of the Company or Axicom as presently
conducted or as the Prospectus (or, if the Prospectus is not in existence, the
most recent Preliminary Prospectus) indicates it contemplates conducting (except
as may be so designated in the Prospectus, or, if the Prospectus if not in
existence, the most recent Preliminary Prospectus). Neither the Company nor
Axicom has infringed, or is infringing, or has received notice of infringement
with
- 6 -
<PAGE>
respect to, asserted Intangibles of others. There is no infringement by others
of Intangibles of the Company or Axicom. There is no Intangible of others which
has had or may in the future have a materially adverse effect on the financial
condition, results of operations, business, properties, assets, liabilities, or
future prospects of the Company or Axicom.
(xiii) Neither the Company, Axicom nor any director,
officer, agent, employee, or other person associated with or acting on behalf of
the Company or Axicom has, directly or indirectly (A) used any corporate funds
for unlawful contributions, gifts, entertainment, or other unlawful expenses
relating to political activity, (B) made any unlawful payment to foreign or
domestic government officials or employees or to foreign or domestic political
parties or campaigns from Company funds, (C) violated any provision of the
Foreign Corrupt Practices Act of 1977, as amended, or (D) made any bribe,
rebate, payoff, influence payment, kickback, or other unlawful payment.
(xiv) The Company has all requisite power and authority to
execute deliver, and perform both this Agreement and the certificate evidencing
the Representatives' Warrant (the "Representatives' Warrant Agreement" and
together with this Agreement, the "Company Documents"). All necessary corporate
proceedings of the Company have been duly taken to authorize the execution,
delivery, and performance of each of the Company Documents by the Company. This
Agreement has been duly authorized, executed, and delivered by the Company, is
the legal, valid, and binding obligation of the Company, and is enforceable as
to the Company in accordance with its terms (subject to applicable bankruptcy,
insolvency and other laws affecting the enforceability of creditors' rights
generally). The Representatives' Warrant Agreement has been duly authorized by
the Company and when executed and delivered by the Company, will be the legal,
valid, and binding obligation of the Company, enforceable against the Company in
accordance with its terms (subject to applicable bankruptcy, insolvency and
other laws affecting the enforceability of creditors' rights generally). No
consent, authorization, approval, order, license, certificate, or permit of or
from, or declaration or filing with, any federal, state, local, or other
governmental authority or any court or other tribunal is required by the Company
for the execution, delivery, or performance by the Company of any of the Company
Documents (except filings under the Act which have been or will be made before
the Closing Date and such consents consisting only of consents under "blue sky"
or securities laws which have been obtained at or prior to the date of this
Agreement). No consent of any party to any contract, agreement, instrument,
lease, license, arrangement, or understanding to which the Company is a party,
or to which any of its properties or assets are subject, is required for the
execution, delivery, or performance of the Company Documents; and the execution,
delivery, and performance of any of the Company Documents will not violate,
result in a breach of, conflict with, or (with or without the giving of notice
or the passage of time or both) entitle any party to terminate or call a default
under any such contract, agreement, instrument, lease, license, arrangement, or
understanding, or violate or result in a breach of any term of the certificate
of incorporation (or other charter document) or by-laws of the Company or
violate, result in a breach of, or conflict with any law, rule, regulation,
order, judgment, or decree binding on the Company or to which any of their
respective operations, businesses, properties, or assets are subject.
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(xv) The Company Stock and the Additional Stock are validly
authorized and, when issued and delivered in accordance with this Agreement,
will be validly issued, fully paid, and nonassessable, without any personal
liability attaching to the ownership thereof, and will not be issued in
violation of any preemptive rights of stockholders. The Underwriters will
receive good title to the Company Stock and Additional Stock purchased by them,
respectively, free and clear of all liens, security interests, pledges, charges,
encumbrances, stockholders' agreements, and voting trusts.
(xvi) The Warrant Stock is validly authorized and reserved
for issuance and, when issued and delivered upon exercise of the
Representatives' Warrant in accordance with the Representatives' Warrant
Agreement, will be validly issued, fully paid and non-assessable, without any
personal liability attaching to the ownership thereof, and will not be issued in
violation of any preemptive rights of stockholders; and the holders of the
Representatives' Warrant will receive good title to the securities purchased by
them, respectively, free and clear of all liens, security interests, pledges,
charges, encumbrances, stockholders' agreements, and voting trusts.
(xvii) The Common Stock, the Securities, and the
Representatives' Warrant Agreement conform in all material respects with all
statements relating thereto contained in the Registration Statement and the
Prospectus (or, if the Prospectus is not in existence, the most recent
Preliminary Prospectus).
(xviii) Subsequent to the respective dates as of which
information is given in the Registration Statement and the Prospectus (or, if
the Prospectus is not in existence, the most recent Preliminary Prospectus) and
except as may otherwise be properly described in the Prospectus (or, if the
Prospectus is not in existence, the most recent Preliminary Prospectus), neither
the Company nor Axicom has (A) issued any securities or incurred any liability
or obligation, primary or contingent, for borrowed money, (B) entered into any
transaction not in the ordinary course of business, or (C) declared or paid any
dividend on its capital stock.
(xix) Neither the Company, Axicom nor any of their
respective officers, directors, or affiliates (as defined in the Regulations),
has taken or will take, directly or indirectly, prior to the termination of the
underwriting syndicate contemplated by this Agreement, any action designed to
stabilize or manipulate the price of any security of the Company, or which has
caused or resulted in, or which might in the future reasonably be expected to
cause or result in, stabilization or manipulation of the price of any security
of the Company, to facilitate the sale or resale of any of the Stock or the
Additional Stock.
(xx) The Company has obtained from each of its directors,
officers, affiliates (as defined in the Regulations) and each other person who
beneficially owns any share of Common Stock or other securities of the Company,
other than the Selling Stockholders, such director's, officer's, affiliates's or
other person's enforceable written agreement, in form and substance satisfactory
to counsel for the Underwriters, that for a period of six months from the
effective date of the Registration Statement such individual will not, without
the prior written consent of the Representatives, offer, pledge, sell, contract
to sell, grant any option for the sale of, or otherwise dispose of, directly or
indirectly, any shares of Common Stock or any security or other
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instrument which by its terms is convertible into, exercisable for, or
exchangeable for shares of Common Stock or other securities of the Company,
including, without limitation, any shares of Common Stock issuable under any
outstanding stock options or warrants.
(xxi) No person or entity has the right to require
registration of shares of Common Stock or other securities of the Company
because of the filing or effectiveness of the Registration Statement.
(xxii) Except as may be set forth in the Prospectus (or, if
the Prospectus is not in existence, the most recent Preliminary Prospectus), the
Company has not incurred any liability for a fee, commission, or other
compensation on account of the employment of a broker or finder in connection
with the transactions contemplated by this Agreement.
(xxiii) The Company has complied with all provisions of
Section 517.075, Florida Statutes (Chapter 92-198, Laws of Florida), and will
continue to do so at all times subsequent to the date the Registration Statement
is declared effective with the Commission or with the Florida Department of
Banking and Finance.
(xxiv) The Company is not, and does not intend to conduct
its business in a manner in which it would become, an "investment company" as
defined in Section 3(a) of the Investment Company Act of 1940, as amended (the
"Investment Company Act").
(xxv) No officer, director, or, to the knowledge of the
Company, any beneficial owner of the Company's securities has any direct or
indirect affiliation or association with the National Association of Securities
Dealers, Inc. (the "NASD") or any member thereof.
(b) Each Selling Stockholder, severally and not jointly,
represents and warrants to, and agrees with, the several Underwriters that:
(i) Such Selling Stockholder has: (A) caused a certificate
or certificates for the number of shares of Stock to be sold by such Selling
Stockholder hereunder to be delivered to (the "Escrow Agent"), duly endorsed in
blank or together with blank stock powers duly executed, with such Selling
Stockholder's signature appropriately guaranteed, such certificate or
certificates to be held in escrow by the Escrow Agent pursuant to an escrow
agreement for delivery, pursuant to the provisions hereof, on the Closing Date,
and (B) granted an irrevocable power of attorney to the Escrow Agent to purchase
all requisite stock transfer tax stamps, to sign this Agreement (including
agreeing on the price at which the Stock is to be sold to the Underwriters) and
thereafter to modify and amend this Agreement, to settle any dispute relating to
the terms of this Agreement, to waive any condition to the obligations of such
Selling Stockholder, and to execute all other instruments and documents and to
perform all other acts necessary to carry out the provisions of this Agreement
on behalf of such Selling Stockholder (such escrow agreement together with such
irrevocable powers of attorney being herein called the "Escrow Agreement").
(ii) There is no litigation, arbitration, claim,
governmental or other proceeding (formal or informal), or investigation pending,
threatened, or in prospect (or any basis therefor) with respect to such Selling
Stockholder or any of such Selling Stockholder's business,
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properties, or assets. Such Selling Stockholder is not in violation of, or in
default with respect to, any law, rule, regulation, order, judgment, or decree;
nor is such Selling Stockholder required to take any action in order to avoid
such violation or default.
(iii) Such Selling Stockholder, if a corporation, is a
corporation duly organized, validly existing, and in good standing under the
laws of its jurisdiction of incorporation. Such Selling Stockholder has all
requisite power and authority to execute, deliver, and perform this Agreement
and the Escrow Agreement. All necessary corporate proceedings of such Selling
Stockholder, if a corporation, have been duly taken to authorize the execution,
delivery, and performance of this Agreement and the Escrow Agreement by such
Selling Stockholder. This Agreement and the Escrow Agreement have been duly
authorized by such Selling Stockholder, if a corporation, executed and delivered
by such Selling Stockholder, are the legal, valid, and binding obligations of
such Selling Stockholder, and are enforceable as to such Selling Stockholder in
accordance with their respective terms. No consent, authorization, approval,
order, license, certificate, or permit of or from, or declaration or filing
with, any federal, state, local, or other governmental authority or any court or
other tribunal is required by such Selling Stockholder for the execution,
delivery, or performance of this Agreement (except filings under the Act which
have been or will be made before the Closing Date and such consents consisting
only of consents under "blue sky" or securities laws which have been obtained at
or prior to the date of this Agreement) or the Escrow Agreement by such Selling
Stockholder. No consent of any party to any contract, agreement, instrument,
lease, license, arrangement, or understanding to which such Selling Stockholder
is a party, or to which any of such Selling Stockholder's properties or assets
are subject, is required for the execution, delivery, or performance of this
Agreement or the Escrow Agreement; and the execution, delivery, and performance
of this Agreement and the Escrow Agreement will not violate, result in a breach
of, conflict with, or (with or without the giving of notice or the passage of
time or both) entitle any party to terminate or call a default under any such
contract, agreement, instrument, lease, license, arrangement, or understanding,
or violate or result in a breach of, any term of such Selling Stockholder's
certificate of incorporation (or other charter document) or by-laws, if such
Selling Stockholder is a corporation, or violate, result in a breach of, or
conflict with, any law, rule, regulation, order, judgment, or decree binding on
such Selling Stockholder or to which any of such Selling Stockholder's
operations, business, properties, or assets are subject. Such Selling
Stockholder, if a corporation, is not in violation or breach of, or in default
with respect to, any term of its certificate of incorporation (or other charter
document) or by-laws.
(iv) Such Selling Stockholder has good title to the shares
of Stock to be sold by such Selling Stockholder pursuant to this Agreement, free
and clear of all liens, security interests, pledges, charges, encumbrances
stockholders' agreements, and voting trusts (except those created by this
Agreement and the Escrow Agreement), and when delivered in accordance with this
Agreement, the Underwriters will receive good title to the shares of Stock
purchased by them from such Selling Stockholder, free and clear of all liens,
security interests, pledges, charges, encumbrances, stockholders' agreements,
and voting trusts.
(v) Neither such Selling Stockholder nor any of such Selling
Stockholder's affiliates (as defined in the Regulations) has taken or will take,
directly or indirectly, prior to the termination of the underwriting syndicate
contemplated by this Agreement, any action
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designed to stabilize or manipulate the price of any security of, the Company,
or which has caused or resulted in, or which might in the future reasonably be
expected to cause or result in, stabilization or manipulation of the price of
any security of the Company, to facilitate the sale or resale of any of the
Stock or the Additional Stock.
(vi) All information furnished or to be furnished to the
Company by or on behalf of such Selling Stockholder for use in connection with
the preparation of the Registration Statement and the Prospectus does not and
will not include any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the statements
therein not misleading.
(vii) Except as may be set forth in the Prospectus, such
Selling Stockholder has not incurred any liability for a fee, commission, or
other compensation on account of the employment of a broker or finder in
connection with the transactions contemplated by this Agreement.
3. Purchase, Sale, and Delivery of the Stock and the Additional
Stock. On the basis of the representations, warranties, covenants, and
agreements of the Company and the Selling Shareholders, but subject to the terms
and conditions herein set forth:
(a) the Company agrees to sell to the several Underwriters, and
the Underwriters, severally and not jointly, agree to purchase from the Company,
the numbers of shares of Stock set opposite the respective names of the
Underwriters in Schedule I attached hereto and
(b) each Selling Stockholder agrees, severally and not jointly,
to sell to the several Underwriters, and the Underwriters, severally and not
jointly, agree to purchase from the Selling Stockholders, the number of shares
of Stock set forth opposite the name of such Selling Stockholder in Schedule II
attached hereto.
The purchase price of the Stock to be paid by the several
Underwriters shall be $____. The public offering price per share of the Stock
shall be $____.
Payment for the Stock by the Underwriters shall be made by certified
or official bank check or checks drawn upon or by a New York Clearing House
bank, or by wire transfer, and payable in next-day funds, one to the order of
the Company (with respect to the shares being sold by the Company hereunder) and
another to the order of the Escrow Agent, as agent for the Selling Stockholders
(with respect to the shares being sold by the Selling Stockholders hereunder) at
the offices of Kaufman Bros., L.P., 800 Third Avenue - 25th Floor, New York, New
York, or at such other place in the New York City metropolitan area as you shall
determine and advise the Company by at least two full days' notice in writing,
upon delivery of the Stock to you for the respective accounts of the
Underwriters. Such delivery and payment shall be made at 11:00 a.m., New York
City time, on __________ __, 1999 (unless such time and date is postponed in
accordance with the provisions of Section 9(c) hereof), or at such other time as
shall be agreed upon between you and the Company. The time and date of such
delivery and payment are herein called the "Closing Date."
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<PAGE>
Certificates for the Stock shall be registered in such name or names
and in such authorized denominations as you may request in writing at least two
full business days' prior to the Closing Date. The Company shall permit you to
examine and package such certificates for delivery at least one full business
day prior to the Closing Date.
In addition, the Company hereby grants to the several Underwriters
the option to purchase all or a portion of the Additional Stock as may be
necessary to cover over-allotments, at the same purchase price per share to be
paid by the several Underwriters to the Company and the Selling Stockholders for
the Stock as provided for in this Section 3. The Additional Stock shall be
purchased by the several Underwriters from the Company as provided herein, pro
rata in accordance with the ratio which the number of shares of Stock set forth
opposite such Underwriter's name on Schedule I bears to the total number of
shares of Stock, subject to adjustment to avoid fractional shares. This option
may be exercised only to cover over-allotments in the sale of shares by the
several Underwriters. This option may be exercised by you on the basis of the
representations, warranties, covenants, and agreements of the Company herein
contained, but subject to the terms and conditions herein set forth, at any time
and from time to time on or before the forty-fifth day following the effective
date of the Registration Statement, by written notice by you to the Company.
Such notice shall set forth the aggregate number of shares of Additional Stock
as to which the option is being exercised and the time and date, as determined
by you, when such Additional Stock is to be delivered (such time and date are
herein called an "Additional Closing Date"); provided, however, that no
Additional Closing Date shall be earlier than the Closing Date nor earlier than
the second business day after the date on which the notice of the exercise of
the option shall have been given nor later than the third business day after the
date on which such notice shall have been given.
Payment for the shares of Additional Stock by the Underwriters shall
be made by certified or official bank check or checks drawn upon or by a New
York Clearing House bank, or by wire transfer, and payable in next-day funds to
the order of the Company at the offices of Kaufman Bros., L.P., 800 Third
Avenue, New York, New York, or at such other place in the New York City
Metropolitan Area as you shall determine and advise the Company by at least two
full days' notice in writing, upon delivery of the shares of Additional Stock to
you for the respective accounts of the Underwriters.
Certificates for the Additional Stock shall be registered in such
name or names and in such authorized denominations as you may request in writing
at least two full business days' prior to the Additional Closing Date with
respect thereto. The Company shall permit you to examine and package such
certificates for delivery at least one full business day prior to the Additional
Closing Date with respect thereto.
4. Offering. The Underwriters are to make a public offering of the
Stock as soon, on or after the effective date of the Registration Statement, as
you deem it advisable so to do. The Stock is to be offered to the public at the
public offering price as provided for in Section 3 hereof (such price being
herein called the "public offering price") and upon the terms and subject to the
conditions set forth in the Prospectus. After the public offering, you may from
time to time increase or decrease the public offering price, in your sole
discretion, by reason of changes in general market conditions or otherwise.
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<PAGE>
5. Covenants of the Company and the Selling Stockholders.
(a) The Company covenants that it will:
(i) Use its best efforts to cause the Registration Statement,
if not effective at the time of execution of this Agreement, and any amendments
thereto, to become effective as promptly as possible. If required, the Company
will file the Prospectus or any Term Sheet that constitutes a part thereof and
any amendments or supplements thereto with the Commission in the manner and
within the time period required by Rules 434 and 424(b) under the Act. During
any time when a prospectus relating to the Stock and the Additional Stock is
required to be delivered under the Act, the Company (A) will comply with all
requirements imposed upon it by the Act and the Regulations to the extent
necessary to permit the continuance of sales of or dealings in the Stock and the
Additional Stock, in accordance with the provisions hereof and of the
Prospectus, as then amended or supplemented, and (B) will not file with the
Commission the Prospectus, Term Sheet or the amendment referred to in the second
sentence of Section 2(a) hereof, any amendment or supplement to such Prospectus
or Term Sheet, or any amendment to the Registration Statement of which the
Representatives shall not have given their consent. The Company will prepare and
file with the Commission, in accordance with the Regulations, promptly upon
request by the Representatives or counsel for the Underwriters, any amendments
to the Registration Statement or amendments or supplements to the Prospectus
that may be necessary or advisable in connection with the distribution of the
Stock and Additional Stock by the several Underwriters, and will use its best
efforts to cause any such amendment to the Registration Statement to be declared
effective by the Commission as promptly as possible.
(ii) Notify you immediately, and confirm such notice in
writing, (A) when the Registration Statement and any post-effective amendment
thereto becomes effective, (B) of the receipt of any comments from the
Commission or the "blue sky" or securities authority of any jurisdiction
regarding the Registration Statement, any post-effective amendment thereto, the
Preliminary Prospectus, the Prospectus, or any amendment or supplement thereto,
and (C) of the receipt of any notification with respect to a Stop Order or the
initiation or threatening of any proceeding with respect to a Stop Order. The
Company will use its best efforts to prevent the issuance of any Stop Order and,
if any Stop Order is issued, to obtain the lifting thereof as promptly as
possible.
(iii) If, at any time prior to the later of (A) the final
date when a prospectus relating to the Stock or the Additional Stock is required
to be delivered under the Act or the Regulations, or (B) the Additional Closing
Date, any event occurs as a result of which the Prospectus, as then amended or
supplemented, would include any untrue statement of a material fact or omit to
state a material fact necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading, or if for
any other reason it is necessary at any time to amend or supplement the
Prospectus to comply with the Act or the Regulations, the Company will promptly
notify the Representatives thereof and, subject to Section 5(i) hereof, will
prepare and file with the Commission, at the Company's expense, an amendment to
the Registration Statement or an amendment or supplement to the Prospectus that
corrects such statement or omission or effects such compliance.
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<PAGE>
(iv) The Company will, without charge, provide (A) to the
Representatives and to counsel for the Underwriters a signed copy of the
Original Registration Statement filed with the Commission with respect to the
Securities and each amendment thereto (in each case including exhibits thereto)
or any Rule 462(b) Registration Statement, (B) to each other Underwriter, a
conformed copy of the Original Registration Statement, any Rule 462(b)
Registration Statement, and each amendment thereto (in each case without
exhibits thereto), and (C) so long as a prospectus relating to the Stock and
Additional Stock is required to be delivered under the Act and the Regulations,
as many copies of each Preliminary Prospectus or the Prospectus, or any
amendment or supplement thereto, as the Representatives may reasonably request;
without limiting the application of clause (C) of this sentence, the Company, no
later than (X) 6:00 p.m., New York City time, on the date of determination of
the public offering price, if such determination occurred at or prior to 12:00
Noon, New York City time, on such date, or (Y) 6:00 p.m., New York City time, on
the business day following the date of determination of the public offering
price, if such determination occurred after 12:00 Noon, New York City time, on
such date, will deliver to the Representatives, without charge, as many copies
of the Prospectus, and any amendment or supplement thereto, as the
Representatives may reasonably request for purposes of confirming orders that
are expected to settle on the Closing Date.
(v) Endeavor in good faith, in cooperation with you, at or
prior to the time the Registration Statement becomes effective, to qualify the
Stock and the Additional Stock for offering and sale under the "blue sky" or
securities laws of such jurisdictions as you may designate; provided, however,
that no such qualification shall be required in any jurisdiction where, as a
result thereof, the Company would be subject to service of general process or to
taxation as a foreign corporation doing business in such jurisdiction to which
it is not then subject. In each jurisdiction where such qualification shall be
effected, the Company will, unless you agree in writing that such action is not
at the time necessary or advisable, file and make such statements or reports at
such times as are or may be required by the laws of such jurisdiction.
(vi) Make generally available (within the meaning of Section
11(a) of the Act and the Regulations) to its security holders as soon as
practicable, an earnings statement (which need not be certified by independent
certified public accountants unless required by the Act or the Regulations, but
which shall satisfy the provisions of Section 11(a) of the Act and the
Regulations) covering a period of at least twelve months beginning after the
effective date of the Registration Statement.
(vii) For a period of six months from the effective date of
the Registration Statement, the Company shall not, without the prior written
consent of the Representatives, offer, issue, sell, contract to sell, grant any
option for the sale of, or otherwise dispose of, directly or indirectly, any
shares of Common Stock or other securities of the Company (or any security or
other instrument which by its terms is convertible into, exercisable for, or
exchangeable for shares of Common Stock or other securities of the Company)
except for the issuance of (A) the Securities; and (B) Securities issued in
connection with mergers or acquisitions of corporations or other entities in
which the Company is the surviving corporation.
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<PAGE>
(viii) For a period of five years after the effective date of
the Registration Statement, furnish to the Representatives, without charge, the
following:
(A) within 90 days after the end of each fiscal year, three
copies of financial statements certified by independent certified public
accountants, including a balance sheet, statement of income, and statement of
cash flows of the Company and its then existing subsidiaries, with supporting
schedules, prepared in accordance with generally accepted accounting principles,
as at the end of such fiscal year and for the 12 months then ended, which may be
on a consolidated basis;
(B) as soon as practicable after they have been sent to
stockholders of the Company or filed with the Commission, three copies of each
annual and interim financial and other report or communication sent by the
Company to its stockholders or filed with the Commission;
(C) as soon as practicable, two copies of every press release
and every material news item and article in respect of the Company or its
affairs which was released by the Company; and
(D) such additional documents and information with respect to
the Company and its affairs and the affairs of any of its subsidiaries as you
may from time to time reasonably request.
(ix) For a period of five years after the effective date of
the Registration Statement, the Representatives shall have the right to:
(A) elect one person designated by the Representatives to the
Company's Board of Directors (such person the "Representatives' Designee");
(B) elect to remove from the Board of Directors any incumbent
Representatives' Designee;
(C) designate a new Representatives' Designee for election to
the Board of Directors, whether to replace a prior Representatives' Designee or
to fill a vacancy created by the resignation of a Representatives' Designee;
and/or
(D) to have a representative (an "Observer") present at all
meetings of the Board of Directors and all committees thereof. The Company will
give the Observer reasonable prior notice (it being agreed that the same prior
notice given to the members of the Board of Directors shall be deemed reasonable
notice) in any manner permitted in the Company's by-laws for notices to
directors of the time and place of any proposed meeting of the Board of
Directors or any committee thereof, such notice in all cases to include true and
complete copies of all documents furnished to any directors in connection with
such meeting. Such Observer will be entitled to be present in person as an
observer at any such meeting or, if a meeting is held by telephone conference,
to participate therein for the purpose of listening thereto. The foregoing right
shall be exercisable from time to time by the delivery of written notice to the
Company by the Representatives.
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<PAGE>
(x) Apply the net proceeds received by it from the offering
in substantially the manner set forth under "Use of Proceeds" in the Prospectus
(or, if the Prospectus is not in existence, the most recent Preliminary
Prospectus).
(xi) Furnish to you as early as practicable prior to the
Closing Date and any Additional Closing Date, as the case may be, but no less
than two full business days prior thereto, a copy of the latest available
unaudited interim consolidated financial statements of the Company and its
consolidated subsidiaries which have been read by the Company's independent
certified public accountants, as stated in their letters to be furnished
pursuant to Section 7(g).
(xii) Comply in all material respects with all registration,
filing, and reporting requirements of the Exchange Act which may from time to
time be applicable to the Company.
(xiii) Comply in all material respects with all provisions of
all undertakings contained in the Registration Statement.
(xiv) Prior to the Closing Date or any Additional Closing
Date, as the case may be, issue no press release or other communication,
directly or indirectly, and hold no press conference with respect to the
Company, the financial condition, results of operations, business, properties,
assets, liabilities of the Company, or this offering, without your prior written
consent, which consent shall not be unreasonably withheld.
(xv) File timely with the Commission an appropriate form to
register th Common Stock pursuant to Section 12(b) under the Exchange Act.
(xvi) File no amendment or supplement to the Registration
Statement or Prospectus at any time, whether before or after the effective date
of the Registration Statement, unless such filing shall comply with the Act and
the Regulations and unless the Representatives shall previously have been
advised of such filing and furnished with a copy thereof, and the
Representatives and counsel for the Underwriters shall have approved such filing
in writing.
(xvii) If the principal stockholders, officers, or directors
of the Company are required by the "blue sky" or securities authority of any
jurisdiction selected by you pursuant to Section 5(v) hereof to escrow or agree
to restrict the sale of any security of the Company owned by them for the
Company to qualify or register the Common Stock for sale under the "blue sky" or
securities laws of such jurisdiction, cause each such person to escrow or
restrict the sale of such security on the terms and conditions and in the form
specified by the securities administrator of such jurisdiction.
(xviii) Use its best efforts to cause the application for
quotation of the Common Stock on the Nasdaq Stock Market's National Market
System to be approved as soon as possible.
(xix) On or prior to the Closing Date, sell to the
Representatives their (or their esignees), individually and not as
representatives of the Underwriters, the Representatives'
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Warrant to purchase 10% of the shares of Common Stock (not including the
Additional Stock) offered to the public (the shares of Common Stock underlying
the Representatives' Warrant being herein referred to as the "Warrant Stock"),
which Representatives' Warrant shall be evidenced by the Representatives'
Warrant Agreement in the form set forth as an exhibit to the Registration
Statement.
(xx) Until expiration of the Representatives' Warrant, keep
reserved sufficient shares of Common Stock for issuance upon exercise thereof.
(xxi) Deliver to you, without charge, within a reasonable
period after the last Additional Closing Date or the expiration of the period in
which the Underwriters may exercise the over-allotment option, four bound
volumes of the Registration Statement and all related materials.
(xxii) If the Company elects to rely on Rule 462(b), the
Company shall both file a Rule 462(b) Registration Statement with the Commission
in compliance with Rule 462(b) and pay the applicable fees in accordance with
Rule 111 promulgated under the Act by the earlier of (A) 10:00 p.m. eastern time
on the date of this Agreement, and (B) the time confirmations are sent or given,
as specified by Rule 462(b)(2).
(xxiii) For a period of three years following the Effective
date, the Representatives shall have the right of first refusal to purchase from
the Company, its affiliates and any of its subsidiaries any securities that the
Company, its affiliates or any of its subsidiaries may from time to time issue
in proportion to their respective commitments hereunder.
(b) Each Selling Stockholder covenants and agrees that for a
period of 180 days after the date of the Prospectus, such Selling Stockholder
will not, without your prior written consent, offer, pledge, sell, contract to
sell, grant any option for the sale of, or otherwise dispose of, directly or
indirectly, any shares of Common Stock or any security or other instrument which
by its terms is convertible into, exercisable for, or exchangeable for share of
Common Stock, except as provided in Section 3.
6. Payment of Expenses. The Company hereby agrees to pay all
expenses (other than fees of counsel for the Underwriters, except as provided in
Section 6(c)) in connection with
(a) the preparation, printing, filing, distribution, and mailing
of the Registration Statement, any Preliminary Prospectus, the Prospectus and
the printing, filing, distribution, and mailing of this Agreement, any Agreement
Among Underwriters, any Selected Dealers Agreement, and all other documents
related to the offering, purchase, sale and delivery of the Securities,
including the cost of all copies thereof and of the Preliminary Prospectuses and
of the Prospectus and any amendments or supplements thereto supplied to the
Underwriters in quantities as herein above stated,
(b) the issuance, sale, transfer, and delivery of the Stock and
the Additional Stock, including any transfer or other taxes payable thereon,
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(c) the qualification of the Stock and the Additional Stock under
state or foreign "blue sky" or securities laws, including the costs of printing
and mailing the preliminary and final "Blue Sky Survey" and the fees of counsel
for the Underwriters and their disbursements in connection therewith,
(d) the filing fees payable to the Commission, the NASD, and the
jurisdictions in which such qualification is sought,
(e) the quotation of the Common Stock on the Nasdaq Stock
Market's National Market System, respectively,
(f) the fees and expenses of the Company's transfer agent and
registrar,
(g) the fees and expenses of the Company's legal counsel and
accountants, and
(h) the costs of placing a "tombstone" advertisement in such
publications as the Representatives shall determine. In addition, the Company
hereby agrees to pay to the Representatives a non-accountable expense allowance
equal to 3% of the aggregate gross proceeds received by the Company from the
sale of the Stock and the Additional Stock, which amounts shall be paid to you
on the Closing Date (with respect to Stock sold by the Company on the Closing
Date) and, if applicable, on the Closing Date and any Additional Closing Date
(with respect to Additional Stock sold by the Company on the Closing Date or
such Additional Closing Date).
7. Conditions of Underwriters' Obligations. The obligations of the
several Underwriters to purchase and pay for the Stock and the Additional Stock,
as provided herein, shall be subject, in their discretion, to the continuing
accuracy of the representations and warranties of the Company and the Selling
Stockholders contained herein and in each certificate and document contemplated
under this Agreement to be delivered to you, as of the date hereof and as of the
Closing Date (or the Additional Closing Date, as the case may be), to the
performance by the Company of its obligations hereunder, and to the following
conditions:
(a) If the Registration Statement or any amendment thereto filed
prior to the Closing Date has not been declared effective as of the time of
execution hereof, the Registration Statement or such amendment shall have been
declared effective not later than 11:00 a.m., New York City time, on the date on
which the amendment to the registration statement originally filed with respect
to the Securities or the Registration Statement, as the case may be, containing
information regarding the public offering price of the Stock and the Additional
Stock has been filed with the Commission, or such later time and date as shall
have been consented to by the Representatives; if required, the Prospectus or
any Term Sheet that constitutes part thereof, and any amendment or supplement
thereto, shall have been filed with the Commission in the manner and within the
time period required by Rules 434, 462(b)(2) and 424(b) under the Act; no Stop
Order suspending the effectiveness of the Registration Statement or any
amendment thereto shall have been issued, and no proceedings for that purpose
shall have been instituted or threatened or, to the knowledge of the Company or
the Representatives, shall be contemplated by the Commission; and the Company
shall have complied with any request of the Commission for additional
information (to be included in the Registration Statement or the Prospectus or
otherwise).
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(b) At the Closing Date and any Additional Closing Date, as the
case may be, the Representatives shall have received the favorable opinion of
Stairs, Dillenbeck, Finley & Merle, counsel for the Company, dated the date of
delivery, addressed to the Underwriters, and in form and scope reasonably
satisfactory to counsel for the Underwriters, with reproduced copies or signed
counterparts thereof for each of the Underwriters, to the effect that:
(i) The Company is a corporation, duly organized, validly
existing, and in good standing under the laws of its jurisdiction of
incorporation with full corporate power and authority, and all necessary
consents, authorizations, approvals, orders, certificates, and permits of and
from, and declarations and filings with, all federal, state, local, and other
governmental authorities and all courts and other tribunals, to own, lease,
license, and use its properties and assets and to conduct its business in the
manner described in the Prospectus. The Company is duly qualified to do business
and is in good standing in every jurisdiction in which its ownership, leasing,
licensing, or use of property and assets or the conduct of its business makes
such qualification necessary except where the failure to be so qualified would
not reasonably be expected to have a material adverse effect on the operations,
business, properties or assets of the Company;
(ii) the authorized capital stock of the Company is as set
forth in the Prospectus. Each outstanding share of capital stock of the Company
has been validly authorized and issued, and is fully paid, and nonassessable,
without any personal liability attaching to the ownership thereof, has not been
issued and is not owned or held in violation of any preemptive rights of
stockholders. There is no commitment, plan, or arrangement to issue, and no
outstanding option, warrant, or other right calling for the issuance of, any
share of capital stock of the Company, or any security or other instrument which
by its terms is convertible into, exercisable for, or exchangeable for capital
stock of the Company, except as set forth in the Prospectus. There is
outstanding no security or other instrument which by its terms is convertible
into or exchangeable for capital stock of the Company;
(iii) other than as set forth or contemplated by the
Prospectus, there is no litigation, arbitration, claim, governmental or other
proceeding (formal or informal), or investigation pending or threatened (or any
basis therefor) with respect to the Company, or its operations, businesses,
properties, or assets except as may be described in the Prospectus or as
individually or in the aggregate would not reasonably be expected in the future
to have a material adverse effect upon the operations, business, properties, or
assets of the Company. The Company is not in violation of, or in default with
respect to, any law, rule, regulation, order, judgment, or decree, except as may
be described in the Prospectus or such as in the aggregate would not reasonably
be expected to have a material adverse effect upon the operations, business,
properties, or assets of the Company; nor is the Company required to take any
action in order to avoid any such violation or default;
(iv) Order suspending the effectiveness of the Registration
Statement or any amendment thereto shall have been issued, and no proceedings
for that purpose shall have been instituted or threatened or, to the knowledge
of the Company or the Representatives, shall be contemplated by the Commission;
and the Company shall have complied with any request of the Commission for
additional information (to be included in the Registration Statement or the
Prospectus or otherwise).
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<PAGE>
(v) the Company is not in violation or breach of, or in
default with respect to, any term of its certificate of incorporation (or other
charter document) or by-laws;
(vi) the Company has all requisite corporate power and
authority to execute, deliver, and perform each of the Company Documents. All
necessary corporate proceedings of the Company have been taken to authorize the
execution, delivery, and performance by the Company of the Company Documents.
Each Company Document has been duly authorized by the Company. Each Company
Document has been duly executed and delivered by the Company. Each Company
Document is the legal, valid, and binding obligation of the Company, and
(subject to applicable bankruptcy, insolvency, and other laws affecting the
enforceability of creditors' rights generally) is enforceable as to the Company
in accordance with its terms. No consent, authorization, approval, order,
license, certificate, or permit of or from, or declaration or filing with, any
federal, state, local, or other governmental authority or any court or other
tribunal is required by the Company for the execution, delivery, or performance
by the Company of any of the Company Documents (except filings under the Act
which have been made prior to the Closing Date and consents consisting only of
consents under "blue sky" or securities laws). No consent of any party to any
contract, agreement, instrument, lease, license, arrangement, or understanding
to which the Company is a party, or to which any of its properties or assets are
subject, is required for the execution, delivery, or performance of any of the
Company Documents; and the execution, delivery, and performance of the Company
Documents will not violate, result in a breach of, conflict with, or (with or
without the giving of notice or the passage of time or both) entitle any party
to terminate or call a default under any such contract, agreement, instrument,
lease, license, arrangement, or understanding, or violate or result in a breach
of any term of the certificate of incorporation (or other charter document) or
by-laws of the Company, or violate, result in a breach of, or conflict with any
law, rule, regulation, or, any order, judgment, or decree binding on the Company
or to which any of its operations, business, properties, or assets are subject;
(vii) the Stock, the Additional Stock and the Warrant Stock
have been validly authorized. Such opinion delivered at the Closing Date or any
Additional Closing Date shall state that each share of Stock or Additional
Stock, as the case may be, to be delivered on that date is validly issued, fully
paid, and nonassessable, with no personal liability attaching to the ownership
thereof, and is not issued in violation of any preemptive rights of
stockholders, and the Underwriters have received good title to the Stock and
Additional Stock purchased by them, respectively, from the Company, free and
clear of all liens, security interests, pledges, charges, encumbrances,
stockholders' agreements, and voting trusts other than those which may have been
created by the Underwriters;
(viii) the Warrant Stock has been duly and validly reserved
for issuance. Such opinion delivered at the Closing Date shall state that the
Representatives' Warrant has been duly and validly issued and delivered. The
Warrant Stock, when issued and delivered in accordance with the Representatives'
Warrant Agreement, will be validly authorized and issued, fully paid and
nonassessable, with no personal liability attaching to the ownership thereof,
and will not have been issued in violation of any preemptive rights of
stockholders; and the holders of the Representatives' Warrant will receive good
title to the securities purchased by them, respectively, free and clear of
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all liens, security interests, pledges, charges, encumbrances, stockholders'
agreements, and voting trusts other than those which may have been created by
such holders;
(ix) the Common Stock, the Securities, and the
Representatives' Warrant Agreement conform in all material respects to the
description thereof contained in the Registration Statement and the Prospectus;
(x) any contract, agreement, instrument, lease, or license
required to be described in the Registration Statement or the Prospectus has
been properly described therein. Any contract, agreement, instrument, lease, or
license required to be filed as an exhibit to the Registration Statement has
been filed with the Commission as an exhibit to or has been incorporated as an
exhibit by reference into the Registration Statement;
(xi) insofar as statements in the Prospectus purport to
summarize the status of litigation or the provisions of laws, rules,
regulations, orders, judgments, decrees, contracts, agreements, instruments,
leases, or licenses, such statements have been prepared or reviewed by such
counsel and accurately reflect the status of such litigation and provisions
purported to be summarized and are correct in all material respects;
(xii) the conditions for use of Form S-1 have been satisfied
with respect to the Registration Statement;
(xiii) the Stock has been approved for quotation on the
Nasdaq National Market System, subject to official notice of issuance;
(xiv) no person or entity has the right to require
registration of shares of Common Stock or other securities of the Company
because of the filing or effectiveness of the Registration Statement;
(xv) the Registration Statement has become effective under
the Act; any required filing of the Prospectus, or any Term Sheet that
constitutes a part thereof, pursuant to Rules 434 and 424(b) has been made in
the manner and within the time period required by Rules 434 and 424(b). No Stop
Order has been issued and no proceedings for that purpose have been instituted
or threatened;
(xvi) the Registration Statement and the Prospectus, and any
amendment or supplement thereto (other than statistical data, financial
statements and other financial data and schedules which are or should be
contained in any thereof, as to which such counsel need express no opinion),
comply as to form in all material respects with the requirements of the Act and
the Regulations;
(xvii) such counsel has no reason to believe that the
Registration Statement or the Prospectus, or any amendment or supplement thereto
(other than financial statements and other statistical and financial data and
schedules which are or should be contained in any thereof, as to which such
counsel need express no opinion), contains any untrue statement of a material
fact
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<PAGE>
or omits to state a material fact required to be stated therein or necessary to
make the statements therein not misleading;
(xviii) since the effective date of the Registration
Statement, no event has occurred which should have been set forth in an
amendment or supplement to the Registration Statement or the Prospectus which
has not been set forth in such an amendment or supplement.
In rendering such opinion, counsel for the Company may rely (A) as
to matters involving the application of laws other than the laws of the United
States, the laws of the State of New York, and the General Corporation Law of
the State of Delaware, to the extent counsel for the Company deems proper and to
the extent specified in such opinion, upon an opinion or opinions (in form and
substance satisfactory to counsel for the Underwriters) of other counsel,
acceptable to counsel for the Underwriters, familiar with the applicable laws,
in which case the opinion of counsel for the Company shall state that the
opinion or opinions of such other counsel are satisfactory in scope, form, and
substance to counsel for the Company and that reliance thereon by counsel for
the Company and the Underwriters is reasonable; (B) as to matters of fact, to
the extent they deem proper, on certificates of responsible officers of the
Company; and (C) to the extent they deem proper, upon written statements or
certificates of officers of departments of various jurisdictions having custody
of documents respecting the corporate existence or good standing of the Company,
provided that copies of any such statements or certificates shall be delivered
to counsel for the Underwriters.
(c) At the Closing Date, the Representatives shall have received
the favorable opinion of Seward & Kissel, LLP, counsel for the Selling
Stockholders, dated the date of delivery, addressed to the Underwriters, and in
form and scope reasonably satisfactory to counsel for the Underwriters, with
reproduced copies or signed counterparts thereof for each of the Underwriters,
to the effect that:
(i) There is no litigation, arbitration, claim, governmental
or other proceeding (formal or informal), or investigation pending, threatened,
or in prospect (or any basis therefor) with respect to any Seller Stockholder,
or any of their respective operations, businesses, properties or assets or such
as individually or in the aggregate do not now have and will not in the future
have a material adverse effect upon the operations, business, properties, or
assets of such Selling Stockholder. No Selling Stockholder is in violation of,
or in default with respect to, any law, rule, regulation, order, judgement, or
decree, such as in the aggregate would now have and will not in the future have
a material adverse effect upon the operations, business, properties, or assets
of such Selling Stockholder; nor is any Selling Stockholder required to take any
action in order to avoid any such violation or default;
(ii) no Selling Stockholder is in violation or breach of, or
in default with respect to, complying with any material provision of any
contract, agreement, instrument, lease, license, arrangement, or understanding
which is material to such Selling Stockholder;
(iii) the Underwriters will receive good title to the shares
of Selling Stockholders Stock purchased by them from the Selling Stockholders,
free and clear of all liens, security interests, pledges, charges encumbrances,
stockholders' agreement, and voting trusts. The
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Selling Stockholder Stock conforms to all statements relating thereto contained
in the Registration Statement or the Prospectus; and
(iv) each of the Selling Stockholders, if a corporation, is a
corporation duly organized, validly existing, and in good standing under the
laws of the jurisdiction of its incorporation and has full power and authority
to execute, deliver and perform this Agreement and the Escrow Agreement. All
corporate action of such Selling Stockholder, if a corporation, necessary for
the execution, delivery, and performance of this Agreement and the Escrow
Agreement by such Selling Stockholder has been duly taken. This Agreement and
the Escrow Agreement have been duly authorized by the Selling Stockholders, if a
corporation, executed, and delivered by the Selling Stockholders, are the legal,
valid, and binding obligations of the Selling Stockholders, and are enforceable
as to them in accordance with their respective terms. No consent, authorization,
approval, order, license, certificate, or permit of or from, or declaration or
filing with, any federal, state, local, or other governmental authority or any
court or other tribunal is required by the Selling Stockholders for the
execution, delivery, or performance of this Agreement (except filing under the
Act and such consents consisting only of consents under "blue sky" or securities
laws) or the Escrow Agreement by the Selling Stockholders. No consent of any
party to any contract, agreement, instrument, lease, license, arrangement, or
understanding to which any of such Selling Stockholder's properties or assets
are subject, is required for the execution, delivery, or performance of this
Agreement or the Escrow Agreement; and the execution, delivery, and performance
of this Agreement and the Escrow Agreement will not violate, result in a breach
of, conflict with, or (with or without the giving of notice or the passage of
time or both) entitle any party to terminate or call a default under any such
contract, agreement, instrument, lease, license, arrangement, or understanding,
or violate, result in a breach of, or contravene any provision of such Selling
Stockholder's certificate of incorporation (or other charter document) or
by-laws, if such Selling Stockholder is a corporation, or violate, result in a
breach of, or conflict with any law, rule, regulation, order, judgement, or
decree binding on any Selling Stockholder's operations, business, properties, or
assets are subject.
In rendering such opinion, counsel for the Selling Stockholders may
rely (A) as to matters involving the application of laws other than the laws of
the United States, the laws of the State of New York and the General Corporation
Law of the State of Delaware, to the extent counsel for the Selling Stockholders
deems proper and to the extent specified in such opinion, upon an opinion or
opinions (in form and substance satisfactory to counsel for the Underwriters) of
other counsel, acceptable to counsel for the Underwriters, familiar with the
applicable laws, in which case the opinion of counsel for the Selling
Stockholders shall state that the opinion or opinions of such other counsel are
satisfactory in scope, form, and substance to counsel for the Selling
Stockholders and that reliance thereon by counsel for the Selling Stockholders
and the Underwriters is reasonable; (B) as to matters of fact, to the extent
they deem proper, on certificates or other written statements of the Selling
Stockholders; and (C) to the extent they deem proper, upon written statements or
certificates of officers of departments of various jurisdictions having custody
of documents respecting the corporation existence or good standing of any
Selling Stockholder, if such Selling Stockholder is a corporation, provided that
copies of any such statements or certificates shall be delivered to counsel for
the Underwriters.
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<PAGE>
(d) On or prior to the Closing Date and any Additional Closing
Date, as the casemay be, the Underwriters shall have been furnished such
information, documents, certificates, and opinions as they may reasonably
require for the purpose of enabling them to review the matters referred to in
Sections 7(b) and 7(c), and in order to evidence the accuracy, completeness, or
satisfaction of any of the representations, warranties, covenants, agreements,
or conditions herein contained, or as you may reasonably request.
(e) At the Closing Date and any Additional Closing Date, as the
case may be, you shall have received a certificate of the chief executive
officer and of the chief financial officer of the Company, dated the Closing
Date or such Additional Closing Date, as the case may be, to the effect (i) that
the conditions set forth in Section 7(a) have been satisfied, (ii) that as of
the date of this Agreement and as of the Closing Date or such Additional Closing
Date, as the case may be, the representations and warranties of the Company
contained herein were and are accurate, and (iii) that as of the Closing Date or
such Additional Closing Date, as the case may be, the obligations to be
performed by the Company hereunder on or prior thereto have been fully
performed.
(f) At the time this Agreement is executed and at the Closing
Date and any Additional Closing Date, as the case may be, you shall have
received a letter from Horton & Company, L.L.C. certified public accountants,
dated the date of delivery and addressed to the Underwriters, in form and
substance satisfactory to you, with reproduced copies or signed counterparts
thereof for each of the Underwriters.
(g) All proceedings taken in connection with the issuance, sale,
transfer, and delivery of the Stock and the Additional Stock shall be reasonably
satisfactory in form and substance to you and to counsel for the Underwriters,
and the Underwriters shall have received from such counsel for the Underwriters
a favorable opinion, dated as of the Closing Date and the Additional Closing
Date, as the case may be, with respect to such matters as you may reasonably
request.
(h) The NASD, upon review of the terms of the public offering of
the Stock and the Additional Stock, shall not have objected to the Underwriters'
participation in such offering.
(i) Prior to or on the Closing Date, the Company shall have
entered into the Representatives' Warrant Agreement with the Representatives.
Any certificate or other document signed by any officer of the
Company and delivered to you or to counsel for the Underwriters shall be deemed
a representation and warranty by the Company hereunder to the Underwriters as to
the statements made therein. If any condition to the Underwriters' obligations
hereunder to be fulfilled prior to or at the Closing Date or any Additional
Closing Date, as the case may be, is not so fulfilled, you may on behalf of the
several Underwriters elect to terminate this Agreement or, if you so elect, in
writing waive any such conditions which have not been fulfilled or extend the
time for their fulfillment.
8. Indemnification and Contribution.
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(a) Subject to the conditions set forth below, the Company and
the Selling Stockholders, jointly and severally, agree to indemnify and hold
harmless each Underwriter, its officers, directors, stockholders, members,
managers, partners, employees, agents, and counsel, and each person, if any, who
controls any Underwriter within the meaning of Section 15 of the Act or Section
20(a) of the Exchange Act, against any and all loss, liability, claim, damage,
and expense whatsoever (which shall include, for all purposes of this Section 8,
but not be limited to, reasonable attorneys' fees and any and all expense
whatsoever incurred in investigating, preparing, or defending against any
litigation, commenced or threatened, or any claim whatsoever and any and all
amounts paid in settlement of any claim or litigation) as and when incurred
arising out of, based upon, or in connection with
(i) any untrue statement or alleged untrue statement of a
material fact contained
(A) in any Preliminary Prospectus, any Term Sheet, the
Registration Statement or the Prospectus (as from time to time amended and
supplemented), or any amendment or supplement thereto, or
(B) in any application or other document or communication (in
this Section 8 collectively called an "application") executed by or on behalf of
the Company or any Selling Stockholder or based upon written information
furnished by or on behalf of the Company or any Selling Stockholder, filed in
any jurisdiction in order to qualify any of the Securities under the "blue sky"
or securities laws thereof or filed with the Commission or any securities
exchange; or any omission or alleged omission to state a material fact required
to be stated therein or necessary to make the statements therein not misleading,
unless such statement or omission was made in reliance upon and in conformity
with written information furnished to the Company as stated in Section 8(b) with
respect to any Underwriter by or on behalf of such Underwriter through the
Representatives expressly for inclusion in any Preliminary Prospectus, any Term
Sheet, the Registration Statement or the Prospectus, or any amendment or
supplement thereto, or in any application, as the case may be, or
(ii) any breach of any representation, warranty, covenant, or
agreement of the Company or any Selling Stockholder contained in this Agreement.
The foregoing agreement to indemnify shall be in addition to any liability the
Company may otherwise have, including liabilities arising under this Agreement.
If any action is brought against an Underwriter or any of its
officers, directors, stockholders, members, managers, partners, employees,
agents, or counsel, or any controlling persons of an Underwriter (an
"indemnified party") in respect of which indemnity may be sought against the
Company or any Selling Stockholder pursuant to the foregoing paragraph, such
indemnified party or parties (the "indemnifying parties") shall promptly notify
the parties against whom indemnification is sought in writing of the institution
of such action (but the failure so to notify shall not relieve the indemnifying
parties from any liability they may have pursuant to this Section 8(a) or
otherwise) and the indemnifying parties shall promptly assume the defense of
such action, including the employment of counsel (satisfactory to such
indemnified party or parties) and payment of expenses. Such indemnified party or
parties shall have the right to employ its or their own counsel in any such
case, but the fees and expenses of such counsel shall be at the expense of
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such indemnified party or parties unless the employment of
such counsel shall have been authorized in writing by one of the indemnifying
parties in connection with the defense of such action or the indemnifying
parties shall not have promptly employed counsel satisfactory to such
indemnified party or parties to have charge of the defense of such action or
such indemnified party or parties shall have reasonably concluded that there may
be one or more legal defenses available to it or them or to other indemnified
parties which are different from or additional to those available to one of the
indemnifying parties, in any of which events such fees and expenses shall be
borne by the indemnifying parties and the indemnifying parties shall not have
the right to direct the defense of such action on behalf of the indemnified
party or parties. Anything in this paragraph to the contrary notwithstanding,
the indemnifying parties shall not be liable for any settlement of any such
claim or action effected without its written consent, which shall not be
unreasonably withheld. The indemnifying parties shall not, without the prior
written consent of each indemnified party that is not released as described in
this sentence, settle or compromise any action, or permit a default or consent
to the entry of judgment in or otherwise seek to terminate any pending or
threatened action, in respect of which indemnity may be sought hereunder
(whether or not any indemnified party is a party thereto), unless such
settlement, compromise, consent, or termination includes an unconditional
release of each indemnified party from all liability in respect of such action.
The Company and the Selling Stockholders agree promptly to notify the
Underwriters of the commencement of any litigation or proceedings against the
Company or any of its officers or directors or the Selling Stockholders in
connection with the sale of the Stock or the Additional Stock, any Preliminary
Prospectus, the Registration Statement or the Prospectus, or any amendment or
supplement thereto, or any application.
(b) Each Underwriter severally agrees to indemnify and hold
harmless the Company, the Selling Stockholders, each director of the Company,
each officer of the Company who shall have signed the Registration Statement,
and each other person, if any, who controls the Company or any Selling
Stockholder within the meaning of Section 15 of the Act or Section 20(a) of the
Exchange Act, to the same extent as the foregoing indemnity from the Company and
the Selling Stockholders to the several Underwriters, but only with respect to
statements or omissions, if any, made in any Preliminary Prospectus, the
Registration Statement, or the Prospectus (as from time to time amended and
supplemented), or any amendment or supplement thereto, or in any application in
reliance upon and in conformity with written information furnished to the
Company as stated in this Section 8(b) with respect to any Underwriter by or on
behalf of such Underwriter through the Representatives expressly for inclusion
in the Registration Statement, or the Prospectus, or any amendment or supplement
thereto, or in any application, as the case may be; provided, however, that the
obligation of each Underwriter to provide indemnity under the provisions of this
Section 8(b) shall be limited to the amount which represents the product of the
number of shares of Stock and Additional Stock underwritten by such Underwriter
hereunder and the public offering price per share set forth on the cover page of
the Prospectus. For all purposes of this Agreement, the amounts of the selling
concession and re-allowance set forth in the Prospectus constitute the only
information furnished in writing by or on behalf of any Underwriter expressly
for inclusion in any Preliminary Prospectus, the Registration Statement or the
Prospectus (as from time to time amended or supplemented), or any amendment or
supplement thereto, or in any application, as the case may be. If any action
shall be brought against the Company, any Selling Stockholders, or any other
person so indemnified based on any Preliminary Prospectus, the Registration
Statement, or the Prospectus, or any amendment or supplement thereto, or in any
application, and in respect of
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which indemnity may be sought against any Underwriter pursuant to this Section
8(b), such Underwriter shall have the rights and duties given to the
indemnifying parties and the Company, the Selling Stockholders, and each other
person so indemnified shall have the rights and duties given to the indemnified
parties, by the provisions of Section 8(a).
(c) To provide for just and equitable contribution, if
(i) an indemnified party makes a claim for indemnification
pursuant to Section 8(a), 8(b) or 8(c) (subject to the limitations thereof), but
it is found in a final judicial determination, not subject to further appeal,
that such indemnification may not be enforced in such case, even though this
Agreement expressly provides for indemnification in such case, or
(ii) any indemnified or indemnifying party seeks contribution
under the Act, the Exchange Act, or otherwise, then the Company and the Selling
Stockholder (including for this purpose any contribution made by or on behalf of
any director of the Company, any officer of the Company who signed the
Registration Statement, and any controlling person of the Company, and any
controlling person of any Selling Stockholder), on the one hand, and the
Underwriters, in the aggregate (including for this purpose any contribution by
or on behalf of an indemnified party), on the other hand, shall contribute to
the losses, liabilities, claims, damages, and expenses whatsoever to which any
of them may be subject, so that the Underwriters are responsible for the
proportion thereof equal to the percentage which the underwriting discount per
share set forth on the cover page of the Prospectus represents of the public
offering price per share set forth on the cover page of the Prospectus and each
of the Company and each Selling Stockholder, is jointly and severally
responsible for the remaining portion; provided, however, that if applicable law
does not permit such allocation, then other relevant equitable considerations
such as the relative fault of the Company, the Selling Stockholders in the
aggregate, and the Underwriters in the aggregate in connection with the facts
which resulted in such losses, liabilities, claims, damages, and expenses shall
also be considered. The relative fault, in the case of an untrue statement,
alleged untrue statement, omission, or alleged omission, shall be determined by,
among other things, whether such statement, alleged statement, omission, or
alleged omission relates to information supplied by the Company, by the Selling
Stockholders or by the Underwriters, and the parties' relative intent,
knowledge, access to information, and opportunity to correct or prevent such
statement, alleged statement, omission, or alleged omission. The Company, the
Selling Stockholders and the Underwriters agree that it would be unjust and
inequitable if the respective obligations of the Company, the Selling
Stockholders and the Underwriters for contribution were determined by pro rata
or per capita allocation of the aggregate losses, liabilities, claims, damages,
and expenses (even if the Underwriters and the other indemnified parties were
treated as one entity for such purpose) or by any other method of allocation
that does not reflect the equitable considerations referred to in this Section
8(c). In no case shall any Underwriter be responsible for a portion of the
contribution obligation imposed on all Underwriters in excess of its pro rata
share based on the number of shares of Stock underwritten by it as compared to
the number of shares of Stock underwritten by all Underwriters who do not
default in their obligations under this Section 8(c). No person guilty of a
fraudulent misrepresentation (within the meaning of Section 11(f) of the Act)
shall be entitled to contribution from any person who is not guilty of such
fraudulent misrepresentation. For purposes of this Section 8(c), each person, if
any, who controls an Underwriter within the meaning of Section 15 of the Act or
Section 20(a) of the Exchange Act and
- 27 -
<PAGE>
each officer, director, stockholder, member, manager, partner, employee, agent,
and counsel of an Underwriter shall have the same rights to contribution as such
Underwriter and each person, if any, who controls a Selling Stockholder within
the meaning of Section 15 of the Act or Section 20(a) of the Exchange Act shall
have the same rights to contribution as such Selling Stockholder, and each
person, if any, who controls the Company within the meaning of Section 15 of the
Act or Section 20(a) of the Exchange Act, each officer of the Company who shall
have signed the Registration Statement, and each director of the Company shall
have the same rights to contribution as the Company, subject in each case to the
provisions of this Section 8(c). Anything in this Section 8(c) to the contrary
notwithstanding, no party shall be liable for contribution with respect to the
settlement of any claim or action effected without its written consent. This
Section 8(c) is intended to supersede any right to contribution under the Act,
the Exchange Act, or otherwise.
9. Default by an Underwriter.
(a) If any Underwriter or Underwriters shall default in its or
their obligation to purchase Stock or Additional Stock hereunder, and if the
number of shares of Stock or Additional Stock to which the defaults of all
Underwriters in the aggregate relate does not exceed 10% of the number of shares
of Stock or Additional Stock, as the case may be, which all Underwriters have
agreed to purchase hereunder, then such shares of Stock or Additional Stock to
which such defaults relate shall be purchased by the non-defaulting Underwriters
in proportion to their respective commitments hereunder.
(b) If such defaults exceed in the aggregate 10% of the number of
shares of Stock or Additional Stock, as the case may be, which all Underwriters
have agreed to purchase hereunder, you may in your discretion arrange for
yourself or for another party or parties to purchase such shares of Stock or
Additional Stock, as the case may be, to which such default relates on the terms
contained herein. If you do not arrange for the purchase of such shares of Stock
or Additional Stock, as the case may be, within one business day after the
occurrence of defaults relating to in excess of 10% of the Stock or the
Additional Stock, as the case may be, then the Company and the Selling
Stockholders (with respect to the Stock) and the Company (with respect to the
Additional Stock) shall be entitled to a further period of one business day
within which to procure another party or parties satisfactory to you to purchase
such shares of Stock or Additional Stock, as the case may be, on such terms. If
you or the Company and the Selling Stockholders do not arrange for the purchase
of the Stock or Additional Stock, as the case may be, to which such defaults
relate as provided in this Section 9(b), this Agreement may be terminated by you
or by the Company or by the Selling Stockholders without liability on the part
of the Company or the Selling Stockholders (except that the provisions of
Sections 6, 8, 10, and 13 shall survive such termination) or the several
Underwriters, but nothing in this Agreement shall relieve a defaulting
Underwriter of its liability, if any, to the other several Underwriters and to
the Company and the Selling Stockholders for any damages occasioned by its
default hereunder.
(c) If the shares of Stock or Additional Stock to which such
defaults relate are to be purchased by the non-defaulting Underwriters, or are
to be purchased by another party or parties as aforesaid, you, the Company or
the Selling Stockholders (with respect to the Stock) or you or the Company (with
respect to the Additional Stock) shall have the right to postpone the Closing
Date or the Additional Closing Date, as the case may be, for a reasonable period
but not
- 28 -
<PAGE>
in any event more than seven days in order to effect whatever changes may
thereby be made necessary in the Registration Statement or the Prospectus or in
any other documents and arrangements with respect to the Stock or the Additional
Stock, and the Company agrees to prepare and file promptly any amendment or
supplement to the Registration Statement or the Prospectus which in the opinion
of counsel for the Underwriters may thereby be made necessary. The term
"Underwriter" as used in this Agreement shall include any party substituted
under this Section 9 as if such party had originally been a party to this
Agreement and had been allocated the number of shares of Stock and Additional
Stock actually purchased by it as a result of its original commitment to
purchase Stock and Additional Stock and its purchase of shares of Stock or
Additional Stock pursuant to this Section 9.
10. Representations and Agreements to Survive Delivery. All
representations, warranties, covenants, and agreements contained in this
Agreement shall be deemed to be representations, warranties, covenants, and
agreements at the Closing Date and any Additional Closing Date, and such
representations, warranties, covenants, and agreements of the Underwriters, and
the Company and the Selling Stockholders, including the indemnity and
contribution agreements contained in Section 8, shall remain operative and in
full force and effect regardless of any investigation made by or on behalf of
any Underwriter or any indemnified person, or by or on behalf of the Company,
the Selling Stockholders, or any person or entity which is entitled to be
indemnified under Section 8(b), and shall survive termination of this Agreement
or the delivery and the payment of the Stock and the Additional Stock to the
several Underwriters. In addition, the provisions of Sections 5(a)(i), 6, 8, 10,
11, and 13 shall survive termination of this Agreement, whether such termination
occurs before or after the Closing Date or any Additional Closing Date.
11. Effective Date of This Agreement and Termination Thereof.
(a) This Agreement shall become effective at 9:30 a.m., New York
City time, on the first full business day following the day on which the
Registration Statement becomes effective or at the time of the public offering
by the Underwriters of the Stock, whichever is earlier. The time of the public
offering shall mean the time, after the Registration Statement becomes
effective, of the release by you for publication of the first newspaper
advertisement which is subsequently published relating to the Stock or the time,
after the Registration Statement becomes effective, when the Stock is first
released by you for offering by the Underwriters or dealers by letter or
telegram, whichever shall first occur. The Representatives or the Company may
prevent this Agreement from becoming effective without liability of any party to
any other party, except as noted below in this Section 11, by giving the notice
indicated in Section 12 before the time this Agreement becomes effective.
(b) In addition to the right to terminate this Agreement pursuant
to Sections 7 and 9 hereof, you shall have the right to terminate this Agreement
at any time prior to the Closing Date or any Additional Closing Date, as the
case may be, by giving notice to the Company if any domestic or international
event, act, or occurrence has materially disrupted, or in your opinion will in
the immediate future materially disrupt, the securities markets; or if there
shall have been a general suspension of, or a general limitation on prices for,
trading in securities on the New York Stock Exchange, the American Stock
Exchange, the Nasdaq Stock Market's National Market System, the Nasdaq Stock
Market's SmallCap Market, or in the over-the-counter market; or if there
- 29 -
<PAGE>
shall have been an outbreak of major hostilities or other national or
international calamity; or if a banking moratorium has been declared by a state
or federal authority; or if a moratorium in foreign exchange trading by major
international banks or persons has been declared; or if there shall have been a
material interruption in the mail service or other means of communication within
the United States; or if the Company shall have sustained a material loss by
fire, flood, accident, hurricane, earthquake, theft, sabotage, labor dispute,
legal or governmental proceeding or other calamity or malicious act which,
whether or not such loss shall have been insured, will, in your opinion, make it
inadvisable to proceed with the offering, sale, or delivery of the Stock or the
Additional Stock, as the case may be; or if there shall have been such material
adverse change in the condition of the Company, or such change in the market for
securities in general or in political, financial, or economic conditions as in
your judgment makes it inadvisable to proceed with the offering, sale, and
delivery of the Stock or the Additional Stock, as the case may be, on the terms
contemplated by the Prospectus.
(c) If you elect to prevent this Agreement from becoming
effective, as provided in this Section 11, or to terminate this Agreement
pursuant to Section 7, 9, or this Section 11, you shall notify the Company
promptly by telephone, facsimile transmission, telex, or telegram, confirmed by
letter. If the Company elects to prevent this Agreement from becoming effective,
as provided in this Section 11, or if the Company elects to terminate this
Agreement pursuant to Section 9 of this Agreement, the Company shall notify you
promptly by telephone, facsimile transmission, telex, or telegram, confirmed by
letter.
(d) Notwithstanding anything in this Agreement to the contrary
other than Section 11(e) hereof, if this Agreement shall not become effective by
reason of an election pursuant to this Section 11 or if this Agreement shall
terminate or shall otherwise not be carried out within the time specified herein
by reason of any failure on the part of the Company or any Selling Stockholder
to perform any covenant or agreement or satisfy any condition of this Agreement
by it or him to be performed or satisfied, the sole liability of the Company and
the Selling Stockholders to the several Underwriters, in addition to the
obligations the Company and the Selling Stockholders assumed pursuant to Section
6, will be to reimburse promptly the Representatives upon presentation to the
Company and the Selling Stockholders of a statement of account of all other
expenses incurred by the Representatives with regard to preparation for the
initial public offering or incurred by the Underwriters in connection with the
initial public offering, including, but not be limited to, out-of-pocket
expenses, fees and disbursements of their counsel and travel costs, up to a
maximum of $50,000.
(e) Notwithstanding any election hereunder or any termination of
this Agreement, and whether or not this Agreement is otherwise carried out, the
provisions of Sections 5(a)(i), 6, 8, 10, and 13 shall not be in any way
affected by such election or termination or failure to carry out the terms of
this Agreement or any part hereof.
12. Notices. All communications hereunder, except as may be
otherwise specifically provided herein, shall be in writing and, if sent to any
Underwriter, shall be mailed, delivered or transmitted via facsimile
transmission, telex or telegraph and confirmed by letter, to such Underwriter,
to Kaufman Bros., 800 Third Avenue - 25th Floor, New York, New York 10022, Fax
(212) 292-8101, Attention: Corporate Finance Department; or if sent to the
Company or any Selling
- 30 -
<PAGE>
Stockholder, shall be mailed, delivered or transmitted via facsimile
transmission, telex or telegraph and confirmed by letter to CallNOW.com, Inc.,
50 Broad Street, New York, NY 10004 Fax (212) 686-3807, Attention: Chief
Executive Officer. All notices hereunder shall be effective upon receipt by the
party to which it is addressed.
13. Parties. You represent that you are authorized to act on behalf
of the several Underwriters named in Schedule I hereto, and the Company and the
Selling Stockholders shall be entitled to act and rely on any request, notice,
consent, waiver, or agreement purportedly given on behalf of the Underwriters
when the same shall have been given by you on such behalf. Each Selling
Stockholder represents that the Escrow Agent is authorized to act on such
Selling Stockholder's behalf, and the Underwriters and the Company shall be
entitled to act and rely upon any request, notice, consent, waiver, or agreement
purportedly given on behalf of such Selling Stockholder when the same shall have
been given by the Escrow Agent. This Agreement shall inure solely to the benefit
of, and shall be binding upon, the several Underwriters, the Selling
Stockholders, the Company and the persons and entities referred to in Section 8
who are entitled to indemnification or contribution, and their respective
successors, legal representatives, and assigns (which shall not include any
buyer, as such, of the Stock or the Additional Stock), and no other person shall
have or be construed to have any legal or equitable right, remedy, or claim
under or in respect of or by virtue of this Agreement or any provision herein
contained. Notwithstanding anything contained in this Agreement to the contrary,
all of the obligations of the Underwriters hereunder are several and not joint.
14. Construction. This Agreement shall be construed in accordance
with the laws of the State of New York, without giving effect to conflict of
laws. TIME IS OF THE ESSENCE IN THIS AGREEMENT.
15. Consent to Jurisdiction. The Company and the Selling
Stockholders irrevocably consent to the jurisdiction of the courts of the State
of New York and of any federal court located in such State in connection with
any action or proceeding arising out of or relating to this Agreement, any
document or instrument delivered pursuant to, in connection with or
simultaneously with this Agreement, or a breach of this Agreement or any such
document or instrument. In any such action or proceeding, the Company and the
Selling Stockholders waive personal service or any summons, complaint or other
process and agrees that service thereof may be made in accordance with Section
12. Within 30 days after such service, or such other time as may be mutually
agreed upon in writing by the attorneys for the parties to such action or
proceeding, the Company and the Selling Stockholders shall appear or answer such
summons, complaint or other process. Should the Company or the Selling
Stockholders fail to appear or answer within such 30 day period or such extended
period, as the case may be, the Company or the Selling Stockholders, as the case
may be, shall be deemed in default and judgement may be entered against the
Company or the Selling Stockholders, as the case may be, for the amount as
demanded in any summons, complaint or other process so served.
- 31 -
<PAGE>
If the foregoing correctly sets forth the understanding between you
and the Company, please so indicate in the space provided below for that
purpose, whereupon this letter shall constitute a binding agreement between us.
Very truly yours,
CALLNOW.COM, INC.
By:___________________________________________
Christian Bardenheuer Chairman
Chief Executive Officer
[ESCROW AGENT]
By:___________________________________________
Name:
Title:
Accepted as of the date first above written.
New York, New York
KAUFMAN BROS., L.P.
JOHN G. KINNARD & CO.
BY: KAUFMAN BROS., L.P.
By: ____________________, its
General Partner
By: _____________________________
Name:
Title:
On behalf of themselves and the other several
Underwriters names in Schedule I hereto.
- 32 -
<PAGE>
SCHEDULE I
Number of Shares of
Stock to be Purchased
Underwriter from the Company
Kaufman Bros., L.P.
John G. Kinnard & Co., L.P.
TOTAL 4,000,000
==========
- 33 -
<PAGE>
SCHEDULE II
Number of Shares of
Stock to be Purchased
from the Selling
Selling Stockholder Stockholder
------------------- ---------------------
TOTAL 164,891
=======
- 34 -
<PAGE>
State of Delaware
OFFICE OF THE SECRETARY OF STATE
------------------------------
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO
HEREBY CERTIFY THAT "CALLNOW.COM, INC." IS DULY INCORPORATED UNDER THE LAWS OF
THE STATE OF DELAWARE AND IS IN GOOD STANDING AND HAS A LEGAL CORPORATE
EXISTENCE NOT HAVING BEEN CANCELLED OR DISSOLVED SO FAR AS THE RECORDS OF THIS
OFFICE SHOW AND IS DULY AUTHORIZED TO TRANSACT BUSINESS.
THE FOLLOWING DOCUMENTS HAVE BEEN FILED:
CERTIFICATE OF INCORPORATION, FILED THE EIGHTH DAY OF APRIL, A.D. 1999,
AT 9 O'CLOCK A.M.
CERTIFICATE OF OWNERSHIP, FILED THE NINTH DAY OF APRIL, A.D. 1999, AT 9
O'CLOCK A.M.
AND I DO HEREBY FURTHER CERTIFY THAT THE AFORESAID CERTIFICATES ARE THE
ONLY CERTIFICATES ON RECORD OF THE AFORESAID CORPORATION.
AND I DO HEREBY FURTHER CERTIFY THAT THE SAID "CALLNOW.COM, INC." WAS
INCORPORATED ON THE EIGHTH DAY OF APRIL A.D. 1999.
AND I DO HEREBY FURTHER CERTIFY THAT THE FRANCHISE TAXES HAVE NOT BEEN
ASSESSED TO DATE.
/s/ Edward J. Freel
-----------------------------------------
Edward J. Freel, Secretary of State
3027254 8310 AUTHENTICATION: 9873263
[SEAL OMITTED]
991296251 DATE: 07-20-99
<PAGE>
State of Delaware
OFFICE OF THE SECRETARY OF STATE
------------------------------
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO
HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF
INCORPORATION OF "CALLNOW.COM, INC.", FILED IN THIS OFFICE THE EIGHTH DAY OF
APRIL, A.D. 1999, AT 9 O'CLOCK A.M.
/s/ Edward J. Freel
-----------------------------------------
Edward J. Freel, Secretary of State
3027254 8100 AUTHENTICATION: 9872938
[SEAL OMITTED]
991295966 DATE: 07-19-99
<PAGE>
EXHIBIT 3.1
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 09:00 AM 04/08/1999
991138232 - 3027254
CERTIFICATE OF INCORPORATION
OF
CALLNOW.COM, INC.
The Undersigned, in order to form a corporation (the
"Corporation") for the purposes outlined below and pursuant to the General
Corporation Law of the State of Delaware, does hereby certify as follows:
FIRST: The name of the Corporation is:
CallNOW.com, Inc.
SECOND: The name of the Corporation's registered agent in the State of
Delaware is Corporation Service Company, and the address of its registered
office is 1013 Centre Road, Wilmington, Delaware 19805. County of New Castle.
THIRD: The purposes of the Corporation are to engage in any lawful
act or activity for which corporations may be organized under the General
Corporation Law of the State of Delaware.
FOURTH: The authorized capital of the Corporation shall be $50,000
divided into 50,000,000 shares of common stock, par value $0.001.
FIFTH: The Corporation shall have perpetual existence.
SIXTH: No contract or transaction between the Corporation and one or
more of its directors or officers, or between the Corporation and any other
corporation, partnership, association or other organization in which one or more
of its directors or officers are directors or officers, or have a financial
interest, shall be void or voidable solely for this reason, or solely because
the director or officer is present at or participates in the meeting of the
Board of Directors or committee thereof which authorizes the contract or
transaction, or solely because his or her or their votes are counted for such
purpose.
SEVENTH: The directors, officers, employees and agents of the
Corporation shall, to the extent authorized by the Board of Directors, be
indemnified against any action taken on behalf of the Corporation to the extent
allowed under the General Corporation Law of the State of Delaware.
EIGHTH: The name and address of the sole incorporator is:
Leonard W. Burningham, Esq.
Suite 205, Hermes Building
Salt Lake City, Utah 84111
NINTH: The powers of the incorporator will terminate upon the
execution by the
<PAGE>
incorporator of a resolution designating and electing the initial Board of
Directors of the Corporation to hold office for the ensuing year and until
successors are chosen and qualified.
I, Leonard W. Burningham, Esq., being the sole incorporator of
this Corporation, for the purpose of forming a corporation pursuant to the
General Corporation Law of the State of Delaware, do make this certificate,
hereby declaring and certifying that this is my act and deed and that the
factual matters outlined herein are true, and accordingly, I have hereunto set
my hand this 8th day of April, 1999.
/s/ Leonard W. Burningham
----------------------------------------------
Leonard W. Burningham, Esq.
Personally appeared before me this 8th day of April, 1999,
Leonard W. Burningham, Esq., who signed this Certificate of Incorporation in my
presents.
/s/ Sheryl A. Ross
-----------------------------------------------
Notary Public: Residing at Salt Lake City, Utah
<PAGE>
State of Delaware
OFFICE OF THE SECRETARY OF STATE
------------------------------
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY
CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF OWNERSHIP,
WHICH MERGES: "AMERICAN OSTRICH CORPORATION", A UTAH CORPORATION, WITH AND INTO
"CALLNOW.COM, INC." UNDER THE NAME OF "CALLNOW.COM, INC", A CORPORATION
ORGANIZED AND EXISTING UNDER THE LAWS OF THE STATE OF DELAWARE, AS RECEIVED AND
FILED IN THIS OFFICE THE NINTH DAY OF APRIL, A.D 1999, AT 9 O'CLOCK A.M.
/s/ Edward J. Freel
-----------------------------------------
Edward J. Freel, Secretary of State
3027254 8100M AUTHENTICATION: 9872939
[SEAL OMITTED]
991295966 DATE: 07-19-99
<PAGE>
Exhibit 3.1a
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 09:00 AM 04/09/1999
991139857 - 3027254
CERTIFICATE OF OWNERSHIP AND MERGER
OF
AMERICAN OSTRICH CORPORATION
a Utah corporation,
INTO
CALLNOW.COM, INC.
a Delaware corporation
It is hereby certified that:
1. American Ostrich Corporation (the "Company") is a corporation of
the State of Utah, the laws of which permit a merger of a corporation of that
jurisdiction with a corporation of another jurisdiction.
2. The Company, as the owner of all of the outstanding shares of each
class of the stock of CallNOW.com, Inc., a Delaware corporation ("CallNOW"),
hereby merges itself into CallNOW.
3. The following is a copy of the resolutions adopted by the Board of
Directors and the majority stockholder of the Company on March 31, 1999:
RESOLVED, that the Company change its domicile to the State of
Delaware;
FURTHER, RESOLVED, that the Company form a subsidiary in the State
of Delaware under the name "CallNOW.com, Inc." and issue 100
shares thereof to the Company, and on the exchange of all of the
outstanding shares of the Company on a one for one basis in the
merger to effect the change of domicile, cancel such 100 shares;
and
FURTHER, RESOLVED, that the Articles of Incorporation of such
subsidiary shall be in the form and contain the provisions
designated by the President of the Company, subject to any advice
or suggestions of the Board of Directors of Axicom.
4. The terms and conditions of the merger of the Company into CallNOW
are as follows:
Merger and Surviving Corporation. The Company will merge with and into
CallNOW; CallNOW will be the surviving corporation; and the separate existence
of the Company shall cease. Until amended, modified or otherwise altered, the
Certificate of Incorporation of CallNOW shall continue to be the Certificate of
Incorporation of the surviving corporation; and the Bylaws of CallNOW shall
become the Bylaws of the surviving corporation.
<PAGE>
Share Conversion. Each share of common stock of the Company shall, upon
the effective date of the merger, be converted into one share of common stock of
CallNOW (the "CallNOW Shares").
Survivor's Succession to Corporate Rights. The surviving corporation
shall thereupon and thereafter possess all the rights, privileges, powers and
franchises, as well of a public as of a private nature, and be subject to all of
the restrictions, disabilities and duties of the Company; and all and singular,
the rights and privileges, powers and franchises of the Company, and all
property, real, personal and mixed, and all debts due to the Company on whatever
account, as well for stock subscriptions as all other things in action or
belonging to the Company shall be vested in the surviving corporation; and all
property, rights, privileges, powers and franchises, and all and every other
interest shall be thereafter as effectually the property of the surviving
corporation as they were of the Company, and the title to any real estate vested
by deed or otherwise in the Company shall not revert or be in any way impaired
by reason of the merger; but all rights of creditors and all liens upon any
property of the Company shall be preserved unimpaired, and all debts,
liabilities and duties of the Company shall thenceforth attach to the surviving
corporation and may be enforced against it to the same extent as if said debts,
liabilities and duties had been incurred or contracted by it. Specifically, but
not by way of limitation, the surviving corporation shall be responsible and
liable to dissenting stockholders who are accorded and who preserve rights of
appraisal as required by the Utah Revised Business Corporation Act (the "Utah
Act"); and any action or proceeding whether civil, criminal or administrative,
pending by or against the Company shall be prosecuted as if the Agreement and
Plan of Merger had not taken place, or the surviving corporation may be
substituted in such action or proceeding.
Survivor's Succession to Corporate Acts, Plans, Contracts and Similar
Rights. All corporate acts, plans, policies, contracts, approvals and
authorizations of the Company, its Stockholders, its Board of Directors,
committees, elected or appointed by its Board of Directors, and its officers and
agents, which were valid and effective immediately prior to the effective time
of the merger, shall be taken for all purposes as the acts, plans, policies,
contracts, approvals and authorizations of the surviving corporation and shall
be as effective and binding thereon as the same were with respect to the
Company. Any employees of the Company shall become the employees of the
surviving corporation and continue to be entitled to the same rights and
benefits which they enjoyed as employees of the Company.
Survivor's Rights to Assets, Liabilities, Reserves, etc. The assets,
liabilities, reserves and accounts of the Company shall be recorded on the books
of the surviving corporation at the amounts at which they, respectively, shall
then be carried on the books of the Company, subject to such adjustments or
eliminations of the intercompany items as may be appropriate in giving effect to
the merger.
Directors and Officers. The directors and officers of the Company shall
become the directors and officers of the surviving corporation.
Principal Office. The principal office of the Company, which is the
principal office of the surviving corporation, shall remain the principal office
of the surviving corporation.
2
<PAGE>
Adoption. The merger must be adopted by persons owning a majority of
the outstanding voting securities of the Company.
Appraisal Rights and Notification. Stockholders of the Company shall be
accorded all rights and privileges and be subject to all of the obligations
contained within the Utah Act regarding rights of appraisal, and the surviving
corporation shall be obligated to notify the Company's stockholders as provided
therein.
Effective Date. The Effective Date of the merger shall be the date when
the Certificate of Merger is filed and accepted by the Secretary of State of the
State of Delaware and at such time as all applicable provisions of the Delaware
General Corporation Law have been met.
Delivery of Shares. On the closing, the CallNOW Shares shall be
exchanged for the Company's shares of common stock, on a one for one basis.
5. The proposed merger herein certified has been adopted, approved,
certified, executed and acknowledged by the stockholders of the Company in
accordance with the laws under which it is organized.
AMERICAN OSTRICH CORPORATION,
a Utah corporation
Dated: April 8, 1999 By /s/ Christian Bardenheuer
----------------------------------------
Christian P. Bardenheuer, President
3
<PAGE>
Exhibit 3.2
BY-LAWS
OF
CALLNOW.COM, INC.
AS ADOPTED JULY 28, 1999
<PAGE>
- 2 -
CALLNOW.COM, INC.
BY-LAWS
ARTICLE I
STOCKHOLDERS
SECTION 1.01. ANNUAL MEETING. The annual meeting of the Stockholders of the
Corporation shall be held either within or without the State of Delaware, at
such place and at such hour as the Board of Directors may designate in the call
or in a waiver of notice thereof, on the second Monday in May of each year
beginning with the year 2000 (or if such day be a legal holiday, then on the
next succeeding day not a holiday) for the purpose of electing Directors and for
the transaction of such other business as may properly be brought before the
meeting. [Del. G.C.L., Sections 211(a), (b)](1)
SECTION 1.02. SPECIAL MEETINGS. Special meetings of the stockholders may be
called by the Board of Directors, by the Chairman of the Board or by the
President, and shall be called by the President or the Secretary upon the
written request of the holders of record of at least a majority of the shares of
stock of the Corporation, issued and outstanding and entitled to vote, at such
times and at such place either within or without the State of Delaware as may be
stated in the call or in a waiver of notice thereof. [Section 211(d)]
SECTION 1.03. NOTICE OF MEETINGS. The Secretary shall cause written notice of
the place, date and hour of each meeting of stockholders and, in the case of a
special meeting, the purpose or purposes for which the meeting is called, to be
given personally or mailed not less than ten days nor more than sixty days
before the date of such meeting to each stockholder of record entitled to vote
at such meeting. Such further notice shall be given as may be required by law.
If such notice is mailed, it shall be deemed to have been given to a stockholder
when deposited in the United States mail, postage prepaid, directed to the
stockholder at his address as it appears on the record of stockholders of the
Corporation, or, if he shall have filed with the Secretary of the Corporation a
written request that notices to him be mailed to some other address, then
directed to him at such other address.
- -----------------
(1) Citations of the General Corporation Law of Delaware are inserted for
reference only and do not constitute a part of the By-Laws.
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No notice of any meeting of stockholders need be given to any stockholder who
submits a signed waiver of notice, whether before or after such meeting. Neither
the business to be transacted at, nor the purpose of, any regular or special
meeting of the stockholders need be specified in any written waiver of notice.
The attendance of any stockholder at a meeting of stockholders shall constitute
a waiver of notice of such meeting, except when the stockholder attends a
meeting for the express purpose of objecting, at the beginning of the meeting,
to the transaction of any business, on the ground that the meeting is not
lawfully called or convened.
Except as set forth in Section 1.07 of these By-Laws, notice of any adjourned
meeting of the stockholders of the Corporation need not be given. [Sections 222,
229]
SECTION 1.04. QUORUM. Except as otherwise required by law or the Certificate of
Incorporation, the holders of record of at least a majority of the shares of the
stock of the Corporation, issued and outstanding and entitled to vote at any
meeting, present in person or by proxy, shall constitute a quorum for the
transaction of business at such meeting. When a quorum is once present to
organize a meeting, it is not broken by the subsequent withdrawal of any
stockholders.
SECTION 1.05. VOTING. Every holder of record of shares entitled to vote at a
meeting of stockholders shall be entitled to one vote for each share of such
stock standing in his name on the records of the Corporation at the time of such
meeting or, in the event a record date shall have been fixed pursuant to Section
6.05 of these By-Laws, on such record date. Elections of Directors shall be
determined by a plurality of the votes cast thereat and, except as otherwise
provided by law, the Certificate of Incorporation or these By-Laws, the vote of
a majority of the shares represented at any meeting at which a quorum is present
shall be sufficient for the transaction of any other business.
A complete list of the stockholders entitled to vote at each meeting, arranged
in alphabetical order, with the address of each, and the number of shares
registered in the name of each stockholder, shall be prepared by the Secretary
and shall be open to the examination of any stockholder, for any purpose germane
to the meeting, during ordinary business hours, for a period of at least ten
days prior to the meeting, either at a place within the city where the meeting
is to be held, which place shall be specified in the notice of the meeting, or,
if not so specified, at the place where the meeting is to be held. The list
shall also be produced and kept at the time and place of the meeting during the
whole time thereof, and may be inspected by any stockholder who is present.
[Section 216, 219]
SECTION 1.06. VOTING BY BALLOT. No vote of the stockholders need be taken by
written ballot, unless otherwise required by statute. Any vote which need not be
taken by ballot may be conducted in any manner approved by the meeting.
SECTION 1.07. ADJOURNMENT. If a quorum is not present at any meeting of the
stockholders, the stockholders present in person or by proxy shall have the
power to adjourn any such meeting from time to time until a quorum is present,
without notice other than announcement
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at any such meeting of the place, date and hour to which such meeting is
adjourned. However, if the adjournment is for more than thirty days, or if after
the adjournment the Board of Directors fixes a new record date for the adjourned
meeting pursuant to Section 6.05 of these By-Laws, a notice of the adjourned
meeting, conforming to the requirements of Section 1.03 hereof, shall be given
to each stockholder of record entitled to vote at such meeting. At any adjourned
meeting at which a quorum is present, any business may be transacted that might
have been transacted on the original date of the meeting. [Section 222(c)]
SECTION 1.08. PROXIES. Any stockholder entitled to vote at any meeting of the
stockholders or to express consent to or dissent from corporate action without a
meeting may, by a written instrument signed by such stockholder or his
attorney-in-fact, authorize another person or persons to vote at any such
meeting and express such consent or dissent for him by proxy. No such proxy
shall be voted or acted upon after the expiration of three years from the date
of such proxy, unless such proxy provides for a longer period. Every proxy shall
be revocable at the pleasure of the stockholder executing it, except in those
cases where applicable law provides that a proxy shall be irrevocable. [Sections
212(b), (c)]
SECTION 1.09. ORGANIZATION OF MEETINGS. Meetings of the stockholders shall be
presided over by the Chairman of the Board, or if he is not present, by the
President, or if neither of them is present, by a chairman to be chosen by a
majority of stockholders present in person or by proxy. The Secretary or, in his
absence, an appointee of the presiding officer, shall act as secretary of the
meeting. The order of business and all other matters of procedure at every
meeting of the stockholders may be determined by such presiding officer.
SECTION 1.10. INSPECTORS OF ELECTION. The Board of Directors in advance of any
meeting of stockholders may appoint one or more Inspectors of Election to act at
the meeting or any adjournment thereof. If Inspectors of Election are not so
appointed, the person presiding at the meeting may, and on the request of any
stockholder entitled to vote at such meeting shall, appoint one or more
Inspectors of Election. In the event any person so appointed fails to appear or
act, such vacancy may be filled by the Board in advance of such meeting or at
such meeting by the person presiding thereat. Each Inspector of Election, before
entering upon the discharge of his duties, shall take and sign an oath
faithfully to execute the duties of Inspector of Election at such meeting with
strict impartiality and according to the best of his ability. At any meeting of
stockholders for which Inspectors shall have been appointed, such Inspectors
shall determine the number of shares outstanding and the voting power of each,
the shares represented at the meeting, the existence of a quorum and the
validity and effect of proxies, and shall receive votes, ballots or consents,
hear and determine all challenges and questions arising in connection with the
right to vote, count and tabulate all votes, ballots or consents, determine the
result, and do such acts as are proper to conduct the election or vote with
fairness to all stockholders. On request of the person presiding at the meeting
or any stockholder entitled to vote thereat, the Inspectors shall make a report
in writing of any challenge, question or matter determined by them and execute a
certificate of any fact found
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by them. Any report or certificate made by them shall be prima facie evidence of
the facts stated and of the vote as certified by them.
SECTION 1.11. CONSENT OF STOCKHOLDERS IN LIEU OF MEETING. Subject to the
provisions of the General Corporation Law of Delaware, whenever the vote of
stockholders at a meeting thereof is required or permitted to be taken for or in
connection with any corporate action, whether by law, the Certificate of
Incorporation or these By-Laws, the meeting and vote of stockholders may be
dispensed with if the holders of a majority of all outstanding shares entitled
to vote thereon shall consent in writing to such corporate action being taken;
provided that, in the case of any action for which the approval of the holders
of a higher percentage of outstanding shares entitled to vote thereon is
required, then the written consent of the holders of such higher percentage of
outstanding shares shall be required before such corporate action may be taken;
and provided further that prompt notice of the taking of corporate action
without a meeting by less than unanimous written consent shall be given to those
stockholders who have not consented in writing. [Section 228]
ARTICLE II
BOARD OF DIRECTORS
SECTION 2.01. GENERAL POWERS. Except as may be provided by law, by the
Certificate of Incorporation or by these By-Laws, the property, affairs and
business of the Corporation shall be managed by or under the direction of the
Board of Directors and the Board may exercise all powers of the Corporation.
[Section 141(a)]
SECTION 2.02. NUMBER AND TERM OF OFFICE. The number of Directors of the
Corporation may be determined from time to time by resolution adopted by a
majority of the Directors then holding office, provided that such number may not
be less than one. [Section 141(b)]
SECTION 2.03. ELECTION AND TERM OF DIRECTORS. Except as otherwise provided in
Sections 2.12 and 2.16 of these By-Laws, the Directors shall be elected at each
annual meeting of the stockholders to hold office until the next annual meeting
of stockholders. Each Director shall hold office until the expiration of the
term for which he is elected and until his successor has been elected and has
qualified, or until his earlier death, resignation or removal. If the annual
meeting for the election of Directors is not held on the date designated
therefor, the Directors shall cause the meeting to be held as soon thereafter as
convenient. At each meeting of the stockholders for the election of Directors at
which a quorum is present, the Directors shall be elected by a plurality of the
votes cast by the holders of shares entitled to vote in such election. [Sections
141(b), 211(b), 216]
SECTION 2.04. REGULAR MEETINGS. The Board of Directors shall meet for the
purpose of electing officers and for the transaction of such other business as
may come before the meeting, immediately following adjournment of the annual
meeting of stockholders at the place of such annual meeting. Notice of such
meeting of the Board need not be given. The Board
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from time to time may provide for the holding of other regular meetings and fix
the place (which may be within or without the State of Delaware) and the date
and hour of such meetings. Notice of such regular meetings need not be given,
except that if the Board shall fix or change the time or place of any such
regular meetings, notice of such action shall be mailed promptly, or sent by
telegram, radio, cable or telex, to each Director who shall not have been
present at the meeting at which such action was taken, addressed to him at his
usual place of business, or delivered to him personally. Notice of such action
need not be given to any Director who attends the first regular meeting after
such action is taken without protesting the lack of notice to him, prior to or
at the commencement of such meeting, or to any Director who submits a signed
waiver of notice, whether before or after such meeting. [Section 141(g)]
SECTION 2.05. SPECIAL MEETINGS; NOTICE. Special meetings of the Board of
Directors shall be held whenever called by the Chairman of the Board, by the
Chief Executive Officer, or the President at such place (within or without the
State of Delaware) as may be specified in the respective notices or waivers of
notice of such meetings. At least two days before the day on which a special
meeting is to be held, notice or waivers of notice of the meeting stating the
time and place thereof shall be mailed, or sent by telegram, radio, cable or
telex to each Director, addressed to him personally. Notice of any special
meeting need not be given to any Director who attends such meeting without
protesting the lack of notice to him, prior to or at the commencement of such
meeting, or to any Director who submits a signed waiver of notice, whether
before or after such meeting, and any business may be transacted thereat.
[Section 141(g)]
SECTION 2.06. QUORUM; VOTING. At all meetings of the Board of Directors the
presence of 50% of the total number of Directors then holding office (but not
less than one-third of the total number of Directors) shall constitute a quorum
for the transaction of business. Except as otherwise required by law, the vote
of a majority of the Directors present at any meeting at which a quorum is
present shall be the act of the Board of Directors. [Section 141(b)]
SECTION 2.07. ADJOURNMENT. A majority of the Directors present, whether or not a
quorum is present, may adjourn any meeting to another time and place. No notice
need be given of any adjourned meeting unless the time and place of the
adjourned meeting are not announced at the time of adjournment, in which case
notice conforming to the requirements of Section 2.05 shall be given to each
Director.
SECTION 2.08. ACTION WITHOUT A MEETING. Any action required or permitted to be
taken at any meeting of the Board of Directors, or of any committee thereof, may
be taken without a meeting if all members of the Board or such committee, as the
case may be, consent thereto in writing, and such writing or writings are filed
with the minutes of proceedings of the Board or such committee. [Section 141(f)]
SECTION 2.09. PARTICIPATION IN A MEETING BY TELEPHONE. Members of the Board of
Directors, or any committee designated by the Board, may participate in a
meeting of the Board, or committee, by means of conference telephone or similar
communications equipment
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by means of which all persons participating in the meeting can hear each other,
and participation in a meeting pursuant to this Section shall constitute
presence in person at such meetings. [Section 141(i)]
SECTION 2.10. REGULATIONS; MANNER OF ACTING. To the extent consistent with law,
the Certificate of Incorporation and these By-Laws, the Board of Directors may
adopt such rules and regulations for the conduct of meetings of the Board and
for the management of the property, affairs and business of the Corporation as
the Board may deem appropriate. The Directors shall act only as a Board and the
individual Directors shall have no power as such.
SECTION 2.11. RESIGNATIONS. Any Director may resign at any time by delivering a
written notice of resignation signed by such Director to the Chairman of the
Board, the President or the Secretary. Unless otherwise specified therein, such
resignation shall take effect upon delivery. [Section 141(b)]
SECTION 2.12. REMOVAL OF DIRECTORS. Any or all of the Directors, may be removed
at any time, either with or without cause, by the affirmative vote of the
holders of a majority of shares then entitled to vote at an election of
Directors. Any vacancy in the Board, caused by any removal of a Director by vote
of the stockholders, may be filled by the stockholders entitled to vote for the
election of the Director so removed. If such stockholders do not fill such
vacancy at the meeting at which such removal was effected (or in the written
instrument effecting such removal, if such removal was effected by consent
without a meeting) such vacancy may be filled in the manner provided in Section
2.13 hereof. [Section 141(k)]
SECTION 2.13. VACANCIES AND NEWLY CREATED DIRECTORSHIPS. Subject to the
provisions of Section 2.12 hereof, any newly created directorship resulting from
an increase in the number of Directors and any vacancy occurring in the Board of
Directors for any reason (including, without limitation, the removal of a
Director without cause) may be filled by a vote of a majority of the Directors
then in office, although less than a quorum exists. A Director elected to fill a
vacancy shall be elected to hold office for the unexpired term of his
predecessor. Any such newly created directorship and any such vacancy may also
be filled at any time by vote of the stockholders.
SECTION 2.14. COMPENSATION. The amount, if any, which each Director shall be
entitled to receive as compensation for his services as such shall be fixed from
time to time by the Board of Directors. [Section 141(h)]
SECTION 2.15. RELIANCE ON ACCOUNTS AND REPORTS, ETC. Any Director, or
any member of any committee designated by the Board of Directors, shall, in the
performance of his duties, be fully protected in relying in good faith upon the
books of account or reports made to the Corporation by any of its officers, or
by an independent certified public accountant, or by an appraiser selected with
reasonable care by the Board or by any committee designated by the Board, or in
relying in good faith upon other records of the Corporation. [Section 141(e)]
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ARTICLE III
COMMITTEES
SECTION 3.01. HOW CONSTITUTED. The Board of Directors, by resolution or
resolutions adopted by a majority of the whole Board, may designate one or more
committees, each such committee to consist of such number of Directors, not less
than one, as from time to time may be fixed by resolution or resolutions
similarly adopted. The Board, by resolution or resolutions similarly adopted,
may designate one or more Directors as members of any such committee or as
alternate members of any such committee who may replace any absent or
disqualified members or members at any meeting of such committee. Any such
committee may be abolished and/or redesignated from time to time by resolution
or resolutions similarly adopted. Each member (and each alternate member) of any
such committee shall hold office until his successor shall have been designated
or until he shall cease to be a Director, or until his earlier death,
resignation or removal. [Section 141(c)]
SECTION 3.02. POWERS. Except as otherwise provided by law, each committee of the
Board of Directors shall have and may exercise such powers of the Board as may
be provided by resolution or resolutions adopted by a majority of the whole
Board.
SECTION 3.03. PROCEEDINGS. Any such committee may fix its own rules of procedure
and may meet at such place (within or without the State of Delaware), at such
date and time and upon such notice, if any, as such committee shall determine
from time to time. Such committee shall keep a record of its proceedings and
shall report any such proceedings to the Board of Directors at the first meeting
of the Board following any such proceedings.
SECTION 3.04. QUORUM AND MANNER OF ACTING. Except as may be otherwise provided
in the resolution designating any such committee, at all meetings of any such
committee the presence of members (or alternate members) constituting a majority
of the total authorized membership of such committee shall constitute a quorum
for the transaction of business. The act of the majority of the members (or
alternate members) present at any meeting at which a quorum is present, shall be
the act of such committee. In the absence or disqualification of any member or
alternate member of any such committee, the member or members thereof present at
any meeting and not disqualified from voting, whether or not he or they
constitute a quorum, may unanimously appoint another member of the Board of
Directors to act at the meeting in the place of any such absent or disqualified
member. Any action required or permitted to be taken at any meeting of any such
committee may be taken without a meeting, if all members of such
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committee (and such alternates as may be required to replace any disqualified
members) shall consent to such action in writing and such writing or writings
are filed with the minutes of the proceedings of the committee. The members (or
alternate members) of any such committee shall act only as a committee, and the
individual members (or alternate members) of such committee shall have no power
as such. [Sections 141(c), (f)]
SECTION 3.05. RESIGNATIONS. Any member (and any alternate member) of any such
committee may resign at any time by delivering a written notice of resignation
signed by such member to the Board of Directors. Such resignation shall take
effect upon acceptance thereof by resolution adopted by a majority of the whole
Board.
SECTION 3.06. REMOVAL. Any member (and any alternate member) of any such
committee may be removed at any time, with or without cause, by resolution
adopted by a majority of the whole Board.
SECTION 3.07. VACANCIES. If any vacancy shall occur in any such committee, by
reason of disqualification, death, resignation, removal or otherwise, the
remaining members (and any alternate members) shall continue to act and any such
vacancy may be filled by resolution adopted by a majority of the whole Board of
Directors.
ARTICLE IV
OFFICERS
SECTION 4.01. NUMBER. The following officers of the Corporation shall be elected
by the Board of Directors: a Chairman of the Board, a Chief Executive Officer, a
President, Vice Presidents, a Secretary and a Treasurer. Any two or more offices
may be held by the same person. No officer need be a Director of the
Corporation. [Sections 142(a), (b)]
SECTION 4.02. ELECTION. The officers of the Corporation shall be elected by the
Board of Directors at the first meeting of the Board of Directors following each
annual meeting of stockholders, and shall be elected to hold office until the
first meeting of the Board of Directors following the next annual meeting of
stockholders. Each officer shall hold office for the term for which he is
elected and until his successor has been elected and has qualified, or until his
earlier resignation or removal. [Sections 142(a), (b)]
SECTION 4.03. SALARIES. The salaries of all officers and agents of the
Corporation shall be fixed from time to time by the Board of Directors.
SECTION 4.04. REMOVAL AND RESIGNATION, VACANCIES. Any officer may be removed at
any time by the Board of Directors with or without cause. Any officer may resign
at any time by delivering a written notice of resignation signed by such officer
to the Board of Directors.
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Any vacancy occurring in any office of the Corporation by death, resignation,
removal or otherwise, shall be filled by the Board of Directors. [Sections
141(a), (e)]
SECTION 4.05. AUTHORITY AND DUTIES OF OFFICERS. The officers of the Corporation
shall have such authority and shall exercise such powers and perform such duties
as may be specified in these By-Laws, except that in any event each officer
shall exercise such powers and perform such duties as may be required by law.
SECTION 4.06. CHAIRMAN OF THE BOARD OF DIRECTORS. The Chairman of the Board
shall have the following powers and duties:
(a) He shall preside at all stockholders' meetings and meetings of the Board of
Directors.
(b) He shall have the authority to sign certificates representing shares of the
Corporation the issuance of which shall have been authorized by the Board
of Directors.
(c) He shall have such powers and perform such duties as may be given to him by
these ByLaws or as may be assigned to him from time to time by the Board
of Directors.
SECTION 4.07. THE CHIEF EXECUTIVE OFFICER. The Chief Executive Officer shall
have the following powers and duties:
(a) He shall be the chief executive officer of the Corporation and shall, in the
absence of the Chairman of the Board, preside at all stockholders'
meetings and meetings of the Board of Directors. Subject to the
directions of the Board of Directors, he shall direct and control the
policies of the Corporation and shall have general charge of the
business, affairs and property of the Corporation and general supervision
over its officers, employees and agents.
(b) He shall have the authority to sign certificates representing shares of the
Corporation the issuance of which shall have been authorized by the Board
of Directors.
(c) Subject to the directions of the Board of Directors, he shall exercise all
powers and perform all duties incident to the office of chief executive
officer of a corporation and such other duties as may be given to him by
these By-Laws or as may be assigned to him from time to time by the Board
of Directors.
SECTION 4.08. THE PRESIDENT. The President shall have the following powers and
duties:
(a) He shall be the president of the Corporation and shall, in the absence of
the Chairman of the Board and the Chief Executive Officer, preside at all
stockholders' meetings and meetings of the Board of Directors. Subject to
the directions of the Board of Directors, he shall exercise all powers
and perform all duties incident to the office of a president of a
corporation and such other duties as may be given to him by these By-Laws
or as
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may be assigned to him from time to time by the Board of Directors or the
Chief Executive Officer.
(b) He shall have the authority to sign certificates representing shares of the
Corporation the issuance of which shall have been authorized by the Board
of Directors.
SECTION 4.09. THE VICE PRESIDENT. A Vice President shall have the following
powers and duties:
(a) He shall have the authority to sign certificates representing shares of the
Corporation, the issuance of which shall have been authorized by the
Board of Directors.
(b) Subject to the direction of the Board of Directors, he shall exercise all
powers and perform all duties incident to the office of a vice president
of a corporation and such other duties as may be given to him by these
By-Laws or as may be assigned to him from time to time by the Board of
Directors or the President.
SECTION 4.10. THE SECRETARY. The Secretary shall have the following powers and
duties:
(a) He shall keep or cause to be kept a record of all the proceedings of the
meetings of the stockholders and of the Board of Directors in books
provided for that purpose.
(b) He shall cause all notices to be duly given in accordance with the
provisions of these ByLaws and as required by law.
(c) Whenever any committee shall be appointed pursuant to a resolution of the
Board of Directors, he shall furnish a copy of such resolution to the
chairman of such committee.
(d) He shall be the custodian of the records and of the seal of the Corporation
and cause such seal (or a facsimile thereof) to be affixed to all
certificates representing shares of the Corporation prior to the issuance
thereof and to all instruments the execution of which on behalf of the
Corporation under its seal shall have been duly authorized in accordance
with these By-Laws, and when so affixed he may attest the same.
(e) He shall properly maintain and file all books, reports, statements,
certificates and all other documents and records required by law, the
Certificate of Incorporation or these ByLaws.
(f) He shall have charge of the stock books and ledgers of the Corporation and
shall cause the stock and transfer books to be kept in such manner as to
show at any time the number of shares of stock of the Corporation of each
class issued and outstanding, the names (alphabetically arranged) and the
addresses of the holders of record of such shares, the number of shares
held by each holder and the date as of which each became such holder of
record.
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(g) He shall have the authority to sign certificates representing shares of the
Corporation the issuance of which shall have been authorized by the Board
of Directors.
(h) He shall perform, in general, all duties incident to the office of a
secretary of a corporation and such other duties as may be given to him
by these By-Laws or as may be assigned to him from time to time by the
Board of Directors, the President or a Vice President.
SECTION 4.11. THE TREASURER. The Treasurer shall have the following powers and
duties:
(a) He shall have charge and supervision over and be responsible for the monies,
securities, receipts and disbursements of the Corporation.
(b) He shall cause the monies and other valuable effects of the Corporation to
be deposited in the name and to the credit of the Corporation in such
banks or trust companies or with such bankers or other depositaries as
shall be selected by the Board of Directors, or by such officers or
agents as may be authorized by the Board to make such determination.
(c) He shall cause the monies of the Corporation to be disbursed by checks or
drafts upon the authorized depositaries of the Corporation and cause to
be taken and preserved proper vouchers for all monies disbursed.
(d) He shall render to the Board of Directors, the President or a Vice
President, whenever requested, a statement of the financial condition of
the Corporation and of all his transactions as Treasurer, and render a
full financial report at the annual meeting of the stockholders, if
called upon to do so.
(e) He shall be empowered from time to time to require from all officers or
agents of the Corporation reports or statements giving such information
as he may desire with respect to any and all financial transactions of
the Corporation.
(f) He shall have the authority to sign certificates representing shares of the
Corporation the issuance of which shall have been authorized by the Board
of Directors.
(g) He shall perform, in general, all duties incident to the office of a
treasurer of a corporation and such other duties as may be given to him
by these By-Laws or as may be assigned to him from time to time by the
Board of Directors, the President or a Vice President.
SECTION 4.12. ADDITIONAL OFFICERS. The Board of Directors may appoint such other
officers and agents as it may deem appropriate and such other officers and
agents shall hold their offices for such terms and shall exercise such powers
and perform such duties as may be determined from time to time by the Board of
Directors. [Section 142(b)]
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SECTION 4.13. SECURITY. The Board of Directors may require any officer or agent
of the Corporation to provide security for the faithful performance of his
duties, in such amount and of such character as may be determined from time to
time by the Board of Directors. [Section 142(c)]
ARTICLE V
INDEMNIFICATION
SECTION 5.01. ACTION BY OTHERS. The Corporation shall indemnify any person who
was or is made a party or is threatened to be made a party to any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative (other than an action by or in the right of the
Corporation) by reason of the fact that the person is or was a Director,
officer, employee or agent of the Corporation or is or was serving at the
request of the Corporation as a Director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, against
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by the person in connection with
such action, suit or proceeding if the person acted in good faith and in a
manner the person reasonably believed to be in or not opposed to the best
interests of the Corporation, and with respect to any criminal action or
proceeding, had no reasonable cause to believe the conduct was unlawful. The
termination of any action, suit or proceeding by judgment, order, settlement,
conviction, or upon a plea of nolo contendere or its equivalent shall not, of
itself, create a presumption that the person did not act in good faith and in a
manner which the person reasonably believed to be in or not opposed to the best
interests of the Corporation, and, with respect to any criminal action or
proceeding, had reasonable cause to believe that the conduct was unlawful.
[Section 145(a)]
SECTION 5.02. ACTIONS BY OR IN THE RIGHT OF THE CORPORATION. The
Corporation shall indemnify any person who was or is a party or is threatened to
be made a party to any threatened, pending or completed action or suit by or in
the right of the Corporation to procure a judgement in its favor by reason of
the fact that the person is or was a director, officer, employee or agent of the
Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee, agent of or participant in another corporation,
partnership, joint venture, trust or other enterprise, against expenses
(including attorneys' fees) actually and reasonably incurred by the person in
connection with the defense or settlement of such action
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or suit if the person acted in good faith and in a manner the person reasonably
believed to be in or not opposed to the best interests of the Corporation,
except that no indemnification shall be made in respect of any claim, issue or
matter as to which such person shall have been adjudged to be liable to the
Corporation unless and only to the extent that the Delaware Court of Chancery or
the court in which such action or suit was brought shall determine upon
application that, despite the adjudication of liability but in view of all the
circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses which the Delaware Court of Chancery or such other
court shall deem proper. [Section 145(b)]
SECTION 5.03. SUCCESSFUL DEFENSE. Without limiting the generality of the
foregoing, to the extent that a person who is or was a director, officer,
employee or agent of the Corporation has been successful on the merits or
otherwise in defense of any action, suit or proceeding referred to in Section
5.01 or Section 5.02 of this Article, or in defense of any claim, issue or
matter therein, he shall be indemnified against expenses (including attorneys'
fees) actually and reasonably incurred by him in connection therewith. [Section
145(c)]
SECTION 5.04. SPECIFIC AUTHORIZATION. Any indemnification under Section 5.01 or
Section 5.02 of this Article (unless ordered by a court) shall be made by the
Corporation only as authorized in the specific case upon a determination that
indemnification of the director, officer, employee or agent is proper in the
circumstances because he has met the applicable standard of conduct set forth in
said Sections 5.01 and 5.02. Such determination shall be made (1) by a majority
vote of Directors who were not parties to such action, suit or proceeding, even
though less than a quorum, or (2) if there are no such directors, or if such
directors so direct, by independent legal counsel in a written opinion, or (3)
by the stockholders. [Section 145(d)]
SECTION 5.05. ADVANCE OF EXPENSE. Expenses (including attorneys' fees) incurred
by any person who may have a right of indemnification under this Article, in
defending a civil, criminal, administrative or investigative action, suit or
proceeding, or threat thereof, may be paid by the Corporation in advance of the
final disposition of such action, suit or proceeding as authorized by the Board
of Directors in the specific case upon receipt of an undertaking by or on behalf
of the director, officer, employee or agent to repay such amount if it shall
ultimately be determined that the person is not entitled to be indemnified by
the Corporation pursuant to this Article. [Section 145(e)]
SECTION 5.06. RIGHT OF INDEMNITY NOT EXCLUSIVE. The indemnification and
advancement of expenses provided by, or granted pursuant to, the other Sections
of this Article shall not be deemed exclusive of any other rights to which a
person seeking indemnification or advancement of expenses may be entitled under
any by-law, agreement, vote of stockholders or disinterested directors or
otherwise, both as to action in his official capacity and as to action in
another capacity while holding such office, and shall continue as to a person
who has ceased to be a director, officer, employee or agent and shall inure to
the benefit of the heirs, executors and administrators of such a person.
[Section 145(f)]
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SECTION 5.07. INSURANCE. The Corporation may purchase and maintain insurance on
behalf of any person who is or was a director, officer, employee or agent of the
Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee or agent of or participant in another corporation,
partnership, joint venture, trust or other enterprise, against any liability
asserted against him and incurred by him in any such capacity, or arising out of
the person's status as such, whether or not the Corporation would have the power
to indemnify him against such liability under the provisions of this Article,
Section 145 of the General Corporation Law of the State of Delaware or
otherwise. [Section 145(g)]
SECTION 5.08. CONSTITUENT CORPORATIONS. For the purpose of this Article,
references to "the Corporation" include in addition to the resulting or
surviving corporation, any constituent corporation (including any constituent of
a constituent) absorbed in a consolidation or merger which, if its separate
existence had continued, would have had power and authority to indemnify its
directors, officers, employees or agents, so that any person who is or was a
director, officer, employee, or agent of such constituent corporation, or is or
was serving at the request of such constituent corporation as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust or other enterprise, shall stand in the same position under the provisions
of this Article with respect to the resulting or surviving corporation as he
would have with respect to such constituent corporation if its separate
existence had continued. [Section 145(h)]
SECTION 5.09. DEFINITIONS. For purpose of this Article, references to "other
enterprises" shall include employee benefit plans; references to "fines" shall
include any excise taxes assessed on a person with respect to an employee
benefit plan; and references to "serving at the request of the Corporation"
shall include any service as a director, officer, employee or agent of the
Corporation which imposes duties on, or involves services by, such director,
officer, employee, or agent with respect to an employee benefit plan, its
participants or beneficiaries; and a person who acted in good faith and in a
manner he reasonably believed to be in the interest of the participants and
beneficiaries of an employee benefit plan shall be deemed to have acted in a
manner "not opposed to the best interests of the Corporation" as referred to in
this Article. [Section 145(i)]
SECTION 5.10. INVALIDITY OF ANY PROVISIONS OF THIS ARTICLE. The invalidity or
unenforceability of any provision of this Article shall not affect the validity
or enforceability of the remaining provisions of this Article.
SECTION 5.11. RETROACTIVITY. The provisions of this Article will be deemed
retroactive and will include all acts of the incorporator, officers and
directors of the Corporation since the date of incorporation.
<PAGE>
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ARTICLE VI
CAPITAL STOCK
SECTION 6.01. CERTIFICATES OF STOCK. Every stockholder shall be entitled to have
a certificate signed by, or in the name of the Corporation by the Chairman of
the Board, the President, a Vice President, and by the Treasurer or the
Secretary, certifying the number of shares owned by him in the Corporation. Such
certificate shall be in such form as the Board of Directors may determine, to
the extent consistent with applicable provisions of law, the Certificate of
Incorporation and these By-Laws. [Section 158]
SECTION 6.02. FACSIMILE SIGNATURES, ETC. Any of or all the signatures on the
certificate may be a facsimile. In the event that any officer, transfer agent or
registrar who has signed, or whose facsimile signature has been placed upon a
certificate shall have ceased to be such officer, transfer agent or registrar
before such certificate is issued, it may be issued by the Corporation with the
same effect as if he were such officer, transfer agent or registrar at the date
of issue. [Section 158]
SECTION 6.03. LOST, STOLEN OR DESTROYED CERTIFICATES. The Board of Directors may
direct that a new certificate be issued in place of any certificate theretofore
issued by the Corporation alleged to have been lost, stolen or destroyed, upon
delivery to the Board of an affidavit of the owner or owners of such
certificate, setting forth such allegation. The Board may require the owner of
such lost, stolen or destroyed certificate, or his legal representative to give
the Corporation a bond sufficient to indemnify it against any claim that may be
made against it on account of the alleged loss, theft or destruction of any such
certificate or the issuance of any such new certificate. [Section 167]
SECTION 6.04. TRANSFER OF STOCK. Upon surrender to the Corporation or the
transfer agent of the Corporation of a certificate representing shares, duly
endorsed or accompanied by appropriate evidence of succession, assignment or
authority to transfer, the Corporation shall issue a new certificate to the
person entitled thereto, cancel the old certificate, and record the transaction
upon its books. Subject to the provisions of the Certificate of Incorporation
and these By-Laws, the Board of Directors may prescribe such additional rules
and regulations as it may deem appropriate relating to the issue, transfer and
registration of shares of the Corporation.
SECTION 6.05. RECORD DATE. For the purpose of determining the stockholders
entitled to notice of or to vote at any meeting of stockholders or any
adjournment thereof, or to express consent to corporate action in writing
without a meeting, or entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise any rights in
respect of any change, conversion or exchange of stock or for the purpose of any
other lawful action, the Board of Directors may fix, in advance, a record date,
which shall not be more than sixty nor less than ten days before the date of
such meeting, nor more than sixty days
<PAGE>
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prior to any other action. A determination of stockholders of record entitled to
notice of or to vote at a meeting of stockholders shall apply to any adjournment
of the meeting, provided, however, that the Board may fix a new record date for
the adjourned meeting. [Sections 213(a), (c)]
SECTION 6.06. REGISTERED STOCKHOLDERS. Prior to due surrender of a certificate
for registration of transfer, the Corporation may treat the registered owner as
the person exclusively entitled to receive dividends and other distributions, to
vote, to receive notice and otherwise to exercise all the rights and powers of
the owners of the shares represented by such certificate, and the Corporation
shall not be bound to recognize any equitable or legal claim to or interest in
such shares on the part of any other person, whether or not the Corporation
shall have notice of such claim or interest. When ever any transfer of shares
shall be made for collateral security, and not absolutely, it shall be so
expressed in the entry of the transfer if, when the certificates are presented
to the Corporation for transfer, both the transferor and transferee request the
Corporation to do so. [Section 159]
SECTION 6.07. TRANSFER AGENT AND REGISTRAR. The Board of Directors may appoint
one or more transfer agents and one or more registrars, and may require all
certificates representing shares to bear the signature of any of such agents or
registrars.
ARTICLE VII
OFFICES
SECTION 7.01. REGISTERED OFFICE. The registered office of the Corporation in the
State of Delaware shall be located at 1013 Centre Road Wilmington, 19805, County
of New Castle; and the name of the registered agent of the Corporation in the
State of Delaware at such address is Corporation Service Company. The principal
office of the Corporation shall be located at the place the Board of Directors
may from time to time determine.
SECTION 7.02. OTHER OFFICES. The Corporation may maintain offices or places of
business at such other locations within or without the State of Delaware as the
Board of Directors may from time to time determine or as the business of the
Corporation may require.
ARTICLE VIII
GENERAL PROVISIONS
SECTION 8.01. DIVIDENDS. Subject to any applicable provisions of law and the
Certificate of Incorporation, dividends upon the shares of the Corporation may
be declared by the Board of
<PAGE>
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Directors at any regular or special meeting of the Board and any such dividends
may be paid in cash, property, or shares of the Corporation. [Section 173]
SECTION 8.02. RESERVES. There may be set apart from time to time out of any
funds of the Corporation available for dividends such reserve or reserves as the
Board of Directors may deem appropriate, and the Board of Directors may
similarly modify or abolish any such reserve or reserves. [Section 171]
SECTION 8.03. EXECUTION OF INSTRUMENTS. Subject to the provisions of these
By-Laws, the Chairman of the Board, the Chief Executive Officer, the President,
or a Vice President may enter into any contract or execute and deliver any
instruments in the name and on behalf of the Corporation. The Board of Directors
may authorize any other officer or agent to enter into any contract or execute
and deliver any instrument in the name and on behalf of the Corporation. Any
such authorization may be general or limited to specific contracts or
instruments.
SECTION 8.04. DEPOSITS. Any funds of the Corporation may be deposited from time
to time in such banks, trust companies or other depositaries as may be
determined by the Board of Directors, or by such officers or agents as may be
authorized by the Board of Directors to make such determination.
SECTION 8.05. CHECKS, DRAFTS, ETC. Unless otherwise determined by the Board of
Directors, all notes, drafts, bills of exchange, acceptances, checks,
endorsements and other evidences of indebtedness of the Corporation, and its
orders for the payment of money shall be signed by the Chairman of the Board,
the Chief Executive Officer, the President, a Vice President or by such officers
or such agent or agents of the Corporation, and in such manner, as the Board of
Directors from time to time may determine.
SECTION 8.06. SALE, TRANSFER, ETC. OF SECURITIES. To the extent authorized by
the Board of Directors, the Chairman of the Board, the Chief Executive Officer,
the President, or a Vice President, together with the Secretary or Treasurer,
may sell, transfer, endorse, and assign any shares of stock, bonds or other
securities owned by or held in the name of the Corporation, and may make,
execute and deliver in the name of the Corporation, under its corporate seal,
any instruments that may be appropriate to effect any such sale, transfer,
endorsement or assignment.
SECTION 8.07. VOTING AS STOCKHOLDER. Unless otherwise determined by resolution
of the Board of Directors, the Chairman of the Board, the Chief Executive
Officer, the President, or a Vice President shall have full power and authority
on behalf of the Corporation to attend any meeting of the stockholders of any
corporation in which the Corporation may hold stock, and to act, vote (or
execute proxies to vote) and exercise in person or by proxy all other rights,
powers and privileges incident to the ownership of such stock. Such officers
acting on behalf of the Corporation shall have full power and authority to
execute any instrument expressing consent to or dissent from any action of any
such corporation without a meeting. The Board of
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- 19 -
Directors may by resolution from time to time confer such power and authority
upon any other person or persons.
SECTION 8.08. FISCAL YEAR. Unless otherwise determined by the Board of
Directors, the fiscal year of the Corporation shall commence on the first day of
January in each calendar year and terminate on the 31st day of December in the
same calendar year.
SECTION 8.09. SEAL. The seal of the Corporation shall be circular in form and
shall contain the name of the Corporation, the year of incorporation and the
words "Corporate Seal Delaware". The seal may be used by causing it or a
facsimile thereof to be impressed, affixed or reproduced, or in any other lawful
manner.
SECTION 8.10. BOOKS AND RECORDS; INSPECTION. Except to the extent otherwise
required by law, the books and records of the Corporation shall be kept at such
place or places within or without the State of Delaware as may be determined
from time to time by the Board of Directors.
ARTICLE IX
AMENDMENT OF BY-LAWS
SECTION 9.01. AMENDMENT. The vote of the holders of at least a majority of the
shares of stock of the Corporation, issued and outstanding and entitled to vote,
shall be necessary at any meeting of stockholders to amend or repeal these
By-Laws or to adopt new by-laws. These By-Laws may also be amended or repealed,
or new by-laws adopted, at any meeting of the Board of Directors by the vote of
at least a majority of the Directors then in office provided that any by-law
adopted by the Board may be amended or repealed by the stockholders in the
manner set forth above. [Section 109]
<PAGE>
No. 1 of 1 Exhibit 4.2
US$576,300
5% CONVERTIBLE DEBENTURE DUE AUGUST 31, 2002
THIS DEBENTURE of CallNOW.com, Inc., a Delaware corporation (the
"Company"), is designated as its 5% Convertible Debenture, due August 31, 2002
(the "Debenture"), in an aggregate principal amount of US$576,300.
FOR VALUE RECEIVED, the Company promises to pay to New Media
Corporation, or its registered assigns (the "Holder"), the principal sum of Five
Hundred Seventy-Six Thousand Three Hundred United States Dollars (US$576,300),
on or prior to August 31, 2002 (the "Maturity Date"), in accordance with the
terms contained herein and to pay interest to the Holder on the outstanding
principal sum, at the rate of 5% per annum, computed monthly. All payments of
principal and interest hereunder shall be payable in U.S. dollars.
Interest shall accrue monthly, computed on the outstanding principal
balance and any interest due and not yet paid, commencing on the Original Issue
Date (as defined in Section 1) until payment in full of the principal sum,
together with all accrued and unpaid interest, has been made or satisfied by
conversion of such amounts into shares of Common Stock (as defined below).
Interest due and payable hereunder shall be paid to the person in whose name
this Debenture is registered on the records of the Company (the "Debenture
Register") at the time that the interest is due and payable; provided, however,
that the Company's obligation to a transferee of this Debenture arises only if
such transfer, sale or other disposition is made in accordance with the terms
and conditions hereof.
The principal of this Debenture is payable in 30 equal monthly
installments in arrears commencing at the end of the 7th month from the Original
Issue Date, or in shares of Common Stock, at the time of conversion of part or
all of the Debenture in accordance with Section 3 hereof, at the address of the
Holder last appearing on the Debenture Register, and that if there is an Event
of Default pursuant to the terms hereof, the outstanding principal balance,
together with accrued and unpaid interest, shall become due and payable as
provided herein. In the event of conversion of part of the Debenture, the amount
of the monthly installment of principal will remain unchanged, but the number of
payments will be less than 30 (such number of payments will be that number
necessary until payment in full of the outstanding principal balance). Interest
on this Debenture shall be paid in monthly installments in arrears on the last
Business Day of each month, commencing on September 30, 1999 or in shares of
common stock of the Company, at the time of conversion by the Holder. In the
event that the Company or a Successor Company raises a minimum of
US$5,000,000.00 in equity or debt in a single transaction or a series of related
transactions, the Holder has the right at any time thereafter, but not the
obligation, to have the Debenture, with accumulated interest, paid in full in
four equal monthly installments, commencing twenty (20) days after the Company
receives notice of such election. Upon the happening of the event specified in
he foregoing sentence, the Company shall promptly notify the Holder in writing
of such event.
<PAGE>
The Company agrees that within nine months of the date of this
agreement, or immediately upon any filing of a registration statement by the
Company or a successor company, whichever occurs earlier, that it shall file for
registration with the Securities and Exchange Commission of all shares of Common
Stock into which this Debenture is convertible at such time of such registration
and shall use its best efforts to cause such registration statement to be
declared effective as soon as possible. The Company shall use its best efforts
to make the necessary filings with the SEC to keep such registration statement
effective for 120 days or until the Holder has completed its distribution of
shares registered under such registration statement, whichever occurs first.
This Debenture is subject to the following additional provisions:
Section 1. Definitions. For the purposes hereof, the following
terms shall have the following meanings:
"Adjusted Conversion Price" means the Conversion Price defined in
Section 3(c)(i) as adjusted one day prior to the record date set for the
determination of stockholders entitled to receive dividends, distributions,
rights, warrants as provided for in Sections 3(c)(ii), (iii) and (iv).
"Business Day" means any day of the year on which commercial banks
are not required or authorized to be closed in New York City, and between the
hours of 9:00 am and 5:00 pm New York Time.
"Common Stock" means shares now or hereafter authorized of the
class of Common Stock, $.001 par value, of the Company and stock of any other
class into which such shares may hereafter have been reclassified or changed.
"Conversion Date" means the date on which a Holder Notice of
Conversion is to be effected.
"Conversion Ratio" means, at any time, a fraction, of which the
numerator is the principal amount represented by any Debenture plus accrued but
unpaid interest, and of which the denominator is the Conversion Price (as
defined in Section 3 below) at such time.
"Junior Securities" means the Common Stock, all other equity
securities of the Company and all other debt that is subordinated to the
Debenture by its terms.
"Original Issue Date" shall mean September 1, 1999.
"Per Share Market Value" means on any particular date (a) the
closing bid price per share of the Common Stock on such date on The
Over-The-Counter Bulletin Board, the NASD OTC Electronic Bulletin Board
("OTCBB") or other stock exchange on which the Common Stock has been listed or
if there is no such price on such date, then the last bid price on such exchange
on the date nearest preceding such date, or (b) if the Common Stock is not
listed on OTCBB or any stock exchange, the closing bid price for a share of
Common Stock in the
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<PAGE>
over-the-counter market, as reported by the NASD at the close of business on
such date, or (c) if the Common Stock is not quoted by the NASD, the closing bid
price for a share of Common Stock in the over-the-counter market as reported by
the National Quotation Bureau Incorporated (or similar organization or agency
succeeding to its functions of reporting prices), or (d) if the Common Stock is
no longer publicly traded the fair market value of a share of Common Stock as
determined by an appraiser selected in good faith by the Holder of this
Debenture; provided, however, that the Company, after receipt of the
determination by such appraiser, shall have the right to select an additional
appraiser, in which case, the fair market value shall be equal to the average of
the determinations by each such appraiser.
"Person" means a corporation, an association, a partnership,
organization, a business, an individual, a government or political subdivision
thereof or a governmental agency.
"Trading Day" means (a) a day on which the Common Stock is quoted
on the OTCBB or principal stock exchange on which the Common Stock has been
listed, or (b) if the Common Stock is not quoted on the OTCBB or any stock
exchange, a day on which the Common Stock is quoted in the over-the-counter
market, as reported by the NASD, or (c) if the Common Stock is not quoted on the
NASD, a day on which the Common Stock is quoted in the over-the-counter market
as reported by the National Quotation Bureau Incorporated (or any similar
organization or agency succeeding its functions of reporting prices).
Section 2. Events of Default and Remedies.
I. "Event of Default", wherever used herein, means any one of the
following events (whatever the reason and whether it shall be voluntary or
involuntary or effected by operation of law or pursuant to any judgment, decree
or order of any court, or any order, rule or regulation of any administrative or
governmental body):
(a) any default in the payment of the principal of or interest on
this Debenture as and when the same shall become due and payable either
at the Maturity Date, any scheduled principal payment date, any
scheduled interest payment date, by acceleration, conversion, or
otherwise;
(b) subject to the foregoing paragraph (a), the Company shall
fail to observe or perform any other covenant, agreement or warranty
contained in, or otherwise commit any breach of, this Debenture, and
such failure or breach shall not have been remedied within thirty (30)
days after the date on which written notice of such failure or breach
shall have been given;
(c) the Company or any of its subsidiaries shall commence a
voluntary case under the United States Bankruptcy Code as now or
hereafter in effect or any successor thereto (the "Bankruptcy Code"); or
an involuntary case is commenced against the Company under the
Bankruptcy Code and the petition is not controverted within thirty (30)
days, or is not dismissed within sixty (60) days, after commencement of
the case; or a "custodian" (as defined in the Bankruptcy Code) is
appointed for, or takes charge of, all
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or any substantial part of the property of the Company or the Company
commences any other proceeding under any reorganization, arrangement,
adjustment of debt, relief of debtors, dissolution, insolvency or
liquidation or similar law of any jurisdiction whether now or hereafter
in effect relating to the Company or there is commenced against the
Company any such proceeding which remains undismissed for a period of
sixty (60) days; or the Company is adjudicated insolvent or bankrupt; or
any order of relief or other order approving any such case or proceeding
is entered; or the Company suffers any appointment of any custodian or
the like for it or any substantial part of its property which continues
undischarged or unstayed for a period of sixty (60) days; or the Company
makes a general assignment for the benefit of creditors; or the Company
shall fail to pay, or shall state that it is unable to pay, or shall be
unable to pay, its debts generally as they become due; or the Company
shall call a meeting of its creditors with a view to arranging a
composition or adjustment of its debts; or the Company shall by any act
or failure to act indicate its consent to, approval of or acquiescence
in any of the foregoing; or any corporate or other action is taken by
the Company for the purpose of effecting any of the foregoing;
(d) the Company shall default in any of its obligations under any
mortgage, indenture or instrument under which there may be issued, or by
which there may be secured or evidenced, any indebtedness of the Company
in an amount exceeding One Hundred Thousand United States Dollars
(US$100,000.00), not including the liabilities disclosed in the attached
statement of liabilities, whether such indebtedness now exists or shall
hereafter be created and such default shall result in such indebtedness
becoming or being declared due and payable prior to the date on which it
would otherwise become due and payable;
(e) the Company shall have its Common Stock (as defined in
Section 1) delisted from the National Quotation Bureau LLC's Pink Sheets
or other national securities exchange or market on which such Common
Stock is listed for trading or suspended from trading thereon, and shall
not have its Common Stock relisted or have such suspension lifted, as
the case may be, within five (5) days;
(f) the Company shall issue a Press Release, or otherwise make
publicly known, that it is not honoring a properly executed Holder
Notice of Conversions (as defined below in Section 3) for any reason
whatsoever.
II. (a) If any Event of Default occurs and continues, beyond any cure
period, if any, is continuing, and in every such case, then so long as such
Event of Default shall then be continuing the Holder may, by notice to the
Company, accelerate all of the payments due under this Debenture by declaring
all amounts of this Debenture, to be, whereupon the same shall become,
immediately due and payable without presentment, demand, protest or other notice
of any kind, all of which are waived by the Company, notwithstanding anything
herein contained to the contrary, and the Holder may immediately and without
expiration of any grace period enforce any and all of its rights and remedies
hereunder and all other remedies available to it under applicable law. Such
declaration may be rescinded and annulled by the Holder at any time prior
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<PAGE>
to payment hereunder. No such rescission or annulment shall affect any
subsequent Event of Default or impair any right consequent thereon. This shall
include, but not limited to the right to temporary, preliminary and permanent
injunctive relief without the requirement of posting any bond or undertaking.
(b) The Holder may upon any Event of Default proceed to protect
and enforce its rights either by suit in equity, or by action at law, or by
other appropriate proceedings whether for the specific performance (to the
extent permitted by law) of any covenant or agreement contained in this
Debenture or in aid of the exercise of any power granted in this Debenture, and
proceed to enforce the payment of any of the Debenture held by it, and to
enforce any other legal or equitable right of such Holder.
(c) Except or expressly provided for herein, the Company
specifically waives all rights it may have (i) to notice of nonpayment, demand,
presentment, protest and notice of protest with respect to any of the
obligations hereunder or the Common Stock; (ii) notice of acceptance hereof or
of any other action taken in reliance hereon, notice and opportunity to be heard
before the exercise by the Holder of the remedies of self-help, set-off, or
other summary procedures and all other demands and notices of any description
except for cure periods; and (iii) releases the Holder, its officers, directors,
agents, employees and attorneys from all claims for loss, damage caused by any
act or failure to act on the part of the Holder, its officers, attorneys,
agents, directors and employees except for gross negligence or willful
misconduct.
Section 3. Conversion
(a) This Debenture shall be convertible into shares of Common
Stock at the Conversion Ratio at the option of the Holder in whole or in part,
at any time, commencing on the Original Issue Date. Any conversion under this
Section 3(a) shall be for a minimum of US$100,000.00 of the principal amount of
this Debenture and the interest accrued and due on such amount. The Holder shall
effect conversions by surrendering the Debenture (or such portions thereof) to
be converted to the Company, together with the form of conversion notice
attached hereto as Exhibit A (the "Holder Notice of Conversion") in the manner
set forth in Section 3(i). Each Holder Notice of Conversion shall specify the
principal amount of Debenture and related interest to be converted, and the
Conversion Date. Subject to Section 3, each Holder Notice of Conversion, once
given, shall be irrevocable. If the Holder is converting less than all of the
principal amount represented by the Debenture(s) tendered by the Holder in the
Holder Notice of Conversion, the Company shall deliver to the Holder a new
Debenture for such principal amount as has not been converted within seven (7)
Business Days.
(b) Not later than seven (7) Business Days after the Conversion
Date, the Company will issue to the Holder (i) shares of Common Stock, evidenced
by a certificate or certificates, which shall be free of restrictive legends and
trading restrictions (other than those then required by law), representing the
number of shares of Common Stock being acquired upon the conversion of the
Debenture and (ii) once received from the Company, the Debenture in principal
amount equal to the principal amount of the Debenture not converted; provided,
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<PAGE>
however that the Company shall not be obligated to issue certificates evidencing
the shares of Common Stock issuable upon conversion of any Debenture, until the
Debenture is either delivered for conversion to the Company or any transfer
agent for the Debenture or Common Stock, or the Holder notifies the Company that
such Debenture has been lost, stolen or destroyed and provides an agreement to
indemnify the Company from any loss incurred by it in connection therewith. In
the case of a conversion pursuant to a Holder Notice of Conversion, if such
certificate or certificates are not delivered by the date required under this
Section 3(b), the Holder shall be entitled by providing written notice to the
Company at any time on or before its receipt of such certificate or certificates
thereafter, to rescind such conversion, in which event the Company shall
immediately return the Debenture tendered for conversion.
(c) (i) The conversion price for each Debenture in effect on any
Conversion Date shall be 90% (ninety percent) of the average closing bid price
for the shares of the Company's Common Stock for the five (5) Trading Days
immediately preceding the Conversion Date but no less than $7.06 per share (the
"Conversion Price"). The average closing bid prices shall be obtained from
Bloomberg Information Service or a similar nationally recognized stock quotation
service.
(ii) All calculations under this Section 3 shall be made to the
nearest cent or the nearest share, as the case may be.
(iii) In case of any reclassification of the Common Stock, any
consolidation or merger of the Company with or into another person, the sale or
transfer of all or substantially all of the assets of the Company or any
compulsory share exchange pursuant to which the Common Stock is converted into
other securities, cash or property, then the Holder shall have the right
thereafter to convert such Debenture only into the shares of stock and other
securities and property receivable upon or deemed to be held by holders of
Common Stock following such reclassification, consolidation, merger, sale,
transfer or share exchange, and the Holder shall be entitled upon such event to
receive such amount of securities or property as the shares of the Common Stock
into which such Debenture could have been converted immediately prior to such
reclassification, consolidation, merger, sale, transfer or share exchange would
have been entitled. The terms of any such consolidation, merger, sale, transfer
or share exchange shall include such terms so as to continue to give to the
Holder the right to receive the securities or property upon any conversion
following such consolidation, merger, sale, transfer or share exchange. This
provision shall similarly apply to successive reclassifications, consolidations,
mergers, sales, transfers or share exchanges.
(iv) If:
(A) the Company shall declare a dividend (or any other
distribution) on its Common Stock; or
(B) the Company shall declare a special nonrecurring cash
dividend on or a redemption of its Common Stock; or
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(C) the Company shall authorize the granting to all holders
of the Common Stock rights or warrants to subscribe for
or purchase any shares of capital stock of any class or
of any rights; or
(D) the approval of any stockholders of the Company shall be
required in connection with any reclassification of the
Common Stock of the Company (other than a subdivision or
combination of the outstanding shares of Common Stock),
any consolidation or merger to which the Company is a
party, any sale or transfer of all or substantially all
of the assets of the Company, or any compulsory share
exchange whereby the Common Stock is converted into
other securities, cash or property; or
(E) the Company shall authorize the voluntary or involuntary
dissolution, liquidation or winding-up of the affairs of
the Company;
then the Company shall cause to be filed at each office or agency maintained for
the purpose of conversion of the Debenture, and shall cause to be mailed and
faxed to the Holder at its last addresses as it shall appear upon the Debenture
Register, at least thirty (30) calendar days prior to the applicable record or
effective date hereinafter specified, a notice stating (x) the date on which a
record is to be taken for the purpose of such dividend, distribution,
redemption, rights or warrants, or if a record is not to be taken, the date as
of which the holders of Common Stock of record to be entitled to such dividend,
distributions, redemption, rights or warrants are to be determined, or (y) the
date on which such reclassification, consolidation, merger, sale, transfer,
share exchange, dissolution, liquidation or winding-up is expected to become
effective, and the date as of which it is expected that holders of Common Stock
of record shall be entitled to exchange their shares of Common Stock for
securities or other property deliverable upon such reclassification,
consolidation, merger, sale, transfer, share exchange, dissolution, liquidation
or winding-up.
(v) Nothing in this agreement shall preclude the Company from
issuing employee/director/officer/consultant/creditor stock options, and any
such issuance shall not cause a recalculation of the Conversion Price.
(d) The Company covenants that it will at all times reserve and
keep available out of its authorized and unissued Common Stock solely for the
purpose of issuance upon conversion of this Debenture as herein provided, free
from preemptive rights or any other actual contingent purchase rights of persons
other than the Holder of this Debenture, such number of shares of Common Stock
as shall be issuable (taking into account the adjustments and restrictions of
Section 3(b) and Section 3(c) hereof) upon the conversion of the aggregate
principal amount of this Debenture. The Company covenants that all shares of
Common Stock that shall be so issuable shall, upon issue, be duly and validly
authorized, issued and fully paid
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and nonassessable, free and clear of all restrictions, charges, mortgages or
encumbrances whatsoever.
(e) No fractional shares of Common Stock shall be issuable upon a
conversion hereunder and the number of shares to be issued shall be rounded up
to the nearest whole share. If a fractional share interest arises upon any
conversion hereunder, the Company shall eliminate such fractional share interest
by issuing the Holder an additional full share of Common Stock.
(f) The issuance of certificates for shares of Common Stock on
conversion of this Debenture shall be made without charge to the Holder for any
documentary stamp or similar taxes that may be payable in respect of the issue
or delivery of such certificate, provided that the Company shall not be required
to pay any tax that may be payable in respect of any transfer involved in the
issuance and delivery of any such certificate upon conversion in a name other
than that of the Holder and the Company shall not be required to issue or
deliver such certificates unless or until the person or persons requesting the
issuance thereof shall have paid to the Company the amount of such tax or shall
have established to the satisfaction of the Company that such tax has been paid.
(g) This Debenture when converted into Common Stock shall be
canceled upon conversion.
(h) Each Holder Notice of Conversion shall be given by facsimile,
to the Company no later than 4:00 pm New York Time at the facsimile telephone
number and address of the principal place of business of the Company. In the
event that the Company receives the Holder Notice of Conversion after 4:00 p.m.
New York Time, the Conversion Date shall be deemed to be the next Business Day.
Section 4. Except as expressly provided herein, no provision of
this Debenture shall alter or impair the obligation of the Company, which is
absolute and unconditional, to pay the principal of, and interest on, this
Debenture at the time, place, and rate, and in the coin or currency, herein
prescribed. This Debenture is a direct obligation of the Company.
Section 5. This Debenture shall not entitle the Holder to any of
the rights of a stockholder of the Company, including without limitation, the
right to vote, to receive dividends and other distributions, or to receive any
notice of, or to attend, meetings of stock or any other proceedings of the
Company, unless and to the extent converted into shares of Common Stock in
accordance with the terms hereof.
Section 6. If this Debenture shall be mutilated, lost, stolen or
destroyed, the Company shall execute and deliver, in exchange and substitution
for and upon cancellation of a mutilated Debenture, or in lieu of or in
substitution for a lost, stolen or destroyed debenture, a new Debenture for the
principal amount of this Debenture so mutilated, lost, stolen or destroyed but
only upon receipt of an affidavit of such loss, theft or destruction of such
Debenture, and indemnity, if requested, by the Company.
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Section 7. This Debenture shall be governed by, enforced and
construed in accordance with the laws of the State of New York, County of New
York, without giving effect to conflicts of laws thereof.
Section 8. All notices or other communications hereunder shall be
given, and shall be deemed duly given and received, if given, in the manner set
forth in Section 3(i).
Section 9. Any waiver by the Company or the Holder a breach of any
provision of this Debenture shall not operate as or be construed to be a waiver
of any other breach of such provision or of any breach of any other provision of
this Debenture. The failure of the Company or the Holder to insist upon strict
adherence to any term of this Debenture on one or more occasions shall not be
considered a waiver or deprive that party of the right thereafter to insist upon
strict adherence to that term or any other term of this Debenture. Any waiver
must be in writing.
Section 10. If any provision of this Debenture is invalid, illegal
or unenforceable, the balance of this Debenture shall remain in effect, and if
any provision is inapplicable to anyperson or circumstance, it shall
nevertheless remain applicable to all other persons and circumstances.
Section 11. Whenever any payment or other obligation hereunder
shall be due on a day other than a Business Day, such payment shall be made on
the next succeeding Business Day.
Section 12. This Debenture is transferable in whole, but not in
part, at the option of the Holder, provided that such transfer is permitted by
law. This Debenture shall inure to the benefit of and be binding upon the
successors and permitted assigns of the parties hereto.
IN WITNESS WHEREOF, the Company has caused this instrument to be
duly executed by an officer thereunto duly authorized as of the Original Issue
Date.
CallNOW.com, Inc.
Attest: /s/ CR Seelbach /s/ Christian Bardenheuer
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Name: Christian Bardenheuer
Title: CEO
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EXHIBIT A
NOTICE OF CONVERSION
AT THE ELECTION OF THE HOLDER
(To be Executed by the Registered Holder
in order to Convert the Debenture)
Except as provided by Section 3(b) of the Debenture, the undersigned hereby
irrevocably elects to convert the Debenture into shares of Common Stock, par
value U.S.$.001 per share (the "Common Stock"), of CallNOW.com, Inc. (the
"Company") according to the conditions hereof, as of the date written below. If
shares are to be issued in the name of a person other than undersigned, the
undersigned will pay all transfer taxes payable with respect thereto and is
delivering herewith such certificates and opinions as reasonably requested by
the Company in accordance therewith. No fees will be charged to the Holder,
except for transfer taxes, if any.
Conversion calculations:
Date to Effect Conversion
Principal Amount of Debenture to be Converted
Interest to be Converted or Paid
Applicable Conversion Price (to the nearest hundredth)
Number of Shares to be Issued Upon Conversion
Signature
Name:
Address:
New Media Corporation 5% convertible debenture due August 31, 2002
<PAGE>
No. 1 of 1 Exhibit 4.3
US$700,000
5% CONVERTIBLE DEBENTURE DUE AUGUST 26, 2002
THIS DEBENTURE of CallNOW.com, Inc., a Delaware corporation (the "Company"),
is designated as its 5% Convertible Debenture, due August 26, 2002 (the
"Debenture"), in an aggregate principal amount of US$700,000.
FOR VALUE RECEIVED, the Company promises to pay to FaciliCom International,
Inc., or its registered assigns (the "Holder"), the principal sum of Seven
Hundred Thousand Dollars (US$700,000), on or prior to August 26, 2002 (the
"Maturity Date") and to pay interest to the Holder on the principal sum, at the
rate of 5% per annum, computed monthly. All payments of principal and interest
hereunder shall be payable in U.S. dollars.
Interest shall accrue monthly commencing on the Original Issue Date (as
defined in Section 1) until payment in full of the principal sum, together with
all accrued and unpaid interest, has been made. Interest due and payable
hereunder shall be paid to the person in whose name this Debenture is registered
on the records of the Company (the "Debenture Register"); provided, however,
that the Company's obligation to a transferee of this Debenture arises only if
such transfer, sale or other disposition is made in accordance with the terms
and conditions hereof.
The principal of this Debenture is payable in 30 equal monthly installments
in arrears on the last Business Day of each month, commencing at the end of the
7th month from the Original Issue Date, or, in shares of common stock of the
Company, at the time of conversion of part or all of the Debenture in accordance
with Section 3 hereof, at the address of the Holder last appearing on the
Debenture Register, and that if there is an Event of Default pursuant to the
terms hereof, accrued and unpaid interest shall become due and payable as
provided herein. Interest on this Debenture shall be paid in monthly
installments in arrears on the last Business Day of each month (each an
"Interest Payment Date"), commencing at the end of the first full month
following the Original Issue Date or in shares of common stock of the Company at
the time of conversion by the Holder. In the event that the Company or a
successor company raises a minimum of $5,000,000.00 in equity or debt in a
single transaction or a series of related transactions, the Holder has the
right, but not the obligation, to have the Debenture, with accumulated interest,
paid in full in four equal monthly installments.
The Company agrees that within nine months following the Original Issue
Date, or, immediately upon any filing of a registration statement by the Company
or a successor company, whichever occurs earlier, that it shall file, at the
Company's sole expense, for registration with the SEC of all conversion shares,
and shall use its best efforts to cause such registration statement to be
declared effective as soon as possible. Any registration of conversion shares
shall be on terms acceptable to the Holder.
This Debenture is subject to the following additional provisions:
Section 1. Definitions. For the purposes hereof, the following terms
shall have the following meanings:
<PAGE>
"Business Day" means any day of the year on which commercial banks are
not required or authorized to be closed in New York City, and between the hours
of 9:00 am and 5:00 p.m. New York Time.
"Common Stock" means shares now or hereafter authorized of the class of
Common Stock, $.001 par value, of the Company and stock of any other class into
which such shares may hereafter have been reclassified or changed.
"Conversion Date" means the date on which a Holder Notice of Conversion
is dated.
"Conversion Ratio" means, at any time, a fraction, of which the
numerator is the principal amount represented by any Debenture plus accrued but
unpaid interest, and of which the denominator is the Conversion Price (as
defined in Section 3 below) at such time.
"Junior Securities" means the Common Stock, all other equity securities
of the Company and all other debt that is subordinated to the Debenture by its
terms.
"Original Issue Date" shall mean August 26, 1999.
"Per Share Market Value" means on any particular date, (a) the closing
bid price on the principal securities exchange or trading market where the
Common Stock is listed or traded as reported by Bloomberg, L.P. ("Bloomberg"),
or, if applicable, the closing bid price of the Common Stock in the
over-the-counter market on the electronic bulletin board for such security as
reported by Bloomberg, (b) if no closing bid price is reported for the Common
Stock by Bloomberg, then the average of the bid prices of any market makers for
such security as reported in the "pink sheets" by the National Quotation Bureau,
LLC. (or similar organization or agency succeeding to its functions of reporting
prices), or (c) if the Common Stock is no longer publicly traded, the fair
market value of a share of Common Stock, as determined by an appraiser selected
in good faith by the holders of a majority of principal amount of outstanding
Debentures; provided, however, that the Company, or the Registered Holder of
this Debenture, after receipt of the determination by such appraiser, shall have
the right to select an additional appraiser, in which case, the fair market
value shall be equal to the average of the determinations by each such
appraiser. The fees and expenses of any appraisers retained pursuant to this
paragraph shall be payable by the Company.
"Person" means a corporation, an association, a partnership, joint
venture, joint-stock company, limited liability company, trust, or other entity,
organization, a business, an individual, a government or political subdivision
thereof or a governmental agency.
"Trading Day" means (a) a day on which the Common Stock is quoted on
the Over-The-Counter Bulletin Board ("OTCBB") or principal stock exchange on
which the Common Stock has been listed, or (b) if the Common Stock is not quoted
on the OTCBB or any stock exchange, a day on which the Common Stock is quoted in
the over-the-counter market as reported by the National Quotation Bureau, LLC
(or any similar organization or agency succeeding its functions of reporting
prices).
Section 2. Events of Default and Remedies.
<PAGE>
I. "Event of Default", wherever used herein, means any one of the
following events (whatever the reason and whether it shall be voluntary or
involuntary or effected by operation of law or pursuant to any judgment, decree
or order of any court, or any order, rule or regulation of any administrative or
governmental body):
(a) any default in the payment of the principal of or interest on this
Debenture as and when the same shall become due and payable either at the
Maturity Date, any scheduled principal payment date or on any Interest
Payment Date, by acceleration, conversion, or otherwise;
(b) except as set forth in Section 2.I. (e) below, the Company shall
fail to observe or perform any other covenant, agreement or warranty
contained in, or otherwise commit any breach of, this Debenture, and such
failure or breach shall not have been remedied within thirty (30) days after
the date on which written notice of such failure or breach shall have been
given;
(c) the Company or any of its subsidiaries shall commence a voluntary
case under Title 7 or Title 11 of the U.S. Code or any similar or analogous
federal, state or foreign law for the relief of debtors, reorganization,
arrangement, adjustment of debt, relief of debtors, dissolution, insolvency
or liquidation, whether now or hereafter in effect (each, a "Bankruptcy
Law"); or an involuntary case is commenced against the Company or any of its
subsidiaries under any Bankruptcy Law and the petition is not controverted
within thirty (30) days, or is not dismissed within sixty (60) days, after
commencement of the case; or a custodian is appointed for, or takes charge
of, all or any substantial part of the property of the Company or any of its
subsidiaries; or the Company or any of its subsidiaries is adjudicated
insolvent or bankrupt; or any order of relief or other order approving any
such case or proceeding is entered; or the Company or any of its
subsidiaries makes a general assignment for the benefit of creditors; or the
Company or any of its subsidiaries shall fail to pay, or shall state that it
is unable to pay, or shall be unable to pay, its debts generally as they
become due; or the Company or any of its subsidiaries shall call a meeting
of its creditors with a view to arranging a composition or adjustment of its
debts; or the Company or any of its subsidiaries shall by any act or failure
to act indicate its consent to, approval of or acquiescence in any of the
foregoing; or any corporate or other action is taken by the Company or any
of its subsidiaries for the purpose of effecting any of the foregoing;
(d) the Company or any of its subsidiaries shall default (and such
default shall remain uncured for a period allowed in such instrument) in any
of its obligations under any mortgage, indenture or instrument under which
there may be issued, or by which there may be secured or evidenced, any
indebtedness or liability of the Company or any of its subsidiaries in an
amount exceeding One Hundred Thousand Dollars ($100,000.00), whether such
indebtedness now exists or shall hereafter be payable;created;
(e) the Company shall have its Common Stock (as defined in Section 1)
delisted from the National Quotation Bureau, LLC's Pink Sheets or other national
securities exchange or market on which such Common Stock is listed for trading
or suspended from trading
<PAGE>
thereon, and shall not have its Common Stock relisted or have such suspension
lifted, as the case may be, within five (5) days; or
(f) the Company shall issue a Press Release, or otherwise make publicly
known, that it is not honoring a properly executed Holder Notice of
Conversion for any reason whatsoever, or if it fails to honor a Holder
Notice of Conversion on the terms and conditions described herein.;
II. (a) If any Event of Default occurs and continues, beyond any cure
period explicitly set forth herein, if any, and in every such case, then so long
as such Event of Default shall then be continuing the Holder may, by notice to
the Company, accelerate all of the payments due under this Debenture by
declaring all amounts of this Debenture, together with any accrued and unpaid
interest thereon, to be, whereupon the same shall become, immediately due and
payable without presentment, demand, protest or other notice of any kind, all of
which are waived by the Company, notwithstanding anything herein contained to
the contrary, and the Holder may immediately and without expiration of any grace
period enforce any and all of its rights and remedies hereunder and all other
remedies available to it under applicable law. Such declaration may be rescinded
and annulled by Holder at any time prior to payment hereunder by written notice
to the Company. No such rescission or annulment shall affect any subsequent
Event of Default or impair any right consequent thereon. This shall include, but
shall not be limited to, the right to temporary, preliminary and permanent
injunctive or other equitable relief without the requirement of posting any bond
or undertaking.
(b) Holder may thereupon proceed to protect and enforce its rights
either by suit in equity, or by action at law, or by other appropriate
proceedings whether for the specific performance (to the extent permitted by
law) of any covenant or agreement contained in this Debenture or in aid of the
exercise of any power granted in this Debenture, and proceed to enforce the
payment of any of the Debenture held by it, and to enforce any other legal or
equitable right of such holder. The Company agrees to pay Holder's reasonable
legal fees and expenses incurred in connection with the filing of a claim (and
such other actions taken thereafter in prosecuting such claim) to enforce
payment of outstanding principal and interest of this Debenture.
(c) Except as expressly provided for herein, the Company specifically
waives all rights it may have (i) to notice of nonpayment, demand, presentment,
protest and notice of protest with respect to any of the obligations hereunder
or the shares; (ii) notice of acceptance hereof or of any other action taken in
reliance hereon, notice and opportunity to be heard before the exercise by
Holder of the remedies of self-help, set-off, or other summary procedures and
all other demands and notices of any description except for cure periods; and
(iii) releases Holder, its affiliates and their respective officers, directors,
agents, employees and attorneys from all claims for loss, damage caused by any
act or failure to act on the part of Holder, its affiliates and their respective
officers, attorneys, agents, directors and employees in connection with the
enforcement of the Holder's rights hereunder, except for willful misconduct.
(d) The Holder shall have the right to set-off any amounts that it may
be obligated to pay the Company, under any instrument or agreement, or that
arises by operation of law, to the extent that the Company has not satisfied any
of its obligations under this Debenture.
<PAGE>
Section 3. Conversion
(a) This Debenture shall be convertible into shares of Common Stock at
the Conversion Ratio as defined below, at the option of the Holder in whole or
in part, at any time, commencing on the Original Issue Date. Any conversion
under this Section 3(a) shall be for a minimum principal amount of $50,000.00 of
Debentures and the interest accrued and due on such amount. The Holder shall
effect conversions by surrendering this Debenture to be converted to the
Company, together with the form of conversion notice attached hereto as Exhibit
A (the "Holder Notice of Conversion") in the manner set forth in Section 3(i).
Each Holder Notice of Conversion shall specify the principal amount of
Debentures and interest to be converted, and the date on which such conversion
is to be effected (the "Holder Conversion Date"). Subject to Section 3, each
Holder Notice of Conversion, once given, shall be irrevocable, except as
provided in the following paragraph. If the Holder is converting less than all
of the principal amount represented by the Debenture(s) tendered by the Holder
in the Holder Notice of Conversion, the Company shall deliver to the Holder a
new Debenture for such principal amount as has not been converted within five
(5) Business Days.
(b) Not later than five (5) Business Days after the Conversion Date,
the Company will deliver to the Holder (i) a certificate or certificates which
shall be free of restrictive legends and trading restrictions (other than those
then required by law), representing the number of shares of Common Stock being
acquired upon the conversion of this Debenture or, at the request of the Holder,
and if reasonably feasible by the Company, the Company will issue such
conversion shares via the DTC's DWAC system and (ii) Debentures in principal
amount equal to the principal amount of Debentures not converted; provided,
however that the Company shall not be obligated to issue certificates evidencing
the shares of Common Stock issuable upon conversion of this Debenture, until
this Debenture is either delivered for conversion to the Company or to its
transfer agent for the Common Stock, or the Holder notifies the Company that
this Debenture has been lost, stolen or destroyed and provides an agreement to
indemnify the Company from any loss incurred by it in connection therewith. In
the case of a conversion pursuant to a Holder Notice of Conversion, if such
certificate or certificates are not delivered by the date required under this
Section 3(b), the Holder shall be entitled by providing written notice to the
Company at any time on or before its receipt of such certificate or certificates
thereafter, to rescind such conversion, in which event the Company shall
immediately return the Debentures tendered for conversion.
(c) (i) The conversion price for each Debenture in effect on any
Conversion Date shall be 80% (eighty percent) of the average Per Share Market
Value of the Company's Common Stock for the five (5) Trading Days immediately
preceding the Conversion Date ("Conversion Price") but no less than $7.06 per
share.
(ii) All calculations under this Section 3 shall be made to the
nearest cent.
(iii) In case of any reclassification of the Common Stock, any
consolidation or merger of the Company with or into another person, the sale or
transfer of all or substantially all of the assets of the Company or any
compulsory share exchange pursuant to which the Common Stock is converted into
other securities, cash or property, then the Holder shall have the right
thereafter to convert this Debenture into the shares of stock and other
<PAGE>
securities and property receivable upon or deemed to be held by holders of
Common Stock following such reclassification, consolidation, merger, sale,
transfer or share exchange, and the Holder shall, in connection with any
conversion occurring after any such event, be entitled to receive such amount of
securities or property as the shares of the Common Stock into which this
Debenture could have been converted immediately prior to such reclassification,
consolidation, merger, sale, transfer or share exchange would have been
entitled. The terms of any such consolidation, merger, sale, transfer or share
exchange shall include such terms so as to continue to give to the Holder the
right to receive the securities or property upon any conversion following such
consolidation, merger, sale, transfer or share exchange. This provision shall
similarly apply to successive reclassifications, consolidations, mergers, sales,
transfers or share exchanges.
(iv) If:
(A) the Company shall declare a dividend (or any other
distribution) on its Common Stock; or
(B) the Company shall declare a special nonrecurring cash
dividend on or a redemption of its Common Stock; or
(C) the Company shall authorize the granting to all holders
of the Common Stock rights or warrants to subscribe for
or purchase any shares of capital stock of any class or
of any rights; or
(D) the approval of any stockholders of the Company shall be
required in connection with any reclassification of the
Common Stock of the Company (other than a subdivision or
combination of the outstanding shares of Common Stock
that applies to all holders of the Company's shares on a
pro rata basis), any consolidation or merger to which the
Company is a party, any sale or transfer of all or
substantially all of the assets of the Company, or any
compulsory share exchange whereby the Common Stock is
converted into other securities, cash or property; or
(E) the Company shall authorize the voluntary or involuntary
dissolution, liquidation or winding-up of the affairs of
the Company;
then the Company shall cause to be filed at each office or agency maintained for
the purpose of conversion of this Debenture, and shall cause to be mailed and
faxed to the Holder at its last addresses as it shall appear upon the Debenture
Register, at least thirty (30) calendar days prior to the applicable record or
effective date hereinafter specified, a notice stating (x) the date on which a
record is to be taken for the purpose of such dividend, distribution,
redemption, rights or warrants, or if a record is not to be taken, the date as
of which the holders of Common Stock of record to be entitled to such dividend,
distributions, redemption, rights or warrants are to be determined, or (y) the
date on which such reclassification, consolidation, merger, sale, transfer,
share exchange, dissolution, liquidation or winding-up is expected to become
effective, and the
<PAGE>
date as of which it is expected that holders of Common Stock of record shall be
entitled to exchange their shares of Common Stock for securities or other
property deliverable upon such reclassification, consolidation, merger, sale,
transfer, share exchange, dissolution, liquidation or winding-up.
(v) Nothing in this agreement shall preclude the Company from
issuing employee/director/officer/consultant/creditor stock options, and any
such issuance shall not cause a recalculation of the Conversion Price.
(d) The Company covenants that it will at all times reserve and keep
available out of its authorized and unissued Common Stock solely for the purpose
of issuance upon conversion of this Debenture as herein provided, free from
preemptive rights or any other actual contingent purchase rights of persons
other than the holders of this Debenture, such number of shares of Common Stock
as shall be issuable (taking into account the adjustments and restrictions of
Section 3(c) hereof) upon the conversion of the aggregate principal amount, plus
accrued but unpaid interest, of all outstanding Debentures, multiplied by two.
The Company covenants that all shares of Common Stock that shall be so issuable
shall, upon issue, be duly and validly authorized, issued and fully paid and
nonassessable, free and clear of any such rights.
(e) No fractional shares of Common Stock shall be issuable upon a
conversion hereunder and the number of shares to be issued shall be rounded up
to the nearest whole share. If a fractional share interest arises upon any
conversion hereunder, the Company shall eliminate such fractional share interest
by issuing Holder an additional full share of Common Stock.
(f) The issuance of certificates for shares of Common Stock on
conversion of this Debenture shall be made without charge to the Holder for any
documentary stamp or similar taxes that may be payable in respect of the issue
or delivery of such certificate, provided that the Company shall not be required
to pay any tax that may be payable in respect of any transfer involved in the
issuance and delivery of any such certificate upon conversion in a name other
than that of the Holder and the Company shall not be required to issue or
deliver such certificates unless or until the person or persons requesting the
issuance thereof shall have paid to the Company the amount of such tax or shall
have established to the satisfaction of the Company that such tax has been paid.
(g) Any portion of this Debenture converted into Common Stock shall be
canceled upon conversion.
(h) Each Holder Notice of Conversion shall be given by facsimile, to
the Company no later than 4:00 pm New York Time at the facsimile telephone
number of the principal place of business of the Company. In the event that the
Company receives the Holder Notice of Conversion after 4:00 p.m. New York Time,
the Conversion Date shall be deemed to be the next Business Day.
Section 4. (a) The execution, delivery and performance by the Company
of this Debenture, the fulfillment of and compliance with the respective terms
and provisions hereof, and the consummation by the Company of the transactions
contemplated hereby, do not and will not: (a) conflict with, or violate any
provision of, any law having applicability to the Company, or any provision of
the certificate of incorporation or bylaws of the Company; (b) conflict with, or
<PAGE>
result in any breach of, or constitute a default under any material agreement to
which the Company is a party or by which the Company or any of its assets may be
bound; or (c) result in or require the creation or imposition of or result in
the acceleration of any indebtedness, or of any encumbrance of any nature upon,
or with respect to any of the material assets of the Company. (b) There are no
agreements, laws or other restrictions of any kind to which the Company is a
party or to which the Company's assets are subject that would prevent or
restrict the execution, delivery or performance of this Debenture or prohibit or
limit the continued operation of the business of the Company after the date
hereof on substantially the same basis as heretofore operated, as a result of
the execution, delivery or performance of this Debenture. (c) Except as
expressly provided herein, no provision of this Debenture shall alter or impair
the obligation of the Company, which is absolute and unconditional, to pay the
principal of, interest on, and all other amounts payable in respect of, this
Debenture at the time, place, and rate, and in the coin or currency, herein
prescribed. This Debenture is a direct obligation of the Company. The Company
may not prepay any portion of the outstanding principal amount on this
Debenture, unless the Holder otherwise agrees in writing. The Company will not,
by amendment of its certificate of incorporation or bylaws or through any
reorganization, recapitalization, transfer of assets, consolidation, merger,
dissolution, issue or sale of securities or any other voluntary action, avoid or
seek to avoid the observance or performance of any of the terms to be observed
or performed hereunder, and will at all times assist in good faith in the
carrying out of all the provisions of this Debenture and in the taking of all
such action as may be necessary or appropriate in order to protect the rights of
the Holder of this Debenture against impairment.
Section 5. This Debenture shall not entitle the Holder to any of the
rights of a stockholder of the Company, including without limitation, the right
to vote, to receive dividends and other distributions, or to receive any notice
of, or to attend, meetings of stockholders or any other proceedings of the
Company, unless and to the extent converted into shares of Common Stock in
accordance with the terms hereof, or as otherwise provided herein.
Section 6. If this Debenture shall be mutilated, lost, stolen or
destroyed, the Company shall execute and deliver, in exchange and substitution
for and upon cancellation of a mutilated Debenture, or in lieu of or in
substitution for a lost, stolen or destroyed debenture, a new Debenture for the
principal amount of this Debenture so mutilated, lost, stolen or destroyed but
only upon receipt of an affidavit of such loss, theft or destruction of such
Debenture, and an agreement to indemnify the Company from any loss incurred by
it in connection therewith.
Section 7. This Debenture shall be governed by, enforced and construed
in accordance with the laws of the State of New York, County of New York,
without giving effect to principles of conflicts of laws thereof.
Section 8. All other notices or communications required or permitted to
given hereunder shall be in writing and shall be hand delivered, sent by
overnight courier or mailed by first-class, registered or certified mail, return
receipt requested, postage prepaid, or transmitted by telegram, telecopy or
telex, addressed as follows:
If to the Company:
CallNOW.com, Inc.
50 Broad Street, 5th Floor
New York, New York 10004
Fax #: (212) 785-4388
<PAGE>
With a copy (which shall not constitute notice) to:
Stairs Dillenbeck Finley & Merle
330 Madison Avenue, Suite 2900
New York, New York 10017-5090
Attn: Neil Parent, Esq.
Fax #: (212) 687-3523
If to the Holder:
Facilicom International, Inc.
1401 New York Avenue, N.W.
9th Floor
Washington, D.C. 20005
Attn: Chris King
Fax (202) 496-1109
With a copy to (which shall not constitute notice) to:
Morrison & Foerster LLP
2000 Pennsylvania Avenue, NW
Washington, D.C. 20006-1888
Attn: Morris F. DeFeo, Jr., Esq.
Fax #: (202) 887-0763
Each party may designate by notice in writing a new address to which any
notice or communication may thereafter be so given, served or sent. Each notice
which shall be hand delivered, sent, mailed, telecopied or telexed in the manner
described above, shall be deemed sufficiently given, served, sent, received or
delivered for all purposes at such time as it is delivered to the addressee
(with the return receipt, the delivery receipt, or (with respect to a telecopy
or telex) the answerback or confirmation being deemed conclusive, but not
exclusive, evidence of such delivery) or at such time as delivery is refused by
the addressee upon presentation. Notwithstanding the foregoing provisions of
this Section 8, all notices or other communications with respect to the
conversion of this Debenture shall be given, and shall be deemed duly given and
received, only if given in the manner set forth in Section 3(h).
Section 9. Any waiver by the Holder of a breach of any provision of
this Debenture shall not operate as or be construed to be a waiver of any other
breach of such provision or of any breach of any other provision of this
Debenture. The failure of the Holder to insist upon strict adherence to any term
of this Debenture on one or more occasions shall not be considered a waiver or
deprive the Holder of the right thereafter to insist upon strict adherence to
that term or any other term of this Debenture. Any waiver of any right granted
to the Holder under this Debenture, or the amendment of any of the terms of this
Debenture, shall become effective only upon the execution of a writing signed by
the Holder.
Section 10. If any provision of this Debenture is invalid, illegal or
unenforceable, the balance of this Debenture shall remain in effect, and if any
provision is inapplicable to any person or circumstance, it shall nevertheless
remain applicable to all other persons and circumstances.
<PAGE>
Section 11. Whenever any payment or other obligation hereunder shall be
due on a day other than a Business Day, such payment shall be made on the next
succeeding Business Day.
Section 12. This Debenture is transferable in whole, but not part, at
the option of the Holder, provided that such transfer is permitted by law. This
Debenture shall inure to the benefit of and be binding upon the successors and
permitted assigns of the parties hereto.
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed by an officer thereunto duly authorized as of the date first above
indicated.
CallNOW.com, Inc.
Attest: /s/ CR Seelbach /s/ Warner Johnson, Jr.
--------------------------- ---------------------------
Name: Warner Johnson, Jr.
Title: President
<PAGE>
EXHIBIT A
NOTICE OF CONVERSION
AT THE ELECTION OF HOLDER
(To be Executed by the Registered Holder
in order to Convert the Debenture)
Except as provided by terms of the Debenture, the undersigned hereby irrevocably
elects to convert the above Debenture into shares of Common Stock, par value
U.S.$.001 per share (the "Common Stock"), of CallNow.com, Inc. (the "Company")
according to the conditions hereof, as of the date written below. If shares are
to be issued in the name of a person other than undersigned, the undersigned
will pay all transfer taxes payable with respect thereto and is delivering
herewith such certificates and opinions as reasonably requested by the Company
in accordance therewith.
Conversion calculations:
------------------------------------------------------
Date of Notice
------------------------------------------------------
Principal Amount of Debentures to be Converted
------------------------------------------------------
Interest to be Converted or Paid
------------------------------------------------------
Total Principal Amount of Debenture and Interest to be
Converted or Paid
------------------------------------------------------
Applicable Conversion Price (to the nearest hundredth)
------------------------------------------------------
Number of Shares to be Issued Upon Conversion
------------------------------------------------------
Signature
------------------------------------------------------
Name:
Facilicom 5% convertible note due May 25, 2003
<PAGE>
------------------------------------------------------
Address:
<PAGE>
Exhibit 4.4
Form of Lock-Up Agreement
________ __, 1999
Kaufman Bros., L.P.
John G. Kinnard & Co.
Security Capital Trading, Inc.
as Representatives of the several underwriters
c/o Kaufman Bros., L.P.
800 Third Avenue
New York, New York 10022
Ladies and Gentlemen:
This letter is being delivered to you in connection with the proposed
Underwriting Agreement (the "Underwriting Agreement"), among CallNOW.com, Inc.,
a Delaware corporation (the "Company"), the Selling Stockholders named in
Schedule II thereto, and each of you as representatives of a group of
Underwriters named therein, relating to an underwritten public offering (the
"Offering") of common stock, par value $.001 per share (the "Common Stock"), of
the Company as contemplated by a registration statement filed with the
Securities and Exchange Commission on Form S-1.
In order to induce you and the other Underwriters to enter into the
Underwriting Agreement, the undersigned will not, directly or indirectly,
during a period of 180 days from the date of the final prospectus for the
Offering, without the prior written consent of Kaufman Bros., L.P., (i) issue,
sell, offer or agree to sell, grant any option for the sale of, pledge, make
any short sale, establish an open "put equivalent position" (within the meaning
of the Rule 16a-1(h) under the Securities Exchange Act of 1934, as amended), or
otherwise dispose of Common Stock (or any securities convertible into,
exercisable for or exchangeable for Common Stock) of the Company, including,
without limitation, any shares of Common Stock issuable under any outstanding
stock options or warrants, or (ii) enter into any swap, derivative transaction
or other arrangement that transfers to another, in whole or in part, any
economic consequences of ownership of Common Stock, whether any such
transaction described in clause (i) or (ii) above is to be settled by delivery
of Common Stock or such other securities, in cash or otherwise. Notwithstanding
the foregoing, the undersigned may sell, transfer, pledge or otherwise dispose
of shares of Common Stock (a) acquired in the open market following the
effectiveness of the Offering, (b) as a gift, provided that the donee agrees in
writing to be bound by the terms hereof, or (c) if the undersigned is a
corporation, or partnership, to the undersigned's shareholders or partners,
provided that each recipient agrees in writing to be bound by the terms hereof.
<PAGE>
If for any reason the Underwriting Agreement shall be terminated prior
to the Closing Date (as defined in the Underwriting Agreement), the agreement
set forth above shall likewise be terminated.
Very truly yours,
Name:
Title:
Date:
<PAGE>
FORM OF WARRANT
THE WARRANTS REPRESENTED BY THIS CERTIFICATE AND THE SHARES ISSUABLE
UPON EXERCISE HEREOF HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED, PURSUANT TO A REGISTRATION STATEMENT FILED WITH THE SECURITIES
AND EXCHANGE COMMISSION. HOWEVER, NEITHER THE WARRANTS NOR SUCH SHARES MAY
BE OFFERED OR SOLD EXCEPT PURSUANT TO (i) A POST-EFFECTIVE AMENDMENT TO
SUCH REGISTRATION STATEMENT, (ii) A SEPARATE REGISTRATION STATEMENT UNDER
SUCH ACT, OR (iii) AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT.
THE TRANSFER OF THIS WARRANT IS
RESTRICTED AS DESCRIBED HEREIN.
CALLNOW.COM, INC.
Warrant for the Purchase of Shares of Common Stock,
par value $0.001 per Share
No. 1 [__________] Shares
THIS CERTIFIES that, for receipt in hand of [$______] and other value
received, KAUFMAN BROS., L.P., 800 Third Avenue - 25th Floor, New York, New York
10022 (the "Holder"), is entitled to subscribe for and purchase from
CallNOW.com, Inc., a Delaware corporation (the "Company"), upon the terms and
conditions set forth herein, at any time or from time to time after [effective
date], and before 5:00 P.M. on [five years after effective date], New York time
(the "Exercise Period"), [________] shares of the Company's Common Stock, par
value $0.001 per share ("Common Stock"), at a price of $_____ per Share (the
"Exercise Price"). This Warrant is the warrant or one of the warrants
(collectively, including any warrants issued upon the exercise or transfer of
any such warrants in whole or in part, the "Warrants") issued pursuant to the
Underwriting Agreement, dated __________, between the Company and Kaufman Bros.,
L.P., as representative of the several Underwriters named therein]. As used
herein the term "this Warrant" shall mean and include this Warrant and any
Warrant or Warrants hereafter issued as a consequence of the exercise or
transfer of this Warrant in whole or in part. This Warrant may not be sold,
transferred, assigned or hypothecated until [one year after effective date]
except that it may be transferred, in whole or in part, to (i) one or more
officers or partners of the Holder (or the officers or partners of any such
partner); (ii) any other underwriting firm or member of the selling group which
participated in the public offering of Common Stock which commenced on
[effective date] (or the officers or partners of any such firm); (iii) a
successor to the Holder, or the officers or partners of such successor; (iv) a
purchaser of substantially all of the assets of the Holder; or (v) by operation
of law; and the term the "Holder" as used herein shall include any transferee to
whom this Warrant has been transferred in accordance with the above.
The number of shares of Common Stock issuable upon exercise of the
Warrants (the "Warrant Shares") and the Exercise Price may be adjusted from time
to time as hereinafter set forth.
<PAGE>
1. This Warrant may be exercised during the Exercise Period, as to
the whole or any lesser number of whole Warrant Shares, by the surrender of this
Warrant (with the election at the end hereof duly executed) to the Company at
its office at 50 Broad Street, New York, New York 10004, or at such other place
as is designated in writing by the Company, together with a certified or bank
cashier's check payable to the order of the Company in an amount equal to the
Exercise Price multiplied by the number of Warrant Shares for which this Warrant
is being exercised (the "Stock Purchase Price").
2. (a) In lieu of the payment of the Stock Purchase Price, the Holder
shall have the right (but not the obligation), to require the Company to convert
this Warrant, in whole or in part, into shares of Common Stock (the "Conversion
Right") as provided for in this Section 2. Upon exercise of the Conversion
Right, the Company shall deliver to the Holder (without payment by the Holder of
any of the Stock Purchase Price) that number of shares of Common Stock (the
"Conversion Shares") equal to the quotient obtained by dividing (x) the value of
this Warrant (or portion thereof as to which the Conversion Right is being
exercised if the Conversion Right is being exercised in part) at the time the
Conversion Right is exercised (determined by subtracting the aggregate Stock
Purchase Price of the shares of Common Stock as to which the Conversion Right is
being exercised in effect immediately prior to the exercise of the Conversion
Right from the aggregate Current Market Price (as defined in Section 6(e)
hereof) of the shares of Common Stock as to which the Conversion Right is being
exercised) by (y) the Current Market Price of one share of Common Stock
immediately prior to the exercise of the Conversion Right.
(b) The Conversion Rights provided under this Section 2 may be
exercised in whole or in part and at any time and from time to time while any
Warrants remain outstanding. In order to exercise the Conversion Right, the
Holder shall surrender to the Company, at its offices, this Warrant with the
Notice of Conversion at the end hereof duly executed. The presentation and
surrender shall be deemed a waiver of the Holder's obligation to pay all or any
portion of the aggregate purchase price payable for the shares of Common Stock
as to which such Conversion Right is being exercised. This Warrant (or so much
thereof as shall have been surrendered for conversion) shall be deemed to have
been converted immediately prior to the close of business on the day of
surrender of such Warrant for conversion in accordance with the foregoing
provisions.
3. Upon each exercise of the Holder's rights to purchase Warrant
Shares or Conversion Shares, the Holder shall be deemed to be the holder of
record of the Warrant Shares or Conversion Shares issuable upon such exercise or
conversion, notwithstanding that the transfer books of the Company shall then be
closed or certificates representing such Warrant Shares or Conversion Shares
shall not then have been actually delivered to the Holder. As soon as
practicable after each such exercise or conversion of this Warrant, the Company
shall issue and deliver to the Holder a certificate or certificates for the
Warrant Shares or Conversion Shares issuable upon such exercise or conversion,
registered in the name of the Holder or its designee. If this Warrant should be
exercised or converted in part only, the Company shall, upon surrender of this
Warrant for cancellation, execute and deliver a new Warrant evidencing the right
of the Holder to purchase the balance of the Warrant Shares (or portions
thereof) subject to purchase hereunder.
4. Any Warrants issued upon the transfer or exercise or conversion in
part of this Warrant shall be numbered and shall be registered in a Warrant
Register as they are issued. The Company shall be entitled to treat the
registered holder of any Warrant on the Warrant Register as the owner in fact
thereof for all purposes and shall not be bound to recognize any equitable or
other claim to or interest in such Warrant on the part of any other person, and
shall not be liable for any registration or transfer of Warrants which are
registered or to be registered in the name of a fiduciary or the nominee of a
fiduciary unless made
- 2 -
<PAGE>
with the actual knowledge that a fiduciary or nominee is committing a breach of
trust in requesting such registration or transfer, or with the knowledge of such
facts that its participation therein amounts to bad faith. This Warrant shall be
transferable only on the books of the Company upon delivery thereof duly
endorsed by the Holder or by his duly authorized attorney or representative, or
accompanied by proper evidence of succession, assignment, or authority to
transfer. In all cases of transfer by an attorney, executor, administrator,
guardian, or other legal representative, duly authenticated evidence of his or
its authority shall be produced. Upon any registration of transfer, the Company
shall deliver a new Warrant or Warrants to the person entitled thereto. This
Warrant may be exchanged, at the option of the Holder thereof, for another
Warrant, or other Warrants of different denominations, of like tenor and
representing in the aggregate the right to purchase a like number of Warrant
Shares (or portions thereof), upon surrender to the Company or its duly
authorized agent. Notwithstanding the foregoing, the Company shall have no
obligation to cause Warrants to be transferred on its books to any person if, in
the opinion of counsel to the Company, such transfer does not comply with the
provisions of the Securities Act of 1933, as amended (the "Act"), and the rules
and regulations thereunder.
5. The Company shall at all times reserve and keep available out of
its authorized and unissued Common Stock, solely for the purpose of providing
for the exercise of the rights to purchase all Warrant Shares and/or Conversion
Shares granted pursuant to the Warrants, such number of shares of Common Stock
as shall, from time to time, be sufficient therefor. The Company covenants that
all shares of Common Stock issuable upon exercise of this Warrant, upon receipt
by the Company of the full Exercise Price therefor, and all shares of Common
Stock issuable upon conversion of this Warrant, shall be validly issued, fully
paid, nonassessable, and free of preemptive rights.
6. (a) In case the Company shall at any time after the date the
Warrants were first issued (i) declare a dividend on the outstanding Common
Stock payable in shares of its capital stock, (ii) subdivide the outstanding
Common Stock, (iii) combine the outstanding Common Stock into a smaller number
of shares, or (iv) issue any shares of its capital stock by reclassification of
the Common Stock (including any such reclassification in connection with a
consolidation or merger in which the Company is the continuing corporation),
then, in each case, the Exercise Price, and the number and kind of securities
issuable upon exercise or conversion of this Warrant, in effect at the time of
the record date for such dividend or of the effective date of such subdivision,
combination, or reclassification, shall be proportionately adjusted so that the
Holder after such time shall be entitled to receive the aggregate number and
kind of shares which, if such Warrant had been exercised or converted
immediately prior to such time, he would have owned upon such exercise or
conversion and been entitled to receive by virtue of such dividend, subdivision,
combination, or reclassification. Such adjustment shall be made successively
whenever any event listed above shall occur.
(b) In case the Company shall issue or fix a record date for the
issuance to all holders of Common Stock of rights, options, or warrants to
subscribe for or purchase Common Stock (or securities convertible into or
exchangeable for Common Stock) at a price per share (or having a conversion or
exchange price per share, if a security convertible into or exchangeable for
Common Stock) less than the Current Market Price per share of Common Stock on
such record date, then, in each case, the Exercise Price shall be adjusted by
multiplying the Exercise Price in effect immediately prior to such record date
by a fraction, the numerator of which shall be the number of shares of Common
Stock outstanding on such record date plus the number of shares of Common Stock
which the aggregate offering price of the total number of shares of Common Stock
so to be offered (or the aggregate initial conversion or exchange price of the
convertible or exchangeable securities so to be offered) would purchase at such
Current Market Price and the denominator of which shall be the number of shares
of Common Stock outstanding on such record
- 3 -
<PAGE>
date plus the number of additional shares of Common Stock to be offered for
subscription or purchase (or into which the convertible or exchangeable
securities so to be offered are initially convertible or exchangeable). Such
adjustment shall become effective at the close of business on such record date;
provided, however, that, to the extent the shares of Common Stock (or securities
convertible into or exchangeable for shares of Common Stock) are not delivered,
the Exercise Price shall be readjusted after the expiration of such rights,
options, or warrants (but only with respect to Warrants exercised after such
expiration), to the Exercise Price which would then be in effect had the
adjustments made upon the issuance of such rights, options, or warrants been
made upon the basis of delivery of only the number of shares of Common Stock (or
securities convertible into or exchangeable for shares of Common Stock) actually
issued. In case any subscription price may be paid in a consideration part or
all of which shall be in a form other than cash, the value of such consideration
shall be as determined in good faith by the board of directors of the Company,
whose determination shall be conclusive absent manifest error. Shares of Common
Stock owned by or held for the account of the Company or any majority-owned
subsidiary shall not be deemed outstanding for the purpose of any such
computation.
(c) In case the Company shall distribute to all holders of Common
Stock (including any such distribution made to the stockholders of the Company
in connection with a consolidation or merger in which the Company is the
continuing corporation) evidences of its indebtedness cash (other than any cash
dividend which, together with any cash dividends paid within the 12 months prior
to the record date for such distribution, does not exceed 5% of the Current
Market Price at the record date for such distribution) or assets (other than
cash dividends or distributions and dividends payable in shares of Common
Stock), or rights, options, or warrants to subscribe for or purchase Common
Stock, or securities convertible into or exchangeable for shares of Common Stock
(excluding those with respect to the issuance of which an adjustment of the
Exercise Price is provided pursuant to Section 6(b) hereof), then, in each case,
the Exercise Price shall be adjusted by multiplying the Exercise Price in effect
immediately prior to the record date for the determination of stockholders
entitled to receive such distribution by a fraction, the numerator of which
shall be the Current Market Price per share of Common Stock on such record date,
less the fair market value (as determined in good faith by the board of
directors of the Company, whose determination shall be conclusive absent
manifest error) of the portion of the evidences of indebtedness or assets so to
be distributed, or of such rights, options, or warrants or convertible or
exchangeable securities, applicable to one share, and the denominator of which
shall be such Current Market Price per share of Common Stock. Such adjustment
shall be made whenever any such distribution is made, and shall become effective
on the record date for the determination of stockholders entitled to receive
such distribution.
(d) In case the Company shall issue shares of Common Stock or
rights, options, or warrants to subscribe for or purchase Common Stock, or
securities convertible into or exchangeable for Common Stock (excluding shares,
rights, options, warrants, or convertible or exchangeable securities, issued or
issuable (i) in any of the transactions with respect to which an adjustment of
the Exercise Price is provided pursuant to Sections 6(a), 6(b), or 6(c) above,
or (ii) upon exercise of the Warrants), at a price per share (determined, in the
case of such rights, options, warrants, or convertible or exchangeable
securities, by dividing (x) the total amount received or receivable by the
Company in consideration of the sale and issuance of such rights, options,
warrants, or convertible or exchangeable securities, plus the minimum aggregate
consideration payable to the Company upon exercise, conversion, or exchange
thereof, by (y) the maximum number of shares covered by such rights, options,
warrants, or convertible or exchangeable securities) lower than the Current
Market Price per share of Common Stock in effect immediately prior to such
issuance, then the Exercise Price shall be reduced on the date of such issuance
to a price (calculated to the nearest cent) determined by multiplying the
Exercise Price in effect immediately prior to such issuance by a fraction, (iii)
the numerator of which shall be an amount equal to the sum of (A) the number
- 4 -
<PAGE>
of shares of Common Stock outstanding immediately prior to such issuance plus
(B) the quotient obtained by dividing the consideration received by the Company
upon such issuance by such Current Market Price, and (iv) the denominator of
which shall be the total number of shares of Common Stock outstanding
immediately after such issuance. For the purposes of such adjustments, the
maximum number of shares which the holders of any such rights, options,
warrants, or convertible or exchangeable securities, shall be entitled to
initially subscribe for or purchase or convert or exchange such securities into
shall be deemed to be issued and outstanding as of the date of such issuance,
and the consideration received by the Company therefor shall be deemed to be the
consideration received by the Company for such rights, options, warrants, or
convertible or exchangeable securities, plus the minimum aggregate consideration
or premiums stated in such rights, options, warrants, or convertible or
exchangeable securities, to be paid for the shares covered thereby. No further
adjustment of the Exercise Price shall be made as a result of the actual
issuance of shares of Common Stock on exercise of such rights, options, or
warrants, or on conversion or exchange of such convertible or exchangeable
securities. On the expiration or the termination of such rights, options, or
warrants, or the termination of such right to convert or exchange, the Exercise
Price shall forthwith be readjusted (but only with respect to Warrants exercised
or converted after such expiration or termination) to such Exercise Price as
would have obtained had the adjustments made upon the issuance of such rights,
options, warrants, or convertible or exchangeable securities, been made upon the
basis of the delivery of only the number of shares of Common Stock actually
delivered upon the exercise of such rights, options, or warrants, or upon the
conversion or exchange of any such securities; and on any change of the number
of shares of Common Stock deliverable upon the exercise of any such rights,
options, or warrants or conversion, or exchange of such convertible or
exchangeable securities, or any change in the consideration to be received by
the Company upon such exercise, conversion, or exchange, including, but not
limited to, a change resulting from the anti-dilution provisions thereof, the
Exercise Price, as then in effect, shall forthwith be readjusted (but only with
respect to Warrants exercised or converted after such change) to such Exercise
Price as would have been obtained had an adjustment been made upon the issuance
of such rights, options, or warrants not exercised prior to such change, or
securities not converted or exchanged prior to such change, on the basis of such
change. In case the Company shall issue shares of Common Stock or any such
rights, options, warrants, or convertible or exchangeable securities, for a
consideration consisting, in whole or in part, of property other than cash or
its equivalent, then the "price per share" and the "consideration received by
the Company" for purposes of the first sentence of this Section 6(d) shall be as
determined in good faith by the board of directors of the Company, whose
determination shall be conclusive absent manifest error. Shares of Common Stock
owned by or held for the account of the Company or any majority-owned subsidiary
shall not be deemed outstanding for the purpose of any such computation.
(e) For the purpose of any computation under this Section 6, the
Current Market Price per share of Common Stock on any date shall be deemed to be
the average of the daily closing prices for the 30 consecutive trading days
immediately preceding the date in question. The closing price for each day shall
be the last reported sales price regular way or, in case no such reported sale
takes place on such day, the closing bid price regular way, in either case on
the principal national securities exchange (including, for purposes hereof, the
NASDAQ National Market System) on which the Common Stock is listed or admitted
to trading or, if the Common Stock is not listed or admitted to trading on any
national securities exchange, the highest reported bid price for the Common
Stock as furnished by the National Association of Securities Dealers, Inc.
through NASDAQ or a similar organization if NASDAQ is no longer reporting such
information. If on any such date the Common Stock is not listed or admitted to
trading on any national securities exchange and is not quoted by NASDAQ or any
similar organization, the fair value of a share of Common Stock on such date, as
determined in good faith by the board of directors of the Company, whose
determination shall be conclusive absent manifest error, shall be used.
- 5 -
<PAGE>
(f) No adjustment in the Exercise Price shall be required if such
adjustment is less than $.05; provided, however, that any adjustments which by
reason of this Section 6 are not required to be made shall be carried forward
and taken into account in any subsequent adjustment. All calculations under this
Section 6 shall be made to the nearest cent or to the nearest one-thousandth of
a share, as the case may be.
(g) In any case in which this Section 6 shall require that an
adjustment in the Exercise Price be made effective as of a record date for a
specified event, the Company may elect to defer, until the occurrence of such
event, issuing to the Holder, if the Holder exercised or converted this Warrant
after such record date, the shares of Common Stock, if any, issuable upon such
exercise or conversion over and above the shares of Common Stock, if any,
issuable upon such exercise or conversion on the basis of the Exercise Price in
effect prior to such adjustment; provided, however, that the Company shall
deliver to the Holder a due bill or other appropriate instrument evidencing the
Holder's right to receive such additional shares upon the occurrence of the
event requiring such adjustment.
(h) Upon each adjustment of the Exercise Price as a result of the
calculations made in Sections 6(b), 6(c), or 6(d) hereof, this Warrant shall
thereafter evidence the right to purchase, at the adjusted Exercise Price, that
number of shares (calculated to the nearest thousandth) obtained by dividing (i)
the product obtained by multiplying the number of shares purchasable upon
exercise of this Warrant prior to adjustment of the number of shares by the
Exercise Price in effect prior to adjustment of the Exercise Price, by (ii) the
Exercise Price in effect after such adjustment of the Exercise Price.
(i) Whenever there shall be an adjustment as provided in this
Section 6, the Company shall promptly cause written notice thereof to be sent by
registered mail, postage prepaid, to the Holder, at its address as it shall
appear in the Warrant Register, which notice shall be accompanied by an
officer's certificate setting forth the number of Warrant Shares purchasable
upon the exercise of this Warrant and the Exercise Price after such adjustment
and setting forth a brief statement of the facts requiring such adjustment and
the computation thereof, which officer's certificate shall be conclusive
evidence of the correctness of any such adjustment absent manifest error.
(j) The Company shall not be required to issue fractions of shares
of Common Stock or other capital stock of the Company upon the exercise or
conversion of this Warrant. If any fraction of a share would be issuable on the
exercise or conversion of this Warrant (or specified portions thereof), the
Company shall purchase such fraction for an amount in cash equal to the same
fraction of the Current Market Price of such share of Common Stock on the date
of exercise or conversion of this Warrant.
7. (a) In case of any consolidation with or merger of the Company
with or into another corporation (other than a merger or consolidation in which
the Company is the surviving or continuing corporation), or in case of any sale,
lease, or conveyance to another corporation of the property and assets of any
nature of the Company as an entirety or substantially as an entirety, such
successor, leasing, or purchasing corporation, as the case may be, shall (i)
execute with the Holder an agreement providing that the Holder shall have the
right thereafter to receive upon exercise or conversion of this Warrant solely
the kind and amount of shares of stock and other securities, property, cash, or
any combination thereof receivable upon such consolidation, merger, sale, lease,
or conveyance by a holder of the number of shares of Common Stock for which this
Warrant might have been exercised or converted immediately prior to such
consolidation, merger, sale, lease, or conveyance, and (ii) make effective
provision in its certificate of incorporation or otherwise, if necessary, to
effect such agreement. Such agreement shall provide for adjustments which shall
be as nearly equivalent as practicable to the adjustments in Section 6.
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<PAGE>
(b) In case of any reclassification or change of the shares of
Common Stock issuable upon exercise or conversion of this Warrant (other than a
change in par value or from no par value to a specified par value, or as a
result of a subdivision or combination, but including any change in the shares
into two or more classes or series of shares), or in case of any consolidation
or merger of another corporation into the Company in which the Company is the
continuing corporation and in which there is a reclassification or change
(including a change to the right to receive cash or other property) of the
shares of Common Stock (other than a change in par value, or from no par value
to a specified par value, or as a result of a subdivision or combination, but
including any change in the shares into two or more classes or series of
shares), the Holder shall have the right thereafter to receive upon exercise or
conversion of this Warrant solely the kind and amount of shares of stock and
other securities, property, cash, or any combination thereof receivable upon
such reclassification, change, consolidation, or merger by a holder of the
number of shares of Common Stock for which this Warrant might have been
exercised or converted immediately prior to such reclassification, change,
consolidation, or merger. Thereafter, appropriate provision shall be made for
adjustments which shall be as nearly equivalent as practicable to the
adjustments in Section 6.
(c) The above provisions of this Section 7 shall similarly apply
to successive reclassifications and changes of shares of Common Stock and to
successive consolidations, mergers, sales, leases, or conveyances.
8. In case at any time the Company shall propose
(a) to pay any dividend or make any distribution on shares of
Common Stock in shares of Common Stock or make any other distribution (other
than regularly scheduled cash dividends which are not in a greater amount per
share than the most recent such cash dividend) to all holders of Common Stock;
or
(b) to issue any rights, warrants, or other securities to all
holders of Common Stock entitling them to purchase any additional shares of
Common Stock or any other rights, warrants, or other securities; or
(c) to effect any reclassification or change of outstanding shares
of Common Stock, or any consolidation, merger, sale, lease, or conveyance of
property, described in Section 7; or
(d) to effect any liquidation, dissolution, or winding-up of the
Company; or
(e) to take any other action which would cause an adjustment to
the Exercise Price;
then, and in any one or more of such cases, the Company shall give written
notice thereof, by registered mail, postage prepaid, to the Holder at the
Holder's address as it shall appear in the Warrant Register, mailed at least 15
days prior to (i) the date as of which the holders of record of shares of Common
Stock to be entitled to receive any such dividend, distribution, rights,
warrants, or other securities are to be determined, (ii) the date on which any
such reclassification, change of outstanding shares of Common Stock,
consolidation, merger, sale, lease, conveyance of property, liquidation,
dissolution, or winding-up is expected to become effective, and the date as of
which it is expected that holders of record of shares of Common Stock shall be
entitled to exchange their shares for securities or other property, if any,
deliverable upon such reclassification, change of outstanding shares,
consolidation, merger, sale, lease, conveyance
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<PAGE>
of property, liquidation, dissolution, or winding-up, or (iii) the date of such
action which would require an adjustment to the Exercise Price.
9. The issuance of any shares or other securities upon the exercise
or conversion of this Warrant, and the delivery of certificates or other
instruments representing such shares or other securities, shall be made without
charge to the Holder for any tax or other charge in respect of such issuance.
The Company shall not, however, be required to pay any tax which may be payable
in respect of any transfer involved in the issue and delivery of any certificate
in a name other than that of the Holder and the Company shall not be required to
issue or deliver any such certificate unless and until the person or persons
requesting the issue thereof shall have paid to the Company the amount of such
tax or shall have established to the satisfaction of the Company that such tax
has been paid.
10. (a) If, at any time during the seven-year period commencing upon
completion of the Company's initial public offering, the Company shall file a
registration statement (other than on Form S-4, Form S-8, or any successor form)
with the Securities and Exchange Commission (the "Commission") while any
Underwriters' Securities (as hereinafter defined) are outstanding, the Company
shall give all the then holders of any Underwriters' Securities (the "Eligible
Holders") at least 45 days prior written notice of the filing of such
registration statement. If requested by any Eligible Holder in writing within 30
days after receipt of any such notice, the Company shall, at the Company's sole
expense (other than the fees and disbursements of counsel for the Eligible
Holders and the underwriting discounts, if any, payable in respect of the
Underwriters' Securities sold by any Eligible Holder), register or qualify all
or, at each Eligible Holder's option, any portion of the Underwriters'
Securities of any Eligible Holders who shall have made such request,
concurrently with the registration of such other securities, all to the extent
requisite to permit the public offering and sale of the Underwriters' Securities
through the facilities of all appropriate securities exchanges and the
over-the-counter market, and will use its best efforts through its officers,
directors, auditors, and counsel to cause such registration statement to become
effective as promptly as practicable. Notwithstanding the foregoing, if the
managing underwriter of any such offering shall advise the Company in writing
that, in its opinion, the distribution of all or a portion of the Underwriters'
Securities requested to be included in the registration concurrently with the
securities being registered by the Company would materially adversely affect the
distribution of such securities by the Company for its own account, then any
Eligible Holder who shall have requested registration of his or its
Underwriters' Securities shall delay the offering and sale of such Underwriters'
Securities (or the portions thereof so designated by such managing underwriter)
for such period, not to exceed 90 days (the "Delay Period"), as the managing
underwriter shall request, provided that no such delay shall be required as to
any Underwriters' Securities if any securities of the Company are included in
such registration statement and eligible for sale during the Delay Period for
the account of any person other than the Company and any Eligible Holder unless
the securities included in such registration statement and eligible for sale
during the Delay Period for such other person shall have been reduced pro rata
to the reduction of the Underwriters' Securities which were requested to be
included and eligible for sale during the Delay Period in such registration. As
used herein, "Underwriters' Securities" shall mean the Warrants and the Warrant
Shares and the Conversion Shares which, in each case, have not been previously
sold pursuant to a registration statement or Rule 144 promulgated under the Act.
(b) If, at any time during the five-year period commencing [one
year after effective date], the Company shall receive a written request, from
Eligible Holders who in the aggregate own (or upon exercise of all Warrants then
outstanding would own) a majority of the total number of shares of Common Stock
then included (or upon such exercise would be included) in the Underwriters'
Securities (the "Majority Holders"), to register the sale of all or part of such
Underwriters' Securities, the Company shall,
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<PAGE>
as promptly as practicable, prepare and file with the Commission a registration
statement sufficient to permit the public offering and sale of the Underwriters'
Securities through the facilities of all appropriate securities exchanges and
the over-the-counter market, and will use its best efforts through its officers,
directors, auditors, and counsel to cause such registration statement to become
effective as promptly as practicable; provided, however, that the Company shall
only be obligated to file one such registration statement for which all expenses
incurred in connection with such registration (other than the fees and
disbursements of counsel for the Eligible Holders and underwriting discounts, if
any, payable in respect of the Underwriters' Securities sold by the Eligible
Holders) shall be borne by the Company and one additional such registration
statement for which all such expenses shall be paid by the Eligible Holders.
Within three business days after receiving any request contemplated by this
Section 10(b), the Company shall give written notice to all the other Eligible
Holders, advising each of them that the Company is proceeding with such
registration and offering to include therein all or any portion of any such
other Eligible Holder's Underwriters' Securities, provided that the Company
receives a written request to do so from such Eligible Holder within 30 days
after receipt by him or it of the Company's notice.
(c) In the event of a registration pursuant to the provisions of
this Section 10, the Company shall use its best efforts to cause the
Underwriters' Securities so registered to be registered or qualified for sale
under the securities or blue sky laws of such jurisdictions as the Holder or
such holders may reasonably request; provided, however, that the Company shall
not be required to qualify to do business in any state by reason of this Section
10(c) in which it is not otherwise required to qualify to do business.
(d) The Company shall keep effective any registration or
qualification contemplated by this Section 10 and shall from time to time amend
or supplement each applicable registration statement, preliminary prospectus,
final prospectus, application, document, and communication for such period of
time as shall be required to permit the Eligible Holders to complete the offer
and sale of the Underwriters' Securities covered thereby. The Company shall in
no event be required to keep any such registration or qualification in effect
for a period in excess of nine months from the date on which the Eligible
Holders are first free to sell such Underwriters' Securities; provided, however,
that, if the Company is required to keep any such registration or qualification
in effect with respect to securities other than the Underwriters' Securities
beyond such period, the Company shall keep such registration or qualification in
effect as it relates to the Underwriters' Securities for so long as such
registration or qualification remains or is required to remain in effect in
respect of such other securities.
(e) In the event of a registration pursuant to the provisions of
this Section 10, the Company shall furnish to each Eligible Holder such number
of copies of the registration statement and of each amendment and supplement
thereto (in each case, including all exhibits), such reasonable number of copies
of each prospectus contained in such registration statement and each supplement
or amendment thereto (including each preliminary prospectus), all of which shall
conform to the requirements of the Act and the rules and regulations thereunder,
and such other documents, as any Eligible Holder may reasonably request to
facilitate the disposition of the Underwriters' Securities included in such
registration.
(f) In the event of a registration pursuant to the provisions of
this Section 10, the Company shall furnish each Eligible Holder of any
Underwriters' Securities so registered with an opinion of its counsel
(reasonably acceptable to the Eligible Holders) to the effect that (i) the
registration statement has become effective under the Act and no order
suspending the effectiveness of the registration statement, preventing or
suspending the use of the registration statement, any preliminary prospectus,
any final prospectus, or any amendment or supplement thereto has been issued,
nor has the Commission or any securities or blue sky authority of any
jurisdiction instituted or threatened to institute any proceedings with
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<PAGE>
respect to such an order, (ii) the registration statement and each prospectus
forming a part thereof (including each preliminary prospectus), and any
amendment or supplement thereto, complies as to form with the Act and the rules
and regulations thereunder, and (iii) such counsel has no knowledge of any
material misstatement or omission in such registration statement or any
prospectus, as amended or supplemented. Such opinion shall also state the
jurisdictions in which the Underwriters' Securities have been registered or
qualified for sale pursuant to the provisions of Section 10(c).
(g) In the event of a registration pursuant to the provision of
this Section 10, the Company shall enter into a cross-indemnity agreement and a
contribution agreement, each in customary form, with each underwriter, if any,
and, if requested, enter into an underwriting agreement containing conventional
representations, warranties, allocation of expenses, and customary closing
conditions, including, but not limited to, opinions of counsel and accountants'
cold comfort letters, with any underwriter who acquires any Underwriters'
Securities.
(h) The Company agrees that until all the Underwriters' Securities
have been sold under a registration statement or pursuant to Rule 144 under the
Act, it shall keep current in filing all reports, statements and other materials
required to be filed with the Commission to permit holders of the Underwriters'
Securities to sell such securities under Rule 144.
(i) Except for rights granted to holders of the Warrants, the
Company will not, without the written consent of the Majority Holders, grant to
any persons the right to request the Company to register any securities of the
Company, provided that the Company may grant such registration rights to other
persons so long as such rights are subordinate to the rights of the Eligible
Holders.
11. (a) Subject to the conditions set forth below, the Company agrees
to indemnify and hold harmless each Eligible Holder, its officers, directors,
partners, employees, agents, and counsel, and each person, if any, who controls
any such person within the meaning of Section 15 of the Act or Section 20(a) of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), from and
against any and all loss, liability, charge, claim, damage, and expense
whatsoever (which shall include, for all purposes of this Section 11, but not be
limited to, attorneys' fees and any and all expenses whatsoever incurred in
investigating, preparing, or defending against any litigation, commenced or
threatened, or any claim whatsoever, and any and all amounts paid in settlement
of any claim or litigation), as and when incurred, arising out of, based upon,
or in connection with (i) any untrue statement or alleged untrue statement of a
material fact contained (A) in any registration statement, preliminary
prospectus, or final prospectus (as from time to time amended and supplemented),
or any amendment or supplement thereto, relating to the sale of any of the
Underwriters' Securities, or (B) in any application or other document or
communication (in this Section 11 collectively called an "application") executed
by or on behalf of the Company or based upon written information furnished by or
on behalf of the Company filed in any jurisdiction in order to register or
qualify any of the Underwriters' Securities under the securities or blue sky
laws thereof or filed with the Commission or any securities exchange; or any
omission or alleged omission to state a material fact required to be stated
therein or necessary to make the statements therein not misleading, unless such
statement or omission was made in reliance upon and in conformity with written
information furnished to the Company with respect to such Eligible Holder by or
on behalf of such person expressly for inclusion in any registration statement,
preliminary prospectus, or final prospectus, or any amendment or supplement
thereto, or in any application, as the case may be, or (ii) any breach of any
representation, warranty, covenant, or agreement of the Company contained in
this Warrant. The foregoing agreement to indemnify shall be in addition to any
liability the Company may otherwise have, including liabilities arising under
this Warrant.
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<PAGE>
If any action is brought against any Eligible Holder or any of its
officers, directors, partners, employees, agents, or counsel, or any controlling
persons of such person (an "indemnified party") in respect of which indemnity
may be sought against the Company pursuant to the foregoing paragraph, such
indemnified party or parties shall promptly notify the Company in writing of the
institution of such action (but the failure so to notify shall not relieve the
Company from any liability pursuant to this Section 11(a)) and the Company shall
promptly assume the defense of such action, including the employment of counsel
(reasonably satisfactory to such indemnified party or parties) and payment of
expenses. Such indemnified party or parties shall have the right to employ its
or their own counsel in any such case, but the fees and expenses of such counsel
shall be at the expense of such indemnified party or parties unless the
employment of such counsel shall have been authorized in writing by the Company
in connection with the defense of such action or the Company shall not have
promptly employed counsel reasonably satisfactory to such indemnified party or
parties to have charge of the defense of such action or such indemnified party
or parties shall have reasonably concluded that there may be one or more legal
defenses available to it or them or to other indemnified parties which are
different from or additional to those available to the Company, in any of which
events such fees and expenses shall be borne by the Company and the Company
shall not have the right to direct the defense of such action on behalf of the
indemnified party or parties. Anything in this Section 11 to the contrary
notwithstanding, the Company shall not be liable for any settlement of any such
claim or action effected without its written consent, which shall not be
unreasonably withheld. The Company shall not, without the prior written consent
of each indemnified party that is not released as described in this sentence,
settle or compromise any action, or permit a default or consent to the entry of
judgment in or otherwise seek to terminate any pending or threatened action, in
respect of which indemnity may be sought hereunder (whether or not any
indemnified party is a party thereto), unless such settlement, compromise,
consent, or termination includes an unconditional release of each indemnified
party from all liability in respect of such action. The Company agrees promptly
to notify the Eligible Holders of the commencement of any litigation or
proceedings against the Company or any of its officers or directors in
connection with the sale of any Underwriters' Securities or any preliminary
prospectus, prospectus, registration statement, or amendment or supplement
thereto, or any application relating to any sale of any Underwriters'
Securities.
(b) The Holder agrees to indemnify and hold harmless the Company,
each director of the Company, each officer of the Company who shall have signed
any registration statement covering Underwriters' Securities held by the Holder,
each other person, if any, who controls the Company within the meaning of
Section 15 of the Act or Section 20(a) of the Exchange Act, and its or their
respective counsel, to the same extent as the foregoing indemnity from the
Company to the Holder in Section 11(a), but only with respect to statements or
omissions, if any, made in any registration statement, preliminary prospectus,
or final prospectus (as from time to time amended and supplemented), or any
amendment or supplement thereto, or in any application, in reliance upon and in
conformity with written information furnished to the Company with respect to the
Holder by or on behalf of the Holder expressly for inclusion in any such
registration statement, preliminary prospectus, or final prospectus, or any
amendment or supplement thereto, or in any application, as the case may be. If
any action shall be brought against the Company or any other person so
indemnified based on any such registration statement, preliminary prospectus, or
final prospectus, or any amendment or supplement thereto, or in any application,
and in respect of which indemnity may be sought against the Holder pursuant to
this Section 11(b), the Holder shall have the rights and duties given to the
Company, and the Company and each other person so indemnified shall have the
rights and duties given to the indemnified parties, by the provisions of Section
11(a).
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<PAGE>
(c) To provide for just and equitable contribution, if (i) an
indemnified party makes a claim for indemnification pursuant to Section 11(a) or
11(b) (subject to the limitations thereof) but it is found in a final judicial
determination, not subject to further appeal, that such indemnification may not
be enforced in such case, even though this Agreement expressly provides for
indemnification in such case, or (ii) any indemnified or indemnifying party
seeks contribution under the Act, the Exchange Act or otherwise, then the
Company (including for this purpose any contribution made by or on behalf of any
director of the Company, any officer of the Company who signed any such
registration statement, any controlling person of the Company, and its or their
respective counsel), as one entity, and the Eligible Holders of the
Underwriters' Securities included in such registration in the aggregate
(including for this purpose any contribution by or on behalf of an indemnified
party), as a second entity, shall contribute to the losses, liabilities, claims,
damages, and expenses whatsoever to which any of them may be subject, on the
basis of relevant equitable considerations such as the relative fault of the
Company and such Eligible Holders in connection with the facts which resulted in
such losses, liabilities, claims, damages, and expenses. The relative fault, in
the case of an untrue statement, alleged untrue statement, omission, or alleged
omission, shall be determined by, among other things, whether such statement,
alleged statement, omission, or alleged omission relates to information supplied
by the Company or by such Eligible Holders, and the parties' relative intent,
knowledge, access to information, and opportunity to correct or prevent such
statement, alleged statement, omission, or alleged omission. The Company and the
Holder agree that it would be unjust and inequitable if the respective
obligations of the Company and the Eligible Holders for contribution were
determined by pro rata or per capita allocation of the aggregate losses,
liabilities, claims, damages, and expenses (even if the Holder and the other
indemnified parties were treated as one entity for such purpose) or by any other
method of allocation that does not reflect the equitable considerations referred
to in this Section 11(c). In no case shall any Eligible Holder be responsible
for a portion of the contribution obligation imposed on all Eligible Holders in
excess of its pro rata share based on the number of shares of Common Stock owned
(or which would be owned upon exercise of all Underwriters' Securities) by it
and included in such registration as compared to the number of shares of Common
Stock owned (or which would be owned upon exercise of all Underwriters'
Securities) by all Eligible Holders and included in such registration. No person
guilty of a fraudulent misrepresentation (within the meaning of Section 11(f) of
the Act) shall be entitled to contribution from any person who is not guilty of
such fraudulent misrepresentation. For purposes of this Section 11(c), each
person, if any, who controls any Eligible Holder within the meaning of Section
15 of the Act or Section 20(a) of the Exchange Act and each officer, director,
partner, employee, agent, and counsel of each such Eligible Holder or control
person shall have the same rights to contribution as such Eligible Holder or
control person and each person, if any, who controls the Company within the
meaning of Section 15 of the Act or Section 20(a) of the Exchange Act, each
officer of the Company who shall have signed any such registration statement,
each director of the Company, and its or their respective counsel shall have the
same rights to contribution as the Company, subject in each case to the
provisions of this Section 11(c). Anything in this Section 11(c) to the contrary
notwithstanding, no party shall be liable for contribution with respect to the
settlement of any claim or action effected without its written consent. This
Section 11(c) is intended to supersede any right to contribution under the Act,
the Exchange Act or otherwise.
12. Unless registered pursuant to the provisions of Section 10
hereof, the Warrant Shares or Conversion Shares issued upon exercise or
conversion of the Warrants shall be subject to a stop transfer order and the
certificate or certificates evidencing such Warrant Shares shall bear the
following legend:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, PURSUANT
TO A REGISTRATION STATEMENT FILED WITH THE SECURITIES AND
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<PAGE>
EXCHANGE COMMISSION. HOWEVER, SUCH SHARES MAY NOT BE OFFERED OR SOLD
EXCEPT PURSUANT TO (i) A POST-EFFECTIVE AMENDMENT TO SUCH REGISTRATION
STATEMENT, (ii) A SEPARATE REGISTRATION STATEMENT UNDER SUCH ACT,
OR (iii) AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT."
13. Upon receipt of evidence satisfactory to the Company of the loss,
theft, destruction, or mutilation of any Warrant (and upon surrender of any
Warrant if mutilated), and upon reimbursement of the Company's reasonable
incidental expenses, the Company shall execute and deliver to the Holder thereof
a new Warrant of like date, tenor, and denomination.
14. The Holder of any Warrant shall not have, solely on account of
such status, any rights of a stockholder of the Company, either at law or in
equity, or to any notice of meetings of stockholders or of any other proceedings
of the Company, except as provided in this Warrant.
15. This Warrant shall be construed in accordance with the laws of
the State of New York applicable to contracts made and performed within such
State, without regard to principles of conflicts of law.
16. The Company irrevocably consents to the jurisdiction of the
courts of the State of New York and of any federal court located in such State
in connection with any action or proceeding arising out of or relating to this
Warrant, any document or instrument delivered pursuant to, in connection with or
simultaneously with this Warrant, or a breach of this Warrant or any such
document or instrument. In any such action or proceeding, the Company waives
personal service of any summons, complaint or other process and agrees that
service thereof may be made in accordance with Section 12 of the Underwriting
Agreement. Within 30 days after such service, or such other time as may be
mutually agreed upon in writing by the attorneys for the parties to such action
or proceeding, the Company shall appear to answer such summons, complaint or
other process. Should the Company so served fail to appear or answer within such
30-day period or such extended period, as the case may be, the Company shall be
deemed in default and judgment may be entered against the Company for the amount
as demanded in any summons, complaint or other process so served.
Dated: , 199_
CALLNOW.COM, INC.
By: ____________________________
, President
[Seal]
____________________________
Secretary
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<PAGE>
FORM OF ASSIGNMENT
(To be executed by the registered holder if such holder desires to transfer the
attached Warrant.)
FOR VALUE RECEIVED, ___________________hereby sells, assigns,
and transfers unto __________________ a Warrant to purchase __________ shares of
Common Stock, par value $[0.001] per share, of [Company] (the "Company"),
together with all right, title, and interest therein, and does hereby
irrevocably constitute and appoint ____________________attorney to transfer such
Warrant on the books of the Company, with full power of substitution.
Dated:__________________
Signature_______________________
NOTICE
The signature on the foregoing Assignment must correspond to the name
as written upon the face of this Warrant in every particular, without alteration
or enlargement or any change whatsoever.
<PAGE>
To: CALLNOW.COM, INC.
50 Broad Street
New York, New York 10004
ELECTION TO EXERCISE
The undersigned hereby exercises his or its rights to purchase _______
Warrant Shares covered by the within Warrant and tenders payment herewith in the
amount of $_________ in accordance with the terms thereof, and requests that
certificates for such securities be issued in the name of, and delivered to:
____________________________
___________________________
________________________________
(Print Name, Address and Social Security
or Tax Identification Number)
and, if such number of Warrant Shares shall not be all the Warrant Shares
covered by the within Warrant, that a new Warrant for the balance of the Warrant
Shares covered by the within Warrant be registered in the name of, and delivered
to, the undersigned at the address stated below.
Dated:____________________________ Name_____________________
(Print)
Address:____________________________
____________________________
(Signature)
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<PAGE>
To: CALLNOW.COM, INC.
50 Broad Street
New York, New York 10004
CASHLESS EXERCISE FORM
(To be executed upon conversion of the attached Warrant)
The undersigned hereby irrevocably elects to surrender its Warrant
for the number of shares of Common Stock as shall be issuable pursuant to the
cashless exercise provisions of the within Warrant, in respect of _____ shares
of Common Stock underlying the within Warrant, and requests that certificates
for such securities be issued in the name of and delivered to:
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
(Print Name, Address and Social Security
or Tax Identification Number)
and, if such number of shares shall not be all the shares exchangeable or
purchasable under the within Warrant, that a new Warrant for the balance of the
Warrant Shares covered by the within Warrant be registered in the name of, and
delivered to, the undersigned at the addressed stated below.
Dated: _________________________ Name _____________________________
(Print)
Address: _____________________________________________________________
____________________________
(Signature)
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<PAGE>
CONSULTING / EMPLOYMENT AGREEMENT Exhibit 10.2
This interim agreement dated November 1, 1998 is entered by and between
Axicom Communications Group, Inc. ("Axicom") with offices at 50 Broad St., Suite
501, New York, NY 10004, and Mr. Chris Seelbach ("Seelbach"), with offices at 44
Woodcrest Avenue Short Hill, NJ 07078
WHEREAS, AxicomOnline is in the business of providing telecommunications
services to international consumers worldwide; and
WHEREAS, Mr. Seelbach is a consultant to the telecommunications industry,
and
WHEREAS, Axicom wishes to engage Mr. Seelbach's services initially as a part
time consultant and at the next financing as a full time employee; and
NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, Axicom and Mr. Seelbach agreed as hereby
follows:
1. Develop clear roles/responsibilities of Senior Managers. Operational plans
will follow the five year business plan and subsequent plans as approved by
the Board of Directors (BOD).
2. The Board of Directors will include Christian Bardenheuer, Warner Johnson,
Chris Seelbach (at the completion of the next financing), Karla Elrod, Carla
Harris, and new stockholders as appropriate.
3. As one of the Senior Managers, Mr. Seelbach will be responsible with the
others to propose major financial and management policies subject to BOD
approval. Any major disagreements between Senior Managers will be decided by
the BOD.
4. Compensation for Mr. Seelbach's services started in August at $5000 per
month payable with the next funding. In the event funding is not secured,
payment for these services will start upon the company reaching $200,000 in
monthly sales or March 1, 1999, whichever is earlier. In addition, starting
with the month of funding, Mr. Bardenheuer, Mr. Johnson and Mr. Seelbach
will be compensated at $10,000 per month until Axicom reaches revenue of $1M
per month, at which point compensation will be increased to $15,000 per
month. As one of the Senior Managers, Mr. Seelbach will participate in the
company's employee benefits, bonus and stock options programs which will be
developed and approved by the Senior Managers and by the BOD.
5. Axicom will grant Mr. Seelbach options/warrants for 5% of the company as
follows: 2.5% effective 11/1/98 at the last price of stock sold ($1.00 per
share) to be vested 6 months after the date of signing of this agreement. In
addition, these options/warrants will have a clause to increase the number
of shares granted at next financing, at
<PAGE>
the price of the financing, so that the 2.5% position is maintained; these
additional shares to maintain this position will vest 6 months after the
financing. Additional options/warrants for another 2.5% will be granted at
the next round of financing, at that price, to be vested 12 months after the
financing (anticipated first quarter, 1999). These options/warrants will
remain in effect as long as Mr. Seelbach remains with the company and are
exercisable over five years. In the event that new investors or the BOD
determine that the services of Mr. Seelbach are no longer required at any
time after the grant of the options, those granted will immediately vest. In
the event that Mr. Seelbach were to leave Axicom voluntarily prior to the
date that the options/warrants granted vest, these options/warrants will
immediately become null and void.
6. Mr. Seelbach will be granted the right to purchase additional
options/warrants at subsequent financings (at the then stock price) over the
next two years to prevent dilution of his 5% ownership; these options will
vest 12 months after the financing. These options/warrants will remain in
effect as long as Mr. Seelbach remains with the company and are exercisable
over five years. In the event that new investors or the current BOD
determine that Mr. Seelbach's services are no longer required at any time
after the grant of the options, those granted will immediately vest. In the
event that Mr. Seelbach were to leave Axicom voluntarily prior to the date
that the options/warrants granted vest, these options/warrant will
immediately become null and void.
7. The finders fee of $35,000 for the $500,000 extension of credit by FCI is
acknowledged and wil be paid upon the next financing. In the event there is
not financing this fee will become payable upon the company reaching
$250,000 in monthly sales or April 1, 1999, whichever is sooner. No
additional finders fees will be due after Mr. Seelbach executes this
agreement with the company.
8. This agreement defines the terms of Mr. Seelbach's employment and
compensation with Axicom and is intended to be part of an employment
contract that will be effective prior to financing. However, these terms
will remain in effect and will be binding unless modified by mutual consent.
Agreed to/date:
/s/ Chris Seelbach 12/21/98
---------------------------
Chris Seelbach
/s/ Warner R. Johnson, Jr. Dec 21, 1998 /s/ Christian Bardenheuer
--------------------------- ---------------------------
Warner Johnson Christian Bardenheuer
Managing Director President, Managing Directors
<PAGE>
Exhibit 10.4
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT, made as of May 19, 1999 (the
"Agreement") by and between BUTTLE & TUTTLE LTD, a Nevis corporation with a
principal place of business at 1 Belmont Terrace, Ramsey, IOM, IM8 3PG, United
Kingdom ("Vendor") and CALLNOW.COM INC., a Delaware corporation with a principal
place of business at 50 Broad Street, Suite 501, New York, New York 10004
("Purchaser"),
W I T N E S S E T H:
WHEREAS, Vendor is engaged in the business of operating and maintaining
a web site which is primarily an index of links to online telephone fax and
business directories from around the world known as "Telephone Directories on
the Web" hosting its internet presence at www.teldir.com (the "Site"); and
WHEREAS, Vendor desires to sell and transfer to Purchaser, and
Purchaser desires to purchase from Vendor, the business and assets, but not the
liabilities (the "Business") of Telephone Directories on the Web, at the price,
upon the terms and subject to the conditions, representations and warranties
stated in this Agreement; and
WHEREAS, Vendor desires to assign and transfer to Purchaser, and
Purchaser desires to accept such assignment and transfer from Vendor, all
contracts between Vendor and the subscribers, clients and advertisers of the
Business, at the price, upon the terms and subject to the conditions,
representations and warranties stated in this Agreement;
NOW, THEREFORE, in consideration of the premises and the mutual agreements
herein contained, the parties hereto agree as follows:
ARTICLE ONE. SALE OF ASSETS & INTELLECTUAL PROPERTY, AND PAYMENT OF THE PURCHASE
PRICE.
SECTION 1.01. SALE OF ASSETS AND INTELLECTUAL PROPERTY. On the Closing Date (as
defined in Section 2.01), upon the terms, subject to the conditions and in
consideration of the Purchase Price (as defined in Section 1.04), Vendor will
sell, convey, transfer, assign and deliver or cause to be sold, conveyed,
transferred, assigned and delivered to Purchaser and Purchaser will purchase and
accept from Vendor, free and clear of any and all liens, pledges,
hypothecations, encumbrances, claims, taxes, charges, agreements, rights,
options, warrants or restrictions of any kind, nature or description, all of the
assets and intellectual property as described in SCHEDULE A including the Site
and the rights to the name "Telephone Directories on the Web" and to
"www.teldir.com" and any related trademarks, copyrights and patents; The
software which includes password access and control of the source code running
on the server, a paper copy of the Perl scripts and HTML, the web server
configuration files, and a description of and access to existing free software
that have been configured and installed for statistical analysis; descriptions
of all of the equipment necessary to run the Site and the business of the Site
(the "Assets").
<PAGE>
SECTION 1.02. ASSIGNMENT OF CONTRACTS. On the Closing Date, upon the terms,
subject to the conditions and in consideration of the Purchase Price, Vendor
will sell, convey, transfer, assign and deliver or cause to be sold, conveyed,
transferred, assigned and delivered to Purchaser and Purchaser will purchase and
accept from Vendor, free and clear of any and all liens, pledges,
hypothecations, encumbrances, claims, taxes, charges, agreements, rights,
options, warrants or restrictions of any kind, nature or description other than
the Vendor's Lien, all of Vendor's right, title and interest in and to the
contracts (written or oral) between Vendor and the subscribers, clients and
advertisers of the Business, true, correct and complete copies (written
descriptions in the case of oral contracts and purchase orders) of which are
attached hereto as EXHIBIT "1" (the "Contracts").
SECTION 1.03. AMOUNT AND ALLOCATION OF PURCHASE PRICE. In consideration of and
upon the sale, transfer and delivery of the Assets and the assignment of the
Contracts and Intellectual Property from Vendor to Purchaser on the Closing
Date, and subject to the terms and conditions herein contained, Purchaser will,
on the Closing Date, pay to Vendor the sum of Sixty Thousand Dollars ($60,000)
(the "Purchase Price").
SECTION 1.04. MODE OF PAYMENT. Purchaser shall pay the Purchase Price as
follows:
(A) PAYMENT AT CLOSING. Purchaser shall deliver to Vendor on the
Closing Date cash or cash equivalents in the amount of Twenty Thousand
United States Dollars (US$20,000.00).
(B) PROMISSORY NOTE. Purchaser shall deliver to Vendor on the Closing
Date a promissory note in the amount of Forty Thousand United States
Dollars (US$40,000.00) substantially in the form of the promissory note
attached hereto as EXHIBIT "2" (the "Note").
ARTICLE TWO. CLOSING AND CERTAIN COVENANTS AND CONDITIONS PRECEDENT.
SECTION 2.01. CLOSING DATE; TIME; LOCATION. The "Closing Date", as such term is
used herein, shall mean the date on which the consummation of the sale,
purchase, transfer and delivery of the Assets, and the assignment of the
Contracts shall occur, which date shall be May 19, 1999, or such other date as
the parties hereto shall agree upon, but not later than June 1, 1999. The
consummation of the sale, purchase, transfer, delivery and assignment shall
occur at 10:00 a.m. (New York Time) on the Closing Date, by delivery of
documents to Stairs Dillenbeck Finley & Merle, 330 Madison Avenue, New York, New
York, and via a telephone conference call among Stairs Dillenbeck Finley
SECTION 2.02. FURTHER ASSURANCES. At any time and from time to time after the
Closing Date, at the request of Purchaser and without further consideration,
Vendor will execute and
<PAGE>
deliver such other instruments of sale, transfer, conveyance, assignment and
confirmation and take such other action as Purchaser and Vendor may reasonably
deem necessary or desirable in order to sell, transfer, deliver and assign more
effectively to Purchaser, and to confirm Purchaser's title to, all of the
Assets, and to sell and assign to Purchaser, and to confirm Purchaser's interest
in the Contracts.
SECTION 2.03. NO ASSUMPTION OF LIABILITIES BY PURCHASER. Purchaser shall not
assume by virtue of this Agreement or the transactions contemplated hereby any
obligations or liabilities of Vendor other than Vendor's obligations under the
Contracts. All debts, obligations, contracts (other than the Contracts) or
liabilities of Vendor of any type or kind shall remain the sole responsibility
of Vendor. The sale of Assets and the assignment of the Contracts and
Intellectual Property contemplated by this Agreement are not intended to
constitute the sale of a going concern or the assumption by Purchaser of any of
Vendor's liabilities.
SECTION 2.04. VENDOR'S BEST EFFORTS COMMITMENT. Vendor shall use its best
efforts to encourage its subscribers, clients and advertisers to do business
with Purchaser after the Closing Date.
ARTICLE THREE. REPRESENTATIONS AND WARRANTIES OF VENDOR.
SECTION 3.01. REPRESENTATIONS AND WARRANTIES OF VENDOR. Vendor represents and
warrants to and agrees with Purchaser that:
(A) CORPORATE EXISTENCE. Vendor is a corporation duly organized,
validly existing and in good standing under the laws of the
jurisdiction of Nevis, West Indies, has all requisite corporate power
and authority to conduct its business and is entitled to carry on its
business as now being conducted and to own, lease and operate the
properties used in connection therewith as and in the places where the
business is now conducted and the properties are owned, leased or
operated.
(B) AUTHORITY AND ENFORCEABILITY. Vendor has all requisite power and
authority to enter into, execute and deliver this Agreement and has
taken all necessary action to authorize the execution and delivery of
this Agreement and to consummate the transactions contemplated by this
Agreement in accordance with the provisions hereof. This Agreement
constitutes the valid and binding obligation of Vendor enforceable in
accordance with its terms.
(C) NO CONFLICT. Neither the execution and the delivery of this
Agreement, the consummation of the transactions contemplated hereby,
nor the fulfillment of or compliance with the terms, conditions or
provisions hereof (i) will conflict with or result in a breach of any
relevant statute, law, ordinance, rule or regulation applicable to
Vendor, or the terms, conditions or provisions of the Certificate of
Incorporation or the By-Laws of Vendor or any mortgage, indenture,
lease, agreement, or other instrument, or any permit, concession,
grant, franchise, license, judgment, order, or
<PAGE>
decree to which Vendor is a party or by which it is or may be bound, or
(ii) will constitute, with the giving of notice or the passage of time
or both, a default by Vendor under any of the foregoing, or (iii) will
accelerate the maturity of or otherwise modify any obligation of Vendor
under any of the foregoing.
(D) COMPLIANCE WITH LAWS. Vendor has complied in all material respects
with all applicable country, federal, state and local laws, regulations
and ordinances affecting the Contracts.
(E) CONSENTS. No consent, approval, order or authorization of, or
registration, declaration or filing with, any governmental authority or
any other person is required in connection with the execution and
delivery of this Agreement by Vendor or the consummation of the
transactions contemplated hereby.
(F) TAX MATTERS. Vendor does not know of any audits, assessments,
notices of deficiency, claims or demands for taxes or proposed
deficiencies against Vendor for any federal, state or local taxes.
(G) LAWSUITS. There are (i) no action, suit, arbitration, governmental
investigation (known to Vendor), or other legal or administrative
proceeding pending or, to the knowledge of Vendor, threatened against
Vendor or against the Business in any court or before any governmental
agency or arbitration tribunal and (ii) no action, suit or arbitration,
governmental investigation (known to Vendor), or other legal or
administrative proceeding pending or, to the knowledge of Vendor,
threatened against persons other than Vendor which, in the case of
either (i) or (ii), if successful, would give rise to a material
liability of Vendor or the Business or would create or impose a
material lien or encumbrance on the Business or on any of the Assets,
Contracts or Intellectual Property. Vendor is not in default with
respect to any order, writ, injunction or decree of any court,
governmental agency or arbitration tribunal. There is no pending
action, suit or proceeding which has been brought by or on behalf of
Vendor before any governmental agency or arbitration tribunal. Vendor
has no knowledge of any pending legislation, governmental regulation or
technological development which would materially and adversely affect
any of the Assets, Contracts or Intellectual Property.
(H) TITLE TO ASSETS. Vendor has good and marketable title to the
Assets, wherever located, free and clear of any liens, mortgages,
security interests, pledges, charges or encumbrances. Purchaser has
received true, correct and complete copies of all title documents and
similar documents relating to the Assets.
(I) CONDITION OF ASSETS. The Assets are in good repair and sound
operating condition, ordinary wear and tear excepted.
(J) EMPLOYEES. There are no employees.
<PAGE>
(K) ABSENCE OF CERTAIN COMMERCIAL PRACTICES. Neither Vendor nor, to the
knowledge of Vendor, any officer, employee or agent of Vendor or any
person acting on behalf of any of the foregoing, has since the
commencement of the Business, directly or indirectly, given or agreed
to give any gift or similar benefit to any customer, supplier,
governmental employee or other person who is or may be in a position to
help or hinder the business of Vendor or assist Vendor in connection
with any actual or proposed transaction, which, if not given in the
past, might have had a material adverse effect on the business of
Vendor, or which, if not continued in the future, might materially and
adversely affect the business of Vendor or which might subject Vendor
to any material liability, or penalty in any private or governmental
litigation or proceeding.
(L) REPUTATION AND STANDING. Neither Vendor nor, to the knowledge of
Vendor, any officer, employee or agent of Vendor or any person acting
on behalf of any of the foregoing, has since the commencement of the
Business, directly or indirectly, done any act or thing which, if
generally known, would tend to bring into disrepute Vendor, the
Business or anyone associated with Vendor or the Site.
(M) ABSENCE OF BREACH. There has not been a breach or any default in
any obligation to be performed by Vendor under the any of the
Contracts, and Vendor has not waived any substantial right under any of
the Contracts.
(N) ASSETS AND INTELLECTUAL PROPERTY. SCHEDULE "A" attached hereto
contains a true, correct and complete list of all assets, trademarks
and service marks (whether registered or unregistered), trade names,
patents and copyrights owned by Vendor and which are used now or have
been used in the past in connection with the Business (the
"Intellectual Property"). Vendor owns or has the right to use, free and
clear of any payment or encumbrance, the Intellectual Property. Vendor
has no knowledge of any claim or demand of any person pertaining to, or
any proceedings which have been instituted or are pending or threatened
which challenge, the right of Vendor in respect of any of the
Intellectual Property.
(O) DISCLOSURE. No representation or warranty by Vendor hereunder and
no list, certificate, Schedule or Exhibit furnished or to be furnished
pursuant hereto or in connection with the transactions contemplated
hereby contains or will contain any untrue statement of a material
fact, or omits or will omit to state a material fact necessary to make
the statements contained therein not misleading.
SECTION 3.02. CONTINUATION OF REPRESENTATIONS AND WARRANTIES OF VENDOR. All of
the representations and warranties of Vendor contained herein shall be true in
all respects on and as of the Closing Date and, notwithstanding any
investigation at any time made by or on behalf of Purchaser, all such
representations and warranties shall survive the Closing Date and remain in full
force and effect (regardless of what investigations or verifications may be made
by Purchaser or any of its agents or representatives) until the fifth
anniversary of the Closing Date; provided, however, that the representation and
warranty set forth in Section 3.01(f) shall
<PAGE>
survive for so long as (i) any tax return remains open and until the sixtieth
day following expiration of the applicable statute of limitations (including
extensions thereof) or (ii) any tax liability of Vendor is subject to adjustment
by governmental authorities (federal, state or local) for any tax period of
Vendor through the Closing Date.
ARTICLE FOUR. REPRESENTATIONS AND WARRANTIES OF PURCHASER.
SECTION 4.01. REPRESENTATIONS AND WARRANTIES OF PURCHASER. Purchaser hereby
represents, warrants to and agrees with Vendor that:
(A) CORPORATE EXISTENCE. Purchaser is a corporation duly organized,
validly existing and in good standing under the laws of the State of
Delaware, and has all requisite corporate power and authority to
conduct its business as now being conducted.
(B) AUTHORITY AND ENFORCEABILITY. Purchaser has all requisite power and
authority to enter into, execute and deliver this Agreement and has
taken all necessary action to authorize the execution and delivery of
this Agreement and to consummate the transactions contemplated by this
Agreement in accordance with the provisions hereof. This Agreement
constitutes the valid and binding obligation of Purchaser enforceable
in accordance with its terms.
(C) NO CONFLICT. Neither the execution and the delivery of this
Agreement, the consummation of the transactions contemplated hereby,
nor the fulfillment of or compliance with the terms, conditions or
provisions hereof (i) will conflict with or result in a breach of the
terms, conditions or provisions of the Certificate of Incorporation or
the By-Laws of Purchaser or any mortgage, indenture, lease, agreement,
or other instrument, or any permit, concession, grant, franchise,
license, judgment, order, or decree to which Purchaser is a party or by
which it is or may be bound, or (ii) will constitute, with the giving
of notice or the passage of time or both, a default under any of the
foregoing, or (iii) will accelerate the maturity of or otherwise modify
any obligation of Purchaser under any of the foregoing. This paragraph
shall survive the delivery of the bill of sale or any other instrument
evidencing the closing of the transaction.
(D) CONSENTS. No consent, approval, order or authorization of, or
registration, declaration or filing with any governmental authority or
any other person is required in connection with the execution and
delivery of this Agreement by Purchaser or the consummation of the
transactions contemplated hereby. This paragraph shall survive the
delivery of the bill of sale or any other instrument evidencing the
closing of the transaction.
(E) DISCLOSURE. No representation or warranty by Purchaser hereunder
and no document furnished or to be furnished by Purchaser pursuant
hereto or in connection with the transactions contemplated hereby
contains or will contain any untrue statement
<PAGE>
of a material fact, or omits or will omit to state a material fact
necessary to make the statements contained therein not misleading. This
paragraph shall survive the delivery of the bill of sale or any other
instrument evidencing the closing of the transaction.
(F) REPUTATION AND STANDING. Neither Purchaser nor, to the knowledge of
Purchaser, any officer, employee or agent of Purchaser or any person
acting on behalf of any of the foregoing, has since the commencement of
the Business, directly or indirectly, done any act or thing which, if
generally known, would tend to bring into disrepute Vendor, the
Business or anyone associated with Vendor or the Business.
SECTION 4.02. CONTINUATION OF REPRESENTATIONS AND WARRANTIES OF PURCHASER. All
of the representations and warranties of Purchaser contained herein shall
terminate, unless otherwise indicated, upon the full payment of the Purchase
Price and consulting fees to Vendor, including payment of any promissory note(s)
signed and delivered by Purchaser to Vendor on the Closing Date and shall be of
no further force or effect whatsoever.
ARTICLE FIVE. COVENANTS OF VENDOR AND PURCHASER.
SECTION 5.01. COVENANTS OF VENDOR. Vendor hereby covenants and agrees with
Purchaser that:
(A) CONTINUANCE OF BUSINESS. From the date hereof and through the
Closing Date, Vendor will:
(i) carry on the business of Vendor in, and only in,
the usual, regular and ordinary course in substantially the
same manner as heretofore, and, to the extent consistent with
such business, Vendor will use its best efforts to preserve
intact Vendor's present business organization, to keep
available the services of Vendor's present officers and
employees, and to preserve Vendor's relationships with
customers, suppliers and others having business dealings with
Vendor in connection with the Business to the end that its
goodwill and going business shall be conducted on
substantially the same basis at the Closing Date as at the
date hereof and heretofore;
(ii) maintain all of the Assets in good repair and
sound operating condition, except for ordinary wear and tear
and casualty losses of the type described in Section 6.02(g);
(iii) perform in all material respects all of
Vendor's obligations under the Contracts;
(iv) comply in all material respects with all
statutes, laws, ordinances, rules and regulations applicable
to the Business, the Contracts and Intellectual Property;
<PAGE>
(v) not merge or consolidate with, or agree to merge
or consolidate with, or to purchase substantially all of the
assets of, or otherwise to acquire any business or any
corporation, partnership, association or other business
organization or division thereof;
(vi) promptly to advise Purchaser in writing of any
material and adverse change in the financial condition,
operations or business of Vendor, and
(B) ACCESS TO INFORMATION. From and after the date hereof Vendor will
give to Purchaser and its representatives, accountants and agents full
access to the properties, books, records, contracts and commitments
relating to the Business, the Assets, the Contracts, and the
Intellectual Property including full access to the officers and
employees of Vendor. Vendor will furnish such information and documents
relating to Vendor as Purchaser may reasonably request and permit
Purchaser and its representatives, accountants and agents to make
copies and abstracts thereof. If the contemplated transactions do not
close, Purchaser will deliver to Vendor all originals and copies of
documents, work papers and other material obtained from Vendor relating
to the contemplated transactions, whether obtained before or after the
date hereof, and will promptly destroy all documents based on material
obtained from Vendor. Purchaser will use its best efforts to have all
such material kept confidential. Furthermore, Purchaser will hold all
proprietary information obtained with respect to Vendor and its
products, services, processes and operations in confidence and will not
use such information or disclose the same to others except as permitted
by Vendor.
(C) CONSENTS. Vendor will obtain the consent or approval of each person
or authority whose consent or approval may be required in order to
permit Vendor and Purchaser to consummate the transactions contemplated
hereby.
(D) SUPPLEMENTS. From time to time prior to the Closing Date, Vendor
shall deliver to Purchaser supplemental information with respect to any
matters or events arising or discovered subsequent to the date hereof
which, if existing or known on the date hereof, would have rendered any
statement, representation or warranty made herein on the part of Vendor
or any information contained in the Schedules and Exhibits to this
Agreement then materially inaccurate or incomplete.
(E) REPUTATION AND STANDING. After the Closing Date neither Vendor nor
any officer, employee or agent of Vendor or any person acting on behalf
of any of the foregoing, will, directly or indirectly, do any act or
thing which, if generally known, would tend to bring into disrepute
Vendor, the Business or anyone associated with Vendor or the Site.
(F) NON-COMPETITION.
<PAGE>
(i) The parties hereto recognize that Purchaser has a
legitimate interest in protecting and preserving the goodwill
of Vendor with respect to the Business following the Closing
Date. Accordingly, Vendor and Purchaser agree that for the
period beginning with the Closing Date and ending on the third
anniversary of the Closing Date, neither Vendor nor any
successor thereto, nor any stockholder, officer, partner,
associate or corporation controlling, controlled by or under
common control therewith will, directly or indirectly, in any
capacity (whether as a stockholder, officer, partner,
associate, owner, principal or otherwise) have any interest
in, be associated with, or otherwise engage in, any business
(or any corporation, firm or enterprise carrying on a
business) competitive with that of the Business.
(ii) Vendor will not disclose or furnish to any person, firm
or corporation, without the prior written consent of
Purchaser, the names of any subscriber, client or advertiser
of the Business, any confidential information concerning the
business of the Site or any confidential information regarding
Purchaser unless required to do so by applicable law.
(iii) Purchaser shall be entitled, in addition to any other
right and remedy under this Agreement or at law or equity, to
an injunction, without the posting of any bond or security,
enjoining or restraining Vendor from any violation or
threatened violation of this Subsection 5.01(f) and Vendor
hereby consents to the issuance of such injunction. Vendor
further consents to the personal jurisdiction of the courts of
the State of New York in any action brought to enforce the
provisions of this Subsection 5.01(f).
(G) CONSULTING SERVICES AGREEMENT. At the Closing Date Mr. Rob Hoare
shall execute and deliver to Purchaser a Consulting Services Agreement
substantially in the form of the Agreement attached hereto as EXHIBIT
"3" (the "Consulting Services Agreement") whereby Mr. Hoare shall
provide consulting services to Purchaser for one year on a part time
basis at a rate of $5,500 per month and thereafter for one year at a
part time rate of $1,000 per month.
SECTION 5.02. COVENANTS OF PURCHASER. Purchaser hereby covenants and agrees with
Vendor that:
(A) COMPLIANCE WITH LAWS. Purchaser has or will comply in all material
respects with all applicable, federal, state and local laws,
regulations and ordinances which regulate the ownership and operation
of a Site.
ARTICLE SIX. CONDITIONS TO CLOSING.
SECTION 6.01. CONDITIONS TO CLOSING BY THE PARTIES. The obligations of Vendor
and Purchaser to consummate the transactions contemplated hereby are, at the
option of any such
<PAGE>
party, subject to the fulfillment of the condition that on or before the Closing
Date there shall not be pending or threatened any action, proceeding or
investigation for any injunction, writ, preliminary restraining order or any
order of any nature issued by any court or governmental agency of competent
jurisdiction directing that the transactions contemplated by this Agreement or
any of them not be consummated; nor shall any such injunction, writ, preliminary
restraining order or such other order have been issued and be in effect.
SECTION 6.02. CONDITIONS TO CLOSING BY PURCHASER. The obligations of Purchaser
to consummate the transactions contemplated hereby are, at the option of
Purchaser, subject to the fulfillment of each of the conditions that on or
before the Closing Date:
(A) CERTAIN LEGAL MATTERS. All actions, proceedings, instruments and
documents required to carry out this Agreement, or incidental thereto,
and all other related legal matters, shall be reasonably satisfactory
to counsel for Purchaser, and such counsel shall have received all
documents, instruments or copies thereof, certified if requested.
(B) COMPLIANCE. Vendor shall have performed and complied with all
agreements, covenants and conditions required by this Agreement to have
been performed or complied with prior to or at the Closing Date and
Purchaser shall receive a certificate signed by Vendor to such effect.
(C) CONSENTS. Vendor shall have obtained all approvals or consents of
other persons required to consummate the transactions contemplated
hereby.
(D) ACCURACY OF REPRESENTATIONS AND WARRANTIES. The representations and
warranties made by Vendor contained in this Agreement or in any
financial statement, Schedule or Exhibit hereto or document delivered
to Purchaser in connection herewith shall be true and correct in all
material respects on and as of the Closing Date, with the same force
and effect as though such representations and warranties had been made
on and as of the Closing Date, and Vendor shall have delivered to
Purchaser a certificate to such effect.
(E) ABSENCE OF ERRORS. Purchaser shall not have discovered any material
error, misstatement or omission in the representations and warranties
made hereunder by Vendor.
(F) ABSENCE OF CHANGE. Since the date hereof, there shall not have
occurred any material adverse change in the financial condition,
assets, liabilities or business of Vendor.
(G) ABSENCE OF LOSS. Prior to the Closing Date, Vendor shall not have
sustained a loss on account of fire, flood, accident or other casualty
which materially and adversely affects the Business or the Assets,
regardless of whether or not such loss shall have been insured.
<PAGE>
(H) NON-COMPETITION. See 5.01f.
(I) CONSULTING SERVICES AGREEMENT. On or prior to the Closing Date
Vendor shall have executed the Consulting Services Agreement,
substantially in the form annexed hereto as Exhibit "3".
(II) DELIVERY OF URL. Vendor shall provide a fax copy of the
submitted and acknowledged Registrant Name Change Agreement and
NIC Tracking Number
SECTION 6.03. CONDITIONS TO CLOSING BY VENDOR. The obligations of Vendor to
consummate the transactions contemplated hereby are, at the option of Vendor,
subject to the fulfillment of each of the conditions that on or before the
Closing Date:
(A) COMPLIANCE. Purchaser shall have performed and complied with
all agreements, covenants and conditions required in this
Agreement to have been performed or complied with prior to or
at the Closing Date.
(B) ACCURACY OF REPRESENTATIONS AND WARRANTIES. The representations
and warranties made by Purchaser shall be correct, on and as of
the Closing Date, with the same force and effect as though such
representations and warranties had been made on and as of the
Closing Date.
(C) CONSULTING SERVICES AGREEMENT. On or prior to the closing date
Purchaser shall have executed the consulting Services Agreement
substantially in the form annexed hereto as Exhibit 3.
ARTICLE SEVEN. INDEMNIFICATION.
SECTION 7.01. INDEMNIFICATION BY VENDOR. Vendor shall indemnify and hold
Purchaser and each of its affiliates, officers and directors, harmless against
and in respect of any and all damages, losses, costs or expenses (including
reasonable attorneys' fees and expenses) resulting from any breach of any
representation or warranty or nonfulfillment of any agreement, covenant or
obligation on the part of Vendor contained or provided for in this Agreement or
in any instrument, certificate, Exhibit, Schedule or opinion furnished or to be
furnished pursuant hereto or in connection with any of the transactions
contemplated hereby. Purchaser shall have the right to set-off against payments
due under the Note the amount of any indemnification due from Vendor hereunder.
Vendor agrees to notify Purchaser promptly in writing of any matter which
reasonably might give rise to a claim of indemnification hereunder. Vendor
hereby waives any right it may have for contribution from Purchaser to the
satisfaction of any claim for indemnification under this Agreement.
<PAGE>
ARTICLE EIGHT. MISCELLANEOUS.
SECTION 8.01. EXPENSES. Each party hereto shall pay its own expenses incident to
this Agreement and the transactions contemplated hereby, including all fees of
its counsel or accountants, whether or not such transactions shall be
consummated.
SECTION 8.02. NO FINDERS. Except as set forth in the succeeding sentence, each
party to this Agreement will indemnify and hold harmless the other parties
against and in respect of any claims for brokerage or other commissions relative
to this Agreement or the transactions contemplated hereby, based in any way on
agreements, arrangements, or understandings claimed to have been made by such
party with any third party. Each party to this Agreement represents and warrants
that it has not dealt with and does not know of any person, firm or corporation
asserting a brokerage, finder's or similar claim in connection with the making
or negotiation of this Agreement or the transactions contemplated hereby.
SECTION 8.03. TERMINATION. Anything herein or elsewhere to the contrary
notwithstanding, this Agreement, at any time prior to the Closing Date, may be
terminated: (i) by the mutual written consent of Vendor and Purchaser; (ii) by
Purchaser if any of the conditions set forth in Sections 6.01 or 6.02 shall not
have been fulfilled or waived by the Closing Date; (iii) by Purchaser if any
default under or breach of any agreement or condition of Vendor shall have
occurred and shall not have been cured or waived by the Closing Date; (iv) by
Vendor if any or the conditions set forth in Sections 6.01 or 6.03 shall not
have been fulfilled by the Closing Date; or (v) by Vendor if any default under
or breach of any agreement or condition of Purchaser shall have occurred and
shall not have been cured or waived by the Closing Date. Any termination shall
be without liability on the part of any party other than a termination under
clause (iii) or (v) hereof.
SECTION 8.04. ASSIGNMENTS. This Agreement and the rights and obligations of the
parties hereto shall not be assigned by any party to any third party, except
with the written consent of the others; provided, however, that Purchaser may
assign and/or delegate its rights and obligations hereunder to any other person,
partnership or corporation controlling, controlled by or under common control
with Purchaser, if such assignee shall assume and agree to be bound by the
obligations of Purchaser hereunder; provided further, that no such assignment
will relieve Purchaser of any of its obligations hereunder; provided further
that Purchaser obtain Vendor's prior written consent which consent shall not be
unreasonably withheld or delayed. Nothing in this Agreement, unless otherwise
expressly provided, is intended to confer upon any person, other than the
parties hereto and their successors and assigns, any rights or remedies under or
by reason of this Agreement.
SECTION 8.05. NOTICES. Any notices, offers and acceptances hereunder to be given
to or served on any party shall be in writing, signed by the party giving or
making the same, and shall be delivered or sent by reputable overnight courier
service such as Fedex or UPS, by facsimile (confirmed by a copy sent by courier
service) or delivered personally to the party to be served at the address set
forth below (or such other address as either party may notify in writing to the
other party) and shall be deemed to have been served on the fifth business day
<PAGE>
after posting (seven [7] business days in the event of posting overseas) and
immediately in the case of facsimile or personal delivery.
If to Buttle & Tuttle Ltd.: 1 Belmont Terrace
Ramsey, IOM
IM8 3P6
United Kingdom
Tel: 44-7050-136120
Fax: 44-7050-136121
If to CallNOW.com Inc.: Mr. Warner R. Johnson, Jr., President
CallNOW.com Inc.
50 Broad Street, Suite 501
New York, New York 10004
Tel. (212) 686-2000
Fax. (212) 686-3807
With a copy to: Santiago J. Rendon, Esq.
Stairs Dillenbeck Finley & Merle
330 Madison Avenue, Suite 2900
New York, New York 10017-5090
Tel. (212) 697-2700
Fax. (212) 687-3523
SECTION 8.06. ENTIRE AGREEMENT, APPLICABLE LAW, ETC. This instrument contains
the entire agreement between the parties hereto with respect to the transactions
contemplated herein and supersedes all prior oral or written agreements and
understandings. No amendment or modification of this Agreement will be effective
unless reduced to writing and signed by all the parties hereto. The Schedules
and Exhibits attached hereto shall constitute part of this Agreement. This
Agreement shall be construed in accordance with the laws of the State of New
York applicable to agreements to be performed wholly within said State. This
Agreement may be executed in two or more counterparts by the several parties
hereto, but all of which will together constitute one and the same instrument.
In the event any provision of this Agreement shall be deemed to be invalid or
void under any applicable law, the remaining provisions hereof shall not be
affected thereby and shall continue in full force and effect.
SECTION 8.07. SUCCESSORS IN INTEREST. This Agreement shall be binding upon and
shall inure to the benefit of the respective successors and permitted assigns of
the parties hereto.
SECTION 8.08. CAPTIONS. The captions in this Agreement are used for convenience
only and are not intended in any way to affect the interpretation or
construction of this Agreement.
IN WITNESS WHEREOF, Vendor and Purchaser have caused this Agreement to
be duly executed as of the date first above written.
<PAGE>
BUTTLE & TUTTLE LTD.
CALLNOW.COM INC.
By: /s/ Warner R. Johnson, Jr. By: /s/ Robert Hoare
------------------------------- -------------------------------
Name: Warner R. Johnson, Jr. Name: Robert Hoare
Title: President Title: Director
<PAGE>
SCHEDULE A (SS.1.02)
TO THE ASSET PURCHASE AGREEMENT
DATED AS OF 5/19/99 BY AND BETWEEN
BUTTLE & TUTTLE LTD AND CALLNOW.COM INC.
ASSETS
1. The site and the rights to the name "Telephone Directories on the Web",
the domain name registration "www.teldir.com" and any related
trademarks, copyrights and patents.
2. The software, in electronic and where possible paper copy, which
includes password access and control of the source code running on the
server, a paper copy of the perl scripts and html, the web server
configuration files, and a description of and access to existing free
software that you have configured and installed for statistical
analysis, and any additional software necessary to use, modify, and
manage the site and associated files.
3. A description of the equipment necessary, and currently used including
the following servers and computer equipment:
a. Server
b. Management computers, such as an Intel style pc
4. A list of subscribers who get updates including their e-mail addresses
in electronic form and a continuing update of the list during the term
of the consulting contract.
5. Promotional graphics developed by the site in electronic format.
<PAGE>
EXHIBIT I
E-MAIL UPDATED SUBSCRIBERS, ADVERTISERS AND CONTRACTS
1. www.axicomonline.com
2. www.whosells800.com
3. E-mail list of subscribers who get updates
4. Web host site contract
<PAGE>
EXHIBIT II
PROMISSARY NOTE
May 19 , 1999
MAKER: CallNow.com, Inc.
ADDRESS OF MAKER: 50 Broad Street
New York, NY 10004
FACE AMOUNT: $40,000
INSTALLMENTS: 1 installment of $ 10,000 (ten thousand dollars) upon
receipt of confirmation of ownership of the URL:
www.teldir.com.
1 installment of $30,000 (thirty thousand dollars) 60
days after the close of the contract and receipt of
ownership of the URL and passwords to the Site
www.teldir.com.
NUMBER OF INSTALLMENTS: 2
FOR VALUE RECEIVED, THE ABOVE MAKER HEREBY PROMISES TO PAY TO THE
order of Buttle & Tuttle LTD, having its principal place of business at 1
Belmont Terrace, Ramsey, IOM, IM8 3PG United Kingdom, to Cater Allen Bank,
Jersey Channel Islands, the Face Amount payable in the above Number of
Installments.
If any Installment is not made within ten (10) days of its due
date, a late charge of fifty ($50.) dollars or five (5%) percent of each
Installment so overdue, whichever is greater, may be charged by the Payee for
the purpose of defraying the expense incident to handling such delinquent
payment to the extent such payment is permitted by law. In the event any payment
is not made within the grace period provided here in above, same shall
constitute an event of default and Payee may accelerate the entire outstanding
indebteness due and owing hereunder.
This Note has been executed and delivered and shall be
construed and enforced in accordance with the laws of the State of New York,
including but not limited to matters of construction, validity and performance.
By: /s/ Warner R. Johnson, Jr.
-----------------------------------------
(CORPORATE SEAL) Warner R. Johnson, Jr., President
<PAGE>
EXHIBIT III
CONSULTING SERVICES AGREEMENT
This Agreement for Consulting Services is between CallNOW.com, Inc (the
"Client") and Buttle and Tuttle Ltd (the "Consultant"). It is effective for a
period of two years from the day of closing of the agreement by the Client to
purchase the web site Telephone Directories on the Web (http://www.teldir.com/
the "Site") from the Consultant (this is the "Start Date").
THE CONSULTANT agrees to perform the following Services (the "Services"):
During the 12 months following the Start Date, for at least 80 hours per month
on average:
1. Maintain the contents of the Site, while changing the look of the Site to a
look mutually agreed with the Client.
2. Oversee adding of multi-lingual features to the Site
3. Maintain and try to improve external links to the Site and search engine
placements to increase visitors to the Site.
4. Advise the Client on ways to convert visitors to the Site into customers
for the Client's services.
5. Change as many as possible of the external links to former addresses of
the Site to the current address of the Site.
6. Train designated CallNOW.com employees to take over management of the site.
7. Where time is available, advise on web design, programming and marketing
for other sites as requested by the Client.
During the following 12 months (13-24 months after the Start Date):
Answer routine questions that the Client might have regarding the Site,
as time permits.
THE CLIENT agrees to pay the following fees for the Services (the "Retainer"):
During the 12 months following the Start Date:
US$5500 per month
During the following 12 months (13-24 months after the Start Date):
US$1000 per month
TERMS AND CONDITIONS
STAFFING
All of the Services to be performed by the Consultant will be performed by
Robert Hoare. All Services will be done solely as an independent contractor.
BILLINGS
<PAGE>
Invoices will be submitted monthly by electronic mail and are payable within 14
days of the date on the invoice. Amounts past-due will bear interest at the rate
of 1.5% per month until paid. If payments are overdue the Services may be
suspended however monthly Retainers remain due.
LOCATION
The Services will be performed at locations and times within each month of the
Consultant's choice. In the event that the Client requests the physical presence
of Robert Hoare at locations of the Client's choice (for no more than 30 days in
total), this will be arranged on mutually agreed dates and will require the
Client to pay agreed travel and accomodation expenses which are supported by
receipts.
CHANGES
Any changes to this agreement, including duration, services, retainer or
termination, require the written agreement of both parties. This Agreement is
not assignable by either party without the consent of the other.
ARBITRATION
In the unlikely event there are any disputes arising out of this Agreement they
shall be submitted to binding arbitration before a mutually agreed upon
Arbitrator pursuant to the rules of the American Arbitration Association. The
Arbitrator's award shall be final.
PROPRIETARY MATERIALS
Prior to payment in full, the Consultant will own the copyright on all materials
developed by the Consultant while performing the Services. Upon payment in full
of all fees and expenses, the Client will own the copyright.
ACCESS TO THE CLIENT'S STAFF
The Client will provide the Consultant with reasonable access to the Client's
staff and resources as needed in order to perform the Services.
CONFIDENTIAL INFORMATION
The Consultant will take reasonable steps to maintain the confidentiality of any
confidential information relating the Client received by the Consultant.
Agreed to and accepted by:
/s/ Robert Hoare /s/ Warner R. Johnson, Jr.
- -------------------------------- -----------------------------
Robert Hoare Warner R. Johnson, Jr.
Director President
Buttle and Tuttle Ltd CallNOW.com
<PAGE>
LOAN AGREEMENT / EXHIBIT 10.6
AXICOM COMMUNICATIONS GROUP, INC., a New York corporation having an office
at 12 East 41st Street, New York, New York 10017 (thereinafter referred to as
"Borrower") and NEW YORK COMMUNITY INVESTMENT COMPANY L.L.C., a Delaware limited
liability company, having an office at 120 Broadway, New York, New York 10271
(herein referred to as "Lender") hereby enter into a Loan Agreement
("Agreement") pertaining to the $300,000 loan ("the "Loan") to be made by Lender
to Borrower.
1. LOAN.
Lender shall loan Borrower the sum of THREE HUNDRED THOUSAND ($300,000.)
DOLLARS to be funded in two (2) stages as follows: (a) $200,000 (the "Initial
Advance") on the date of this Agreement subject to the terms and conditions set
forth in this Agreement and (b) an additional $100,000 within (90) days of the
date of this Agreement subject to Lender's sole and absolute discretion after
receipt and review of Borrower's actual performance figures as against
Borrower's actual performance figures as against Borrower's projected
performance (the "Second Advance"). The Loan is to be evidenced by two (2)
promissory notes (hereinafter referred to with regard to the Initial Advance as
the "First Note" or collectively as the "Notes") each to be dated the day of
disbursement. Interest and principal shall be payable under the terms set forth
in the Notes, which Notes mature in accordance with their terms.
2. USE OF PROCEEDS.
Borrower will use the proceeds of the Loan for working capital to further
the corporate purposes of Borrower as they relate to providing communication
services.
Borrower shall not use any Loan proceeds for any purpose contrary to the
purposes contemplated herein, such prohibited uses include repayment of any
Borrower's debt and the redemption of any outstanding equity interest.
<PAGE>
3. DOCUMENTS TO BE EXECUTED AT CLOSING.
Borrower will deliver or cause to be delivered to Lender each of the following
documents, all of which have been executed by Borrower or the guarantors named
therein.
They are:
A. The First Note in the principal amount of $200,000.;
B. Personal and Unconditional Continuing Guarantees Warner R. Johnson,
Jr. and Christian Bardenheuer (hereinafter referred to as the "Guarantors");
C. Directors Resolutions of Borrower authorizing the making of the
Loan;
D. UCC-1 Financing Statements and Security Agreement whereby Borrower
shall grant a senior security interest in all its tangible and intangible assets
including its customer lists, machinery, equipment, inventory, accounts
receivable and fixtures including but not limited to the P.C. based
telecommunications switch in favor of Lendor; and
E. At the closings of the Initial Advance and Second Advance, Warrant
to purchase up to 1.934% and 0.966% respectively of the then outstanding common
stock of Borrower (the "Ownership Interest").
4. Also to be delivered to Lender at the time of the Closing of the Loan are:
A. Opinion Letter of Borrower's and Guarantors'Counsel; and to be
delivered by the Company within thirty (30) days after the closing of the Loan
are:
B. Certificates of Insurance or insurance policies for all risk and
contents insurance on the business assets of Borrower naming Lender
as loss payee; and
C. Collateral Assignment of Life Insurance on the lives of the
Guarantors in the amount of $250,000. each.
<PAGE>
5. COLLATERAL.
The Loan shall be secured by the collateral listed below:
A. A senior security interest in Borrower's tangible and intangible
assets in accordance with the Security Agreement referred in Paragraph 3D
herein; and
B. Continuing Personal Guarantees of the Guarantors in the form
executed by Guarantors at closing of the Loan hereunder.
6. REPRESENTATIONS AND WARRANTIES.
A. To induce Lender to make the above mentioned Loan, Borrower of the
Guarantors represent and warrant that:
1. Borrower validity exists and is in good standing under the laws of
the State of New York.
2. Borrower has the power to enter into this Agreement, to borrow money
as contemplated hereby, to issue the Notes described herein, and to execute and
deliver each of those documents described within this Agreement.
3. All representations made by Borrower in any instrument described in
this Agreement to Lender are true and correct as of this date, including any
financial statements delivered to Lender by Borrower or the Guarantors.
4. Except for the action brought by Digital Communicatins Service, Inc.
against Borrower, Borrower or the Guarantors have not been made a party to or
threatened by any suits, actions, claims, or investigations by any governmental
body or legal, administrative or arbitration proceeding and Borrower or the
Guarantors do not know of any basis or grounds for any other suit or proceeding,
and there are no outstanding orders, judgements, writs, injunctions or decrees
of any court, governmental agency, or arbitrational tribunal against or
affecting them or their properties, assets and business.
<PAGE>
5. Borrower or the Guarantors are not a party to or bound by any
contract or instrument, which would be in breach as a result of this Loan.
6. Borrower or the Guarantors are not in breach of, in default under or
in violation of any applicable law, decree, order, rule or regulation which may
materially and adversely affect them, or any indenture, contract, agreement,
deed, lease, loan agreement, commitment, bond, note, deed of trust, restrictive
covenant, license or to any instrument or obligation to which they are a party
or by which they are bound, or to which any of their assets are subject. The
execution, delivery and performance of this Agreement and the issuance and
delivery of the Notes, and other documents will not constitute any such breach,
default or violation, or require consent or approval of any court, governmental
agency, or body, except as contemplated herein.
7. Borrower and the Guarantors shall maintain insurance satisfactory to
Lender on the business assets of Borrower with the policies thereon made payable
to Lender as its interest may appear.
8. Borrower has and/or will comply with all laws, ordinances,
regulations, federal, state and local, applicable to them and to their business,
including without limitation, federal and state securities laws and zoning laws
and ordinances.
B. In order to induce Lender to make the Loan, Borrower and the
Guarantors agree to maintain fire and extended coverage insurance
on the business assets including the P.C. based telecommunications
switch of Borrower in the amount of not less than $200,000.
7. AFFIRMATIVE COVENANTS.
While the Notes are outstanding, Borrower or the Guarantors, as the
case may be, will:
<PAGE>
A. Promptly make all payments of the principal and interest on the
Notes when due.
B. Comply with the terms and conditions of this Agreement, including
those incorporated herein by reference.
C. Keep accurate and complete books and records and maintain the same
at its offices.
D. Borrower shall forward, during the term of the Loan, annual audited
financial statements and a mid-year review statement prepared by Borrower's
independent certified public accountant or a firm acceptable to Lender. In
addition, quarterly statements prepared by Borrower's Chief Financial Officer
shall be provided to Lender. Each of said statements shall be accompanied by a
certification letter from the President or Chief Financial Officer of Borrower,
stating that to the best of his knowledge and belief, said statements accurately
and fairly represent the financial condition of the Company. Borrower shall also
provide monthly reports regarding sales and other relevant data as may be
reasonably requested by Lender.
E. Permit and facilitate such independent outside audits of Borrower's
books and records as may be reasonably requested by Lender in addition to those
in Item D above, provided Lender pays the cost of same.
F. Permit any authorized representative of Lender and its attorneys and
accountants to inspect, examine and make copies and abstracts of the books of
account and records of Borrower at reasonable times during normal business
hours, and to inspect the collateral given as security for the loan.
G. Notify Lender of (1) litigation involving amounts of $25,000. or
more to which Borrower or the Guarantors are a party by mailing to Lender by
certified mail within
<PAGE>
ten (10) days of receipt thereof, a copy of the complaint, motion for judgement,
or other such pleadings served on or by Borrower or the Guarantors and (2) any
litigation to which Borrower are not parties but which could substantially
affect the operation of Borrower's business or the collateral pledged for this
Loan by mailing to Lender by certified mail, a copy of all pleadings obtained by
Borrower or the Guarantors regarding such litigation, or if no pleadings are
obtained, a letter setting out the facts known about the litigation within ten
(10) business days of receipt thereof. Mailings under this paragraph shall be
addressed as follows:
Howard Sommer, President
New York Community Investment Company L.L.C.
120 Broadway
New York, New York 10271
H. Continue its business and maintain, preserve and keep all its
property, buildings, equipment and fixtures necessary for the operation of its
business in thorough repair and condition and from time to time, make all
needful and proper repairs and replacements thereof, and promptly pay and
discharge or cause to be paid and discharged as to when due any and all income
taxes, federal or otherwise, lawfully assessed and imposed upon it, and any and
all lawful taxes, rates, levies and assessments whatsoever upon its property and
every part thereof provided however that nothing contained herein shall be
construed as prohibiting Borrower from contesting in good faith the validity of
any such income taxes, federal or otherwise or such other taxes, rates, levies
or assessments.
I. Defend at all times any claim by a third party relating to the
possession of or interest in the assets of Borrower or any assets pledged or
given to secure any guaranty of the Guarantors hereunder.
J. Make all payments to creditors as shall be necessary to preserve
Lender's
<PAGE>
rights and Lender's security interests in the collateral set out at Paragraph 5
above.
K. Execute, either before or after disbursement of the Loan, all
documents necessary to perfect Lender's security interests in the collateral
listed at Paragraph 5.
L. Maintain employment agreements during the term of the Loan with
Guarantors, which contain confidentiality and non-compete covenants.
M. Maintain officers' salaries in the amounts specified in the
Private Placement Memorandum dated February, 1996 or subsequently modified
agreements which modifications shall require Borrower's board of directors
action and approval by Lender which Lender's approval shall not be unreasonably
withheld.
N. In any month in which the payment of officer's salaries or research
or development costs would cause the Borrower to be in default of any covenants
contained in this Loan Agreement, in such event the payment of such Guarantors'
salaries or research or development costs shall be subordinated to the payment
of debt service to Lender as required by the Loan.
O. Submit a semi-annual certification by the President or Chief
Financial Officer of Borrower that to the best of his knowledge and belief,
Borrower is in compliance with all the terms and provisions, conditions and
covenants set forth in this Loan Agreement.
8. NEGATIVE COVENANTS.
Except with the prior written consent of Lender, which, except for
those covenants contained in subparagraphs C, F and G herein, shall not be
unreasonably withheld, Borrower and the Guarantors, will not:
A. Make any material change in organization.
B. Become party to any merger or consolidation with any corporation,
<PAGE>
company or entity of any kind whatsoever, or sell substantially all of its
assets, liquidate or dispose of its business.
C. Become a guarantor of obligations of any other person, firm,
corporation or entity, except in connection with depositing checks and other
instruments for the payment of money acquired in the normal course of business.
D. Transfer, sell, lease or in any other manner convey any equitable,
beneficial or legal interest in any of the collateral set out herein to any
person, except in the ordinary course of business.
E. Knowingly permit any judgement obtained against Borrower or the
Guarantors in an amount exceeding twenty thousand ($20,000) dollars to remain
unpaid for a period of thirty (30) days following the entry thereof, without
obtaining a stay of execution or bonding or causing such judgement to be bonded.
F. Permit the payment of any Guarantor's salaries or research and
development expenses, in the event same will prevent Borrower from fulfilling
any of its obligations to Lender hereunder.
G. Pay any dividends, make any distributions, sell any assets or
effect any mergers or acquisitions which will prevent Borrower
from fulfilling its obligations to Lender hereunder.
9. SUBORDINATION.
Lender shall subordinate its lien against Borrower's assets in favor of
a financial institution providing senior debt to Borrower on terms reasonable
and customary for such financing, provided Borrower is in full compliance with
the terms, covenants and conditions of this Loan and further provided that
Borrower is meeting at least seventy-five (75%) percent of its revenue and
income projections as represented in the Private
<PAGE>
Placement Memorandum dated February, 1996. Such subordination shall not include
Lender's assignment of its Notes and/or Lender's rights under said Notes to any
such financial institution.
10. PREPAYMENT.
Borrower may repay the Loan at any time, by paying the full or partial
amount of the principal (in increments of not less than $50,000.) outstanding at
the time with interest to the date of prepayment, in addition to a sum equal to
three (3%) percent additional interest if prepaid during the first year of the
loan; a sum equal to two (2%) percent additional interest if prepaid during the
second year of the Loan and a sum equal to one (1%) percent additional interest
if prepaid during the third year of the Loan, on the amount being prepaid. No
prepayment penalty shall apply after the third year of the Loan. Borrower shall
provide Lender with thirty (30) days prior written notice of their intention to
prepay.
11. REFERRAL FEES.
Borrower represents to Lender that The Bank of New York referred
Borrower to Lender. Borrower agrees to hold Lender harmless with respect to any
claims made by The Bank of New York or any other finder or broker in connection
with this Transaction resulting from the actions of Borrower.
12. LOAN EXPENSES.
Borrower and the Guarantors agree to pay legal expenses of Lender
arising out of the Loan, consisting of Lender's legal fees in the amount of
$9,000 plus disbursements. Lender acknowledges that Borrower has paid $3,000. of
such amount of expenses to Moon & Ikeda which shall be applied at closing.
<PAGE>
13. EXHIBITS.
Attached hereto and made a part hereof are various exhibits which are
listed under Addendum to Loan Agreement, and the terms and conditions of each
are incorporated herein by reference.
14. PARTIES AFFECTED.
This Agreement shall be binding upon and shall insure to the benefit of
Borrower and Lender and their successors and assigns.
15. ADVANCE SECURED BY COLLATERAL.
In the event Borrower is in default in accordance with Paragraph 17
hereunder and all applicable cure periods have expired and Lender then advances
any sums to pay any prior liens, taxes, insurance premiums or the like in
connection with any items of collateral owned by Borrower or Guarantors, said
sums shall be added to the obligations due and owing from Borrower to Lender at
the time of the making of the Loan and shall bear interest at the rate set forth
in the Notes. Lender is hereby authorized to make any such advances it deems
necessary from time to time which in the opinion of Lender, are necessary or
desirable in order to protect Lender's interest in such collateral.
16. DEFAULT.
If any of the following events occur while any portion of the Notes
remain unpaid then a default may be declared at the option of the holder of the
Notes, without presentment, demand, protest or further notice of any kind (all
of which are hereby expressly waived); and the holder shall be entitled to be
paid in full; and in such case, the balance of the unpaid principal sum, plus
accrued interest and any costs thereof, including reasonable attorneys' fees,
shall then be accelerated so that they are immediately due and payable:
<PAGE>
A. The occurrence of any default under the Notes, the within Agreement
or any other documents executed in connection with the Loan including the breach
of any of Borrower's covenants or the Guarantors' covenants set forth in said
documents or the breach in the payment of money due thereunder.
B. Any representation, or any affirmative or negative covenants made by
Borrower or the Guarantors in this Agreement or its exhibits shall be untrue.
C. Borrower or the Guarantors shall fail to pay when due any insurance
policy premiums affecting the business assets of Borrower, or the premiums for
any life insurance policies of the Guarantors.
D. Borrower of the Guarantors shall fail to comply with this Agreement
and such failure shall continue for a period of ten (10) days after receipt of
mailing (or other personal delivery) of written notice from Lender or the holder
of the Notes in the event of a non-monetary default only.
E. The Guarantors shall not comply with the terms of their guaranty
agreement with the Lender.
F. Borrower or the Guarantors shall commit an act of bankruptcy within
the meaning of the United States Bankruptcy Code or other laws of the United
States or any state or other competent jurisdiction or bankruptcy, receivership,
insolvency, reorganization, dissolution, liquidation, or other similar
proceedings shall be instituted by or against Borrower or the Guarantors and
they shall consent thereto, or shall fail or cause the same to be discharged
within ninety (90) days.
G. Borrower or the Guarantors shall be in default on any debt or
obligation greater than $25,000. of the Borrower, whether or not secured by any
of the collateral for this Loan.
<PAGE>
H. Borrower's officers shall cease, for any reason, to be stockholders,
officers and directors of the Borrower.
I. The failure to deliver to Lender the Reaffirmation Documents
referred to in the affidavit.
17. FUTURE FUNDING.
Borrower hereby grants Lender a right of first refusal for all future
debt funding requirements not exceeding $300,000 until such times as the Loan is
paid in full. This right of first refusal shall not be operative in the event an
alternative funding source(s) is also providing strategic services to Borrower
in addition to funding.
18. CHOICE OF LAW.
The parties hereto stipulate and agree that the laws of the state of
New York shall govern this transaction and the Loan made hereunder.
19. ALL MODIFICATIONS IN WRITING.
This Agreement may not be modified except in writing, which writing
shall be signed by each of the parties hereto.
20. GUARANTORS AS PARTIES TO THIS AGREEMENT.
The Guarantors shall execute this Agreement and upon their execution of
same such Guarantors shall, for all purposes, be deemed to be parties to this
Agreement.
21. NOTICES.
All notices provided for in this Agreement shall be in writing, and,
unless otherwise specifically provided for herein, shall be deemed to be given
at the time when mailed at any general or branch Unites States Post Office in a
certified postpaid envelope return receipt requested or by recognized express
mail delivery addressed to the address of the party set forth above, or to such
change of address as such party may have fixed by notice, if notice is sent to
Borrower, a copy of same will also be sent by first class mail to Snow Becker
Krauss P.C., 605 Third Avenue, New York, New York 10158, Attention: Simon
<PAGE>
Taylor, Esq., and if notice is sent to Lender, a copy of same will also be sent
by first class mail to Granoff, Walker & Forlenza, P.C., 747 Third Avenue, New
York, New York 10017, Attention Ellen M. Walker, Esq., provided, however, that
any notice of change of address shall be effective only upon receipt.
22. TERMINATION.
This Agreement shall terminate upon payment by Borrower of all amounts
payable under the Notes.
IN WITNESS WHEREOF, Borrower and Lender hereby execute this Agreement
and affix or cause to be duly affixed hereto their seals.
Dated: New York, New York
December 27, 1996
AXICOM COMMUNICATIONS GROUP, INC.
By: /s/ Christian Bardenheuer
------------------------------------
Christian Bardenheuer, President
By: /s/ Warner R. Johnson
------------------------------------
Warner R. Johnson, Secretary
NEW YORK COMMUNITY INVESTMENT
COMPANY L.L.C.
By: /s/ Howard Sommer
------------------------------------
Howard Sommer, President
In accordance with Paragraph 20 of this Agreement, the undersigned
guarantors agree to be bound by the covenants and provisions contained in this
Agreement and other applicable loan documents executed in connection with this
transaction as pertains to the "Guarantors" thereunder.
/s/ Warner R. Johnson, Jr.
--------------------------------------------
Warner R. Johnson, Jr., Individually
/s/ Christian Bardenheuer
--------------------------------------------
Christian Bardenheuer, Individually
- --------------------------------------------------------------------------------
<PAGE>
ADDENDUM TO LOAN AGREEMENT
1. Two (2) Promissory Notes and Guaranty in the amount of $200,000 and
$100,000 to be dated the day of disbursement made by Axicom
Communications Group, Inc. in favor of New York Community Investment
Company L.L.C. guaranteed by Warner R. Johnson, Jr. and Christian
Bardenheuer.
2. Letter of Authorization and Disbursement of Loan Proceeds.
3. Certificate of Resolutions of Board of Directors of Axicom
Communications Group, Inc.
4. Security Agreement and UCC-1 Financing Statements Re: accounts
receivable, machinery, equipment, fixtures, etc.
5. Opinion Letter of Counsel.
6. Commitment Fee Letter.
7. Warrants to purchase up to 1.934% and 0.966% of the outstanding common
stock of Axicom Communications Group, Inc.
8. Good Standing Certificate of Axicom Communications Group, Inc.
- --------------------------------------------------------------------------------
<PAGE>
SECURITY AGREEMENT
(CHATTEL MORTGAGE)
AGREEMENT made on December 27, 1996 under the laws of the State of New
York, by and between AXICOM COMMUNICATIONS GROUP, INC., a New York corporation
(the "Debtor"), whose business address is 12 East 41st Street, New York, New
York 10017 and 50 Broad Street, New York, 10004 and NEW YORK COMMUNITY
INVESTMENT COMPANY L.L.C., a Delaware limited company with its office at 120
Broadway, New York, New York 10271 (the "Secured Party").
WITNESSETH:
To secure the payment of an indebtedness in the total amount of $300,00
with interest at the rate of 12% due from Debtor to Secured Party payable in
accordance with the terms of certain promissory notes between Debtor and Secured
Party; and also to secure any other indebtedness or liability of the Debtor to
the Secured Party, direct or indirect, absolute or contingent, due or to become
due, now existing or hereafter arising, including all future advances which any
be made at the option of the Secured Party (all hereafter called the
"obligations"). Debtor hereby grants and conveys to the Secured Party a security
interest in, and mortgages to the Secured Party: (a) the property described in
the schedule herein which the Debtor represents will be used primarily in
business or other use; (b) all property, goods and chattels of the same classes
as those scheduled, acquired by the Debtor subsequent to the execution of this
agreement and prior to its termination; (c) the proceeds thereof, if any; (d)
all increases, substitutions, replacements, additions, and accessions thereto,
(the foregoing (a), (b), (c), and (d) hereinafter called the "collateral").
1. Debtor warrants, covenants, and agrees as follows:
(a) To pay and perform all of the obligations secured by this
agreement according to their terms.
(b) To defend the title to the collateral against all persons and
against all claims and demands whatsoever, which collateral, except for the
security interest granted hereby, is lawfully owned by the Debtor and is now
free and clear of any and all liens, security interests, claims, charges,
encumbrances, taxes, and assessments, other than liens for taxes.
(c) On demand of the Secured Party to do the following: furnish
further assurance of title, execute any written agreement or do any other acts
necessary to effectuate the purposes and provisions of this agreement, execute
any instrument or statement required by law or otherwise in order to perfect,
continue or terminate the security interest of the Secured Party in the
collateral and pay all costs of filing in connection therewith.
(d) To retain possession of the collateral during the existence of
this agreement and not to sell, exchange, assign, loan, deliver, lease,
mortgage, or otherwise dispose of same without the written consent of the
Secured Party, except in the ordinary course of business.
<PAGE>
(e) To keep the collateral at the location specified in the
schedule and not remove same (except in the usual course of business for
temporary periods) without the prior written consent of the Secured Party.
(f) To keep the collateral free and clear of all liens, charges,
encumbrances, taxes, and assessments, other than liens for taxes.
(g) To pay, when due, all taxes, assessments and license fees
relating to the collateral.
(h) To keep the collateral, at Debtor's own cost and expense, in
good repair and condition and available for inspection by the Secured Party at
all reasonable times.
(i) To keep the collateral fully insured against loss by fire,
theft, and other casualties, and to name Secured Party as a loss payee in the
event of any loss, and Debtor shall give immediate written notice to the Secured
Party and to insurers of loss or damage to the collateral and shall promptly
file proofs of loss with insurers.
2. The parties further agree:
(a) Waiver of or acquiescence in any default by the Debtor, or
failure of the Secured Party to insist upon strict performance by the Debtor of
any warranties or agreements in this security agreement, shall constitute a
waiver of any subsequent or other default or failure.
(b) Notices to either party shall be in writing and shall be
delivered personally or by mail addressed to the party at the address herein set
forth or otherwise designated in writing.
(c) The Uniform Commercial Code shall govern the rights, duties,
and remedies of the parties, and any provisions herein declared invalid under
any law shall not invalidate any other provision of this agreement.
(d) The following shall constitute a default by the Debtor:
Failure to pay any installment when due beyond any applicable grace periods.
Failure by Debtor to comply with or perform any provision of this agreement or
any other agreement executed between Debtor and Secured Party. If any false or
misleading representations or warranties are made or given by Debtor in
connection with this agreement. Subjection of the collateral to levy of
execution or other judicial process. Commencement of any insolvency proceeding
by or against the Debtor. Death of the Debtor or any guarantor.
Any reduction in the value of the collateral or any act of the Debtor which
imperils the prospect of full performance or satisfaction of the Debtor's
obligations herein.
(e) Upon any default of the Debtor, and at the option of the
Secured Party, the obligations secured by this agreement shall immediately
become due and payable in full without notice or demand, and the Secured Party
shall have all the rights, remedies, and privileges with respect to
repossession, retention, and sale of the collateral,
<PAGE>
and disposition of the proceeds are accorded by the applicable sections of the
Uniform Commercial Code respecting "Default". Upon any default and upon demand,
Debtor shall assemble the collateral and make it available to the Secured Party
at the place and at the time designated in the demand. Upon any default, the
Secured Party's reasonable attorney's fees and the legal and other expenses for
pursuing, searching for, receiving, taking, keeping, storing, advertising, and
selling the collateral, and for any other efforts to collect the debt secured
hereby shall be chargeable to the Debtor. The Debtor shall remain liable for any
deficiency resulting from a sale of the collateral and shall pay any such
deficiency forthwith on demand. If the Debtor shall default in the performance
of any of the provisions of this agreement on the Debtor's part to be performed.
Secured Party may perform same for the Debtor's account, and any monies expended
in so doing shall be chargeable with interest to the Debtor and added to the
indebtedness secured hereby.
(f) The Secured Party is hereby authorized to file a financing
statement and any amendments, continuation statements or termination statements
it may deem necessary, without the Debtor's signature, or by executing the
Debtor's name thereto and for such limited purpose. Debtor grants Secured Party,
and its agents, a power of attorney to execute any such financing statements as
may be necessary to perfect Secured Party's interest in the collateral.
Notwithstanding the foregoing, the Secured Party shall have no obligation to
comply with any recording, re-recording, filing, refiling or other legal
requirements, necessary to establish or maintain the validity, priority, or
enforceability of, or the Secured Party's right in and to the collateral or any
part thereof.
(g) The captions are inserted only as a matter of convenience and
for reference and in no way to define, limit or describe the scope of this
agreement nor the intent of any provision thereof. The terms, warranties, and
agreements herein contained shall bind and inure to the benefit of the
respective parties hereto, and their respective legal representatives,
successors, and assigns. The gender and number used in this agreement are used
as reference term only and shall apply with the same effect whether the parties
are of the masculine or feminine gender, corporate or other form, and the
singular shall likewise include the plural. This agreement may not be changed
orally.
(h) All communications and notices hereunder shall be in writing
and shall be deemed to have been duly given if sent by United States mail,
postage prepaid, to the parties at the address first above written, or at such
other place or places as the party addressed may have designated by written
notice to the other.
(i) This agreement is being executed and delivered in the State of
New York and shall be construed and enforced in accordance with the laws of that
State.
(j) In the event that any word, sentence, paragraph or article of
this agreement is found to be void or voidable, the balance of this agreement
shall nevertheless be legal and binding with the same force and effect as though
the void or voidable parts were deleted.
(k) This agreement shall terminate upon payment by Debtor of all
obligations owed by Debtor to Secured Party in connection with the $300,000 loan
transaction provided for herein. Upon such termination, Secured Party shall
promptly
<PAGE>
deliver to Debtor all UCC-3 termination statements necessary to evidence
termination of the liens and security interests granted hereunder.
IN WITNESS WHEREOF, the parties have respectively signed and
sealed these presents the day and year first above written.
DEBTOR:
AXICOM COMMUNICATIONS GROUP, INC.
By: /s/ Christian Bardenheuer
-----------------------------------------
Christian Bardenheuer
By: /s/ Warner R. Johnson
-----------------------------------------
Warner R. Johnson, Jr., Secretary
SECURED PARTY
NEW YORK COMMUNITY INVESTMENT
COMPANY L.L.C.
By: /s/ Howard Sommer
-----------------------------------------
Howard Sommer, President
<PAGE>
SCHEDULE OF COLLATERAL TO SECURITY AGREEMENT MADE
BY AXICOM COMMUNICATIONS GROUP, INC. IN FAVOR OF NEW YORK
COMMUNITY INVESTMENT COMPANY L.L.C.
The items of collateral are described as follows: A security interest
in all inventory, general intangibles, accounts receivable, contract rights,
instruments and all other obligations for the payment of monies due debtor,
customer lists, machinery and equipment and furniture and fixtures including but
not limited to the P.C. based telecommunications switch, whether now owned or
existing, or hereafter created or acquired located at 12 East 41st Street, New
York, New York; 50 Broad Street, New York, New York, or any other locations(s)
where the debtor maintain said items of collateral.
<PAGE>
PROMISSORY NOTE Exhibit 10.8
December 27, 1996
MAKER: Axicom Communications Group, Inc.
ADDRESS OF MAKER: 12 East 41st Street
New York, New York 10017
FACE AMOUNT: $200,000.
MONTHLY INSTALLMENTS (in order of maturity):
1 installment of interest only in the amount of $133.33 on January 1, 1997
6 installments of interest only in the amount of $2,000.00 commencing
February 1, 1997
30 installments of principal and interest each in the amount of $7,749.62
commencing August 1, 1997
MAKER'S BANK:
------------------------------------
NUMBER OF INSTALLMENTS: 37
FOR VALUE RECEIVED, the above Maker hereby promises to pay to the order
of New York Community Investment Company L.L.C., a Delaware limited liability
company having its prinicipal place of business at 120 Broadway, New York, New
York 10271 ("Payee"), at Maker's Bank, __________________________ Bank at New
York, New York, the Face Amount payable in the above Number of Installments each
in the amount of the Monthly Installment. Upon default in the payment of any one
of the Installments due hereunder, all of said Installments shall immediately
become due and payable, with exchange, at Maker's Bank.
This Note shall bear interest computed from the date hereof at the rate
of 12% per annum (the "Contract Rate") except that post-maturity interest (which
interest shall accrue at the end of the term of the Note) shall accrue and be
payable at the rate of three (3%) percent above the Contract Rate on each
Installment due hereunder not paid when due. In addition, interest shall be
computed on the unpaid principal amount that is not paid when due at the rate of
three (3%) percent above the Contract Rate.
The indebtedness evidenced by this Note is secured by certain
collateral more fully described in the Loan Agreement and related documents of
even date herewith executed by Maker, inter alia, the terms and conditions of
which are incorporated herein by reference.
The Maker, hereby waives presentment for payment, demand, notice of
<PAGE>
dishonor, protest and notice thereof. If the Maker or any endorser or guarantor
becomes subject to the jurisdiction of any federal or state debtor relief
statute, or if any such party fails to pay their debts as they mature, or calls
a meeting of their creditors, or if a receiver or trustee of their property is
appointed, then this Note and all other obligations now or hereafter owing by
said obligor to the Payee shall become immediately due and payable without
notice.
The Maker may prepay this Note at any time by paying the full or
partial amount of principal at the time in increments of not less than $50,000,
with interest to the date of prepayment, in addition to a sum equal to three
(3%) percent additional interest if prepaid during the first year of this Note;
a sum equal to two (2%) percent additional interest if prepaid during the second
year of this Note and a sum equal to one (1%) percent additional interest if
prepaid during the third year of this Note, on the amount being prepaid. There
shall be no prepayment penalty after the third year. The Maker shall provide
Lender with thirty (30) days prior written notice of its intention to prepay.
If any Monthly Installment due hereunder is not paid when due and is
placed with an attorney for collection, the Maker as well as all endorsers and
guarantors agree to pay all costs of collection, including reasonable attorney's
fees, all of which shall be added to the amount due hereunder.
If any Monthly Installment hereunder is not made within ten (10) days
of its due date, a late charge of fifty ($50) dollars or five (5%) percent of
each Monthly Installment so overdue, whichever is greater, may be charged by the
Payee for the purpose of defraying the expenses incident to handling such
delinquent to the extent such payment is then permitted by law. In the event any
payment is not made within the grace period provided hereinabove, same shall
constitute an event of default and Payee may accelerate the entire outstanding
indebtedness due and owing hereunder.
This Note has been executed and delivered and shall be construed and
enforced in accordance with the laws of the State of New York, including but not
limited to matters of construction, validity and performance.
ATTEST: AXICOM COMMUNICATIONS GROUP, INC.
By: /s/ Christian Bardenheuer
-------------------------------------
(CORPORATE SEAL) Christian Bardenheuer, President
By: /s/ Warner R. Johnson
-------------------------------------
Warner R. Johnson, Jr., Secretary
<PAGE>
FOR VALUE RECEIVED, the undersigned and each of them assent to all of
the terms and conditions of the within Note and hereby forever waives
presentment, demand, protest, notice of protest and notice of dishonor of the
within Note, and waives trial by jury and the undersigned and each of them
guarantees the payment of said Note at maturity and consents without notice to
any all extensions of time or terms of payment and the release or substitution
of any collateral made or agreed to by the within Payee.
/s/ Warner R. Johnson
------------------------------------
Warner R. Johnson, Jr., Secretary
/s/ Christian Bardenheuer
------------------------------------
Christian Bardenheuer, Individually
STATE OF NEW YORK,
COUNTY OF NEW YORK.
Christian Bardenheuer, being duly sworn, deposes and says:
That he is the President of the Maker in the within Note and that he
executed same and the papers pertinent thereto: that he affirms and reaffirms
the warranties and representations made therein: that he makes this affidavit
knowing full well that the Lender has advanced the sum of $200,000, relying upon
the statements herein contained and upon the warranties and representations
contained in said Agreement, and that this affidavit is made for the sole
purpose of inducing the Lender to make said advance.
/s/ Christian Bardenheuer
------------------------------------
Christian Bardenheuer, President
Sworn to before me this
27th day of December, 1996
/s/ Ellen M. Walker
- ------------------------------------
Notary Public
Ellen M. Walker
Notary Public, State of New York
No. 31-4709400
Qualified in New York County
Commission Expires October 31, 1997
<PAGE>
STATE OF NEW YORK,
COUNTY OF NEW YORK.
Warner R. Johnson, Jr., being duly sworn, deposes and says:
That he is the Secretary of the Maker in the within Note and that he
executed same and the papers pertinent thereto; that he affirms and reaffirms
the warranties and representations made therein; that he makes this affidavit
knowing full well that the Lender has advanced the sum of $200,000, relying upon
the statements herein contained and upon the warranties and representations
contained in said Agreement, and that this affidavit is made for the sole
purpose of inducing the Lender to make said advance.
/s/ Warner R. Johnson
------------------------------------
Warner R. Johnson, Jr., Secretary
Sworn to before me this
30th day of December, 1996
- ------------------------------------
Notary Public
STATE OF NEW YORK,
COUNTY OF NEW YORK.
On this 27th day of December, 1996, before me personally came Christian
Bardenheuer to me known to be the individual described in and who executed the
foregoing instrument as endorser and guarantor and acknowledged the execution of
same.
/s/ Ellen M. Walker
------------------------------------
Notary Public
Ellen M. Walker
Notary Public, State of New York
No. 31-4709 400
Qualified in New York County
Commission Expires on October 31, 1997
STATE OF NEW YORK,
COUNTY OF NEW YORK.
On this 30th day of December, 1996, before me personally came Warner R.
Johnson, Jr. to me known to be the individual described in and who executed the
foregoing instrument as endorser and guarantor and acknowledged the execution of
the same.
------------------------------------
Notary Public
<PAGE>
PROMISSORY NOTE Exhibit 10.9
Dated: March 1997
MAKER: Axicom Communications Group, Inc.
ADDRESS OF MAKER: 12 East 41st Street
New York, New York 10017
FACE AMOUNT: $100,000.
MONTHLY INSTALLMENTS (in order of maturity):
1 installment of interest only in the amount of $___ on ______.
___ installments of interest only in the amount of $__ commencing ___.
__ installments of principal and interest each in the amount of $___
commencing ___.
MAKER'S BANK: ________________________________
NUMBER OF INSTALLMENTS: ___
FOR VALUE RECEIVED, the above Maker hereby promises to pay to the order
of New York Community Investment Company L.L.C., a Delaware limited liability
company having its prinicipal place of business at 120 Broadway, New York, New
York 10271 ("Payee"), at Maker's Bank, __________________________ Bank at New
York, New York, the Face Amount payable in the above Number of Installments each
in the amount of the Monthly Installment. Upon default in the payment of any one
of the Installments due hereunder, all of said Installments shall immediately
become due and payable, with exchange, at Maker's Bank.
This Note shall bear interest computed from the date hereof at the rate
of 12% per annum (the "Contract Rate") except that post-maturity interest (which
interest shall accrue at the end of the term of the Note) shall accrue and be
payable at the rate of three (3%) percent above the Contract Rate on each
Installment due hereunder not paid when due. In addition, interest shall be
computed on the unpaid principal amount that is not paid when due at the rate of
three (3%) percent above the Contract Rate.
The indebtedness evidenced by this Note is secured by certain
collateral more fully described in the Loan Agreement and related documents of
even date herewith executed by Maker, inter alia, the terms and conditions of
which are incorporated herein by reference.
<PAGE>
The Maker, hereby waives presentment for payment, demand, notice of dishonor,
protest and notice thereof. If the Maker or any endorser or guarantor becomes
subject to the jurisdiction of any federal or state debtor relief statute, or if
any such party fails to pay their debts as they mature, or calls a meeting of
their creditors, or if a receiver or trustee of their property is appointed,
then this Note and all other obligations now or hereafter owing by said obligor
to the Payee shall become immediately due and payable without notice.
The Maker may prepay this Note at any time by paying the full or
partial amount of principal at the time in increments of not less than $50,000,
with interest to the date of prepayment, in addition to a sum equal to three
(3%) percent additional interest if prepaid during the first year of this Note;
a sum equal to two (2%) percent additional interest if prepaid during the second
year of this Note and a sum equal to one (1%) percent additional interest if
prepaid during the third year of this Note, on the amount being prepaid. There
shall be no prepayment penalty after the third year. The Maker shall provide
Lender with thirty (30) days prior written notice of its intention to prepay.
If any Monthly Installment due hereunder is not paid when due and is
placed with an attorney for collection, the Maker as well as all endorsers and
guarantors agree to pay all costs of collection, including reasonable attorney's
fees, all of which shall be added to the amount due hereunder.
If any Monthly Installment hereunder is not made within ten (10) days
of its due date, a late charge of fifty ($50) dollars or five (5%) percent of
each Monthly Installment so overdue, whichever is greater, may be charged by the
Payee for the purpose of defraying the expenses incident to handling such
delinquent to the extent such payment is then permitted by law. In the event any
payment is not made within the grace period provided hereinabove, same shall
constitute an event of default and Payee may accelerate the entire outstanding
indebtedness due and owing hereunder.
This Note has been executed and delivered and shall be construed and
enforced in accordance with the laws of the State of New York, including but not
limited to matters of construction, validity and performance.
ATTEST: AXICOM COMMUNICATIONS GROUP, INC.
By:
--------------------------------------
(CORPORATE SEAL) Christian Bardenheuer, President
By:
--------------------------------------
Warner R. Johnson, Jr., Secretary
<PAGE>
FOR VALUE RECEIVED, the undersigned and each of them assent to all of
the terms and conditions of the within Note and hereby forever waives
presentment, demand, protest, notice of protest and notice of dishonor of the
within Note, and waives trial by jury and the undersigned and each of them
guarantees the payment of said Note at maturity and consents without notice to
any all extensions of time or terms of payment and the release or substitution
of any collateral made or agreed to by the within Payee.
-----------------------------------------
Warner R. Johnson, Jr., Individually
-----------------------------------------
Christian Bardenheuer, Individually
STATE OF NEW YORK,
COUNTY OF NEW YORK.
Christian Bardenheuer, being duly sworn, deposes and says:
That he is the President of the Maker in the within Note and that he
executed same and the papers pertinent thereto; that he affirms and reaffirms
the warranties and representations made therein; that he makes this affidavit
knowing full well that the Lender has advanced the sum of $100,000, relying upon
the statements herein contained and upon the warranties and representations
contained in said Agreement, and that this affidavit is made for the sole
purpose of inducing the Lender to make said advance.
-----------------------------------------
Christian Bardenheuer, President
Sworn to before me this
day of
- ---- ----------------
- -----------------------------------------
Notary Public
<PAGE>
STATE OF NEW YORK,
COUNTY OF NEW YORK.
Warner R. Johnson, Jr., being duly sworn, deposes and says:
That he is the Secretary of the Maker in the within Note and that he
executed same and the papers pertinent thereto; that he affirms and reaffirms
the warranties and representations made therein; that he makes this affidavit
knowing full well that the Lender has advanced the sum of $100,000, relying upon
the statements herein contained and upon the warranties and representations
contained in said Agreement, and that this affidavit is made for the sole
purpose of inducing the Lender to make said advance.
-----------------------------------------
Warner R. Johnson, Jr., Secretary
Sworn to before me this
day of
- ---- ---------------
- -----------------------------------------
Notary Public
STATE OF NEW YORK,
COUNTY OF NEW YORK.
On this ___ day of _________, before me personally came Christian
Bardenheuer to me known to be the individual described in and who executed the
foregoing instrument as endorser and guarantor and acknowledged the execution of
same.
-----------------------------------------
Notary Public
STATE OF NEW YORK,
COUNTY OF NEW YORK.
On this ___ day of ___, before me personally came Warner R. Johnson,
Jr. to me known to be the individual described in and who executed the foregoing
instrument as endorser and guarantor and acknowledged the execution of same.
-----------------------------------------
Notary Public
<PAGE>
CALLNOW.COM, INC.
1999 STOCK OPTION PLAN
SECTION 1. Purpose. The purpose of the CallNOW.com, Inc.1999 Stock Option
Plan (this "Plan") is to provide a means whereby selected employees, officers,
directors, agents, consultants and independent contractors of CallNOW.com, Inc.
(the "Company") or of any parent or subsidiary (as defined in subsection 5.7 and
referred to hereinafter as "related corporations") thereof, may be granted
incentive stock options and/or non-qualified stock options to purchase the
Common Stock (as defined in Section 3) of the Company, in order to attract and
retain the services or advice of such employees, officers, directors, agents,
consultants and independent contractors and to provide added incentive to them
by encouraging stock ownership in the Company.
SECTION 2. Administration.
---------------
(a) This Plan shall be administered by the Board of Directors of the
Company (the "Board"), except to the extent the Board delegates its authority to
a committee of the Board to administer this Plan. The administrator of this Plan
shall hereinafter be referred to as the "Plan Administrator."
(b) For so long as the Company=s Common Stock is registered under Section
12 of the Securities Exchange Act of 1934, as amended (the AExchange Act@), no
option shall be granted to a director or officer (subject to Section 16 of the
Exchange Act) of the Company by the Board unless (i) approved in advance by the
Board or the Plan Administrator in accordance with the provisions of Rule
16b-3(d)(1) under the Exchange Act (where the Plan Administrator, if not the
entire Board, is a committee of the Board composed solely of two or more
non-employee directors who satisfy the requirements of Rule 16b-3(b)(3) under
the Exchange Act), or (ii) approved in accordance with the provisions of Rule
16b-3(d)(2) under the Exchange Act, except that an option may be granted absent
such approval if the option provides that no officer or director of the Company
may sell shares received upon the exercise of such option during the six-month
period immediately following the grant of such option.
2.1 Procedures. The Board shall designate one of the members of the Plan
Administrator as chairman. The Plan Administrator may hold meetings at such
times and places as it shall determine. The acts of a majority of the members of
the Plan Administrator present at meetings at which a quorum exists, or acts
reduced to or approved in writing by all Plan Administrator members, shall be
valid acts of the Plan Administrator.
2.2 Responsibilities. Except for the terms and conditions explicitly set
forth in this Plan, the Plan Administrator shall have the authority, in its
discretion, to determine all matters relating to the options to be granted under
this Plan, including selection of the individuals to be granted options, the
number of shares to be subject to each option, the exercise price, and all other
terms and conditions of the options, including the designation of such options
as an incentive stock option or non-qualified stock option. Grants under this
Plan need not be identical in any respect, even when made simultaneously. The
interpretation and construction by the Plan Administrator of any terms or
provisions of this Plan or any option issued hereunder, or of any rule or
regulation promulgated in connection herewith, shall be conclusive and binding
on all interested parties, so long as such interpretation and construction with
respect to incentive stock options corresponds to the requirements of Internal
Revenue Code (the "Code") Section 422, the regulations thereunder, and
<PAGE>
any amendments thereto.
2.3 Section 16(b) Compliance and Bifurcation of Plan. It is the intention
of the Company that this Plan comply in all respects with Section 16(b) and Rule
16b-3 under the Exchange Act, to the extent applicable, and, if any Plan
provision is later found not to be in compliance with such Section or Rule, as
the case may be, the provision shall be deemed null and void, and in all events
the Plan shall be construed in favor of its meeting the requirements of Section
16(b) and Rule 16b-3 under the Exchange Act. Notwithstanding anything in the
Plan to the contrary, the Board, in its absolute discretion, may bifurcate the
Plan so as to restrict, limit or condition the use of any provision of the Plan
to participants who are officers and directors or other persons subject to
Section 16(b) of the Exchange Act without so restricting, limiting or
conditioning the Plan with respect to other participants.
SECTION 3. Stock Subject to This Plan. The stock subject to this Plan shall
be the Company's Common Stock, par value $.001 per share (the "Common Stock"),
presently authorized but unissued or subsequently acquired by the Company.
Subject to adjustment as provided in Section 7 hereof, the aggregate amount of
Common Stock to be delivered upon the exercise of all options granted under this
Plan shall not exceed 2,200,000 shares as such Common Stock was constituted on
the effective date of this Plan. If any option granted under this Plan shall
expire, be surrendered, exchanged for another option, canceled or terminated for
any reason without having been exercised in full, the unpurchased shares subject
thereto shall thereupon again be available for purposes of this Plan, including
for replacement options which may be granted in exchange for such surrendered,
canceled or terminated options.
SECTION 4. Eligibility. An incentive stock option may be granted only to
any individual who, at the time the option is granted, is an employee of the
Company or any related corporation. A nonqualified stock option may be granted
to any director, employee, officer, agent, consultant or independent contractor
of the Company or any related corporation, whether an individual or an entity.
Any party to whom an option is granted under this Plan shall be referred to
hereinafter as an "Optionee".
SECTION 5. Terms and Conditions of Options. Options granted under this Plan
shall be evidenced by written agreements which shall contain such terms,
conditions, limitations and restrictions as the Plan Administrator shall deem
advisable and which are not inconsistent with this Plan (the "Option
Agreement"). Notwithstanding the foregoing, options shall include or incorporate
by reference the following terms and conditions:
5.1 Number of Shares and Price. The maximum number of shares that may be
purchased pursuant to the exercise of each option and the price per share at
which such option is exercisable (the "exercise price") shall be as established
by the Plan Administrator, provided that the Plan Administrator shall act in
good faith to establish the exercise price which shall be not less than the fair
market value per share of the Common Stock at the time the option is granted
with respect to incentive stock options and not less than par value per share of
the Common Stock at the time the option is granted with respect to nonqualified
stock options and also provided that, with respect to incentive stock options
granted to greater than 10% shareholders, the exercise price shall be as
required by Section 6. In addition, no individual may during one calendar year
be granted options under the Plan to purchase more than 300,000 shares of Common
Stock during any one year, subject to adjustment as set forth in Section 7.
<PAGE>
5.2 Term and Maturity. Subject to the restrictions contained in Section 6
with respect to granting incentive stock options to greater than 10%
shareholders, the term of each incentive stock option shall be as established by
the Plan Administrator and, if not so established, shall be 10 years from the
date it is granted but in no event shall the term of any incentive stock option
exceed 10 years. The term of each nonqualified stock option shall be as
established by the Plan Administrator and, if not so established, shall be 10
years from the date it is granted. To ensure that the Company or related
corporations will achieve the purpose and receive the benefits contemplated in
this Plan, any option granted to any Optionee hereunder shall, unless the
condition of this sentence is waived or modified in the agreement evidencing the
option or by resolution adopted by the Plan Administrator, be exercisable
according to the following schedule:
Period of Optionee's
Continuous Relationship
With the Company or Related
Corporation From the Date Portion of Total Option
the Option is Granted Which is Exercisable
------------------------- -----------------------
after 1 year 33 1/3%
after 2 years 66 2/3%
after 3 years 100%
5.3 Exercise. Subject to any vesting schedule described in subsection 5.2
above, each option may be exercised in whole or in part; provided, however, that
no fewer than 100 shares (or the remaining shares then purchasable under the
option, if less than 100 shares) may be purchased upon any exercise of an option
hereunder and that only whole shares will be issued pursuant to the exercise of
any option. Options shall be exercised by delivery to the Company of notice of
the number of shares with respect to which the option is exercised, together
with payment of the exercise price.
5.4 Payment of Exercise Price. Payment of the option exercise price shall
be made in full at the time the notice of exercise of the option is delivered to
the Company and shall be in cash, bank certified or cashier's check or personal
check (unless at the time of exercise the Plan Administrator in a particular
case determines not to accept a personal check) for the Common Stock being
purchased.
The Plan Administrator can determine at the time the option is granted for
incentive stock options, or at any time before exercise for nonqualified stock
options, that additional forms of payment will be permitted. To the extent
permitted by the Plan Administrator and applicable laws and regulations
(including, but not limited to, federal tax and securities laws and regulations
and state corporate law), an option may be exercised by:
(a) delivery of shares of stock of the Company held by an Optionee having
a fair market value equal to the exercise price, such fair market value as
determined pursuant to this Plan;
(b) delivery of a properly executed exercise notice, together with
irrevocable instructions to a broker, all in accordance with the regulations of
the Federal Reserve Board, to promptly deliver to the Company the amount of sale
or loan proceeds necessary to pay the exercise price and any federal, state or
local withholding tax obligations that may arise in connection with the
<PAGE>
exercise; or
(c) delivery of a properly executed exercise notice together with
instructions to the Company to withhold from the shares that would otherwise be
issued upon exercise that number of shares having a fair market value equal to
the option exercise price.
5.5 Withholding Tax Requirement. The Company or any related corporation
shall have the right to retain and withhold from any payment of cash or Common
Stock under the Plan the amount of taxes required by any government to be
withheld or otherwise deducted and paid with respect to such payment. At its
discretion, the Company may require an Optionee receiving shares of Common Stock
to reimburse the Company for any such taxes required to be withheld by the
Company and withhold such shares in whole or in part until the Company is so
reimbursed. In lieu thereof, the Company, at its option in its sole discretion,
shall (a) have the right to withhold from any other cash amounts due or to
become due from the Company to the Optionee an amount equal to such taxes or (b)
retain and withhold a number of shares having a market value not less than the
amount of such taxes required to be withheld by the Company to reimburse the
Company for any such taxes and cancel (in whole or in part) any such shares so
withheld. If required by Section 16(b) of the Exchange Act, the election to pay
withholding taxes by delivery of shares held by any person who at the time of
exercise is subject to Section 16(b) of the Exchange Act, shall be made either
six months prior to the date the option exercise becomes taxable or at such
other times as the Company may determine as necessary to comply with Section
16(b) of the Exchange Act.
5.6 Assignability and Transferability of Option. Options granted under this
Plan and the rights and privileges conferred hereby may not be transferred,
assigned, pledged or hypothecated in any manner (whether by operation of law or
otherwise) other than (i) by will or by the applicable laws of descent and
distribution, (ii) pursuant to a qualified domestic relations order as defined
in Section 414(p) of the Code, or Title I of the Employee Retirement Income
Security Act of 1974, as amended, or the rules thereunder or (iii) as otherwise
determined by the Plan Administrator and set forth in the applicable Option
Agreement. Any attempt to transfer, assign, pledge, hypothecate or otherwise
dispose of any option under this Plan or of any right or privilege conferred
hereby, contrary to the Code or to the provisions of this Plan, or the sale or
levy or any attachment or similar process upon the rights and privileges
conferred hereby shall be null and void. The designation by an Optionee of a
beneficiary does not, in and of itself, constitute an impermissible transfer
under this Section.
5.7 Termination of Relationship. If the Optionee's relationship with the
Company or any related corporation ceases for any reason other than termination
for cause, death or total disability, and unless by its terms the option sooner
terminates or expires, then the Optionee may exercise, for a three-month period,
that portion of the Optionee's option which is exercisable at the time of such
cessation, but the Optionee's option shall terminate at the end of the
three-month period following such cessation as to all shares for which it has
not theretofore been exercised, unless, in the case of a nonqualified stock
option, such provision is waived in the agreement evidencing the option or by
resolution adopted by the Plan Administrator within 90 days of such cessation.
If, in the case of an incentive stock option, an Optionee's relationship with
the Company or related corporation changes (i.e., from employee to non-employee,
such as a consultant), such change shall constitute a termination of an
Optionee's employment with the Company or related corporation and
<PAGE>
the Optionee's incentive stock option shall become a non-qualified stock
option.
If an Optionee is terminated for cause, any option granted hereunder shall
automatically terminate as of the first discovery by the Company of any reason
for termination for cause, and such Optionee shall thereupon have no right to
purchase any shares pursuant to such option. "Termination for cause" shall mean
dismissal for dishonesty, conviction or confession of a crime punishable by law
(except minor violations), fraud, misconduct or disclosure of confidential
information. If an Optionee's relationship with the Company or any related
corporation is suspended pending an investigation of whether or not the Optionee
shall be terminated for cause, all Optionee's rights under any option granted
hereunder likewise shall be suspended during the period of investigation.
If an Optionee's relationship with the Company or any related corporation
ceases because of a total disability, the Optionee's option shall not terminate
or, in the case of an incentive stock option, cease to be treated as an
incentive stock option until the end of the 12-month period following such
cessation to the extent permitted by the applicable provisions of the Code
(unless by its terms it sooner terminates and expires). As used in this Plan,
the term "total disability" refers to a mental or physical impairment of the
Optionee which is expected to result in death or which has lasted or is expected
to last for a continuous period of 12 months or more and which causes the
Optionee to be unable, in the opinion of the Company and two (if more than one
is required by the Company in its sole discretion) independent physicians, to
perform his or her duties for the Company and to be engaged in any substantial
gainful activity. Total disability shall be deemed to have occurred on the first
day after the Company and the two (if more than one is required by the Company
in its sole discretion) independent physicians have furnished their opinion of
total disability to the Plan Administrator.
For purposes of this subsection 5.7, a transfer of relationship between or
among the Company and/or any related corporation shall not be deemed to
constitute a cessation of relationship with the Company or any of its related
corporations. For purposes of this subsection 5.7, with respect to incentive
stock options, employment shall be deemed to continue while the Optionee is on
military leave, sick leave or other bona fide leave of absence (as determined by
the Plan Administrator). The foregoing notwithstanding, employment shall not be
deemed to continue beyond the first 90 days of such leave, unless the Optionee's
reemployment rights are guaranteed by statute or by contract.
As used herein, the term "related corporation", when referring to a
subsidiary corporation, shall mean any corporation (other than the Company) or
other entity in, at the time of the granting of the option, an unbroken chain of
corporations ending with the Company, if stock or other interests possessing 50%
or more of the total combined voting power of all classes of stock or other
interests of each of the corporations or other entities other than the Company
is owned by one of the other corporations or other entities in such chain. When
referring to a parent corporation or other entity, the term "related
corporation" shall mean any corporation or other entity in an unbroken chain of
corporations or other entities ending with the Company if, at the time of the
granting of the option, each of the corporations or other entities other than
the Company owns stock or other interests possessing 50% or more of the total
combined voting power of all classes of stock or other interests in one of the
other corporations or other entities in such chain.
<PAGE>
5.8 Death of Optionee. If an Optionee dies while he or she has a
relationship with the Company or any related corporation or within the
three-month period (or 12-month period in the case of totally disabled
Optionees) following cessation of such relationship, any option held by such
Optionee to the extent that the Optionee would have been entitled to exercise
such option, may be exercised within one year after his or her death by the
personal representative of his or her estate or by the person or persons to whom
the Optionee's rights under the option shall pass by will or by the applicable
laws of descent and distribution.
5.9 Status of Shareholder. Neither the Optionee nor any party to which the
Optionee's rights and privileges under the option may pass shall be, or have any
of the rights or privileges of, a shareholder of the Company with respect to any
of the shares issuable upon the exercise of any option granted under this Plan
unless and until such option has been exercised.
5.10 Continuation of Employment. Nothing in this Plan or in any option
granted pursuant to this Plan shall confer upon any Optionee any right to
continue in the employ of the Company or of a related corporation, or to
interfere in any way with the right of the Company or of any such related
corporation to terminate his or her employment or other relationship with the
Company at any time.
5.11 Modification and Amendment of Option. Subject to the requirements of
Code Section 422 with respect to incentive stock options and to the terms and
conditions and within the limitations of this Plan, the Plan Administrator may
modify or amend outstanding options granted under this Plan. The modification or
amendment of an outstanding option shall not, without the consent of the
Optionee, impair or diminish any of his or her rights or any of the obligations
of the Company under such option. Except as otherwise provided in this Plan, no
outstanding option shall be terminated without the consent of the Optionee.
Unless the Optionee agrees otherwise, any changes or adjustments made to
outstanding incentive stock options granted under this Plan shall be made in
such a manner so as not to constitute a "modification" as defined in Code
Section 424(h) and so as not to cause any incentive stock option issued
hereunder to fail to continue to qualify as an incentive stock option as defined
in Code Section 422(b).
5.12 Limitation on Value for Incentive Stock Options. As to all incentive
stock options granted under the terms of this Plan, to the extent that the
aggregate fair market value (determined at the time the incentive stock option
is granted) of the stock with respect to which incentive stock options are
exercisable for the first time by the Optionee during any calendar year (under
this Plan and all other incentive stock option plans of the Company, a related
corporation or a predecessor corporation) exceeds $100,000, such excess options
shall be treated as nonqualified stock options. The previous sentence shall not
apply if the Code is amended or if the Internal Revenue Service publicly rules,
issues a private ruling to the Company, any Optionee, or any legatee, personal
representative or distributee of an Optionee or issues regulations, changing or
eliminating such annual limit, in which case the limitation shall be that
provided by the Code or the Internal Revenue Service, as the case may be.
5.13 Valuation of Common Stock Received Upon Exercise
5.13.1 Exercise of Options Under Sections 5.4(a) and (c). The value
of Common Stock received by the Optionee from an exercise under Sections 5.4(a)
and 5.4(c) hereof
<PAGE>
shall be the fair market value, which shall mean the last reported sales price,
regular way, of the Common Stock on the date of receipt by the Company of the
Optionee's delivery of shares under Section 5.4(a) hereof or delivery of the
exercise notice under Section 5.4(c) hereof (or, if no sale takes place on any
such day, the closing bid price of the Common Stock on such day), on the
principal securities exchange (including the National Association of Securities
Dealers, Inc.'s (the "NASD") National Market System, National Quotation Bureau
LLC's Pink Sheets, or the OTC Electronic Bulletin Board) on which the Common
Stock is admitted or listed for trading, or, if the Common Stock is not listed
on any such exchange on any such day, the highest reported bid price for the
Common Stock as furnished by the NASD through NASDAQ, or a similar organization
if NASDAQ is no longer reporting such information, or, if the Common Stock is
not listed for trading on an exchange and is not quoted on NASDAQ or any similar
organization on any such day, the fair value of a share of Common Stock on such
day as determined by the Plan Administrator of the Company in good faith.
5.13.2 Exercise of Option Under Section 5.4(b). The value of Common
Stock received by the Optionee from an exercise under Section 5.4(b) hereof (a)
in the case of the sale of the Common Stock received as a result of the exercise
by a broker on the date of receipt by the Company of the Optionee's exercise
notice, shall equal the sales price received for such shares; and (b) in all
other cases, shall be determined as provided in Section 5.13.1 hereof.
SECTION 6. Greater Than 10% Shareholders.
6.1 Exercise Price and Term of Incentive Stock Options. If incentive stock
options are granted under this Plan to employees who own more than 10% of the
total combined voting power of all classes of stock of the Company or any
related corporation, the term of such incentive stock options shall not exceed
five years and the exercise price shall be not less than 110% of the fair market
value of the Common Stock at the time the incentive stock option is granted.
This provision shall control notwithstanding any contrary terms contained in an
option agreement or any other document. The term and exercise price limitations
of this provision shall be amended to conform to any change required (or, in the
sole discretion of the Plan Administrator, permitted) by a change in the Code or
by a ruling or pronouncement of the Internal Revenue Service.
6.2 Attribution Rule. For purposes of subsection 6.1, in determining stock
ownership, an employee shall be deemed to own the stock owned, directly or
indirectly, by or for his or her brothers, sisters, spouse, ancestors and lineal
descendants. Stock owned, directly or indirectly, by or for a corporation,
partnership, estate or trust shall be deemed to be owned proportionately by or
for its shareholders, partners or beneficiaries. If an employee or a person
related to the employee owns an unexercised option or warrant to purchase stock
of the Company, the stock subject to that portion of the option or warrant which
is unexercised shall not be counted in determining stock ownership. For purposes
of this Section 6, stock owned by an employee shall include all stock owned by
him which is actually issued and outstanding immediately before the grant of the
incentive stock option to the employee.
SECTION 7. Adjustments Upon Changes in Capitalization. The aggregate number
and class of shares for which options may be granted under this Plan, the number
and class of shares covered by each outstanding option, and the exercise price
per share thereof (but not the total price), shall all be proportionately
adjusted for any increase or decrease in the number of issued shares of
<PAGE>
Common Stock of the Company resulting from a split-up or consolidation of shares
or any like capital adjustment, or the payment of any stock dividend.
7.1. Effect of Liquidation, Reorganization or Change in Control.
7.1.1 Cash, Stock or Other Property for Stock. Except as provided in
subsection 7.1.2, upon a merger (other than a merger of the Company in which the
holders of Common Stock immediately prior to the merger have the same
proportionate ownership of common stock in the surviving corporation immediately
after the merger), consolidation, acquisition of property or stock, separation,
reorganization (other than a mere reincorporation or the creation of a holding
company) or liquidation of the Company, as a result of which the shareholders of
the Company receive cash or property other than capital stock in exchange for or
in connection with their shares of Common Stock, any option granted hereunder
shall terminate, but the Optionee shall have the right immediately prior to any
such merger, consolidation, acquisition of property or stock, separation,
reorganization or liquidation to exercise such Optionee's option in whole or in
part whether or not the vesting requirements set forth in the option agreement
have been satisfied.
7.1.2 Conversion of Options on Stock for Stock Exchange. If the
shareholders of the Company receive capital stock of another corporation
("Exchange Stock") in exchange for their shares of Common Stock in any
transaction involving a merger (other than a merger of the Company in which the
holders of Common Stock immediately prior to the merger have the same
proportionate ownership of common stock in the surviving corporation immediately
after the merger), consolidation, acquisition of property or stock, separation
or reorganization (other than a mere reincorporation or the creation of a
holding company), all options granted hereunder shall be converted into options
to purchase shares of Exchange Stock unless the Company and corporation issuing
the Exchange Stock, in their sole discretion, determine that any or all such
options granted hereunder shall not be converted into options to purchase shares
of Exchange Stock but instead shall terminate in accordance with the provisions
of subsection 7.1.1. The amount of underlying shares and exercise price of
converted options shall be determined by adjusting the amount and price of the
options granted hereunder in the same proportion as used for determining the
number of shares of Exchange Stock the holders of the Common Stock receive in
such merger, consolidation, acquisition of property or stock, separation or
reorganization. Unless the Board determines otherwise, the converted options
shall be fully vested whether or not the vesting requirements set forth in the
option agreement have been satisfied.
7.2 Fractional Shares. In the event of any adjustment in the number of
shares covered by an option, any fractional shares resulting from such
adjustment shall be disregarded and each such option shall cover only the number
of full shares resulting from such adjustment.
7.3 Determination of Board to Be Final. All Section 7 adjustments shall be
made by the Board, and its determination as to what adjustments shall be made,
and the extent thereof, shall be final, binding and conclusive. Unless an
Optionee agrees otherwise, any change or adjustment to an incentive stock option
shall be made in such a manner so as not to constitute a "modification" as
defined in Code Section 425(h) and so as not to cause his or her incentive stock
option issued hereunder to fail to continue to qualify as an incentive stock
option as defined in Code Section 422(b).
<PAGE>
SECTION 8. Securities Regulation. Shares shall not be issued with respect
to an option granted under this Plan unless the exercise of such option and the
issuance and delivery of such shares pursuant thereto shall comply with all
relevant provisions of law, including, without limitation, any applicable state
securities laws, the Securities Act of 1933, as amended, the Exchange Act, the
rules and regulations promulgated thereunder, and the requirements of any stock
exchange or inter-dealer quotation system upon which the shares may then be
listed, and shall be further subject to the approval of counsel for the Company
with respect to such compliance, including the availability of an exemption from
registration for the issuance and sale of any shares hereunder. Inability of the
Company to obtain from any regulatory body having jurisdiction the authority
deemed by the Company's counsel to be necessary for the lawful issuance and sale
of any shares hereunder or the unavailability of an exemption from registration
for the issuance and sale of any shares hereunder shall relieve the Company of
any liability in respect of the nonissuance or sale of such shares as to which
such requisite authority shall not have been obtained.
As a condition to the exercise of an option, the Company may require the
Optionee to represent and warrant at the time of any such exercise that the
shares are being purchased only for investment and without any present intention
to sell or distribute such shares if, in the opinion of counsel for the Company,
such representation is required by any relevant provision of the aforementioned
laws. At the option of the Company, a stop-transfer order against any shares of
stock may be placed on the official stock books and records of the Company, and
a legend indicating that the stock may not be pledged, sold or otherwise
transferred unless an opinion of counsel is provided (concurred in by counsel
for the Company) stating that such transfer is not in violation of any
applicable law or regulation, may be stamped on stock certificates in order to
assure exemption from registration. The Company may also require such other
action or agreement by the Optionees as it may from time to time deem to be
necessary or advisable. THE COMPANY SHALL NOT BE OBLIGATED, BY REASON OF THIS
PROVISION OR OTHERWISE, TO UNDERTAKE REGISTRATION OF THE OPTIONS OR STOCK
HEREUNDER.
Should any of the Company's capital stock of the same class as the stock
subject to options granted hereunder be listed on a national securities exchange
or inter-dealer quotation system, all stock issued hereunder if not previously
listed on such exchange or inter-dealer quotation system shall be authorized by
that exchange or system for listing thereon prior to the issuance thereof.
SECTION 9. Amendment and Termination.
9.1 Board Action. The Board may at any time suspend, amend or terminate
this Plan, provided that except as set forth in Section 7, the approval of the
holders of a majority of the Company's outstanding shares of voting capital
stock present and entitled to vote at any meeting is necessary for the adoption
by the Board of any amendment which will:
(a) increase the number of shares which are to be reserved for the issuance
of options under this Plan;
(b) permit the granting of stock options to a class of persons other than
those presently permitted to receive stock options under this Plan; or
(c) require shareholder approval under applicable law, including Section
<PAGE>
16(b) of the Exchange Act.
9.2 Automatic Termination. Unless sooner terminated by the Board, this Plan
shall terminate ten years from the earlier of (a) the date on which this Plan is
adopted by the Board or (b) the date on which this Plan is approved by the
shareholders of the Company. No option may be granted after such termination or
during any suspension of this Plan. The amendment or termination of this Plan
shall not, without the consent of the option holder, alter or impair any rights
or obligations under any option theretofore granted under this Plan.
SECTION 10. Effectiveness Of This Plan. This Plan shall become effective
upon adoption by the Board so long as it is approved by the holders of a
majority of the Company's outstanding shares of voting capital stock present and
entitled to vote at any meeting at any time within 12 months before or after the
adoption of this Plan.
Adopted by the Board of Directors on September 24, 1999 and approved by the
stockholders on September __, 1999.
<PAGE>
CALLNOW.COM, INC.
NONQUALIFIED STOCK OPTION LETTER AGREEMENT
Date: September 24, 1999
TO: ____________
We are pleased to inform you that you have been selected by the Plan
Administrator of CallNOW.com, Inc. (the "Company") 1999 Stock Option Plan (the
"Plan"). The Plan was adopted by the Board of Directors and subject to approval
by our stockholders. When you sign and return to the Company the Acceptance and
Acknowledgment attached to this Stock Option Agreement you will be entitled to
receive a nonqualified stock option for the purchase of _______ shares (the
"Option Shares") of the Company's common stock, par value $.001 per share
("Common Stock"), at an exercise price of $2.75 per share (the "exercise
price"), subject to the vesting provisions set forth herein. A copy of the Plan
is attached and the provisions thereof, including, without limitation, those
relating to withholding taxes, are incorporated into this Agreement by
reference. It is understood that this Option is not intended to constitute an
incentive stock option as that term is defined in Section 422 of the Internal
Revenue Code of 1986, as amended.
The terms of the option are as set forth in the Plan and in this Agreement.
The most important of the terms set forth in the Plan are summarized as follows:
Number of Shares: The option granted to you covers an aggregate of _______
shares of Common Stock.
Exercise Price: The exercise price per share of the Option Shares is $2.75
per share (the "Exercise Price").
Adjustments. The number of the Option Shares and the Exercise Price may be
subject to adjustment under certain circumstances as described in the Plan.
Date of Grant: The date of grant of the option is September 24, 1999.
Term: The term of the option is ten years from date of grant, unless sooner
terminated.
Vesting: Your option shall vest according to the following schedule,
provided you continue your relationship with the Company or a related
corporation:
Period of Your Continuous
Relationship With the
Company or a Related
Corporation From the Portion of Total Option
Date Option is Granted Which is Exercisable
-------------------------- -----------------------
after 1 year 33 1/3%
after 2 years 66 2/3%
after 3 years 100%
Exercise: The vested portion of the option may be exercised, in whole or in
part, but not as
<PAGE>
to any fractional shares, during the term of the option. You should use a Notice
of Exercise of Nonqualified Stock Option in the form attached to this Agreement
when you exercise the option. During your lifetime only you can exercise the
option. The Plan also provides for exercise of the option by the personal
representative of your estate or the beneficiary thereof following your death.
Payment for Shares: The vested portion of this option may be exercised by
the delivery of:
(a) Cash, personal check (unless, at the time of exercise, the Plan
Administrator determines otherwise), certified or bank cashier's checks in an
amount equal to the aggregate Exercise Price for the number of shares as to
which the option is being exercised together with a properly executed Notice of
Exercise;
(b) Unless the Plan Administrator in its sole discretion determines
otherwise, a properly executed Notice of Exercise, together with shares of the
capital stock of the Company held by you having a fair market value at the time
of exercise, as determined by the Plan Administrator in accordance with the
Plan, equal to the aggregate Exercise Price for the number of shares as to which
the option is being exercised;
(c) Unless the Plan Administrator in its sole discretion determines
otherwise, a properly executed Notice of Exercise together with instructions to
the Company to withhold from the shares that would otherwise be issued upon
exercise that number of shares having a fair market value equal to the aggregate
Exercise Price for the number of shares as to which the option is being
exercised; or
(d) A properly executed Notice of Exercise together with irrevocable
instructions to a broker to promptly deliver to the Company the amount of sale
or loan proceeds to pay the aggregate Exercise Price for the number of shares as
to which the option is being exercised;.
Upon receipt of written Notice of Exercise and payment and delivery of any
other required documentation, the Company shall deliver to the person exercising
the option a certificate or certificates for the appropriate number of shares of
Common Stock. It shall be a condition to the performance of the Company's
obligation to issue or transfer Common Stock upon exercise of this option that
you pay, or make provision satisfactory to the Company for the payment of, any
taxes which the Company is obligated to collect with respect to the issue or
transfer of Common Stock upon exercise.
Termination: Your option will terminate immediately upon termination for
Cause, as defined in the Plan, or three months after cessation of your
relationship with the Company or a related corporation, unless cessation is due
to total disability, in which case the portion of this option which is vested at
the time of such termination shall terminate one year after cessation of such
relationship. If an Optionee dies while he or she has a relationship with the
Company or any related corporation or within the three-month period following
cessation of such relationship, any option held by such Optionee to the extent
that the Optionee would have been entitled to exercise such option, may be
exercised within one year after his or her death by the personal representative
of his or her estate or by the person or persons to whom the Optionee's rights
under the option shall pass by will or by the applicable laws of descent and
distribution. All unvested options will terminate immediately upon the cessation
of your relationship with the Company or a related corporation for any reason,
including, without limitation, termination for cause, resignation, death or
disability.
<PAGE>
Transfer of Option: The option is not transferable except by will or by the
applicable laws of descent and distribution or pursuant to a qualified domestic
relations order.
Notice: All notices sent in connection with this option shall be in writing
and, if to the Company, shall be delivered personally to the Chief Executive
Officer of the Company or mailed to its principal office, addressed to the
attention of the Chief Executive Officer, and, if to you, shall be delivered
personally or mailed to you at the address noted on the attached Acceptance and
Acknowledgment. Such addresses may be changed at any time by notice from one
party to the other.
YOUR PARTICULAR ATTENTION IS DIRECTED TO SECTION 8 OF THE PLAN WHICH
DESCRIBES CERTAIN IMPORTANT CONDITIONS RELATING TO FEDERAL AND STATE SECURITIES
LAWS THAT MUST BE SATISFIED BEFORE THE OPTION CAN BE EXERCISED AND BEFORE THE
COMPANY CAN ISSUE ANY SHARES TO YOU. THE COMPANY HAS NO OBLIGATION TO REGISTER
THE SHARES THAT WOULD BE ISSUED UPON THE EXERCISE OF YOUR OPTION, AND IF IT
NEVER REGISTERS THE SHARES, YOU WILL NOT BE ABLE TO EXERCISE THE OPTION UNLESS
AN EXEMPTION FROM REGISTRATION IS AVAILABLE. AT THE PRESENT TIME, EXEMPTIONS
FROM REGISTRATION UNDER FEDERAL AND STATE SECURITIES LAWS ARE VERY LIMITED AND
MIGHT BE UNAVAILABLE TO YOU PRIOR TO THE EXPIRATION OF THE OPTION. CONSEQUENTLY,
YOU MIGHT HAVE NO OPPORTUNITY TO EXERCISE THE OPTION AND TO RECEIVE SHARES UPON
SUCH EXERCISE. IN ADDITION, YOU SHOULD CONSULT WITH YOUR TAX ADVISOR CONCERNING
THE RAMIFICATIONS TO YOU OF HOLDING OR EXERCISING YOUR OPTIONS OR HOLDING OR
SELLING THE SHARES UNDERLYING SUCH OPTIONS.
It is the intention of the Company that this Plan comply in all respects
with Section 16(b) and Rule 16b-3 under the Securities Exchange Act of 1934 (the
"Exchange Act"), to the extent applicable, and, if any Plan provision is later
found not to be in compliance with such Section or Rule, as the case may be, the
provision shall be deemed null and void, and in all events the Plan shall be
construed in favor of its meeting the requirements of Section 16(b) and Rule
16b-3 under the Exchange Act. Notwithstanding anything in the Plan to the
contrary, the Board, in its absolute discretion, may bifurcate the Plan so as to
restrict, limit or condition the use of any provision of the Plan to
participants who are officers and directors or other persons subject to Section
16(b) of the Exchange Act without so restricting, limiting or conditioning the
Plan with respect to other participants.
All decisions or interpretations made by the Plan Administrator with regard
to any question arising hereunder or under the Plan shall be binding and
conclusive on the Company and you.
This Agreement shall bind and inure to the benefit of the parties hereto
and the successors and assigns of the Company and, to the extent provided in the
Plan, your executors, administrators, legatees and heirs.
<PAGE>
Please execute the Acceptance and Acknowledgment set forth below on the
enclosed copy of this Agreement and return it to the undersigned.
Very truly yours,
CALLNOW.COM, INC.
By: ________________________________
CHRISTIAN BARDENHEUER
CHIEF EXECUTIVE OFFICER
<PAGE>
ACCEPTANCE AND ACKNOWLEDGMENT
I, a resident of the State of ______________, accept the nonqualified stock
option described above and in the CallNOW.com, Inc. 1999 Stock Option Plan, and
acknowledge receipt of a copy of this Agreement, including a copy of the Plan. I
have read and understand this Agreement and the Plan, including the provisions
of Section 8.
Dated: _____________________
- --------------------------------------- -----------------------------------
Taxpayer I.D. Number Signature
- ---------------------------------------
Address
By his or her signature below, the spouse of the Optionee, if such Optionee
is legally married as of the date of his or her execution of this Agreement,
acknowledges that he or she has read this Agreement and the Plan and is familiar
with the terms and provisions thereof, and agrees to be bound by all the terms
and conditions of this Agreement and the Plan.
Dated: _____________________
------------------------------
Spouse's Signature
------------------------------
Printed Name
<PAGE>
NOTICE OF EXERCISE
CallNOW.com, Inc.
50 Broad Street
New York, New York 10004
Gentlemen:
I hereby exercise my right to purchase ______ shares of Common Stock (the
"Shares") of CallNOW.com, Inc., a Delaware corporation, pursuant to, and in
accordance with, the CallNOW.com, Inc. Nonqualified Stock Option Letter
Agreement ("Agreement") dated ________. As provided in that Agreement, I deliver
herewith a certified or bank cashier's check in the amount of the aggregate
exercise price (unless alternative payment methods have been approved by the
Plan Administrator). Please deliver to me stock certificates representing the
subject shares registered as follows:
Name:_______________________________________
Address:____________________________________
____________________________________
Social Security Number:_______________________
The aggregate exercise price is $___________ (total number of shares to be
purchased x $____ per share).
1. If the sale of the Shares and the resale thereof has not, prior to the
date hereof, been registered pursuant to a registration statement filed and
declared effective under the Securities Act of 1933, as amended (the "Act"), the
undersigned hereby agrees, represents, and warrants that:
(a) the undersigned is acquiring the Shares for his or her own account
(and for the account of others), for investment and not with a view to the
distribution or resale thereof;
(b) by virtue of his or her position, the undersigned has access to the
same kind of information which would be available in a registration statement
filed under the Act;
(c) the undersigned is a sophisticated investor;
(d) the undersigned understands that he or she may not sell or
otherwise dispose of the Shares in the absence of either (i) a registration
statement filed under the Act or (ii) an exemption from the registration
provisions thereof; and
(e) the certificates representing the Shares may contain a legend to the
effect of subsection (d) of this Section 1.
2. If the sale of the Shares and the resale thereof has been registered
pursuant to a
<PAGE>
registration statement filed and declared effective under the Act, the
undersigned hereby represents and warrants that he or she has received the
applicable prospectus and a copy of the most recent annual report, as well as
all other material sent to stockholders generally.
3. The undersigned acknowledges that the number of shares of Common Stock
subject to the Agreement is hereafter reduced by the number of shares of Common
Stock represented by the Shares.
4. The undersigned understands that there are certain tax implications to
his or her exercise of his or her right to purchase shares of Common Stock under
the Agreement. The undersigned further understands that it is his or her
obligation to confer with his or her own tax advisor with respect to such tax
implications.
Very truly yours,
------------------------------------
(signature)
------------------------------------
(please type or print name)
- --------------------------------------------------------------------------------
By: _____________________
Name: _____________________
Title: _____________________
<PAGE>
CALLNOW.COM, INC.
INCENTIVE STOCK OPTION LETTER AGREEMENT
Date:_________________
TO: ______________________
We are pleased to inform you that you have been selected by the Plan
Administrator of the CallNOW.com, Inc. (the "Company") 1999 Stock Option Plan
(the "Plan"). The Plan was adopted by the Board of Directors, and approved by
the stockholders. When you sign and return to the Company the Acceptance and
Acknowledgment attached to this Stock Option Agreement you will be entitled to
receive an incentive stock option for the purchase of ________ shares of the
Company's common stock, $.001 par value ("Common Stock"), at an exercise price
of $_____ per share (the "exercise price") subject to the vesting provisions
set forth herein. A copy of the Plan is attached and the provisions thereof,
including, without limitation, those relating to withholding taxes, are
incorporated into this Agreement by reference.
The terms of the option are as set forth in the Plan and in this Agreement.
The most important of the terms set forth in the Plan are summarized as follows:
Number of Shares: The option granted to you covers an aggregate of ______
shares of Common Stock.
Exercise Price: The exercise price per share of Common Stock subject to
your option is $_____ per share (the "Exercise Price").
Adjustments. The number of shares of Common Stock subject to your option
and the Exercise Price may be subject to adjustment under certain circumstances
as described in the Plan.
Date of Grant: The date of grant of the option is _______________.
Term. The term of the option is ten years from date of grant, unless sooner
terminated.
Vesting: Your option shall vest according to the following schedule,
provided you continue your relationship with the Company or a related
corporation:
Period of Your Continuous
Relationship With the
Company or a Related
Corporation From the Portion of Total Option
Date Option is Granted Which is Exercisable
---------------------- ----------------------
after 1 year 33 1/3%
after 2 years 66 2/3%
after 3 years 100%
<PAGE>
Exercise. The vested portion of the option may be exercised, in whole or in
part, but not as to any fractional shares, during the term of the option. You
should use a Notice of Exercise in the form attached to this Agreement when you
exercise the option. During your lifetime only you can exercise the option. The
Plan also provides for exercise of the option by the personal representative of
your estate or the beneficiary thereof following your death.
Payment for Shares. The vested portion of this option may be exercised by
the delivery of:
(a) Cash, personal check (unless at the time of exercise the Plan
Administrator determines otherwise), or certified or bank cashier's checks in an
amount equal to the aggregate Exercise Price for the number of shares as to
which the option is being exercised together with a properly executed Notice of
Exercise;
(b) A properly executed Notice of Exercise, together with shares of the
capital stock of the Company held by you having a fair market value at the time
of exercise, as determined by the Plan Administrator in accordance with the
Plan, equal to the aggregate Exercise Price for the number of shares as to which
the option is being exercised;
(c) A properly executed Notice of Exercise together with instructions to
the Company to withhold from the shares that would otherwise be issued upon
exercise that number of shares having a fair market value equal to the aggregate
Exercise Price for the number of shares as to which the option is being
exercised; or
(d) A properly executed Notice of Exercise together with irrevocable
instructions to a broker to promptly deliver to the Company the amount of sale
or loan proceeds to pay the aggregate Exercise Price for the number of shares as
to which the option is being exercised.
Upon receipt of written Notice of Exercise and payment and delivery of any
other required documentation, the Company shall deliver to the person exercising
the option a certificate or certificates for the appropriate number of shares of
Common Stock. It shall be a condition to the performance of the Company's
obligation to issue or transfer Common Stock upon exercise of this option that
you pay, or make provision satisfactory to the Company for the payment of , any
taxes which the Company is obligated to collect with respect to the issue or
transfer of Common Stock upon exercise.
Termination. Your option will terminate immediately upon termination for
cause, as defined in the Plan, or three months after cessation of your
relationship with the Company or a related corporation thereof, unless cessation
is due to total disability, in which case the portion of this option which is
vested at the time of such termination shall terminate one year after cessation
of such relationship. If an Optionee dies while he or she has a relationship
with the Company or any related corporation or within the three-month period
following cessation of such relationship, any option held by such Optionee to
the extent that the Optionee would have been entitled to exercise such option,
may be exercised within one year after his or her death by the personal
representative of his or her estate or by the person or persons to whom the
Optionee's rights under the option shall pass by will or by the applicable laws
of descent and distribution. All unvested options will terminate immediately
upon the cessation of your relationship with the Company or a related
corporation for any reason, including, without limitation, termination for
cause, resignation, death
<PAGE>
or disability.
Transfer of Option. The option is not transferable except by will or by the
applicable laws of descent and distribution or pursuant to a qualified domestic
relations order.
Notice: All notices sent in connection with this option shall be in writing
and, if to the Company, shall be delivered personally to the Chief Executive
Officer of the Company or mailed to its principal office, addressed to the
attention of the Chief Executive Officer, and, if to you, shall be delivered
personally or mailed to you at the address noted on the attached Acceptance and
Acknowledgment. Such addresses may be changed at any time by notice from one
party to the other.
YOUR PARTICULAR ATTENTION IS DIRECTED TO SECTION 8 OF THE PLAN WHICH
DESCRIBES CERTAIN IMPORTANT CONDITIONS RELATING TO FEDERAL AND STATE SECURITIES
LAWS THAT MUST BE SATISFIED BEFORE THE OPTION CAN BE EXERCISED AND BEFORE THE
COMPANY CAN ISSUE ANY SHARES TO YOU. THE COMPANY HAS NO OBLIGATION TO REGISTER
THE SHARES THAT WOULD BE ISSUED UPON THE EXERCISE OF YOUR OPTION, AND IF IT
NEVER REGISTERS THE SHARES, YOU WILL NOT BE ABLE TO EXERCISE THE OPTION UNLESS
AN EXEMPTION FROM REGISTRATION IS AVAILABLE. AT THE PRESENT TIME, EXEMPTIONS
FROM REGISTRATION UNDER FEDERAL AND STATE SECURITIES LAWS ARE VERY LIMITED AND
MIGHT BE UNAVAILABLE TO YOU PRIOR TO THE EXPIRATION OF THE OPTION. CONSEQUENTLY,
YOU MIGHT HAVE NO OPPORTUNITY TO EXERCISE THE OPTION AND TO RECEIVE SHARES UPON
SUCH EXERCISE. IN ADDITION, YOU SHOULD CONSULT WITH YOUR TAX ADVISOR CONCERNING
THE RAMIFICATIONS TO YOU OF HOLDING OR EXERCISING YOUR OPTIONS OR HOLDING OR
SELLING THE SHARES UNDERLYING SUCH OPTIONS.
It is the intention of the Company that this Plan comply in all respects
with Section 16(b) and Rule 16b-3 under the Securities Exchange Act of 1934 (the
"Exchange Act"), to the extent applicable, and, if any Plan provision is later
found not to be in compliance with such Section or Rule, as the case may be, the
provision shall be deemed null and void, and in all events the Plan shall be
construed in favor of its meeting the requirements of Section 16(b) and Rule
16b-3 under the Exchange Act. Notwithstanding anything in the Plan to the
contrary, the Board, in its absolute discretion, may bifurcate the Plan so as to
restrict, limit or condition the use of any provision of the Plan to
participants who are officers and directors or other persons subject to Section
16(b) of the Exchange Act without so restricting, limiting or conditioning the
Plan with respect to other participants.
All decisions or interpretations made by the Plan Administrator with regard
to any question arising hereunder or under the Plan shall be binding and
conclusive on the Company and you.
This Agreement shall bind and inure to the benefit of the parties hereto
and the successors and assigns of the Company and, to the extent provided in the
Plan, your executors, administrators, legatees and heirs.
<PAGE>
Please execute the Acceptance and Acknowledgment set forth below on the
enclosed copy of this Agreement and return it to the undersigned.
Very truly yours,
CALLNOW.COM, INC.
By:_________________________
CHRISTIAN BARDENHEUER
CHIEF EXECUTIVE OFFICER
<PAGE>
ACCEPTANCE AND ACKNOWLEDGMENT
-----------------------------
I, a resident of the State of __________, accept the incentive stock option
described above granted under the CallNOW.com, Inc. 1999 Stock Option Plan, and
acknowledge receipt of a copy of this Agreement, including a copy of the Plan. I
have read and understand this Agreement and the Plan, including the provisions
of Section 8 thereof.
Dated: _____________________
- --------------------------------------- -----------------------------------
Taxpayer I.D. Number Signature
- ---------------------------------------
Address
By his or her signature below, the spouse of the Optionee, if such Optionee
is legally married as of the date of such Optionee's execution of this
Agreement, acknowledges that he or she has read this Agreement and the Plan and
is familiar with the terms and provisions thereof, and agrees to be bound by all
the terms and conditions of this Agreement and the Plan.
Dated: _____________________
------------------------------
Spouse's Signature
------------------------------
Printed Name
<PAGE>
NOTICE OF EXERCISE
------------------
CallNOW.com, Inc.
50 Broad Street
New York, NY 10022
Gentlemen:
I hereby exercise my right to purchase ______ shares of Common Stock (the
"Shares") of CallNOW.com, Inc., a Delaware corporation, pursuant to, and in
accordance with, the CallNOW.com, Inc. Incentive Stock Option Letter Agreement
("Agreement") dated __________. As provided in that Agreement, I deliver
herewith a certified or bank cashier's check in the amount of the aggregate
exercise price (unless alternative payment methods have been approved by the
Plan Administrator). Please deliver to me stock certificates representing the
subject shares registered as follows:
Name:_______________________________________
Address:____________________________________
____________________________________
Social Security Number:_______________________
The aggregate exercise price is $___________ (total number of shares to be
purchased x $____ per share).
1. If the sale of the Shares and the resale thereof has not, prior to the
date hereof, been registered pursuant to a registration statement filed and
declared effective under the Securities Act of 1933, as amended (the "Act"), the
undersigned hereby agrees, represents, and warrants that:
(a) the undersigned is acquiring the Shares for his or her own account
(and not for the account of others), for investment and not with a view to the
distribution or resale thereof;
(b) by virtue of his or her position, the undersigned has access to
the same kind of information which would be available in a registration
statement filed under the Act;
(c) the undersigned is a sophisticated investor;
(d) the undersigned understands that he or she may not sell or
otherwise dispose of the Shares in the absence of either (i) a registration
statement filed under the Act or (ii) an exemption from the registration
provisions thereof; and
(e) the certificates representing the Shares may contain a legend to
the effect of subsection (d) of this Section 1.
2. If the sale of the Shares and the resale thereof has been registered
pursuant to a
<PAGE>
registration statement filed and declared effective under the Act, the
undersigned hereby represents and warrants that he or she has received the
applicable prospectus and a copy of the most recent annual report, as well as
all other material sent to stockholders generally.
3. The undersigned acknowledges that the number of shares of Common Stock
subject to the Agreement is hereafter reduced by the number of shares of Common
Stock represented by the Shares.
4. The undersigned understands that there are certain tax implications to
his or her exercise of his or her right to purchase shares of Common Stock under
the Agreement. The undersigned further understands that it is his or her
obligation to confer with his or her own tax advisor with respect to such tax
implications.
Very truly yours,
------------------------------------
(signature)
------------------------------------
(please type or print name)
By:________________________________
<PAGE>
Exhibit 10.18
FORM OF AGREEMENT WITH RESPECT TO STOCK OPTION GRANT
To Whom It May Concern: September 24, 1999
As a condition of, and in consideration for, that certain grant (the
"Grant") to you by CallNOW.com, Inc. (the "Company"), dated as of September 24,
1999, of options (the "Options") to purchase ____ shares of the Company's
common stock at an exercise price of $2.75 per share (the "Exercise Price"),
you hereby agree, that for a period of one year from the date hereof, the
compensation committee of the Company's Board of Directors, which is comprised
of independent members of the Board of Directors (the "Compensation
Committee"), acting in its sole discretion, but only upon a determination by
any independent and authoritative third party, including, without limitation,
the United States Securities and Exchange Commission, the Internal Revenue
Service or the Company's independent auditors, may, in turn, determine that the
fair market value of the Company's common stock on September 24, 1999 was in
excess of the Exercise Price, upon any such determination by the Compensation
Committee, the Exercise Price of the Options shall be increased to the level of
such fair market value as determined by the Compensation Committee (the "Re-Set
Exercise Price") without further action by either the Compensation Committee or
you. However, you will receive notification that the Compensation Committee has
taken action with respect to your option. You further understand and hereby
agree that upon any such determination, the Re-Set Exercise Price shall become
the exercise price of the Options, and that no shares of common stock may be
purchased under the Grant at any price other than the Re-Set Exercise Price.
This Agreement shall supersede and replace any provision of any prior
agreements and understandings, both written and oral (including, without
limitation, the Grant, or any employment agreement between you and the
Company), with respect to the subject matter hereof.
Please execute the Acceptance and Acknowledgment set forth below on
the enclosed copy of this Agreement and return it to the undersigned.
Very truly yours,
CALLNOW.COM, INC.
By: _________________________
Christian Bardenheuer
Chairman and Chief Executive Officer
AGREED AND ACCEPTED AS OF THE
DATE HEREINABOVE WRITTEN:
By: __________________
Name:
<PAGE>
Exhibit 10.21
EMPLOYMENT AGREEMENT
AGREEMENT, dated as of the 1st day of June, 1999, between
CallNOW.com, Inc., a Delaware corporation (the "Corporation"), and Josune Garcia
Yauguas (the "Employee").
WHEREAS, the Corporation is engaged as the leading Internet
portal for telecommunications e-commerce business (the "Business"); and
WHEREAS, the Corporation desires to employ the Employee upon
the terms and conditions hereinafter set forth, and the Employee desires to
accept such employment;
NOW, THEREFORE, it is agreed as follows:
1) EMPLOYMENT. The Corporation hereby employs the Employee, and the Employee
accepts employment with the Corporation, as Business Development Manager
2) SCOPE OF DUTIES. The Employee shall perform all duties required hereunder
fully, professionally and to the best of the Employee's ability. The duties
of the Employee under this Agreement shall include, but not be limited to,
the following:
a. Assist CEO in developing affiliates and e-commerce
contracts for our services in Latin America and Asia
provide prestigious partners and a significant increase
in telephone service revenues.
b. Manage relationships with affiliates and e-commerce
partners assigned and insure that there is good
coordination between them and the Company.
c. Assist in identifying new partners and
telecommunications services for which there is a market
need. Develop the ideas and likely partners who could
use the new services.
d. Assist CEO in developing targeted public relations and
media events and articles to help develop the Latin
America business.
e. Other duties as specified
3) COMPENSATION. As the Employee's entire compensation for all services
rendered to the Corporation hereunder, the Employee shall receive such
compensation as specified below:
a. Base Salary: The Corporation shall pay the Employee a
base yearly salary of US$ 70,000. .
b. Annual Bonus: The Employee will be eligible for an
annual bonus of up to 20% of base salary split between
a 6 month date and 1year date.
c. Option Plan:
<PAGE>
90 days after the execution of this Agreement, Employee
shall receive an option to purchase 4666 shares of the
Corporation's non-voting stock (the "Stock"), at $2.50
a share (or that price paid for the second 504
financing). Additionally, on the expiration date of the
first and second renewal Terms of this Agreement,
Employee shall receive in each instance an additional
option to purchase 4667 shares of Stock at $2.50 Dollar
a share (collectively, all options are referred to
herein as the "Options"). Unless exercised, the Options
shall expire on the earlier of termination of the
Employee's employment with the Corporation or ten (10)
years from the date hereof. The parties agree that the
granting of Options herein do not impact the Employees
status as an employee of the Corporation.
4) EXCLUSIVE SERVICE. During the term of this Agreement, the Employee shall
not, either directly or indirectly, be engaged by any person or entity
other than the Corporation, or otherwise make any commitments or engage in
any activities which may conflict with the performance of the Employee's
services hereunder.
5) COPYRIGHT. The Employee hereby acknowledges and agrees that all services
rendered hereunder shall be rendered as an "employee for hire" of the
Corporation as such term is defined in the Copyright Act of the United
States, and that all results and proceeds of the Employee's services
hereunder shall be and at all times remain the sole and exclusive property
of the Corporation, forever free and clear of any claims of the Employee,
the Employee's heirs, successors, representatives or assigns. The Employee
hereby sells and assigns to the Corporation such results and proceeds,
including the copyright therein for its full term and any extensions and
renewals thereof, to the extent such results and proceeds are not "works
for hire" within the meaning of said Copyright Act.
6) BUSINESS STANDARDS. The Employee shall perform all duties under this
Agreement in accordance with the highest standards of industry practice as
may from time to time be applicable during the term hereof.
7) BENEFITS. The Employee shall participate in and contribute to the
Corporations health insurance and disability plan, as these may be provided
by Management.
8) VACATIONS. The Employee shall be entitled to two (2) weeks paid vacation at
such reasonable times as shall be approved by Management.
9) COVENANT OF EMPLOYEE. The Employee acknowledges that the Employee's work
will give the Employee access to the confidential affairs and proprietary
information of the Corporation. Therefore, the agreements and covenants of
the Employee contained in this Section 9 are essential to the business and
goodwill of the Corporation and the Corporation would not have entered into
this Agreement but for the covenants and agreements set forth in this
Section 9. Accordingly, the Employee covenants and agrees that:
a. By and in consideration for the compensation and
benefits to
-2-
<PAGE>
be provided by the Corporation hereunder, the Employee
agrees that, during a period commencing on the date
hereof and ending three (3) years following the date
upon which the Employee shall cease to be an employee
of the Corporation and its affiliates (the "Restricted
Period"), the Employee shall not, directly or
indirectly, (1) engage in any elements of the Business,
or otherwise compete with the Corporation, for the
Employees own account, and (2) render any services to
any person, corporation, partnership or other entity
engaged in an element of the Business;
b. During and after the Restricted Period, the Employee
shall keep secret and retain in strictest confidence,
and shall not use for Employee's benefit or the benefit
of others, except in connection with the business and
affairs of the Corporation, all confidential matters
relating to the Company's Business, including without
limitation information relating to customers, clients,
suppliers, proprietary technology, sources of supply,
customer list, rates, commissions paid, or other data
and information about the Corporation or its Business,
except with the Corporations prior written consent.
c. During the Restrictive Period, Employee shall not make
duplicate copies of the Corporation's office keys or
provide access to any of the Corporation's information
to a third party (particularly database information)
without the prior written consent of the Corporation.
d. The Employee also covenants that she will deliver
promptly to the Company on termination of employment
with the Corporation for any reason, all memoranda,
manuals, notes, records, data, databases, reports and
other documents in any form whatsoever, related to the
Corporation's Business, which the Employee obtained
while employed and which Employee may have under his
control.
e. The Employee acknowledges and agrees that any breach by
her of any of the provisions of Section 9 would result
in irreparable injury and damage for which money
damages would not provide adequate remedy. Therefore,
if the Employee beaches, or threatens to commit a
breach of, any of the provisions of Section 9, the
Corporation shall have the following rights and
remedies: the rights and remedy to have the specified
covenants specifically enforced by any court having
equity jurisdiction and the right and remedy to require
the Employee to account for any pay over to the
Corporation all compensation, profits, monies,
accruals, increments or other benefits derived or
received by him as the result of any transactions
constituting a breach of the restrictive covenants.
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<PAGE>
10) ILLNESS; COMPENSATION CONTINUATION. The Employee is authorized to take
up-to six (6) good faith sick days during the Term of this Agreement. The
Corporation shall have the right to terminate this Agreement in the event
the Employee is unable, because of any illness or physical incapacity, to
perform the duties set forth herein for a period of time in excess of the
allowable sick days and vacation days.
11) TERM AND TERMINATION.
a. The term of this Agreement shall commence on the date
hereof and shall expire on the last day of the twelfth
month, (the "Term") and shall thereafter be
automatically renewed from year to year unless
terminated by mutual agreement of the parties in
writing or by either party giving not less than sixty
(60) days written notice to the other party specifying
the date of termination.
b. Notwithstanding the termination of this Agreement, the
parties shall be required to carry out any provisions
hereof which contemplate performance by them subsequent
to such termination, and such termination shall not
affect any liability or other obligation which shall
have accrued prior to such termination, including,
without limitation, any liability for loss or damage on
account of default.
c. Upon the termination of the Employee's employment
hereunder for any reason whatsoever other than unlawful
conduct, the Corporation nevertheless may pay to the
Employee or, in the event of the Employee's death or
mental incompetence, to the Employee's personal
representative, compensation in respect of services
rendered during the term of this Agreement, in such
amounts as shall be determined by the Board of
Directors.
12) ASSIGNMENT PROHIBITED. The services called for by the agreement are
personal in nature and may not be assigned or delegated by the Employee.
Any purported assignment contrary to the foregoing is and shall be null and
void.
13) MISCELLANEOUS.
a. This Agreement sets forth the entire understanding of
the parties with respect to the Employee's engagement,
and supersedes any and all prior agreements, whether
oral or written.
b. No amendments or additions to this Agreement shall be
binding unless in writing and signed by both parties,
except as herein may otherwise be provided.
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c. Neither party hereto shall be deemed to waive any
rights arising by virtue of this Agreement unless such
waiver is in writing, and no such waiver shall be
deemed to be a continuing waiver of the right(s)
referred to in such writing or to waive any other
rights hereunder.
d. The paragraph headings used in this Agreement are
included solely for convenience and shall not affect,
or be used in connection with, the interpretation of
this Agreement.
e. If any portion of this Agreement is found to be invalid
or unenforceable, the parties agree that such
provisions be enforced to the greatest extent permitted
by law and the remaining portions shall remain in
effect.
f. This Agreement, its interpretation, performance or any
breach thereof, shall be construed in accordance with,
and all questions with respect thereto shall be
determined by, the laws of the State of New York
applicable to contracts entered into and wholly to be
performed within said state. Any controversy or claim
arising out of or relating to this Agreement or the
breach thereof shall be settled by arbitration in
accordance with the Commercial Arbitration Rules of the
American Arbitration Association and by judgment upon
the award rendered by the arbitrator(s) may be entered
into any court having jurisdiction thereof.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date and
year first above written.
CallNOW.com, Inc. ("Corporation")
By: /s/ C R Seelbach
----------------------------------------
Title: CEO
Josune Garcia Yauguas")
By: /s/ Yauguas
----------------------------------------
Title:
<PAGE>
Exhibit 10.23
STOCK PURCHASE AGREEMENT
BETWEEN
CallNOW.Com, Inc.
AND
ROPART INVESTMENTS LLC
DATED SEPTEMBER 16, 1999
<PAGE>
TABLE OF CONTENTS
Page
----
STOCK PURCHASE AGREEMENT....................................................1
1. DEFINITIONS ...........................................................2
2. SALE AND PURCHASE OF SHARES............................................2
2.1. Sale and Purchase of Shares...............................2
2.2. Closing...................................................2
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY..........................2
3.1. Organization and Standing.................................3
3.2. Subsidiaries..............................................3
3.3. Certificate or Articles of Incorporation and Bylaws.......4
3.4. Capital Structure of the Company..........................4
3.5. Directors, Officers and Employees.........................4
3.6. Financial Statements......................................4
3.7. No Liabilities............................................5
3.8. Accounts Receivable; Accounts Payable.....................5
3.9. Taxes.....................................................5
3.10. Conduct of Business; Absence of Material Adverse Change...7
3.11. Title to Property and Assets..............................8
3.12. Insurance.................................................8
3.13. Intellectual Property.....................................9
3.14. Year 2000 Compliance.....................................10
3.15. Debt Instruments.........................................10
3.16. Leases...................................................11
3.17. Other Agreements.........................................11
3.18. Books and Records........................................13
3.19. Litigation; Disputes.....................................13
3.20. Labor Relations..........................................13
3.21. Employee Benefit and Compensation Plans and Arrangements.14
3.22. Transactions with Related Parties........................14
3.23. Operations of the Company................................14
3.24. Restrictions and Consents................................14
3.25. Authorization; No Conflict...............................15
3.26. Absence of Violation.....................................15
3.27. Compliance with Law; Approvals...........................15
3.28. Binding Obligation.......................................16
3.29. Disclosure...............................................16
3.30. Use of Proceeds..........................................16
3.31. Offering of the Securities...............................17
3.32. Material Customers and Suppliers.........................17
3.33. SEC Filings..............................................17
3.34. Authorization of Agreements, etc.........................17
3.35. Company is not an Investment Company. Neither the
Company, nor any Subsidiary of the Company is on
"Investment Company, as defined in Section 3(c)
of the U.S. Investment Company Act of 1940,
as amended.............................................18
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4. REPRESENTATIONS AND WARRANTIES OF THE INVESTORS.......................18
4.1. Organization and Standing................................18
4.2. Authorization............................................18
4.3. No Registration Under the Securities Act.................18
4.4. Acquisition for Investment...............................19
4.5. Evaluation of Merits and Risks of Investment.............19
4.6. Additional Information...................................19
5. CONDITIONS PRECEDENT..................................................19
5.1. Reserved.................................................19
5.2. Performance..............................................19
5.3. All Proceedings to be Satisfactory.......................19
5.4. Supporting Documents.....................................20
5.5. Documents at Closing.....................................20
5.6. Consents.................................................20
6. REGISTRATION RIGHTS...................................................21
6.1. Registration of the Shares...............................21
6.2. Investor Cooperation.....................................23
6.3. Indemnification..........................................24
6.4. Rule 144.................................................27
6.5. Registration Expenses....................................27
7. SURVIVAL OF REPRESENTATIONS; INDEMNIFICATION REMEDIES.................28
7.1. Survival of Representations..............................28
7.2. General Indemnity........................................28
7.3. Specific Performance.....................................28
7.4. Remedies Cumulative......................................28
8. MISCELLANEOUS ........................................................28
8.1. Additional Actions and Documents.........................28
8.2. No Brokers...............................................29
8.3. Jury Waiver..............................................29
8.4. Publicity................................................29
8.5. Expenses.................................................29
8.6. Financial Information....................................29
8.7. Assignment...............................................30
8.8. Entire Agreement; Amendment..............................30
8.9. Waiver...................................................30
8.10. Severability.............................................30
8.11. Governing Law............................................31
8.12. Notices..................................................31
8.13. Headings.................................................32
8.14. Execution in Counterparts................................32
8.15. Binding Effect...........................................32
EXHIBIT A Definitions...................................................Exh. A
ii
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THIS PAGE INTENTIONALLY LEFT BLANK
<PAGE>
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (this "Purchase Agreement") is
entered into as of September 16, 1999 by and between CallNOW.Com, Inc., a
Delaware corporation (the "Company") and Ropart Investments LLC, a limited
liability company organized under the laws of _________ (the "Investor").
WHEREAS, the Company desires to issue and sell to the
Investor, and the Investor desires to subscribe for and acquire from the
Company, an equity interest in the Company, upon the terms and conditions
hereinafter set forth;
NOW, THEREFORE, in consideration of the foregoing and of the
mutual covenants and agreements hereinafter set forth, the parties hereto agree
as follows:
1. DEFINITIONS
For all purposes of this Purchase Agreement, certain
capitalized terms specified in Exhibit A shall have the meanings set forth in
that Exhibit A, except as otherwise expressly provided.
2. SALE AND PURCHASE OF SHARES
2.1. SALE AND PURCHASE OF SHARES
On the basis of the representations, warranties and agreements
contained herein, and subject to the terms and conditions hereof, the Company
agrees to issue and sell to the Investor, and the Investor agrees to purchase
from the Company, 90,909 shares (the "Shares") of the Company's Common Stock,
par value $0.001 per share (the "Common Stock"), at a price per Share of $2.75.
2.2. CLOSING
The closing of the sale and purchase of the Shares shall take place at
the offices of Stairs Dillenbeck Finley & Merle, 330 Madison Avenue, New York,
New York 10017, at 10:00 a.m., New York time, on September 16, 1999 hereof or
at such other location, date and time as may be agreed upon between the
Investor and the Company (the "Closing"). The Company shall issue and deliver
to the Investor a stock certificate or certificates in definitive form,
registered in the name of the Investor, representing the Shares purchased by
the Investor, free and clear of any Encumbrances of whatever nature. As payment
in full for the Shares being purchased by the Investor, and against delivery of
the stock certificate or certificates, the Investor shall deliver to the
Company by wire transfer of immediately available funds the amount of
US$249,999.75.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
NOTWITHSTANDING ANTHING TO THE CONTRARY IN THIS PURCHASE AGREEMENT,
THE REPRESENTATIONS OF THE COMPANY ARE
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MADE AS OF JULY 30, 1999. TO THE EXTENT ANY INFORMATION HAS BEEN DELIVERED TO
THE INVESTOR WITH RESPECT TO INFORMATION OR EVENTS OCCURING AFTER JULY 30,
1999, THE COMPANY MAKES NO REPRESENTATION AS TO SUCH INFORMATION.
Except as specifically set forth in the Disclosure Schedule (with a
disclosure with respect to a Section of this Purchase Agreement to include a
specific reference in the Disclosure Schedule to the Section of this Purchase
Agreement to which each such disclosure applies), the Company represents and
warrants (which representation and warranty shall be deemed to include the
disclosure with respect thereto so specified in the Disclosure Schedule) to the
Investor as follows:
3.1. ORGANIZATION AND STANDING
The Company is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware and has all requisite
corporate power and corporate authority to own, operate and lease its Assets,
to carry on its business as currently conducted and to carry out the
transactions contemplated hereby. The Company has made available to the
Investor complete and correct copies of the certificate of incorporation and
by-laws of the Company, with all amendments thereto, as in effect on the date
of this Purchase Agreement. The Company is not qualified to conduct business in
any other jurisdiction which is not listed on the Disclosure Schedule, and
neither the nature of the business conducted by, nor the character of the
Assets owned, leased or otherwise held by, the Company makes such qualification
necessary except where the failure to be so qualified would have a Material
Adverse Effect.
3.2. SUBSIDIARIES
Except as set forth on the Disclosure Schedule, the Company has no
Subsidiaries and no equity investment or other interest in, nor has the Company
made advances or loans to, any corporation, association, partnership, joint
venture or other entity, other than credit extended in the Ordinary Course of
Business. The Disclosure Schedule sets forth (a) the authorized capital stock
of each direct and indirect Subsidiary of Company and the percentage of the
outstanding capital stock of each Subsidiary directly or indirectly owned by
Company, and (b) the nature and amount of any such equity investment, other
interest or advance. All of such shares of capital stock of Subsidiaries
directly or indirectly held by Company have been duly authorized and validly
issued and are outstanding fully paid and nonassessable. Company directly, or
indirectly through wholly owned Subsidiaries, owns all such shares of capital
stock of the direct or indirect Subsidiaries free and clear of all
Encumbrances. Each Subsidiary is a corporation duly organized, validly existing
and in good standing under the laws of its state or jurisdiction of
incorporation (as listed in the Disclosure Schedule), and has all requisite
corporate power and authority to own, operate and lease its Assets and to carry
on its business as currently conducted. Each Subsidiary is qualified to conduct
business and is in good standing in the states, countries and territories
listed in the Disclosure Schedule. The Subsidiaries are not qualified to
conduct business in any other jurisdictions, and neither the nature of their
businesses nor the character of the Assets owned, leased or otherwise held by
them makes any such qualification necessary. There is no state, country or
territory wherein the absence of licensing or qualification as a
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foreign corporation would have a Material Adverse Effect on the Company or any
of its Subsidiaries.
3.3. CERTIFICATE OR ARTICLES OF INCORPORATION AND BYLAWS
Company has Furnished to the Investor a true and complete copy of the
certificate or articles of incorporation of Company and of each Subsidiary, as
currently in effect, certified as of a recent date by the Secretary of State
(or comparable governmental authority) of the respective jurisdictions of
incorporation, and a true and complete copy of the bylaws of Company and of
each Subsidiary, as currently in effect, certified by their respective
corporate secretaries. Such certified copies are attached as exhibits to, and
part of, the Disclosure Schedule.
3.4. CAPITAL STRUCTURE OF THE COMPANY
The Disclosure Schedule sets forth the authorized capital stock of the
Company. All outstanding shares of capital stock of the Company have been duly
authorized and validly issued and are fully paid and nonassessable. Except as
set forth on the Disclosure Schedule, no shares of capital stock of the Company
or any Subsidiary have been reserved for any purpose. Except as set forth on
the Disclosure Schedule, there are no outstanding securities convertible into
or exchangeable for the capital stock of the Company or any Subsidiary, or
warrants to purchase or to subscribe for any shares of such stock or other
securities of the Company or any Subsidiary. There are no outstanding
Agreements affecting or relating to the voting, issuance, purchase, redemption,
repurchase, transfer or registration for sale under the Securities Act of any
securities of the Company or any Subsidiary, except as contemplated hereunder
or described in the Disclosure Schedule.
3.5. DIRECTORS, OFFICERS AND EMPLOYEES
The Disclosure Schedule lists all current directors and officers of
the Company and all managers and consultants of the Company who, individually,
receive or are entitled to receive annual compensation from the Company in
excess of $50,000, showing each such person's name, position, and annual
remuneration, bonuses and fringe benefits for the current fiscal year. To the
knowledge of the Company, during the past ten years no director or officer of
the Company has: (i) been arrested or convicted for any crime material to an
evaluation of such person's ability or integrity, including, without
limitation, any violation of any federal or state law which currently or has
previously regulated the types of business in which the Company is currently or
has previously been engaged; (ii) filed a petition under federal bankruptcy or
any state insolvency laws; or (iii) been a director or officer of a business
entity which has filed a petition under federal bankruptcy or any state
insolvency laws, or had a receiver or similar officer appointed by a court to
administer the business or property of such entity.
3.6. FINANCIAL STATEMENTS
(a) The Company has prepared and Furnished to the Investor, the
audited consolidated balance sheets of the Company as of the end of the fiscal
years ending December 31, 1996, 1997 and 1998, and the audited consolidated
statements of income, stockholders' equity and cash flow for such periods (the
"Audited Financial Statements"). The Company has Furnished to the Investor the
unaudited balance sheet of the Company dated March 31, 1999, and
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<PAGE>
the unaudited statements of income, stockholders' equity and cash flow for the
three months ended March 31, 1999. (The March 31, 1999, unaudited financial
statements and the Audited Financial Statements are herein referred to
collectively as the "Financial Statements"). All of the Financial Statements,
including, without limitation, the notes thereto, referred to in this Section
or Furnished to the Investor after the date hereof pursuant to this Purchase
Agreement: (i) are in accordance with the books and records of the Company,
(ii) present fairly in all material respects the consolidated financial
position of the Company as of the respective dates and the results of
operations and cash flow for the respective periods indicated, and (iii) have
been prepared in accordance with generally accepted accounting principles
applied on a basis consistent with prior accounting periods except for the
absence of footnotes and customary year-end adjustments in the case of the
March 31, 1999, unaudited financial statements (which will not deviate
Materially from the other Financial Statements). The Financial Statements set
forth all changes in accounting methods (for financial accounting purposes) at
any time made, agreed to, or required with respect to the Company.
3.7. NO LIABILITIES
Except as reflected in the Financial Statements, as of March 31, 1999,
there existed no liabilities (whether contingent or absolute, matured or
unmatured, known or unknown) of the Company other than (i) incurred in the
Ordinary Course of Business and in amounts that are not individually Material,
and (ii) for taxes, assessments and other governmental charges, if such taxes,
assessments and other charges (x) are not yet due and payable, or (y) are due
and payable but can be paid hereafter without penalty or interest and for which
a proper accrual relating thereto is reflected in the Financial Statements and
which will be paid before penalty or interest begins to accrue thereon. Except
as described in the Disclosure Schedule, since March 31, 1999, the Company has
not incurred any liabilities (whether contingent or absolute, matured or
unmatured, known or unknown) other than in the Ordinary Course of Business and
in amounts that are not individually or in the aggregate Material.
3.8. ACCOUNTS RECEIVABLE; ACCOUNTS PAYABLE
(a) The accounts receivable of the Company shown on the Financial
Statements Furnished to the Investor, or thereafter acquired by the Company,
have been collected or, to the Company's knowledge, represent valid rights to
receive payment for bona fide services rendered or goods sold which are not
currently in default, or anticipated to default, and except as set forth on the
Disclosure Schedule, are not subject to discounts, rebates or to offsets of any
kind.
(b) Except as set forth on the Disclosure Schedule, the Company is
current on all accounts payable.
3.9. TAXES
(a) The Company has (or, in the case of returns becoming due after the
date hereof and on or before July 30, 1999, will have prior to July 30, 1999)
duly filed (or obtained extensions with respect to) all Tax Returns required to
be filed on or before July 30, 1999 with respect to all applicable Taxes. No
penalties or other charges are or will become due with respect to any such Tax
Returns as the result of the late filing thereof. All of the Tax Returns are
(or, in
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the case of returns becoming due after the date hereof and on or before July
30, 1999, will be) true and complete in all Material respects. The Company: (i)
has paid all Taxes due or claimed to be due by any taxing authority in
connection with any such Tax Returns; or (ii) has established (or, in the case
of amounts becoming due after the date hereof, prior to July 30, 1999 will have
paid or established) in the Financial Statements provided to the Investor
adequate reserves (in conformity with generally accepted accounting principles
consistently applied) for the payment of such Taxes. The amounts set up as
reserves for Taxes on the Financial Statements are sufficient for the payment
of all unpaid Taxes as of the dates thereof, whether or not such Taxes are
disputed or are yet due and payable, for or with respect to the period, and for
which the Company may be liable in its own right or as a transferee of the
Assets of, or successor to, any corporation, person, association, partnership,
joint venture or other entity.
(b) The Company, either individually or in its own right or as a
transferee, does not have and on July 30, 1999 will not have any liability for
Taxes payable for or with respect to any periods prior to and including July
30, 1999 in excess of the amounts actually paid prior to July 30, 1999 or
reserved for in the Financial Statements (other than Taxes accruing after March
31, 1999, in the Ordinary Course of Business which are not payable on or prior
to July 30, 1999).
(c) Except as set forth in the Disclosure Schedule, there is no
action, suit, proceeding, audit, investigation or claim pending or, to the
knowledge of the Company, threatened in respect of any Taxes for which the
Company is or may become liable, nor has any deficiency or claim for any such
Taxes been proposed, asserted or, to the knowledge of the Company, threatened.
The Company has not consented to any waivers or extensions of any statute of
limitations with respect to the collection or assessment of any Taxes against
the Company. There is no Agreement, waiver or consent providing for an
extension of time with respect to the assessment or collection of any Taxes
against the Company and no power of attorney granted by the Company with
respect to any tax matters is currently in force.
(d) The Company has Furnished or otherwise made available to the
Investor true and complete copies of all Tax Returns and all written
communications relating to any such Tax Returns or to any deficiency or claim
proposed and/or asserted, irrespective of the outcome of such matter, but only
to the extent such items relate to tax years (i) which are subject to an audit,
investigation, examination or other proceeding, or (ii) with respect to which
the statute of limitations has not expired.
(e) The Disclosure Schedule sets forth (i) all federal tax elections
that currently are in effect with respect to the Company, and (ii) all
elections for purposes of foreign, state or local Taxes and all consents or
Agreements for purposes of federal, foreign, state or local Taxes in each case
that reasonably could be expected to affect or be binding upon the Company or
its Assets or operations after Closing. The Disclosure Schedule sets forth all
Material changes in accounting methods for Tax purposes at any time made,
agreed to, or required with respect to the Company.
(f) Except as set forth on the Disclosure Schedule, the Company has
not: (i) been a partner in a partnership or an owner of an interest in an
entity treated as a partnership for federal income tax purposes; (ii) executed
or filed with the Internal Revenue Service any consent to have the provisions
of Section 341(f) of the Code apply to it; (iii) been subject to Section 999
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of the Code; (iv) been a passive foreign investment company as defined in
Section 1296(a) of the Code; or (v) been a party to any Agreement relating to
the sharing, allocation or payment of, or indemnity for, Taxes.
3.10. CONDUCT OF BUSINESS; ABSENCE OF MATERIAL ADVERSE CHANGE
Except as otherwise contemplated by the terms of this Purchase
Agreement or as set forth in the Disclosure Schedule, since December 31, 1998,
there has been no material adverse change in the business, operations,
prospects, condition (financial or otherwise), Assets or liabilities of the
Company. Except as set forth in the Disclosure Schedule or as contemplated
hereunder, since December 31, 1998 through July 30, 1999, the Company has
conducted business substantially in the manner heretofore conducted and only in
the Ordinary Course of Business, and the Company has not:
(a) incurred any loss Materially and adversely affecting any of its
Assets as the result of any fire, explosion, flood, windstorm, earthquake,
labor trouble, riot, accident, act of God or public enemy or armed forces, or
other casualty;
(b) issued any capital stock or member interests, bonds or other
corporate securities or debt instruments, granted any options, warrants or
other rights calling for the issuance thereof, or borrowed any funds (other
than borrowings in the Ordinary Course of Business in amounts, individually or
in the aggregate, that do not exceed $50,000);
(c) incurred, or become subject to, any obligation or liability
(absolute or contingent, matured or unmatured, known or unknown), except
current liabilities incurred in the Ordinary Course of Business and liens for
current taxes, assessments or governmental charges or levies on property not
yet due and delinquent;
(d) discharged or satisfied any Encumbrance or paid any obligation or
liability (absolute or contingent, matured or unmatured, known or unknown)
other than current liabilities shown in the Financial Statements and current
liabilities incurred since December 31, 1998 in the Ordinary Course of
Business;
(e) declared or made payment of, or set aside for payment, any
dividends or distributions of any Assets, or purchased, redeemed or otherwise
acquired any of its capital stock, any securities convertible into capital
stock, or any other securities;
(f) mortgaged, pledged or subjected to any Encumbrance any Material
Assets, except for (i) Encumbrances reflected in the Financial Statements of
the Company or on the Disclosure Schedule, (ii) Encumbrances consisting of
zoning or planning restrictions, easements, permits and other restrictions or
limitations on the use of real property or irregularities in title thereto
which do not Materially detract from the value of, or impair the use of, such
property by the Company in the operation of their respective businesses, and
(iii) liens for current taxes, assessments or governmental charges or levies on
property not yet due and delinquent;
(g) sold, exchanged, transferred or otherwise disposed of any Material
Assets, or canceled any Material debts or claims, except in each case in the
Ordinary Course of Business;
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(h) written down the value of any Material Assets or written off as
uncollectible any Material notes or accounts receivable, except write-downs and
write-offs in the Ordinary Course of Business, none of which, individually or
in the aggregate, are Material;
(i) entered into any transactions other than in the Ordinary Course of
Business;
(j) increased by more than five percent (5%) the rate of compensation
payable, or to become payable, by the Company to any of its officers,
employees, agents or independent contractors over the rate being paid to them
on December 31, 1998;
(k) made or permitted any amendment or termination of any Material
Agreement to which it is a party or which it owns;
(l) through negotiation or otherwise made any commitment or incurred
any liability to any labor organization;
(m) made any accrual or arrangement for or payment of bonuses or
special compensation of any kind to any director, officer or employee other
than in the Ordinary Course of Business;
(n) directly or indirectly paid any severance or termination pay to
any officer or employee in excess of three months' salary;
(o) made capital expenditures, or entered into commitments therefor,
aggregating more than $50,000;
(p) made any change in any method of accounting or accounting
practice;
(q) entered into any transaction of the type described in Section 3.23
or
(r) made an Agreement to do any of the foregoing.
3.11. TITLE TO PROPERTY AND ASSETS
The Company has good, valid and marketable title to all Material
Assets owned by it, free and clear of all Encumbrances other than those
Encumbrances referred to in the Financial Statements (or the notes thereto) and
liens for taxes not yet due and payable. The Company does not own any real
estate, and the Company is not a United States Real Property Holding Company as
defined under Section 897 of the Code. All personal property of the Company is
in good operating condition and repair in all Material respects (ordinary wear
and tear and routinely scheduled maintenance excepted) and is suitable and
adequate for the uses for which it is intended or is being used.
3.12. INSURANCE
Other than as set forth in the Disclosure Schedule, the Company has
insurance coverage under policies that (a) are with insurance companies
reasonably believed by the Company to be financially sound and reputable; (b)
are in full force and effect; (c) are sufficient
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<PAGE>
for compliance by the Company with all requirements of Law and of all
Agreements to which the Company is a party; (d) to the Company's knowledge are
valid and outstanding policies enforceable against the insurer; and (e) in the
Company's reasonable belief, provide adequate insurance coverage for the Assets
and business of the Company.
3.13. INTELLECTUAL PROPERTY
(a) The Company owns, or is licensed or otherwise possesses all
necessary rights to use all patents, trademarks, trade names, service marks,
trade dress, copyrights and any applications therefore, maskworks, schematics,
technology, know-how, trade secrets, inventory, ideas, algorithms, processes,
computer software programs and applications (in both source code and object
code form), and tangible or intangible proprietary information or material
("Intellectual Property") that are used in the business or products of the
Company.
(b) The Disclosure Schedule lists all (i) patents, patent
applications, registered and unregistered trademarks, trade names and service
marks, registered and unregistered copyrights, and maskworks included in the
Intellectual Property that are owned by the Company, including the
jurisdictions, both domestic and foreign, in which each such item of
Intellectual Property right has been issued or registered or in which any
application for such issuance and registration has been filed, (ii) licenses,
sublicenses and other agreements as to which the Company is a party and
pursuant to which any person is authorized to use any Intellectual Property
owned by the Company (other than mass-market shrink wrap software), and (iii)
licenses, sublicenses and other agreements to which the Company is a party and
pursuant to which the Company is authorized to use any third party patents,
trademarks or copyrights, including software (other than mass-market shrink
wrap software) ("Third Party Intellectual Property Rights") which are
incorporated in, are, or form a part of, any Company product.
(c) Except as disclosed on the Disclosure Schedule, the Company has
taken (or, with respect to Third Party Intellectual Property Rights that are
Material to the Company's business or products, has ensured that the owner
thereof has taken) all necessary action in all appropriate jurisdictions, both
domestic and foreign, to register and maintain the registration of all
Intellectual Property that is Material to the Company's business or products
that may be registered.
(d) To the knowledge of the Company, there is no actual or suspected
unauthorized use, disclosure, infringement or misappropriation of any
Intellectual Property rights of the Company, or any Third Party Intellectual
Property Rights, that are Material to the Company's business or properties, to
the extent licensed by or through the Company, by any third party, including
any employee or former employee of the Company. Except as set forth on the
Disclosure Schedule, there are no royalties, fees or other payments or
compensation payable by the Company to any person by reason of the ownership,
use, sale or disposition of Intellectual Property.
(e) The Company is not, nor will it be as a result of the execution
and delivery of this Purchase Agreement, the Common Stock, or the Agreements
contemplated hereby, or the performance of its obligations thereunder, in
breach of any license, sublicense or other
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agreement relating to the Intellectual Property, including Third Party
Intellectual Property Rights.
(f) The Company has no knowledge that the conduct of the business of
the Company infringes any patent, trademark, service mark, copyright, trade
secret or other proprietary right of any third party.
(g) All officers, directors, employees and consultants of the Company
have executed and delivered to the Company an agreement regarding assignment to
the Company of any Intellectual Property arising from services performed for
the Company by such persons. Except as disclosed on the Disclosure Schedule,
there is no Intellectual Property developed by a stockholder, director,
officer, consultant or employee of the Company that is used in the business of
the Company that has not been transferred to, or is not owned free and clear of
any liens or Encumbrances by, the Company.
(h) The Company has entered into written confidentiality agreements
with all third parties having access to Company-owned Intellectual Property in
connection with the disclosure to, or use or appropriation by, those third
parties, of Intellectual Property owned by the Company that is not otherwise
protected by a patent, a patent application, copyright, trademark, or other
registration or legal scheme.
3.14. YEAR 2000 COMPLIANCE
(a) Each system owned by the Company comprised of software, hardware
or databases, the operational failure of which would be reasonably likely to
result in a Material Adverse Effect (collectively, a "System") will be able to
accurately process date data, including, but not limited to, calculating,
comparing and sequencing from, into and between the twentieth century (through
year 1999), the year 2000 and the twenty-first century, including leap year
calculations ("Year 2000 Compliant"). The Company has no reason to believe that
it or any of its Subsidiaries will incur material expenses arising from or
relating to the failure of any of their Systems to be Year 2000 Compliant.
(b) All vendors of products to the Company or any of its Subsidiaries,
the operational failure of which would be reasonably likely to result in a
Material Adverse Effect, and such respective products, to the knowledge of the
Company, are (or prior to December 31, 1999, will be) Year 2000 Compliant. To
the knowledge of the Company after a reasonably diligent investigation, each
such vendor will continue to furnish its products to the Company or its
Subsidiaries, as applicable, without interruption or material delay, on and
after January 1, 2000. However, the Company depends on, and its systems connect
to, systems of other companies, particularly international and foreign
telecommunications providers. The Company makes no representations as to the
Company's interconnection with such providers.
3.15. DEBT INSTRUMENTS
The Disclosure Schedule lists all mortgages, indentures, notes,
guarantees and other Agreements for or relating to borrowed money (including,
without limitation, conditional sales agreements and capital leases) involving
payments by the Company aggregating in excess of $25,000 per year to which the
Company is a party or which have been assumed by the
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Company or to which any Material Assets are subject that are not specifically
disclosed in the Financial Statements. The Company has performed all the
Material obligations under the Agreements listed on the Disclosure Schedule and
those that are specifically disclosed in the Financial Statements required to
be performed by it to date and are not in default in any respect under any of
the foregoing, and, to the knowledge of the Company, there has not occurred any
event which (whether with or without notice, lapse of time or the happening or
occurrence of any other event) would constitute such a default.
3.16. LEASES
The Disclosure Schedule lists all leases and other Agreements under
which the Company is a lessee or lessor of any Material Asset (including real
property), or holds, manages or operates any Material Asset owned by any third
party, or under which any Material Asset owned by the Company is held, operated
or managed by a third party. Except as described in the Disclosure Schedule,
the Company is the owner and holder of all the leasehold estates purported to
be granted by the leases or other Agreements listed in the Disclosure Schedule.
Each such lease and other Agreement is in full force and effect and constitutes
a legal, valid and binding obligation of, and is legally enforceable against,
the Company, and, to the Company's knowledge, the other parties thereto (except
as enforceability may be limited or affected by bankruptcy, insolvency,
reorganization, moratorium, fraudulent conveyance and other similar laws and
equitable principles now or hereafter in effect and affecting the rights and
remedies of creditors generally), and grants the leasehold estate it purports
to grant free and clear of all Encumbrances. All necessary governmental
approvals with respect thereto have been obtained and all necessary filings or
registrations therefor have been made, in each case to the extent that the
Company is responsible therefor, other than where the failure to obtain any
such approvals would not have a Material Adverse Effect, and there are no
outstanding disputes thereunder and, to the knowledge of the Company, there
have been no threatened cancellations thereof. The Company has in all respects
performed all material obligations thereunder required to be performed by it to
date. Neither the Company nor, to the knowledge of the Company, any other party
is in default in any respect under any of the foregoing, and, to the knowledge
of the Company, there has not occurred any event which (whether with or without
notice, lapse of time or the happening or occurrence of any other event) would
constitute such a default.
3.17. OTHER AGREEMENTS
(a) The Disclosure Schedule lists all Material Agreements to which the
Company is a party or by which the Company is bound at the date hereof. Each
such Material Agreement is in full force and effect and constitutes a legal,
valid and binding obligation of, and is legally enforceable against the Company
and to the Company's knowledge, the other parties thereto (except as
enforceability may be limited or affected by bankruptcy, insolvency,
reorganization, moratorium, fraudulent conveyance and other similar laws and
equitable principles now or hereafter in effect and affecting the rights and
remedies of creditors generally). All necessary governmental approvals with
respect thereto have been obtained and all necessary filings or registrations
therefor have been made, in each case to the extent that the Company is
responsible therefor, other than where the failure to obtain any such approvals
would not have a Material Adverse Effect, and there are no outstanding disputes
thereunder and, to the knowledge of the Company, there have been no threatened
cancellations thereof. The Company has performed all
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the material obligations thereunder required to be performed to date. Neither
the Company nor, to the knowledge of the Company, any other party is in default
in any Material respect under any of the Agreements listed in the Disclosure
Schedule, and, to the knowledge of the Company, there has not occurred any
event which (whether with or without notice, lapse of time or the happening or
occurrence of any other event) would constitute such a default.
(b) Except as listed in the Disclosure Schedule (and without limiting
the foregoing), the Company is not a party to any oral or written:
(i) Agreement for the employment of any officer, employee, consultant
or independent contractor;
(ii) license agreement or distributor, dealer, manufacturer's
representative, sales agency, advertising, property management or brokerage
agreement;
(iii) Agreement with any labor organization or other collective
bargaining unit;
(iv) Agreement for the future purchase of materials, supplies,
services, merchandise or equipment involving payments of more than $50,000 over
its remaining term (including, without limitation, periods covered by any
option to renew by either party);
(v) Agreement for the purchase, sale or lease of any real estate or
other Assets involving payments of more than $50,000 over its remaining term
(including, without limitation, periods covered by any option to renew by
either party);
(vi) profit-sharing, bonus, incentive compensation, deferred
compensation, stock option, severance pay, stock purchase, employee benefit,
insurance, hospitalization, pension, retirement or other similar plan or
Agreement;
(vii) Agreement for the sale of any of its Material Assets or the
grant of any preferential rights to purchase any of its Material Assets or
rights, other than in the Ordinary Course of Business;
(viii) Agreement which contains any provisions requiring the Company
to indemnify or guarantee the obligations of any other party;
(ix) joint venture agreement or other Agreement involving the sharing
of profits;
(x) outstanding loan to any person or entity or receivable due from
any stockholder of the Company or persons or entities Controlling, Controlled
by or under common Control with the Company;
(xi) Agreement (including, without limitation, Agreements not to
compete and exclusivity Agreements) that reasonably could be interpreted to
impose any restriction on any business operations of the Company;
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(xii) other Material Agreement which by its terms does not terminate
or is not terminable by the Company within 30 days or upon 30 days' (or less)
notice.
(xiii) Agreement which entitles any customer or customers to a rebate
or right of set-off, singly or in the aggregate, in amount in excess of
$50,000, or which vary in any material respect from the Company's or any
Subsidiary's standard contracts; or
(xiv) Agreement with any supplier of goods or services containing any
provision permitting any party other than the Company or Subsidiary to
renegotiate the price or other terms, or containing any pay-back or other
similar provision upon the occurrence of a failure by the Company or any
Subsidiary to meet its obligations under the Agreement when due or the
occurrence of any other event;
3.18. BOOKS AND RECORDS
The books of account, stock records, minute books and other records of
the Company are true and accurate and have been maintained in accordance with
good business practices and the matters contained therein are appropriately and
accurately reflected in the Financial Statements.
3.19. LITIGATION; DISPUTES
(a) Except as described in the Disclosure Schedule, there are no
actions, suits, claims, arbitrations, proceedings or known investigations
pending or, to the knowledge of the Company, threatened or reasonably
anticipated against, affecting or involving the Company, its Subsidiaries, or
their business or Assets, or the transactions contemplated by this Purchase
Agreement before or by any court, arbitrator or governmental authority,
domestic or foreign. The Company and its Subsidiaries are not operating under,
subject to or in default with respect to any order, award, writ, injunction,
decree or judgment of any court, arbitrator or governmental authority.
(b) Except as set forth on the Disclosure Schedule, the Company is not
currently involved in or, to the knowledge of the Company, reasonably
anticipates any material dispute with any of its current or former employees,
agents, brokers, distributors, vendors, customers, business consultants,
franchisees, franchisers, representatives or independent contractors (or any
current or former employees of any of the foregoing persons or entities) which
would reasonably be expected to have a Material Adverse Effect.
3.20. LABOR RELATIONS
There are no strikes, work stoppages, grievance proceedings, union
organization efforts or other controversies pending or, to the knowledge of the
Company, threatened or reasonably anticipated between the Company and (a) any
current or former employees of the Company, or (b) any union or other
collective bargaining unit representing the employees. The Company is in
compliance in all Material respects with all Laws relating to employment or the
workplace, including, without limitation, provisions relating to wages, hours,
collective bargaining, safety and health, work authorization, equal employment
opportunity, immigration, withholding, unemployment compensation, worker's
compensation, employee privacy and right
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to know. Except as set forth on the Disclosure Schedule, there are no
collective bargaining agreements, employment agreements between the Company and
any of its employees, or professional service agreements not terminable at will
relating to the businesses and Assets of the Company. The consummation of the
transactions contemplated hereby will not cause the Company or the Investor to
incur or suffer any liability relating to, or obligation to pay, severance,
termination or other payments to any person or entity.
3.21. EMPLOYEE BENEFIT AND COMPENSATION PLANS AND ARRANGEMENTS.
Neither the Company nor any Subsidiary sponsors, maintains,
contributes to or has any liabilities to a Pension Plan or Welfare Plan, and
neither the Company nor any Subsidiary has ever sponsored, maintained,
contributed to or had any liabilities to a Pension Plan or Welfare Plan. Other
than as indicated on the Disclosure Schedule, the Company or any Subsidiary does
not provide nor has ever provided any material Fringe Benefits.
3.22. TRANSACTIONS WITH RELATED PARTIES
Except as set forth on the Disclosure Schedule, neither any present or
former officer, director or stockholder of the Company, nor any Affiliates of
the officers, directors or stockholders, are currently a party to any
transaction with the Company, including, without limitation, any Agreement
providing for the employment of, furnishing of services by, rental of Assets
from or to, or otherwise requiring payments to, any of the officers, directors,
stockholders or Affiliates.
3.23. OPERATIONS OF THE COMPANY
(a) The Company's e-commerce marketplace has been commercially
operational, meaning that its web site ("http:\\www.CallNOW.Com") (the "Web
Site") has been capable of performing, and has performed, order taking and
fulfillment functions, for at least the twenty (20) days prior July 30, 1999.
(b) In conducting its business, the Company does not take possession
of any products through its Web Site. The Company has reviewed its foreign,
state and local sales and use tax or value added tax liability and has
conducted and will continue to conduct its business in a manner designed to
minimize its foreign, state and local tax liability. The Company is currently
in compliance with all foreign, state and local sales and use and value added
tax laws except where such failure would not have Material Adverse Effect.
3.24. RESTRICTIONS AND CONSENTS
Except as set forth on the Disclosure Schedule, there are no
Agreements, Laws or other restrictions of any kind to which the Company is a
party or to which the Company's Assets are subject that would prevent or
restrict the execution, delivery or performance of this Purchase Agreement or
prohibit or limit the continued operation of the business of the Company after
the date hereof on substantially the same basis as heretofore operated, as a
result of the execution, delivery or performance of this Purchase Agreement.
The Disclosure Schedule lists all Agreements and Laws that require the consent
or acquiescence of any person or entity not party
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to this Purchase Agreement with respect to any aspect of the execution,
delivery or performance of this Purchase Agreement by the Company.
3.25. AUTHORIZATION; NO CONFLICT
The execution, delivery and performance by the Company of this
Purchase Agreement and all other Documents contemplated hereby, the fulfillment
of and compliance with the respective terms and provisions hereof and thereof,
and the consummation by the Company of the transactions contemplated hereby and
thereby, do not and will not: (a) conflict with, or violate any provision of,
any Law having applicability to the Company or any of its Assets, or any
provision of the certificate of incorporation or bylaws of the Company; (b)
conflict with, or result in any breach of, or constitute a default under any
Material Agreement to which the Company is a party or by which the Company or
any of its Assets may be bound; or (c) result in or require the creation or
imposition of or result in the acceleration of any indebtedness, or of any
Encumbrance of any nature upon, or with respect to any of the Material Assets
of the Company.
3.26. ABSENCE OF VIOLATION
The Company is not in violation of or default under, nor has the
Company breached, any term or provision of its certificate of incorporation or
bylaws or any Material Agreement or restriction to which the Company is a party
or by which the Company is bound or any of its Material Assets are bound or
affected. Neither the Company nor any of its officers, directors, employees or
agents (or, to the Company's knowledge, stockholders, distributors,
representatives or other persons acting on the express, implied or apparent
authority of such entity) have paid, given or received or have offered or
promised to pay, give or receive, any bribe or other unlawful, questionable
payment of money or other thing of value, any extraordinary discount, or any
other unlawful or unusual inducement, to or from any person, business
association or governmental official or entity in the United States or
elsewhere in connection with or in furtherance of the business of the Company
(including, without limitation, any offer, payment or promise to pay money or
other thing of value (a) to any foreign official or political party (or
official thereof) for the purposes of influencing any act, decision or omission
in order to assist the Company in obtaining business for or with, or directing
business to, any person, or (b) to any person, while knowing that all or a
portion of such money or other thing of value will be offered, given or
promised to any such official or party for such purposes. The business of the
Company is not in any manner dependent upon the making or receipt of such
payments, discounts or other inducements.
3.27. COMPLIANCE WITH LAW; APPROVALS
Except as set forth in the Disclosure Schedule:
(a) The operations of the Company have been conducted, in all Material
respects, in compliance with all Laws (including Environmental Laws) and
regulations applicable to the Company's business.
(b) The Company has not received notice of any violation (or of any
investigation, inspection, audit, or other proceeding by any governmental
authority involving
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allegations of any violation) of any Law, nor is in material default with
respect to any Law, and to the knowledge of the Company, no investigation,
inspection, audit, or other proceeding by any governmental authority involving
allegations of violation of any Law is threatened or contemplated;
(c) The Company has all licenses, franchises, permits, authorizations
or approvals from all governmental authorities ("Approvals") required for the
conduct of the business of the Company and the occupancy and operation, for its
present uses, of the real and personal property which the Company owns or
leases, except where the failure to have such Approvals would not, individually
or in the aggregate, have a Material Adverse Effect, and the Company is not in
violation of any such Approval or any terms or conditions thereof.
(d) All such Approvals are in full force and effect, have been issued
to and fully paid for by the holder thereof and, to the knowledge of the
Company, no suspension or cancellation thereof has been threatened; and
(e) No such Approvals will in any way be affected by, or terminate or
lapse by reason of, the transactions contemplated by this Purchase Agreement or
any of the other agreements contemplated hereunder or executed herewith.
3.28. BINDING OBLIGATION
This Purchase Agreement constitutes a valid and binding obligation of
the Company, enforceable in accordance with its terms, is in full force and
effect and constitutes a legal, valid and binding obligation of, and is legally
enforceable against, the Company, (except as enforceability may be limited or
affected by bankruptcy, insolvency, reorganization, moratorium, fraudulent
conveyance and other similar laws and equitable principles now or hereafter in
effect and affecting the rights and remedies of creditors generally); and each
Document to be executed by the Company pursuant hereto, when executed and
delivered in accordance with the provisions thereof, shall be a valid and
binding obligation of the Company, enforceable in accordance with its terms.
3.29. DISCLOSURE
As of July 30, 1999, no representation or warranty by the Company in
this Purchase Agreement, and no Document Furnished or to be Furnished to the
Investor pursuant to or in connection with this Purchase Agreement, contains or
will contain any untrue or misleading statement of a Material fact or omits or
will omit any Material fact necessary to make the statements contained herein
or therein, in light of the circumstances under which made, not misleading. All
facts that would reasonably be expected to be Material to an investor making a
decision to invest in equity securities of the Company have been disclosed to
the Investor.
3.30. USE OF PROCEEDS
The Company shall use the proceeds from the sale of the Shares to fund
working capital and for other general corporate purposes.
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3.31. OFFERING OF THE SECURITIES
Except for the Investor neither the Company nor any person authorized
or employed by the Company as agent, broker, dealer or otherwise in connection
with the offering or sale of the Shares or any security of the Company similar
to the Shares has offered the Shares or any such similar security for sale to,
or solicited any offer to buy the Shares or any such similar security from, or
otherwise approached or negotiated with respect thereto with, any person or
persons, and neither the Company nor any person acting on its behalf has taken
or will take any other action (including, without limitation, any offer,
issuance or sale of any security of the Company under circumstances which might
require the integration of such security with the Shares or any component
thereof under the Securities Act), in either case so as to subject the
offering, issuance or sale of the Shares to the registration provisions of the
Securities Act.
3.32. MATERIAL CUSTOMERS AND SUPPLIERS
No customer or supplier which is Material to the Company or any
Subsidiary has terminated, Materially reduced or threatened to terminate or
Materially reduce its purchases from, or provision of products or services to,
the Company or any Subsidiary, as the case may be.
3.33. SEC FILINGS
Since January 1, 1996, the Company has not (i) issued any security
covered by a registration statement filed with the SEC pursuant to the
Securities Act or the Investment Company Act of 1940, as amended, and no
security issued by the Company has ever been registered pursuant to the
Securities Exchange Act of 1934, as amended or (ii). The Company has not
purchased or sold any security of which it or any affiliate was the issuer at
any time when the information publicly available relating to the Company, at
the time and in light of the circumstances under which it was made, was false
or misleading with respect to any Material fact or omitted to state any
Material fact necessary in order to make the statements made therein not false
or misleading.
3.34. AUTHORIZATION OF AGREEMENTS, ETC.
(a) The execution and delivery by the Company of this Purchase
Agreement, the performance by the Company of its obligations hereunder, and the
issuance, sale and delivery of the Shares have been duly authorized by all
requisite corporate action and will not (i) violate, conflict with or require
any consent or approval under any provision of any law, permit, license, order
of any court or other agency of government applicable to the Company or its
Subsidiaries, the Certificate of Incorporation of the Company, as amended (the
"Charter"), or Articles of Incorporation of its Subsidiaries, or the By-laws of
the Company or its Subsidiaries, or any provision of any indenture, agreement
or other instrument to which the Company or its Subsidiaries or any of their
properties or assets is bound, (ii) conflict with, result in a breach of or
constitute (with due notice or lapse of time or both) a default under any such
indenture, agreement or other instrument or (iii) result in the creation or
imposition of any lien, charge, restriction, claim or encumbrance of any nature
whatsoever upon any of the properties or assets of the Company or its
Subsidiaries, which in any case would have a Material Adverse Effect.
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(b) The Shares to be issued to the Investor hereunder have been duly
authorized, and, when so issued, will be validly issued, fully paid and
non-assessable shares of the Company's Common Stock with no personal liability
attaching to the ownership thereof and will be free and clear of all liens,
charges, restrictions, claims and Encumbrances. The issuance, sale and delivery
of the Shares hereunder are not subject to any preemptive right of stockholders
of the Company or to any right of first refusal or other right in favor of any
person.
3.35. COMPANY IS NOT AN INVESTMENT COMPANY
Neither the Company, nor any Subsidiary of the Company is an
"Investment Company" as defined in Section 3(a) of the U.S. Investment Company
Act of 1940, as amended.
4. REPRESENTATIONS AND WARRANTIES OF THE INVESTORS
The Investor hereby represents and warrants to the Company as follows:
4.1. ORGANIZATION AND STANDING
The Investor is duly organized, validly existing and in good
standing under the laws of the state or jurisdiction of its formation and each
has the full and unrestricted power and authority to enter into this Purchase
Agreement and to carry out the transactions contemplated hereby.
4.2. AUTHORIZATION
The execution, delivery and performance by that Investor of this
Purchase Agreement and all other Documents contemplated hereby, the fulfillment
of and the compliance with the respective terms and provisions hereof and
thereof, and the consummation by the Investor of the transactions contemplated
hereby and thereby have been duly authorized, and will not: (a) conflict with,
or violate any term or provision of the Investor's certificate of incorporation
or certificate of limited liability company or limited partnership agreement or
other governing documents or (b) conflict with, or result in any breach of, or
constitute a default under, any Agreement to which the Investor is a party or
by which such Investor is bound. No other action is necessary for the Investor
to enter into this Purchase Agreement and all other Documents contemplated
hereby and to consummate the transactions contemplated hereby and thereby.
4.3. NO REGISTRATION UNDER THE SECURITIES ACT
Subject to the obligations of the Company to register the Shares for
resale pursuant to Section 6, the Investor understands that the Shares to be
purchased by it at Closing pursuant to the terms of this Purchase Agreement
have not and will not be registered under the Securities Act or any state
securities laws, been issued in reliance upon exemptions contained in the
Securities Act or interpretations thereof and in the applicable state
securities laws, and cannot be offered for sale, sold or otherwise transferred
unless the Common Stock being acquired hereunder is registered or qualified for
exemption from registration under the Securities Act.
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4.4. ACQUISITION FOR INVESTMENT
The Shares are being acquired under this Purchase Agreement by the
Investor solely for their own account, for investment and not with a view
toward distribution within the meaning of the Securities Act, subject to the
obligations of the Company to register the Shares for resale pursuant to
Section 6.
4.5. EVALUATION OF MERITS AND RISKS OF INVESTMENT
The Investor has knowledge and experience in financial and business
matters such that it is capable of evaluating the merits and risks of its
investment in the Shares. The Investor is an " accredited investor" within the
meaning of Rule 501(a) under the Securities Act. The Investor understands and
is able to bear any economic risks associated with such investment (including,
without limitation, the necessity of holding the Shares for an indefinite
period of time.
4.6. ADDITIONAL INFORMATION
The Investor acknowledges that it has been afforded the opportunity to
ask questions and receive answers concerning the Company and to obtain
additional information that it has requested to verify the accuracy of the
information contained herein. Notwithstanding the foregoing, nothing contained
herein shall operate to modify or limit in any respect the representations and
warranties of the Company (made as of July 30, 1999 for purposes of this
Purchase Agreement) or to relieve them from any obligations to the Investor for
breach thereof or the making of misleading statements or the omission of
material facts in connection with the transactions contemplated herein.
5. CONDITIONS PRECEDENT
Contemporaneously with the execution of this Agreement, the Company
shall deliver to the Investors the following:
5.1. RESERVED
5.2. PERFORMANCE.
The Company shall have performed and complied in all material respects
with all agreements contained herein required to be performed or complied with
by it prior to or at the Closing, and the Chief Executive Officer or Chief
Operating Officer of the Company shall have certified to the Investor in
writing to such effect on behalf of the Company.
5.3. ALL PROCEEDINGS TO BE SATISFACTORY.
All corporate and other proceedings to be taken by the Company in
connection with the transactions contemplated hereby and all documents incident
thereto shall be reasonably satisfactory in form and substance to the Investor
and its counsel and the Investor and its counsel shall have received all such
counterpart originals or certified or other copies of such documents as they
reasonably may request.
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5.4. SUPPORTING DOCUMENTS.
The Investor shall have received copies of the following documents:
(a) The Charter, certified as of a recent date by the Secretary of
State of the State of Delaware, together with a certificate of said Secretary
dated as of a recent date as to the legal existence and good standing of the
Company in the State of Delaware, and certificates of the Secretary of State of
each jurisdiction in which the Company is qualified to do business as a foreign
corporation dated as of a recent date as to the Company's qualification and
good standing in such jurisdiction.
(b) A certificate of the Chief Executive Officer or Chief Operating
Officer of the Company dated as of the Closing and certifying (i) that attached
thereto is a true and complete copy of the Bylaws of the Company as in effect
on the date of such certification, (ii) that attached thereto is a true and
complete copy of all resolutions adopted by the Board of Directors of the
Company authorizing the execution, delivery and performance of this Purchase
Agreement and the issuance, sale and delivery of the Shares, (iii) that all
such resolutions are in full force and effect and are all of the resolutions
adopted in connection with the transactions contemplated by this Purchase
Agreement, and (iv) to the incumbency and signatures of each officer of the
Company executing this Purchase Agreement and the Shares on behalf of the
Company and any certificate or instrument furnished pursuant hereto, and a
certification by another officer of the Company as to the incumbency and
signature of the officer signing the certificate referred to in this subsection
(b).
5.5. DOCUMENTS AT CLOSING
All documents required to be furnished by the Company to the Investor
prior to or at Closing shall have been so furnished, unless waived by the
Investor.
5.6. CONSENTS
(a) The Investor shall have received all consents, authorizations and
approvals of governmental and private parties which are required to be obtained
in order to consummate the transactions contemplated hereby, and such consents,
authorizations and approvals shall be in full force and effect on the Closing.
(b) The Company shall have received all consents, authorizations and
approvals of governmental and private parties which are required to be obtained
in order to consummate the transactions contemplated hereby, and such consents,
authorizations and approvals be in full force and effect on the Closing.
All such documents shall be satisfactory in form and substance to the
Investor and its counsel.
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6. REGISTRATION RIGHTS
6.1. REGISTRATION OF THE SHARES.
The Company agrees to register the Shares for resale under the
Securities Act in the event the Company conducts an underwritten offering
subsequent to its public offering that is initially filed in the third or
fourth quarter of 1999. The Shares shall be subject to the holdback period set
forth in Section 6.2(c) hereof. In this connection with these "piggyback
rights", the Company shall:
(a) Prepare and file with the SEC a registration statement on Form S-1
or any other form which counsel for Company shall deem appropriate in
connection with the underwritten offering being conducted by the Company, and
which form shall be available for the sale of the Shares in accordance with the
intended methods of distribution thereof, and use its best efforts to cause
such registration statement to become and remain effective as provided herein,
provided that before filing with the SEC a registration statement or prospectus
or any amendments or supplements thereto, Company will (A) furnish to one
counsel selected by Investor copies of all such documents proposed to be filed
for said counsel's review and comment, and (B) notify Investor of any stop
order issued or threatened by the SEC and take all reasonable actions required
to prevent the entry of such stop order or to remove it if entered.
(b) Prepare and file with the SEC such amendments and supplements to
such registration statement and the prospectus used in connection therewith as
may be necessary to keep such registration statement effective for a period of
not less than six months or such shorter period that will terminate when the
Shares have been sold (but not before the expiration of the time periods
referred to in Section 4(3) of the Securities Act and Rule 174, or any
successor thereto, if applicable), and comply with the provisions of the
Securities Act with respect to the disposition of all securities covered by
such registration statement during such period in accordance with the intended
methods of disposition by the sellers thereof set forth in such registration
statement.
(c) Furnish to Investors and each underwriter, if any, of Shares
covered by the registration statement such number of copies of such
registration statement, each amendment and supplement thereto (in each case
including all exhibits thereto), and the prospectus included in such
registration statement (including each preliminary prospectus), in conformity
with the requirements of the Securities Act, and such other customary documents
as Investor may reasonably request in order to facilitate the disposition of
the Shares owned by Investor.
(d) Use its best efforts to register or qualify such Shares under such
other state securities or "blue sky" laws of such jurisdictions as Investor,
and each underwriter, if any, of Shares covered by such registration statement
reasonably request and do any and all other acts and things that may be
reasonably necessary or advisable to enable Investor and each underwriter, if
any, to consummate the disposition in such jurisdictions of the Shares owned by
Investor; provided that Company will not be required to (A) qualify generally
to do business in any jurisdiction where it would not otherwise be required to
qualify but for this clause (d), (B) subject itself to taxation or regulation
of its business in any such jurisdiction other than
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Delaware or (C) consent to general service of process in any such jurisdiction
other than Delaware.
(e) Use its best efforts to cause the Shares covered by such
registration statement to be registered with or approved by such other
governmental agencies or authorities exercising jurisdiction over Company to
enable Investor to consummate the disposition of such Shares.
(f) Promptly notify Investor, at any time when a prospectus relating
thereto is required to be delivered under the Securities Act of the happening
of any event that comes to Company's attention if, as a result of such event,
the prospectus included in such registration statement contains an untrue
statement of a Material fact or omits to state any Material fact required to be
stated therein or necessary to make the statements therein not misleading; and
Company will promptly prepare and furnish to Investors a supplement or
amendment to such prospectus so that, as thereafter delivered to the purchasers
of such Shares, such prospectus will not contain an untrue statement of a
Material fact or omit to state any Material fact required to be stated therein
or necessary to make the statements therein not misleading.
(g) Use its best efforts to cause all such Shares to be listed on a
national securities exchange in the United States or the Nasdaq Stock Market,
if the listing of such Shares is then permitted under the rules of such
exchange or Nasdaq, or and on each securities exchange on which similar
securities issued by Company may then be listed or quoted, and enter into such
customary agreements including, if required, a listing application and
indemnification agreement in customary form, and to provide a transfer agent
and registrar for such Shares covered by such registration statement no later
than the effective date of such registration statement.
(h) Enter into such customary agreements (including an underwriting
agreement or qualified independent underwriting agreement, in each case, in
customary form) and take all such other actions as Investors or the
underwriters retained by Investors, if any, reasonably request in order to
expedite or facilitate the disposition of such Shares, including customary
representations, warranties, indemnities and agreements.
(i) Make available for inspection, during normal business hours of
Company, by Investor, any underwriter participating in any disposition pursuant
to such registration statement, and any attorney, accountant or other agent
retained by Investors or any such underwriter (collectively, the "Inspectors"),
all Material financial and other records and pertinent corporate documents and
properties of Company and its subsidiaries, if any, as shall be reasonably
necessary to enable them to exercise their due diligence responsibility, and
cause Company's officers, directors and employees, and those of Company's
affiliates, if any, to supply all Material information and respond to all
inquiries reasonably requested by any such Inspector in connection with such
registration statement.
(j) In the case of an underwritten offering, use its best efforts to
obtain a "cold comfort" letter from Company's appointed auditors in customary
form and covering such matters of the type customarily covered by "cold
comfort" letters as the underwriter(s) may reasonably request.
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(k) Otherwise use its best efforts to comply with all applicable rules
and regulations of the SEC, and make available to Investors, as soon as
reasonably practicable, an earnings statement covering a period of at least
twelve months beginning after the effective date of the registration statement
(as the term "effective date" is defined in Rule 158(c) under the Securities
Act) which earnings statement shall satisfy the provisions of Section 11(a) of
the Securities Act and Rule 158 thereunder.
(l) In the case of an underwritten offering, make available the
services of such executive officers of Company, as the underwriter(s) may
reasonably request, for participation in a road show in furtherance of the
underwriter's(s') bookmaking or sales effort, so long as such participation
does not Materially interfere with the performance by any such officer of his
or her duties to Company.
6.2. INVESTOR COOPERATION
(a) In connection with the Company's obligation to register the Shares
for resale, Investor shall furnish to Company such information regarding the
Shares with respect to the intended method of disposition of the Shares held by
Investor as Company shall reasonably request and as shall be required in
connection with the action to be taken by Company.
(b) Investor agrees that, upon receipt of any notice from Company of
the happening of any event of the kind described in Section 6.1.(f) hereof,
Investor will forthwith discontinue disposition of any Shares until Investor's
receipt of the copies of the supplemented or amended prospectus contemplated by
Section 6.1.(f) hereof, and, if so directed by Company, Investor will deliver
to Company (at Company's expense) all copies (including, without limitation,
any and all drafts), other than permanent file copies, then in Investor's
possession, of the prospectus covering such Shares current at the time of
receipt of such notice. In the event that Company shall give any such notice,
the period mentioned in Section 6.1.(b) hereof shall be extended by the number
of days during the period from and including the date of the giving of such
notice pursuant to Section 6.1.(f) hereof to and including the date when
Investor shall have received the copies of the supplemented or amended
prospectus contemplated Section 6.1.(f) hereof.
(c) In connection with the Company's contemplated initial underwritten
offering, Investors agree not to effect any sale or distribution, including any
private placement or any sale pursuant to Rule 144A under the Securities Act
(or any successor provision) or any sale pursuant to Rule 144 (or any successor
provision) under the Securities Act or otherwise, of any Shares, other than by
pro-rata distribution to their shareholders, partners, affiliates, or other
beneficial Investors, and not to effect any such sale or distribution of any
other equity security of Company during the five (5) calendar days prior to,
and during the 180-calendar-day period (or such greater or lesser period as may
be agreed upon between such Investors and the managing underwriter of such
offering) that begins on the effective date of such registration statement
(except as part of such registration), without the prior written consent of the
managing underwriter of such offering; provided, however, that such Investor
has received written notice of such registration at least two business days
prior to the anticipated beginning of the 5-calendar-day period referred to
above.
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(d) Company agrees (i) not to effect any public sale or distribution
of any of its equity securities or of any security convertible into or
exchangeable or exercisable for any equity security of Company (other than any
such sale or distribution of such securities in connection with any merger or
consolidation by Company or any Affiliate of Company or the acquisition by
Company or an Affiliate of Company of the securities or substantially all the
assets of any other Person or in connection with an employee stock ownership
plan, stock option plan or other benefit plan or in connection with any
dividend reinvestment or other similar plan) during the 120-calendar-day period
(or such greater or lesser period as may be agreed upon between Company and the
Investors) which begins on, the 181st day from the effective date of such
registration statement without the prior written consent of Investor, and (ii)
that any agreement entered into after the date hereof pursuant to which Company
issues or agrees to issue any privately placed equity securities shall contain
a provision under which the holders of such securities agree not to effect any
public sale or distribution of any such securities during the period and in the
manner referred to in the foregoing clause (i).
6.3. INDEMNIFICATION.
(a) Indemnification by Company. In the event of any registration of
any Shares under the Securities Act pursuant to this Purchase Agreement,
Company will indemnify and hold harmless, to the fullest extent permitted by
law, Investor, its directors and officers, general partners, limited partners
and managing directors, and each other Person, if any, who Controls, is
Controlled by or is under common Control with any Investor within the meaning
of the Securities Act against any and all losses, claims, damages or
liabilities, joint or several, and expenses (including any amounts paid in any
settlement effected with Company's consent, which consent will not be
unreasonably withheld) to which Investor, any such director or officer or
general or limited partner or managing director or any such Controlling Person
may become subject under the Securities Act, United States state securities
"blue sky" laws, common law or otherwise, insofar as such losses, claims,
damages or liabilities (or actions or proceedings in respect thereof) or
expenses arise out of or are based upon (A) any untrue statement or alleged
untrue statement of any Material fact contained in any registration statement
under which such securities were registered under the Securities Act, in any
preliminary, final or summary prospectus contained therein, or in any amendment
or supplement thereto, or (B) any omission or alleged omission to state therein
a Material fact required to be stated therein or necessary to make the
statements therein not misleading. Company shall reimburse Investor and each
such director, officer, general partner, limited partner, managing director and
Controlling Person for any legal or any other expenses reasonably incurred by
them in connection with investigating or defending such loss, claim, liability,
action or proceeding; provided, however, that Company shall not be liable in
any such case to the extent that any such loss, claim, damage, liability (or
action or proceeding in respect thereof) or expense arises out of or is based
upon an untrue statement or omission made in reliance upon and in conformity
with information regarding such by Investor, any such director or officer or
general or limited partner or managing director or any such Controlling Person
furnished to Company in writing by Investor, director or officer or general or
limited partner or managing director or such Controlling Person specifically
for use in the registration statement or prospectus; and, provided, further,
that Company shall not be liable to Investor or any such Controlling Person,
within the meaning of the Securities Act, pursuant to this Section 6.3(a) with
respect to any preliminary prospectus or the final prospectus or the final
prospectus as amended or supplemented as the case may be, to the extent that
any such loss,
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claim, damage or liability of Investor or Controlling Person results from the
fact that such Person sold Shares to a Person to whom there was not sent or
given, at or prior to the written confirmation of such sale, a copy of the
final prospectus or of the final prospectus as then amended or supplemented,
whichever is most recent, if Company has previously furnished copies thereof to
such Person and such final prospectus, as then amended or supplemented, had
corrected any such misstatement or omission. The indemnity provided for herein
shall remain in full force and effect regardless of any investigation made by
or on behalf of Investor or any such director, officer, general partner,
limited partner, managing director or Controlling Person and shall survive the
transfer of such Shares by Investor.
(b) Indemnification by Investor. In the event of any registration of
any Shares under the Securities Act pursuant to this Purchase Agreement,
Investor will severally indemnify and hold harmless, to the full extent
permitted by law, Company, its directors and officers, general partners,
limited partners and managing directors, and each other Person, if any, who
Controls, is Controlled by or is under common Control with Company within the
meaning of the Securities Act and each other Investor against any and all
losses, claims, damages or liabilities, joint or several, and expenses
(including any amounts paid in any settlement effected with Investor's consent,
which consent will not be unreasonably withheld) to which Company, any such
director or officer or general or limited partner or managing director or any
such Controlling Person or such other Investor may become subject under the
Securities Act, United States state securities "blue sky" laws, common law or
otherwise, insofar as such losses, claims, damages or liabilities (or actions
or proceedings in respect thereof) or expenses arise out of or are based upon
(A) any untrue statement or alleged untrue statement of any Material fact
contained in any registration statement under which such Shares were registered
under the Securities Act, any preliminary prospectus, final or summary
prospectus contained therein, or any amendment or supplement thereto, or (B)
any omission or alleged omission to state therein a Material fact required to
be stated therein or necessary to make the statements therein not misleading.
Investor shall reimburse Company and each such director, officer, general or
limited partner, managing director and Controlling Person and such other
Investor for any legal or any other expenses reasonably incurred by them in
connection with investigating or defending such loss, claim, liability, action
or proceeding; provided however, that each Investor shall be liable hereunder
(i) in any such case if and only to the extent that any such loss, claim,
damage, liability (or action or proceeding in respect thereof) or expense
arises out of or is based upon an untrue statement or omission made in reliance
upon and in conformity with information regarding Investor furnished to Company
in writing by Investor specifically for use in the registration statement or
prospectus, and (ii) in any event in no greater amount than the gross proceeds
(including any underwriting commission or discount) received by Investor from
its sale of Shares pursuant to such registration statement or prospectus. The
indemnity provided for herein shall remain in full force and effect regardless
of any investigation made by or on behalf of Company or any such director,
officer, general partner, limited partner, managing director, Controlling
Person or other Investor and shall survive the transfer of such Shares by the
indemnifying Investor.
(c) Notices of Claims, Etc. Promptly after receipt by an indemnified
party hereunder of written notice of the commencement of any action or
proceeding with respect to which a claim for indemnification may be made
pursuant to this Section 6.3., such indemnified party will, if a claim in
respect thereof is to be made against an indemnifying party, promptly give
written notice to the indemnifying party of the commencement of such action,
provided,
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however, that the failure of any indemnified party to give notice as provided
herein shall not relieve the indemnifying party of its obligations under the
preceding subsections of this Section 6.3, except to the extent that the
indemnifying party is actually Materially prejudiced by such failure to give
notice. In case any such action is brought against an indemnified party, unless
in such indemnified party's reasonable judgment a conflict of interest between
such indemnified party and indemnifying parties may exist in respect of such
claim, the indemnifying party will be entitled to participate in and, jointly
with any other indemnifying party similarly notified, to assume the defense
thereof, to the extent that it may wish, 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 for any legal
or other expenses subsequently incurred by the latter in connection with the
defense thereof, unless in such indemnified party's reasonable judgment a
conflict of interest between such indemnified and indemnifying parties arises
in respect of such claim after the assumption of the defense thereof, and the
indemnifying party will not be subject to any liability for any settlement made
without its written consent (which consent shall not be unreasonably withheld).
No indemnifying party will consent to entry of any judgment or enter into any
settlement that does not include as an unconditional term thereof the giving by
the claimant or plaintiff to such indemnified party of a release from all
liability in respect to such claim or litigation. An indemnifying party who is
not entitled to, or elects not to, assume the defense of a claim will not be
obligated to pay the fees and expenses of more than one counsel in any single
jurisdiction for all parties indemnified by such indemnifying party with
respect to such claim, unless in the reasonable judgment of any indemnified
party a conflict of interest may exist between such indemnified party and any
other of such indemnified parties with respect to such claim, in which event
the indemnifying party shall be obligated to pay the fees and expenses of such
additional counsel or counsels as may be reasonably necessary. Notwithstanding
anything to the contrary set forth herein, and without limiting any of the
rights set forth above, in any event any party will have the right to retain,
at its own expense, counsel with respect to the defense of a claim.
(d) Contribution. In order to provide for just and equitable
contribution in circumstances in which the indemnity agreement provided for in
this Section 6.3 is for any reason held to be unenforceable although applicable
in accordance with its terms, Company and Investor shall contribute to the
aggregate losses, liabilities, claims, damages and expenses of the nature
contemplated by such indemnity agreement incurred by Company and Investor in
such proportion as shall be appropriate to reflect the relative fault of
Company, on the one hand, and Investor on the other, with respect to the
statements or omissions that resulted in such loss, liability, claim, damage or
expense, or action in respect thereof, as well as any other relevant equitable
considerations. The relative fault shall be determined by reference to, among
other things, whether the untrue or alleged untrue statement of a Material fact
or omission or alleged omission to state a Material fact relates to information
supplied by Company or Investor, the intent of the parties and their relative
knowledge, access to information and opportunity to correct or prevent such
statement or omission. Company and Investor agree that it would not be just and
equitable if contribution pursuant to this Section 6.3. were to be determined
by pro rata allocation or by any other method of allocation that does not take
into account the equitable considerations referred to herein. Notwithstanding
anything to the contrary contained herein, Company and Investor agree that any
contribution required to be made by Investors pursuant to this Section 6.3.
shall not exceed the net proceeds from the offering of Shares (before deducting
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expenses) received by Investor with respect to such offering. For purposes of
this Section 6.3., each Person, if any, who Controls Investor within the
meaning of the Securities Act shall have the same rights to contribution as
Investor, and each director of Company, each officer of Company who signed the
registration statement, and each Person, if any, who Controls Company within
the meaning of Section 15 of the Securities Act shall have the same rights to
contribution as Company. With respect to any claim pursuant to this Section
6.3. no Person guilty of 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.
6.4. RULE 144.
Company agrees that, so long as any Shares are registered under the
Exchange Act, it will file in a timely manner all reports required to be filed
by it pursuant to the Exchange Act and, if at any time Company is not required
to file such reports, it will make available to the public, to the extent
required to permit the sale of Shares by Investor pursuant to Rule 144, current
information about itself and its activities as contemplated by Rule 144 under
the Securities Act, as such Rule may be amended from time to time.
6.5. REGISTRATION EXPENSES
(a) The Company agrees to pay all registration expenses incident to
the performance or compliance with this Purchase Agreement and the registration
of the Shares, regardless of whether the registration statement becomes
effective, including without limitation: (i) all SEC, stock exchange, or
National Association of Securities Dealers, Inc. registration and filing fees,
(ii) all fees and expenses incurred in connection with compliance with state
securities or blue sky laws (including reasonable fees and disbursements of
counsel for any underwriters in connection with blue sky qualifications of any
of the Shares), (iii) all expenses of any Persons in preparing or assisting in
preparing, word processing, printing and distributing the registration
statement relating to the Shares, any underwriting agreements and other
documents relating to the performance of and compliance with this Purchase
Agreement, (iv) all fees and expenses incurred in connection with the listing,
if any, of any of the Shares on any securities exchange, (v) all rating agency
fees, (vi) the fees and disbursements of counsel for Company and of Company's
independent public accountants, including the expenses of any special audits or
"cold comfort" letters required by or incident to such performance and
compliance, (vii) any fees and disbursements of any underwriters customarily
paid by issuers or sellers of securities and the reasonable fees and expenses
of any special experts retained in connection with the registration statement
relating to any of the Shares, including underwriting discounts and commissions
and transfer taxes, if any and (viii) in the case of an underwritten offering
all expenses of any road show deemed reasonably necessary by the underwriters
in their bookmaking or sales effort.
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7. SURVIVAL OF REPRESENTATIONS; INDEMNIFICATION REMEDIES
7.1. SURVIVAL OF REPRESENTATIONS
All representations, warranties, covenants, and other Agreements made
by any party to this Purchase Agreement herein or pursuant hereto shall also be
deemed made on and as July 30, 1999 as though such representations, warranties,
covenants, indemnities and other Agreements were made on and as July 30, 1999,
and all the representations, warranties, covenants, indemnities and other
Agreements shall survive the Closing.
7.2. GENERAL INDEMNITY.
The Company hereby indemnifies and holds harmless Investor and its
successors and assigns and its respective directors, officers, employees and
agents against and in respect of any and all costs, expenses, debts,
liabilities and obligations incurred by any of them, including reasonable
attorney fees and expenses, for breach of any representation, warranty or
promise made to any of them by the Company or any Subsidiary hereunder.
Investor hereby indemnifies and holds harmless the Company and its successors
and assigns and their respective directors, officers, employees and agents
against and in respect of any and all costs, expenses, debts, liabilities and
obligations incurred by any of them, including reasonable attorney fees and
expenses, for breach of any representation, warranty or promise made to any of
them by such Investor hereunder except for representations warranties or
promises made pursuant to Section 6. which contains separate indemnification
provisions.
7.3. SPECIFIC PERFORMANCE
In addition to any other remedies which the Investor may have at law
or in equity, the Company hereby acknowledges that the Shares and the Company
are unique, and that the harm to the Investor resulting from breaches by the
Company of its obligations cannot be adequately compensated by damages.
Accordingly, the Company agrees that the Investor shall have the right to have
all obligations, undertakings, Agreements, covenants and other provisions of
this Purchase Agreement specifically performed by the Company and that the
Investor shall have the right to seek an order or decree of such specific
performance in any of the courts of the United States of America or of any
state or other political subdivision thereof.
7.4. REMEDIES CUMULATIVE
The remedies provided herein shall be cumulative and shall not
preclude the assertion by the Company or the Investor of any other rights or
the seeking of any other remedies against the other, or their respective
successors or assigns.
8. MISCELLANEOUS
8.1. ADDITIONAL ACTIONS AND DOCUMENTS
After Closing, each of the parties hereto hereby agrees to take or
cause to be taken such further actions, to execute, deliver and file or cause
to be executed, delivered and filed such
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further Documents, and will obtain such consents, as may be necessary or as may
be reasonably requested in order to fully effectuate the purposes, terms and
conditions of this Purchase Agreement.
8.2. NO BROKERS
Each of the parties hereto represents and warrants to the other party
that, such party has not engaged any broker, finder or agent in connection with
the transactions contemplated by this Purchase Agreement and has not incurred
(and will not incur) any unpaid liability to any broker, finder or agent for
any brokerage fees, finders' fees or commissions, with respect to the
transactions contemplated by this Purchase Agreement. Each party agrees to
indemnify, defend and hold harmless the other party from and against any and
all claims asserted against such parties for any such fees or commissions by
any persons purporting to act or to have acted for or on behalf of the
indemnifying party.
8.3. JURY WAIVER
The parties hereto waive all right to trial by jury in any action or
proceeding to enforce or defend any rights under this agreement or any of the
transactions or agreements contemplated hereby.
8.4. PUBLICITY
Neither the Investor nor the Company shall issue any press release or
make any public disclosure regarding the transaction contemplated hereby unless
such press release or public disclosure is approved by those parties expressly
mentioned by name in the press release in advance. Notwithstanding the
foregoing, each of the parties hereto may, in documents required to be filed by
it with the SEC or other regulatory bodies, make such statements with respect
to the transactions contemplated hereby as each may be advised by counsel as
legally necessary or advisable and may make such disclosure as it is advised by
its counsel as required by law.
8.5. EXPENSES
Each party hereto shall pay its own expenses incident to this Purchase
Agreement and the transactions contemplated hereunder, including all legal and
accounting fees and disbursements.
8.6. FINANCIAL INFORMATION.
For so long as the Company is not a reporting company under the
Exchange Act, the Company agrees to send the following to Invester: (i)
promptly following the date on which they become available but in no event
later than 90 days after the end of each fiscal year, a copy of the Company's
audited annual financial statements: (ii) promptly following the date on which
they become available but in no event later than 45 days after the end of each
fiscal quarter, a copy of the Company's unaudited quarterly financial
statements; (iii) promptly following the release thereof, facsimile copies of
all press releases issued by the Company or any of its Subsidiaries; and (iv)
copies of any notices and other information made available or given to the
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stockholders of the Company generally, contemporaneously with the making
available or giving thereof to the stockholders.
8.7. ASSIGNMENT
Investor shall have the right to assign its rights and obligations
under this Purchase Agreement, in whole or in part, to any Affiliate of
Investor or to designate any of its Affiliates (to the extent permitted by Law)
to receive directly the Shares to be purchased hereunder or to exercise any of
the rights of Investor, or to perform its obligations, provided that such
assignee shall have been deemed to have made the representations and warranties
contained in Article 4 hereof. The Company shall not assign its rights and
obligations under this Purchase Agreement, in whole or in part, whether by
operation of law or otherwise, without the prior written consent of Investor,
and any), such assignment contrary to the terms hereof shall be null and void
and of no force and effect. In no event shall the assignment by the Company or
Investor of its rights or obligations under this Purchase Agreement, whether
before or after the Closing, release the Company or the Investor from their
respective liabilities and obligations hereunder.
8.8. ENTIRE AGREEMENT; AMENDMENT
This Purchase Agreement, including the Disclosure Schedule, the
Exhibits and other Documents referred to herein or Furnished pursuant hereto,
constitutes the entire Agreement among the parties hereto with respect to the
transactions contemplated herein, and it supersedes all prior oral or written
Agreements, commitments or understandings with respect to the matters provided
for herein. No amendment or modification of this Purchase Agreement shall be
valid or binding unless set forth in writing and duly executed and delivered by
the Company and the Investor.
8.9. WAIVER
No delay or failure on the part of any party hereto in exercising any
right, power or privilege under this Purchase Agreement or under any other
Documents Furnished in connection with or pursuant to this Purchase Agreement
shall impair any such right, power or privilege or be construed as a waiver of
any default or any acquiescence therein. No single or partial exercise of any
such right, power or privilege shall preclude the further exercise of such
right, power or privilege, or the exercise of any other right, power or
privilege. No waiver shall be valid against any party hereto unless made in
writing and signed by the party against whom enforcement of such waiver is
sought and then only to the extent expressly specified therein.
8.10. SEVERABILITY
If any part of any provision of this Purchase Agreement or any other
Agreement or document given pursuant to or in connection with this Purchase
Agreement shall be invalid or unenforceable in any respect, such part shall be
ineffective to the extent of such invalidity or unenforceability only, without
in any way affecting the remaining parts of such provision or the remaining
provisions of this Purchase Agreement.
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8.11. GOVERNING LAW
This Purchase Agreement, the rights and obligations of the
parties hereto, and any claims or disputes relating thereto, shall be governed
by and construed in accordance with the laws of the State of New York (excluding
the conflicts of law principles thereof).
8.12. NOTICES
All notices, demands, requests, or other communications which may be
or are required to be given, served, or sent by any party to any other party
pursuant to this Purchase Agreement shall be in writing and shall be hand
delivered, sent by overnight courier or mailed by first-class, registered or
certified mail, return receipt requested, postage prepaid, or transmitted by
telegram, telecopy or telex, addressed as follows:
(i) If to Ropart Investments LLC:
Ropart Investments LLC
100 Field Point Road
Greenwich, Connecticut 06830
Attn: Robert B. Goergen
Fax #: (203) ___-____
(ii) If to the Company:
CallNOW.Com, Inc.
50 Broad St., 5th Floor
New York, New York 10004
Fax #: (212) 785-4388
with a copy (which shall not constitute notice) to:
Stairs Dillenbeck Finley & Merle
330 Madison Avenue, Suite 2900
New York, New York 10017-5090
Attn: Neil Parent
Fax #: (212) 687-3523
Each party may designate by notice in writing a new address to which
any notice, demand, request or communication may thereafter be so given, served
or sent. Each notice, demand, request, or communication which shall be hand
delivered, sent, mailed, telecopied or telexed in the manner described above,
shall be deemed sufficiently given, served, sent, received or delivered for all
purposes at such time as it is delivered to the addressee (with the return
receipt, the delivery receipt, or (with respect to a telecopy or telex) the
answerback or confirmation being deemed conclusive, but not exclusive, evidence
of such delivery) or at such time as delivery is refused by the addressee upon
presentation.
-31-
<PAGE>
8.13. HEADINGS
Section headings contained in this Purchase Agreement are
inserted for convenience of reference only, shall not be deemed to be a part of
this Purchase Agreement for any purpose, and shall not in any way define or
affect the meaning, construction or scope of any of the provisions hereof.
8.14. EXECUTION IN COUNTERPARTS
To facilitate execution, this Purchase Agreement may be executed in as
many counterparts as may be required. It shall not be necessary that the
signatures of, or on behalf of, each party, or that the signatures of all
persons required to bind any party, appear on each counterpart; but it shall be
sufficient that the signature of, or on behalf of, each party, or that the
signatures of the persons required to bind any party, appear on one or more of
the counterparts. All counterparts shall collectively constitute a single
Agreement. It shall not be necessary in making proof of this Purchase Agreement
to produce or account for more than a number of counterparts containing the
respective signatures of, or on behalf of, all of the parties hereto.
8.15. BINDING EFFECT
Subject to any provisions hereof restricting assignment, this Purchase
Agreement shall be binding upon and shall inure to the benefit of the parties
hereto and their respective successors, heirs, executors, administrators, legal
representatives and assigns.
IN WITNESS WHEREOF, the undersigned have duly executed this Agreement,
or have caused this Agreement to be duly executed on their behalf, as of the
day and year first hereinabove set forth.
THE COMPANY:
CallNOW.Com, Inc.
By: /s/ Warner R. Johnson
------------------------------
Name: Warner R. Johnson, Jr.
Title: President
THE INVESTOR:
ROPART INVESTMENTS LLC
By: Robert B. Goergen
-------------------------
Name: Robert B. Goergen
Title: Manager
-32-
<PAGE>
EXHIBIT A
TO STOCK PURCHASE AGREEMENT
DATED AS OF SEPTEMBER 16, 1999
DEFINITIONS
"AFFILIATE" means: (a) with respect to a person, any member of such
person's family; (b) with respect to an entity, any officer, director,
stockholder, partner or investor of or in such entity or of or in any Affiliate
of such entity; and (c) with respect to a person or entity, any person or
entity which directly or indirectly, through one or more intermediaries,
Controls, is Controlled by, or is under common Control with such person or
entity.
"AGREEMENT" means any concurrence of understanding and intention
between two or more persons (or entities) with respect to their relative rights
and/or obligations or with respect to a thing done or to be done (whether or
not conditional, executory, express, implied, in writing or meeting the
requirements of contract), including, without limitation, contracts, leases,
promissory notes, covenants, easements, rights of way, covenants, commitments,
arrangements and understandings.
"ASSETS" means assets of every kind and everything that is or may be
available for the payment of liabilities (whether inchoate, tangible or
intangible), including, without limitation, real and personal property.
"CHARTER" means the Certificate of Incorporation of the Company.
"CLAIMS" means all demands, claims, actions or causes of action,
assessments, losses, damages (including, without limitation, diminution in
value), liabilities, costs and expenses, including, without limitation,
interest, penalties and attorneys' fees and disbursements.
"CLOSING" means the Closing of the sale of Shares to the Investor
under this Purchase Agreement.
"CLOSING BALANCE SHEETS" means the latest balance sheets contained in
the Financial Statements.
"CODE" means the Internal Revenue Code of 1986, as amended, and all
Laws promulgated pursuant thereto or in connection therewith.
"COMMON STOCK" means the Company's Common Stock, par value $0.001 per
share.
"COMPANY" means CallNOW.Com, Inc., a Delaware corporation. (throughout
this document, Company shall also include is Subsidiaries whether or not so
indicated).
<PAGE>
"CONTROL" means possession, directly or indirectly, of power to direct
or cause the direction of management or policies (whether through ownership of
voting securities, by Agreement or otherwise).
"DISCLOSURE SCHEDULE" means the disclosure schedule identified as the
Disclosure Schedule to the Purchase Agreement.
"DOCUMENTS" means any paper or other material (including, without
limitation, computer storage media) on which is recorded (by letters, numbers
or other marks) information that may be evidentially used, including, without
limitation, legal opinions, mortgages, indentures, notes, instruments, leases,
Agreements, insurance policies, reports, studies, Financial Statements
(including, without limitation, the notes thereto), other written financial
information, schedules, certificates, charts, maps, plans, photographs,
letters, memoranda and all similar materials.
"ENCUMBRANCE" means, with respect to any Asset, any mortgage, lien,
pledge, encumbrance, security interest, deed of trust, option, encroachment,
reservation, order, decree, judgment, condition, restriction, charge,
Agreement, claim or equity of any kind.
"ENVIRONMENTAL LAWS" means any Laws (including, without limitation,
the Comprehensive Environmental Response, Compensation, and Liability Act),
including any plans, other criteria, or guidelines promulgated pursuant to such
Laws, now or hereafter in effect relating to the generation, production,
installation, use, storage, treatment, transportation, release, threatened
release, or disposal of Hazardous Materials, noise control, or the protection
of human health, safety, natural resources, animal health or welfare, or the
environment.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, and all Laws promulgated pursuant thereto or in connection therewith.
"Exchange Act' means the U.S. Securities Exchange Act of 1934, as
amended.
"EXHIBIT" means an exhibit attached to the Purchase Agreement.
"FINANCIAL STATEMENTS" has the meaning set forth in Section 3.6.
"Fringe Benefits" means (i) incentive or deferred compensation
arrangements, (ii) arrangements that could be characterized as providing for
additional compensation, severance benefits or compensation associated with a
change in control of the Company or any Subsidiary or (iii) arrangements
providing stock options or stock bonus to an employee, former employee, a
director, former director, any agent providing services to the Company or any
Subsidiary, and any dependant of the such persons.
"FURNISHED" means supplied, delivered or provided in any way.
"HAZARDOUS MATERIALS" means any wastes, substances, radiation, or
materials (whether solids, liquids or gases) (i) which are hazardous, toxic,
infectious, explosive, radioactive, carcinogenic, or mutagenic; (ii) which are
or become defined as a "pollutants" "contaminants", "hazardous materials,"
"hazardous wastes," "hazardous substances," "toxic
-2-
<PAGE>
substances," "radioactive materials," "solid wastes," or "petroleum", "oil"
other similar designations in, or otherwise subject to regulation under, any
Environmental Laws; (iii) without limitation, which contain polychlorinated
biphenyls (PCBs), asbestos, lead-based paints, urea-formaldehyde foam
insulation, and petroleum or petroleum products (including, without limitation,
crude oil or any fraction thereof) or (iv) which pose a hazard to human health,
safety, natural resources, industrial hygiene, or the environment, or an
impediment to working conditions.
"INTELLECTUAL PROPERTY" means all franchises, patents, patent
qualifications, trademarks, service marks, trade names, trade styles, brands,
private labels, copyrights, know-how, computer software, industrial designs and
drawings and general intangibles of a like nature, trade secrets, licenses, and
rights and filings with respect to the foregoing, and all reissues, extensions
and renewals thereof.
"LAWS" means all foreign, federal, state and local statutes, laws,
ordinances, regulations, rules, resolutions, orders, determinations, writs,
injunctions, awards (including, without limitation, awards of any arbitrator),
judgments and decrees applicable to the specified persons or entities and to
the businesses and Assets thereof (including, without limitation, Laws relating
to securities registration and regulation; the sale, leasing, ownership or
management of real property; employment practices, terms and conditions, and
wages and hours; safety, health and fire prevention; and environmental
protection, including Environmental Laws).
"MATERIAL" means material to the Company and its Subsidiaries, taken
as a whole.
"MATERIAL ADVERSE EFFECT" means any material adverse effect on the
assets, properties, business, operations, prospects, condition (financial or
otherwise) or liabilities of the Company and its Subsidiaries, taken as a
whole.
"MATERIAL ASSET" means an Asset having a value equal to or in excess
of $25,000, or Assets having an aggregate value in excess of $50,000.
"ORDINARY COURSE OF BUSINESS" means ordinary course of the Company's
business consistent with past practices and business operations.
"PENSION PLAN" means an "employee pension benefit plan" as such term
is defined in Section 3(2) of ERISA.
"PERSON" means any individual, partnership, joint venture,
corporation, trust, unincorporated organization, government or department or
agency of a government.
"QUALIFIED PLAN" means a pension plan that satisfies, or is intended
by the Company to satisfy, the requirements for tax qualification described in
Section 401 of the Code.
"RELEASE" means any emission, spill, seepage, leak, escape, leaching,
discharge, injection, pumping, pouring, emptying, dumping, disposal, or release
of Hazardous Materials from any source (including without limitation the Real
Property) into or upon the environment, including the air, soil, improvements,
surface water, groundwater, the sewer, septic system, or waste treatment,
storage, or disposal systems at, on, above, or under the Real Property.
-3-
<PAGE>
"SECTION" means a Section (or a subsection) of this Purchase
Agreement.
"SECURITIES ACT" means the Securities Act of 1933, as amended, and all
laws promulgated pursuant thereto or in connection therewith.
"SHARES" means the Common Stock being purchased by the Investors
pursuant to the terms of this Purchase Agreement.
"SUBSIDIARY" means a corporation or other entity (other than an
Affiliate as defined above) of which at least 50% of the outstanding securities
or other interests having rights to vote or otherwise exercise Control are
held, directly or indirectly, by the Company.
"TAXES" means all federal, state, local and foreign taxes (including,
without limitation, income, profit, franchise, sales, use, real property,
personal property, ad valorem, excise, employment, social security and wage
withholding taxes) and installments of estimated taxes, assessments,
deficiencies, levies, imports, duties, license fees, registration fees,
withholdings, or other similar charges of every kind, character or description
imposed by any governmental or quasi-governmental authorities, and any
interest, penalties or additions to tax imposed thereon or in connection
therewith.
"TAX RETURNS" means all federal, state, local, foreign and other
applicable tax returns, declarations of estimated tax reports required to be
filed by the Company or any Subsidiary (without regard to extensions of time
permitted by law or otherwise).
"WELFARE PLAN" means an "employee welfare benefit plan" as such term
is defined in Section (3)(1) of ERISA.
-4-
<PAGE>
Exhibit 10.24
September 16, 1999
Ropart Investments LLC
100 Field Point Road
Greenwich, CT 06830
Gentlemen:
This letter serves as our agreement that Ropart Invesments LLC, in
consideration of its investment of $249,999.75 and its knowledge and experience
with Internet companies, has the right to appoint one director to the Board of
Directors of CallNOW.com, Inc., provided however that such appointment is
limited to either Robert B. Goergen, Todd A. Goergen or Robert B. Goergen, Jr.
On September 14, 1999, Todd A. Goergen was elected to the Board of Directors of
CallNOW.com, Inc. Ropart Investments LLC acknowledges that Todd A. Goergen is
the initial nominee of Ropart Investments LLC. and satisfies the foregoing
agreement.
Sincerely,
/s/ Christian Bardenheuer
- ------------------------------
Christian Bardenheuer
Chief Executive Officer
ACKNOWLEDGED AND AGREED
BY ROPART INVESTMENTS LLC
By: /s/ Robert B. Goergen
----------------------------
Name: Robert B. Goergen
Title: Manager
<PAGE>
Exhibit 21
Subsidiaries of CallNow.com
AXICOM Communications Group, Inc. a New York Corporation
<PAGE>
Exhibit 23.4
[HORTON & COMPANY LOGO]
INDEPENDENT AUDITORS' REPORT ON OTHER FINANCIAL
INFORMATION
The Shareholders
CallNOW.com, Inc.
The audited financial statements of the Company and our report thereon is
presented in the preceding section of this report. The financial information in
Schedule II-Valuation and Qualifying Accounts in Exhibit 99 is presented for
purposes of additional analysis and is not a required part of the financial
statements of the Company. Such information has been subjected to the auditing
procedures applied in our audit of the financial statements and, in our opinion,
is fairly stated in all material respects in relation to the financial
statements taken as a whole.
HORTON & COMPANY, L.L.C.
Wayne, New Jersey
April 28, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 12-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1997
<PERIOD-END> DEC-31-1998 DEC-31-1997
<CASH> 7,565 107,832
<SECURITIES> 0 0
<RECEIVABLES> 128,700 273,774
<ALLOWANCES> 6,000 6,500
<INVENTORY> 0 0
<CURRENT-ASSETS> 130,265 375,106
<PP&E> 695,246 354,918
<DEPRECIATION> 182,943 77,083
<TOTAL-ASSETS> 679,353 686,645
<CURRENT-LIABILITIES> 1,250,301 1,825,485
<BONDS> 1,357,026 147,756
0 0
0 0
<COMMON> 3,875 3,875
<OTHER-SE> (1,931,849) (1,282,721)
<TOTAL-LIABILITY-AND-EQUITY> 679,353 686,645
<SALES> 0 0
<TOTAL-REVENUES> 2,295,202 5,010,027
<CGS> 0 0
<TOTAL-COSTS> 1,681,978 4,293,524
<OTHER-EXPENSES> 1,164,166 1,575,274
<LOSS-PROVISION> 23,723 197,109
<INTEREST-EXPENSE> 90,436 58,568
<INCOME-PRETAX> (641,378) (917,339)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (641,378) (917,339)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (641,378) (917,339)
<EPS-BASIC> (0.17) (0.24)
<EPS-DILUTED> (0.17) (0.24)
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 6-MOS 6-MOS
<FISCAL-YEAR-END> DEC-31-1999 DEC-31-1998
<PERIOD-END> JUN-30-1999 JUN-30-1998
<CASH> 152,565 24,013
<SECURITIES> 0 0
<RECEIVABLES> 115,556 145,152
<ALLOWANCES> 6,000 6,500
<INVENTORY> 0 0
<CURRENT-ASSETS> 262,121 175,665
<PP&E> 824,938 389,319
<DEPRECIATION> 259,380 113,924
<TOTAL-ASSETS> 1,269,064 493,096
<CURRENT-LIABILITIES> 1,583,360 1,950,054
<BONDS> 1,713,747 85,333
0 0
0 0
<COMMON> 5,139 3,875
<OTHER-SE> (2,033,182) (1,546,166)
<TOTAL-LIABILITY-AND-EQUITY> 1,269,064 493,096
<SALES> 0 0
<TOTAL-REVENUES> 542,689 1,385,666
<CGS> 0 0
<TOTAL-COSTS> 390,587 1,101,200
<OTHER-EXPENSES> 594,297 516,398
<LOSS-PROVISION> 3,012 0
<INTEREST-EXPENSE> 36,848 23,763
<INCOME-PRETAX> (525,965) (255,695)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (930,794) (255,695)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (930,794) (255,695)
<EPS-BASIC> (0.11) (0.07)
<EPS-DILUTED> (0.11) (0.07)
</TABLE>
<PAGE>
CallNOW.com, INC
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO CHARGED BALANCE
BEGINNING COSTS AND TO OTHER AT END OF
OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS PERIOD
---------- ---------- -------- ---------- ---------
<S> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1996
Allowance for doubtful accounts
(deducted from accounts receivable) $ 22,000 $113,000 $ -- $ 12,000 $123,000
-------- -------- ------- -------- --------
YEAR ENDED DECEMBER 31, 1997
Allowance for doubtful accounts
(deducted from accounts receivable) $123,000 $197,109 $ -- $313,609 $ 6,500
-------- -------- ------- -------- --------
YEAR ENDED DECEMBER 31, 1998
Allowance for doubtful accounts
(deducted from accounts receivable) $ 6,500 $ 23,723 $ -- $ 24,223 $ 6,000
-------- -------- ------- -------- --------
</TABLE>
