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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-SB/A
(Amendment No. 2)
GENERAL FORM FOR REGISTRATION OF SECURITIES OF SMALL
BUSINESS ISSUERS UNDER SECTION 12(b) OR 12(g) OF
THE SECURITIES ACT OF 1934.
QORUS.COM, INC.
(Name of Small Business Issuer in its Charter)
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<S> <C>
FLORIDA 65-0358792
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
</TABLE>
<TABLE>
<S> <C>
11350 RANDOM HILLS ROAD
SUITE 650
FAIRFAX, VIRGINIA 22030
(Address of Principal Executive Offices) (Zip Code)
</TABLE>
(703) 279-6430
(Issuer's Telephone Number)
Securities to be registered under Section 12(b) of the Act:
NONE
Securities to be registered under Section 12(g) of the Act:
COMMON STOCK, $.001 PAR VALUE
(Title of Class)
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
Summary
Qorus.com, Inc. intends to offer "unified messaging" services. To date,
Qorus has entered into distribution partnerships for its product, but has
generated no significant revenues. Qorus will require substantial additional
financing to execute its business plan and has been issued a "going concern"
opinion from its accountants.
Qorus intends to consolidate and simplify voice mail, e-mail, paging, and
fax messaging. According to a recent survey conducted by Pitney Bowes in May
1998, the average worker manages 190 messages a day, including e-mail, faxes,
voice mail and standard mail. According to Sounding Board Magazine, there were
over 2.8 trillion e-mail messages sent to and from U.S. mailboxes in 1998 and
approximately 2 trillion minutes of usage on the public phone network in 1997.
In addition to desktop devices, there were 55.3 million pagers, 56 million cell
phones, and 8 million personal communications services phones in use in 1998
according to Sounding Board Magazine. The simple fact is that the number of
messages and mediums for sending and receiving messages is growing out of
control.
Qorus' service will simplify sending and receiving messages by
consolidating all inbound messages and letting the user select the most
effective and suitable mode for receiving and responding to these messages.
Specifically, it will enable the user to send, receive, sort and filter voice
mail, e-mail, faxes, and pages from any phone or Internet ready device in the
world. In addition, it will enable the user to listen to text-based messages,
such as e-mail, and reply to them by voice. Advanced features to be introduced
at a later date will even translate voice and text from one language into
another. Qorus' distribution partners are currently utilizing the service for
internal purposes and are conducting market trials in anticipation of making our
service available to their customers. We plan to market our services to Internet
service providers and small to medium sized telecommunications carriers.
Our Parents and Affiliates
We are controlled by Thurston Group, Inc., a privately owned merchant
banking firm located in Chicago, Illinois, and its affiliates. Thurston Group,
directly and indirectly through its various affiliates and investment limited
partnerships, beneficially owns approximately 25% of our common stock.
Thurston Group is controlled by Patrick J. Haynes, III, our Senior Chairman
and the Chairman of the Executive Committee of our board, and Russell T. Stern,
Jr., who does not participate in our management. Mr. Haynes actively
participates in our management. Our board has granted Mr. Haynes broad authority
to manage our day-to-day affairs. Mr. Haynes, however, does not have an
employment contract with us and does not receive any cash compensation for
providing his services to us.
Background of our Formation
Thurston Group and its affiliates and Deloitte & Touche Co. founded NetDox,
Inc. in 1997 with an initial aggregate capital investment of approximately $35
million. NetDox was formed to develop secure messaging and electronic trust
services using Internet technologies.
Thurston Group and its affiliates founded a privately held Delaware
corporation named "Qorus.com, Inc." in early 1999 to develop and provide unified
messaging services. At or about this same time, Thurston Group and Deloitte &
Touche determined to discontinue their joint venture in NetDox, and Thurston
Group acquired Deloitte & Touche's interest. Certain key employees of NetDox
joined Qorus, the privately held Delaware corporation. In mid-July 1999, Qorus
acquired substantially all of the operating assets of NetDox to use in its
unified messaging business.
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Thurston Group and its affiliates have directly or indirectly provided
substantially all of our funds for operating activities since March 1999. As
more fully described below, we have received minimal revenues from operations to
date.
Formation History
Qorus was originally incorporated under the laws of the State of Florida on
January 23, 1991, under the name "Speak Up America Association, Inc." and
changed its name to "Golf Ball World, Inc." on January 16, 1996. Golf Ball World
changed its name to "Qorus.com, Inc." on May 7, 1999, in connection with its
acquisition of all of the issued and outstanding capital stock of Qorus.com,
Inc., a Delaware corporation.
Qorus.com, Inc., the Delaware corporation, was incorporated under the laws
of the State of Delaware on March 10, 1999, under the name "GOBIG, Inc." for the
purpose of engaging in the telecommunications services business. GOBIG changed
its name to "Qorus.com, Inc." on March 24, 1999. To avoid confusion, we will
refer to Qorus.com, Inc., the Delaware corporation, as Qorus Delaware. On or
about April 15, 1999, Qorus Delaware entered into certain transactions with
Tornado Development, Inc. and commenced business operations. Qorus Delaware was
founded by Thurston Group, Inc. and its affiliates. Patrick J. Haynes, III is
the Senior Managing Director of Thurston Group, Inc. and is Qorus' Senior
Chairman of the Board and Chairman of the Executive Committee.
On or about May 19, 1999, the stockholders of Qorus.com, Inc., the Delaware
corporation, entered into an Acquisition Agreement with Golf Ball World.
Pursuant to the Acquisition Agreement, each of those stockholders exchanged
their shares of Qorus Delaware common stock for an aggregate of 5,333,145 shares
of the common stock of Golf Ball World. As a result of such exchange, Qorus
Delaware became a wholly owned subsidiary of Golf Ball World and the former
stockholders of Qorus Delaware acquired approximately 71.5% of the issued and
outstanding shares of Qorus. As provided in the Acquisition Agreement, Golf Ball
World changed its name to "Qorus.com, Inc." On or about October 5, 1999, Qorus
Delaware was merged with and into Qorus.
Our Product
We market our unified messaging software product to Internet service
providers and telecommunications companies. These Internet service providers and
telecommunications companies often desire to offer additional services to
complement their basic service offering but do not have the capability to offer
such additional services. We offer our customers the unified messaging service
to enhance their basic telephone or Internet services. Our unified messaging
service can be customized or branded to meet the unique needs of each customer.
We believe we can offer services to our customers on a timelier basis than our
hardware-based competitors and offer more variety of features than our
service-based competitors.
UNIFIED MESSAGING
Our initial service offering will be unified messaging. This service
consolidates in-bound voice mail, e-mail, and fax messages and enables the user
to receive these messages in one central mailbox. One of the powerful features
of this system is that it can translate voice to text and text to voice. As a
result, the user can pick the medium through which they receive messages and the
medium through which they send messages. For example, a user can listen to an
e-mail via a mobile phone and respond by voice and have the system translate and
reply in an e-mail communication.
The software has the ability to manage vast amounts of information
efficiently. The key to the system, and what differentiates it from similar
software products, is that it stores all received information, audio, text,
video or any input medium, in a common format instead of a medium specific
format. The information is then identified and catalogued with a description of
its contents into the database. The database is able to determine what to do
with these common message inputs quickly. The software can save, copy, forward
to others, send or schedule for future delivery any message in the database. The
software includes the ability to manipulate these messages based upon the
instruction from the database. Received messages can be transformed into voice
or text, whichever is appropriate for the medium accessing the message database.
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The software provides many features and can be accessed from multiple
devices such as computer, telephone, and personal data assistants. Additional
features and access devices can be quickly added because the underlying software
is flexible and allows a broad range of programming alternatives. We intend to
add new features continually with the goal of providing the best products in the
marketplace.
We also intend to offer enhanced services to our basic unified messaging
offering. Initial enhanced services will include secure message delivery
services. These features include:
- Messages delivered in a coded format to insure security
- Delivery certification (confirmed)
- Postmarking
- Tracking/audit trail
- Sender confidentiality
- Transaction archiving
ENHANCED BUSINESS SERVICES
We are in the process of identifying and procuring messaging and
verification products for companies that are implementing "paperless" or
electronic messaging services. For example, we are currently providing an
e-ticket confirmation service for a major U.S.-based airline. In this case, the
airline is seeking to reduce its cost of delivering e-ticket confirmations to
its customers.
Over the next two years we intend to add services in the following areas:
- User conveniences (calendaring, event notification, "follow-me" phone)
- Personal time management
- Language and linguistics communication (multiple language translation of
e-mail, voice mail, fax, and page; voice activated commands)
- Business services (certified mail, archiving, safety deposit box, control
and distribution of valued content, conferencing, e-mail conference
rooms)
For a description of our plans to finance our business plan, please see
Item 2. Management's Discussion and Analysis or Plan of Operation.
SOFTWARE LICENSE
Our service is based on software obtained through a global license from
Tornado Development, Inc. We also made an equity investment in Tornado
Development to secure access to the technology, influence development priorities
and provide corporate direction. On July 15, 1999, Qorus acquired 127,324 shares
of the Series B Preferred Stock of Tornado Development. At the same time, we
also acquired 50,000 warrants to purchase common stock of Tornado Development.
Since that time, we transferred 63,581 shares of Series B Preferred Stock and
25,000 warrants to purchase common stock back to Tornado Development in payment
of $432,222 in accrued expenses owed to Tornado Development and a credit of
$67,778 to be applied to future services or fees due from us to Tornado
Development. Mr. Haynes served as a director of Tornado Development as a
representative for Qorus from April 1999 until he resigned in October 1999.
Neither Thurston Group nor any of its affiliates has any ownership of or
investment in Tornado Development.
On April 15, 1999, Tornado Development granted Qorus a non-exclusive
license to use the software developed by Tornado Development. The software
enables a universal messaging solution that provides integration of e-mail, fax,
and voice mail through the Internet or telephone systems. Under the terms of the
license, Qorus may use the software anywhere in the United States, the United
Kingdom and any additional
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countries or jurisdictions identified by us in writing to Tornado. The initial
term of the license is 36 months. The term will be automatically extended for an
additional 36-month period.
Two types of fees are payable by Qorus to Tornado for the license. A
license fee in the amount of $15 per subscriber per year is payable and is based
on the monthly average number of subscribers. There is a 10,000 subscriber
minimum on the initial server and 5,000 subscriber minimum for each additional
server. A royalty fee in the amount of $380 per channel is payable and is based
on the number of channels in use.
The license may be terminated as follows:
- By either party upon a material breach of the license agreement by the
other party if such breaching party has not cured the breach within 30
days of receipt of notice of the breach.
- By Qorus if Qorus determines in its sole discretion that it is no longer
in Qorus' best interest to market the service by providing written notice
to Tornado Development.
- By Tornado Development if Qorus fails to timely pay any fees due under
the license agreement and such failure is not cured within ten days.
- By Tornado Development immediately if Qorus slanders or libels Tornado
Development in a manner which has a material adverse impact on Tornado
Development, or misappropriates or misuses Tornado Development's
trademarks or service marks.
Qorus recently entered into an agreement with Exodus Communications for
operation and management of Qorus' software. Exodus Communications is a leader
in internet hosting and managed services. Neither Qorus, Thurston Group nor any
of their affiliates has any ownership of or investment in Exodus Communications.
Marketing Strategy
Our strategic objective is to become a leader in the development and
marketing of communications management products. We intend to focus on the small
and home office market and obtain market penetration by developing distribution
relationships.
According to the U.S. Unified Messaging Services Market Assessment and
Forecast, 1998-2003 published by International Data Corp., analysts found that
50% of small businesses have access to the Internet and over 70% have access to
a fax machine. We believe that these businesses will be seeking to combine
e-mail and fax communications. We believe our basic service offering will
provide a simple, cost-effective solution for this market. Once Qorus
establishes a presence with its basic service offering, we will market
additional Internet document delivery services for e-commerce such as secure
message delivery and delivery certification services.
To obtain market penetration, we intend to establish distribution
relationships with organizations that provide products and services to the small
and home office market. We believe that utilizing this distribution method will
enable us to reach the largest possible target customer base with our current
limited sales and marketing resources. We have targeted Internet service
providers, commonly called ISPs, and small and medium telecommunications
companies as our distribution partners. Our current distribution partners
include Alpha Telecom, C2C Telecom and CyberGate.
ISPs provide small and home office markets with access to the Internet.
Most offer basic e-mail services. Adding our unified messaging service to their
existing service permits the ISP to distinguish itself from its competitors. In
addition, most ISPs have little or no experience in voice and voice mail
systems. Our service provides them with an effective message management tool
that does not require a large investment.
Small and medium telecommunications carriers target the small and home
office market. These carriers often offer customers voice mail as an enhanced
service. Our service will enhance these offerings and help reduce customer
turnover, or churn. An executive at Call Sciences Corp. stated in Phone+
Magazine that CallNet Data Systems, Inc., a subsidiary of British
Telecommunications plc, reduced its customer churn by
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80% over a six-month period by using unified messaging. In addition, unified
messaging is expected to provide these carriers with two to three times more
direct revenue than voice mail alone and indirect revenue through increased
usage. As Qorus penetrates the small and home office market, we intend to expand
into the mass consumer and large enterprise market. Both provide opportunity and
challenges.
The mass consumer market is a large but fragmented market. Analysts expect
that consumers will move to unified messaging as a means to simplify
communications at home. The challenge in this market is reaching the consumer
and providing convenience at a reasonable price. Qorus believes that the
consumer market is best reached through direct marketing. We will use our
distribution partner relationships to reach this segment but recognize that even
with the support of our distribution partners, we will require additional
resources to enter this market properly.
The large enterprise market presents the biggest challenge. These
organizations have significant investment in existing systems. Consequently,
they are more likely to acquire their own messaging software systems and manage
them internally.
We intend to enter this market by targeting branch offices and parts of the
organizations that travel extensively. We intend to develop relationships with
systems integrators and telecommunications companies to assist with this market.
We will utilize a direct sales force to market directly to our distribution
partners. We will develop standard and custom service packages designed for
specific markets and needs. We believe that this market will require significant
additional resources.
In order to enter the consumer and large enterprise market, we will need to
obtain additional funding through existing operations or outside sources. Such
funding sources may or may not be available at the appropriate time.
DISTRIBUTION PARTNERS
Below is a brief description of the agreements we have entered with our
distribution partners. None of these agreements grant exclusive rights to the
distributor. We may enter into agreements with other parties covering the same
or different territory at any time.
On or about July 8, 1999, Qorus entered into an authorized reseller
agreement with U.K.-based Alpha Telecom to offer unified messaging services in
the United Kingdom, Germany and Switzerland. Alpha Telecom is based in the
United Kingdom. Alpha Telecom has more than 200,000 customers in the United
Kingdom and continental Europe. The term of the agreement is three years and
will be automatically extended for additional one year periods unless one party
gives the other party notice of termination six months prior to the then current
expiration date. We will share the revenue earned for our service equally with
Alpha Telecom. The monthly fee for the service is L9.95 per month per subscriber
and may be changed only with the written consent of both Qorus and Alpha
Telecom. Alpha Telecom is expected to begin offering Qorus' service in the late
first quarter or early second quarter of 2000. Neither Qorus, Thurston Group nor
any of their affiliates has any ownership of or investment in Alpha Telecom.
On October 21, 1999, Qorus entered into an authorized reseller agreement
with CyberGate. The term of the agreement is one year and will be automatically
extended for additional one year periods unless one party gives the other party
notice of termination 90 days prior to the then current expiration date.
CyberGate will pay us $8.00 per month per subscriber. We have agreed to
participate with CyberGate in developing and implementing appropriate incentive
programs to accelerate acceptance of the unified messaging product by the
market. Each of Qorus and CyberGate will contribute $25,000 in marketing funds
to be used in encouraging subscription to the service. These funds will be used
in programs jointly developed by us and CyberGate. CyberGate is a subsidiary of
e.spire Communications. e.spire Communications, formerly known as American
Communications Services, was founded by Thurston Group, Inc. and its affiliates
in 1992. Mr. Haynes served as president of American Communications Services
until 1993. Russell T. Stern, Jr., a principal of Thurston Group and its
affiliates, served on e.spire's board of directors from 1992 to 1994. Thurston
Group and its affiliates currently own less than 1% of the total outstanding
shares of e.spire Communications. William Salatich, a member of the board of
directors of Qorus, currently owns less than 1%
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of e.spire Communications' total outstanding shares. George Middlemas, a member
of the board of directors of Qorus, is a former director of e.spire and
currently beneficially owns approximately 2.4% of the total outstanding shares
of e.spire Communications. Qorus has no ownership of or investment in e.spire
Communications.
On September 21, 1999, Qorus entered into an authorized reseller agreement
with C2C Telecom, Inc. to offer unified messaging services in the United States.
The term of the agreement is one year and will be automatically extended for
additional one year periods unless one party gives the other party notice of
termination three months prior to the then current expiration date. C2C will pay
us 20% of its advertising revenue from the C2C website (pincity.com) on a
monthly basis. In addition, we will earn a fee of 50% of the gross margin earned
through unified messaging accounts. Gross margin is defined as revenue less
operating costs (excluding interest, depreciation, amortization and payments or
distributions to the owners of C2C).
On September 10, 1999, we entered into a master agreement with Moore
Business Communications Services to provide electronic messaging services. The
agreement does not obligate Moore Business Communications Services to order any
services from us, or us to agree to provide services, but establishes the terms
and conditions controlling if, as and when a statement of work is entered into
by the parties and services are ordered. We entered into a statement of work
under the master agreement on December 29, 1999. The statement of work relates
to the development and operation of an electronic ticketing process for
Northwest Airlines. We will adapt our product to fax or e-mail a trip summary
and receipt to Northwest Airlines' customers. The statement of work is for a
three-year term. Moore Business Communications Services may terminate the
statement of work at any time for a termination fee of 25% of the total amount
to be paid under the statement of work. However, Moore Business Communications
Services may terminate the statement of work and a termination fee will not be
payable if Northwest Airlines terminates its agreement with Moore Business
Communications Services.
In connection with the agreement with Moore Business Communications
Services, we entered into a commission agreement with NetDox to compensate
NetDox for its efforts in securing this contract. Under the commission
agreement, NetDox will be entitled to a commission in the amount of 20% of all
gross revenues (excluding development fees or other non-recurring revenues)
received by us under the master agreement with Moore Business Communications
Services. To date, we have paid no commissions to NetDox pursuant to the
commission agreement.
Competition
The industry is new and rapidly evolving. We expect competition to
intensify as the market grows. There are three segments in the market: those
that offer equipment based products, software based products and outsourced
services.
The equipment based product providers are the large telecommunications
equipment vendors such as Lucent and Nortel and the large communications
carriers such as AT&T and MCI/WorldCom. The target market for these competitors
is large enterprises where these companies already provide products and
services. The challenge in this market is integration of the equipment product
with the customers' existing systems, both voice and data.
There are several new competitors that offer software based products. Most
of these are relatively small and are focused on selling software licenses to
large enterprises. Some of the competitors in this segment include iPost,
Orchestrate, General Magic Portico, UPA, Wildfire, and Jfax. These competitors
face the same challenge of dealing with the large enterprise market integration
and sales and support requirements.
Recently, several new competitors have entered our market. These include
Linx Communications and Call Sciences. They tend to be regionally focused and
are competing directly with the ISPs and the telecommunications carriers. These
competitors lack distribution and rely exclusively on Internet search engines to
market their products.
We believe Qorus has several advantages over our competition. Our service
is Internet-based and offers more features and supports more communication media
than any one competitor. Some competitors offer
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Internet based solutions, but none of these systems is Java based, and therefore
not independent of the user's type of computer and software. We are committed to
maintaining a technical advantage over our competitors. We have chosen this
Internet-based software as the basis of our service because of our strong belief
of the proliferation of the Internet and the combination of voice, video, and
data capabilities on the Internet.
We recognize that rapidly building market share is critical to the success
of Qorus. Most of our competitors are relying on an internal sales force or
direct marketing through the Internet for their distribution. We believe we can
offer significant value to our distribution partners by enabling them to
differentiate themselves in the market place by offering our unified messaging
service.
Industry
The communications industry is undergoing significant change and rapid
growth. This is being fueled by four key elements:
- Deregulation and the introduction of competition on a global basis
- Rapid advancement of computer and communications technology that is
increasing speed, capacity, and quality
- The emergence of the Internet as a significant communications medium
- A deflationary environment that has reduced cost and stimulated demand
In this industry, the Internet is the fastest growing segment. According to
analysts at Wit Capital, the number of web users is expected to grow from 142
million in 1998 to over 500 million by the year 2003. The cornerstone of
activity of these users is e-mail. Electronic Mail and Messaging Systems
estimates that the total number of global e-mail boxes has increased to 325
million at the end of 1998 from 198 million at the end of 1997. By the year
2001, the number of mailboxes is expected to continue to grow, and, in the U.S.,
analysts anticipate that there will be more than 6.8 trillion electronic
messages according to Sounding Board Magazine.
In addition to e-mail, the Internet is starting to attract fax and voice
traffic. For example, making telephone calls using the Internet, commonly
referred to as Internet telephony, represented about $2 billion of revenue in
1998, according to Sounding Board Magazine. Analysts expect that by the year
2002, Internet telephony revenue will approach $25 billion, according to
Sounding Board Magazine. Fax traffic is also growing. Sounding Board Magazine
reports that the Internet fax market was estimated at over $120 million in 1998
and is expected to grow to over $420 million by 2002.
In 1998, service revenue from e-mail was estimated at approximately $6
billion, according to International Data Corp.'s Unified Messaging Report, and
revenue from voice-mail services was estimated at approximately $2 billion,
according to Sounding Board Magazine. Analysts estimate that by 2002 service
revenue for these applications will approach $12 billion and $1-5 billion for
the unified messaging market, as reported in the Unified Messaging Report.
The Internet is rapidly maturing into a global communications medium. It is
evolving from passive publishing to an interactive communications and
applications environment. It will continue to play an increasingly important
role in electronic commerce, become the dominant source of information, and we
believe it will be the medium of choice for voice, data, and video
communications.
We believe that the combination of voice and data networks will be the most
significant event to impact the information and communications industry over the
next few years. We also believe that the market for services and applications
based on the combined networks will continue to grow. We believe our software-
based service will position us to participate in this growth by enabling us to
offer enhanced services above and beyond unified messaging. We believe the
rapidly evolving e-commerce industry offers especially promising opportunities
for new services, and we intend actively to focus on developing messaging
solutions for the e-commerce market.
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Year 2000 Compliance
Many currently installed computer systems and software products are unable
to distinguish between twentieth century dates and twenty-first century dates.
As a result, many companies' software and computer systems may need to be
upgraded or replaced to comply with these "Year 2000" requirements. Qorus'
business is dependent upon the operation of numerous systems that could
potentially be impacted by Year 2000 related problems.
The third-party vendor upon which we materially rely is Tornado
Development, which provides the software on which our service is based. Tornado
Development has responded to our inquiries into its Year 2000 readiness. Tornado
Development has warranted to Qorus that the unified messaging and related
software provided by Tornado Development is Year 2000 compliant. To our
knowledge, our other key vendors, distributors and suppliers are Year 2000
compliant.
Qorus has also conducted an internal assessment of all material information
technology and non-information technology systems at our headquarters for Year
2000 compliance. Our internal assessment involved the analysis of both mission
critical and non-critical systems. The assessment of all mission critical and
non-critical systems is complete and we believe all such systems are Year 2000
compliant. However, due to the complex nature of our services and the fact that
our systems are interconnected with other carriers and suppliers, both domestic
and international, Qorus is unable to guarantee Year 2000 compliance or provide
Year 2000 warranties.
To date, we have not incurred and do not expect to incur any material costs
in identifying or evaluating Year 2000 compliance issues. Most of our expenses
have related to, and are expected to continue to relate to, the upgrades or
replacements, when necessary, of software or hardware, as well as costs
associated with time spent by employees in the evaluation process and Year 2000
compliance matters generally. These expenses are not expected to be material to
our financial position or results of operation. These expenses, however, if
higher than anticipated, could have a material and adverse effect on our
business, results of operations and financial condition.
Based upon the Year 2000 disclosure statements that we have received from
Tornado Development there can be no assurance that we will not discover Year
2000 compliance problems in our systems that will require substantial revisions
or replacements. In the event that the operational facilities are not Year 2000
compliant, we may be unable to deliver services to our customers. In addition,
there can be no assurance that third-party software, hardware or services
incorporated into our material systems, especially of those vendors that have
indicated that they cannot assure Year 2000 compliance, will not need to be
revised or replaced, which could be time-consuming and expensive. Our inability
to fix or replace third-party software, hardware or services on a timely basis
could result in lost revenues, increased operating costs and other business
interruptions, any of which could have a material adverse effect on our
business, results of operations and financial condition. Moreover, the failure
to address Year 2000 compliance issues in our software, hardware or systems
adequately could result in claims of mismanagement, misrepresentation or breach
of contract and related litigation, which could be costly and time-consuming to
defend.
In addition, there can be no assurance that governmental agencies, utility
companies, Internet access companies and others outside our control will be Year
2000 compliant. The failure by these entities to be Year 2000 compliant could
result in a systemic failure beyond our control, including, for example, a
prolonged Internet, telecommunications or electrical failure, which could also
prevent us from delivering our services to our users, decrease the use of the
Internet or prevent users from accessing our services, any of which would have a
material adverse effect on our business, results of operations and financial
condition.
Currently, we do not have a contingency plan to deal with the worst case
scenario that might occur if technologies on which we depend are not Year 2000
compliant and fail to operate effectively after the Year 2000. The results of
our Year 2000 compliance evaluation and the responses received from
distributors, suppliers and other third parties with which we conduct business,
especially of those vendors that have indicated that they cannot assure Year
2000 compliance, will be taken into account in determining the need for and
nature and extent of any contingency plans.
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If our present efforts to address the Year 2000 compliance issues discussed
above are not successful, or if distributors, suppliers and other third parties
with which we conduct business do not successfully address such issues, our
users could seek alternate suppliers of our products and services. Any material
Year 2000 problem could require us to incur significant unanticipated expenses
to remedy and could divert our management's time and attention, either of which
could have a material adverse effect on our business, operating results and
financial condition.
To date, none of our or Tornado Development's mission critical systems has
experienced any Year 2000 problems.
Government Regulation
There are presently few laws and regulations that apply specifically to
access to, or commerce on, the Internet. Due to the increasing popularity and
use of the Internet, however, it is possible that laws and regulations with
respect to the Internet may be adopted at federal, state, provincial and even
local levels, covering issues such as user privacy, freedom of expression,
pricing, characteristics and quality of products and services, taxation,
advertising, intellectual property rights, information security and the
convergence of traditional telecommunications services with Internet
communications. Such future regulations may have a material adverse effect on
Qorus and its business.
Although sections of the U.S. Communications Decency Act of 1996 that,
among other things, proposed to impose criminal penalties on anyone distributing
"indecent" material to minors over the Internet were held to be unconstitutional
by the U.S. Supreme Court, similar laws may be proposed, adopted and upheld in
the U.S. or other jurisdiction. The nature of future legislation and the manner
in which it may be interpreted and enforced cannot be fully determined and,
therefore, legislation similar to the Communications Decency Act could subject
Qorus or its customers to potential liability, which in turn could have a
material adverse effect on our business, results of operations and financial
condition.
The adoption of any such laws or regulations might decrease the growth of
the Internet, which in turn could decrease the demand for the services of Qorus
or increase the cost of doing business or in some other manner have a material
adverse effect on our business, results of operations and financial condition.
In addition, applicability to the Internet of existing laws governing
issues such as property ownership, copyright and other intellectual property
issues, taxation, libel, obscenity and personal privacy is uncertain. The vast
majority of such laws were adopted prior to the advent of the Internet and
related technologies and, as a result, do not contemplate or address the unique
issues of the Internet and related technologies. Changes to such laws intended
to address these issues could create uncertainty in the marketplace that could
reduce demand for the services of Qorus or increase the cost of doing business
as a result of costs of litigation or increased service delivery costs, or could
in some other manner have a material adverse effect on our business, results of
operations and financial condition.
Qorus is not currently subject to direct regulation by the Federal
Communications Commission or any other governmental agency, other than
regulations applicable to businesses in general. However, in the future, we may
become subject to regulation by the FCC or another regulatory agency. Our
business could suffer depending on the extent to which our activities are
regulated or proposed to be regulated.
The growth of the Internet, coupled with publicity regarding Internet
fraud, may lead to the enactment of more stringent consumer protection laws. If
Qorus becomes subject to claims that we have violated any laws, even if we
successfully defend against these claims, our business could suffer. Moreover,
new laws that impose restrictions on our ability to follow current business
practices or increase our costs of doing business could hurt our business.
Employees
As of March 27, 2000, we employed twelve people, five of whom are engaged
in marketing and sales, five in customer service and operations, and two in
management and administration. Our employees are not represented by a collective
bargaining unit. We consider relations with our employees to be good.
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<PAGE> 11
Risk Factors
In addition to the other information set forth elsewhere in this
registration statement, you should carefully consider the following risk factors
in evaluating the merits of an investment in Qorus.
WE ARE IN THE INITIAL STAGES OF MARKETING OUR PRODUCT AND HAVE HAD MINIMAL
REVENUES. OUR FAILURE TO GENERATE REVENUE IN THE FUTURE WOULD MATERIALLY
ADVERSELY AFFECT OUR ABILITY TO CONTINUE AS A GOING CONCERN.
Qorus began its present business in early 1999 and, as of the date of this
registration statement, has not generated significant revenue. Qorus'
independent auditors included an explanatory paragraph in their report for the
period ended September 30, 1999, which indicated a substantial doubt as to the
ability of Qorus to continue as a going concern.
WE MAY NEED SUBSTANTIAL ADDITIONAL FINANCING TO CONTINUE AS A GOING CONCERN. WE
HAVE NO PRESENT COMMITMENTS TO OBTAIN LONG-TERM FINANCING.
Interim financing in the form of a loan in the aggregate amount of
$1,500,000 from Thurston Interests, L.L.C., Apex Investment Fund III and Apex
Strategic Partners will provide us with sufficient operating capital on a
short-term basis. We have retained the Thurston Group to assist us in locating
and securing permanent financing. Our failure to obtain substantial additional
financing would materially adversely affect our ability to implement our
business plan and to develop our services and products.
THE MARKET FOR UNIFIED MESSAGING SERVICES IS IN THE EARLY STAGE OF DEVELOPMENT.
IF THE MARKET FOR UNIFIED MESSAGING SERVICES FAILS TO DEVELOP, OR DEVELOPS MORE
SLOWLY THAN ANTICIPATED, OUR FUTURE RESULTS OF OPERATIONS WILL BE MATERIALLY
ADVERSELY AFFECTED.
Qorus' services are designed as an electronic messaging system which
affords effective and efficient communication among e-mail, fax, pager and voice
mediums, via the Internet or over the phone. The market for Qorus' services is
at an early stage of development, is rapidly evolving and is characterized by an
increasing number and size of market entrants who have introduced or are
developing competing products or services. Demand and market acceptance for
recently introduced services is subject to a high level of uncertainty. There
can be no assurance that unified messaging related products and services
developed by others will not adversely affect our competitive position or render
our services noncompetitive.
OUR BUSINESS IS DEPENDENT ON THE FUTURE SUCCESS OF THE INTERNET.
We are dependent on the future success of the Internet and whether it
continues to grow and be utilized as a communications medium. If consumers lack
confidence in utilizing Internet based services, because of inadequate
development of the necessary infrastructure or as a result of security issues,
and the Internet does not become or continue as a viable communication medium,
our business, operating results and financial condition will be materially
adversely affected.
WE FACE SUBSTANTIAL COMPETITION IN THE TELECOMMUNICATIONS INDUSTRY, AND MANY OF
OUR COMPETITORS ARE LARGER AND HAVE MORE RESOURCES THAN WE HAVE. OUR FAILURE TO
COMPETE SUCCESSFULLY WITH EXISTING OR FUTURE COMPETITORS WOULD MATERIALLY
ADVERSELY AFFECT OUR FUTURE RESULTS OF OPERATIONS.
The market for our services is extremely competitive, subject to rapid
change and characterized by constant demand for new features, new enhancements,
and lower prices. Possible competitors range from small companies with limited
resources to very large companies with substantially greater financial,
technical, managerial, and marketing resources. Competitors may be able to
develop and offer products and services that are comparable or superior to those
offered by Qorus or adapt more quickly than Qorus to new technologies or
evolving customer requirements.
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<PAGE> 12
FUTURE REGULATION OF THE INTERNET OR E-COMMERCE BY VARIOUS GOVERNMENT
AUTHORITIES COULD ADVERSELY AFFECT OUR BUSINESS AND FINANCIAL RESULTS.
Only a small body of laws and regulations currently apply specifically to
content of, access to, or commerce on, the Internet. However, laws and
regulations with respect to the Internet may be adopted by governments in any of
the jurisdictions in which Qorus can sell its services and products, covering
issues such as user privacy, freedom of expression, pricing, characteristics and
quality of products and services, taxation, advertising, intellectual property
rights, information security and the convergence of traditional
telecommunications services with Internet communications. To the extent the
adoption of such laws and regulations increases our costs or expenses or
decreases the demand for our services and products, our business and financial
results would be adversely affected.
A SIGNIFICANT PERCENTAGE OF OUR OUTSTANDING COMMON STOCK IS CONTROLLED BY
INSIDERS. THEREFORE, CURRENT MANAGEMENT CAN CONTINUE TO GOVERN THE COMPANY AND
MAY DETER A CHANGE IN CONTROL WHICH COULD BE BENEFICIAL TO OTHER STOCKHOLDERS.
Qorus' executive officers and directors, in the aggregate, beneficially own
approximately 51.27% of Qorus' outstanding common stock. As a result, such
persons would, if they were to act together, have the ability to control most
matters submitted to stockholders of Qorus for approval, including the election
and removal of directors, and to control the management and affairs of Qorus.
Accordingly, such concentration of ownership may have the effect of delaying,
deferring or preventing a change in control of Qorus, impeding a merger,
consolidation, takeover or other business combination involving Qorus or
discouraging a potential acquirer from making a tender offer or otherwise
attempting to obtain control of Qorus, which in turn could have a material
adverse effect on Qorus' market value.
OUR COMMON STOCK TRADES ONLY SPORADICALLY AND HAS EXPERIENCED IN THE PAST, AND
IS EXPECTED TO EXPERIENCE IN THE FUTURE, SIGNIFICANT PRICE AND VOLUME
VOLATILITY, WHICH SUBSTANTIALLY INCREASES THE RISK OF LOSS TO PERSONS OWNING OUR
COMMON STOCK.
Because of the limited trading market for our common stock, and because of
the possible price volatility, a holder of our shares may not be able to
purchase or sell shares of our common stock when he or she desires to do so. The
inability to sell your shares in a rapidly declining market may substantially
increase an investor's risk of loss because of such illiquidity and because the
price for our common stock may suffer greater declines because of its price
volatility.
OUR STOCK NO LONGER IS ELIGIBLE FOR TRADING ON THE OTC BULLETIN BOARD, AND THERE
CAN BE NO ASSURANCE THAT OUR STOCK WILL BE TRADED ON THE OTC BULLETIN BOARD IN
THE FUTURE.
On December 1, 1999, our stock became ineligible for trading on the OTCBB
because of our failure to comply with the NASD's eligibility rule. Even if our
stock once again becomes eligible for trading on the OTCBB, there is no
assurance that any market maker will take the actions necessary for our stock to
resume trading.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Qorus records as revenue the service fee charged for software engineering
required to customize the product for specific electronic messaging applications
beyond its core unified messaging product. Qorus intends to record as revenue
the service fee charged to customers using the unified messaging service and
other enhanced business services as they are offered by Qorus. Although revenues
generated from system engineering accounted for 100% of revenues for the period
ended September 30, 1999, Qorus anticipates that the recurring revenues
generated from the messaging services and other enhanced business services will
eventually become the larger source of future revenues for its unified messaging
service segment.
Qorus' revenue to date is from one customer, Moore Business Systems, who
has paid for services related to customizing the service offering of Qorus with
the intent of providing the service to its customers. Revenue through September
30, 1999 is $62,000. Qorus received additional revenue of $43,775 from Moore
from
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<PAGE> 13
October 1, 1999 to December 31, 1999. In February 2000, Qorus began earning
revenue from Moore related to the provision of messaging services.
In connection with the agreement with Moore Business Communications
Services, we entered into a Commission Agreement with NetDox to compensate
NetDox for its efforts in securing this contract. Under the Commission
Agreement, NetDox will be entitled to a commission in the amount of 20% of all
gross revenues (excluding development fees or other non-recurring revenues)
received by us under the Master Agreement with Moore Business Communications
Services. To date, we have paid no commissions to NetDox pursuant to the
Commission Agreement.
Inasmuch as Qorus will continue to have a high level of operating expenses,
Qorus will continue to be required to make certain up-front expenditures in
connection with its system engineering efforts to prepare the messaging service
for each customer's service launch. It will also incur up-front expenses to
continue its sales and marketing effort. Qorus anticipates that losses will
continue for the foreseeable future.
Qorus also has agreements with two telecommunications companies and one
Internet service provider, all three of which intend to use the Qorus service to
provide unified messaging to their customers. Qorus expects to receive revenue
from the two telecommunications companies in the second quarter of 2000 and also
expects to receive revenues from the ISP in the third quarter of 2000. Qorus'
expenses have exceeded net revenues since inception. For the period ended
September 30, 1999, Qorus sustained net losses of $1,857,755. Qorus expects to
sustain net losses of approximately $3,000,000 for the year ended December 31,
1999.
PLAN OF OPERATION FOR NEXT 12 MONTHS
Qorus' capital requirements have been and will continue to be significant,
and its cash requirements have exceeded cash flow from operations since
inception. As a result, Qorus was substantially dependent on the proceeds of its
earlier private placement of debt and equity securities to satisfy its working
capital requirements. Qorus will be dependent upon the proceeds of future
private placement offerings to satisfy working capital requirements, to fund
certain marketing activities and to continue implementing our expansion
strategy.
To fund immediate cash requirements, Qorus has executed and delivered to
each of Thurston Interests, L.L.C., Apex Investment Fund III and Apex Strategic
Partners promissory notes in the aggregate amount of $1,500,000. After deducting
fees owed to the Thurston Group in connection with this financing, net funds
available for operations will be approximately $1,380,000. The notes bear
interest at 10% and are due on the earlier to occur of (i) September 27, 2000 or
(ii) the date of closing of the next equity or quasi-equity financing of Qorus,
or any of its subsidiaries. Upon the closing of an offering by Qorus of shares
of its preferred stock resulting in cash proceeds of $5,000,000 or more, the
notes will automatically convert into shares of the same series of preferred
stock as sold in such private sale.
Qorus believes that this money will satisfy the cash requirements of Qorus
until additional funds are raised. Qorus intends to raise additional funds for
operations through a private placement offering of between $5 million to $10
million. Qorus is in the preliminary stages of organizing such an offering and
expects to complete the offering in the third or fourth quarter 2000.
Qorus believes, based on current proposed plans and assumptions relating to
its operations, that this private placement, together with anticipated revenues
from operations, will be sufficient to fund Qorus' operations and working
capital requirements over the next 12 months. In the event that Qorus' plans or
assumptions relating to its operations change or prove to be inaccurate, or if
the net proceeds of future private placements together with revenues generated
from operations prove to be insufficient (due to, among other things,
unanticipated expenses, increased competition, unfavorable general economic
conditions, inability to successfully market Qorus' messaging services, or other
unforeseen circumstances), Qorus could be required to seek other less desirable
alternatives. There can be no assurance that additional financing from any
source will be available to Qorus when needed, on commercially reasonable terms,
or at all. Qorus is dependent upon the Thurston Group to raise sufficient funds
for Qorus to meet its cash requirements. Should additional cash
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<PAGE> 14
be required prior to completion of a private placement, Qorus is dependent upon
Thurston Group and its affiliates to provide additional cash on commercially
reasonable terms.
Qorus intends to generate revenues from its existing four customers that
signed contracts with it in 1999 but have not yet begun offering Qorus' unified
messaging service. As of February 2000, Moore Business Systems began offering
Qorus' messaging service and we began earning revenues from Moore for such
services. We anticipate that both Alpha Telecom and C2C Communications will also
begin to offer our unified messaging service by the second quarter of 2000. We
anticipate that our fourth customer, CyberGate, will begin offering our unified
messaging service no later than the third quarter of 2000. To achieve these
commencement dates, Qorus has assigned full-time account managers to each of the
customers to assist them with the successful commercial offering of our unified
messaging service.
Qorus intends to focus on signing contracts with new customers such as
Internet service providers, competitive local exchange carriers, paging
companies and mobile telephone carriers who will in turn market our unified
messaging service to their customers. To accomplish this, Qorus will market its
service in two ways. First, by establishing a direct sales force that will call
upon, sell and service these potential telecommunications and Internet
companies. The second way we will reach these potential customers is through
co-marketing programs with hardware and software companies that currently offer
complementary products to the same market. These co-marketing partners will
provide sales leads to the direct sales force. Initially, Qorus will focus on
the United States market for unified messaging services, but plans to expand
upon its market by pursuing international telecommunications and Internet
service providers by the end of the second quarter of 2000.
The third component of our operational plan for the next 12 months
encompasses expanding our services to our target markets. Qorus intends to begin
offering to its customers telephone service capabilities using the Internet.
This will be a key product addition to our unified messaging service as it will
generate revenues from new services. As part of this service, Qorus will offer
billing services, settlement services and customer relationship management
services. These are the basic services necessary for an Internet service
provider to expand into telephone services using the Internet. Combined with
these basic telephone services, Qorus will offer new enhanced services such as
"find-me-follow-me" service, conference calling, fax services using the Internet
and advanced document delivery services.
We believe that cash from operations along with the proceeds from private
placement offerings will be sufficient to provide working capital to operate
Qorus for the next 12 months.
RESULTS OF OPERATIONS
Selected financial data with respect to the interim nine-month period ended
September 30, 1999 is set forth below.
QORUS.COM, INC.
<TABLE>
<CAPTION>
BALANCE SHEET DATA SEPTEMBER 30, 1999
------------------ ------------------
<S> <C>
Cash and cash equivalents................................... $ 32,332
Total assets................................................ 3,535,510
Notes payable to related parties............................ 500,000
Total liabilities........................................... 1,527,480
Accumulated deficit......................................... (2,066,375)
Total stockholders' equity (deficit)........................ 2,008,030
</TABLE>
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<PAGE> 15
QORUS.COM, INC.
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS DATA SEPTEMBER 30, 1999
---------------------------- ------------------
<S> <C>
Revenues.................................................... $ 62,000
Total costs and expenses.................................... 1,985,362
Loss from operations........................................ (1,923,362)
Other income (expense), net................................. 65,607
Net Loss.................................................... $(1,857,755)
Basic loss per share........................................ $ (0.24)
Shares used in computing basic loss per share............... 7,781,490
</TABLE>
During the nine months ended September 30, 1999, Qorus incurred significant
expenses. The majority of these expenses are salaries and professional fees.
Salaries and wages for the period approximate $413,000. Professional fees
included $203,000 for marketing consultants and legal services totaling
$263,000. Management expects to continue incurring significant professional fees
for additional capital requirements, marketing and legal services. Interest
income of approximately $93,000 was related to a note receivable from a related
party and from cash and cash equivalents. Interest expense of $28,000 was
attributable to notes payable to related parties.
As a result of the foregoing, net losses for the period ended September 30,
1999 were $1,857,755.
LIQUIDITY AND CAPITAL RESOURCES
Qorus' capital requirements have been and will continue to be significant
and its cash requirements have been exceeding its cash flow from operations. At
September 30, 1999, Qorus had working capital of $829,553 and unrestricted cash
and cash equivalents of $32,332. Since inception, Qorus has satisfied its
working capital requirements through limited cash flow generated from
operations, the issuance of equity and debt securities, and loans from
stockholders and related parties. Net cash used in operating activities was
$1,427,944 for the period ended September 30, 1999, primarily as a result of
significant operating losses. Qorus also prepaid approximately $220,000 for
software license fees.
Net cash used by investing activities was $776,625 for the period ended
September 30, 1999. $1,018,752 was used for an investment in Tornado Development
and $107,884 for the purchase of equipment. Financing activities provided
$2,236,901 in cash. Issuance of common stock and capital contributions accounted
for $3,865,774 of the cash provided. In addition, Qorus borrowed approximately
$500,000 from Thurston Bridge Fund II, a related party and accrued certain
software license expenses to Tornado Development, a related party, amounting to
$432,222. Qorus also loaned NetDox, a related party, $2,370,346 in exchange for
a note receivable which accrues interest at 10% per annum. The note receivable
was paid in full in the fourth quarter of 1999.
In addition to the $500,000 borrowed from the Thurston Bridge Fund II and
the software license expenses to Tornado Development, both of which were paid in
full in the fourth quarter of 1999. Qorus has operating leases payable to a
third-party leasing company. One such lease is for the telephone-related
equipment necessary to operate the unified messaging service. This 36-month
operating lease which began in July 1999 and ends June 2002 requires a monthly
payment of $6,842 plus appropriate taxes. The other operating leases are for
computer equipment necessary to operating the messaging systems. These two
simultaneous 18-month operating leases began September 1999 and end February
2001 and require a total monthly payment of $21,806 plus appropriate taxes.
Qorus also has a property lease for its executive offices in Los Angeles,
California. This lease expires June 15, 2002. Monthly rental is $3,714. In
addition, Qorus entered into a 6-month lease for additional office
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<PAGE> 16
space in Fairfax, Virginia. This lease expires June 30, 2000. Monthly rental is
approximately $7,000 and includes furniture and some office services. Future
minimum payments under the leases are as follows:
<TABLE>
<CAPTION>
CALENDAR
YEAR ENDED
- ----------------------------------------------------------
<S> <C>
1999.................................................... $104,867
2000.................................................... 434,904
2001.................................................... 180,654
2002.................................................... 70,414
--------
Total.............................................. $790,839
</TABLE>
Qorus had approximately $32,000 in cash and cash equivalents remaining as
of September 30, 1999. In the time period between September 30, 1999 and
December 31, 1999, Qorus has transferred $500,000 worth of its investment in
Tornado Development stock back to Tornado Development in exchange for a
reduction in the accrued expenses owed by $432,222 and a credit against future
expenses of $67,778. In addition, Qorus has received $555,000 in payments
relating to its note receivable. On or about December 31, 1999, as part of the
rescission agreement with NetDox, Inc., NetDox paid the total amount due on its
note to Qorus and Qorus paid the total amount due on its note to Thurston Bridge
Fund II. This resulted in approximately $950,000 net cash to Qorus. Qorus
intends to use this money to pay accrued expenses, current payroll and operating
expenses.
GOING CONCERN
Qorus has had minimal revenues and incurred losses from operations since
inception. Qorus' independent auditors included an explanatory paragraph in
their report for the period ended September 30, 1999, which indicated a
substantial doubt as to the ability of Qorus to continue as a going concern.
YEAR 2000 EFFECT
Qorus, like most other companies, is faced with the Year 2000 issue. The
Year 2000 issue has developed because some computer programs were written using
a two-digit field rather than a four-digit field to define the applicable year.
As a result any computer program that affects Qorus' activities may recognize a
date using "00" as the year 1900 rather than the year 2000. This could result in
a variety of problems depending upon the system(s) affected. Potential problems
include temporary inability to process transactions, transfer funds, or engage
in similar business activities. The potential problems associated with the Year
2000 issue may cause widespread disruption of business worldwide because of the
interdependence on computer and communication systems. Qorus has completed an
initial assessment of potential Year 2000 issues for its own computer systems
and business processes. Based upon this assessment, Qorus believes its computer
software, hardware, and the embedded technologies will present limited Year 2000
issues. Additionally, Qorus has assurances from its software providers that the
software used to provide the unified messaging services is not expected to incur
any material problems with the Year 2000 change. Qorus has not been able to
completely evaluate whether the software, hardware and embedded technologies
used by the third parties, with whom it conducts business, are Year 2000
compliant. If third parties fail to address Year 2000 issues, then Qorus may
experience business interruptions, and in a worst case scenario, the inability
to engage in the normal course of business. The effect of such related
difficulties could have a materially adverse impact on the financial condition
of Qorus. Qorus does not believe that any material expenditure will be required
to complete its internal assessment regarding this issue. Qorus does recognize
the need for Year 2000 contingency plans because of the uncertainty associated
with this global issue. Furthermore, Qorus believes that it will not be able to
require the third parties or governmental agencies with which it conducts
business to resolve all Year 2000 issues. Qorus has not developed comprehensive
contingency plans that will assure that it will not be adversely impacted by the
effect of the Year 2000 issue. Qorus does not intend to prepare such plans. To
date, Qorus has experienced no problems related to the Year 2000 issue.
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<PAGE> 17
IMPACT OF ACCOUNTING STANDARDS
New Accounting Standards Statements of Financial Accounting Standards No.
130, "Reporting Comprehensive Income" (SFAS No. 130) issued by the FASB is
effective for financial statements with fiscal years beginning after December
15, 1997. Earlier application is permitted. SFAS No. 130 establishes standards
for reporting and display of comprehensive income and its components in a full
set of general purpose financial statements. There was no effect on Qorus'
financial position or results of operations from the adoption of this statement.
Statements of Financial Accounting Standards No. 131, "Disclosure about
Segments of an Enterprise and Related Information" (SFAS No. 131) issued by the
FASB is effective for financial statements beginning after December 15, 1997.
The new standard requires that public business enterprises report certain
information about operation segments in complete sets of financial statements of
the enterprise and in condensed financial statements of interim periods issued
to shareholders. It also requires that public business enterprises report
certain information about their products and services, the geographic areas in
which they operate and their major customers. The adoption of SFAS No. 131 had
no material effect, on Qorus' results of operations.
ITEM 3. DESCRIPTION OF PROPERTY
Our executive offices are located at 11350 Random Hills Road, Suite 650,
Fairfax, Virginia. We have entered into a short term lease for this business
office suite and are currently seeking to relocate our Virginia executive
offices to a permanent location. We believe that sufficient office space will be
available on commercially reasonable terms.
Our operations are located at 9800 South Sepulveda Boulevard, Suite 318,
Los Angeles, California. The lease, with a non-affiliated third party, expires
June 15, 2002. Monthly rental is $3,714.
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<PAGE> 18
ITEM 4.SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
We have set forth in the following table certain information regarding our
common stock beneficially owned on March 27, 2000 for (i) each shareholder we
know to be the beneficial owner of 5% or more of our outstanding common stock,
(ii) each of our executive officers and directors, and (iii) all executive
officers and directors as a group. In general, a person is deemed to be a
"beneficial owner" of a security if that person has or shares the power to vote
or direct the voting of such security, or the power to dispose or to direct the
disposition of such security. A person is also deemed to be a beneficial owner
of any securities of which the person has the right to acquire beneficial
ownership within 60 days. At March 27, 2000, 12,874,407 shares of our common
stock were outstanding.
<TABLE>
<CAPTION>
AMOUNT OF PERCENT
NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP OF CLASS(1)
- ------------------------------------ -------------------- -----------
<S> <C> <C>
Thurston Interests LLC.................................... 3,570,987(2) 27.74%
190 South LaSalle Street
Suite 1710
Chicago, IL 60603
Apex Investment Fund III.................................. 2,345,097 18.22%
233 S. Wacker Dr.
Suite 9500
Chicago, IL 60606
Thomson Kernaghan & Co., Ltd. ............................ 1,420,000 11.03%
365 Bay Street
Toronto, ON
M5H2V2 Canada
Spear Leeds & Kellogg..................................... 869,019 6.75%
120 Broadway
New York, NY 10271
Patrick J. Haynes, III.................................... 3,689,620(3) 28.44%
190 South LaSalle St.
Suite 1710
Chicago, IL 60603
James W. Blaisdell........................................ 339,250(4) 2.57%
11350 Random Hills Road
Suite 650
Fairfax, Virginia 22030
Jack N. Woodruff.......................................... 108,333(5) *
9800 South Sepulveda Blvd.
Los Angeles, CA 90045
George M. Middlemas....................................... 2,606,699(6) 20.09%
233 S. Wacker Dr.
Suite 9500
Chicago, IL 60603
William G. Salatich....................................... 158,259(7) 1.22%
77 Brandon Road
Northfield, IL 60093
Robert T. Isham, Jr. ..................................... 579,845(8) 4.47%
190 South LaSalle St.
Suite 1710
Chicago, IL 60603
All Executive Officers and Directors as a group........... 7,035,034(9) 51.27%
</TABLE>
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<PAGE> 19
- ---------------
(1) An asterisk in this column means the person beneficially owns less than one
percent (1%) of the class.
(2) Includes 89,682 shares held of record by Thurston Capital, LLC, 247,037
shares held of record by Thurston Group, Inc., 105,253 shares held of record
by Thurston Offshore Bridge Partners II, Ltd. and 5,000 shares held of
record by Southern European Communications Corp.
(3) Includes 3,124,015 shares held of record by Thurston Interests, LLC, 18,633
shares held of record by Haynes Interests, LLC, 89,682 shares held of record
by Thurston Capital, LLC, 247,037 shares held of record by Thurston Group,
Inc., 105,253 shares held of record by Thurston Offshore Bridge Partners II,
Ltd., 5,000 shares held of record by Southern European Communications Corp.
and 100,000 shares issuable upon the exercise of options within 60 days.
(4) Includes 339,250 shares issuable upon the exercise of options within 60
days.
(5) Includes 108,333 shares issuable upon the exercise of options within 60
days.
(6) Includes 2,345,097 shares held of record by Apex Investment Fund III,
155,331 shares held of record by Apex Strategic Partners and 100,000 shares
issuable upon the exercise of options within 60 days.
(7) Includes 100,000 shares issuable upon the exercise of options within 60
days.
(8) Includes 89,682 shares held of record by Thurston Capital, LLC, 247,037
shares held of record by Thurston Group, Inc., 105,253 shares held of record
by Thurston Offshore Bridge Partners II, Ltd., 5,000 shares held of record
by Southern European Communications Corp., 32,873 shares held of record by
Robert T. Isham, Jr. Trust and 100,000 shares issuable upon the exercise of
options within 60 days.
(9) Includes 847,583 shares issuable upon the exercise of options within 60
days.
ITEM 5. DIRECTORS AND EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
The following table sets forth the names, positions and ages of our
executive officers and directors. All of our directors serve until the next
annual meeting of stockholders or until their successors are elected and
qualify. Officers are elected by the board of directors and their terms of
office are, except to the extent governed by employment contract, at the
discretion of the board of directors. There is no family relationship between
any director, executive officer or person nominated or chosen by Qorus to become
a director or executive officer.
<TABLE>
<CAPTION>
NAME AGE POSITION HELD SINCE
- ---- --- -------- ----------
<S> <C> <C> <C>
Patrick J. Haynes, III............ 50 Senior Chairman and Chairman of 1999
the Executive Committee
James W. Blaisdell................ 44 Executive Chairman and Chief 2000
Executive Officer
George M. Middlemas............... 53 Director 1999
William Salatich.................. 77 Director 1999
Robert T. Isham, Jr. ............. 47 Director 1999
Jack N. Woodruff.................. 42 Chief Financial Officer 1999
</TABLE>
Patrick J. Haynes, III, Senior Chairman and Chairman of the Executive
Committee, is the co-founder and Senior Managing Director of Thurston Group,
Inc., a private merchant bank in Chicago. Mr. Haynes has held his position with
Thurston Group, Inc. since 1988. In 1992, Mr. Haynes founded e.spire
Communications (formerly American Communications) and held the position of
President until 1993. Mr. Haynes currently serves as Chairman of Avery
Communications, Inc., a position he has held since 1995. Prior to 1988, Mr.
Haynes was associated with Merrill Lynch & Company, Oppenheimer & Company and
Lehman Brothers, Inc. as an investment banker.
James W. Blaisdell, Executive Chairman and Chief Executive Officer, joined
Qorus in March 2000. Prior to joining Qorus, Mr. Blaisdell was President and
Chief Executive Officer of PSINet Canada. From 1997 to 1999, Mr. Blaisdell
served as Vice President of Global Marketing for Iridium LLC, based in Washing-
19
<PAGE> 20
ton, D.C. Mr. Blaisdell was Executive Director for USWEST International from
1992 to 1997, responsible for implementing joint ventures throughout Europe.
Prior to 1992, Mr. Blaisdell served USWEST in various senior level operation and
marketing capacities.
George M. Middlemas, Director, is a general partner of APEX Management,
L.P., which is the General Partner of the venture capital funds Apex Investment
Fund II, L.P. and Apex Investment Fund Limited Partnership. Mr. Middlemas has
held this position since January 1992. From March 1991 to December 1991, Mr.
Middlemas acted as an independent consultant providing fund raising and other
advisory services. From 1985 until March 1991, Mr. Middlemas was a senior Vice
President and Principal of Inco Venture Capital Management, a venture capital
firm. He also serves on the Board of Directors of PureCycle Corporation,
Security Dynamics Technologies, Inc., Tut Systems, Online Resources &
Communications and several privately held companies.
William Salatich, Director, was President of Gillette North America and
Vice Chairman of the Gillette Company from 1970 to 1979, and was associated with
Gillette for 33 years. Mr. Salatich is currently retired. He has served on the
Board of Directors of the Gillette Co., Motorola, Eastern Enterprises, New
England Merchants Bank of Boston, Digivision Corporation, Forsythe-McArthur and
e.spire Communications. Mr. Salatich is a member of the America Society of
Corporate Executives. Mr. Salatich was the recipient of the Citation of Merit
from the National Conference of Christians and Jews and is a Horatio Alger
awardee.
Robert T. Isham, Jr., Director, is a Managing Director of the Thurston
Group, a private merchant bank in Chicago, a position he has held since 1997.
From 1993 to 1996, Mr. Isham ran his own commercial law practice, concentrating
on bankruptcy, workout, debtor-creditor relations and futures, commodities and
securities law. Previously, he was a partner at McDermott, Will & Emery in
Chicago. Mr. Isham is a Director of Avery Communications, Inc.
Jack N. Woodruff, Chief Financial Officer, joined Qorus in March 1999.
Prior to joining Qorus, Mr. Woodruff was a founder and Chief Financial Officer
of National Data Cabling, Inc., a national provider of data cabling services for
high-speed network infrastructures, from January 1998 to March 1999. From March
1992 to December 1997, Mr. Woodruff served as Corporate Controller and then
Treasurer for Kinko's, Inc., an international chain of 1000 copy stores. Prior
to Kinko's, Mr. Woodruff served four years at Print Technology, from 1988 to
1992, first as Director of Strategic Planning, then as Director of Finance and
Director of Field Operations. From 1985 to 1988, Mr. Woodruff served as Vice
President Finance at Motivational Media, a production company specializing in
media events for education and business. Mr. Woodruff began his career at UCLA
Center for the Health Sciences from 1980 to 1985 as Senior Administrative
Analyst and then as Assistant Director.
Qorus is controlled by Thurston Group, its affiliates and Patrick J.
Haynes, the founders of Qorus Delaware. For a description of these entities,
please see the information under the caption "Our Parents and Affiliates" in
Item 1. Description of Business.
20
<PAGE> 21
ITEM 6. EXECUTIVE COMPENSATION
Qorus has terminated the employment of Messrs. Sohn and Burton. Mr. Sohn
will continue to be paid his base salary through May 2000 in accordance with his
employment agreement. On March 1, 2000, Qorus entered into an employment
agreement with James W. Blaisdell pursuant to which Mr. Blaisdell serves as our
Executive Chairman and Chief Executive Officer. A description of Mr. Blaisdell's
employment agreement appears below under the caption "Executive Employment
Agreements."
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL LONG TERM COMPENSATION
NAME AND COMPENSATION SECURITIES UNDERLYING
PRINCIPAL POSITION YEAR SALARY OPTIONS
- ------------------ ---- ------------ ----------------------
<S> <C> <C> <C>
Michael D. Sohn(1).......................... 1999 $164,167 500,000
Chief Executive Officer
Richard E. Burton(2)........................ 1999 $123,125 300,000
President
</TABLE>
- -------------------------
(1) Mr. Sohn's employment with Qorus will terminate on May 31, 2000, after which
time Mr. Sohn will forfeit his rights with respect to the unvested 66,668
shares under these options.
(2) Mr. Burton's employment with Qorus was terminated effective as of March 1,
2000, at which time Mr. Burton forfeited his rights with respect to the
unvested 250,000 shares under these options.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
NUMBER OF PERCENT OF TOTAL
SECURITIES OPTIONS
UNDERLYING GRANTED EXERCISE
OPTIONS/SARS TO EMPLOYEES PRICE EXPIRATION
NAME GRANTED IN FISCAL YEAR ($/SHARE) DATE
- ---- ------------ ---------------- --------- ---------------
<S> <C> <C> <C> <C>
Michael D. Sohn(1)............... 500,000 33.22% $1.00 May 23, 2004
Richard E. Burton(2)............. 300,000 19.93% $1.00 May 23, 2004
</TABLE>
- -------------------------
(1) Mr. Sohn's employment with Qorus will terminate on May 31, 2000, after which
time Mr. Sohn will forfeit his rights with respect to the unvested 66,668
shares under these options.
(2) Mr. Burton's employment with Qorus was terminated effective as of March 1,
2000, at which time Mr. Burton forfeited his rights with respect to the
unvested 250,000 shares under these options.
STOCK OPTION PLAN
In May 1999 our board of directors adopted our 1999 stock option plan as a
means of attracting and retaining superior personnel for positions of
substantial responsibility with Qorus and to provide directors, officers,
employees and consultants with an additional incentive to contribute to the
success of Qorus.
Under the plan, we have reserved an aggregate of 2,000,000 shares of common
stock for issuance pursuant to options. Our board of directors or a committee of
our board of directors will administer the plan, including the selection of the
persons who will be granted options under the plan, the type of options to be
granted, the number of shares subject to each option and the option price.
21
<PAGE> 22
OPTION GRANTS
The following table sets forth information with respect to all options to
purchase shares of common stock granted to date under the 1999 Stock Option
Plan.
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES
UNDERLYING EXERCISE
OPTIONS/SARS VESTING PRICE
NAME GRANTED SCHEDULE ($/SHARE) EXPIRATION DATE
- ---- ------------ ----------------- --------- ------------------
<S> <C> <C> <C> <C> <C>
Michael D. Sohn*....... 500,000 May 24, 1999 400,000 shares $1.00 May 23, 2004
November 24, 1999 16,666 shares
May 24, 2000 16,666 shares
November 24, 2001 16,667 shares
May 24, 2001 16,667 shares
November 24, 2001 16,667 shares
May 24, 2002 16,667 shares
Richard E. Burton*..... 300,000 November 24, 1999 50,000 shares $1.00 May 23, 2004
May 24, 2000 50,000 shares
November 24, 2000 50,000 shares
May 24, 2001 50,000 shares
November 24, 2001 50,000 shares
May 24, 2002 50,000 shares
Jack N. Woodruff....... 150,000 May 24, 1999 100,000 shares $1.00 May 23, 2004
November 24, 1999 8,333 shares
May 24, 2000 8,333 shares
November 24, 2000 8,334 shares
May 24, 2001 8,333 shares
November 24, 2001 8,333 shares
May 24, 2002 8,334 shares
John R. Kemp*.......... 125,000 May 24, 1999 25,000 shares $1.00 May 23, 2004
November 24, 1999 16,666 shares
May 24, 2000 16,666 shares
November 24, 2000 16,667 shares
May 24, 2001 16,667 shares
November 24, 2001 16,667 shares
May 24, 2002 16,667 shares
Neil C. Ludwig*........ 125,000 May 24, 1999 50,000 shares $1.00 May 23, 2004
November 24, 1999 12,500 shares
May 24, 2000 12,500 shares
November 24, 2000 12,500 shares
May 24, 2001 12,500 shares
November 24, 2001 12,500 shares
May 24, 2002 12,500 shares
J. Alan Lindauer....... 25,000 May 24, 1999 25,000 shares $1.00 May 23, 2004
Barbara J. Phillips.... 10,000 May 24, 1999 10,000 shares $1.00 May 23, 2004
William Long........... 35,000 April 1, 2000 5,833 shares $5.25 September 30, 2004
October 1, 2000 5,833 shares
April 1, 2001 5,833 shares
October 1, 2001 5,833 shares
April 1, 2002 5,834 shares
October 1, 2002 5,834 shares
</TABLE>
22
<PAGE> 23
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES
UNDERLYING EXERCISE
OPTIONS/SARS VESTING PRICE
NAME GRANTED SCHEDULE ($/SHARE) EXPIRATION DATE
- ---- ------------ ----------------- --------- ------------------
<S> <C> <C> <C> <C> <C>
Alan Paige............. 15,000 April 1, 2000 2,500 shares $5.25 September 30, 2004
October 1, 2000 2,500 shares
April 1, 2001 2,500 shares
October 1, 2001 2,500 shares
April 1, 2002 2,500 shares
October 1, 2002 2,500 shares
Hoa Le................. 15,000 April 1, 2000 2,500 shares $5.25 September 30, 2004
October 1, 2000 2,500 shares
April 1, 2001 2,500 shares
October 1, 2001 2,500 shares
April 1, 2002 2,500 shares
October 1, 2002 2,500 shares
Lisa Moore............. 5,000 April 1, 2000 833 shares $5.25 September 30, 2004
October 1, 2000 833 shares
April 1, 2001 833 shares
October 1, 2001 833 shares
April 1, 2002 834 shares
October 1, 2002 834 shares
Michael J. Labedz...... 75,000 March 2, 2000 75,000 shares $1.25 March 1, 2005
Willard C.
McNitt, III.......... 50,000 March 2, 2000 50,000 shares $1.25 March 1, 2005
Leighton W. Smith...... 50,000 March 2, 2000 50,000 shares $1.25 March 1, 2005
</TABLE>
- ---------------
* Mr. Sohn's employment will terminate on May 31, 2000, and the employment of
each of the other optionees beside whose name an asterisk appears was
terminated prior to the next vesting date, May 24, 2000. The unvested shares
subject to such options are once again available for issuance under the 1999
Stock Option Plan.
In addition, on May 24, 1999, each non-employee director was granted an
option to purchase 50,000 shares at $1.00 per share. Each option is immediately
exercisable in full and expires on May 23, 2004. On March 2, 2000, each
non-employee director was granted an option to purchase 50,000 shares at $1.25
per share. Each option is immediately exercisable in full and expires on March
1, 2005.
The following grants of nonqualified stock options were made pursuant to
individual option agreements.
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES
UNDERLYING EXERCISE
OPTIONS/SARS VESTING PRICE
NAME GRANTED SCHEDULE ($/SHARE) EXPIRATION DATE
- ---- ------------ ----------------- --------- ---------------
<S> <C> <C> <C> <C> <C>
James W. Blaisdell.... 660,000 March 2, 2000 330,000 shares $1.25 March 1, 2005
March 2, 2001 110,000 shares
March 2, 2002 110,000 shares
March 2, 2003 110,000 shares
Wesley N.
Waite, Sr. ......... 250,000 March 2, 2000 150,000 shares $1.25 March 1, 2005
March 2, 2001 33,333 shares
March 2, 2002 33,333 shares
March 2, 2003 33,334 shares
</TABLE>
23
<PAGE> 24
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES
UNDERLYING EXERCISE
OPTIONS/SARS VESTING PRICE
NAME GRANTED SCHEDULE ($/SHARE) EXPIRATION DATE
- ---- ------------ ----------------- --------- ---------------
<S> <C> <C> <C> <C> <C>
Christopher
Matthiesen.......... 300,000 March 6, 2000 70,000 shares $1.00 March 5, 2005
March 6, 2001 76,666 shares
March 6, 2002 76,667 shares
March 6, 2003 76,667 shares
Mark Plecity.......... 50,000 September 6, 2000 8,333 shares $1.00 March 5, 2005
March 6, 2001 8,333 shares
September 6, 2001 8,333 shares
March 6, 2002 8,333 shares
September 6, 2002 8,334 shares
March 6, 2003 8,334 shares
Sooka Lee............. 25,000 September 6, 2000 4,166 shares $1.00 March 5, 2005
March 6, 2001 4,166 shares
September 6, 2001 4,167 shares
March 6, 2002 4,167 shares
September 6, 2002 4,167 shares
March 6, 2003 4,167 shares
James W. Blaisdell.... 18,500 March 14, 2000 9,250 shares $1.25 March 13, 2005
March 14, 2001 3,083 shares
March 14, 2002 3,083 shares
March 14, 2003 3,084 shares
Wesley N.
Waite, Sr. ......... 7,000 March 14, 2000 4,200 shares $1.25 March 13, 2005
March 14, 2001 933 shares
March 14, 2002 933 shares
March 14, 2003 934 shares
</TABLE>
Executive Employment Agreements
We have entered into an employment agreement with James W. Blaisdell
pursuant to which he is employed as the Executive Chairman and Chief Executive
Officer of Qorus. The term expires on December 31, 2003. The agreement provides
for a salary of $250,000 per year plus 330,000 options immediately exercisable
at $1.25 per share. In addition, Mr. Blaisdell was granted an additional 330,000
options exercisable at $1.25 per share, 110,000 shares of which vest annually
over a three year period beginning March 2, 2001. In addition, Mr. Blaisdell is
eligible to receive an annual incentive bonus of up to 50% of his base salary
upon achieving certain business and performance goals as established by the
Board of Directors. The agreement may be terminated by Qorus for cause. Cause
means:
- the death of Mr. Blaisdell
- the disability of Mr. Blaisdell. Mr. Blaisdell will be disabled for
purposes of the agreement if as a result of sickness, including mental or
related illness, accident or injury, Mr. Blaisdell is substantially
unable to perform his duties for a period of six consecutive months
- the conviction of Mr. Blaisdell of a felony or any crime involving moral
turpitude, or commission of any other act of dishonesty, disloyalty or
fraud with respect to Qorus
- Mr. Blaisdell's substantial and repeated failure to perform duties as
reasonably directed by Qorus
- Gross negligence, intentional or willful misconduct or insubordination by
Mr. Blaisdell
24
<PAGE> 25
If the agreement is terminated by Qorus without cause prior to December 31,
2003, Mr. Blaisdell will be entitled to receive an amount equal to one year's
base salary plus any unpaid earned bonus for the previous year, plus
continuation of benefits for one year. The agreement automatically terminates at
the end of the term without notice.
For one year following the termination of Mr. Blaisdell's employment, he
has agreed not to solicit business from any client or potential client of Qorus,
to induce or attempt to induce any employee of Qorus or any of its affiliates or
subsidiaries to leave its or their employ or in any way interfere with the
relationship between Qorus, its affiliates and subsidiaries and employees
thereof, or hire, directly or indirectly, any person who was an employee of
Qorus or any of its affiliates or subsidiaries at any time during the 12 months
preceding the termination of Mr. Blaisdell's employment.
Effective as of March 1, 2000, Mr. Sohn resigned all positions he held with
Qorus. We have, however, agreed to honor his employment agreement through May
31, 2000, which is the end of its original term. Following is a description of
the employment agreement with Mr. Sohn. The term expires on May 31, 2000. The
agreement provides for a salary of $25,000 per month plus 400,000 options
immediately exercisable at $1.00 per share. In addition, Mr. Sohn was granted an
additional 100,000 options exercisable at $1.00 per share, which vest in equal
installments over a three-year period. As a result of Mr. Sohn's resignation, he
forfeited the rights to acquire his 66,668 shares under this option. The
agreement may be terminated by Qorus for good cause. Good cause means:
- death or disability of Mr. Sohn (unless Mr. Sohn remains able to perform
his essential job duties, with or without reasonable accommodations)
- the commission by Mr. Sohn of any unlawful act in connection with his
employment
- the commission by Mr. Sohn of a felony or other act of moral turpitude
during his employment (regardless of whether it is related to the
performance of his job duties)
- the voluntary abandonment by Mr. Sohn of his position
- the willful refusal by Mr. Sohn to perform his job responsibilities
If the agreement is terminated by Qorus during the one-year term for
reasons other than good cause, Mr. Sohn is entitled to continue to receive his
base salary on regular payroll dates for the remainder of the term as if he
continued to be employed under the terms of the agreement. The agreement
automatically terminates at the end of the one-year term. Mr. Sohn may resign
voluntarily at any time but he must give at least ninety (90) days advance
notice of his resignation.
For one year following the termination of Mr. Sohn's employment, he has
agreed not to solicit business from any client of Qorus or to induce or attempt
to induce any employee of Qorus or any of its affiliates or subsidiaries to
leave its or their employ or in any way interfere with the relationship between
Qorus, its affiliates and subsidiaries and employees thereof.
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On July 15, 1999, Qorus acquired certain assets of NetDox, Inc., including
the NetDox brand name, equipment, and customer lists. Thurston Group, Inc. and
its affiliates co-founded NetDox with Deloitte & Touche L.L.C. in 1997 with an
initial aggregate capital investment of approximately $35 million. In early
1999, Thurston Group acquired Deloitte & Touche's interest in NetDox. In
consideration of the transfer of the assets to us by NetDox, we assumed certain
liabilities of NetDox and forgave $2,100,000 of indebtedness owed to us by
NetDox. On December 31, 1999, the transaction was rescinded pursuant to a
Rescission Agreement. All of the assets (except equipment valued at $350,000)
were conveyed back to NetDox and NetDox assumed all of the liabilities that had
been assumed by us. The balance due us under the note as of December 31, 1999
was $1,488,987. As part of the rescission, Messrs. Haynes and Stern agreed to
personally guarantee approximately $2.5 million in loans to a commercial bank on
behalf of NetDox. We also entered into a Commission Agreement with NetDox to
compensate NetDox for its efforts in securing the contract with
25
<PAGE> 26
Moore Business Communications Services. Under the Commission Agreement, NetDox
will be entitled to a commission in the amount of 20% of all gross revenues
(excluding development fees or other non-recurring revenues) received by us
under the Master Agreement with Moore Business Communications Services. To date,
no commissions have been paid to NetDox pursuant to the Commission Agreement.
During the nine months ended September 30, 1999, we have compensated
Thurston Group, Inc. for professional services in the amount of $255,000, which
related to the acquisition of funding and certain other investment activity. We
entered into a consulting agreement dated March 1, 1999, with Thurston Group,
Inc. Qorus engaged Thurston Group until March 31, 2002, as an independent
contractor to advise Qorus on and with respect to obtaining financing of any
type and to advise us and act as our agent in connection with any business
combination, merger, acquisition or sale. Thurston Group agreed to provide the
following services to us:
- Distribute an informational memorandum outlining our business plans and
expectations and/or contemplating specific transactions for business
combinations;
- Identify potential sources of capital;
- Provide sale, merger and acquisition financial analysis;
- Advise on structure of any potential transaction;
- Assist with negotiations; and
- Assist with due diligence.
Thurston Group will earn a fee in the amount of 8% of the amount of any
financing raised by us during the term of this agreement, or 8% of the value to
us of any business combination transaction such as a merger, acquisition or
sale. The consulting agreement may be terminated by the written consent of both
parties, upon the consummation of an offering by us of securities registered
under the Securities Act of 1933, by Qorus upon Thurston Group's breach of the
consulting agreement which is not cured within 30 days of notice of such breach,
or by Thurston Group in the event of Qorus' failure to make any payments due
under the consulting agreement within 10 days of notice or upon Qorus' breach of
the consulting agreement which is not cured within 30 days of notice of such
breach. In addition, a non-defaulting party may terminate the consulting
agreement upon 30 days prior written notice to the defaulting party. For
purposes of the consulting agreement, the bankruptcy or reorganization of a
party, the appointment of a receiver with respect to a party or its assets or
any similar action is a default.
On November 1, 1999, we executed and delivered a promissory note in the
original principal amount of $100,000 to Thomson Kernaghan & Co., Ltd. The note
bears interest at 10% per annum and is due on or before April 30, 2000 or the
occurrence of the next equity or quasi-equity financing of Qorus. The note is
convertible, at the election of the holder, into shares of our common stock at
$3.00 per share. In connection with the note, we also sold Thomson Kernaghan
20,000 shares of our common stock for $.01 per share.
We have agreed to assume the responsibilities of Southern European
Communications Corp. under a lease and service agreement dated December 23,
1999. The lease covers office space located at 11350 Random Hills Road, Fairfax,
Virginia. Monthly rental is $5,302 plus $1,170 in furniture rental fees, phone
charges and fees for business support services. The term of the lease begins on
January 3, 2000 and expires June 30, 2000. Thurston Group, Inc. and its
affiliates own a majority of the outstanding capital stock of Southern European
Communications Corp. Messrs. Haynes and Salatich, directors of Qorus, are also
directors of Southern European Communications Corp. Our board of directors has
determined that the assumption of the lease and the release of Southern European
Communications Corp. from its obligations under the lease is fair to Qorus.
On March 27, 2000, we executed and delivered promissory notes in the
aggregate original principal amount of $1,500,000 to Thurston Interests, L.L.C.,
Apex Investment Fund III and Apex Strategic Partners. The notes bear interest at
10% per annum and are due on the earlier to occur of (i) September 27, 2000 or
(ii) the date of closing of the next equity or quasi-equity financing of Qorus,
or any of its subsidiaries. Upon the closing of an offering by Qorus of shares
of its preferred stock resulting in cash proceeds of $5,000,000 or
26
<PAGE> 27
more, the notes will automatically convert into shares of the same series of
preferred stock as sold in such private sale. In connection with the notes, we
also sold Thurston Interests, L.L.C., Apex Investment Fund III and Apex
Strategic Partners an aggregate of 1,500,000 shares of our common stock for $.01
per share. Customary piggyback registration rights were granted to the
purchasers of such stock. We paid a fee in the amount of $120,000 to the
Thurston Group in connection with this financing.
Patrick J. Haynes, III and Robert T. Isham, Jr., directors of Qorus, are
affiliated with Thurston Group, Inc. and its affiliates.
Mr. Haynes and Thurston Group, Inc. and their respective affiliates are the
founders of Qorus Delaware. None of Mr. Haynes, Thurston Group or any of their
respective affiliates has received anything of value other than fees Thurston
Group has earned under the consulting agreement described above. No assets were
acquired by us from Mr. Haynes, Thurston Group or any of their respective
affiliates other than the assets acquired from NetDox.
ITEM 8. DESCRIPTION OF SECURITIES
Under our articles of incorporation, we are authorized to issue up to
50,000,000 shares of common stock, par value $.001 per share, of which
12,874,407 shares were outstanding as of March 27, 2000. We are also authorized
to issue up to 5,000,000 shares of preferred stock, par value $.01 per share, of
which no shares were issued and outstanding as of March 27, 2000.
Common Stock
Each shareholder is entitled to one vote for each share of common stock
owned of record. The holders of shares of common stock do not possess cumulative
voting rights, which means that the holders of more than 50% of the outstanding
shares voting for the election of directors can elect all of the directors, and
in such event the holders of the remaining shares will be unable to elect any of
our directors. Holders of outstanding shares of common stock are entitled to
receive dividends out of assets legally available at such times and in such
amounts as our board of directors may determine. Upon our liquidation,
dissolution, or winding up, the assets legally available for distribution to our
shareholders will be distributed ratably among the holders of the shares
outstanding at the time. Holders of our shares of common stock have no
preemptive, conversion, or subscription rights, and our shares of common stock
are not subject to redemption. All of our outstanding shares of common stock are
fully paid and non-assessable.
Preferred Stock
Under our articles of incorporation, we are authorized to issue preferred
stock with such designations, rights and preferences as our board of directors
may from time to time determine. Accordingly, our board of directors is
empowered, without stockholder approval, to issue preferred stock with dividend,
liquidation, conversion, voting or other rights which could adversely affect the
voting power or other rights of the holders of our stock. We could issue
preferred stock as a method of discouraging, delaying or preventing a change of
control of Qorus. Our board of directors has not created any series of preferred
stock as of the date of this registration statement.
There are no other provisions in our articles of incorporation or bylaws
that would have an effect of delaying, deferring or preventing a change in
control of Qorus.
27
<PAGE> 28
PART II
ITEM 1.MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS
Our shares of common stock are traded in the over-the-counter market, and
quotations may be found in the "pink sheets" published by the National Quotation
Bureau, LLC. Our common stock trades only sporadically and has experienced in
the past, and is expected to experience in the future, significant price and
volume volatility. On December 1, 1999, our common stock became ineligible for
trading on the OTC Bulletin Board because of our failure to comply with the
NASD's eligibility rule. Since becoming ineligible for trading, the price and
trading volume of our stock has fallen materially. Prior to May 17, 1999, our
shares of common stock were traded under the symbol "GBLL." The reported high
and low bid prices for the common stock as reported by the National Quotation
Bureau are shown below for each quarter in the previous two fiscal years. The
reported high and low bid prices for the common stock for 1998 and the first two
quarters of 1999 have been adjusted to reflect a 1-for-3 stock split declared on
May 17, 1999. The quotations reflect inter-dealer prices and do not include
retail mark-ups, mark-downs or commissions. The prices do not necessarily
reflect actual transactions.
<TABLE>
<CAPTION>
BID PRICE
----------
HIGH LOW
---- ---
<S> <C> <C>
1998
First Quarter............................................... N/A N/A
Second Quarter.............................................. N/A N/A
Third Quarter (First available, August 5)................... 0.03 0.03
Fourth Quarter.............................................. 0.03 0.03
1999
First Quarter............................................... 0.03 0.03
Second Quarter.............................................. 4.75 0.03
Third Quarter............................................... 6.5 5
Fourth Quarter.............................................. 5.5 1
</TABLE>
The last reported sale of our common stock was on March 28, 2000, at a
price of $2.00, as reported by the National Quotation Bureau, LLC. As of March
27, 2000, there were 12,874,407 shares of common stock outstanding and 154
shareholders of record.
Our transfer agent is Florida Atlantic Stock Transfer, Inc., 7130 Nob Hill
Road, Tamarac, Florida 33321.
We have never paid cash dividends on our common stock and we presently
intend to retain future earnings, if any, to finance the expansion of our
business. We do not anticipate that any cash dividends will be paid in the
foreseeable future. Future dividend policy will depend on our earnings, capital
requirements, expansion plans, financial condition and other relevant factors.
ITEM 2. LEGAL PROCEEDINGS
Not applicable.
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
Not applicable.
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES
In 1998, Qorus issued an aggregate of 37,833 shares of common stock (as
adjusted for the 1-for-3 stock split in 1999) to the original investors in Qorus
Florida upon the exercise of outstanding warrants. Each of the warrantholders
represented that he was an "accredited investor" and was acquiring such shares
for investment and not with a view to distributing such shares. A legend to such
effect was placed on the certificates
28
<PAGE> 29
representing such shares, and appropriate "stop transfer" instructions were
given to Qorus' transfer agent. The issuance of such shares was made without
registration under the Securities Act in reliance on the exemption afforded by
Section 4(2) under the Securities Act.
Subsequent to March 25, 1999, but before April 15, 1999, Qorus Delaware
issued an aggregate of 5,333,145 shares of its common stock, $.001 par value per
share, for a purchase price of $.001 per share to Thurston Group and twelve of
its affiliated entities, none of which was formed for the purpose of making the
investment. Each of such stockholders represented and warranted that it was an
"accredited investor" and was acquiring such shares for investment and not with
a view to distributing such shares. A legend to such effect was placed on the
certificates representing such shares, and appropriate "stop transfer"
instructions were given to Qorus Delaware's transfer agent. The issuance was
made without registration under the Securities Act of 1933 in reliance upon the
exemption from registration afforded by Section 4(2) under Securities Act.
On May 19, 1999, Qorus entered into an acquisition agreement with the
thirteen stockholders of Qorus Delaware pursuant to which we issued an aggregate
of 5,333,145 shares of our common stock to them in exchange for 100% of the
issued and outstanding common stock of Qorus Delaware. Each of such stockholders
again represented and warranted that it was an "accredited investor" and was
acquiring such shares for investment and not with a view to distributing such
shares. A legend to such effect was placed on the certificates representing such
shares, and appropriate "stop transfer" instructions were given to Qorus'
transfer agent. The issuance was made without registration under the Securities
Act of 1933 in reliance upon the exemption from registration afforded by Section
4(2) under the Securities Act.
On May 19, 1999, Qorus issued an aggregate of 3,896,223 shares of its
common stock to thirty-two investors for a purchase price of $1.00 per share.
Each of such investors was, at the time, a beneficial owner of shares of common
stock of Qorus. Each of such investors also represented and warranted that such
investor was an "accredited investor" and was acquiring the shares for
investment and not with a view to distributing such shares. A legend to such
effect was placed on the certificates representing such shares, and appropriate
"stop transfer" instructions were given to Qorus' transfer agent. The issuance
was made without registration under the Securities Act in reliance upon the
exemption from registration afforded by Section 4(2) under the Securities Act.
On November 1, 1999, Qorus issued a $100,000 promissory note, and, in
connection therewith, agreed to issue an aggregate of 20,000 shares of its
common stock, to Thomson Kernaghan & Co, Ltd. for a purchase price of $.01 per
share. Thomson Kernaghan was, at the time, a beneficial owner of shares of
common stock of Qorus. Thomson Kernaghan also represented and warranted that it
was an "accredited investor" and was acquiring the shares for investment and not
with a view to distributing such shares. A legend to such effect was placed on
the certificates representing such shares, and appropriate "stop transfer"
instructions were given to Qorus' transfer agent. The issuance was made without
registration under the Securities Act in reliance upon the exemption from
registration afforded by Section 4(2) under the Securities Act.
On March 27, 2000, Qorus issued a warrant to purchase 8,720 shares of its
common stock to First Portland Corporation in connection with an equipment lease
agreement. The warrant is exercisable for seven years at a purchase price of
$5.00 per share. First Portland Corporation represented and warranted that it
was an "accredited investor" and was acquiring the warrant, and upon exercise,
will acquire the shares of common stock, for investment and not with a view to
distributing such warrant, or upon exercise, the shares of common stock to be
issued thereby. A legend to such effect was placed on the certificate
representing the warrant, and appropriate "stop transfer" instructions were
given to Qorus' transfer agent. The issuance was without registration under the
Securities Act in reliance upon the exemption from registration under the
Securities Act afforded by Section 4(2) under the Securities Act.
On March 27, 2000, Qorus issued an aggregate of 1,500,000 shares of its
common stock to Thurston Interests, L.L.C., Apex Investment Fund III and Apex
Strategic Partners for a purchase price of $.01 per share. Each investor was, at
the time, a beneficial owner of shares of common stock of Qorus. Each investor
also represented and warranted that it was an "accredited investor" and was
acquiring the shares for investment and not with a view to distributing such
shares. A legend to such effect was placed on the certificates representing such
shares, and appropriate "stop transfer" instructions were given to Qorus'
transfer
29
<PAGE> 30
agent. The issuance was made without registration under the Securities Act in
reliance upon the exemption from registration afforded by Section 4(2) under the
Securities Act.
At various times between May 19, 1999, and March 27, 2000, Qorus granted
options to purchase an aggregate of 1,880,000 shares of Qorus' common stock to
Qorus' directors, officers and employees pursuant to Qorus' 1999 stock option
plan. In addition, Qorus also granted options to purchase an aggregate of
1,285,500 shares of Qorus' common stock to Qorus' employees pursuant to
individual option agreements. Options granted prior to December 4, 1999 were
granted in reliance upon the exemption provided in Rule 701 under the Securities
Act. Options granted subsequent to December 4, 1999 were granted in reliance
upon the exemption from registration under the Securities Act afforded by
Section 4(2) under the Securities Act. Information regarding these options is
set forth under the caption Stock Option Plan above.
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The articles of incorporation and bylaws of Qorus provide that Qorus will
indemnify, to the full extent and in the manner permitted under the laws of the
State of Florida and any other applicable laws, any person made or threatened to
be made a party to an action or proceeding, whether criminal, civil,
administrative or investigative, by reason of the fact that he is or was a
director or officer of this corporation or served any other enterprise as a
director or officer at the request of this corporation. These rights of
indemnification are not exclusive of any other rights to which any director or
officer or his legal representative may be entitled.
30
<PAGE> 31
PART F/S
INDEX TO FINANCIAL STATEMENTS
OF QORUS.COM, INC.
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
INDEPENDENT AUDITORS' REPORT -- FARBER & HASS LLP........... F-2
BALANCE SHEET, SEPTEMBER 30, 1999........................... F-3
STATEMENT OF OPERATIONS FOR THE PERIOD MARCH 10, 1999 (DATE
OF INCEPTION) TO SEPTEMBER 30, 1999....................... F-4
STATEMENT OF STOCKHOLDERS' EQUITY FOR THE PERIOD MARCH 10,
1999 (DATE OF INCEPTION) TO SEPTEMBER 30, 1999............ F-5
STATEMENT OF CASH FLOWS FOR THE PERIOD MARCH 10, 1999 (DATE
OF INCEPTION) TO SEPTEMBER 30, 1999....................... F-6
NOTES TO FINANCIAL STATEMENTS............................... F-7
</TABLE>
F-1
<PAGE> 32
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
of Qorus.com, Inc.:
We have audited the accompanying balance sheet of Qorus.com, Inc. (the
"Company") as of September 30, 1999 and the related statements of operations,
stockholders' equity and cash flows for the period March 10, 1999 (date of
inception) to September 30, 1999. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements present fairly, in all material
respects, the financial position of Qorus.com, Inc. as of September 30, 1999 and
the results of its operations and its cash flows for the period March 10, 1999
(date of inception) to September 30, 1999 in conformity with generally accepted
accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company has had minimal revenues and incurred losses
from operations since inception. These conditions raise substantial doubt about
its ability to continue as a going concern. Management's plans regarding those
matters also are described in Note 9. The financial statements do not include
any adjustments that might result from the outcome of this uncertainty.
/s/ FARBER & HASS LLP
December 30, 1999
Oxnard, California
F-2
<PAGE> 33
QORUS.COM, INC.
BALANCE SHEET
SEPTEMBER 30, 1999
<TABLE>
<S> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $ 32,332
Accounts receivable....................................... 62,000
Related party note receivable............................. 1,930,346
Accrued interest on note receivable....................... 70,921
Prepaid expenses and other current assets................. 261,434
-----------
Total current assets.............................. 2,357,033
-----------
PROPERTY AND EQUIPMENT:
Furniture and fixtures.................................... 5,014
Office equipment.......................................... 15,429
Production equipment...................................... 77,719
Leasehold improvements.................................... 9,722
-----------
Total property and equipment.............................. 107,884
Less accumulated depreciation............................. (4,897)
-----------
Property and equipment, net............................... 102,987
-----------
INVESTMENT.................................................. 1,018,752
-----------
OTHER ASSETS................................................ 56,738
-----------
TOTAL ASSETS................................................ $ 3,535,510
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accrued expenses and other current liabilities............ $ 575,482
Accrued expenses to related parties....................... 451,998
Notes payable to related parties.......................... 500,000
-----------
Total current liabilities......................... 1,527,480
-----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock, par value $.01; 5,000,000 shares
authorized and no shares issued
Common stock, par value $.001; 50,000,000 shares
authorized and 11,354,407 shares
issued and outstanding................................. 11,354
Additional paid-in capital................................ 4,063,051
Accumulated deficit....................................... (2,066,375)
-----------
Total stockholders' equity........................ 2,008,030
-----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY........ $ 3,535,510
===========
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE> 34
QORUS.COM, INC.
STATEMENT OF OPERATIONS
FOR THE PERIOD MARCH 10, 1999
(DATE OF INCEPTION) TO SEPTEMBER 30, 1999
<TABLE>
<S> <C>
REVENUES.................................................... $ 62,000
COST OF REVENUES............................................ 437,886
-----------
GROSS LOSS.................................................. (375,886)
-----------
OPERATING EXPENSES:
Selling and marketing..................................... 229,978
General and administrative................................ 1,036,749
Impairment loss........................................... 280,749
-----------
Total operating expenses.......................... 1,547,476
-----------
LOSS FROM OPERATIONS........................................ (1,923,362)
-----------
OTHER INCOME (EXPENSE):
Interest income........................................... 93,295
Interest expense.......................................... (27,688)
-----------
Other income, net......................................... 65,607
-----------
NET LOSS.................................................... $(1,857,755)
===========
BASIC AND DILUTED LOSS PER SHARE............................ $ (0.24)
===========
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE> 35
QORUS.COM, INC.
STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE PERIOD MARCH 10, 1999
(DATE OF INCEPTION) TO SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
ADDITIONAL TOTAL
SHARES COMMON PAID-IN STOCKHOLDERS' STOCKHOLDERS'
OUTSTANDING STOCK CAPITAL DEFICIT EQUITY
----------- ------- ---------- ------------- -------------
<S> <C> <C> <C> <C> <C>
BALANCE, MARCH 10, 1999..................... -0- $ -0- $ -0- $ -0- $ -0-
ISSUANCE OF COMMON STOCK:
FOR CASH (Net of fees of $311,198)........ 3,896,223 3,896 3,581,129 3,585,025
ADJUSTMENT TO GIVE EFFECT TO
RECAPITALIZATION ON MAY 19, 1999.......... 7,543,367 7,543 201,088 (208,620) 11
COMMON STOCK RETIRED........................ (85,183) (85) 85
ADDITIONAL CAPITAL CONTRIBUTED.............. 280,749 280,749
NET LOSS.................................... (1,857,755) (1,857,755)
---------- ------- ---------- ----------- -----------
BALANCE, SEPTEMBER 30, 1999................. 11,354,407 $11,354 $4,063,051 $(2,066,375) $ 2,008,030
========== ======= ========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE> 36
QORUS.COM, INC.
STATEMENT OF CASH FLOWS
FOR THE PERIOD MARCH 10, 1999
(DATE OF INCEPTION) TO SEPTEMBER 30, 1999
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.................................................... $(1,857,755)
Adjustments to reconcile net loss to net cash used by
operating activities:
Depreciation.............................................. 4,897
Amortization........................................... 192,840
Impairment loss........................................ 280,749
Changes in operating assets and liabilities:
Accounts receivable....................................... (62,000)
Prepaid expenses and other assets...................... (562,157)
Accrued expenses....................................... 575,482
-----------
Net cash used by operating activities....................... (1,427,944)
-----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of cash in recapitalization..................... 11
Purchase of property and equipment.......................... (107,884)
Sale of property............................................ 350,000
Purchase of investment...................................... (1,018,752)
-----------
Net cash used by investing activities....................... (776,625)
-----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Notes payable borrowings.................................... 500,000
Accrued expenses to related party........................... 432,222
Proceeds from issuance of common stock, net................. 5,358
Related party notes receivable issued....................... (2,370,346)
Payment on note receivable.................................. 90,000
Contributions to capital.................................... 3,579,667
-----------
Net cash provided by financing activities................... 2,236,901
-----------
NET INCREASE IN CASH AND CASH EQUIVALENTS................... 32,332
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD.............. 0
-----------
CASH AND CASH EQUIVALENTS, END OF PERIOD.................... $ 32,332
===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest.................................................. $ 1,770
Income taxes.............................................. $ -0-
NON-CASH FINANCING ACTIVITY:
For the period ending September 30, 1999, the Company
entered into a sale and operating leaseback of computer
hardware in the amount of $350,000
</TABLE>
See accompanying notes to financial statements.
F-6
<PAGE> 37
QORUS.COM, INC.
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business -- Qorus.com, Inc., (formerly Qorus.com, Inc., a
Delaware corporation, incorporated on March 10, 1999; "Qorus-Delaware") (the
"Company" or "Qorus"), provides internet-based voice, e-mail, paging and fax
messaging under one mode of communication ("unified messaging service").
On May 19, 1999, the Board of Directors of Golf Ball World, Inc. (a
non-operating public shell corporation) authorized the issuance of 5,332,334
shares of its common stock in exchange for 100% of Qorus-Delaware's common
stock. The acquisition was accounted for using the reverse purchase method of
accounting, pursuant to which Qorus-Delaware was treated as the acquiring entity
for accounting purposes. Concurrent with the transaction, the Company changed
its name to Qorus.com, Inc. The assets, liabilities and shareholders' equity
have been recorded at their historical values. The net assets of Qorus-Delaware
and Golf Ball World, Inc. were $3,191,234 and $11 at May 19, 1999, respectively.
The financial statements represent the results of operations of
Qorus-Delaware from inception (March 10, 1999) to September 30, 1999.
Cash and Cash Equivalents -- The Company considers all highly liquid
investments with an original maturity of three months or less to be cash
equivalents.
Concentration of Credit Risk -- Financial instruments which potentially
subject the Company to concentrations of credit risk consist principally of
temporary cash investments and a note receivable. The Company places its
temporary cash investments in certificates of deposit and with high-quality
financial institutions. At September 30, 1999, substantially all cash and cash
equivalents were on deposit with two financial institutions.
The note receivable represents a short-term loan to a related party (see
Note 2).
Investment -- The investment in preferred stock of Tornado Development,
Inc. is carried at fair value (based on recent private sales of preferred stock)
and considered available for sale. Unrealized gains and losses, except those
considered to be other than a temporary impairment, are reported as a separate
component of stockholders' equity. There was no unrealized gain or loss as of
September 30, 1999.
Property and Equipment -- Property and equipment are stated at cost.
Depreciation is provided using the straight-line method over the estimated
useful lives of the assets, which range from two to five years. Leasehold
improvements are amortized over the shorter of the useful life of the asset or
the term of the related lease.
Licenses -- The Company has an agreement with a related party (Tornado
Development, Inc.; see Note 3) which licenses certain technology. The term of
the license is for three years (expiring May 2002). The agreement provides for a
prepaid license fee totalling $150,000 for the minimum number of subscribers to
the Company's product in the first year. Additional fees are due for subscribers
over the minimum number in the first year. License fees for the remaining term
are based on a sliding scale for the number of subscribers. License expense to
the related party for the nine-month period ended September 30, 1999 totalled
$50,000. The agreement also provides for a royalty fee on certain components
utilized by the Company to service the subscribers. The minimum royalty for the
first year is $86,400 with additional royalties due based on a sliding scale
over the term of the agreement. Royalty expense totalled $28,800 for the period
ended September 30, 1999.
The Company also has license agreements with third parties for the software
programming and internet support. The aggregate license fee for these agreements
totalled $156,000. The agreements provide for varying terms from 2 years to
perpetual. License expense to third parties for the period ended September 30,
1999 totalled $91,000.
F-7
<PAGE> 38
QORUS.COM, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Common Stock -- In May 1999, the Board of Directors approved a
one-for-three reverse stock split. The split has been retroactively reflected in
these financial statements to March 10, 1999 (date of inception).
Revenue Recognition -- The Company recognizes software engineering revenue
and messaging services as such services are provided. Fees for messaging
services are billed on a monthly basis. The Company does not bill any up-front
fees.
Significant Customer -- One customer accounted for all revenues during the
period and total accounts receivable at September 30, 1999.
Advertising -- Costs incurred for producing and communicating advertising
are expensed when incurred and included in selling and marketing expenses.
Advertising expense amounted to $137,000 for the period ending September 30,
1999.
Income Taxes -- Income taxes are provided based on earnings reported for
financial statement purposes. In accordance with FASB Statement No. 109, the
asset and liability method requires the recognition of deferred tax assets and
liabilities for the expected future tax consequences of temporary differences
between tax bases and financial reporting bases of assets and liabilities.
Basic Loss Per Share -- The Company adopted the provisions of Statement of
Financial Accounting Standards ("SFAS") No. 128, "Earnings Per Share" that
established standards for the computation, presentation and disclosure of
earnings per share ("EPS"), replacing the presentation of Primary EPS with a
presentation of Basic EPS. It also requires dual presentation of Basic EPS and
Diluted EPS on the face of the income statement for entities with complex
capital structures. Diluted EPS has not been presented since the result of
including the stock options (810,000 shares) would be anti-dilutive. Basic EPS
is based on the weighted average number of common shares outstanding during the
period, which totalled 7,781,490 for the period ended September 30, 1999.
Fair Value of Financial Instruments -- The Company has financial
instruments consisting of cash equivalents, investments, receivables (including
those from related parties), accounts and notes payable. The carrying value of
the Company's financial instruments, based on current market and other
indicators, approximate their fair value.
Accounting for Stock-Based Compensation -- Stock option grants are set at
the closing price of the Company's common stock on the day prior to the date of
grant. Therefore, under the principles of APB Opinion No. 25, the Company does
not recognize compensation expense associated with the grant of stock options.
SFAS No. 123, "Accounting for Stock-Based Compensation", requires the use of
option valuation models to provide supplemental information regarding options
granted after 1994.
Pro forma information regarding net loss and loss per share shown below was
determined as if the Company had accounted for its employee stock options under
the fair value method of that statement.
The fair value of the options was estimated at the date of grant using a
Black-Scholes option pricing model with the following weighted average
assumptions: risk-free interest rates of 6.0%; dividend yields of 0%; volatility
factors of the expected market price of the Company's common stock of 50%; and
expected life of the options of 9.75 years. These assumptions resulted in
weighted average fair values of $0.71 per share for stock options granted in
1999.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options. The Company's employee stock
options have characteristics significantly different from those of traded
options such as vesting restrictions and extremely limited transferability.
F-8
<PAGE> 39
QORUS.COM, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized over the option vesting periods. The Company's pro forma
information is as follows (in thousands except share data) for the period March
10, 1999 (date of inception) to September 30, 1999:
<TABLE>
<S> <C>
Pro forma net loss.......................................... $2,433
Pro forma loss per share:
Basic..................................................... $ 0.31
Diluted................................................... $ 0.31
</TABLE>
Information regarding stock options outstanding as of September 30, 1999 is
as follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
----------------------------------------------
WEIGHTED AVERAGE
WEIGHTED AVERAGE REMAINING
SHARES EXERCISE PRICE CONTRACTUAL LIFE
------- ---------------- ----------------
<S> <C> <C> <C>
$1.00...................................... 810,000 $1.00 9.75 years
</TABLE>
<TABLE>
<CAPTION>
OPTIONS EXERCISABLE
--------------------------
WEIGHTED AVERAGE
SHARES EXERCISE PRICE
------- ----------------
<S> <C> <C>
$1.00....................................................... 810,000 $1.00
</TABLE>
Pervasiveness 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.
Long-Lived Assets -- The Company reviews for the impairment of long-lived
assets and certain identifiable intangibles whenever events or changes in
circumstances indicate that the carrying amount of any asset may not be
recoverable. An impairment loss would be recognized when the estimated
undiscounted future cash flows expected to result from the use of the asset and
its eventual disposition is less than the carrying amount. If an impairment is
indicated, the amount of the loss to be recorded is based upon an estimate of
the difference between the carrying amount and the fair value of the asset. Fair
value is based upon discounted estimated cash flows expected to result from the
use of the asset and its eventual disposition and other valuation methods. No
such impairment losses have been identified by the Company.
Going Concern -- The Company has not received significant revenues and has
incurred significant expenses in developing its product and strategic
relationships. The financial statements have been prepared assuming the Company
will continue to operate as a going concern which contemplates the realization
of assets and the settlement of liabilities in the normal course of business. No
adjustment has been made to the recorded amount of assets or the recorded amount
or classification of liabilities which would be required if the Company were
unable to continue its operations. As discussed in Note 9, management has
developed an operating plan which they believe will generate sufficient cash to
meet its obligations in the normal course of business.
New Accounting Pronouncements -- SFAS No. 130, "Reporting Comprehensive
Income", establishes standards for reporting and displaying comprehensive income
and its components in financial statements. The Company adopted the provisions
of SFAS No. 130 in 1998, but had no elements of comprehensive income in 1999.
SFAS No., 131, "Disclosures About Segments of an Enterprise and Related
Information", establishes a new model for segment reporting, called the
"management approach" and requires certain disclosures for each
F-9
<PAGE> 40
QORUS.COM, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
segment. The management approach is based on the way the chief operating
decision-maker organizes segments within a company for making operating
decisions and assessing performance. The Company adopted the provisions of SFAS
No. 131 in 1998, but currently operates in one industry segment.
2. NOTE RECEIVABLE FROM A RELATED PARTY
The revolving note receivable amounting to $1,930,346, accrues interest at
10% per annum and is due from NetDox, Inc., a related party. NetDox, Inc. and
the Company are entities under the common control of Thurston Group. The note
and accrued interest were satisfied in full in December 1999.
3. INVESTMENT
The Company has an investment in Tornado Development, Inc., ("Tornado").
The investment relates to a note receivable which was converted (along with
accrued interest totalling $18,752) to 127,324 shares of Tornado's series B
preferred stock and 50,000 warrants to purchase common stock on July 15, 1999.
Subsequent to September 30, 1999, the Company transferred 63,581 shares and
25,000 warrants back to Tornado in exchange for $432,222 in accrued expenses
owed to Tornado and a credit of $67,771 to be applied to future services or fees
due by the Company. There was no gain or loss associated with this transaction.
4. STOCKHOLDERS' EQUITY
1999 Stock Option Plan
The Company's Board of Directors adopted the 1999 Stock Option Plan (the
"Plan") whereby directors, officers, employees and consultants may receive
option grants as additional incentive to contribute to the success of the
Company.
Under the Plan, an aggregate of 2,000,000 shares of common stock has been
reserved for issuance pursuant to options ("Plan Options"). The Plan is
administered by the Company's Board of Directors or a Committee of the Board of
Directors ("Committee").
Options granted under the Plan may either be options qualifying as
incentive stock options ("Incentive Options") under Section 422 of the Internal
Revenue Code of 1986, as amended, or options that do not qualify ("Non-qualified
Options"). The term of each Option and the manner in which it may be exercised
is determined by the Company's Board of Directors or the Committee, provided
that no Option may be exercisable more than 10 years after the date of its grant
and, in the case of an Incentive Option granted to an eligible employee owning
more than 10% of the Company's common stock, no more than five years after the
date of grant.
At September 30, 1999, 1,435,000 Plan Options exercisable at $1.00 per
share have been granted, 810,000 of which are immediately exercisable and
625,000 of which vest over a three-year period from date of grant ( 1/6 of the
total amount each six months).
Subsequent to September 30, 1999, an additional 70,000 plan options
exercisable at $5.25 per share were granted which vest over a three-year period
from the date of the grant ( 1/6 of the total amount each six months). During
the nine-month period ended September 30, 1999, no incentive options were
outstanding.
F-10
<PAGE> 41
QORUS.COM, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Non-Qualified Stock Options
<TABLE>
<CAPTION>
OPTION PRICE
SHARES PER SHARE
--------- ------------
<S> <C> <C>
Outstanding at March 10, 1999............................... -0- $ -0-
Cancelled................................................... -0- -0-
Granted during the period................................... 1,435,000 1.00
--------- -----
Outstanding at September 30, 1999........................... 1,435,000 $1.00
========= =====
</TABLE>
RETIREMENT OF SHARES
In May 1999, the majority shareholder of Golf Ball World, Inc. contributed
85,183 shares of the Company's common stock to the Company for no consideration.
CHANGE IN PAR VALUE
In May 1999, the Board of Directors changed the par value of the Company's
common stock from $0.0001 to $0.001 per share. This change has been
retroactively reflected in the financial statements.
5. NOTE PAYABLE TO RELATED PARTY
The Company has a note payable of $500,000 at September 30, 1999 due to
Thurston Bridge Fund II, a related party, which accrues interest at 8% per annum
and is due on March 31, 2000. The note and accrued interest were satisfied in
full in December 1999.
6. INCOME TAXES
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets at September 30, 1999 are substantially
composed of the Company's net operating loss carryforwards, for which the
Company has made a full valuation allowance. In assessing the realizability of
deferred tax assets, management considers whether it is more likely than not
that some portion or all of the deferred tax assets will not be realized. The
ultimate realization of deferred tax assets is dependent upon the generation of
future taxable income during the periods in which those temporary differences
become deductible. Management considers the scheduled reversal of deferred tax
liabilities, projected future taxable income and tax planning strategies in
making this assessment.
At September 30, 1999, the Company had net operating loss carryforwards for
Federal tax purposes of approximately $1.8 million, which is available to offset
future taxable income, if any, through 2014.
7. RELATED PARTY TRANSACTIONS
During the period ended September 30, 1999, the Company has compensated the
Thurston Group, a related party, for professional services in the amount of
$255,000 which related to the acquisition of funding and certain other
investment activity.
During the period ended September 30, 1999, the Company purchased $25,000
of property and leasehold improvements from a vendor that utilized an officer of
the Company as a consultant.
F-11
<PAGE> 42
QORUS.COM, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
8. COMMITMENTS AND CONTINGENCIES
The Company leases its office facility for $3,714 per month in Los Angeles,
California. The lease term is three years and expires on May 31, 2002.
During July 1999, the Company purchased certain equipment from NetDox.
Based on the common ownership of the companies, the equipment was recorded at
the historical cost of $630,000. Concurrent with this transaction, the Company
entered into an agreement for the sale and operating leaseback of the equipment
with a third party for $350,000. The difference in value of approximately
$280,000 has been recorded in the period ended September 30, 1999 as an
impairment in value.
Lease expense totalled $64,996 in the period ended September 30, 1999.
Future minimum payments under the leases are as follows:
<TABLE>
<CAPTION>
CALENDAR
YEAR ENDED:
-----------
<S> <C>
1999.................................................... $104,867
2000.................................................... 434,904
2001.................................................... 180,654
2002.................................................... 70,414
--------
Total................................................ $790,839
========
</TABLE>
9. MANAGEMENT PLANS
During the period ended September 30, 1999, the Company commenced marketing
and sales of its unified messaging service. Management believes that available
cash resources and increased sales will be insufficient to meet its cash flow
requirements through September 2000. Management has developed alternate plans
which include, but are not limited to, raising additional equity financing and
identifying companies with additional complementary services for merger or
acquisition with the Company.
10. YEAR 2000 COMPLIANCE (UNAUDITED)
The Company utilizes computer hardware and software in its operations. Any
of the Company's programs that recognize a date using "00" as the year 1900
rather than the year 2000 could result in errors or system failures.
The Company has completed an evaluation of its computer hardware and
software and believes that its mission critical systems are Year 2000 compliant.
11. SUBSEQUENT EVENTS (UNAUDITED)
The Company entered into a subscription agreement for bridge financing in
October 1999. The convertible promissory note of $100,000 accrues interest at
10% and is due on or before April 30, 2000. In consideration for the financing,
20,000 shares of common stock were committed to be sold at par.
F-12
<PAGE> 43
PART III
ITEM 1. INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
<C> <S>
2.1 -- Articles of Incorporation*
2.2 -- Bylaws*
3.1 -- Form of Common Stock Certificate of Qorus.com, Inc.*
3.2 -- Form of Letter Agreement
6.1 -- 1999 Stock Option Plan of Qorus.com, Inc.*
6.2 -- Acquisition Agreement between Golf Ball World, Inc., a
Florida corporation, and the stockholders of Qorus.com,
Inc., a Delaware corporation*
6.3 -- Employment Agreement dated May 24, 1999, between
Qorus.com, Inc., a Delaware corporation and Michael Sohn*
6.4 -- Amendment No. 1 to Acquisition Agreement between Golf
Ball World, Inc., a Florida corporation, and the
stockholders of Qorus.com, Inc., a Delaware corporation*
6.5 -- Software License Agreement between Tornado Development,
Inc., a California corporation, and Qorus.com, Inc., a
Delaware corporation*
6.6 -- Tornado Development, Inc. Class A Common Stock Purchase
Warrant*
6.7 -- Registration Rights Agreement by and between Qorus.com,
Inc., a Delaware corporation, and Tornado Development,
Inc., a Delaware corporation, dated April 15, 1999*
6.8 -- Authorized Reseller Agreement by and between Qorus.com,
Inc., a Delaware corporation, and Alpha Telecom (UK)
Ltd., a Limited Company, dated June 10, 1999*
6.9 -- Authorized Reseller Agreement by and between Qorus.com,
Inc., a Delaware corporation, and C2C Telecom, Inc., a
Delaware corporation, dated September 21, 1999*
6.10 -- Authorized Reseller Agreement by and between Qorus.com,
Inc., a Delaware corporation, and CyberGate, Inc. dated
August 31, 1999*
6.11 -- Master Agreement by and between Qorus.com, Inc., a
Delaware corporation, and Moore Business Communication
Services, a division of Moore North America, Inc., dated
September 10, 1999*
6.12 -- Statement of Work NWA-1 issued under Master Agreement by
and between Qorus.com, Inc., a Delaware corporation, and
Moore Business Communication Services, a division of
Moore North America, Inc.*
6.13 -- Bill of Sale, Assignment and Assumption Agreement by and
between Qorus.com, Inc., a Delaware corporation, and
NetDox, Inc., a Delaware corporation, dated July 15,
1999*
6.14 -- Rescission Agreement by and between Qorus.com, Inc., a
Delaware corporation, and NetDox, Inc., a Delaware
corporation, dated December 31, 1999*
6.15 -- Commission Agreement by and between Qorus.com, Inc., a
Delaware corporation, and NetDox, Inc., a Delaware
corporation, dated December 31, 1999*
6.16 -- Consulting Agreement by and between Qorus.com, Inc., a
Delaware corporation, and Thurston Group, Inc., a
Delaware corporation, dated March 1, 1999*
</TABLE>
III-1
<PAGE> 44
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
<C> <S>
6.17 -- Lease and Service Agreement by and between Southern
European Communications Corp., a Delaware corporation,
and VANTAS/Fair Oaks dated December 23, 1999*
6.18 -- Internet Data Center Services Agreement by and between
Qorus.com, Inc., a Delaware corporation, and Exodus
Communications, Inc.*
6.19 -- Amendment No. 2 to Acquisition Agreement between Golf
Ball World, Inc., a Florida corporation, and the
stockholders of Qorus.com, Inc., a Delaware corporation*
6.20 -- Settlement Agreement and Release by and between
Qorus.com, Inc. and Tornado Development, Inc. dated
October 28, 1999*
6.21 -- Amendment No. 1 to Software License Agreement dated
October 28, 1999 by and between Qorus.com, Inc. and
Tornado Development, Inc.*
6.22 -- Employment Agreement, dated as of March 1, 2000, by and
between Qorus.com, Inc., a Florida corporation, and James
W. Blaisdell
6.23 -- Promissory Note, dated as of November 1, 1999, payable to
Thomson Kernaghan & Co., Ltd. in the original principal
amount of $100,000.00
6.24 -- Subscription Agreement, dated as of November 1, 1999, by
and between Qorus.com, Inc., a Florida corporation, and
Thomson Kernaghan & Co., Ltd.
6.25 -- Agreement for Professional Services, dated as of February
1, 2000, by and between Qorus.com, Inc., a Florida
corporation, and Leighton W. Smith
6.26 -- Amendment to Agreement for Professional Services, dated
as of March 2, 2000, by and between Qorus.com, Inc., a
Florida corporation, and Leighton W. Smith
6.27 -- Agreement for Professional Services, dated as of March 2,
2000, by and between Qorus.com, Inc., a Florida
corporation, and Michael J. Labedz
6.28 -- Agreement for Professional Services, dated as of March 2,
2000, by and between Qorus.com, Inc., a Florida
corporation, and Willard C. McNitt, Jr.
6.29 -- Form of Nonqualified Stock Option Agreement
6.30 -- Warrant, dated March 27, 2000, issued to First Portland
Corporation
6.31 -- Form of Convertible Promissory Note
8.1 -- Acquisition Agreement between Golf Ball World, Inc., a
Florida corporation, and the stockholders of Qorus.com.
Inc., a Delaware corporation (filed as Exhibit 6.2
hereto)*
8.2 -- Amendment No. 1 to Acquisition Agreement between Golf
Ball World, Inc., a Florida corporation, and the
stockholders of Qorus.com, Inc., a Delaware corporation
(filed as Exhibit 6.4 hereto)*
8.3 -- Amendment No. 2 to Acquisition Agreement between Golf
Ball World, Inc., a Florida corporation, and the
stockholders of Qorus.com, Inc., a Delaware corporation
(filed as Exhibit 6.19 hereto)*
27 -- Financial Data Schedule*
</TABLE>
- ---------------
* Previously filed
III-2
<PAGE> 45
ITEM 2. DESCRIPTION OF EXHIBITS
See Item 1, above.
III-3
<PAGE> 46
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange Act
of 1934, as amended, the registrant has duly caused this registration statement
to be signed on its behalf by the undersigned, thereunto duly authorized.
QORUS.COM, INC.
By: /s/ James W. Blaisdell
----------------------------------
James W. Blaisdell
Executive Chairman and
Chief Executive Officer
Date: March 30, 2000
S-1
<PAGE> 47
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
<C> <S>
2.1 -- Articles of Incorporation*
2.2 -- Bylaws*
3.1 -- Form of Common Stock Certificate of Qorus.com, Inc.*
3.2 -- Form of Letter Agreement
6.1 -- 1999 Stock Option Plan of Qorus.com, Inc.*
6.2 -- Acquisition Agreement between Golf Ball World, Inc., a
Florida corporation, and the stockholders of Qorus.com,
Inc., a Delaware corporation*
6.3 -- Employment Agreement dated May 24, 1999, between
Qorus.com, Inc., a Delaware corporation and Michael Sohn*
6.4 -- Amendment No. 1 to Acquisition Agreement between Golf
Ball World, Inc., a Florida corporation, and the
stockholders of Qorus.com, Inc., a Delaware corporation*
6.5 -- Software License Agreement between Tornado Development,
Inc., a California corporation, and Qorus.com, Inc., a
Delaware corporation*
6.6 -- Tornado Development, Inc. Class A Common Stock Purchase
Warrant*
6.7 -- Registration Rights Agreement by and between Qorus.com,
Inc., a Delaware corporation, and Tornado Development,
Inc., a Delaware corporation, dated April 15, 1999*
6.8 -- Authorized Reseller Agreement by and between Qorus.com,
Inc., a Delaware corporation, and Alpha Telecom (UK)
Ltd., a Limited Company, dated June 10, 1999*
6.9 -- Authorized Reseller Agreement by and between Qorus.com,
Inc., a Delaware corporation, and C2C Telecom, Inc., a
Delaware corporation, dated September 21, 1999*
6.10 -- Authorized Reseller Agreement by and between Qorus.com,
Inc., a Delaware corporation, and CyberGate, Inc. dated
August 31, 1999*
6.11 -- Master Agreement by and between Qorus.com, Inc., a
Delaware corporation, and Moore Business Communication
Services, a division of Moore North America, Inc., dated
September 10, 1999*
6.12 -- Statement of Work NWA-1 issued under Master Agreement by
and between Qorus.com, Inc., a Delaware corporation, and
Moore Business Communication Services, a division of
Moore North America, Inc.*
6.13 -- Bill of Sale, Assignment and Assumption Agreement by and
between Qorus.com, Inc., a Delaware corporation, and
NetDox, Inc., a Delaware corporation, dated July 15,
1999*
6.14 -- Rescission Agreement by and between Qorus.com, Inc., a
Delaware corporation, and NetDox, Inc., a Delaware
corporation, dated December 31, 1999*
6.15 -- Commission Agreement by and between Qorus.com, Inc., a
Delaware corporation, and NetDox, Inc., a Delaware
corporation, dated December 31, 1999*
6.16 -- Consulting Agreement by and between Qorus.com, Inc., a
Delaware corporation, and Thurston Group, Inc., a
Delaware corporation, dated March 1, 1999*
</TABLE>
<PAGE> 48
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
<C> <S>
6.17 -- Lease and Service Agreement by and between Southern
European Communications Corp., a Delaware corporation,
and VANTAS/Fair Oaks dated December 23, 1999*
6.18 -- Internet Data Center Services Agreement by and between
Qorus.com, Inc., a Delaware corporation, and Exodus
Communications, Inc.*
6.19 -- Amendment No. 2 to Acquisition Agreement between Golf
Ball World, Inc., a Florida corporation, and the
stockholders of Qorus.com, Inc., a Delaware corporation*
6.20 -- Settlement Agreement and Release by and between
Qorus.com, Inc. and Tornado Development, Inc. dated
October 28, 1999*
6.21 -- Amendment No. 1 to Software License Agreement dated
October 28, 1999 by and between Qorus.com, Inc. and
Tornado Development, Inc.*
6.22 -- Employment Agreement, dated as of March 1, 2000, by and
between Qorus.com, Inc., a Florida corporation, and James
W. Blaisdell
6.23 -- Promissory Note, dated as of November 1, 1999, payable to
Thomson Kernaghan & Co., Ltd. in the original principal
amount of $100,000.00
6.24 -- Subscription Agreement, dated as of November 1, 1999, by
and between Qorus.com, Inc., a Florida corporation, and
Thomson Kernaghan & Co., Ltd.
6.25 -- Agreement for Professional Services, dated as of February
1, 2000, by and between Qorus.com, Inc., a Florida
corporation, and Leighton W. Smith
6.26 -- Amendment to Agreement for Professional Services, dated
as of March 2, 2000, by and between Qorus.com, Inc., a
Florida corporation, and Leighton W. Smith
6.27 -- Agreement for Professional Services, dated as of March 2,
2000, by and between Qorus.com, Inc., a Florida
corporation, and Michael J. Labedz
6.28 -- Agreement for Professional Services, dated as of March 2,
2000, by and between Qorus.com, Inc., a Florida
corporation, and Willard C. McNitt, Jr.
6.29 -- Form of Nonqualified Stock Option Agreement
6.30 -- Warrant, dated March 27, 2000, issued to First Portland
Corporation
6.31 -- Form of Convertible Promissory Note
8.1 -- Acquisition Agreement between Golf Ball World, Inc., a
Florida corporation, and the stockholders of Qorus.com.
Inc., a Delaware corporation (filed as Exhibit 6.2
hereto)*
8.2 -- Amendment No. 1 to Acquisition Agreement between Golf
Ball World, Inc., a Florida corporation, and the
stockholders of Qorus.com, Inc., a Delaware corporation
(filed as Exhibit 6.4 hereto)*
8.3 -- Amendment No. 2 to Acquisition Agreement between Golf
Ball World, Inc., a Florida corporation, and the
stockholders of Qorus.com, Inc., a Delaware corporation
(filed as Exhibit 6.19 hereto)*
27 -- Financial Data Schedule*
</TABLE>
- ---------------
* Previously filed
<PAGE> 1
EXHIBIT 3.2
LETTER AGREEMENT
March __, 2000
Qorus.com, Inc.
11350 Random Hills Road
Suite 650
Fairfax, Virginia 22030
Gentlemen:
Qorus.com, Inc., a Florida corporation (the "Company"), has executed
and delivered to ____________________("___"), a promissory note (the "Note") of
even date herewith in the original principal amount of $___________. In
connection with the Note, the Company has agreed to issue to _____ 703,425
shares (the "Shares") of the common stock, par value $.001 per share ("Common
Stock"), of the Company for a purchase price of $.01 per share.
In connection therewith, _____ hereby represents and warrants to the
Company and agrees as follows:
(1) The Note and the Shares are being acquired solely for the
account of _____;
(2) No sale, distribution, transfer or other disposition of the
Note or the Shares will be made, unless and until, either (i)
the Note and/or the Shares have been duly and effectively
registered or qualified for resale under the Securities Act of
1933, as amended (the "Securities Act"), and under any
applicable state securities laws; or (ii) an exemption from
such registration or qualification is available, in the
opinion of counsel satisfactory to the Company, with respect
to any such proposed sale or disposition;
(3) The Company may place and make appropriate notations in its
record books against the transfer of the Note and the Shares;
(4) A restrictive legend may be placed on any certificates
representing the Note or the Shares, such restrictive legend
to state that the Note and the Shares have not been registered
under the Securities Act or any other applicable securities
law and may only be transferred in accordance with this
letter; and
(5) The Company may take any other actions which it deems
necessary to prevent any violations of the Securities Act or
any other securities law by reason of the delivery of the Note
or the Shares hereunder or any subsequent transaction with
respect to the Note or the Shares.
<PAGE> 2
Qorus.com, Inc.
March __, 2000
Page 2
_____ hereby confirms and acknowledges as follows:
(1) The Note and the Shares will not be registered under the
Securities Act or any other securities laws on the basis that
the sale of such Note and/or the Shares to _____ is exempt
from registration under the Securities Act and such other
securities laws;
(2) The Company's reliance on such exemption is predicated in part
upon the representations and warranties of _____ contained
herein;
(3) The Company will not be required to permit or recognize any
sale, transfer or other disposition of any of the Note or the
Shares at any particular time, or with the passage of time;
and
(4) The Company is under no obligation to register or qualify the
Note or the Shares under the Securities Act or any other
securities laws other than pursuant to any registration rights
agreement that the Company and _____ may enter into.
_____ represents and warrants that _____ is a ____________ in which all
of the equity owners are investors who fall within one or more of the following
categories of investors:
(a) Any bank as defined in Section 3(a)(2) of the Securities Act,
or a savings and loan association or other institution as
defined in Section 3(a)(5)(A) of the Securities Act, whether
acting in its individual or fiduciary capacity;
(b) Any broker or dealer registered pursuant to Section 15 of the
Securities Exchange Act of 1934, as amended;
(c) Any insurance company as defined in Section 2(13) of the
Securities Act;
(d) Any investment company registered under the Investment Company
Act of 1940, as amended, or a business development company as
defined in Section 2(a)(48) of that Act;
(e) Any Small Business Investment Company licensed by the U.S.
Small Business Administration under Section 301(c) or (d) of
the Small Business Investment Act of 1958, as amended;
<PAGE> 3
Qorus.com, Inc.
March __, 2000
Page 3
(f) Any plan established and maintained by a state, its political
subdivisions, or any agency or instrumentality of a state or
its political subdivisions, for the benefit of its employees,
if such plan has total assets in excess of $5,000,000;
(g) Any employee benefit plan within the meaning of the Employee
Retirement Income Security Act of 1974, as amended, if the
investment decision is made by a plan fiduciary, as defined in
section 3(21) of such act, which is either a bank, savings and
loan association, insurance company, or registered investment
adviser, or if the employee benefit plan has total assets in
excess of $5,000,000 or, if a self-directed plan, with
investment decisions made solely by persons that are
accredited investors, as defined in Rule 501(a) of Regulation
D under the Securities Act;
(h) Any private business development company as defined in Section
202(a)(22) of the Investment Advisers Act of 1940, as amended;
(i) Any organization described in Section 501(c)(3) of the
Internal Revenue Code of 1986, as amended, corporation,
Massachusetts or similar business trust, or partnership, not
formed for the specific purpose of acquiring securities of the
Company, with total assets in excess of $5,000,000;
(j) Any natural person whose individual net worth, or joint net
worth with that person's spouse, at the time of his purchase
exceeds $1,000,000;
(k) Any natural person who had an individual income in excess of
$200,000 in each of the two most recent years, or joint income
with that person's spouse in excess of $300,000 in each of
those years, and has a reasonable expectation of reaching the
same income level in the current year; or
(l) Any trust with total assets in excess of $5,000,000 not formed
for the specific purpose of acquiring securities of the
Company, whose purchase is directed by a sophisticated person
as described in Rule 506(b)(2)(ii) of Regulation D under the
Securities Act.
_____ acknowledges that (i) _____ has had the opportunity to verify the
accuracy of all information regarding the Company supplied to _____ by examining
the records of the Company and by interviewing the officers and directors of the
Company and all others whom _____ believes possess material information
concerning the Company, (ii) _____ has had access to all financial or other
information which has or might have a material effect on the business and
condition (financial or otherwise) of the Company or the marketability or value
of its outstanding securities, (iii) _____,
<PAGE> 4
Qorus.com, Inc.
March __, 2000
Page 4
either alone or with _____'s professional advisors, has such knowledge and
experience in financial and business matters that _____ and/or such advisors are
capable of evaluating the merits and risks of this particular investment and
(iv) _____ is able to bear the economic risk of this investment for an
indefinite time and can afford a complete loss thereof.
_____ AGREES TO DEFEND, INDEMNIFY AND HOLD THE COMPANY HARMLESS FROM
ANY LOSS, LIABILITY, CLAIM, DAMAGE OR EXPENSE, INCLUDING, WITHOUT LIMITATION,
REASONABLE ATTORNEYS' FEES AND COSTS OF SUIT, ARISING OUT OF ANY
MISREPRESENTATION OR VIOLATION OR BREACH OF ANY REPRESENTATION OR WARRANTY
CONTAINED HEREIN.
The Company hereby represents and warrants to _____ as follows:
(1) The Company is a corporation validly existing and in good
standing under the laws of the State of Florida and has full
corporate power and authority to own and lease its properties
and to carry on its business as presently conducted.
(2) The Company has full power, authority and legal right to enter
into the Note and to issue the Shares. The Note and the
issuance of the Shares have been duly authorized by all
requisite action of the directors of the Company. Upon
execution and delivery by the Company of the Note, it will be
a valid and binding obligation of the Company, enforceable in
accordance with its terms, except as enforcement may be
limited by bankruptcy, insolvency, reorganization or similar
laws affecting the rights of creditors generally and general
equitable principles.
(3) Upon issuance of the Shares to _____, and the receipt of the
Company of the consideration therefor, the Shares shall be
validly issued, fully paid and non-assessable shares of Common
Stock
The Company further agrees as follows:
(1) The Company intends to execute and deliver promissory notes in
the aggregate amount of $1,500,000, including the Note, to
investors in addition to _____. The Company shall close all
such transactions simultaneously.
(2) The Company shall pay all legal fees incurred by _____ in
connection with the transactions contemplated by this letter.
<PAGE> 5
Qorus.com, Inc.
March __, 2000
Page 5
(3) The Company shall provide to _____ copies of its Quarterly
Reports on Form 10-QSB and Annual Reports on Form 10-KSB
promptly after the filing of such reports with the Securities
and Exchange Commission.
(4) If at any time or times after the date hereof, the Company
shall determine to register any of its Common Stock or
securities convertible into or exchangeable for Common Stock
under the Securities Act (other than pursuant to a
registration statement on Form S-4 or S-8 or the equivalent
thereof), whether in connection with a public offering of
securities by the Company (a "primary offering"), a public
offering thereof by stockholders (a "secondary offering"), or
both, the Company will promptly give written notice thereof to
_____, and will use its best efforts to effect the
registration under the Securities Act of any Shares which
_____ may request in writing delivered to the Company within
15 days after the notice given by the Company; provided,
however, that in the case of the registration of Common Stock
by the Company in connection with an underwritten public
offering, the Company shall not be required to register Shares
in excess of the amount, if any, of Shares which the principal
underwriter of an underwritten offering shall reasonably and
in good faith agree can be included without jeopardizing the
success of the offering by the Company; and, provided further,
that if any Shares are not included for this reason, the
Company will permit _____ and all other holders of securities
of the Company having a right to include securities in such
registration who have requested participation in the offering
to participate in the offering proportionately in accordance
with the number of Shares (in the case of _____) or shares of
Common Stock subject to such registration right (in the case
of such other holders) owned or obtainable by them. Without in
any way limiting the types of registrations to which this
paragraph shall apply, in the event that the Company shall
effect a "shelf registration" under Rule 415 under the
Securities Act, or any other similar rule or regulation, the
Company shall take all necessary action, including, without
limitation, the filing of post-effective amendments, to permit
_____ to include its Shares in such registration in accordance
with the terms of this paragraph. In connection with any
offering under this paragraph involving an underwriting, the
Company shall not be required to include any Shares in such
underwriting unless _____ accepts the terms of the
underwriting as agreed on between the Company, _____ and the
underwriter selected by the Company. The Company shall have
the right to postpone or withdraw any registration effective
pursuant to this paragraph without obligation to _____. The
Company shall not be required to keep any such registration
statement effective for longer than 90 days. _____ agrees that
the Company may grant registration rights to the future
investors
<PAGE> 6
Qorus.com, Inc.
March __, 2000
Page 6
referred to in the Note, and that, in connection therewith,
agree to modify, amend or supplement the registration rights
set forth herein as requested by such investors. The Company
agrees to use its best efforts to cause the registration
rights of _____ and such new investors to be pari passu to the
extent reasonably practicable.
[Balance of Page Intentionally Left Blank]
<PAGE> 7
Qorus.com, Inc.
March __, 2000
Page 7
LETTER AGREEMENT
DATED MARCH __, 2000
SIGNATURE PAGE
IN WITNESS WHEREOF, _____ has executed this Letter Agreement as of the
day and year first written above.
---------------------------------
By:
------------------------------
Name:
-------------------------
Title:
------------------------
QORUS.COM, INC.,
a Florida corporation
By:
------------------------------
Name:
-------------------------
Title:
------------------------
<PAGE> 1
EXHIBIT 6.22
EMPLOYMENT AGREEMENT
(JAMES W. BLAISDELL)
This Employment Agreement (the "Agreement") is executed as of this 2nd
day of March, 2000, by and between Qorus.com, Inc., a Florida corporation
("Employer"), and James W. Blaisdell ("Employee").
1. Employment. Employer hereby employs Employee, and Employee hereby
agrees to said employment in accordance with the other terms and conditions set
forth herein.
2. Term. Employment shall commence as of the date hereof and continue
through approximately three (3) years until December 31, 2003, unless otherwise
terminated pursuant to the terms hereof. At the end of the term, the employment
relationship shall automatically terminate without notice.
3. Duties. Employee shall serve as Executive Chairman of the Board of
Directors and Chief Executive Officer of Employer and shall be subject to the
control of the Board of Directors. Employee shall devote substantially all of
his time and effort to the business of Employer in that capacity. Employment
hereunder shall constitute Employee's exclusive employment relationship during
the term of this Agreement.
4. Compensation.
(a) Base Salary Compensation. Employee shall receive a base salary
of $250,000.00 per year.
(b) Bonus Compensation. Employee shall be eligible to receive
annually an incentive bonus ("Bonus") of up to 50% of his base salary upon
achieving certain business and performance goals as set forth and agreed to by
the Employee and the Board of Directors. The Bonus shall be determined by the
Board of Directors based on its review of all relevant information, including
the Employee's performance.
(c) Payment. Salary and Bonus payments shall be made pursuant to
Employer's standard payroll practices unless otherwise agreed by the parties.
All compensation paid to Employee under this Agreement shall be subject to the
usual and customary federal and state tax withholding and other employment taxes
as legally required with respect to compensation paid by Employer to its
salaried personnel generally. Such Bonus shall be paid by Employer to Employee
within sixty (60) days of the accountant's completion of the Company's annual
financial statements or receipt of end-of-the-year results, whichever the
Employer determines as appropriate as the case may be.
(d) Stock Options. Employee shall be eligible to participate in
Employer's Stock Option Plan whereby you will be granted stock options to
purchase 660,000 shares for the option price of $1.25 per share, with options
for 330,000 shares vesting on the date of this Agreement and
<PAGE> 2
the balance vesting in equal amounts (110,000) over the next three (3) years on
the anniversary date of this Agreement, or a change of control of the Employer,
whichever occurs first. For purposes of this provision, "change of control"
shall mean (i) the acquisition of more than 50% of the outstanding voting stock
of Employer by any person or group (other than stockholders of the Employer on
the date of this Agreement) which is accompanied by a change in the composition
of the Board (as constituted on the day immediately preceding such acquisition)
as to a majority of its members within thirty (30) days following the occurrence
of such acquisition or (ii) a transaction in which substantially all of the
consolidated assets of the Company are sold. In addition to these options,
Employee shall be eligible for other incentive-based awards, and it is
anticipated that options comprising ten percent (10%) of the Company shall be
set aside for senior management and employees.
5. Benefits. Employee shall receive benefits currently enjoyed by other
senior executives employed by Employer as outlined on Exhibit A hereto.
6. Employee Representations. Employee hereby represents and warrants to
Employer that:
(a) the execution, delivery and performance of this Agreement by
Employee do not and will not conflict with, breach, violate or cause a default
under any contract, agreement, instrument, order, judgment or decree to which
Employee is a party or is presently bound; and
(b) Employee is not a party to or bound by any employment agreement,
non-competition agreement or confidentiality agreement with any other person or
entity, which shall adversely affect either his ability to perform his duties
under this Agreement or to implement his proposed business plan for Employer.
7. Business Expenses. Employer shall reimburse Employee for all
reasonable business expenses incurred by Employee in connection with his
employment in accordance with Employer's policy after receipt of vouchers,
receipts or other appropriate documentation. Employee shall be expected to
perform his duties without the benefit of a company credit card. Employee shall
be provided with a laptop computer and mobile telephone and other such mobile
business equipment as is reasonably necessary to carry out his duties. Employee
shall also be provided on a non-exclusive basis with office space in the
Washington, D.C. area, which space shall be used only for Employer's business.
8. Vacation. Employee shall be entitled to an annual vacation of not
more than four (4) weeks. Scheduling of each vacation shall be with the consent
of Employer, which shall not be unreasonably withheld. For the first year,
Employee shall be permitted to carry over four (4) full weeks of vacation into
the following year. Thereafter, Employee shall be required to take all of his
vacation each year or forfeit such time.
9. Term of Employment. The term of the Employee's employment shall
commence on the date of this Agreement and shall continue for the period set
forth in Paragraph 2 above unless sooner terminated as hereunder provided:
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<PAGE> 3
(a) "For Cause", as that term is defined below, upon thirty (30)
days' written notice to Employee.
(b) Upon the death of Employee.
(c) If Employee shall become disabled, upon ten (10) days' written
notice. Employee shall be deemed disabled within the meaning of this Agreement
if as a result of sickness (including mental or related illness), accident or
injury, Employee is substantially unable or it is reasonably foreseeable that
Employee will be substantially unable to perform his duties to Employer for a
period of six (6) consecutive months.
As used herein, the term "For Cause" shall mean: i) the conviction of a felony
or any crime involving moral turpitude, or commission of any other act of
dishonesty, disloyalty or fraud with respect to Employer; ii) substantial and
repeated failure to perform duties as reasonably directed by Employer within the
scope of this Agreement, which failure is not cured within five (5) business
days of written notice thereof to Employee; and iii) gross negligence,
intentional or willful misconduct or insubordination with respect to Employee's
performance hereunder or for any other breach of this Agreement by Employee
which is not cured within thirty (30) days after written notice thereof to
Employee.
10. Termination of Compensation. If Employee's employment terminates
For Cause, Employee shall not be entitled to any compensation hereunder after
such termination. Notwithstanding the termination of Employee's employment or
the term of this Agreement, the parties shall be required to carry out any
provisions hereof which contemplate performance by them subsequent to such
termination, including:
(a) the payment of any amounts of compensation under this Agreement
then accrued but unpaid;
(b) covenants not to compete or solicit under this Agreement; and
(c) non-disclosure of Confidential Information (as hereinafter
defined) under this Agreement. In addition, termination of this Agreement shall
not affect any liability or other obligation which shall have accrued prior to
termination; including, but not limited to, any liability for loss or damage on
account of default under this Agreement.
If Employee's employment is terminated by Employer without cause prior to
December 31, 2003, Employee shall be entitled to the following compensation upon
execution of a termination of employment agreement and release: Employee shall
receive an amount equal to one (1) year's base salary plus any unpaid earned
bonus for the previous year, payable in one lump sum or monthly as determined by
Employer in its sole discretion, plus continuation of benefits for one (1) year.
If Employee resigns prior to the expiration of the term of this Agreement, then
unless otherwise agreed by the parties, Employee will receive salary and any
earned bonus and benefits up until the date of resignation.
3
<PAGE> 4
11. Confidential Information. Employee acknowledges that the
proprietary information, observations and data [including, without limitation,
business plans, technical information, contracts, customer information and
client lists ("Customer Lists")] obtained by Employee while employed by
Employer, concerning the business or affairs of Employer, or any other affiliate
or subsidiary is confidential and proprietary (collectively, "Confidential
Information"). Therefore, Employee agrees not to disclose to any unauthorized
person or use for the Employee's account, whether during the term of this
Agreement or after its termination, any Confidential Information without the
prior written consent of Employer, unless and to the extent that the
aforementioned matters become generally known to and available for use by the
public other than as a result of Employee's acts or omissions or other wrongful
acts or omissions. Upon request, Employee shall deliver to Employer at the
termination of this Agreement, or at any other time Employer may request, all
memoranda, notes, plans, records, reports, customer and client lists and other
documents (and all copies thereof) relating to the Confidential Information or
the business of Employer or any affiliate or any subsidiary thereof. This
provision shall not apply to information deemed to be known by Employee at the
time of the execution of this Agreement, including information gained by virtue
of his experience and know-how.
12. Work Product. Employee agrees that all methods, analyses, reports,
plans, customer and client lists and all similar or related information which
(i) relate to Employer or any of its affiliates or subsidiaries and which (ii)
(a) are conceived, developed or made by Employee in the course of his employment
by Employer or (b) are the Customer Lists or any lists developed as a result of
leads arising directly or indirectly from the Customer Lists (all of the above
being collectively referred to as "Work Product") belong to Employer or its
affiliates or subsidiaries. Employee will perform all actions reasonably
requested by Employer to establish and confirm such ownership by Employer.
13. Non-Compete. For one (1) year following termination of employment
under the terms of this Agreement, Employee covenants and agrees with Employer
that Employee will not, directly or indirectly, whether acting on behalf of
himself or through a corporation, partnership, joint venture or some other
entity, engage in any activities or business that can reasonably be construed as
directly competitive with the activities and business of the Employer, which can
be described as the provision of enhanced Internet-based communication services,
including but not limited to voice over Internet Protocol ("IP"), fax over IP,
unified messaging and other contemplated services.
14. Covenants Not to Solicit. For one (1) year following termination of
employment under the terms of this Agreement, Employee covenants and agrees with
Employer that Employee will not, directly or indirectly, whether acting on
behalf of himself or through a corporation, partnership, joint venture or some
other entity:
(a) solicit any business from any client of Employer or any
potential clients of Employer to which Employer or Employee made a presentation
within the twelve (12) months preceding Employee's termination;
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<PAGE> 5
(b) induce or attempt to induce any employee of Employer or any of
its affiliates or subsidiaries to leave the employ of Employer or any of its
affiliates or subsidiaries, or in any way interfere with the relationship
between Employer or any of its affiliates and subsidiaries and any employee
thereof; and/or
(c) hire directly or through another entity under the control of
Employee, any person who was an employee of Employer or any of its affiliates or
subsidiaries at any time during the twelve (12) months preceding Employee's
termination.
15. Board of Directors. Employer agrees that Employee shall be
nominated to a seat on the Board of Directors upon beginning his employment.
16. Miscellaneous. This Agreement expresses the entire agreement and
understanding of the parties relating to the subject matter hereof, cancels and
supersedes any prior negotiations, promises, agreements, representations,
warranties, or understanding relating to the same subject matter, and except as
specifically provided herein, shall be subject to subsequent modification only
by another mutually signed written instrument which by its terms evidences an
intention to modify or amend the provisions hereof. This Agreement shall be
construed in accordance with the internal laws of the State of Illinois. In the
event that any provision hereof is determined to be illegal or unenforceable,
such determination shall not affect the validity or enforceability of the
remaining provisions hereof, all of which shall remain in full force and effect.
This Agreement may be executed in one or more counterparts, each of which shall
be deemed an original, but all of which together shall constitute one and the
same instrument. All masculine terms shall include the feminine counterpart and
all singular terms shall include plural and vice versa, as necessary to
interpret and enforce the intent of this Agreement. All captions are included
only for reference and will not constitute substantive provisions hereof. Any
dispute or controversy arising out of this Agreement shall be settled
exclusively by binding arbitration conducted by JAMS/Endispute, Inc. in Chicago,
Illinois, in accordance with its procedures. A decision by the arbitrator shall
be final and binding, and judgment may be entered the arbitrator's award in any
court of competent jurisdiction. The parties shall pay their own legal fees and
shall equally share the costs and fees of JAMS/Endispute, Inc.
INTENDING TO BE LEGALLY BOUND BY THIS AGREEMENT, the parties hereto
have executed and delivered this Agreement as of the date first written above.
QORUS.COM, INC.
By
--------------------------------------
Patrick J. Haynes, III
Senior Chairman
ACCEPTED:
- ------------------------------
James W. Blaisdell
5
<PAGE> 6
SCHEDULE A TO EMPLOYMENT AGREEMENT
(BENEFITS)
<PAGE> 1
EXHIBIT 6.23
CONVERTIBLE PROMISSORY NOTE
---------------------------
(6 month term with common stock)
Amount: $100,000.00 Chicago, Illinois November 1, 1999
FOR VALUE RECEIVED, the undersigned, QORUS.COM,INC., a Florida corporation
("Payor"), promises to pay to the order of
THOMSON KERNAGHAN & CO., LTD. ("PAYEE")
the principal sum of ONE HUNDRED THOUSAND DOLLARS AND NO CENTS ($100,000.00) at
the office of the Payee of this Note or any other place that Payee may from time
to time designate in writing, together with interest thereon, computed on the
basis of a 365 - day year for the actual number of days elapsed from the date
hereof until paid at that rate of interest per year which shall be equal to ten
percent (10%). Principal and interest accrued shall be paid on or before April
30, 2000 or the occurrence of the next equity or quasi-equity financing for the
Payor. This Note is referred to in, and is subject to the terms and provisions
of, that certain Qorus.com, Inc. Subscription Agreement by and between Payor and
Payee.
After maturity, whether by acceleration or otherwise, interest shall be payable
at a rate of interest which shall be 5% per year more than would otherwise be
payable on this Note. The undersigned shall have the right to repay this Note in
full or in part including all interest payable under this Note at any time
without penalty. It is the intention of the undersigned and the Payee to
conform strictly to applicable usury laws. Accordingly, if the interest payable
hereunder would be usurious under applicable law, then, in that event,
notwithstanding anything to the contrary herein, it is agreed that the aggregate
of all consideration which constitutes interest under applicable law that is
taken, reserved, contracted for, charged or received under this note or
otherwise in connection with this note shall under no circumstances exceed the
maximum amount of interest allowed by applicable law.
All principal indebtedness outstanding hereunder and accrued interest thereon
shall become immediately due and payable without notice or demand upon the
occurrence of any of the following events of default: (a) the undersigned fails
to pay any amount payable on this Note when due and such failure remains
uncorrected ten (10) days after such due date; (b) the undersigned makes a
general assignment for the benefit of its creditors, becomes or is adjudicated
insolvent or bankrupt or applies to any court for an arrangement or adjustment
of his debts; (c) a receiver, trustee or custodian is appointed for all or
substantially all of the undersigned's property; and (d) a proceeding relating
to any of the foregoing is commenced against the undersigned and not dismissed
within 30 days, or commenced by the undersigned.
The undersigned agrees to pay on demand all expenses of collection of this Note
including reasonable attorneys' fees and legal expenses. The undersigned and
all endorsers hereby expressly waive presentment, protest, notice of dishonor,
and notice of any kind in respect to this Note, as well as any right to a trial
by jury in any action or proceeding to enforce or defend any
1
<PAGE> 2
rights under this Note, and agrees that any such action or proceeding shall be
tried before a court and not a jury in Chicago, Illinois. No renewal or
extension of this Note, no release of any person primarily or secondarily
liable on this Note, no delay in the enforcement of this Note, and no delay or
omission in exercising any right or power under this Note shall affect the
liability of the undersigned or any endorser hereof. This Note and all rights
and obligations arising hereunder shall be governed by the laws of the State of
Illinois and shall be binding upon the undersigned's successors and assigns.
At the election of the Payee prior to the term of this Note, the outstanding
principal and interest of this Note shall convert into fully paid shares of
Common Stock, $.001 par value ("Shares"). The number of converted Shares shall
be either: (a) the number resulting from dividing the price of $3 per share
into the outstanding principal and interest existing at the time of Payee's
election; or (b) the number resulting from dividing the price per share for the
next equity or quasi-equity financing for Payor from the date of the making of
this Note. The choice between the two methods of computation shall be
determined by the method that results in the greatest number of Shares to the
Payee. Notice of any equity or quasi-equity financing shall be provided to
Payee. Upon such notice, Payee shall have no less than five (5) days to make its
election in writing. No other adjustment to the number of Shares shall be made;
there shall be no fractional shares issued.
This Note is not a negotiable instrument and may not pledged, sold, assigned or
hypothecated or otherwise transferred except by written permission of the Payor.
QORUS.COM, INC.
By: /s/ [ILLEGIBLE]
-------------------------
Title: [ILLEGIBLE]
----------------------
2
<PAGE> 1
EXHIBIT 6.24
QORUS.COM, INC.
SUBSCRIPTION AGREEMENT
FOR BRIDGE FINANCING
The undersigned, MARK VALENTINE, hereby agrees to enter into a bridge financing
arrangement with QORUS.COM, INC. ("Qorus.com"), a Florida corporation, according
to the following terms and conditions of this subscription agreement (the
"Subscription Agreement").
I. FINANCING
The terms of the financing are as follows: (1) the undersigned shall make a loan
to Qorus.com in the following principal amount of ONE HUNDRED THOUSAND DOLLARS
($100,000.00), according to the terms and conditions shown on the form of
Convertible Promissory Note ("the Note"), attached as Exhibit A hereto, which is
hereby incorporated and made part of this Subscription Agreement; (2) in
consideration of the payment of TWO HUNDRED DOLLARS AND NO CENTS ($200.00), the
undersigned shall receive within reasonable time, upon making the loan and
Qorus.com receiving the funds covered by the loan, TWENTY THOUSAND (20,000)
shares of common stock in Qorus.com at a par value of $.001 per share
(collectively "Shares") (the Note and the Shares collectively referred to as
"the Securities").
II. REPRESENTATIONS AND WARRANTIES
The undersigned understands that the Securities have not been registered under
the Securities Act of 1993, as amended (the "Securities Act"), or any applicable
state securities laws; the undersigned understands that the Securities are being
offered and sold in reliance upon exceptions from registration under such laws;
and the undersigned makes the following agreements, representations,
declarations, acknowledgements, and warranties, with the intent that the same
may be relied upon by Qorus.com in determining the suitability of the
undersigned as a purchaser of Securities.
A. The undersigned has read, understands, and is fully familiar with the
Business Plan of Qorus.com, the term sheet, the Promissory Note attached as
Exhibit A and this Subscription Agreement (collectively, "the Materials").
B. The undersigned understands that the Securities have not been registered
under the Securities Act, or any applicable state securities laws. The
undersigned understands that the Securities are being offered and sold in
reliance upon exemptions from registration under such laws.
C. The undersigned agrees that he will not dispose of any Securities, in whole
or part, unless and until Qorus.com shall consented thereto.
D. The undersigned represents and warrants that he has such knowledge and
experience in financial and business matters that he is capable of evaluating
the merits and risks of an investment in Qorus.com without the assistance of an
investment advisor, with respect to and concerning the advisability of the
purchase of the Securities hereby subscribed for.
E. The undersigned acknowledges that he has such economic bargaining power that
he has had access to all narrative and financial information about Qorus.com
necessary to make an informed investment decision concerning a purchase of the
Securities and has had the opportunity to negotiate actively the
<PAGE> 2
terms and conditions of his investment in the Securities Qorus.com has made all
documents requested pertaining to the offering of Securities available to the
undersigned; and Qorus.com has allowed the undersigned an opportunity to ask
questions and receive answers thereto and to verify and clarify any information
contained in the documents described above and that the answers and other
responses to such inquiries have been completely satisfactory to the
undersigned.
F. The undersigned has relied solely upon this Subscription Agreement, the
Materials and independent investigations made by the undersigned in making the
decision to purchase the Securities subscribed for herein; and the undersigned
acknowledges that no representations or agreements other than those set forth
in this Subscription Agreement, the Materials and related ancillary documents
have been made to the undersigned in respect thereto.
G. The undersigned understands and acknowledges that no federal or state
agency has passed upon the adequacy or accuracy of the information set forth in
this Subscription Agreement and related documents or made any finding or
determination as to the fairness or appropriateness of the Securities for
investment or any recommendations or endorsements of the Securities as an
investment.
H. The undersigned expressly represents warrants, and agrees that:
(1) He or she has knowledge and experience in financial and business matters
so that he or she is capable of evaluating the merits and risks of an
investment in the Securities;
(2) Hie or her financial condition is such that he or she has no need for
liquidity with respect to his or her investment in the Securities for an
indefinite period of time and no need to dispose of any portion of his or her
Securities to satisfy any existing or contemplated undertaking or indebtedness
or for any other purpose;
(3) He or she is able to bear the economic risk of his/her investment in the
Securities for an indefinite period of time, including the risk of losing all of
his/her investment;
(4) He or she is an "accredited" investor as that term is defined in Rule 501
of Regulation D promulgated under the Securities Act of 1933.
(5) He or she has received such information from Qorus.com as he or she deemed
necessary and has made such investigation as he or she has deemed appropriate as
a sophisticated and experienced investor. Qorus.com has made available to
him/her any information or sources of information available that he or she has
requested. In making a decision to purchase the Securities, he or she has not
relied upon any oral representations of Qorus.com or its management or any of
its shareholders nor upon any writings except as have been delivered to him/her
by Qorus.com in connection herewith.
I. The undersigned expressly acknowledges that:
(1) Qorus.com is recently organized, and has limited financial resources and,
further, an investment in the Securities involves numerous risk factors:
(2) The undersigned has the economic bargaining power to obtain full access to
all information and documents concerning Qorus.com and its proposed business
required to make an informed investment decision;
(3) No federal or state agency has passed upon the adequacy or accuracy of the
information set forth in any of the documentation provided or made any finding
or determination as to the fairness of
2
<PAGE> 3
appropriateness or endorsement of the Securities as an investment; and
(4) It may not be possible for the undersigned to liquidate his or her
investment in Qorus.com.
J. If the undersigned is a partnership, trust, corporation, or other entity not
a natural person (i.e., not an individual), it was not organized and has not
been funded for the sole purpose of acquiring any Securities, and it has the
power and authority to execute and comply with the terms of this Subscription
Agreement.
K. The undersigned is a bona fide permanent resident of the state noted below
in his address and the offering of Securities was made to him or her in such
state.
III. INDEMNIFICATION
The undersigned agrees to indemnify and hold harmless Qorus.com and each of the
officers and directors of Qorus.com and the affiliates and agents of each of
them, and hold them harmless from and against any and all loss, damage,
liability, or expense, including reasonable attorneys' fees, which they or any
of them may sustain or incur by reason of, or in connection with, any material
misrepresentation or breach of warrant or agreement by the undersigned under
this Subscription Agreement or in connection with the sale of distribution by
the undersigned of the Securities purchase by the undersigned pursuant hereto in
violation of the Securities Act or of any applicable sate securities law.
IV. ACCEPTANCE AND REVOCATION
The undersigned understands and agrees that this Subscription Agreement may be
accepted or rejected by Qorus.com, in whole but not in part, in its sole and
absolute discretion and, if accepted, the Securities purchased pursuant hereto
will be issued only in the name of the undersigned. The undersigned hereby
acknowledges and agrees that this Subscription Agreement may not be canceled,
revoked, or withdrawn (except as herein specifically provided) and that this
Subscription Agreement and the documents submitted herewith shall survive (i)
changes in the transactions, documents and instruments relevant to this
transaction which are not material, and (ii) death or disability of the
undersigned; provided, however, that if the Qorus.com shall not have accepted
this Subscription Agreement on or before November 1, 1999, by depositing in the
United States mail, postage prepaid, a written notice of acceptance addressed to
the undersigned to the address set forth below, this Subscription Agreement and
all documents submitted herewith shall automatically be canceled, terminated,
and revoked.
V. MISCELLANEOUS
The Subscription Agreement and the representations and warranties contained
herein shall be binding upon the heirs, executors, administrators, and other
successors of the undersigned. If there is more than one signatory hereto, the
obligations, representations, warranties, and agreements of the undersigned are
made jointly and severally. Upon receipt of the financing from the undersigned,
Qorus.com shall pay all amounts due to the Thurston Group, Inc. and any other
fees or commissions due pursuant to the transaction covered in this Agreement.
3
<PAGE> 4
SUBSCRIPTION AGREEMENT SIGNATURE PAGE
IN WITNESS WHEREOF, I have executed the attached Subscription Agreement
Signature Page on this ___ day of October, 1999 and declare that it is truthful
and correct.
Dollar Amount Loaned: $100,000.00/Dollar Amount for Securities Purchased:
$200.00
Number of Securities Purchased (as of this date and excluding conversion
feature): 20,000 shares
NAME (Please print):
THOMSON KERNAGHAN & CO. LTD.
- --------------------------------------------------------------------------------
First Middle Last
ADDRESS: 365 BAY ST. 10th Floor TORONTO, ONT. MSH 2V2
-----------------------------------------------------------------------
Street or P.O. Box City State Zip
Address for Notices (if different from above):
SAME
- --------------------------------------------------------------------------------
Street or P.O. Box City State Zip
If Subscriber is an entity, form of entity (Trust, etc.): CORPORATION
----------------------
and laws under which such entity is formed: CANADA
------------------------------------
Principal jurisdiction in which business (if any) is conducted CANADA
-----------------
Social Security or Tax Identification Number: N/A
----------------------------------
After reviewing the definition of "Accredited Investor" contained on the next
page, is the undersigned an Accredited Investor? Yes X No
----- -----
If answer is "Yes," which subsection(s) of that definition are being relied
upon? 3
------------
Signature: /s/ [ILLEGIBLE]
------------------------
AS AGENT
ACCEPTED:
QORUS.COM, INC.
By: Dated: [ILLEGIBLE]
-------------------------------- ----------------------
Title:
-----------------------------
4
<PAGE> 5
DEFINITIONS AND TERMS USED IN REGULATION D:
ACCREDITED INVESTOR. "Accredited investor" shall mean any person who comes
within any of the following categories, or who the issuer reasonably believes
comes within any of the following categories, at the time of the sale of the
securities to that person:
(1) Any bank as defined in section 3(a)(2) of the Act, or any savings and loan
association or other institution as defined in section 3(a)(5)(A) of the Act
whether acting in its individual or fiduciary capacity; any broker or dealer
registered pursuant to section 15 of the Securities Exchange Act of 1934; any
insurance company as defined in section 2(13) of the Act ; any investment
company registered under the Investment Company Act of 1940 or a business
development company as defined in section 2(a)(48) of that Act; any Small
Business Investment Company licensed by the U.S. Small Business Administration
under section 301(c) or (d) of the Small Business Investment Act of 1958; any
plan established and maintained by a state, its political subdivisions, or any
agency or instrumentality of a state or its political subdivisions, for
the benefits of its employees if such plan has total assets in excess of
$5,000,000; any employee benefit plan within the meaning of the Employee
Retirement Income Security Act of 1974 if the investment decision is made by a
plan fiduciary, as defined in section 3(21) of such Act, which is either a bank,
savings and loan association, insurance company, or registered investment
adviser, or if the employee benefit plan has total assets in excess of
$5,000,000 or, if a self-directed plan, with investment decisions made solely by
persons that are accredited investors;
(2) Any private business development company as defined in section 202(a)(22)
of the Investment Advisors Act of 1940;
(3) Any organization described in section 501(c)(3) of the Internal Revenue
Code, corporation, Massachusetts or similar business trust, or Qorus.com, not
formed for the specific purpose of acquiring the securities offered, with total
assets in excess of $5,000,000;
(4) Any director, executive officer, or general partner of the issuer of the
securities being offered or sold, or any director, executive officer, or
general partner of a general partner of that issuer;
(5) Any natural person whose individual net worth, or joint net worth with that
person's spouse, at the time of his purchase exceeds $1,000,000;
(6) Any natural person who had an individual income in excess of $200,000 in
each of the two most recent years or joint income with that person's spouse in
excess of $300,000 in each of those years and has a reasonable expectation of
reaching the same income level in the current year;
(7) Any trust, with total assets in excess of $5,000,000, not formed for the
specific purpose of acquiring the securities offered, whose purchase is
directed by a sophisticated person as described in Rule 506(b)(2)(ii); and
(8) Any entity in which all of the equity owners are accredited investors.
5
<PAGE> 1
EXHIBIT 6.25
AGREEMENT FOR PROFESSIONAL SERVICES
QORUS.COM, INC. ("the Company") and LEIGHTON W. SMITH ("Contractor"), for and in
consideration of the mutual covenants contained herein, enter into this
Agreement for Professional Services ("the Agreement") as follows:
1. SCOPE OF THIS AGREEMENT
Contractor agrees to provide his services as an experienced professional
consultant for the performance of various business development duties.
2. COMPENSATION
The Company agrees to pay Contractor a fee of $5,000 per month and 50,000, fully
vested, options to purchase common shares at $1.25 for services provided
pursuant to this Agreement. All business expenses incurred by Contractor
relating to the scope of his services pursuant to this Agreement shall be paid
by the Company, provided that each expense is of a nature qualifying it as a
proper deduction for tax purposes; that any travel and entertainment expense
conforms to the Company's Travel and Entertainment policy; and Contractor
furnishes to the Company adequate records to substantiate the expense. Any
expense incurred by the Contractor shall be approved in advance by the Company
and submitted along with the invoice.
3. WORK ASSIGNMENTS
Contractor acknowledges that he is entering into this Agreement as an individual
and that he shall not assign or sub-contract any portion of this Agreement or
the work to be performed pursuant to this Agreement to any other person or
entity without prior written approval of the Company.
4. OWNERSHIP AND INTELLECTUAL PROPERTY RIGHTS
The Company is the owner of all work product arising out of the work performed
pursuant to this Agreement. Contractor hereby grants all such licenses or
intellectual property rights to the Company. Upon termination of this Agreement
or upon conclusion of services provided pursuant to this Agreement, Contractor
agrees to provide the originals of his work product. Contractor shall inform the
Company of any third-party intellectual property that it uses in connection with
its work under the Agreement, including copyrighted or licensed materials.
5. CONFIDENTIALITY
The work being performed by Contractor pursuant to this Agreement is
confidential and proprietary. Contractor, including its partners, employees,
agents or subcontractors, shall not disclose any of this information, including
financial and operational information relating to the Company or any client of
the Company not expressly authorized to receive such information.
6. INDEPENDENT CONTRACTOR
It is understood that Contractor is an independent contractor contracting to
perform the duties set forth above and that there will be no employer/employee
relationship arising out of this Agreement. Contractor
<PAGE> 2
acknowledges that he is responsible for any federal, state or local taxes that
may come due as a result of payment to Contractor, or his successors, assigns or
heirs, for services performed pursuant to this Agreement.
7. ENTIRE AGREEMENT
This Agreement constitutes the sole and only Agreement of the parties and
correctly sets forth the rights, duties, and obligations of each to the other in
connection therewith. It supersedes any and all other agreements, either oral or
in writing, between the parties. Each party to this Agreement acknowledges that
no representations, inducements, promises or agreements, or otherwise, have been
made by any party, or anyone acting on behalf of any party, which are not
embodied herein, and that no other agreement, statement or promise not contained
in this Agreement shall be valid or binding.
8. APPLICABLE LAW
This Agreement shall be deemed to have been entered into and shall be construed
and enforced in accordance with the laws of the State of Illinois.
9. TERMINATION
This Agreement may be terminated by either party with or without cause on seven
(7) days prior written notice to the other party. In the event of termination of
this Agreement by the Company, Contractor shall be paid all outstanding amounts
for Company-approved services and expenses up to the date of termination.
LEIGHTON W. SMITH, an individual QORUS.COM, INC.
By:
- --------------------------------- --------------------------------
Date: Title:
---------------------------- -----------------------------
Date:
------------------------------
2
<PAGE> 1
EXHIBIT 6.26
AMENDMENT TO
AGREEMENT FOR PROFESSIONAL SERVICES
The undersigned do hereby consent to and approve the following change to that
certain Agreement for Professional Services, dated as of February 1, 2000,
between QORUS.COM, INC. ("the Company") and LEIGHTON W. SMITH ("Contractor"), a
copy of which is attached hereto as Exhibit A (the "Agreement"):
2. COMPENSATION
As of March 2, 2000, the Company also agrees to pay to Contractor
50,000 fully vested options to purchase Qorus.com, Inc. common shares
at $1.25 per share.
In all other respects, the Agreement shall remain in full force and effect.
The foregoing amendment shall be effective as of March 2, 2000.
LEIGHTON W. SMITH, an individual QORUS.COM, INC.
- --------------------------------- By:
---------------------------
Patrick J. Haynes, III
Date: Title: Senior Chairman
---------------------------- Date: March _____, 2000
<PAGE> 1
EXHIBIT 6.27
AGREEMENT FOR PROFESSIONAL SERVICES
QORUS.COM, INC. ("the Company") and MICHAEL J. LABEDZ ("Contractor"), for and in
consideration of the mutual covenants contained herein, enter into this
Agreement for Professional Services ("the Agreement") as follows:
1. SCOPE OF THIS AGREEMENT
Contractor agrees to provide his services as an experienced professional
consultant for the performance of various business development duties.
2. COMPENSATION
The Company agrees to pay Contractor 75,000, fully vested, options to buy common
stock at a price of $1.25 per share for services provided pursuant to this
Agreement. All business expenses incurred by Contractor relating to the scope of
his services pursuant to this Agreement shall be paid by the Company, provided
that each expense is of a nature qualifying it as a proper deduction for tax
purposes; that any travel and entertainment expense conforms to the Company's
Travel and Entertainment policy; and Contractor furnishes to the Company
adequate records to substantiate the expense. Any expense incurred by the
Contractor shall be approved in advance by the Company and submitted along with
the invoice.
3. WORK ASSIGNMENTS
Contractor acknowledges that he is entering into this Agreement as an individual
and that he shall not assign or sub-contract any portion of this Agreement or
the work to be performed pursuant to this Agreement to any other person or
entity without prior written approval of the Company.
4. OWNERSHIP AND INTELLECTUAL PROPERTY RIGHTS
The Company is the owner of all work product arising out of the work performed
pursuant to this Agreement. Contractor hereby grants all such licenses or
intellectual property rights to the Company. Upon termination of this Agreement
or upon conclusion of services provided pursuant to this Agreement, Contractor
agrees to provide the originals of his work product. Contractor shall inform the
Company of any third-party intellectual property that it uses in connection with
its work under the Agreement, including copyrighted or licensed materials.
5. CONFIDENTIALITY
The work being performed by Contractor pursuant to this Agreement is
confidential and proprietary. Contractor, including its partners, employees,
agents or subcontractors, shall not disclose any of this information, including
financial and operational information relating to the Company or any client of
the Company not expressly authorized to receive such information.
6. INDEPENDENT CONTRACTOR
It is understood that Contractor is an independent contractor contracting to
perform the duties set forth above and that there will be no employer/employee
relationship arising out of this Agreement. Contractor acknowledges that he is
responsible for any federal, state or local taxes that may come due as a result
of
<PAGE> 2
payment to Contractor, or his successors, assigns or heirs, for services
performed pursuant to this Agreement.
7. ENTIRE AGREEMENT
This Agreement constitutes the sole and only Agreement of the parties and
correctly sets forth the rights, duties, and obligations of each to the other in
connection therewith. It supersedes any and all other agreements, either oral or
in writing, between the parties. Each party to this Agreement acknowledges that
no representations, inducements, promises or agreements, or otherwise, have been
made by any party, or anyone acting on behalf of any party, which are not
embodied herein, and that no other agreement, statement or promise not contained
in this Agreement shall be valid or binding.
8. APPLICABLE LAW
This Agreement shall be deemed to have been entered into and shall be construed
and enforced in accordance with the laws of the State of Illinois.
9. TERMINATION
This Agreement may be terminated by either party with or without cause on seven
(7) days prior written notice to the other party. In the event of termination of
this Agreement by the Company, Contractor shall be paid all outstanding amounts
for Company-approved services and expenses up to the date of termination.
MICHAEL J. LABEDZ, an individual QORUS.COM, INC.
By:
- ------------------------------- --------------------------------
Date: Title:
-------------------------- -----------------------------
Date:
------------------------------
2
<PAGE> 1
EXHIBIT 6.28
AGREEMENT FOR PROFESSIONAL SERVICES
QORUS.COM, INC. ("the Company") and WILLARD C. MCNITT III ("Contractor"), for
and in consideration of the mutual covenants contained herein, enter into this
Agreement for Professional Services ("the Agreement") as follows:
1. SCOPE OF THIS AGREEMENT
Contractor agrees to provide his services as an experienced professional
consultant for the performance of various business development duties.
2. COMPENSATION
The Company agrees to pay Contractor 50,000, fully vested, options to buy common
stock at a price of $1.25 per share for services provided pursuant to this
Agreement. All business expenses incurred by Contractor relating to the scope of
his services pursuant to this Agreement shall be paid by the Company, provided
that each expense is of a nature qualifying it as a proper deduction for tax
purposes; that any travel and entertainment expense conforms to the Company's
Travel and Entertainment policy; and Contractor furnishes to the Company
adequate records to substantiate the expense. Any expense incurred by the
Contractor shall be approved in advance by the Company and submitted along with
the invoice.
3. WORK ASSIGNMENTS
Contractor acknowledges that he is entering into this Agreement as an individual
and that he shall not assign or sub-contract any portion of this Agreement or
the work to be performed pursuant to this Agreement to any other person or
entity without prior written approval of the Company.
4. OWNERSHIP AND INTELLECTUAL PROPERTY RIGHTS
The Company is the owner of all work product arising out of the work performed
pursuant to this Agreement. Contractor hereby grants all such licenses or
intellectual property rights to the Company. Upon termination of this Agreement
or upon conclusion of services provided pursuant to this Agreement, Contractor
agrees to provide the originals of his work product. Contractor shall inform the
Company of any third-party intellectual property that it uses in connection with
its work under the Agreement, including copyrighted or licensed materials.
5. CONFIDENTIALITY
The work being performed by Contractor pursuant to this Agreement is
confidential and proprietary. Contractor, including its partners, employees,
agents or subcontractors, shall not disclose any of this information, including
financial and operational information relating to the Company or any client of
the Company not expressly authorized to receive such information.
6. INDEPENDENT CONTRACTOR
It is understood that Contractor is an independent contractor contracting to
perform the duties set forth above and that there will be no employer/employee
relationship arising out of this Agreement. Contractor acknowledges that he is
responsible for any federal, state or local taxes that may come due as a result
of
<PAGE> 2
payment to Contractor, or his successors, assigns or heirs, for services
performed pursuant to this Agreement.
7. ENTIRE AGREEMENT
This Agreement constitutes the sole and only Agreement of the parties and
correctly sets forth the rights, duties, and obligations of each to the other in
connection therewith. It supersedes any and all other agreements, either oral or
in writing, between the parties. Each party to this Agreement acknowledges that
no representations, inducements, promises or agreements, or otherwise, have been
made by any party, or anyone acting on behalf of any party, which are not
embodied herein, and that no other agreement, statement or promise not contained
in this Agreement shall be valid or binding.
8. APPLICABLE LAW
This Agreement shall be deemed to have been entered into and shall be construed
and enforced in accordance with the laws of the State of Illinois.
9. TERMINATION
This Agreement may be terminated by either party with or without cause on seven
(7) days prior written notice to the other party. In the event of termination of
this Agreement by the Company, Contractor shall be paid all outstanding amounts
for Company-approved services and expenses up to the date of termination.
MICHAEL J. LABEDZ, an individual QORUS.COM, INC.
By:
- ------------------------------- --------------------------------
Date: Title:
-------------------------- -----------------------------
Date:
------------------------------
2
<PAGE> 1
<TABLE>
<CAPTION>
<S> <C>
NOTICE OF GRANT OF STOCK OPTIONS QORUS.COM, INC.
AND OPTION AGREEMENT 11350 Random Hills Road
Suite 650
Fairfax, Virginia 22030
- --------------------------------------------------------------------------------
M_. [INSERT NAME] Optionee ID:
---------------------
- -----------------------
- -----------------------
- -----------------------
- --------------------------------------------------------------------------------
Effective _______, ____, you have been granted a Non-Statutory Stock
Option to purchase __________ (______) shares of QORUS.COM, INC. (the
"Corporation") Common Stock at ______ Dollars ($_.00) per share, subject to the
vesting provisions below.
The option price of the shares granted is _______________ Dollars
($__,000.00).
Shares in each period will become fully vested as shown below.
Number of Shares Vesting
---------------- -------
[None]/_____ of the Option Shares Date of Grant
_______ of the Option Shares 1 Year From Date of Grant
_______ of the Option Shares 2 Years From Date of Grant
_______ of the Option Shares 3 Years From Date of Grant
_______ of the Option Shares 4 Years From Date of Grant
_______ of the Option Shares 5 Years From Date of Grant
- --------------------------------------------------------------------------------
If the spousal consent below is not signed, you represent and warrant that you
are not married.
- --------------------------------------------------------------------------------
- ------------------------------------ -------------------------------
QORUS.COM, INC. Date
- ------------------------------------ -------------------------------
[Optionee's Signature] Date
By his or her signature below, the spouse of the Optionee acknowledges that he
or she has read the Agreement and is familiar with the terms and provisions
thereof, and agrees to be bound by all the terms and conditions of said
Agreement.
- ------------------------------------ --------------------------------
Spouse Date
</TABLE>
<PAGE> 2
[FORM OF NON-STATUTORY STOCK OPTION AGREEMENT]
QORUS.COM, INC.
QORUS.COM, INC., a Florida corporation (the "Corporation"),
hereby grants to ________________ (the "Optionee"), an option (the "Option") to
purchase the number of shares of Common Stock, $.001 par value (the "Stock"), of
the Corporation specified in the Notice of Grant attached hereto and
incorporated herein by this reference (the "Notice") at the price specified in
the Notice (the "Option Shares"), exercisable in installments as provided below
(the date of the Notice shall be hereinafter referred to as the "Date of Grant")
and, unless sooner terminated as hereinafter provided, until five (5) years
after the Date of Grant. This Option is intended to qualify as a "Non-Statutory
Stock Option" within the meaning of Section 422 of the Internal Revenue Code of
1986, as amended (the "Code").
This Option shall be exercisable with respect to each
installment shown below on or after the date of vesting applicable to such
installment, as follows:
<TABLE>
<CAPTION>
Number of Shares Date of Earliest Exercise (Vesting)
---------------- -------------------------
<S> <C>
[None]/___ of the Option Shares Date of Grant
_______ of the Option Shares 1 Year From Date of Grant
_______ of the Option Shares 2 Years From Date of Grant
_______ of the Option Shares 3 Years From Date of Grant
_______ of the Option Shares 4 Years From Date of Grant
_______ of the Option Shares 5 Years From Date of Grant
</TABLE>
1. Exercise.
Subject to the limitations described above and elsewhere
herein, this Option may be exercised in whole or in part by the delivery to the
Corporation of a written notice stating the number of Option Shares to be
purchased pursuant to the Option accompanied by payment of the purchase price as
set forth herein for the full purchase price of the Option Shares to be
purchased.
A certificate or certificates for the shares as to which this
Option shall have been so exercised shall be registered in the name of the
person or persons who exercise this Option. In the event such person or persons
are the transferee(s) of the Optionee by will or by the laws of descent and
distribution, the notice of exercise shall be accompanied by appropriate proof
of the right of such transferee(s) to exercise this Option.
2. Payment of Exercise Price.
Except as otherwise set forth below, the aggregate purchase
price of any Option Shares purchased shall be paid at the time of the exercise
of the Option in cash or by certified or
-2-
<PAGE> 3
cashier's check payable to the order of the Corporation. The purchase price may
also be paid, at the sole discretion of the Corporation and as permitted by
applicable law (i) by delivering shares of the Corporation's Stock already owned
by the Optionee having a fair market value (as determined by the Corporation)
equal to not less than the aggregate purchase price of the Option Shares being
purchased, (ii) by the optionee's promissory note in a form approved by the
Corporation, (iii) by the assignment of the proceeds of a sale or a loan with
respect to some or all of the Option Shares being acquired upon the exercise of
the option, and (iv) any combination of the foregoing as determined by the
Corporation with respect to the Option Shares to be purchased.
Unless otherwise provided by the Corporation, the Option may
not be exercised by delivery to the Corporation of shares of the Corporation's
Stock owned by the optionee unless such shares of Stock either have been owned
by the optionee for more than six (6) months or were not acquired, directly or
indirectly, from the Corporation.
Any permitted promissory note shall be on such terms as the
Corporation shall determine at the time the option is granted. The Corporation
shall have the authority to permit or require the optionee to secure any
promissory note used to exercise an option with the Option Shares acquired upon
the exercise of the Option or with other collateral acceptable to the
Corporation and the amount of the promissory note shall not exceed the exercise
price of the Option Shares with respect to which the Option is being exercised
plus applicable local, state, federal and foreign taxes attributable to such
exercise. Unless otherwise provided by the Board, if the Corporation at any time
is subject to the regulations promulgated by the Board of Governors of the
Federal Reserve System or any other governmental entity affecting the extension
of credit in connection with the Corporation's securities, any promissory note
shall comply with such applicable regulations, and the optionee shall pay the
unpaid principal and accrued interest, if any, to the extent necessary to comply
with such applicable regulations.
3. Nontransferability.
This Option is not transferable by the Optionee, either
voluntarily or by operation of law, other than by will or the laws of descent
and distribution and is exercisable during Optionee's lifetime only by Optionee.
4. Employment.
This agreement by Optionee shall not confer upon Optionee any
right to employment to which Optionee is not otherwise entitled, nor shall it
have any bearing on Optionee's rate of compensation.
5. Termination of Employment, Disability on Death.
(a) Termination of Option. Except as provided in
subsections (b) through (d) of this Section 4, this
Option shall terminate immediately upon Optionee's
termination of employment with Corporation or a
subsidiary corporation or parent corporation.
-3-
<PAGE> 4
(b) Termination of Employment. If the Optionee's
employment with Corporation or a subsidiary
corporation or parent corporation terminates for any
reason (other than death or permanent and total
disability within the meaning of Section 22(e)(3) of
the Code), Optionee may exercise all or part of the
unexercised vested portion of this Option (as
determined pursuant to Section 1 hereof) within three
(3) months after such termination or until the
expiration of this Option, whichever first occurs,
but only to the extent this Option was otherwise
exercisable by Optionee at the time of such
termination.
(c) Disability. If Optionee's employment with Corporation
or a subsidiary corporation or parent corporation
terminates due to Optionee's permanent and total
disability (within the meaning of Section 22(e)(3) of
the Code), Optionee may exercise all or part of the
unexercised vested portion of this Option (as
determined pursuant to Section 1 hereof) within one
(1) year after such termination or until the
expiration of this Option, whichever first occurs,
but only to the extent this Option was otherwise
exercisable by Optionee at the time of such
termination.
(d) Death. If the Optionee shall die while in the employ
of the Corporation or a subsidiary corporation or
parent corporation, or within three (3) months after
termination of such employment, the unexercised
vested portion hereof may be exercised within one (1)
year after the date of death or until the expiration
of this Option, whichever first occurs, by the person
or persons entitled thereto under the Optionee's will
or under the laws or descent and distribution
pertaining to this Option, but only to the extent
this Option was otherwise exercisable by Optionee at
the time of Optionee's death.
6. Purchase for Investment.
This Section 6 shall not be applicable if at the time of
exercise of this Option, or at the time of sale of Option Shares previously
purchased upon the exercise of such Option, the Corporation has on file with the
Securities and Exchange Commission a then effective registration statement on
Form S-8 or S-3, whichever is applicable, with respect to the Option Shares
being acquired or sold.
As an inducement for the granting of this Option, Optionee
represents that all Option Shares which Optionee may purchase upon the exercise
hereof will be acquired with the intent of holding same for investment purposes,
and not with a view to the sale or distribution thereof. Optionee specifically
authorizes the Corporation to lodge with its transfer agent a "stop transfer" to
place an appropriate legend on the Option Shares, and Optionee agrees to execute
a restricted stock letter so as to enable the Corporation to verify compliance
with the Optionee's stated investment intention. In the event Optionee at any
time contemplates disposition of any Option Shares acquired pursuant to the
exercise of this Option, Optionee will first notify the
-4-
<PAGE> 5
Corporation of such proposed disposition and will thereafter cooperate with the
Corporation in complying with all requirements, which in the opinion of the
Corporation or its counsel, must be satisfied prior to such disposition.
Optionee further acknowledges that the Corporation is under no obligation to
register pursuant to the Securities Act of 1933, as amended, any of the Option
Shares that Optionee may purchase hereunder.
7. Adjustments.
The number of Option Shares and the price per share provided
for herein shall be subject to adjustment as provided herein.
(a) If the outstanding shares of the Corporation are
increased, decreased, changed into, or exchanged for a different number or kind
of shares or securities through merger, consolidation, combination, exchange of
shares, or other reorganization, recapitalization, reclassification, stock
dividend, stock split, or reverse stock split, an appropriate and proportionate
adjustment shall be made changing the number or kind of unexercised Option
Shares subject to this Option. Any adjustments made pursuant to this Section 7
in outstanding Option Shares shall be made without change in the aggregate
purchase price applicable to the unexercised portion of the Option, but with a
corresponding adjustment in the price for each Option Share. The adjustments
determined by the Board of Directors pursuant to this Section 7(a) shall be
final, binding and conclusive.
(b) Upon a Change of Control of the Corporation, this Option
shall immediately vest in full. For purposes of the Plan, a "Change of Control"
shall be deemed to have occurred upon any of the following events:
(i) following the date hereof, a person or entity or group
of persons or entities, acting in concert, shall become the direct or indirect
beneficial owner (within the meaning of Rule 13d-3 of the Exchange Act) of
securities of the Corporation representing fifty percent (50%) or more of the
combined voting power of the issued and outstanding capital stock of the
Corporation (a "Significant Owner"), unless such shares are originally issued to
such Significant Owner by the Corporation;
(ii) the majority of the Corporation's Board of Directors
is no longer comprised of (A) the incumbent directors who constitute the Board
of Directors on the date hereof and (B) any other individual(s) who becomes a
director subsequent to the date hereof whose initial election or nomination for
election as a director, as the case may be, was approved by at least a majority
of the directors who comprised the incumbent directors as of the date of such
election or nomination;
(iii) the dissolution or liquidation of the Corporation;
(iv) the transfer of substantially all of the assets of
the Corporation to another entity;
-5-
<PAGE> 6
(v) the approval by the shareholders of the Corporation of
any reorganization, merger, or consolidation of the Corporation with one or more
other entities in which the Corporation is not the surviving corporation, or
which would result in the occurrence of any event described above in this
Section 7(b).
In the event of the occurrence of any of the events described
in clauses (i) through (v) above, the Optionee (or the Optionee's estate or a
person who acquired the right to exercise this Option from the Optionee by
bequest or inheritance) shall be entitled, prior to the effective date of the
consummation of any such transaction, to purchase, in whole or in part, the full
number of Option Shares granted to the Optionee that the Optionee would
otherwise have been entitled to purchase during the remaining term of this
Option and without regard to any otherwise applicable restrictions set forth in
this Option delaying the immediate exercise of this Option. To the extent that
any such exercise relates to stock that is not otherwise available for purchase
through the exercise of the Option by the Optionee at that time, the exercise
pursuant to this Section 7(b) shall be contingent upon the consummation of the
Change in Control.
8. Notices.
Any notice to be given under the terms of this Option shall be
in writing and addressed to the Corporation at the address set forth in the
Notice, to the attention of the Secretary and to the Optionee at the address
given beneath the Optionee's signature hereto, or at such other address as
either party may hereafter designate in writing to the other.
-6-
<PAGE> 7
IN WITNESS WHEREOF, the Corporation has caused this Option to
be executed on its behalf by a duly authorized officer and the Optionee has
hereunto set his or her hand, effective as of the Date of Grant.
QORUS.COM, INC.
a Florida corporation
By
-------------------------------------------
Name:
-------------------------------------
Title:
------------------------------------
OPTIONEE
---------------------------------------------
(Signature)
---------------------------------------------
(Print Name)
---------------------------------------------
(Address)
---------------------------------------------
(City, State, Zip Code)
-7-
<PAGE> 8
CONSENT OF SPOUSE
In consideration of the execution of the foregoing Stock
Option Agreement (the "Agreement") by QORUS.COM, INC., I, ___________________,
the spouse of the Optionee herein named, do hereby join with my spouse in
executing the foregoing Agreement and do hereby agree to be bound by all of the
terms and provisions thereof.
DATED: , .
------------------ ------ -----------------------------------
Signature of Spouse
<PAGE> 1
EXHIBIT 6.30
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AND HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A
VIEW TO, OR IN CONNECTION WITH, THE SALE OR DISTRIBUTION THEREOF. NO SUCH SALE
OR DISPOSITION MAY BE EFFECTED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT
RELATED THERETO OR AN OPINION OF COUNSEL FOR THE COMPANY THAT SUCH REGISTRATION
IS NOT REQUIRED UNDER THE SECURITIES ACT OF 1933.
Date of Issuance: March 27, 2000 Number of Shares: 8,720
(subject to adjustment)
QORUS.COM, INC., A FLORIDA CORPORATION
COMMON STOCK PURCHASE WARRANT
QORUS.COM, INC., A FLORIDA CORPORATION (the "Company"), for value
received, hereby certifies that First Portland Corporation, or its registered
assigns (the "Registered Holder"), is entitled, subject to the terms set forth
below, to purchase from the Company up to 8,720 shares of the common stock, par
value $.001 per share (the "Common Stock"), of the Company, at a purchase price
of $5.00 per share, subject to adjustment as hereinafter provided, at any time
after the date hereof and on or before the later of (i) five (5) years from the
date of issuance hereof, or (ii) three (3) years from the closing of the initial
public offering of the Company's Common Stock pursuant to a registration
statement under the Securities Act of 1933, as amended (the "Securities Act").
The number of shares purchasable upon exercise of this Warrant, and the purchase
price per share, each as adjusted from time to time pursuant to the provisions
of this Warrant, are hereinafter referred to as the "Warrant Stock" and the
"Purchase Price," respectively.
1. EXERCISE
(a) This Warrant may be exercised by the Registered Holder, in
whole or in part, by surrendering this Warrant, with the purchase form appended
hereto as Exhibit A duly executed by such Registered Holder or by such
Registered Holder's duly authorized attorney, at the principal office of the
Company, or at such other office or agency as the Company may designate,
accompanied by payment of the Purchase Price payable in respect of the number of
shares of Warrant Stock purchased upon such exercise.
(b) Each exercise of this Warrant shall be deemed to have been
effected immediately prior to the close of business on the day on which this
Warrant shall have been surrendered to the Company as provided in Section 1(a)
above. At such time, the person or persons in whose name or names any
certificates for Warrant Stock shall be issuable upon such exercise as provided
in Section 1(d) below shall be deemed to have become the holder or holders of
record of the Warrant Stock represented by such certificates.
1 - PURCHASE WARRANT - Page 1
<PAGE> 2
(c) Net Issue Exercise
(i) In lieu of exercising this Warrant in the manner
provided above in Section 1(a), the Registered Holder may elect to receive
shares equal to the value of this Warrant (or the portion thereof being
canceled) by surrender of this Warrant at the principal office of the Company
together with notice of such election in which event the Company shall issue to
holder a number of shares of Common Stock computed using the following formula:
X = Y (A - B)
---------
A
Where X = The number of shares of Common Stock to be issued to the
Registered Holder.
Y = The number of shares of Common Stock purchasable under this
Warrant (at the date of such calculation).
A = The fair market value of one share of Common Stock (at the date
of such calculation).
B = The Purchase Price (as adjusted to the date of such calculation).
(ii) For purposes of this Section 1(c), the fair
market value of Common Stock shall be the price per share as determined in good
faith by the Board of Directors.
(d) As soon as practicable after the exercise of this Warrant
in full or in part, and in any event within 10 days thereafter, the Company at
its expense will cause to be issued in the name of, and delivered to, the
Registered Holder, or as such Holder (upon payment by such Holder of any
applicable transfer taxes) may direct:
(i) a certificate or certificates for the number of
shares of Warrant Stock to which such Registered Holder shall be entitled, and
(ii) in case such exercise is in part only, a new
warrant or warrants (dated the date hereof) of like tenor, calling in the
aggregate on the face or faces thereof for the number of shares of Warrant Stock
equal (without giving effect to any adjustment therein) to the number of such
shares called for on the face of this Warrant minus the number of such shares
purchased by the Registered Holder upon such exercise as provided in Section
1(a) above.
1 - PURCHASE WARRANT - Page 2
<PAGE> 3
2. ADJUSTMENTS
(a) If outstanding shares of the Company's Common Stock shall
be subdivided into a greater number of shares or a dividend in Common Stock
shall be paid in respect of Common Stock, the Purchase Price in effect
immediately prior to such subdivision or at the record date of such dividend
shall simultaneously with the effectiveness of such subdivision or immediately
after the record date of such dividend be proportionately reduced. If
outstanding shares of Common Stock shall be combined into a smaller number of
shares, the Purchase Price in effect immediately prior to such combination
shall, simultaneously with the effectiveness of such combination, be
proportionately increased. When any adjustment is required to be made in the
Purchase Price, the number of shares of Warrant Stock purchasable upon the
exercise of this Warrant shall be changed to the number determined by dividing
(i) an amount equal to the number of shares issuable upon the exercise of this
Warrant immediately prior to such adjustment, multiplied by the Purchase Price
in effect immediately prior to such adjustment, by (ii) the Purchase Price in
effect immediately after such adjustment.
(b) In case of any reclassification or change of the
outstanding securities of the Company or of any reorganization of the Company
(or any other corporation the stock or securities of which are at the time
receivable upon the exercise of this Warrant) or any similar corporate
reorganization on or after the date hereof, then and in each such case the
holder of this Warrant, upon the exercise hereof at any time after the
consummation of such reclassification, change, reorganization, merger or
conveyance, shall be entitled to receive, in lieu of the stock or other
securities and property receivable upon the exercise hereof prior to such
consummation, the stock or other securities or property to which such holder
would have been entitled upon such consummation if such holder had exercised
this Warrant immediately prior thereto, all subject to further adjustment as
provided in paragraph (a); and in each such case, the terms of this Section 2
shall be applicable to the shares of stock or other securities properly
receivable upon the exercise of this Warrant after such consummation.
(c) When any adjustment is required to be made in the Purchase
Price, the Company shall promptly mail to the Registered Holder a certificate
setting forth the Purchase Price after such adjustment and setting forth a brief
statement of the facts requiring such adjustment. Such certificate shall also
set forth the kind and amount of stock or other securities or property into
which this Warrant shall be exercisable following the occurrence of any of the
events specified in Section 2(a) or (b) above.
3. TRANSFERS
(a) Subject to the provisions of Section 3(b) hereto, this
Warrant and all rights hereunder are transferable, in whole or in part, upon
surrender of the Warrant with a properly executed assignment at the principal
office of the Company.
1 - PURCHASE WARRANT - Page 3
<PAGE> 4
(b) Each holder of this Warrant acknowledges that this Warrant
and the Warrant Stock have not been registered under the Securities Act, and
agrees not to sell, pledge, distribute, offer for sale, transfer or otherwise
dispose of this Warrant or any Warrant Stock issued upon its exercise in the
absence of (i) an effective registration statement under the Act as to this
Warrant or such Warrant Stock and registration or qualification of this Warrant
or such Warrant Stock under any applicable Blue Sky or state securities law then
in effect, or (ii) an opinion of counsel, satisfactory to the Company, that such
registration and qualification are not required. Each certificate or other
instrument for Warrant Stock issued upon the exercise of this Warrant shall bear
a legend substantially to the foregoing effect.
(c) Until any transfer of this Warrant is made in the warrant
register, the Company may treat the Registered Holder of this Warrant as the
absolute owner hereof for all purposes; provided, however, that if and when this
warrant is properly assigned in blank, the Company may (but shall not be
required to) treat the bearer hereof as the absolute owner hereof for all
purposes, notwithstanding any notice to the contrary. Except as otherwise
expressly provided herein, the provisions hereof shall inure to the benefit of,
and be binding upon, the successors, assigns, heirs, executors and
administrators of the parties hereto.
(d) The Company will maintain a register containing the names
and addresses of the Registered Holders of this Warrant. Any Registered Holder
may change such Registered Holder's address as shown on the warrant register by
written notice to the Company requesting such change.
4. NO IMPAIRMENT. The Company will not, by amendment of its charter or
through reorganization, consolidation, merger, dissolution, sale of assets or
any other voluntary action, avoid or seek to avoid the observance or performance
of any of the terms of this Warrant, but will at all times in good faith assist
in the carrying out of all such terms 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 Warrant against impairment.
5. LIQUIDATING DIVIDENDS. If the Company pays a dividend or makes a
distribution on the Common Stock payable otherwise than in cash out of earnings
or earned surplus (determined in accordance with generally accepted accounting
principles) except for a stock dividend payable in shares of Common Stock (a
"Liquidating Dividend"), then the Company will pay or distribute to the
Registered Holder of this Warrant, upon the exercise hereof, in addition to the
Warrant Stock purchased upon such exercise, the Liquidating Dividend which would
have been paid to such Registered Holder if he had been the owner of record of
such shares of Warrant Stock immediately prior to the date on which a record was
taken for such Liquidating Dividend or, if no record was taken, the date as of
which the record holders of Common Stock entitled to such dividends or
distribution were determined.
1 - PURCHASE WARRANT - Page 4
<PAGE> 5
6. NOTICES OF CERTAIN TRANSACTIONS/DELIVERY OF CERTAIN DOCUMENTS.
(a) So long as Registered Holder holds this Warrant and/or any
of the Preferred Shares, the Company shall deliver to Registered
Holder:
(i) Promptly after mailing, copies of all notices or other
written communications to the shareholders of the Company; and
(ii) Within 90 days after the end of each fiscal year of the
Company, the annual audited financial statements of the Company
certified by independent public accountants of recognized standing; and
(iii) Within 45 days after the end of each of the first three
quarters of each fiscal year, the Company's quarterly, unaudited
financial statements.
(b) In case:
(i) the Company shall take a record of the holders of its
Common Stock (or other stock or securities at the time deliverable upon the
exercise of this Warrant) for the purpose of entitling or enabling them to
receive any dividend or other distribution, or to receive any right to subscribe
for or purchase any shares of stock of any class or any other securities, or to
receive any other right, to subscribe for or purchase any shares of stock of any
class or any other securities, or to receive any other right, or
(ii) of any capital reorganization of the Company, any
reclassification of the capital stock of the Company, any consolidation or
merger of the Company, any consolidation or merger of the Company with or into
another corporation (other than a consolidation or merger in which the Company
is the surviving entity), or any transfer of all or substantially all of the
assets of the Company, or
(iii) of the voluntary or involuntary dissolution, liquidation
or winding-up of the Company, then, and in each such case, the Company will mail
or cause to be mailed to the Registered Holder of this Warrant a notice
specifying, as the case may be, (i) the date on which a record is to be taken
for the purpose of such dividend, distribution or right, and stating the amount
and character of such dividend, distribution or right, or (ii) the effective
date on which such reorganization, reclassification, consolidation, merger,
transfer, dissolution, liquidation, winding-up, redemption or conversion is to
take place, and the time, if any is to be fixed, as of which holders shall be
holders of record of Common Stock (or such other stock or securities at the time
deliverable upon such reorganization, reclassification, consolidation, merger,
transfer, dissolution, liquidation or winding-up). Such notice shall be mailed
at least ten (10) days prior to the record date or effective date for the event
specified in such notice.
7. RESERVATION OF STOCK. The Company will at all times reserve
and keep available, solely for the issuance and delivery upon the exercise of
this Warrant, such shares of Warrant Stock and other stock, securities and
property, as from time to time shall be issuable upon the exercise of this
Warrant.
1 - PURCHASE WARRANT - Page 5
<PAGE> 6
8. EXCHANGE OF WARRANTS. Upon the surrender by the Registered Holder of
any Warrant or Warrants, properly endorsed, to the Company at the principal
office of the Company, the Company will, subject to the provisions of Section 3
hereof, issue and deliver to or upon the order of such Holder, at the Company's
expense, a new Warrant or Warrants of like tenor, in the name of such Registered
Holder or as such Registered Holder (upon payment by such Registered Holder of
any applicable transfer taxes) may direct, calling in the aggregate on the face
or faces thereof for the number of shares of Common Stock called for on the face
or faces of the Warrant or Warrants so surrendered.
9. REPLACEMENT OF WARRANTS. Upon receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Warrant and (in the case of loss, theft or destruction) upon delivery of an
indemnity agreement (with surety if reasonably required) in an amount reasonably
satisfactory to the Company, or (in the case of mutilation) upon surrender and
cancellation of this Warrant, the Company will issue, in lieu thereof, a new
Warrant of like tenor.
10. MAILING OF NOTICES. Any notice required or permitted pursuant to
this Warrant shall be in writing and shall be deemed sufficient when delivered
personally or sent by telegram or fax or forty-eight (48) hours after being
deposited in the U.S. mail, as certified or registered mail, with postage
prepaid, addressed (a) if to the Registered Holder, to the address of the
Registered Holder most recently furnished in writing to the Company and (b) if
to the Company, to the address set forth below or subsequently modified by
written notice to the Registered Holder.
11. NO RIGHTS AS STOCKHOLDER. Until the exercise of this Warrant, the
Registered Holder of this Warrant shall not have or exercise any rights by
virtue hereof as a stockholder of the Company.
12. NO FRACTIONAL SHARES. No fractional shares of Common Stock will be
issued in connection with any exercise hereunder. In lieu of any fractional
shares which would otherwise be issuable, the Company shall pay cash equal to
the product of such fraction multiplied by the fair market value of one share of
Common Stock on the date of exercise, as determined in good faith by the
Company's Board of Directors.
13. AMENDMENT OR WAIVER. Any term of this Warrant may be amended or
waived only by an instrument in writing signed by the party against which
enforcement of the amendment or waiver is sought.
14. HEADINGS. The headings in this Warrant are for purposes of
reference only and shall not limit or otherwise affect the meaning of any
provision of this Warrant.
15. GOVERNING LAW. This Warrant shall be governed, construed and
interpreted in accordance with the laws of the State of Oregon, without giving
effect to principles of conflicts of law. In case any provision of this Warrant
shall be invalid, illegal, or unenforceable, the validity,
1 - PURCHASE WARRANT - Page 6
<PAGE> 7
legality and enforceability of the remaining provisions of this Warrant shall
not in any way be affected or impaired thereby.
16. ENTIRE AGREEMENT. Except as otherwise set forth herein, this
Warrant and the other documents delivered pursuant hereto constitute the full
and entire understanding and agreement between the parties with regard to the
subject matter hereof.
QORUS.COM, INC., A FLORIDA
CORPORATION
By:
----------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
Address: 9800 SEPULVEDA BLVD., #318
LOS ANGELES, CA 90045
1 - PURCHASE WARRANT - Page 7
<PAGE> 8
Exhibit A
PURCHASE FORM
To: QORUS.COM, INC. Dated: ______________
1. The undersigned hereby elects to purchase ______________ shares of
the Common Stock covered by the attached Warrant pursuant to the terms thereof,
and (please indicate either (a) or (b) below):
-------- (a) tenders herewith payment in cash, check or wire
transfer of the purchase price of such shares in full,
or
-------- (b) elects to effect such purchase through the Net Issue
Exercise provision set forth in Section 1(c) of the
attached Warrant.
2. Please issue a certificate or certificates representing said shares
in the name of the undersigned or in such other name or names as are specified
below
Name:
----------------------------------------------------
Address:
-------------------------------------------------
-------------------------------------------------
-------------------------------------------------
Signature:
-----------------------------------
Address:
-------------------------------------
<PAGE> 1
EXHIBIT 6.31
CONVERTIBLE PROMISSORY NOTE
$__________ March __, 2000
FOR VALUE RECEIVED, the undersigned, QORUS.COM, a Florida corporation
(hereinafter referred to as the "Maker"), hereby unconditionally promises to pay
to the order of _____________________________ (hereinafter referred to as the
"Holder"), at Holder's address at _______________________, or, upon notice from
Holder, to the person so designated in said notice to Maker, the principal sum
of ______________________________________ DOLLARS AND NO/100 ($__________), or
so much thereof as may be advanced and outstanding hereunder, together with
interest on the outstanding principal balance from day to day remaining, payable
in lawful money of the United States of America as set forth herein.
1. Interest. This Note shall bear interest on the unpaid principal balance
hereof until paid in full at the rate of TEN PERCENT (10%) per annum. Interest
on the indebtedness evidenced by this Note shall be computed on the basis of a
year of 365 or 366 days, as the case may be, and charged for the actual number
of days elapsed.
2. Advances. Subject to the terms and conditions of this Note, and provided
that no Event of Default (as defined in Section 4.1) has occurred and is
continuing, Holder agrees to make, or cause to be made, a loan to the Maker in a
principal amount up to but not exceeding Seven Hundred Three Thousand Four
Hundred Twenty-five Dollars and No/100 ($703,425.00), in one or more advances as
requested by Maker upon notice in writing delivered to Holder at least five (5)
business days prior to the date on which such advance is to be made. No requests
for advances may be made after September 1, 2000. All advances shall be made on
a pro rata basis among Holder and the holders of those certain Convertible
Promissory Notes of even date herewith payable to ________________________ and
_________________, Subject to the terms and conditions of this Note, and
provided that no Event of Default has occurred and is continuing, advances
hereunder shall be made available to the Maker by depositing the same, in
immediately available funds, in an account of the Maker designated by the Maker.
3. Payments. All principal and interest on this Note shall be due and
payable on the earlier to occur of (i) September __, 2000 or (ii) the date of
closing of the next equity or quasi-equity financing for the Maker, or any of
its subsidiaries. The earlier of such dates is herein referred to as the
"Payment Date." All amounts past due and outstanding on this Note from and after
the Payment Date shall accrue interest at an interest rate equal to the lesser
of fifteen percent (15%) or the maximum lawful rate until paid in full. This
Note may not be prepaid.
4. Default
4.1 Events of Default. Maker shall be in default hereunder upon the
happening of any of the following events or conditions (each such event or
condition hereinafter referred to as an "Event of Default"):
(a) Maker shall fail to pay when due the principal or interest of
this Note.
<PAGE> 2
(b) Maker shall commence a voluntary proceeding seeking
liquidation, reorganization, or other relief with respect to itself or
its debts under any bankruptcy, insolvency, or other similar law now
or hereafter in effect, or seeking the appointment of a trustee,
receiver, liquidator, custodian, or other similar official for it or a
substantial part of its property or shall consent to any such relief
or to the appointment of or taking possession by any such official in
an involuntary case or other proceeding commenced against it or shall
make a general assignment for the benefit of creditors or shall
generally fail to pay its debts as they become due or shall take any
corporate action to authorize any of the foregoing.
(c) Any involuntary proceeding shall be commenced against Maker
seeking liquidation, reorganization, or other relief with respect to
it or its debts under any bankruptcy, insolvency, or other similar law
now or hereafter in effect, or seeking the appointment of a trustee,
receiver, liquidator, custodian, or other similar official for it or a
substantial part of its property, and such involuntary proceeding
shall remain undismissed and unstayed for a period of ninety (90)
days.
(d) This Note shall cease to be in full force and effect or shall
be declared null and void or the validity or enforceability hereof
shall be contested or challenged by Maker, or Maker shall deny that it
has any further liability or obligation under this Note.
5. Remedies. Upon the occurrence of any Event of Default, Holder may, at
its option, declare the entire unpaid principal of and accrued interest on this
Note immediately due and payable without notice, demand or presentment, all of
which are hereby waived, and upon such declaration, the same shall become and
shall be immediately due and payable, and Holder shall have the right to
foreclose or otherwise enforce all liens or security interests securing payment
hereof, or any part hereof, and offset against this Note any sum or sums owed by
Holder hereof to Maker. Failure of Holder to exercise this option shall not
constitute a waiver of the right to exercise the same upon the occurrence of a
subsequent Event of Default.
6. Costs and Expenses. If this Note is placed in the hands of an attorney
for collection, or for the recovery or protection of this indebtedness, or if
Holder incurs any costs incident to the collection of the indebtedness evidenced
hereby after the occurrence of an Event of Default or the enforcement or
protection of the security, Maker and any endorsers hereof will be liable for,
without notice or demand, all costs and expenses arising therefrom, to include
reasonable attorney's fees plus all costs of court and litigation and the
reasonable costs of any other collection efforts.
7. Waivers. Maker and each surety, guarantor, endorser, and other party
ever liable for payment of any sums of money payable on this Note jointly and
severally waive notice, presentment, demand for payment, protest, notice of
protest and non-payment or dishonor, notice of acceleration, notice of intent to
accelerate, notice of intent to demand, diligence in collecting, grace, and all
other formalities of any kind, and consent to all extensions without notice for
any period or periods of time and partial payments, before or after maturity,
and any impairment of any collateral securing this Note, all without prejudice
to Holder. Holder shall similarly have the right to deal in any way, at any
time, with one or more of the foregoing parties without notice to any other
party, and to grant any such party any extensions of time for payment of any of
said indebtedness, or to release or substitute part or all
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<PAGE> 3
of the collateral securing this Note, or to grant any other indulgences or
forbearances whatsoever, without notice to any other party and without in any
way affecting the personal liability of any party hereunder.
8. Maximum Interest Rate. If the laws of the State of Illinois or the
United States of America are now or ever revised, repealed, or judicially
interpreted, so as to render usurious any amount called for under this Note, or
contracted for, charged, taken, reserved, received, or paid, with respect to the
loan or forbearance evidenced by this Note, or if any prepayment by Maker or
other party, or computations of any sort, result in Maker or any other party to
this instrument having paid, been charged, or contracted for any interest in
excess of that permitted by law, then it is the express intent of Maker, Holder,
and any other party to this instrument that all excess amounts contracted for,
collected, charged, received, or taken by Holder or paid by Maker or any other
party be credited on the principal balance of this Note (or if this Note has
been paid in full, refunded to Maker or to whomever else may be so entitled),
and the provisions of this Note be deemed reformed and the amounts thereafter
collectable hereunder reduced, without the necessity of the execution of any new
document, so as to comply with the then applicable law, but so as to permit the
recovery of the fullest amount otherwise called for hereunder. It is expressly
stipulated and agreed to be the intent of Maker and Holder and other parties to
this instrument to at all times comply with the applicable usury laws of
Illinois and of the United States now or hereafter governing the interest paid
on this Note and the loan or forbearance evidenced hereby.
9. Governing Law; Venue. This Note shall be governed by and construed in
accordance with the laws of the State of Illinois and the applicable laws of the
United States of America. Any action or proceeding under or in connection with
this Note against Maker or any other party ever liable for payment of any sums
of money payable on this Note shall be brought in any state or federal court in
Cook County, Illinois. Maker and each such other party hereby irrevocably (i)
submits to the exclusive jurisdiction of such courts, and (ii) waives any
objection it may now or hereafter have as to the venue of any such action or
proceeding brought in such court or that such court is an inconvenient forum.
Any action or proceeding by Maker or any other party liable hereunder against
Holder shall be brought only in a court located in Cook County, Illinois.
10. Entire Agreement. THIS NOTE EMBODIES THE FINAL, ENTIRE AGREEMENT OF
MAKER AND HOLDER WITH RESPECT TO THE INDEBTEDNESS EVIDENCED BY THIS NOTE AND
SUPERSEDES ANY AND ALL PRIOR COMMITMENTS, AGREEMENTS, REPRESENTATIONS AND
UNDERSTANDINGS, WHETHER WRITTEN OR ORAL, RELATING TO THE INDEBTEDNESS EVIDENCED
BY THIS NOTE AND MAY NOT BE CONTRADICTED OR VARIED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OR DISCUSSIONS OF MAKER AND
HOLDER. THERE ARE NO ORAL AGREEMENTS BETWEEN MAKER AND HOLDER RELATING TO THE
INDEBTEDNESS EVIDENCED BY THIS NOTE.
11. Automatic Conversion.
11.1 Automatic Conversion and Conversion Price.
The outstanding principal and interest of this Note shall
automatically convert, without any action on the part of the Holder, on the
closing of the offering and sale by Maker of shares
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<PAGE> 4
of the preferred stock, par value $.01 per share (the "Preferred Stock"), of the
Corporation in which Maker receives gross proceeds (excluding the conversion of
this Note) of $5,000,000 or more (the "Conversion Date") into such fully paid
and non-assessable shares of Preferred Stock (calculated to the nearest 1/100th
of a share), having the same powers, designations, preferences, and relative
participating, optional or other special rights, and the qualifications,
limitations or restrictions thereof, as the Preferred Stock sold in such private
sale, at the conversion price (the "Conversion Price") equal to the lowest price
per share of Preferred Stock received by Maker in such private sale. In
addition, Holder shall be granted such additional rights and benefits as those
granted to the other purchasers in such private sale. Maker shall furnish to
Holder all such documentation as Holder may reasonably request to verify the
Conversion Price and other terms of such private sale. The number of shares of
Preferred Stock issuable upon conversion of this Note shall be determined as
follows: divide (A) the sum of (i) the principal of this Note outstanding on the
Conversion Date, plus (ii) all accrued and unpaid interest on this Note on the
Conversion Date, by (B) the Conversion Price.
11.2 Issuance of Shares of Preferred Stock on Conversion.
(a) As promptly as practicable after the Conversion Date, Maker
shall issue, at its expense, and shall deliver to such Holder, (i) a certificate
or certificates for the number of full shares of Preferred Stock issuable upon
the conversion of this Note, and (ii) cash in lieu of scrip as provided in
Section 11.4.
(b) Such conversion shall be deemed to have been effected
immediately prior to the close of business on the Conversion Date, and at such
time the rights of the Holder shall cease and the person or persons in whose
name or names any certificate or certificates for shares of Preferred Stock
shall be issuable upon such conversion shall be deemed to have become the holder
or holders of record of the shares represented thereby.
11.3 No Adjustments for Dividends.
No payment or adjustment shall be made by or on behalf of Maker on
account of any dividends on the Preferred Stock issued upon such conversion
which were declared for payment to holders of Preferred Stock of record as
of a date prior to the Conversion Date.
11.4 Cash Payment in Lieu of Fractional Shares.
No fractional shares of Preferred Stock shall be issued upon the
conversion of this Note. In lieu of any fraction of a share of Preferred
Stock to which the Holder would otherwise be entitled upon conversion of
this Note, Maker shall pay a cash adjustment for such fraction in an amount
equal to the same fraction of the Conversion Price per share of Preferred
Stock at the close of business on the Conversion Date.
IN WITNESS WHEREOF, Maker has duly executed this Note as of the day and
year above first written.
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<PAGE> 5
QORUS.COM, INC.,
a Florida corporation
By:
------------------------------------
James W. Blaisdell
Chief Executive Officer
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