<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 14, 2000.
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
EPRISE CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 7371 04-3179480
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
1671 WORCESTER ROAD
FRAMINGHAM, MA 01701
(508) 872-0200
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
JOSEPH A. FORGIONE
PRESIDENT AND CHIEF EXECUTIVE OFFICER
EPRISE CORPORATION
1671 WORCESTER ROAD
FRAMINGHAM, MA 01701
(508) 872-0200
(NAME, ADDRESS INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
AGENT FOR SERVICE)
------------------------
COPIES OF ALL COMMUNICATIONS TO:
<TABLE>
<S> <C>
DENNIS W. TOWNLEY, ESQ. EDWIN L. MILLER, JR., ESQ.
ANDREA M. TEICHMAN, ESQ. TESTA, HURWITZ & THIBEAULT, LLP
HILL & BARLOW, A PROFESSIONAL CORPORATION 125 HIGH STREET
ONE INTERNATIONAL PLACE BOSTON, MA 02110
BOSTON, MA 02110-2607 (617) 248-7000
(617) 428-3000
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this registration statement
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
- ------------------------------
If this form is a post effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
- ------------------------------
If this form is a post effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
- ------------------------------
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box: [ ]
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
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TITLE OF EACH PROPOSED MAXIMUM AMOUNT OF
CLASS OF SECURITIES AGGREGATE REGISTRATION
TO BE OFFERED OFFERING PRICE(1) FEE
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Common Stock, $0.001 par value............................. $46,000,000 $12,144
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</TABLE>
(1) Estimated solely for purposes of calculating the registration fee in
accordance with Rule 457(o) under the Securities Act of 1933, as amended.
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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- --------------------------------------------------------------------------------
<PAGE> 2
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE
MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH
THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS
NOT AN OFFER TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO
BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT
PERMITTED.
SUBJECT TO COMPLETION, DATED JANUARY 14, 2000
[EPRISE CORPORATION LOGO]
- --------------------------------------------------------------------------------
Shares
Common Stock
- --------------------------------------------------------------------------------
This is the initial public offering of Eprise Corporation, and we are
offering shares of our common stock. The initial public offering price
is expected to be between $ and $ per share.
We have applied to have our common stock approved for quotation on the Nasdaq
National Market under the symbol "EPRS."
INVESTING IN OUR COMMON STOCK INVOLVES RISKS. SEE "RISK FACTORS" BEGINNING ON
PAGE 5.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
UNDERWRITING PROCEEDS TO
PRICE TO DISCOUNTS AND EPRISE
PUBLIC COMMISSIONS CORPORATION
<S> <C> <C> <C>
Per share $ $ $
Total $ $ $
</TABLE>
We have granted the underwriters the right to purchase up to
additional shares to cover any over-allotments.
DEUTSCHE BANC ALEX. BROWN
DAIN RAUSCHER WESSELS
SOUNDVIEW TECHNOLOGY GROUP
THE DATE OF THIS PROSPECTUS IS , 2000.
<PAGE> 3
INSIDE FRONT COVER
[TO BE PROVIDED]
<PAGE> 4
PROSPECTUS SUMMARY
This summary highlights selected information contained elsewhere in this
prospectus. This summary does not contain all of the information that you should
consider before buying shares in this offering. You should read the entire
prospectus carefully.
EPRISE CORPORATION
Eprise provides software products and services that enable businesses to
manage the information contained on their Web sites. Eprise Participant Server
provides a comprehensive, out-of-the-box Web content management solution that
enables an enterprise to decentralize Web content management and content
approval rights broadly within the organization with minimal involvement by
technical personnel. Customers can quickly deploy Eprise Participant Server and
use it to keep their Web sites up to date without the need for substantial
technical assistance or customization. We believe that these features make
Eprise Participant Server the most cost-effective Web content management
solution currently available.
Creating dynamic, up-to-date Web site content has become an increasingly
complex and critically important business process. As businesses develop and
expand their use of the Internet for business communications and electronic
commerce, the number of Web sites and the amount of Web content continue to grow
worldwide at an unprecedented pace. This has created a strong demand for Web
content management software, resulting in increased capital expenditures on Web
content management solutions. IDC estimates that the market for Web development
life-cycle management software, which includes Web content management software,
will grow from $76.4 million in 1998 to $1.6 billion in 2003.
The Eprise Participant Server product line has been designed to meet all of
the important needs for Web content management software. It permits an
enterprise to delegate to appropriate individuals within the organization the
right to create and manage Web content. It also permits the enterprise to target
the content that is seen by each category of Web site user, such as employees,
customers and business partners. At the same time, business rules can be created
to ensure that the overall Web site content is carefully controlled and the Web
site design has a consistent look and feel.
Eprise Participant Server is based on widely accepted, non-proprietary
industry standards so that it can easily be integrated with other Internet
infrastructure software, such as databases, back office systems, and e-commerce
and application servers. It employs a technical architecture that is highly
scalable so that it can manage the Web site content of even the largest of
enterprises. Customers can also use readily available software development tools
to adapt and customize Eprise Participant Server to meet their specific business
needs.
Eprise also offers a variety of optional professional services to
complement Eprise Participant Server. Through our Eprise Advantage Program, an
Eprise professional evaluates and designs a Web content management plan for each
customer. During and after the implementation phase, our professional services
team and alliance partners are available to provide advice and technical
assistance, including building unique applications for the customer's business.
We also provide customer training, maintenance and support.
We principally market our products domestically through our direct sales
force, and we intend to increase our global presence. We target enterprise level
accounts and dot-com companies for which the use of the Internet is a
fundamental part of their strategy. To extend our market reach, we also have
business relationships with a number of systems integrators and Web developers.
In addition, we are making substantial investments in research and development
in order to continue to expand and enhance Eprise Participant Server and to
develop new products.
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To date, we have licensed Eprise Participant Server to more than 30
customers, including Bausch & Lomb, Eastman Chemical, EMC, Hartford Financial,
Lincoln Financial Group, Novell, Sharp Electronics and SmartMoney.com.
We were incorporated in Delaware in September 1992. Our principal executive
offices are located at 1671 Worcester Road, Framingham, Massachusetts 01701, and
our telephone number is (508) 872-0200. Our World Wide Web address is
www.eprise.com. The information on our Web site is not part of this prospectus.
-------------------------
"Eprise," "E-business Experts," "Eprise Advantage Program," "Eprise
Participant Server," "Eprise Web Catalyst," "Eprise Integration Agent," and the
Eprise logo are trademarks of Eprise Corporation. All other trademarks, service
marks or trade names referred to in this prospectus are the property of their
respective owners.
2
<PAGE> 6
THE OFFERING
Common stock offered by Eprise..... shares
Common stock to be outstanding
after the offering................. shares
Use of proceeds.................... General corporate purposes, including
working capital, and repayment of debt
Proposed Nasdaq National Market
symbol........................... EPRS
Common stock to be outstanding after this offering is based on shares
outstanding as of December 31, 1999. It excludes:
- 5,674,517 shares of common stock issuable upon exercise of options
outstanding at a weighted average exercise price of $0.23 per share, all
of which options are exercisable, subject to repurchase restrictions on
the option shares, and
- 1,101,989 shares issuable upon exercise of warrants outstanding at a
weighted average exercise price of $1.09 per share, all of which warrants
are exercisable.
Except as presented in the financial statements or as otherwise specified
in this prospectus, all information in this prospectus:
- assumes no exercise of the underwriters' over-allotment option; and
- reflects the automatic conversion of all outstanding shares of preferred
stock into a total of 41,070,137 shares of common stock upon the closing
of this offering.
3
<PAGE> 7
SUMMARY FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The summary financial information below sets forth a summary of the results
of our operations and certain information about our assets, liabilities and
capital. In 1997, Eprise changed its fiscal year end from August 31 to December
31. The unaudited statement of operations for the twelve months ended December
31, 1997 has been computed by summing the results of operations for the four
fiscal quarters in the period ended December 31, 1997. The data for pro forma
net loss per share treats our outstanding preferred stock as though it were
common stock in all periods presented. You should read this information along
with our discussion in "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and our financial statements and notes to
those statements included elsewhere in this prospectus.
<TABLE>
<CAPTION>
TWELVE MONTHS
ENDED
FOUR MONTHS OR YEAR ENDED NINE MONTHS ENDED
YEAR ENDED ENDED DECEMBER 31, SEPTEMBER 30,
AUGUST 31, DECEMBER 31, ----------------- -----------------
1997 1997 1997 1998 1998 1999
---------- ------------ ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total revenues...................... $1,420 $ 303 $ 1,222 $ 807 $ 524 $ 1,612
Gross profit...................... 902 18 643 347 181 914
Total operating expenses.......... 1,481 1,082 2,048 5,744 4,139 5,946
Operating loss.................... (579) (1,064) (1,405) (5,397) (3,958) (5,032)
Net loss.......................... $ (733) $(1,164) $(1,615) $(5,261) $(3,904) $(4,926)
====== ======= ======= ======= ======= =======
Loss per share.................... $(0.14) $ (0.21) $ (0.30) $ (0.94) $ (0.70) $ (0.83)
====== ======= ======= ======= ======= =======
Weighted average common shares
outstanding..................... 5,285 5,498 5,400 5,609 5,607 5,923
====== ======= ======= ======= ======= =======
Pro forma loss per share.......... $ (0.25) $ (0.16)
======= =======
Pro forma weighted average common
shares outstanding.............. 21,425 30,631
======= =======
</TABLE>
The following table presents a summary of our balance sheet at September 30,
1999:
- on an actual basis;
- on a pro forma basis to reflect (1) the issuance of 16,233,766 shares of
Series C preferred stock, which occurred on November 8, 1999, for
aggregate proceeds of $23.4 million after expenses as though such
issuance had occurred on September 30, 1999 and (2) the conversion of all
outstanding shares of our preferred stock, including the Series C
preferred stock, into a total of 41,070,137 shares of common stock, which
will occur upon closing of this offering; and
- on a pro forma as adjusted basis to reflect the sale of shares
of common stock in this offering at an assumed initial public offering
price of $ per share after deducting the estimated underwriting
discounts and commissions and offering expenses and the application of
the estimated net proceeds from this offering.
<TABLE>
<CAPTION>
AS AT SEPTEMBER 30, 1999
------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
-------- --------- -----------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................... $ 964 $24,364
Working capital............................................. 838 24,238
Total assets................................................ 2,958 26,358
Total liabilities........................................... 1,574 1,574
Redeemable preferred stock.................................. 13,755 --
Total stockholders' equity (deficiency)..................... (12,371) 24,784
</TABLE>
4
<PAGE> 8
RISK FACTORS
This offering involves a high degree of risk. You should carefully consider
the risks described below and the other information in this prospectus before
deciding to invest in shares of our common stock. If one or more of the
following risks actually occurs, our business, results of operations and
financial condition could be materially adversely affected, the trading price of
our common stock could decline, and you might lose all or part of your
investment. See "Special Note Regarding Forward-Looking Statements."
RISKS RELATED TO OUR BUSINESS
WE HAVE A HISTORY OF LOSSES, AND MAY NOT BE ABLE TO ACHIEVE OR SUSTAIN
PROFITABILITY.
We incurred net losses of $5.3 million for the year ended December 31, 1998
and $4.9 million for the nine months ended September 30, 1999. As of September
30, 1999, we had an accumulated deficit of $12.7 million. We have not yet
achieved profitability and we expect to incur net losses for the foreseeable
future. To date, we have funded our operations from the sale of equity
securities and have not generated cash from operations. We expect to continue to
incur significant research and development, selling and marketing, and general
and administrative expenses and, as a result, we will need to generate
significant revenues to achieve and maintain profitability. Although our
revenues have grown significantly in recent quarters, we cannot be certain that
we can sustain these growth rates or that we will achieve sufficient revenues
for profitability. If we do achieve profitability, we cannot be certain that we
can sustain or increase profitability on a quarterly or annual basis in the
future. See "Summary Financial Information," "Management's Discussion and
Analysis of Financial Condition and Results of Operations," and the financial
statements and notes to those statements found elsewhere in this prospectus.
OUR LIMITED OPERATING HISTORY MAKES EVALUATING OUR BUSINESS DIFFICULT.
Eprise was founded in 1992 as a provider of online interactive games. We
made the transition to its current business in 1997 and, as a result, has a
limited operating history. We are still in the early stages of our development,
which makes the evaluation of our business operations and our prospects
difficult. We shipped our first commercial Web content management software
product in February 1998. Since that time, we have derived substantially all of
our revenues from licensing our Eprise Participant Server product and related
services. As a result of our limited operating history, we cannot forecast
operating expenses based on our historical results. Our ability to forecast
accurately our quarterly revenue is limited because our software products have a
long sales cycle, making it difficult to predict the quarter in which sales
revenue will be recognized. We would expect our business, operating results and
financial condition to be materially adversely affected if our revenues do not
meet our projections, and that net losses in a given quarter could be even
greater than expected.
OUR QUARTERLY OPERATING RESULTS MAY FLUCTUATE SIGNIFICANTLY AND YOU SHOULD NOT
RELY ON THEM TO PREDICT OUR FUTURE PERFORMANCE.
Our revenues and operating results are likely to vary significantly from
quarter to quarter. A number of factors are likely to cause these variations,
including:
- demand for our products and services;
- the timing of sales of our products and services;
- the timing of customer orders and product implementation;
- unexpected delays in introducing new products and services;
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<PAGE> 9
- increased expenses, whether related to selling and marketing, research
and development or general and administrative;
- changes in the rapidly evolving market for Web content management
solutions;
- the mix of product license and service revenue; and
- the timing and size of sales derived through our strategic partners, such
as original equipment manufacturers (OEMs) and application service
providers (ASPs).
Accordingly, we believe that quarter-to-quarter comparisons of our
operating results are not necessarily meaningful. Investors should not rely on
the results of one quarter as an indication of our future performance.
We plan to increase our operating expenditures to expand our sales and
marketing operations, develop new distribution channels, fund greater levels of
research and development, broaden professional services and support and improve
operational and financial systems. If our revenues do not increase along with
these expenses, our business, operating results or financial condition could be
materially adversely affected and net losses in a given quarter could be greater
than expected. Although we have limited historical financial data, we believe
that our quarterly operating results may experience seasonal fluctuations due to
clients' fiscal year budgeting cycles and purchasing patterns.
ONLY A LIMITED NUMBER OF CUSTOMERS HAVE LICENSED OUR PRODUCT, AND OUR WEB
CONTENT MANAGEMENT SOLUTION MAY NEVER ACHIEVE BROAD MARKET ACCEPTANCE.
We first introduced Eprise Participant Server in February 1998 and
delivered a second major release in April 1999. To date, only a limited number
of customers have licensed Eprise Participant Server, and an even smaller number
are operating Web sites using the most recent version. Therefore, we have not
demonstrated broad market acceptance of Eprise Participant Server. If our
product does not gain broad market acceptance, or if it fails to meet customer
expectations, our business would be harmed.
A LARGE PORTION OF OUR REVENUES ARE CURRENTLY DERIVED FROM A LIMITED NUMBER OF
CUSTOMERS.
Although we believe that our customer concentration will decrease as we
continue to build our client base, we expect that a small number of customers
will continue to account for a substantial portion of revenues in the near term.
As a result, our inability to secure major customers during a given period or
the loss of existing customers could have a material adverse effect on our
business, financial condition or results of operations. American Express
accounted for 58% of our revenues for the year ended December 31, 1998. Three of
our customers accounted for an aggregate of 41% of our revenues for the nine
months ended September 30, 1999.
IF WE DO NOT SUCCESSFULLY EXPAND OUR DIRECT SALES AND SERVICES ORGANIZATIONS,
OUR BUSINESS WILL SUFFER.
In the fiscal year ended December 31, 1998, we licensed substantially all
of our products through our direct sales organization. As of December 31, 1999,
we had 11 direct sales representatives. Our future success depends on
substantially increasing the size and scope of our direct sales force, both
domestically and internationally. There is intense competition for personnel,
and we cannot guarantee that we will be able to attract, assimilate or retain
additional qualified sales personnel on a timely basis. Moreover, we believe
that as our sales increase, and given the large-scale deployment required by our
customers, we will need to hire and retain a number of highly trained customer
service and support personnel. As of December 31, 1999, our customer service and
support organization included 14 individuals. We
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<PAGE> 10
cannot guarantee that we will be able to increase the size of our customer
service and support organization on a timely basis to provide the high quality
of support required by our customers. Failure to add additional sales and
customer service representatives would have a material adverse effect on our
business, operating results and financial condition.
IF WE DO NOT SUCCESSFULLY MAINTAIN AND EXPAND OUR RELATIONSHIPS WITH INDIRECT
SALES CHANNELS, OUR SALES COULD DECLINE OR GROW MORE SLOWLY THAN EXPECTED.
To offer products and services to a larger customer base, our direct sales
force must establish and expand relationships with alliance partners, including
systems integrators, consulting firms, Web developers and ASPs who build
customer solutions based on Eprise Participant Server. We must also build OEM
relationships with companies offering complementary products that can package
our software along with their products. We are currently investing, and we
intend to continue to invest, significant resources to develop these
relationships. If our efforts are unsuccessful, our sales growth would be
adversely affected. We cannot guarantee that we will be able to market our
products effectively through our established partners. Further, these third
parties are under no obligation to recommend or support our products. These
companies could recommend or give higher priority to the products of other
companies or to their own products. A significant shift by these companies
toward favoring competing products could negatively affect our license and
service revenues. We cannot guarantee that we will be able to attract additional
distribution partners for desired distribution arrangements. The loss of
distribution partners or failure to establish new relationships could materially
adversely affect our business, operating results and financial condition.
WE NEED TO MANAGE OUR GROWTH EFFECTIVELY OR WE MAY NOT SUCCEED.
We have expanded our operations rapidly since inception. We intend to
expand in the foreseeable future to pursue existing and potential opportunities.
This rapid growth places a significant demand on management, administrative and
operations resources. Our ability to compete effectively and to manage our
anticipated future growth requires us to continue to improve our financial and
management controls, reporting systems and procedures on a timely basis. We
recently hired a significant number of employees, and must continue to add
personnel to maintain our ability to grow in the future. We cannot guarantee
that we will be able to do so successfully. Failure to manage our growth
effectively could have a material adverse effect upon our business, operating
results and financial condition.
WE MUST HIRE AND RETAIN SKILLED PERSONNEL IN A TIGHT LABOR MARKET.
Qualified personnel are in great demand throughout the computer software,
hardware and networking industries. The demand for qualified personnel is
particularly acute in the New England area because of the large number of
software and other high technology companies and the low unemployment in the
region. Our success depends in large part upon our ability to attract, train,
motivate and retain highly-skilled employees, particularly sales and marketing
personnel, software engineers, and technical support personnel. We have had
difficulty hiring these highly-skilled employees in the past. If we are unable
to attract and retain the highly-skilled technical personnel that are integral
to our sales, marketing, product development and customer support teams, the
rate at which we can generate sales and develop new products or product
enhancements may be limited. This inability could have a material adverse effect
on our business, operating results and financial condition.
COMPETITION COULD REDUCE OUR MARKET SHARE AND HARM OUR BUSINESS.
The market for Web content management software and services is rapidly
evolving and highly competitive and there are a number of products that compete
directly with our software solutions. Our clients' requirements and the
technology available to satisfy those requirements
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<PAGE> 11
continually change. Some of our current and potential competitors have
significantly greater financial, marketing, technical and other competitive
resources than we do. This may enable them to adapt more quickly to new or
emerging technologies and changes in customer requirements, or to devote greater
resources to the development, promotion and sale of their products. In addition,
other companies could develop new products or incorporate additional
functionality into their existing products that could directly compete with our
products. Barriers to entering the software market are relatively low.
Furthermore, cooperative relationships among our competitors could increase
their ability to address the Web site content management needs of our
prospective customers, and they could rapidly acquire significant market share.
We cannot guarantee that we will compete successfully against existing or new
competitors. Further, competitive pressures may require us to lower the prices
of our software and services. Failure to compete successfully would have a
material adverse effect on our business, operating results and financial
condition.
IF WE ARE UNABLE TO ENHANCE AND EXPAND OUR PRODUCT LINE TO MEET THE RAPID
CHANGES IN THE MARKET FOR WEB CONTENT MANAGEMENT TECHNOLOGY, OUR BUSINESS WILL
BE UNABLE TO GROW.
To succeed, we will need to enhance our current Eprise Participant Server
product and develop new products on a timely basis to keep pace with
developments related to Internet technology and to satisfy the increasingly
sophisticated requirements of our customers. The market for our products is
marked by rapid technological change, frequent new product introductions and
Internet-related technology enhancements, uncertain product life cycles, changes
in client demands and evolving industry standards. We cannot be certain that we
will successfully develop and market new products or new product enhancements
compliant with present or emerging Internet technology standards. New products
based on new technologies or new industry standards can rapidly render existing
products obsolete and unmarketable. Internet commerce technology is complex and
new products and product enhancements can require long development and testing
periods. Any delays in developing, testing and releasing enhanced or new
products could harm our business. New products or upgrades may not be released
according to schedule or may contain defects when released. Either situation
could result in adverse publicity, loss of sales, delay in market acceptance of
our products or customer claims against us, any of which could harm our
business. If we do not develop, license or acquire new software products, or
deliver enhancements to existing products on a timely and cost-effective basis,
our business will be harmed.
WE HAVE RELIED ON AND EXPECT TO RELY ON SALES OF OUR EPRISE PARTICIPANT SERVER
LINE FOR OUR REVENUES.
Since 1998, we have derived substantially all of our revenues from licenses
of, and services related to, Eprise Participant Server. We expect that revenues
from this product will continue to account for a significant portion of our
revenues for the foreseeable future. A decline in the price of Eprise
Participant Server or our inability to increase license sales of Eprise
Participant Server would seriously harm our business and operating results. In
addition, our future financial performance will depend upon the successful
development, introduction and customer acceptance of enhanced versions of Eprise
Participant Server and future products. Failure to deliver the enhancements or
products that customers want could have a material adverse effect on our
business, operating results and financial condition.
OUR LENGTHY SALES CYCLES REQUIRE EXPENDITURE OF RESOURCES THAT WILL NOT
NECESSARILY RESULT IN A SALE.
We typically experience long sales cycles. These sales cycles generally
vary by customer from three to six months. Because the licensing of our products
generally involves a significant capital expenditure by the customer, our sales
process is subject to lengthy approval processes and delays. We often devote
significant time and resources to a prospective customer,
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<PAGE> 12
including costs associated with multiple site visits, product demonstrations and
feasibility studies, without any assurance that the prospective customer will
decide to license our products.
YEAR 2000 PROBLEMS MAY DISRUPT OUR BUSINESS.
We have designed Eprise Participant Server and its add-on modules to be
Year 2000 compliant and have not been advised of any Year 2000 issues related to
those products. One prototype product (a precursor of Eprise Participant
Server), which was licensed to one customer and may currently be in use, may not
be Year 2000 compliant and may need to be upgraded or its use discontinued. We
have not been advised of any Year 2000 problems by this customer to date.
Further, although we have not been made aware of any Year 2000 problem relating
to the hardware and software used by our customers in connection with our
products to date, these problems may exist. Should any of these problems
develop, they may have a material adverse effect on our business, operating
results and financial condition.
In addition, we utilize software, computer technology and other services
internally developed and provided by third party vendors that may have Year 2000
issues. Although we have not experienced any of these problems to date, the
failure of our internal computing systems or of systems provided by third party
vendors to be Year 2000 compliant could materially adversely affect our
business.
IF OUR PRODUCTS FAIL TO REMAIN COMPATIBLE WITH MAJOR COMMERCIAL OPERATING
PLATFORMS, OUR SALES WOULD DECREASE.
Our products currently operate on the Microsoft Windows NT and Sun Solaris
operating systems. In addition, our products are required to interoperate with
Web servers, browsers and database servers. We must, therefore, continually
modify and enhance our products to keep pace with changes in these operating
systems and servers. If our products are not compatible with new operating
systems, Web servers, browsers or database servers that achieve sufficient
market penetration, our business will be harmed. In addition, uncertainties
related to the timing and nature of new product announcements, or introductions
or modifications by vendors of operating systems or browsers, could also harm
our business.
POTENTIAL DEFECTS IN OUR PRODUCTS COULD CAUSE SALES TO DECREASE AND COULD
SUBJECT US TO FUTURE WARRANTY CLAIMS.
Our products are complex and might contain undetected software errors or
failures when new versions are released. We cannot guarantee that, despite
testing by us and by current and prospective customers, we will not find errors
in existing products, new products or product enhancements after commercial
release. These errors may result in loss or delay of market acceptance, which
could have a material adverse effect upon our business, operating results and
financial condition.
IF WE LOSE ANY KEY PERSONNEL, OR FAIL TO ATTRACT AND RETAIN ADDITIONAL
PERSONNEL, OUR BUSINESS AND GROWTH MAY SUFFER.
The loss of the services of one or more of our key personnel could have a
material adverse effect on our business, operating results and financial
condition. We do not maintain key person life insurance on any executive
officers other than our Chief Executive Officer and Chief Technology Officer. We
cannot guarantee that we will be able to retain our key personnel. Our future
success also depends on our continuing ability to attract, assimilate and retain
highly qualified sales, technical and managerial personnel. Competition for
these individuals is intense, and there can be no assurance that we can attract,
assimilate or retain them in the future.
9
<PAGE> 13
WE HAVE A LIMITED ABILITY TO PROTECT OUR INTELLECTUAL PROPERTY RIGHTS, AND
OTHERS COULD INFRINGE ON OR MISAPPROPRIATE OUR PROPRIETARY RIGHTS AND
INFORMATION.
Our software is proprietary and is protected by trade secret, copyright and
trademark laws, license agreements, confidentiality agreements with employees
and nondisclosure and other contractual requirements imposed on our customers,
consulting partners and others. We cannot guarantee that these protections will
adequately protect our proprietary rights or that our competitors will not
independently develop products that are substantially equivalent or superior to
our products. In addition, the laws of certain countries in which our products
may be licensed in the future do not protect our products and intellectual
property rights to the same extent as the laws of the United States. Although we
believe that our products, trademarks and other proprietary rights do not
infringe upon the proprietary rights of third parties, we cannot guarantee that
third parties will not assert infringement claims against us. The cost of
pursuing, enforcing or defending infringement claims can be substantial and can
also require significant management attention. Eprise also licenses certain
third party technology that is incorporated into Eprise Participant Server.
Termination of any of these licenses could cause a disruption in our business.
RISKS RELATED TO THE INTERNET INDUSTRY
IF THE USE OF THE INTERNET DOES NOT EXPAND, OUR BUSINESS WILL SUFFER.
Our future success depends heavily on the Internet being accepted and
widely used. If Internet use does not continue to grow or grows more slowly than
expected, our business, operating results and financial condition would be
materially adversely affected. Consumers and businesses may reject the Internet
as a viable communications medium for a number of reasons, including potentially
inadequate network infrastructure, security concerns, slow development of
enabling technologies or insufficient commercial support. The Internet
infrastructure may not be able to support the demands placed on it by increased
Internet usage and bandwidth requirements. In addition, delays in the
development or adoption of new standards and protocols required to handle an
increased level of Internet activity or increased government regulation could
cause the Internet to lose its viability as a commercial medium. Even if the
required infrastructure, standards, protocols or complementary products,
services or facilities are developed, we may incur substantial expenses adapting
our solutions to changing or emerging technologies.
WE CANNOT BE SURE THAT A SUSTAINABLE MARKET FOR OUR PRODUCTS WILL DEVELOP.
The market for Web content management software and services is new and
rapidly evolving, and the size and potential growth of this new market and the
direction of its development are uncertain. We have licensed our products to a
small number of customers. We expect that we will continue to need intensive
marketing and sales efforts to educate prospective clients about the uses and
benefits of our products and services. Enterprises that have invested
substantial resources in other methods of conducting business over the Internet
may be reluctant to adopt a new approach that may replace, limit or compete with
their existing systems. Any of these factors could inhibit the growth and market
acceptance of our products and services. Accordingly, we cannot be certain that
a viable market for our products will emerge, or if it does emerge, that it will
be sustainable.
IF THE INTERNET OR E-COMMERCE BECOMES SUBJECT TO GOVERNMENTAL REGULATION OR
OTHER FUTURE LAWS, OUR BUSINESS COULD BE HARMED.
We are not currently required to comply with direct regulation by any
domestic or foreign governmental agency, other than regulations applicable to
businesses generally and any laws or regulations directly applicable to the
Internet. However, due to the increasing popularity of the Internet, it is
possible that laws may be adopted regarding the Internet, any of which could
10
<PAGE> 14
materially harm our business. For example, because our products can be used for
the solicitation of personal data from individual consumers, our business could
be limited by laws regulating the solicitation, collection or processing of this
data. The Telecommunications Act of 1996 prohibits the transmission of some
types of information and content over the Internet. Legislation imposing
potential liability for information collected or disseminated through our
products could adversely affect our business. In addition, the increased
attention focused upon liability issues as a result of the Telecommunications
Act could limit the growth of Internet commerce, which could decrease demand for
our products.
Export regulations, either in their current form or as may be subsequently
enacted, may limit our ability to distribute our software outside the United
States. The unlawful export of our software could also harm our business.
Although we take precautions against unlawful export of our software, the global
nature of the Internet makes if difficult to effectively control the
distribution of software.
Furthermore, the growth and development of the Internet may lead to more
stringent consumer protection laws that may impose additional burdens on
companies conducting business online. The adoption of any additional laws may
decrease Internet use or impede the growth of Internet use, which may lead to a
decrease in the demand for our products and services or an increase in the cost
of doing business. Further, the imposition of new sales or other taxes could
limit the growth of Internet commerce generally and, as a result, the demand for
our products. Although recent federal legislation limits the imposition of state
and local taxes on Internet-related sales, there is a possibility that Congress
may not renew this legislation, in which case state and local governments would
be free to impose taxes on goods and services purchased on the Internet.
RISKS RELATED TO THIS OFFERING
OUR COMMON STOCK PRICE IS LIKELY TO BE VOLATILE AND COULD DROP UNEXPECTEDLY.
The market for securities of most high technology companies has been highly
volatile. It is likely that the market price of our common stock will fluctuate
widely in the future. Factors affecting the trading price of our common stock
are likely to include:
- responses to quarter-to-quarter variations in our results of operations;
- the announcement of new products or product enhancements by us or our
competitors;
- technological innovation by us or our competitors;
- general market conditions or market conditions specific to particular
industries; and
- changes in earnings estimates by analysts.
WE HAVE ADOPTED ANTI-TAKEOVER PROVISIONS THAT COULD AFFECT THE MARKET PRICE OF
OUR COMMON STOCK OR OUR ABILITY TO SELL OUR BUSINESS.
Certain provisions of our amended and restated certificate of incorporation
and by-laws could make it more difficult for a third party to acquire us or
effect a change of control in our management, even if doing so would be
beneficial to our stockholders. In addition, certain provisions of Delaware law
and our stock incentive plans may also have the effect of discouraging, delaying
or preventing a sale. See "Description of Capital Stock."
11
<PAGE> 15
WE HAVE BROAD DISCRETION TO USE THE OFFERING PROCEEDS AND HOW WE INVEST THESE
PROCEEDS MAY NOT YIELD A FAVORABLE, OR ANY, RETURN.
The net proceeds of this offering are not allocated for specific uses other
than working capital and general corporate purposes. Thus, our management has
broad discretion over how these proceeds are used and could spend the proceeds
in ways with which you may not agree. We cannot assure you that the proceeds
will be invested in a way that yields a favorable, or any, return for us.
SHARES OF OUR COMMON STOCK ELIGIBLE FOR SALE AFTER THIS OFFERING MAY ADVERSELY
AFFECT OUR STOCK PRICE.
Once a trading market develops for our common stock, many of our
stockholders will have an opportunity to sell their stock for the first time.
More than shares, or times the number of shares sold in
this offering, assuming no exercise of the underwriters' over-allotment option,
will become eligible for sale in the public market at various dates beginning
180 days after the date of this prospectus. Sales of a substantial number of
shares of common stock in the public market, or the threat that substantial
sales might occur, could cause the market price of our stock to decrease
significantly. These factors could also make it difficult for us to raise
additional capital by selling stock. See "Shares Eligible for Future Sale."
YOU WILL INCUR IMMEDIATE AND SUBSTANTIAL DILUTION.
The expected offering price of our common stock is substantially higher
than the book value per share. As a result, investors purchasing our common
stock in the offering will incur immediate and substantial dilution. In
addition, we have issued options and warrants to acquire common stock at prices
significantly below the expected offering price. To the extent these outstanding
options and warrants are exercised, there will be further dilution. See
"Dilution."
12
<PAGE> 16
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Some of the statements under "Prospectus Summary," "Risk Factors,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operation," "Business" and elsewhere in this prospectus constitute
forward-looking statements. These statements relate to future events or our
future financial performance and are identified by terminology such as "may,"
"will," "could," "should," "expects," "plans," "intends," "seeks,"
"anticipates," "believes," "estimates," "potential," or "continue" or the
negative of such terms or other comparable terminology. These statements are
only predictions. You should not place undue reliance on these forward-looking
statements. Actual events or results may differ materially. In evaluating these
statements, you should specifically consider various important factors,
including the risks outlined under "Risk Factors." These factors may cause our
actual results to differ materially from any forward-looking statements.
Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, levels of
activity, performance or achievements. We are under no duty to update any of the
forward-looking statements after the date of this prospectus to conform such
statement to actual results.
USE OF PROCEEDS
We anticipate that our net proceeds from the sale of shares of common
stock in this offering will be approximately $ million, at an assumed
initial public offering price of $
per share and after deducting the estimated underwriting discounts and
commissions and offering expenses. If the Underwriters' over-allotment option is
exercised in full, we estimate that the net proceeds will be approximately
$ million.
The principal purposes of this offering are to obtain additional capital,
create a public market for our common stock and facilitate our future access to
the public capital markets.
We currently intend to use the net proceeds of the offering for working
capital and general corporate purposes, as well as repayment of a term note
outstanding to Silicon Valley Bank in the amount of approximately $164,675. We
have not allocated any specific portion of the net proceeds to any particular
purposes, and our management will have the ability to allocate the proceeds at
its discretion. A portion of the net proceeds may be used for the acquisition of
businesses, products and technologies that are complementary to our own,
although we have no current plans, agreements or commitments with respect to any
such transaction and are not in any negotiations with respect to any such
transaction. Pending these uses, the net proceeds will be invested in government
securities and other short-term, investment-grade, interest-bearing instruments.
DIVIDEND POLICY
We have never declared or paid any cash dividends on our capital stock and
do not anticipate paying any cash dividends on our capital stock in the
foreseeable future. Future dividends, if any, will be determined by the Board of
Directors. Our current loan agreement prohibits the payment of any dividends on
our capital stock.
13
<PAGE> 17
CAPITALIZATION
The following table sets forth our capitalization as of September 30, 1999
on an actual, pro forma and pro forma as adjusted basis. The "actual" column
reflects our capitalization as of September 30, 1999 on a historical basis,
without any adjustments to reflect subsequent events or anticipated events. The
"pro forma" column reflects our capitalization as of September 30, 1999 with
adjustments for the following:
- the filing prior to the closing of this offering of a Certificate of
Amendment to our Fourth Amended and Restated Certificate of Incorporation
authorizing shares of common stock and shares of
undesignated preferred stock.
- the issuance of 16,233,766 shares of Series C preferred stock, which
occurred on November 8, 1999, for aggregate proceeds of $23.4 million
after expenses, as though the offering had occurred on September 30,
1999.
- the automatic conversion of all of the shares of Series A, Series B and
Series C preferred stock into an aggregate of 41,070,137 shares of common
stock upon the closing of this offering.
The "pro forma as adjusted" column reflects our capitalization as of
September 30, 1999 with the preceding "pro forma" adjustments plus:
- the receipt of the estimated net proceeds and the anticipated use of such
proceeds from our sale of shares of common stock at an assumed
initial public offering price of $ per share.
None of the columns set forth below reflects as of September 30, 1999:
- the potential issuance of shares of common stock issuable
under the overallotment option granted to the underwriters of this
offering.
- outstanding warrants to purchase 1,101,989 shares of common stock at a
weighted average exercise price of $1.09 per share (assuming conversion
of the Series A Preferred Stock warrants to common stock warrants).
- outstanding options to purchase 6,011,000 shares of common stock at a
weighted average exercise price of $0.14 per share.
The information shown in the table below is qualified by, and should be
read in conjunction with, our more detailed financial statements and the related
notes appearing elsewhere in this prospectus.
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1999
------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
-------- --------- -----------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C>
Current portion of equipment line of credit................. $ 86 $ 86 $ --
======== ======== ========
Long-term equipment line of credit, less current portion.... 100 100 --
======== ======== ========
Redeemable preferred stock:
Series A redeemable convertible preferred stock, $0.01 par
value, 10,842,920 shares authorized, 10,515,925 shares
issued and outstanding, actual; no shares authorized,
issued and outstanding, pro forma and pro forma as
adjusted............................................... 5,188 -- --
Series B redeemable convertible preferred stock, $0.01 par
value, 15,000,000 shares authorized, 14,320,446 shares
issued and outstanding, actual; no shares authorized,
issued and outstanding, pro forma and pro forma as
adjusted............................................... 8,567 -- --
</TABLE>
14
<PAGE> 18
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1999
------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
-------- --------- -----------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C>
Series C redeemable convertible preferred stock, $0.01 par
value, no shares authorized, issued and outstanding, actual;
no shares authorized, issued and outstanding, pro forma and
pro forma as adjusted....................................... -- -- --
-------- -------- --------
Total redeemable preferred stock............................ 13,755 -- --
-------- -------- --------
Stockholders equity (deficit):
Preferred stock, $0.01 par value; 25,842,920 shares
authorized, 24,836,371 shares issued and outstanding,
actual; shares authorized, no shares issued and
outstanding, pro forma and pro forma as adjusted.......
Common Stock, $0.001 par value; 40,000,000 shares
authorized, 6,140,444 shares issued and outstanding,
actual; 58,500,000 shares authorized, 47,210,581 shares
issued and outstanding, pro forma; shares
authorized, shares issued and outstanding, pro
forma as adjusted...................................... 6 47
Additional paid-in capital................................ 389 37,503
Accumulated deficit....................................... (12,736) (12,736) (12,736)
Note receivable from officer.............................. (30) (30) (30)
-------- -------- --------
Total stockholders' equity (deficit)................... (12,371) 24,784
-------- --------
Total capitalization.............................. $ 1,570 $ 24,970
======== ========
</TABLE>
15
<PAGE> 19
DILUTION
The pro forma net tangible book value of Eprise as of September 30, 1999
was approximately $24.8 million, or $0.53 per share of common stock. Pro forma
net tangible book value per share represents the amount of total tangible assets
less total liabilities, divided by the pro forma shares of common stock
outstanding as of September 30, 1999. Pro forma net tangible book value gives
effect to the issuance of 16,233,766 shares of Series C preferred stock for
aggregate net proceeds of approximately $23.4 million as though the issuance of
this stock had occurred on September 30, 1999 and the conversion to common, as
of September 30, 1999, of all outstanding shares of preferred stock, including
the Series C preferred stock. After giving effect to the issuance and sale of
the shares of common stock offered hereby at an assumed initial public
offering price of $ per share and after deducting estimated underwriting
discounts and commissions and offering expenses, the pro forma net tangible book
value of Eprise as of September 30, 1999 would have been $
million, or $ per share. This represents an immediate increase in pro forma
net tangible book value of $ per share to existing stockholders and an
immediate dilution of $ per share to new investors. The following table
illustrates this per share dilution.
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $
Pro forma net tangible book value per share at September 30,
1999........................................................ $ 0.53
Increase in pro forma net tangible book value per share
attributable to new investors..........................
-------
Pro forma net tangible book value per share after
offering..................................................
------
Dilution per share to new investors......................... $
======
</TABLE>
The following table summarizes, on a pro forma basis, as of September 30,
1999, the differences between the number of shares of common stock purchased
from Eprise, the aggregate cash consideration paid and the average price per
share paid by existing stockholders and new investors purchasing shares of
common stock in this offering before deducting estimated underwriting discounts
and commission and offering expenses payable by Eprise:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
-------------------- --------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNTS PERCENT PER SHARE
---------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders......... 47,210,581 % $37,162,000 % $0.79
New investors.................
---------- ----- ----------- ----- -----
Total....................... % $ % $
========== ===== =========== ===== =====
</TABLE>
The discussion and tables above assume no exercise of any stock options or
warrants outstanding as of September 30, 1999. As of September 30, 1999, there
were options outstanding to purchase a total of 6,011,000 shares of common stock
with a weighted average exercise price of $0.14 per share and warrants
outstanding to purchase 774,994 shares of common stock at a weighted average
exercise price of $1.34 per share and 326,995 shares of Series A preferred stock
(convertible into common stock) at an exercise price of $0.49695 per share. To
the extent that any of these options or warrants are exercised, there will be
further dilution to new investors.
16
<PAGE> 20
SELECTED FINANCIAL DATA
The selected financial data presented below as of December 31, 1997 and
December 31, 1998 and for the year ended August 31, 1997, the four months ended
December 31, 1997 and the year ended December 31, 1998 have been derived from
our audited financial statements, included elsewhere in this prospectus.
Selected financial data as of August 31, 1997 have been derived from our audited
financial statements, which are not included in this prospectus. The selected
financial data as of August 31, 1994, 1995 and 1996 and September 30, 1999 and
for the years ended August 31, 1994, 1995 and 1996 and the nine months ended
September 30, 1998 and 1999 have been derived from our unaudited financial
statements, which in the opinion of management include all adjustments necessary
for a fair presentation of such information in accordance with generally
accepted accounting principles. The results of operations for the nine months
ended September 30, 1999 may not be indicative of results to be expected for the
full year. In 1997, Eprise changed its fiscal year end from August 31 to
December 31. The unaudited statement of operations for the 12 months ended
December 31, 1997 has been derived by summing the results of operations for the
four fiscal quarters in the period ended December 31, 1997. The information set
forth below should be read along with our "Management's Discussions and Analysis
of Financial Condition and Results of Operations" and our financial statements
and notes to those statements appearing elsewhere in this prospectus.
<TABLE>
<CAPTION>
FOUR TWELVE
MONTHS MONTHS YEAR NINE MONTHS ENDED
YEARS ENDED AUGUST 31, ENDED ENDED ENDED SEPTEMBER 30,
--------------------------------- DEC. 31, DEC. 31, DEC. 31, -----------------
1994 1995 1996 1997 1997 1997 1998 1998 1999
------ ------ ------ ------ -------- -------- -------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Software licenses.................... $ -- $ -- $ -- $ 33 $ 65 $ 65 $ 345 $ 178 $ 855
Services............................. 890 1,104 1,192 1,387 238 1,157 462 346 757
------ ------ ------ ------ ------- ------- ------- ------- -------
Total revenues..................... 890 1,104 1,192 1,420 303 1,222 807 524 1,612
Cost of revenues....................... 466 458 567 518 285 579 460 343 698
------ ------ ------ ------ ------- ------- ------- ------- -------
Gross profit........................... 424 646 625 902 18 643 347 181 914
Operating expenses:
Research and development............. -- -- 131 180 327 459 2,149 1,519 1,650
Selling and marketing................ -- -- 291 800 392 879 2,349 1,725 2,954
General and administrative........... 488 1,014 332 501 363 710 1,246 895 1,202
Compensation cost for stock
options............................ -- -- -- -- -- -- -- -- 140
------ ------ ------ ------ ------- ------- ------- ------- -------
Total operating expenses........... 488 1,014 754 1,481 1,082 2,048 5,744 4,139 5,946
------ ------ ------ ------ ------- ------- ------- ------- -------
Operating loss......................... (64) (368) (129) (579) (1,064) (1,405) (5,397) (3,958) (5,032)
Other income (expense), net............ (4) (18) (26) (154) (100) (210) 136 54 106
------ ------ ------ ------ ------- ------- ------- ------- -------
Net loss............................... $ (68) $ (386) $ (155) $ (733) $(1,164) $(1,615) $(5,261) $(3,904) $(4,926)
====== ====== ====== ====== ======= ======= ======= ======= =======
Loss per share......................... $(0.02) $(0.08) $(0.03) $(0.14) $ (0.21) $ (0.30) $ (0.94) $ (0.70) $ (0.83)
====== ====== ====== ====== ======= ======= ======= ======= =======
Weighted average common shares
outstanding.......................... 4,037 4,647 5,264 5,285 5,498 5,400 5,609 5,607 5,923
====== ====== ====== ====== ======= ======= ======= ======= =======
Pro forma loss per share............... $ (0.25) $ (0.16)
======= =======
Pro forma weighted average common
shares outstanding................... 21,425 30,631
======= =======
</TABLE>
<TABLE>
<CAPTION>
AUGUST 31, AUGUST 31, AUGUST 31, AUGUST 31, DECEMBER 31, DECEMBER 31, SEPTEMBER 30,
1994 1995 1996 1997 1997 1998 1999
---------- ---------- ---------- ---------- ------------ ------------ -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents....... $ -- $ 26 $ -- $ 105 $ 3,136 $ 6,357 $ 964
Working capital (deficit)....... (213) (341) (508) (1,358) 2,389 5,829 838
Total assets.................... 342 320 408 335 3,647 7,075 2,958
Long-term debt.................. 111 202 144 -- -- 158 100
Redeemable preferred stock...... -- -- -- -- 5,004 13,740 13,755
Total stockholders'
deficiency.................... (28) (370) (521) (1,220) (2,327) (7,583) (12,371)
</TABLE>
17
<PAGE> 21
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with our financial
statements and related notes which appear elsewhere in this prospectus. The
following discussion contains forward-looking statements that reflect Eprise's
plans, estimates and beliefs. Our actual results could differ materially from
those discussed in the forward-looking statements. Factors that could cause or
contribute to such differences include, but are not limited to, those discussed
below and elsewhere in this prospectus, particularly in "Risk Factors." See
"Special Note Regarding Forward-Looking Statements."
GENERAL
Eprise, originally named Inner Circle Technologies and then NovaLink, was
founded in 1992 as a provider of online interactive games. Between 1994 and
1997, our principal business shifted to creating and hosting Web sites for
corporate clients. During this period, we encountered recurring problems arising
out of the inadequacy of software tools that were commercially available to
build and maintain Web sites. Realizing that there was an opportunity to
streamline and automate these processes, we began to develop a software product
called Eprise Participant Server to facilitate the construction and updating of
Web sites. We shipped our first commercial product in early 1998. Eprise now
markets and sells Version 2.5 of Eprise Participant Server.
We have completed three rounds of venture capital financing since December
1997, for over $38.0 million in gross proceeds, from investors including Prism
Venture Partners, Alliance Technology Ventures and Brookside Capital Partners.
OVERVIEW
We changed our fiscal year end from August 31 to December 31 in 1998.
Certain financial information for 1997 contained herein has been combined in
order to present a comparable accounting period for 1997 to the audited year
ended December 31, 1998. Future references to the year 1997 or 1998 mean the
twelve months ended December 31 unless otherwise indicated.
We generate revenues from two principal sources: (1) license fees for our
software products and (2) professional services and technical support revenues
derived from consulting, implementation, training and maintenance services
related to our software products. In the nine months ended September 30, 1999,
three customers accounted for 41% of our total revenues. In the year ended
December 31, 1998, one customer accounted for 58% of our total revenues.
Software licenses. Customers typically pay an up-front, one-time fee for a
perpetual non-exclusive license of our software. Generally, the amount of the
fee is based on the number of licensed servers. To date, software license
revenues have principally come from direct sales to customers. The sales cycle
for our products is typically three to six months. Although we have limited
historical financial data, we believe that our quarterly operating results may
experience seasonal fluctuations due to clients' fiscal year budgeting cycles
and purchasing patterns. Because of our server-based licensing, we experience
significant variation in the size of our licensing transactions.
We generally recognize license fee revenues upon delivery of the product if
no significant production, modification or customization is required under the
license agreement. If the license agreement requires significant production,
modification or customization or if the product is subject to acceptance and/or
return and refund, we defer revenues until the product requirements have been
completed, acceptance has occurred or the refund period has expired.
18
<PAGE> 22
Services. Services revenues consist principally of revenues derived from
professional services associated with the implementation and integration of our
software products, training of customers' employees and ongoing customer
support, which primarily includes customer technical support services and
product enhancements. We deliver professional services on either a fixed price
basis or a time and materials basis. We generally complete implementation and
training services within three to six months following license contract signing.
We recognize revenues from professional services as such services are
performed. We recognize maintenance revenues, which are invoiced annually in
advance, ratably over the term of the maintenance agreement, which is generally
12 months. Maintenance agreements are renewable at the discretion of the
customer. As part of these agreements, we provide product enhancements (which
are not otherwise priced separately) and technical support services to customers
for an annual fee, which typically amounts to 20% of the license fee. While a
60-day warranty is included in the software license, maintenance agreements
typically are entered into as of the date of the software license.
Backlog. Delivery lead times for our products are very short and,
consequently, substantially all of our license fee revenues in each quarter
result from orders received in that quarter. Accordingly, we generally only
maintain a backlog for our professional services and maintenance activities, and
we believe that our backlog at any point in time is not a reliable indicator of
future revenues and earnings.
Cost of revenues. The costs associated with software licenses, including
CDs and packaging, arise primarily from the production of software products, and
have not been significant. Cost of services revenues consists primarily of
salaries and related personnel costs and other allocated expenses of our
consulting, support and training organizations, as well as costs related to
servicing our legacy products.
Research and development. We maintain a product development staff to
enhance our existing products and to develop new products. Software costs are
expensed as incurred until technological feasibility of the software is
determined, after which any additional costs are capitalized. To date, we have
expensed all software development costs because development costs incurred
subsequent to the establishment of technological feasibility have been minimal.
Selling and marketing. We license our products primarily through our
direct sales force. Selling and marketing expenses consist primarily of costs
associated with personnel, sales commissions, office facilities, travel and
promotional events such as trade shows, seminars and technical conferences,
advertising and public relations programs.
General and administrative. General and administrative expenses include
salaries and related personnel expenses and other costs of the finance, human
resources, information technology and administrative functions at Eprise.
19
<PAGE> 23
RESULTS OF OPERATIONS
The following table sets forth our operating results for the periods
indicated as a percentage of revenues.
<TABLE>
<CAPTION>
FOUR TWELVE NINE MONTHS
YEARS ENDED MONTHS MONTHS YEAR ENDED
AUGUST 31, ENDED ENDED ENDED SEPTEMBER 30,
------------ DEC. 31, DEC. 31, DEC. 31, --------------
1996 1997 1997 1997 1998 1998 1999
---- ---- -------- -------- -------- ----- -----
(AS A PERCENTAGE OF TOTAL REVENUES)
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Software licenses..................... --% 2% 21% 5% 43% 34% 53%
Services............................ 100% 98% 79% 95% 57% 66% 47%
--- --- ---- ---- ---- ---- ----
Total revenues............... 100% 100% 100% 100% 100% 100% 100%
--- --- ---- ---- ---- ---- ----
Cost of revenues...................... 48% 37% 94% 47% 57% 65% 43%
--- --- ---- ---- ---- ---- ----
Gross profit.......................... 52% 63% 68% 53% 43% 35% 57%
Operating expenses:
Research and development............ 11% 13% 108% 38% 266% 290% 102%
Selling and marketing............... 24% 56% 129% 72% 291% 329% 184%
General and administrative.......... 28% 35% 120% 58% 154% 171% 75%
Compensation cost for stock
options........................... --% --% --% --% --% --% 8%
--- --- ---- ---- ---- ---- ----
Total operating expenses..... 63% 104% 357% 168% 711% 790% 369%
--- --- ---- ---- ---- ---- ----
Operating loss........................ (11)% (41)% (351)% (115)% (668)% (755)% (312)%
Other income (expense), net........... (2)% (11)% (33)% (17)% 17% 10% 6%
--- --- ---- ---- ---- ---- ----
Net loss.............................. (13)% (52)% (384)% (132)% (651)% (745)% (306)%
=== === ==== ==== ==== ==== ====
</TABLE>
NINE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO THE NINE MONTHS ENDED SEPTEMBER
30, 1998
Software licenses. Revenues from software licenses increased by 380.3% to
$855,000 for the nine months ended September 30, 1999 compared to $178,000 for
the nine months ended September 30, 1998. The increase in revenues from software
licenses was primarily due to the release of Version 2.0 of Eprise Participant
Server in April 1999 and the resulting increases in license deliveries during
1999.
Services. Revenues from services increased by 118.8% to $757,000 for the
nine months ended September 30, 1999 compared to $346,000 for the nine months
ended September 30, 1998. The increase in revenues from services resulted
primarily from consulting, implementation, training and support revenues
generated by new software license sales.
Cost of revenues. Cost of revenues, which primarily relate to services
because costs of licenses are insignificant, increased by 103.5% to $698,000 for
the nine months ended September 30, 1999 compared to $343,000 for the nine
months ended September 30, 1998. However, as a percentage of total revenues,
cost of revenues decreased to 43% for the nine months ended September 30, 1999
from 65% for the nine months ended September 30, 1998. This was primarily due to
a larger percentage of total revenues being derived from software license fees
(which have significantly higher gross profit margins) in the nine months ended
September 30, 1999 compared to the nine months ended September 30, 1998, more
efficient implementation of our products and better utilization of service
personnel.
Research and development. Research and development expenses increased by
8.6% to approximately $1.7 million for the nine months ended September 30, 1999
compared to
20
<PAGE> 24
approximately $1.5 million for the nine months ended September 30, 1998. The
increase was primarily attributable to employee-related expenses incurred in the
nine months ended September 30, 1999 for the continued development of Version
2.0 of Eprise Participant Server and future product releases.
Selling and marketing. Selling and marketing expenses increased by 71.2%
to approximately $3.0 million for the nine months ended September 30, 1999
compared to approximately $1.7 million for the nine months ended September 30,
1998. The increase in selling and marketing expenses reflects an increase in the
number of sales and sales support personnel as we expanded our direct sales
force. In addition, we incurred significant cost increases in marketing programs
and public relations activities as we expanded our presence in the market and
further developed our brand.
General and administrative. General and administrative expenses increased
by 34.3% to approximately $1.2 million for the nine months ended September 30,
1999 compared to $895,000 for the nine months ended September 30, 1998. The
increase in general and administrative expenses primarily reflects personnel
increases and related costs associated with supporting our recent and projected
revenue growth.
Compensation cost for stock options. Options were granted during 1999 at
exercise prices which were the Company's best estimate of the fair value of the
underlying common stock on the date of grant. However, subsequent to the grant
date, management concluded that for grants after the release of the new version
of the Company's principal product, these estimates may not have fully reflected
the impact of this event. Management has concluded that for grants after May
1999, the value of the preferred stock sold in November 1999 ($1.54 per share)
less a 10% discount reflecting the significant preferences enjoyed by the
preferred stock is a more reliable estimate of the fair value of the common
stock during this period. For grants during this period, compensation cost
aggregated $2,623,000, which will be amortized to expense over the four year
vesting period of the option grants. For the nine months ended September 30,
1999, compensation expense recorded related to these grants aggregated $140,000.
Other income (expense). Other income and expense consisted primarily of
interest income on invested cash balances and interest expense on borrowings.
The increase in other income, net between the two periods was the result of
higher cash balances generated from our second round of venture capital
financing in August 1998.
Income taxes. During the nine months ended September 30, 1999 and 1998, we
reported losses for both financial and income tax purposes. No provision or
benefit for income taxes was recorded in either period.
SUPPLEMENTAL DISCUSSION OF YEAR ENDED DECEMBER 31, 1998 AND TWELVE MONTHS ENDED
DECEMBER 31, 1997
Software licenses. Revenues from software licenses increased by 430.8% to
$345,000 for the year ended December 31, 1998 compared to $65,000 for the twelve
months ended December 31, 1997. The increase in revenues from software licenses
was primarily due to the first commercial release of Eprise Participant Server
in February 1998 and an increase in the number of licenses delivered. Revenues
from software license fees for the twelve months ended December 31, 1997
resulted from a limited number of license sales of a preliminary version of the
product.
Services. Revenues from services decreased by 60.1% to $462,000 for the
year ended December 31, 1998 compared to approximately $1.2 million for the
twelve months ended December 31, 1997. The decrease in revenues from services
was attributable to the fact that prior to the first commercial release of
Eprise Participant Server in February 1998, we derived
21
<PAGE> 25
the majority of our revenues from Web site development, Web site hosting and
online interactive games. During these periods, these revenues decreased as we
focused on development and marketing of Eprise Participant Server.
Cost of revenues. Cost of revenues, which primarily relate to services
because costs of licenses are not significant, decreased by 20.6% to $460,000
for the year ended December 31, 1998 compared to $579,000 for the twelve months
ended December 31, 1997. Cost of services revenues for the twelve months ended
December 31, 1997 included data communication costs associated with our hosting
of customers' Web sites. The decrease in services revenues between the two
periods was due to a decrease in services revenues associated with Web site
hosting and development.
Research and development. Research and development expenses increased by
368.2% to approximately $2.1 million for the year ended December 31, 1998
compared to $459,000 for the twelve months ended December 31, 1997. The increase
was primarily due to increased salaries, benefits and recruiting expenses
associated with the expansion of our product development staff, which was
required for the continued development of Eprise Participant Server. In
addition, increased consulting and contract programmer expenses were incurred in
the year ended December 31, 1998 to supplement our product development staff in
the development of Version 2.0 of Eprise Participant Server.
Selling and marketing. Selling and marketing expenses increased by 167.2%
to approximately $2.3 million for the year ended December 31, 1998 compared to
$879,000 for the twelve months ended December 31, 1997. The increase in selling
and marketing expenses reflects an increase in the number of sales and sales
support personnel as we developed and expanded our direct sales force in 1998.
Additionally, with the first commercial release of Eprise Participant Server in
February 1998, we incurred increased marketing expenses for market awareness
programs associated with the product launch.
General and administrative. General and administrative expenses increased
by 75.5% to approximately $1.2 million for the year ended December 31, 1998
compared to $710,000 for the twelve months ended December 31, 1997. The increase
in general and administrative expenses was primarily due to costs associated
with the recruitment and hiring of our Chief Executive Officer and other
executive management staff in 1998 following the first round of venture
financing and costs associated with the move to our new facilities in October
1997.
Other income (expense). Other income, consisting of interest income,
increased to $164,000 for the year ended December 31, 1998 compared to $6,000
for the twelve months ended December 31, 1997. The increase in interest income
resulted from interest earned on invested cash balances generated from our first
round of venture capital financing in December 1997. Other expense, consisting
of interest expense, decreased to $28,000 for the year ended December 31, 1998
compared to $216,000 for the year ended December 31, 1997. The majority of
interest expense incurred in 1997 was associated with borrowings from a
financial institution under an accounts receivable factoring arrangement.
Income taxes. During the year ended December 31, 1998 and the twelve
months ended 1997, we reported losses for both financial and income tax
purposes. No provision or benefit for income taxes was recorded in either year.
At December 31, 1998, we had net operating loss carry forwards for federal and
state tax purposes aggregating approximately $7.5 million available to offset
future taxable income. These net operating loss carry forwards expire in varying
amounts through 2013. At December 31, 1998, we had federal and state tax credits
aggregating approximately $125,800 available to offset future taxable income,
expiring through 2013. Because of changes in ownership during 1997 and 1998, our
ability to utilize these carry forwards is likely to be limited.
22
<PAGE> 26
FOUR MONTHS ENDED DECEMBER 31, 1997
Software licenses. Revenues from software licenses for the four months
ended December 31, 1997 were $65,000. The increase in software license revenues
compared to the full year ended August 31, 1997, was primarily attributable to
the release of the preliminary version of Eprise Participant Server and the
initial deliveries of the product to customers.
Services. Revenues from services totaled $238,000 for the four months
ended December 31, 1997. These revenues primarily related to consulting services
provided for initial installations of Eprise Participant Server and, on a
monthly basis, were reduced from levels realized in the year ended August 31,
1997. This decrease in revenues was attributable to the fact that prior to the
release of Eprise Participant Server, we derived a majority of our revenues from
Web site development, Web site hosting and online interactive games.
Cost of revenues. Costs of revenues, which primarily relate to services
because costs of licenses are not significant, totaled $285,000 for the four
months ended December 31, 1997. As a percentage of revenues, cost of services
revenues was 94.1%, compared to 36.5% in the year ended August 31, 1997. The
increase in cost of services and other revenues as a percentage of revenues is
attributable to the decrease in revenues discussed above, as we began to exit
our original lines of business.
Research and development. Research and development expenses totaled
$327,000 for the four months ended December 31, 1997. As a percentage of
revenues, research and development expenses were 107.9%, compared to 12.7% for
the year ended August 31, 1997. This increase in research and development
expenses as a percentage of revenues is attributable to a decrease in revenues
as discussed above and increased salaries, benefits, and recruiting expenses
associated with an increase in product development personnel during the four
months ended December 31, 1997.
Selling and marketing. Selling and marketing expenses totaled $392,000 for
the four months ended December 31, 1997. Spending in this category, on a monthly
basis compared to monthly spending during the year ended August 31, 1997, rose
due to an increase in the number of sales and sales support personnel during the
period.
General and administrative. General and administrative expenses totaled
$363,000 for the four months ended December 31, 1997. Spending in this category,
on a monthly basis compared to monthly spending during the year ended August 31,
1997, rose due to an increase in the number of personnel during the period to
support our anticipated growth.
Other income (expense). Other expense for the four months ended December
31, 1997 totalled $99,000 and consisted principally of interest expense related
to outstanding borrowings during the period under an accounts receivable
factoring arrangement.
Income taxes. During the four months ended December 31, 1997, we reported
a loss for both financial and income tax purposes. No provision or benefit for
income taxes was recorded during the period.
YEAR ENDED DECEMBER 31, 1998 COMPARED TO THE YEAR ENDED AUGUST 31, 1997
Software licenses. Revenues from software licenses were $345,000 for the
year ended December 31, 1998 compared to $33,000 for the year ended August 31,
1997. The increased revenues from software licenses were the result of the first
commercial release of Eprise Participant Server in February 1998. In the year
ended August 31, 1997, revenues from software licenses were derived from the
sale of a preliminary version of Eprise Participant Server. The Company derived
the majority of its revenues during the year ended August 31, 1997 from Web site
development, Web site hosting and online interactive games.
23
<PAGE> 27
Services. Revenues from services decreased by 66.7% to $462,000 for the
year ended December 31, 1998 compared to approximately $1.4 million for the year
ended August 31, 1997. The decrease in revenues from services was attributable
to the fact that for the year ended August 31, 1997, prior to the release of
Eprise Participant Server, the Company derived the majority of its revenues from
Web site development, Web site hosting and online interactive games.
Cost of revenues. Cost of revenues, which primarily relate to services as
costs of licenses are not significant, decreased by 11.2% to $460,000 for the
year ended December 31, 1998 compared to $518,000 for the year ended August 31,
1997. The decrease in cost of revenues was primarily due to the significant
reduction of data communications expenses associated with the operation of
online interactive games and Web site hosting.
Research and development. Research and development expenses increased by
1,093.9% to approximately $2.1 million for the year ended December 31, 1998
compared to $180,000 for the year ended August 31, 1997. The increase was
primarily due to increased salaries, benefits and recruiting expenses associated
with an increase in the number of research and development personnel. In
addition, increased consulting and contract programmer expenses were incurred in
the year ended December 31, 1998 to supplement the Company's research and
development staff in the development of Version 2.0 of Eprise Participant
Server.
Selling and marketing. Selling and marketing expenses increased by 193.6%
to approximately $2.3 million for the year ended December 31, 1998 compared to
$800,000 for the year ended August 31, 1997. The increase in selling and
marketing expenses reflect the hiring of sales and sales support personnel as
the Company developed and expanded its direct sales force in 1998. Additionally,
with the first commercial release of Eprise Participant Server in February 1998,
the Company incurred increased marketing expenses for market awareness programs
associated with the product launch.
General and administrative. General and administrative expenses increased
by 148.7% to approximately $1.2 million for the year ended December 31, 1998
compared to $501,000 for the year ended August 31, 1997. The increase in general
and administrative expenses was primarily due to costs associated with the
recruitment and hiring of the Company's Chief Executive Officer and other
executive management staff in 1998 following the first round of venture
financing and costs associated with the Company's move to new facilities in
October 1997.
Other income (expense). Interest income increased to $164,000 for the year
ended December 31, 1998 compared to $3,000 for the year ended August 31, 1997.
The increase in interest income resulted from interest earned on invested cash
balances generated from the Company's two rounds of venture capital financing in
December 1997 and August 1998. Interest expense decreased to $28,000 for the
year ended December 31, 1998 compared to $157,000 for the year ended August 31,
1997. The majority of interest expense incurred in 1997 was associated with
borrowings from a financial institution under an accounts receivable factoring
arrangement.
Income taxes. During the years ended December 31, 1998 and August 31,
1997, we reported losses for both financial and income tax purposes. No
provision for or benefit from income taxes was recorded in either year.
YEAR ENDED AUGUST 31, 1997 COMPARED TO THE YEAR ENDED AUGUST 31, 1996
Software licenses. Revenues from software licenses were $33,000 for the
year ended August 31, 1997 compared to zero for the year ended August 31, 1996.
In the year ended August 31, 1997, software license fees were derived from the
sale of a preliminary version of Eprise Participant Server.
24
<PAGE> 28
Services. Revenues from services and other increased by 16.4% to
approximately $1.4 million for the year ended August 31, 1997 compared to
approximately $1.2 million for the year ended August 31, 1996. During these
periods, the Company derived the majority of its revenues from Web site
development, Web site hosting and online interactive games. The increase in
revenues from services was due to an increase in the number of consulting
engagements associated with our growing customer base, as well as expanded
selling and marketing efforts.
Cost of revenues. Cost of revenues, which primarily relate to services as
costs of licenses are not significant, decreased by 8.6% to $518,000 for the
year ended August 31, 1997 compared to $567,000 for the year ended August 31,
1996. The decrease in cost of revenues was primarily due to reductions in data
communications expenses associated with the operation of online interactive
gaming.
Research and development. Research and development expenses increased by
37.4% to $180,000 for the year ended August 31, 1997 compared to $131,000 for
the year ended August 31, 1996. The increase was due to costs related to the
initial development of Eprise Participant Server in early 1997. The expenses
consisted of salaries, benefits, and recruiting expenses associated with the
hiring of research and development personnel for the year ended August 31, 1997.
Selling and marketing. Selling and marketing expenses increased by 174.9%
to $800,000 for the year ended August 31, 1997 compared to $291,000 for the year
ended August 31, 1996. The increase in selling and marketing expenses reflect
the hiring of sales and marketing personnel and the related increase in salaries
and benefits.
General and administrative. General and administrative expenses increased
by 50.9% to $501,000 for the year ended August 31, 1997 compared to $332,000 for
the year ended August 31, 1996. The increase in general and administrative
expenses was primarily due to costs associated with additional general and
administrative personnel and professional fees to support the growing company,
as well as costs associated with the expansion of the Company's facilities in
December 1996.
Other income (expense). Interest income was $3,000 for the year ended
August 31, 1997, resulting from interest earned on a note receivable. Interest
expense increased to $157,000 for the year ended August 31, 1997 compared to
$26,000 for the year ended August 31, 1996. The majority of interest expense
incurred in 1997 was associated with a note payable and borrowings from a
financial institution under an accounts receivable factoring arrangement.
Income taxes. During the years ended August 31, 1997 and 1996, we reported
losses for both financial and income tax purposes. No provision for or benefit
from income taxes was recorded in either year.
QUARTERLY RESULTS OF OPERATIONS
The following tables presents our unaudited results of operations for each
of our last eight quarters up to and including the quarter ended September 30,
1999, and also presents such information as a percentage of our total revenue
for the periods indicated. The unaudited results of operations have been
prepared on substantially the same basis as the audited statements of operations
contained in this prospectus and include all adjustments, consisting of normal
recurring accruals, that we consider necessary to present this information
fairly when read in conjunction with our financial statements and notes thereto
appearing elsewhere in this
25
<PAGE> 29
prospectus. The operating results in any quarter are not necessarily indicative
of the results that may be expected for any future period.
<TABLE>
<CAPTION>
QUARTER ENDED
-------------------------------------------------------------------------------------
DEC. 31, MAR. 31, JUNE 30, SEP. 30, DEC. 31, MAR. 31, JUNE 30, SEP. 30,
1997 1998 1998 1998 1998 1999 1999 1999
-------- -------- -------- -------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Software licenses............... $ 80 $ 76 $ 101 $ -- $ 168 $ 108 $ 223 $ 524
Services...................... 117 95 148 104 115 53 305 399
------- ------- ------- ------- ------- ------- ------- -------
Total revenues.......... 197 171 249 104 283 161 528 923
------- ------- ------- ------- ------- ------- ------- -------
Cost of revenues................ 221 149 94 101 116 126 161 411
------- ------- ------- ------- ------- ------- ------- -------
Gross profit.................... (24) 22 155 3 167 35 367 512
------- ------- ------- ------- ------- ------- ------- -------
Operating expenses:
Research and development...... 312 421 473 624 631 568 545 537
Selling and marketing......... 314 571 605 550 623 765 1,099 1,090
General and administrative.... 335 249 301 344 352 364 410 428
Compensation cost on stock
options..................... -- -- -- -- -- -- -- 140
------- ------- ------- ------- ------- ------- ------- -------
Total operating
expenses.............. 961 1,241 1,379 1,518 1,606 1,697 2,054 2,195
------- ------- ------- ------- ------- ------- ------- -------
Operating loss.................. (985) (1,219) (1,224) (1,515) (1,439) (1,662) (1,687) (1,683)
Other income (expense), net..... (87) 19 7 28 82 55 33 18
------- ------- ------- ------- ------- ------- ------- -------
Net loss........................ $(1,072) $(1,200) $(1,217) $(1,487) $(1,357) $(1,607) $(1,654) $(1,665)
======= ======= ======= ======= ======= ======= ======= =======
<CAPTION>
QUARTER ENDED
-------------------------------------------------------------------------------------
DEC. 31, MAR. 31, JUNE 30, SEP. 30, DEC. 31, MAR. 31, JUNE 30, SEP. 30,
1997 1998 1998 1998 1998 1999 1999 1999
-------- -------- -------- -------- -------- -------- -------- --------
(AS A PERCENTAGE OF TOTAL REVENUES)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PERCENT OF TOTAL REVENUES:
Revenues:
Software licenses............. 41% 44% 41% --% 59% 67% 42% 57%
Services...................... 59 56 59 100 41 33 58 43
------- ------- ------- ------- ------- ------- ------- -------
Total revenues.......... 100 100 100 100 100 100 100 100
------- ------- ------- ------- ------- ------- ------- -------
Cost of revenues................ 112 87 38 97 41 78 30 45
Gross profit.................... (12) 13 62 3 59 22 70 55
------- ------- ------- ------- ------- ------- ------- -------
Operating expenses:
Research and development...... 158 247 190 600 223 353 103 58
Selling and marketing......... 160 333 243 529 220 475 208 118
General and administrative.... 170 146 121 331 124 226 79 46
Compensation cost for stock
options..................... -- -- -- -- -- -- -- 15
------- ------- ------- ------- ------- ------- ------- -------
Total operating
expenses.............. 488 726 554 1,460 567 1,054 390 237
------- ------- ------- ------- ------- ------- ------- -------
Operating loss.................. (500) (713) (492) (1,457) (508) (1,032) (320) (182)
Other income (expense), net..... (44) 11 3 27 29 34 6 2
------- ------- ------- ------- ------- ------- ------- -------
Net loss........................ (544)% (702)% (489)% (1,430)% (479)% (998)% (314)% (180)%
======= ======= ======= ======= ======= ======= ======= =======
</TABLE>
Our quarterly operating results have varied in the past and may vary
significantly in the future depending on many factors including, among others:
demand for our products and services; the timing of sales of our products and
services; the timing of customer orders and product implementation; unexpected
delays in introducing new products and services; increased
26
<PAGE> 30
expenses, whether related to selling and marketing, product development or
general administration; changes in the rapidly evolving market for Web content
management solutions; the mix of product license and service revenue; and the
timing and size of sales derived through our strategic partners, such as OEMs
and ASPs. Furthermore, we believe that the purchase of our products is
relatively discretionary and generally involves a significant commitment of
capital. As a result, purchases of our products may be deferred or canceled in
the event of a downturn in any potential customer's business or the economy in
general.
LIQUIDITY AND CAPITAL RESOURCES
From our inception through 1997, we primarily financed our operations and
met our capital expenditure requirements through funds generated from
operations, funds borrowed from several stockholders and a director, and funds
borrowed from a lending institution. Since December 1997, we have raised over
$38.0 million in venture capital and private placement funding in order to
expand the product development and sales and marketing efforts of the business.
At September 30, 1999, our primary source of liquidity consisted of cash
totaling approximately $964,000. On November 8, 1999, we raised net proceeds of
approximately $23.4 million, after expenses, from the sale of an aggregate of
16,233,766 shares of Series C preferred stock. In addition, we have a borrowing
agreement with a lending institution which provides us with a working capital
revolving line of credit and a capital equipment line of credit. The working
capital line of credit, which expires on March 26, 2000, provides for borrowings
up to a maximum amount equal to the lesser of $1.0 million or certain levels of
eligible accounts receivable. Borrowings under the line are subject to financial
performance covenants, bear interest at a rate per annum equal to the bank's
prime rate plus 1%, and are collateralized by all of our tangible assets. There
have been no borrowings to date under the working capital line of credit and as
of December 31, 1999 there was $1.0 million available under the line. As of
December 31, 1999, the equipment line of credit had expired and is subject to
renewal, and there were no borrowings outstanding under the equipment line of
credit. At December 31, 1999, there was a term note outstanding relating to a
previous equipment line of credit with Silicon Valley Bank totaling $164,675. At
December 31, 1998, we were not in compliance with maximum net loss covenants
contained in the line of credit agreements. The bank waived the events of
noncompliance, and the covenants have been amended. At September 30, 1999, we
were in compliance with all of the terms of our line of credit agreements.
Our operating activities have used cash in the current fiscal period and
each of the last two fiscal years. During the nine months ended September 30,
1999 and calendar years 1998 and 1997, cash used in operating activities of
approximately $5.1 million, $5.3 million and $1.4 million, respectively,
resulted from net losses of approximately $4.8 million, $5.3 million and $1.6
million, respectively.
Cash used in investing activities was approximately $319,000, $350,000 and
$212,000 in the nine months ended September 30, 1999 and calendar years 1998 and
1997, respectively. The cash used in investing activities was primarily used for
purchases of computer systems and software for internal development used to
support our growth, as well as furniture and equipment to accommodate the
increased number of personnel.
Cash provided by (used in) financing activities amounted to approximately
$(14,000), $8.8 million and $4.7 million in the nine months ended September 30,
1999 and calendar years 1998 and 1997, respectively. In November 1999,
approximately $23.4 million was provided from the sale of Series C preferred
stock to certain venture capital investors and other qualified investors. In
1998, approximately $8.5 million was provided from the sale of Series B
Preferred Stock to certain venture capital investors. In calendar year 1997,
approximately $4.9 million
27
<PAGE> 31
was provided from the sale of, and conversion of certain notes payable into,
Series A preferred stock issued to certain venture capital investors.
We currently anticipate that the net proceeds from the issuance of Series C
preferred stock on November 8, 1999, and the net proceeds from this offering,
together with our current cash and equivalents and line of credit, will be
sufficient to meet our anticipated cash needs for working capital and capital
expenditures for at least the next 12 months. However, we may need to raise
additional funds in future periods through public or private financings, or
other arrangements. Any additional financings, if needed, might not be available
on reasonable terms or at all. Failure to raise capital when needed could harm
our business, financial condition and results of operations. If additional funds
are raised through the issuance of equity securities, additional dilution could
result. In addition, any equity securities issued might have rights, preferences
or privileges senior to our common stock.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In December 1998, the American Institute of Certified Public Accountants
released Statement of Position No. 98-9 ("SOP 98-9"), "Modification of SOP 97-2,
Software Revenue Recognition, with Respect to Certain Transactions." SOP 98-9
amends SOP 97-2 to provide guidance related to determination of the allocation
of revenues in multiple element contracts under certain circumstances. SOP 98-9
will be effective for transactions entered into in the Company's fiscal year
beginning January 1, 2000. The Company does not expect that adoption of SOP 98-9
will have a material impact on financial position or the results of operations.
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities," effective for
fiscal years beginning after June 15, 2000. The new standard requires that all
companies record derivatives on the balance sheet as assets or liabilities,
measured at fair value. Gains or losses resulting from changes in the values of
those derivatives would be accounted for based on the use of the derivative and
whether it qualifies for hedge accounting. Management is currently assessing the
impact of SFAS No. 133 on the financial statements of Eprise. Eprise will adopt
this accounting standard on January 1, 2001, as required.
YEAR 2000 ISSUES
We have designed Eprise Participant Server and its add-on modules to be
Year 2000 compliant, and, as a result, to date we have not experienced Year 2000
problems related to these products. We licensed a precursor of Eprise
Participant Server that may not be Year 2000 compliant to one customer, but have
not been advised of any Year 2000 problems by such customer to date.
The majority of the computer programs and hardware we currently use in our
own internal operations did not require replacement or modification as a result
of the Year 2000 issue.
We believe that our significant vendors and service providers are Year 2000
compliant and have not, to date, been made aware that any of our significant
vendors or service providers have suffered Year 2000 disruptions in their
systems.
Accordingly, we do not anticipate incurring material expenses or
experiencing any material operational disruptions as a result of any Year 2000
problems.
28
<PAGE> 32
BUSINESS
This prospectus contains forward-looking statements that involve risks and
uncertainties. Our actual results may differ significantly from the results
discussed in these forward-looking statements. Factors that may cause such a
difference include, but are not limited to, those discussed elsewhere in this
prospectus, particularly in "Risk Factors." See also "Special Note Regarding
Forward-Looking Statements."
We are a leading provider of software products and services that enable
businesses to maintain, update, expand and otherwise manage the information
contained on their Web sites. Our core product, Eprise Participant Server,
enables a business organization to distribute this Web content management
function among the appropriate individuals within the enterprise who are charged
with particular aspects of the Web business. These individuals need no knowledge
of programming languages or other technical skills to use Eprise Participant
Server, thereby minimizing a customer's reliance on information technology
professionals and consultants. Eprise Participant Server, however, ensures that
changes to Web content are carefully managed through rules contained in the
software which govern Web content access and approval rights. Eprise Participant
Server permits an enterprise to have Web site content which is dynamic, up to
the minute and responsive to the needs of its customers, business partners,
employees and others who visit its Web site. Our product can be easily
integrated with a customer's existing Web site infrastructure and it can be
extended to provide enhanced, customized functionality. We believe that Eprise
Participant Server's comprehensive, out-of-the-box functionality makes it the
most cost-effective Web content management solution currently available.
INDUSTRY BACKGROUND
The Internet has evolved into a critical sales, service and communications
channel for businesses. This development has permanently altered the way
organizations manage relationships, not just with customers, but also with
suppliers, business partners, employees and others interested in the business
enterprise. Business organizations worldwide have realized that an effective Web
site can help the organization to achieve higher revenues as well as to build
and strengthen relationships with its many constituencies. IDC estimates that
the number of business Web sites will increase from 925 million in 1998 to 13.1
billion in 2003. While the number of business Web sites has grown, the amount of
Web site content has risen even faster.
Effective Web sites must communicate business information to one or more
target audiences. In order to do this, many enterprises maintain:
- an intranet site, which is used for internal communications with and
among employees and which may contain information about corporate
policies and employee benefits, other non-public announcements, and
internal product and sales support.
- an extranet site, which is used for restricted external communications
with business partners and which may contain information about products
and pricing, distribution channels, contract terms and conditions and
promotional material.
- an Internet site, which is used for communications with customers and the
general public and which often contains information about products,
customer service and support, company contacts, and investor and
financial information.
Because Web sites provide critical business information, they must be
carefully managed and kept up to date. Given the large amount of information
that can be made available on an organization's Web sites, and the number of
people who may be responsible for delivering and maintaining that information, a
business must determine who will contribute and manage what
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content, and how and to whom that content will be presented. This means that
software which manages Web site content must:
- distribute Web site content contribution, editing and approval functions
to the most appropriate individuals in the organization to enable them to
modify content quickly and easily without the assistance of technical
personnel;
- organize and store content so that it is presented consistently
throughout the Web site, and so that it can be easily formatted,
retrieved, re-used and revised over time;
- target content to the intended audience that is consistent with the
organization's business strategy and marketing messages; and
- permit integration with existing Web site content and software, without
the need for complex conversions or extensive programming.
Businesses have found it difficult and expensive to build in-house systems
or to customize commercially available software to manage their Web site
content. Businesses first attempted to manage the content of their Web sites
through in-house software development efforts. These efforts often failed
because the organization did not have sufficient resources and internal
technical personnel. These difficulties led to the development of commercially
available software that businesses could use to manage their Web site content
without substantial commitment of internal technical personnel. Many of these
solutions required a high degree of costly and time-consuming customization in
connection with both implementation and ongoing Web site management and
enhancement. Customized software solutions have also made businesses dependent
upon proprietary technology, which is difficult to integrate with other existing
and future business applications.
Because of these difficulties, business organizations require a new
approach to Web content management. This new approach requires software that is
as fully functional as possible upon installation, without requiring extensive
customization or consulting services. The software should be easy for
non-technical personnel to use, should be easy to integrate with the user's
existing databases, information systems and other technology and it should
permit a business to manage the content of its Web site on a decentralized basis
so that the appropriate individuals within the organization are responsible for
managing the content. Finally, the software should permit the business
organization to deliver timely, targeted information to its various audiences.
OUR SOLUTION
Eprise Participant Server provides a solution that addresses all of the
requirements for effective Web content management software.
Comprehensive, Out-of-the-Box Functionality. We believe that Eprise
Participant Server is the most complete out-of-the-box content management
software solution available today, with built-in functionality that results in
low implementation and customization costs.
Rapid Deployment. Typically, a customer can quickly install Eprise
Participant Server and begin using it commercially within a week. Because our
software is intuitive and easy to use, there is no need for technical scripting
or programming. This means that business people can begin contributing to and
modifying content on the Web site immediately after deployment, thereby
dramatically reducing the time to market of the enterprise's Web initiatives.
Easy Integration with Existing Web Site Infrastructure and
Technology. Eprise Participant Server uses widely accepted, non-proprietary
industry standards to communicate with other Internet infrastructure software.
This permits a customer to easily integrate Eprise Participant Server with its
back-office systems, databases, e-commerce and application servers and existing
Web content. In addition, customers can use readily available software
development
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tools to adapt and customize Eprise Participant Server to address their specific
needs. Our architecture also permits a software developer to enhance the
functionality of our product to address a customer's specific requirements.
Distribution of Content Management Responsibility. Eprise Participant
Server distributes Web site content creation, editing and approval
responsibilities throughout an organization, enabling the appropriate
individuals to implement and manage the Web site, in most cases without
assistance from a Webmaster or other technical personnel. At the same time,
Eprise Participant Server enables an organization to establish rules to control
those aspects of the Web site which are most appropriately managed by the
Webmaster, such as rules to provide a consistent look and feel. As a result of
this distribution of responsibility, a customer using our solution can
successfully provide more timely and targeted information that is consistent
with the organization's business objectives.
Delivery of Information Targeted to Particular Audiences. Through the
creation of unique business rules and individually assigned roles, Eprise
Participant Server makes it easy for the appropriate people within an enterprise
to create targeted, up-to-date content for the specific audiences that the
enterprise is trying to reach. Similarly, by assigning roles to Web site users
within and outside the enterprise, such as "employee," "manager" or "business
partner," and allowing those persons to select certain user preferences, an
enterprise can ensure that each member of its audience is receiving the most
relevant content.
Because Eprise Participant Server has all of this functionality, we believe
that it is the most cost-effective Web content management solution currently
available. Using Eprise Participant Server, a customer can create and maintain a
dynamic Web site that can be seamlessly integrated with other aspects of its
business with minimal reliance on internal or external information technology
professionals.
OUR STRATEGY
Our strategy is to become the leading provider of Web content management
solutions. To achieve this objective we are pursuing the following strategies:
Expand Product Offerings. Using customer feedback and market research, we
intend to expand our research and development in order to provide new releases
of Eprise Participant Server and to add new products that respond to our
customers' requirements. We intend through future releases of Eprise Participant
Server and new products to provide for further integration with our customers'
other software products, and to extend the content management capabilities of
our products.
Expand Direct Sales. Our direct sales force consists of teams of account
executives and systems engineers. Each of these teams is assigned to a territory
where it calls on enterprise accounts and dot-com companies that need content
management software to support their Internet infrastructure requirements. We
intend to substantially increase the number of our sales personnel in order to
achieve greater geographical coverage and increased market penetration.
Expand Alliances. We will continue to form and develop alliances with
large systems integrators, Web developers, interactive agencies, OEMs and
application service providers. These alliances enable us to expand our sales and
marketing activities, giving us greater marketing presence and sales coverage.
In addition, we intend to continue forming alliances with other Internet
software companies with complementary products and technologies so that together
we may deliver to our respective customers more comprehensive and better
integrated solutions.
Expand Sales Rapidly in Global Markets. We intend to rapidly expand our
international sales presence to take advantage of the growing global demand for
Web content management solutions. We will support this effort with a combination
of direct sales and support personnel,
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indirect sales channels and alliance partnerships. We have formed a key alliance
with a Japanese integrator to co-develop and distribute a Japanese language
version of Eprise Participant Server. Additionally, we are establishing a direct
sales presence and forming alliances in the European market.
Leverage Existing and New Customer Relationships. We are targeting
potential customers with multiple Web sites. We intend to develop and strengthen
our relationships with these customers with the expectation that we can generate
substantial additional revenues beyond the initial license and service fees, as
well as shorten the sales cycle on future licenses for the same account. In
addition, we expect to build on our relationships with existing and future
"marquee" customers to expand the market's awareness of our product.
PRODUCTS
The Eprise product line consists of Eprise Participant Server, which is our
Web content management software, and a series of add-on products for Eprise
Participant Server. The following table highlights the key functionality and
features of Eprise Participant Server.
Eprise Participant Server Functionality and Features
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
PRODUCT FUNCTIONALITY FEATURES
- ------------------------------------------------------------------------------------------------------
<S> <C> <C>
Content Management - Enterprise-wide distributed content contribution and
editing
- Categorization and organization of content
- Ability to store and retrieve previous versions of
content
- Ability to track access and editing history
- Re-useable page components (i.e., headers, footnotes) and
templates
- ------------------------------------------------------------------------------------------------------
User Management - Ability to assign roles to view and manage content
- Authentication of user identity using a variety of
industry standards
- Ability of Web site visitors to select content
preferences
- ------------------------------------------------------------------------------------------------------
Business Rule Management - Ability to provide for multiple levels of content
approval
- Ability to create rules governing an individual's rights
to view, modify or manage content
- Ability to target content to appropriate audiences
- ------------------------------------------------------------------------------------------------------
</TABLE>
Eprise Participant Server provides all of the functionality shown in the
above chart directly to non-technical business people within an enterprise, in
most cases without intervention by information technology personnel.
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Eprise also offers a variety of add-on products to maximize the effective
use of Eprise Participant Server by the broadest range of users. The current
add-on products offered by Eprise are shown in the following table.
Eprise Add-On Products
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
PRODUCT FEATURES
- ------------------------------------------------------------------------------------------------------
<S> <C> <C>
Integration Agents - Facilitates communication and exchange of information and
services between Eprise Participant Server and e-commerce
and applications servers
for ASP - Supports products based on Microsoft Active Server Pages
including Site Server Commerce
for Cold Fusion - Supports Allaire Cold Fusion Application Servers
for Java technologies - Supports Java Server Pages applications and other
applications servers that utilize Java technologies
- ------------------------------------------------------------------------------------------------------
Full Text Options - Allows a searchable full-text index to be created for
content managed in Eprise Participant Server
- Provides permission system for search requests and
displaying search results
for Windows NT - Uses Microsoft Index Server that ships with Windows NT
4.0
for Solaris - Uses technology from Verity, a leading full-text search
provider for the Unix platform
- ------------------------------------------------------------------------------------------------------
Web Catalyst - Automatically incorporates existing Web site content into
Eprise Participant Server
- ------------------------------------------------------------------------------------------------------
</TABLE>
We typically charge for Eprise Participant Server and add-on product
licenses based on the number of servers the customer will need to support its
Web sites, but occasionally we will provide our customers with the option to
license our products on an enterprise, divisional, or site license basis. As a
result, as the customer's Web sites prosper and site visits and transaction
volume grow, the client will need to purchase more licenses for the additional
servers deployed.
TECHNOLOGY
Eprise Participant Server incorporates a number of important technological
and design features. Its open architecture is based on XML and supports other
standards such as COM and Java through our optional add-ons. The user interface
for Eprise products is delivered through a Web browser and is based upon
standard HTML, DHTML, Java and JavaScript components. Eprise Participant Server
is also portable, allowing customers to use different database products for
their information repository, Microsoft SQL Server or Oracle, as well as
different operating systems and Web servers such as Windows NT and Solaris.
Eprise Participant Server's architecture is highly scalable because it uses
cache technology that allows dynamically rendered content to be stored in memory
to improve transactional performance and speed, as well as a two-tier
architecture that permits multiple Eprise servers to be "clustered" to share a
database server.
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Eprise Participant Server is also extensible, allowing a business to create
customized Web pages for specialized business process automation. Eprise
Participant Server's business rule management can incorporate information
provided by other corporate systems, such as directories. Using widely available
Web software development tools, a customer can easily integrate Eprise
Participant Server with other systems, such as application and e-commerce
servers, sales and service systems and back-office systems.
SERVICES
While the effective use of Eprise Participant Server requires little or no
customization, we do offer a variety of optional services to our customers.
Eprise Advantage Program. Through our Eprise Advantage Program, available
for a standard fee, an Eprise professional will evaluate a customer's Internet
initiatives in conjunction with its overall business strategy. Based on this
evaluation, we will deliver a discovery and design analysis providing
recommendations on how Eprise Participant Server can best be used to implement
the customer's business goals, either through the customer's own technology
department, Eprise professional services or third party service providers.
Professional Services. If a customer wishes to work with Eprise in the
implementation phase of a project, including projects arising out of Eprise
Advantage Program recommendations, our professional services team will provide
development services ranging from graphics design to building applications using
complex database and development tools, either on a fixed fee or a time and
materials basis.
Customer Training. Our professional services team provides customer
training, either as a component of our Eprise Advantage Program or as a
stand-alone service offering for a fixed fee.
Maintenance and Support. We provide technical support and maintenance
services through annual maintenance agreements with our customers. These
services include delivery of software product bug fixes, enhancements and new
versions of Eprise Participant Server not separately priced. We deliver support
and maintenance services primarily through telephone and e-mail communications.
We also address customer questions involving product operation, installation and
application development.
CUSTOMERS
We target enterprise-level accounts and dot-com companies who understand
the critical importance of communicating with their distribution channels and
customers through their Web sites, have a significant amount of information to
impart which requires frequent updating, must address the informational needs of
a number of different audiences from their sites, and require rapid design of,
and updates to, their sites. To date, we have licensed Eprise Participant Server
to over 30 clients in a broad spectrum of industries, including the financial
services, technology and manufacturing industries. For the nine months ended
September 30, 1999, American Express accounted for 23% of revenues for such
period.
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The following is a partial list of clients that have licensed our products
and that we believe are representative of our overall client base.
American Express
Asset International
Bausch & Lomb
BP Amoco
CAP Ventures
ChemPoint.com
Comverse Network Systems
Eastman Chemical
EMC Corp.
Financial Executives Institute
The Hartford
Homeruns.com
Laidlaw
Lincoln Financial Group
Martin Professional A/S
(Denmark)
MicroTouch Systems Inc.
Novell
Racing Rhino.com
Republican National Committee
Sharp Electronics
SmartMoney.com
SPX Corporation
Teijin Systems Technology
(Japan)
VIS Corporation
CASE STUDIES
Our customers have a wide variety of business objectives and Web site
strategies that we believe our product can address.
EMC CORPORATION, a supplier of intelligent enterprise storage and retrieval
technology, was seeking to reduce the time and cost associated with maintaining
its "build-it-yourself" Web site, while preserving its existing Web content.
EMC's Web site provides a critically important internal communications vehicle
for its geographically dispersed personnel. Using Eprise Participant Server, the
company has developed an intranet that provides employees with a wealth of
competitive data. The information is organized in three secure levels, and is
made available to employees depending upon their role in the organization. This
intranet is helping to maximize the productivity of marketing, corporate
executives, field operations, and other departments throughout EMC.
SHARP ELECTRONICS CORPORATION ("Sharp") is the U.S. sales and marketing
subsidiary of Sharp Corporation, a Japanese manufacturer of consumer
electronics, business products and electronic components. Sharp has
traditionally sold products to end users through existing distribution networks.
However, it recently established a new division, the Document and Network
Systems Group, that focuses on selling Network Laser Systems to businesses
through value-added resellers (VARs) and equipment dealers.
Because the Document and Network Systems Group required a more
sophisticated sales channel than that used by other Sharp product groups, Sharp
believed that new and more sophisticated communications tools would be
necessary. Sharp elected to develop a complete e-business system to support its
VAR and equipment dealer relationships, including a Web site that would be the
focal point for product marketing, sales and support and communication between
Sharp and its VARs and equipment dealers. In consultation with Andersen
Consulting, Sharp elected to deploy a Microsoft-centric environment that uses
Windows NT, SQL Server, IIS, and Site Server Commerce. To round out the
solution, Sharp and Andersen Consulting chose Eprise Participant Server to
provide dynamic Web content management.
With Eprise Participant Server, the content on Sharp's new Web site is
targeted to various tiers of resellers and provides timely, up-to-date
information which is easily added to the site by
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Sharp's business professionals. Sharp has realized the following competitive
advantages by using our product to develop its sales channels:
- real-time delivery of product information, such as price lists, technical
notes, bulletins, frequently asked questions (FAQs) and service
documentation, to VARs and equipment dealers;
- effective, targeted communications with business partners and consumers;
- ability of non-technical business professionals to quickly add and update
content on the Web site to improve customer service and satisfaction; and
- enhanced ability to attract sales channel partners.
SALES, MARKETING AND BUSINESS DEVELOPMENT
We license our product through both our direct sales force and indirect
sales channels. As of December 31, 1999, our sales, marketing and business
development organization consisted of 32 individuals, all of whom were based in
North America, including 11 direct sales representatives, who are supported by
seven sales support personnel, and eight marketing personnel.
Direct Sales. To date, we have sold our products primarily through our
direct sales force. We currently have nationwide sales coverage, organized
principally by geographic regions. We intend to increase our direct sales force
in the U.S. and overseas. We are focusing our sales efforts on well-defined
market segments where the need for our solution is greatest and where technology
innovation is the norm, such as the financial services, technology and
manufacturing industries. We target enterprise-level accounts and dot-com
companies for whom the Internet is a fundamental part of their corporate
strategy.
Marketing. We support our sales efforts through various marketing efforts
to generate brand awareness and to qualify leads for the sales organization. We
intend to significantly increase both expenditures and personnel to support our
marketing efforts.
Business Development. It is the goal of our business development staff to
extend our market reach and increase our sales opportunities through the
establishment of relationships with systems integrators, Web developers and ASPs
who build customer solutions based on Eprise Participant Server. In many cases,
these business partners will recommend a Web content management solution to
their customers as part of the e-business application that they deliver. We
anticipate that these business partners will reduce our current three- to
six-month sales cycle while adding value to the planning and deployment phase of
projects that require an Eprise solution. Our current business partner
arrangements include lead sharing, product training, joint marketing and access
to engineering resources. These relationships are important to our strategy
because of our business partners' technical knowledge and extensive customer
relationships across many industries. We intend to devote significant resources
to developing these relationships further.
We also have formal contractual relationships under our "E-business
Experts" program with a number of systems integrators and Web developers. Under
this program, we provide our E-business Experts with a license to use Eprise
Participant Server along with in-depth professional training in order to enable
the E-business Experts, in turn, to design and build for their customers content
management solutions based on the use of Eprise Participant Server.
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The following is a partial list of our current E-business Experts
alliances:
<TABLE>
<S> <C>
Agency.com Power 2000
Lante Corporation Primix Solutions
Mitchell Systems Telesoft Corporation
Corporation The New Media Group
MultiMedia Management AS TUSC Computer Systems
(Sweden) Pty. Ltd. (Australia)
OPN Systems Wing.net
PixelDance Communications
</TABLE>
Additionally, we are working with key large systems companies such as
Microsoft to coordinate product and marketing activities. We are a Microsoft
Certified Solutions Provider and a member of the Hewlett-Packard Covision
Program, the Sun Developer Connection Program and the Allaire Alliance Program.
These relationships afford us greater worldwide marketing and sales reach.
Global Expansion. We currently sell our products primarily in the United
States, but are taking steps to rapidly expand our global sales efforts to
domestically based global companies and companies based outside the United
States. We intend to do this with a combination of direct sales and support
personnel, indirect sales channels and partnerships. We have formed an alliance
with a Japanese integrator, Teijin Systems Technology Ltd., to co-develop and
distribute Japanese-language versions of our products. Additionally, we are in
the process of establishing a presence and forming partnerships in the European
market.
RESEARCH AND DEVELOPMENT
We have invested significantly in research and development to enhance our
current products and develop new products. Our research and development expenses
were $459,000 for the twelve months ended December 31, 1997, approximately $2.1
million in 1998 and approximately $1.6 million for the nine months ended
September 30, 1999. We expect that we will increase the dollar amount of our
research and development expenditures substantially in the future. As of
December 31, 1999, 20 employees were engaged in research and development
activities and we plan to continue to hire additional engineers to further our
research and development activities.
Our research team, led by the Chief Technology Officer, identifies market
opportunities and develops prototypes for new product features, product updates,
add-ons and new products. This team is responsible for defining and guiding our
product strategy and vision, and maintaining our reputation as an innovator in
content management solutions. Our development team, led by the Vice President of
Software Development, designs, develops and enhances new and existing products.
This team is responsible for product development, quality and assurance testing,
product documentation, product release and maintenance, and overall execution of
our product development strategy. We intend to continue to expand and enhance
the capabilities of Eprise Participant Server, as well as develop and extend our
content management product offerings, to provide our customers with complete
flexibility in choosing the most desirable environment for creating and managing
content.
COMPETITION
The market for Web content management solutions is intensely competitive,
subject to rapid technological changes and significantly affected by new product
introductions and other
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market activities of industry participants. We expect competition to persist and
intensify in the future. We have four primary sources of competition:
- in-house development efforts by potential clients and partners;
- specialized application servers such as Vignette;
- legacy document management systems such as Documentum; and
- file-based content management systems such as Interwoven.
In addition, we currently partner with a number of companies that provide
complementary products such as Web tools and application servers. Any of these
companies might introduce competitive product offerings in the future.
We believe that the primary factors upon which we compete are the
out-of-the-box functionality and rapid deployment capability of Eprise
Participant Server and Eprise Participant Server's ease of integration with our
customers' existing and future application server products. Other areas in which
we compete favorably include the ability to distribute content management
responsibilities within an organization, the ability to deliver information
targeted to specific audiences, and the cost-effectiveness of our product.
Despite these advantages, many of our competitors have longer operating
histories and significantly greater financial, technical, marketing and other
resources than we. As a result, they may be able to undertake more extensive
promotional efforts, adopt more aggressive pricing strategies, and offer more
attractive terms to purchasers than we.
Competition could materially and adversely affect our ability to obtain
revenues from license fees from new or existing customers and service fees from
existing customers. Further, competitive pressure may force us to reduce the
price of our products. In either case, our operating results and financial
condition would be materially and adversely affected.
PROPRIETARY RIGHTS AND LICENSING
Our success depends upon our ability to maintain the proprietary aspects of
our technology and operate without infringing the proprietary rights of others.
We rely on a combination of trademark, trade secret and copyright law, and
contractual restrictions, to protect the proprietary aspects of our technology.
We seek to protect the source code for our software, documentation and other
written materials under trade secret and copyright laws. These legal protections
provide limited protection for our technology. Our license agreements impose
certain restrictions on our customers' ability to utilize our software. We also
seek to protect our intellectual property by requiring employees and consultants
with access to our proprietary information to execute confidentiality agreements
with us and by restricting access to our source code. Due to rapid technological
change, we believe that factors such as the technological and creative skills of
our personnel, new product developments and enhancements to existing products
are at least as important to establishing and maintaining a technology
leadership position. Eprise also licenses certain third party technology that is
incorporated into Eprise Participant Server. See "Risk Factors -- We have a
limited ability to protect our intellectual property rights, and others could
infringe on or misappropriate our proprietary rights and information."
EMPLOYEES
As of December 31, 1999, we had a total of 77 employees, including 32 in
sales and marketing, 20 in research and development, 14 in professional services
and support and 11 in information technology, administration and finance. None
of our employees is represented by a collective bargaining agreement, nor have
we experienced any work stoppage. We consider our relations with our employees
to be good.
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FACILITIES
Our principal office occupies approximately 12,400 square feet in
Framingham, Massachusetts, under a lease that expires in September 2000. Annual
lease payments on the Framingham facility are approximately $198,600. We
anticipate leasing approximately 75,000 square feet of new office space in
Framingham, Massachusetts commencing on October 1, 2000. We expect that initial
annual lease payments on the new Framingham facility will be approximately $2.0
million, with periodic increases over the ten-year term of the lease. In
addition, we lease sales and service offices in Oakbrook, Illinois and in
Denver, Colorado, as well as additional office space in Framingham,
Massachusetts. Eprise does not own any real property.
LEGAL PROCEEDINGS
We are not a party to any material legal proceedings.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Joseph A. Forgione(1).................. 44 President, Chief Executive Officer and Director
Jonathan B. Radoff..................... 27 Founder, Chief Technology Officer and Director
Milton A. Alpern....................... 48 Vice President, Finance and Chief Financial Officer
Henry Barnes........................... 36 Vice President, Marketing
Thomas Feldman......................... 41 Vice President, Business Development
Joseph Fiorentino...................... 43 Vice President, Sales
Robert Strong.......................... 56 Vice President, Software Development
Edson D. de Castro(2).................. 61 Director and Chairman
Deborah M. Besemer(2).................. 45 Director
Robert C. Fleming(1)................... 43 Director
Alain J. Hanover(1)(2)................. 51 Director
Nicholas A. Papantonis................. 65 Director
Joseph Tischler........................ 51 Director
</TABLE>
- -------------------------
(1) Member of the Compensation Committee.
(2) Member of the Audit Committee.
Joseph A. Forgione has been President and Chief Executive Officer, and a
Director of Eprise since November 1997. Prior to joining Eprise, Mr. Forgione
held several senior positions at Lotus Corporation from 1993 to 1997, including
most recently Vice President of Business Development and Planning for the
Internet Applications Division. Mr. Forgione also co-founded and served as a
Senior Vice President of HyperDesk, an object-oriented development tools
company, from 1990 to 1993. Prior to founding HyperDesk, Mr. Forgione held
senior management positions at Data General Corporation. Mr. Forgione holds a
B.S.E.E. degree from the Massachusetts Institute of Technology (MIT) and a
Master of Science in Management from the Sloan School of Management at MIT.
Jonathan B. Radoff is the founder of Eprise, and served as its Chairman,
President and Chief Executive Officer from 1992 until 1997. In November 1997,
Mr. Radoff assumed the position of Chief Technology Officer. Prior to founding
Eprise, Mr. Radoff was the President of Inner Circle Software, a developer of
online interactive software products for Atari and Amiga computers. Mr. Radoff
is a member of the Association of Computer Machinery (ACM) and a trustee of the
Massachusetts Software Council.
Milton A. Alpern joined Eprise in April 1998 as Chief Financial Officer.
Prior to joining Eprise, Mr. Alpern served as Vice President of Finance at
National Transaction Network, Inc. from 1992 to 1998, where he helped establish
that company as a leading publicly-held provider of software solutions to the
electronic payments industry. He also has served as Vice President of Finance at
Henco Software, Inc., a venture-funded producer of information management
software products, from 1987 to 1992. He received his B.S. degree in Accounting
from Montclair State University.
Henry Barnes joined Eprise as Director of Marketing in 1997 and became Vice
President, Marketing in March 1998. Prior to joining Eprise, Mr. Barnes served
as director of product marketing from 1995 to 1997 at ESS Software. He also has
held managerial positions at Edify
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Corporation, a self-service tools and applications company. He holds a B.S.
degree in Computer Science from Tulane University and is a member of the
American Marketing Association.
Thomas Feldman joined Eprise in November 1999 as Vice President, Business
Development. Prior to joining Eprise, Mr. Feldman served from September 1998 to
October 1999 as Vice President, Marketing and Business Development for Prodigy
Communications Corporation, an Internet service provider. Prior to that, Mr.
Feldman worked at Simon & Schuster from 1994 to 1997 as Vice President and
General Manager of RedRocket.com, an online retailer of educational toys and
games. He has also held management positions with Staples and PepsiCo. Mr.
Feldman holds a B.A. degree from Ohio Wesleyan University and a Masters of
Management degree from the Kellogg School of Management at Northwestern
University.
Joseph Fiorentino joined Eprise in April 1999 as Vice President, Sales.
Prior to joining Eprise, Mr. Fiorentino served as Vice President of Sales for
American Internet Corporation, a developer of Internet Protocol address
management software, from December 1997 to December 1998. Mr. Fiorentino also
served as Vice President of Sales for OrderTrust, an e-commerce start-up
company, from March 1996 to November 1997 and as Director of North American
Sales at FTP Software Inc., from April 1994 to March 1996. Mr. Fiorentino holds
a B.A. degree from Merrimack College.
Robert Strong joined Eprise in December 1998 as Vice President, Software
Development. Prior to joining Eprise, Mr. Strong served as Director of Software
Development for FTP Software Inc. from 1996 to 1998. Before that, he served from
1993 to 1996 as Vice President of Research and Development for HyperDesk (which
was acquired by FTP Software in 1996). Mr. Strong also has held senior
management positions at the technology firms Ontologic, Inc., Softbridge
Microsystems and Xyvision. He holds a B.E.E. degree from Villanova University
and a Ph.D. in Communications from MIT, and is a member of the ACM, the IEEE,
the IEEE Computer Society and the Scientific Research Society of North America.
Edson D. de Castro joined our Board of Directors in May 1998 and was
elected as Chairman in October 1999. He served as Chief Executive Officer of
Xenometrix Inc., a biotechnology company, from July 1995 until January 1997. Mr.
de Castro served as Chief Executive Officer of Data General Corporation from
September 1968 to December 1990, and has worked as a consultant in the
technology industry since January 1991. Mr. de Castro currently sits on the
boards of seven other companies, including Healthgate Data Corporation.
Deborah M. Besemer joined our Board of Directors in October 1999. Ms.
Besemer has been President and Chief Executive Officer of HireSystems, Inc., a
software and services company for hiring management personnel, since June 1999.
Prior to that, Ms. Besemer was President and Chief Operating Officer at
SystemSoft from November 1997 to August 1998. Ms. Besemer worked from 1986 to
1997 at Lotus Corporation, most recently as Executive Vice President of
Worldwide Field Operations. She is a trustee of the Massachusetts Software
Council.
Robert C. Fleming joined our Board of Directors in December 1997. Mr.
Fleming is general partner of Prism Venture Partners. Prior to co-founding Prism
in November 1995, Mr. Fleming was a general partner at Norwest Venture Capital
from July 1993 to May 1995. Mr. Fleming currently serves on the Boards of
Directors of a number of venture-backed companies.
Alain J. Hanover joined our Board of Directors in March 1998. Mr. Hanover
is a co-founder, and has been President and Chief Executive Officer, of InCert
Software Corp., a company that develops program failure detection and prevention
software, since October 1997. Mr. Hanover was co-founder, President, Chief
Executive Officer and Chairman of Viewlogic Systems, Inc. from 1984 to 1997. He
sits on the Boards of Directors of three other companies, including Applix, Inc.
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<PAGE> 45
Nicholas A. Papantonis joined our Board of Directors in August 1998. Mr.
Papantonis has been a venture partner with Alliance Technology Ventures of
Atlanta since 1995 and heads that firm's Boston office. He has been a general
partner of Aspen Venture Partners, a Boston-based venture capital partnership,
since 1989, where he has focused on telecommunications investments. In 1970, Mr.
Papantonis joined Infinet Inc., a venture-backed start-up telecommunications
company in Boston, and served as its Chief Executive Officer from 1984 until
1988.
Joseph Tischler joined our Board of Directors in December 1997. Since
January 1995, Mr. Tischler has been an investment manager of The Still River
Management Company and a general partner and founder of The Still River Fund, a
venture capital fund. Mr. Tischler has more than 20 years experience in
marketing and retail store management, including strategic planning and senior
operating positions with divisions of Federated Department Stores and the Batus
Retail Group. Mr. Tischler currently sits on the boards of three other
companies.
ELECTION OF OFFICERS AND DIRECTORS
Our executive officers are elected by the Board of Directors and serve
until their successors are duly elected and qualified. There are no family
relationships among any of our executive officers or directors.
Our Board of Directors consists of eight members. Currently, each director
is elected pursuant to our Second Amended and Restated Stockholders Agreement
among Eprise and certain of our stockholders. This agreement will automatically
terminate upon the closing of this offering. Our Fourth Amended and Restated
Certificate of Incorporation, to be filed prior to the effectiveness of the
registration statement of which this prospectus forms a part, will provide for
classification of our Board into three classes, with the members of the
respective classes serving for staggered three-year terms. The first class
consists of Mr. Fleming, Mr. Papantonis, and Mr. Tischler, the second of Ms.
Besemer, Mr. de Castro and Mr. Hanover and the third of Mr. Forgione and Mr.
Radoff, with the initial terms of the directors comprising the classes expiring
upon the election and qualification of the directors at the annual meetings of
the stockholders held following the fiscal years ending December 31, 2000, 2001
and 2002, respectively. At each annual meeting of stockholders, the number of
directors will be fixed and directors will be re-elected or elected for full
three-year terms.
BOARD COMMITTEES
Our audit committee reviews our external and internal auditing procedures,
reviews with our independent auditors the scope and results of their audit for
the year, and also reviews with our management the plan, scope and results of
Eprise's operations. After the closing of this offering, it will also review all
quarterly and year-end financial statements before such financial information is
included in the Company's quarterly and annual filings with the Commission. The
members of our audit committee are Mr. de Castro, Ms. Besemer and Mr. Hanover.
Our compensation committee's functions are to determine the salaries and
other forms of compensation of officers of Eprise and to review general policy
matters relating to compensation and benefits of Eprise's employees. The
compensation committee is also charged with granting stock options and
restricted stock to officers, key employees and consultants, and addressing
stock option and restricted stock matters generally. The members of our
compensation committee are Mr. Forgione, Mr. Fleming and Mr. Hanover. Mr.
Forgione does not participate in any decisions with respect to his own
compensation or, to the extent mandated by applicable securities laws and
Internal Revenue Code regulations, in any compensation decisions relating to
executive officers.
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<PAGE> 46
None of the members of the audit committee or the compensation committee is
a past or current officer or employee of Eprise, except as noted with respect to
Mr. Forgione's service on the Compensation Committee.
DIRECTOR COMPENSATION
The directors of Eprise are not compensated in cash for their service as
directors. Directors who are not employees of Eprise are eligible to participate
in our 2000 Non-Employee Director Stock Option Plan, described below under
"Stock Option Plans." To date, Messrs. de Castro and Hanover each have received
options to purchase 100,000 shares of common stock upon joining the Board, and
Ms. Besemer has received options to purchase 40,000 shares of common stock upon
joining the Board and 10,000 shares of common stock in January 2000. In
addition, Mr. de Castro received an option to purchase 50,000 shares of common
stock in connection with his election as Chairman of the Board. All of these
grants were made under the Company's 1997 Stock Option Plan. Directors who are
employees of Eprise are not paid any fees or additional compensation for service
as members of the Board of Directors or any committee thereof. We maintain
directors' and officers' liability insurance and our by-laws provide for
mandatory indemnification of directors and officers to the fullest extent
permitted by Delaware law. In addition, our charter limits the liability of
directors to Eprise or its stockholders for breaches of the directors' fiduciary
duties to the fullest extent permitted by Delaware law.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
In December 1997, the Board of Directors established a compensation
committee with sole responsibility for determining the compensation of officers
of Eprise, the members of which were Messrs. Fleming, Forgione and Hanover.
Prior to that, all compensation decisions were made by the full Board. Mr.
Forgione does not participate in Board or compensation committee deliberations
with respect to his compensation. No interlocking relationship exists between
our Board or compensation committee and the board of directors or compensation
committee of any other company, nor has any such interlocking relationship
existed in the past.
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<PAGE> 47
EXECUTIVE COMPENSATION
The following table sets forth certain information regarding all
compensation received by our Chief Executive Officer and the other four most
highly compensated executive officers of Eprise whose total salary and bonus for
the fiscal year ended December 31, 1999 exceeded $100,000 for services rendered
in all capacities during such fiscal year. We will use the term "named executive
officers" to refer collectively to these individuals later in this prospectus.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
------------
ANNUAL COMPENSATION SECURITIES
-------------------- UNDERLYING
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS(1) OPTIONS
--------------------------- ---- --------- -------- ------------
<S> <C> <C> <C> <C>
Joseph A. Forgione............................. 1999 $225,869 $28,021 230,990
President and Chief Executive Officer
Joseph Fiorentino.............................. 1999 86,539 80,833(3) 840,000
Vice President, Sales(2)
Jonathan B. Radoff............................. 1999 141,509 14,942 --
Chief Technology Officer
Robert Strong.................................. 1999 141,509 12,626 480,000
Vice President, Software Development
Milton A. Alpern............................... 1999 122,376 19,031 100,000
Vice President, Finance and Chief Financial
Officer
</TABLE>
- -------------------------
(1) The bonus figures listed above represent bonuses paid in July 1999 for
services performed in 1999. Bonuses have not yet been determined for the
second half of 1999 and estimated bonuses are not available for this period.
(2) Mr. Fiorentino commenced employment with Eprise in April 1999.
(3) Represents amounts paid to Mr. Fiorentino as sales commissions.
EMPLOYMENT CONTRACTS AND CHANGE OF CONTROL ARRANGEMENTS
Mr. Forgione has entered into an employment agreement with Eprise dated
November 4, 1997, which provides, among other things, for certain salary and
bonus payments and stock option grants. The agreement also provides that Mr.
Forgione will receive up to 12 months' severance if his employment is terminated
without "cause" (defined as having engaged in gross negligence relative to
Eprise's affairs or having been convicted of a felony) and that Mr. Forgione's
stock options will become fully vested upon a change of control of Eprise. In
addition, Mr. Forgione has agreed not to solicit Eprise's employees or
customers, or to compete with its business, for a period of one year following
the termination of his employment. Either party can terminate the agreement at
any time, with or without cause. As a condition of his employment agreement, Mr.
Forgione also has signed Eprise's standard form of non-disclosure and assignment
of inventions agreement.
Mr. Radoff has entered into an employment agreement with Eprise dated
December 17, 1997, which provides, among other things, for certain salary
payments and 12 months' severance if Mr. Radoff's employment is terminated
without "cause" (defined as having engaged in gross negligence relative to
Eprise's affairs or having been convicted of a felony). Mr. Radoff has agreed
not to solicit Eprise's employees or customers, or to compete with its business,
for a period of one year following the termination of his employment, and has
agreed that all works created by him during the term of his employment shall be
deemed works made
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<PAGE> 48
for hire. The agreement provides that Mr. Radoff can be terminated only upon the
vote of at least five sevenths of the Board of Directors.
All employee stock option grants, including those granted to the named
executive officers, provide for partial acceleration of vesting (and partial
termination of Eprise's right to repurchase the underlying shares) upon a change
of control of Eprise. Grants to the named executive officers also provide for
additional vesting (and additional lapsing of Eprise's right to repurchase the
underlying shares) upon certain changes in the employee's position occurring
within one year of the change of control.
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth certain information with respect to stock
options granted to each of the named executive officers in fiscal 1999.
<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE VALUE
AT ASSUMED
ANNUAL RATES
NUMBER OF PERCENT OF OF STOCK PRICE
SECURITIES TOTAL OPTIONS APPRECIATION FOR
UNDERLYING GRANTED TO OPTION TERMS(3)
OPTIONS EMPLOYEES IN EXERCISE EXPIRATION ------------------
NAME GRANTED(#) FISCAL 1999(1) PRICE($)(2) DATE 5% 10%
---- ---------- -------------- ----------- ---------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Joseph A. Forgione(4)...... 230,990 6.8% $0.25 9/17/09 $36,316 $ 92,035
Jonathan B. Radoff......... -- -- -- -- -- --
Joseph Fiorentino.......... 640,000 18.8 0.18 5/12/09 72,449 183,599
200,000 5.9 0.25 9/15/09 31,445 79,687
Robert Strong.............. 360,000 10.6 0.12 1/14/09 27,168 68,850
120,000 3.5 0.25 9/15/09 18,867 47,812
Milton A. Alpern........... 100,000 2.9 0.25 9/15/09 15,722 39,844
</TABLE>
- -------------------------
(1) Based on an aggregate of 3,411,490 options granted by us during the fiscal
year ended December 31, 1999 to our employees, including the named executive
officers.
(2) The options in this table were granted under our 1997 Stock Plan, have
10-year terms and are exercisable in full as of the date of this prospectus.
We have the right to repurchase the shares issued upon exercise of these
options at the original exercise price paid for such shares upon termination
of the optionee's employment. Except as indicated in footnote (4) below,
this right lapses over a four-year period in equal annual installments
beginning on the first anniversary of the date of grant, except that upon a
change of control this right will lapse as to the next regularly scheduled
installment, and will further lapse as to 50% (100% in the case of Mr.
Fiorentino) of any remaining unvested shares upon termination of the
optionee's employment or certain materially adverse changes in the
optionee's employment within one year after the change of control. All
options are incentive stock options, except for 74,292 options held by Mr.
Forgione, and all were granted at the fair market value on the date of
grant.
(3) In accordance with the rules of the Commission, we have based our
calculation of the potential realizable value on the term of the option at
its time of grant, and we have assumed that:
- The exercise price on the date of grant appreciates at the indicated
annual rate compounded annually for the entire term of the option; and
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<PAGE> 49
- The option is exercised and sold on the last day of its term for the
appreciated stock price.
These amounts are based on 5% and 10% assumed rates of appreciation and do
not represent our estimate of future stock prices. Actual gains, if any, on
stock option exercises will be dependent on the future performance of the
common stock.
(4) Any shares purchased by Mr. Forgione pursuant to exercise of his option vest
ratably over a 48-month period from the date of grant, and vest in full upon
a change of control.
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES
The following table provides information regarding the exercise of stock
options by the named executive officers during fiscal 1999 and the value of
unexercised options at 1999 fiscal year-end.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS HELD AT IN-THE-MONEY OPTIONS AT
SHARES DECEMBER 31, 1999(2) DECEMBER 31, 1999(3)
ACQUIRED VALUE ----------------------- -----------------------
NAME ON EXERCISE REALIZED(1) VESTED UNVESTED VESTED UNVESTED
---- ----------- ----------- --------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Joseph A. Forgione...... 727,733 $135,940 46,466 1,271,801
Joseph Fiorentino....... -- -- -- 840,000
Jonathan B. Radoff...... -- -- 250,000 250,000
Robert Strong........... 90,000 127,800 -- 390,000
Milton A. Alpern........ 31,250 4,688 31,250 287,500
</TABLE>
- -------------------------
(1) Equal to the fair market value of the purchased shares on the option
exercise date, less the exercise price paid for such shares.
(2) All such options are currently exercisable; however, a portion of the shares
underlying the exercisable options of each of the named executive officers
are subject to our repurchase as of December 31, 1999. The heading "Vested"
refers to shares no longer subject to repurchase and the heading "Unvested"
refers to shares subject to repurchase as of December 31, 1999, in each case
assuming exercise of the underlying option.
(3) Based on the initial public offering price of $ per share, minus the per
share exercise price, multiplied by the number of shares issuable upon
exercise of the option.
STOCK OPTION PLANS
Eprise's 1994 and 1997 stock plans provide for the granting of either
incentive stock options or non-qualified options to purchase shares of our
common stock in order to provide incentives to certain employees, consultants
and directors. In addition, the 1994 plan provides for the issuance of purchase
authorizations and stock awards. The stock plans authorize the grant of up to
10,564,841 shares in the aggregate, which number will increase automatically on
each of January 1, 2001 and January 1, 2002 by a number of shares equal to the
lesser of (i) 5% of the number of shares of Eprise common stock issued and
outstanding, including treasury shares, as of the close of business on December
31 of the prior year or (ii) 3,500,000 shares. As of January 1, 2000, there were
1,777,483 shares outstanding pursuant to option exercises, 5,674,517 options
outstanding and 3,112,841 options available for grant under both plans.
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<PAGE> 50
The 1994 and 1997 stock plans are administered by our Board of Directors
and the compensation committee, each of which has the authority to select the
persons to whom options are granted and determine the terms of each option,
including the number of shares of common stock underlying each option. Our plans
allow participants to purchase common stock of Eprise at prices set by the Board
of Directors, but in the case of incentive stock options and options granted
under the 2000 Non-Employee Director Stock Option Plan, not less than fair
market value on the date the option is granted.
The maximum term for options granted under the 1994 and 1997 stock plans is
ten years. Options generally expire three months after termination of the
optionee's service to Eprise. Unless otherwise specified, outstanding options
are exercisable immediately upon grant, but we have the right to repurchase the
shares issued upon exercise of the option at the option exercise price if the
employee's employment is terminated for any reason. Generally, the repurchase
right lapses over a four-year period in equal annual installments beginning on
the first anniversary of the date of grant. In the event of a "change in
control" transaction, our board of directors is authorized to take one or more
of the following actions:
-- provide that outstanding options be assumed or substituted
for by the acquiror;
-- provide that all unexercised options terminate immediately
prior to the event unless exercised within a time period
specified in a written notice to the option holder;
-- in the event of a merger in which the holders of common stock
would receive a cash payment for each share surrendered,
provide for a cash payment to each option holder equal to the
amount by which the amount paid to common stockholders exceeds
the option's exercise price, multiplied by the total number of
shares for which the option is then exercisable; in exchange
for this payment, the options would be terminated; or
-- provide that any or all outstanding options become fully
exercisable and Eprise's repurchase right with respect to the
shares issuable upon exercise of these options terminate.
In any event, the shares underlying outstanding options that would have become
vested on the next scheduled vesting date will become vested upon the change in
control.
Our Board has approved, and we intend to adopt, the 2000 Non-Employee
Director Stock Option Plan, to take effect upon the effectiveness of this
offering. The Director Plan provides for the grant of options to purchase a
maximum of 700,000 shares of our common stock to non-employee directors of
Eprise. The Director Plan will be administered by a committee appointed by the
Board of Directors. In the event the Board does not appoint such a committee,
the Board shall have all power and authority to administer the Director Plan.
Under the Director Plan, each director who is not also an employee or officer of
the Company and who is not a director at the time of this offering shall
automatically be granted, on the date such person is first elected to the Board
of Directors, an option to purchase 40,000 shares of common stock. In addition,
each continuing non-employee director will automatically receive an option to
purchase 20,000 shares of common stock upon the effectiveness of the
registration statement of which this prospectus forms a part and thereafter
immediately following each annual meeting of our stockholders commencing in
2001. Each option is immediately exercisable, subject to our right to repurchase
the option shares if the director ceases to be a member of the Board (other than
due to death or disability). The repurchase right lapses over a three-year
period in the case of option grants to new directors and on the first
anniversary of the date of grant in the case of annual option grants. Upon a
change in control, our repurchase rights will lapse as to all shares subject to
director options. All options granted under the Director Plan will have an
exercise
47
<PAGE> 51
price equal to the fair market value of the common stock on the date of grant.
The term of each option will be ten years from the date of grant. No options
have been granted to date under the Director Plan.
Payment of the exercise price of an option granted under any of our stock
plans may be made in cash or by check or, if permitted by the applicable grant
(as determined by the compensation committee or Board of Directors), in shares
of common stock or by recourse promissory note, or by a combination of any of
the above methods, consistent with Section 422 of the Internal Revenue Code and
Rule 16b-3 under the Exchange Act. Unless otherwise specified in a nonqualified
stock option grant, options are not transferable (although, once the option is
exercised, the underlying stock may be) except by will or the laws of descent
and distribution. Each of the Board of Directors and the compensation committee
may, in its sole discretion, amend, modify or terminate our stock plans, so long
as such amendment, modification or termination would not materially and
adversely affect any participant. Amendment, modification or termination of
individual grants requires the consent of the participant affected. Each of the
Board of Directors and the compensation committee may also, in its sole
discretion, accelerate the date or dates on which all or any particular option
or options granted under our stock plans may be exercised.
STOCK LOAN PROGRAM
On July 14, 1999, the Board of Directors approved a stock loan program, as
subsequently amended, whereby our executive officers may borrow from Eprise an
amount equal to the purchase price of common stock purchased pursuant to stock
options, solely for the purpose of acquiring such stock. Such borrowings may not
exceed one half of any given employee's annual salary. All shares purchased with
such loans are pledged to Eprise as collateral for repayment of the loans. The
loans are recourse to the borrower, bear interest at a variable rate which is
one-half of one percent above Eprise's cost of funds, payable quarterly in
arrears, and are payable as to principal no later than five (5) years after the
date of the loan. As of the date of this prospectus, Eprise has loans
outstanding to the named executive officers in the following aggregate principal
amounts, secured by the number of shares listed: Mr. Forgione, $151,301, secured
by 1,440,496 shares; Mr. Alpern, $52,500, secured by 350,000 shares; Mr.
Fiorentino, $165,200, secured by 840,000 shares; and Mr. Strong, $10,800,
secured by 90,000 shares.
2000 EMPLOYEE STOCK PURCHASE PLAN
The Board has approved, and we intend to adopt, the Eprise Corporation 2000
Employee Stock Purchase Plan prior to completion of this offering, and to
reserve a total of 1,500,000 shares of common stock for issuance under this
plan. On each January 1 commencing January 1, 2001, the aggregate number of
shares reserved for issuance under our 2000 Employee Stock Purchase Plan will be
increased automatically by a number of shares equal to the lesser of (i) 1% of
our outstanding shares on the preceding December 31 or (ii) 750,000 shares. Our
compensation committee will administer the Plan, which will become effective on
the first day on which price quotations are available for our common stock on
the Nasdaq National Market.
Employees generally will be eligible to participate in the Plan if they are
employed at least three (3) months before the beginning of the applicable
offering period and they are customarily employed by Eprise, or any of our
subsidiaries that we designate, for more than 20 hours per week and more than
five months in a calendar year. Employees are not eligible to participate in the
Plan if they hold 5% or more of our outstanding stock, or would become 5%
stockholders as a result of their participation in this plan.
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<PAGE> 52
Under the Plan, eligible employees will be able to acquire shares of our
common stock through payroll deductions. Eligible employees may select payroll
deductions between $150 and 10% of their cash compensation and are subject to
certain maximum purchase limitations. Participation in this plan will end
automatically upon termination of employment for any reason. Each offering
period under the Plan will be for six months. The first offering period is
expected to begin on the first business day on which price quotations for our
common stock are available on the Nasdaq National Market. The first offering
period may be more or less than six months long. Offering periods thereafter
will begin on September 1 and March 1. The purchase price for common stock
purchased under the Plan will be 85% of the lesser of fair market value of our
common stock on the first day of the applicable offering period or the least day
of such offering period. In the case of the first offering period, the purchase
price for common stock purchased under the Plan will be 85% of the price offered
to the public in the offering. The compensation committee will have the power to
change the duration of offering periods.
The Plan is intended to qualify as an "employee stock purchase plan" under
Section 423 of the Internal Revenue Code. The Plan will terminate in 2010,
unless it is terminated earlier pursuant to its terms.
401(k) PLAN
Eprise has established a 401(k) Plan for the benefit of eligible employees
and their beneficiaries. Almost all employees are eligible to participate in the
plan and are fully vested as to their own contributions. Eprise matches 50% of
employee contributions, up to 5% of each employee's annual salary. Company
contributions are subject to a six-year vesting schedule.
LIMITATIONS ON LIABILITY OF DIRECTORS AND INDEMNIFICATION OF DIRECTORS AND
OFFICERS.
As permitted by the Delaware General Corporation Law, as amended (the
"DGCL"), Eprise's Amended and Restated Certificate of Incorporation provides
that Eprise's directors shall not be liable to Eprise or its stockholders for
monetary damages for breach of fiduciary duty as a director to the fullest
extent permitted by the DGCL as it now exists or as it may be amended. As of the
date of this Memorandum, the DGCL permits limitations on liability for a
director's breach of fiduciary duty other than liability (i) for any breach of
the director's duty of loyalty to Eprise or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation law, (iii) under Section 174 of the DGCL, or (iv) for any transaction
from which the director derived an improper personal benefit. In addition,
Eprise's bylaws provide that Eprise shall indemnify all directors, officers,
employees and agents of Eprise for acts performed on behalf of Eprise in such
capacity to the fullest extent permitted by law.
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<PAGE> 53
CERTAIN TRANSACTIONS
OFFICER LOANS
On August 1, 1999, Eprise loaned Mr. Forgione an amount required to fund
his exercise of certain options granted under Eprise's 1997 Stock Option Plan.
The loan matures on July 31, 2004 and has a current balance payable of
$25,712.50. On October 29, 1999, Mr. Forgione borrowed $41,146 from Eprise to
fund his exercise of certain options granted under Eprise's 1997 Stock Option
Plan. This loan matures on October 28, 2004. On January 3, 2000, the following
officers borrowed the following amounts from Eprise to fund their exercise of
options granted under our 1997 Stock Option Plan: Mr. Forgione, $80,155; Mr.
Fiorentino, $165,200; and Mr. Feldman, $152,075. As collateral for the loans and
pursuant to pledge agreements dated as of the respective dates of the loans,
each such officer has pledged the shares of common stock purchased with the
loans to Eprise. The loans bear interest at a variable rate which is 0.5% above
Eprise's cost of funds, payable monthly in arrears.
EMPLOYMENT OF FAMILY MEMBER
One member of Mr. Radoff's family is employed by Eprise in a managerial,
non-executive position. Eprise believes that the compensation paid by Eprise to
this family member is on terms no less favorable to Eprise than could be
obtained from unrelated third parties.
BOARD MEMBER PARTICIPATION IN FINANCINGS
On October 9, 1997, as part of a bridge financing, we issued a warrant to
purchase 326,995 shares of Series A preferred stock at an exercise price of
$0.49695 per share to Prism Venture Partners, of which Mr. Fleming is a general
partner. This warrant has a five-year term and will convert automatically to a
right to purchase common stock upon the closing of this offering. No part of the
warrant has been exercised to date.
On December 18, 1997, we sold a total of 10,515,925 shares of our Series A
preferred stock in a private financing at a price of $0.49695 per share. The
purchasers included Prism Venture Partners (6,036,825 shares), of which Mr.
Fleming is a general partner, The Still River Fund (1,006,138 shares), of which
Mr. Tischler is a general partner, and Alain Hanover (201,228 shares). As part
of the terms of the financing, the purchasers received registration rights with
respect to the purchased shares.
On August 18, 1998, we sold a total of 14,320,446 shares of our Series B
preferred stock in a private financing at a price of $0.60 per share. The
purchasers included Alliance Technology Ventures and an affiliate (5,100,000
shares), of which Mr. Papantonis is a venture partner, Prism Venture Partners
(1,666,667 shares), of which Mr. Fleming is a general partner, The Still River
Fund (833,333 shares), of which Mr. Tischler is a general partner, and Alain
Hanover (100,000 shares).
On November 8, 1999, we sold a total of 16,233,766 shares of our Series C
preferred stock in a private placement at a price of $1.54 per share. The
purchasers included Alliance Technology Ventures and an affiliate (662,338
shares), of which Mr. Papantonis is a venture partner, Prism Venture Partners
(324,675 shares), of which Mr. Fleming is a general partner, The Still River
Fund (649,351 shares), of which Mr. Tischler is a general partner, Edson de
Castro (64,935 shares) and Alain Hanover (65,000 shares).
We believe that all transactions set forth above were made on terms no less
favorable to us than would have been or were obtained from unaffiliated third
parties. We have adopted a policy providing that all future transactions between
Eprise and any of our officers, directors and affiliates will be on terms no
less favorable to us than could be obtained from unaffiliated third parties and
will be approved by a majority of the disinterested members of our Board of
Directors.
50
<PAGE> 54
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information concerning the
beneficial ownership of Eprise's common stock as of December 31, 1999, and as
adjusted to reflect the sale of common stock offered by this prospectus. The
information is provided for (1) each person known to Eprise to beneficially own
at least five percent of the common stock of Eprise (on an as-converted basis),
(2) each named executive officer of Eprise, (3) each director of Eprise and (4)
all executive officers and directors as a group. Unless otherwise noted, each
person or group identified possesses sole voting and investment power with
respect to such shares, subject to community property laws where applicable.
Shares not outstanding but deemed beneficially owned because a person or member
of a group has a right to acquire them on or before February 29, 2000 are
treated as outstanding only when determining the amount and percent owned by
such person or group.
<TABLE>
<CAPTION>
PERCENTAGE OF COMMON STOCK
BENEFICIALLY OWNED(1)
NUMBER OF SHARES -----------------------------------
NAME AND ADDRESS OF BENEFICIAL OWNER: BENEFICIALLY OWNED BEFORE OFFERING AFTER OFFERING(2)
- ------------------------------------- ------------------ --------------- -----------------
<S> <C> <C> <C>
Prism Venture Partners I, L.P.(3)......... 8,355,162 17.2%
c/o Prism Venture Management, Inc.
100 Lowder Brook Drive, Suite 2500
Westwood, MA 02090
Alliance Technology Ventures II,
L.P.(4)................................. 5,762,338 11.9
3343 Peachtree Road NE, Suite 1140
East Tower, Atlanta, GA 30326
Angela Bull(5)............................ 5,445,250 11.3
c/o Eprise Corporation
1671 Worcester Road,
Framingham, MA 01701
TGI Fund I, LC............................ 4,843,089 10.0
c/o Tredegar Investments, Inc.
6501 Columbia Center, 701 Fifth Avenue
Seattle, WA 98104
Brookside Capital Partners Fund, L.P...... 3,246,754 6.7
Two Copley Place
Boston, MA 02116
Van Wagoner(6)............................ 2,597,403 5.4
345 California Street, Suite 2450
San Francisco, CA 94104
Axiom Venture Partners II L.P............. 2,537,878 5.3
City Place II, 17th Floor
185 Asylum Street
Hartford, CT 06103
Still River Fund.......................... 2,488,822 5.2
100 Federal Street, 29th Floor
Boston, MA 02109
</TABLE>
51
<PAGE> 55
<TABLE>
<CAPTION>
DIRECTORS AND EXECUTIVE OFFICERS:
- ---------------------------------
<S> <C> <C> <C>
Joseph A. Forgione(7)..................... 2,046,000 4.1%
Jonathan B. Radoff(8)..................... 5,445,250 11.3
Joseph Fiorentino(9)...................... 840,000 1.7
Robert Strong(10)......................... 480,000 1.0
Milton A. Alpern(11)...................... 350,000 *
Deborah M. Besemer(12).................... 40,000 *
Edson D. de Castro........................ 214,935 *
Robert C. Fleming(13)..................... 8,355,162 17.2
Alain J. Hanover.......................... 466,228 1.0
Nicholas Papantonis(14)................... 5,762,338 11.9
Joseph Tischler(15)....................... 2,488,822 5.2
---------- ----
All executive officers and directors as a
group (13 persons)...................... 27,233,735 56.0%
========== ====
</TABLE>
- -------------------------
* Represents beneficial ownership of less than 1%.
(1) Percentages are based on a total of 48,306,064 shares of common stock
(including shares of preferred stock convertible into common stock)
outstanding as of December 31, 1999. For holders of options or warrants
exercisable on or before February 29, 2000, the number of shares so
exercisable by each such holder has been added to the denominator for
purposes of calculating such holder's percentage ownership.
(2) Assumes the underwriters' over-allotment option is not exercised.
(3) Includes 326,995 shares of common stock issuable within 60 days upon
exercise of a warrant.
(4) Includes 112,987 shares held by an affiliated fund.
(5) Includes 2,473,250 shares of common stock held by, and 500,000 shares
issuable within 60 days upon exercise of outstanding options to, Ms. Bull's
spouse, Jonathan Radoff. Ms. Bull disclaims beneficial ownership of such
shares.
(6) Includes 1,232,178 shares held by Van Wagoner Funds and 66,524 shares held
by Van Wagoner Capital Partners.
(7) Includes 1,318,267 shares issuable within 60 days upon exercise of
outstanding stock options; 57,500 shares held by Maria-Elena Kadala, Mr.
Forgione's spouse, as trustee under three trusts, the beneficiaries of
which are Michael A. Forgione, Angela Forgione and Joseph A. Forgione; and
638,949 shares pledged to Eprise pursuant to stock pledge agreements dated
August 1, 1999 and October 29,1999 as collateral for promissory notes held
by Eprise of the same dates in the aggregate amount of $71,146.
(8) Includes 500,000 shares issuable within 60 days upon exercise of
outstanding options and 2,472,000 shares held by Mr. Radoff's spouse,
Angela Bull, as to which Mr. Radoff disclaims beneficial ownership.
(9) Represents shares issuable within 60 days upon exercise of outstanding
options.
(10) Includes 390,000 shares issuable within 60 days upon exercise of
outstanding options.
(11) Includes 318,750 shares issuable within 60 days upon exercise of
outstanding options.
(12) Represents shares issuable within 60 days upon exercise of outstanding
options.
52
<PAGE> 56
(13) Represents shares beneficially owned by Prism Venture Partners I, L.P., of
which Mr. Fleming is a general partner.
(14) Represents shares beneficially owned by Alliance Technology Ventures, of
which Mr. Papantonis is a venture partner. Mr. Papantonis disclaims
beneficial ownership of all such shares.
(15) Represents shares beneficially owned by The Still River Fund, of which Mr.
Tischler is a general partner.
53
<PAGE> 57
DESCRIPTION OF CAPITAL STOCK
GENERAL
Effective upon the closing of this offering and the filing of a Certificate
of Amendment to our Fourth Amended and Restated Certificate of Incorporation,
our authorized capital stock will consist of shares of common stock, par
value $0.001 per share, and shares of preferred stock, par value $0.01
per share. Prior to the effectiveness of the registration statement of which
this prospectus is a part, and in accordance with our Third Amended and Restated
Certificate of Incorporation, the authorized and outstanding capital stock was
as follows:
<TABLE>
<CAPTION>
OUTSTANDING AS OF
AUTHORIZED DECEMBER 31, 1999
----------- -----------------
<S> <C> <C>
Common Stock, par value $0.001 per share................. 58,500,000 7,235,927
Preferred Stock, par value $0.01 per share............... 41,663,366 41,070,137
Total Capital Stock...................................... 100,163,366 48,306,064
=========== ==========
</TABLE>
Upon the closing of this offering, all outstanding shares of preferred
stock will automatically convert into 41,070,137 shares of common stock.
The following summary of the terms and provisions of Eprise's capital stock
does not purport to be complete and is qualified in its entirety by reference to
the actual terms and provisions of the capital stock contained in our amended
and restated certificate of incorporation, the various documents and agreements
referred to below, which are included as exhibits to the registration statement
of which this prospectus forms a part, and the provisions of applicable Delaware
law.
COMMON STOCK
As of December 31, 1999, there were 7,235,927 shares of common stock
outstanding held by 62 stockholders of record. Based upon the number of shares
outstanding as of that date and giving effect to the issuance of the
shares of common stock offered by Eprise in this offering and the
conversion of the outstanding shares of preferred stock, there will be
shares of common stock outstanding upon the closing of this offering. In
addition, as of December 31, 1999, there were outstanding stock options for the
purchase of 5,674,517 shares of common stock and outstanding warrants for the
purchase of 774,994 shares of common stock and 326,995 shares of Series A
preferred stock.
The holders of common stock are entitled to one vote per share on all
matters to be voted upon by the stockholders and do not have cumulative voting
rights. Directors are elected by a plurality of the votes of the shares present
in person or by proxy at the meeting and entitled to vote in this election. The
holders of common stock are entitled to receive, at the same rate, cash
dividends when and as declared by the Board of Directors out of legally
available funds, subject to the rights and preferences of the holders of
preferred stock. In the event of any liquidation, dissolution, or winding up of
Eprise, the holders of common stock are entitled to receive, at the same rate,
the net assets of Eprise available after the payment of all our debts and other
liabilities, and after the satisfaction of the rights of any outstanding
preferred stock. Holders of the common stock have no preemptive, subscription,
redemption or conversion rights, nor are they entitled to the benefit of any
sinking fund. The outstanding shares of common stock are, and the shares offered
by Eprise in this offering will be, when issued and paid for, validly issued,
fully paid and non-assessable. The rights, powers, preferences and
54
<PAGE> 58
privileges of holders of common stock are subordinate to, and may be adversely
affected by, the rights of the holders of shares of any series of preferred
stock which we may designate and issue in the future.
PREFERRED STOCK
The Board of Directors will be authorized, subject to any limitations
prescribed by Delaware law, without further stockholder approval, to issue from
time to time up to an aggregate of shares of preferred stock, in one or
more series. The Board of Directors is also authorized, subject to the
limitations prescribed by Delaware law, to establish the number of shares to be
included in each series and to fix the voting powers, preferences,
qualifications and special or relative rights or privileges of each series. The
Board of Directors is authorized to issue preferred stock with voting,
conversion and other rights and preferences that could adversely affect the
voting power or other rights of the holders of common stock.
Eprise has no current plans to issue any preferred stock. However, the
issuance of preferred stock or of rights to purchase preferred stock could have
the effect of making it more difficult for a third party to acquire, or of
discouraging a third party from attempting to acquire, a majority of the
outstanding common stock of Eprise.
WARRANTS
Upon the closing of this offering, we will have outstanding warrants as
follows:
<TABLE>
<CAPTION>
HOLDERS GRANT DATE NUMBER OF SHARES EXERCISE PRICE EXPIRATION DATE
------- ---------- ---------------- -------------- ---------------
<S> <C> <C> <C> <C>
Silicon Valley Bank July 18, 1997 50,307 $ 0.01 July 17, 2002
Prism Venture
Partners I, L.P. October 9, 1997 326,995 0.49695 October 9, 2002
Silicon Valley Bank December 5, 1997 75,460 0.49695 December 5, 2002
Deutsche Bank
Securities Inc. September 8, 1999 649,227 1.54 September 8, 2004
</TABLE>
The number of shares for which the December 5, 1997 Silicon Valley Bank
warrant is exercisable will be subject to adjustment for future issuances of
common stock at a price per share that is less than the warrant price, other
than issuances pursuant to outstanding options or options granted in the future
under plans approved by the Board of Directors.
REGISTRATION RIGHTS
We have granted registration rights to the holders of Preferred Stock under
a Second Amended and Restated Registration Rights Agreement dated November 8,
1999 with respect to any common stock acquired by such holders, whether by
conversion of Preferred Stock or otherwise (the "Registrable Securities"). Under
that agreement, we have agreed to register the Registrable Securities upon
request of at least 40% in interest of the holders thereof, at the earlier of
(i) six months following our initial public offering or (ii) December 18, 2000.
The holders are entitled to two demand registrations as described in the
preceding sentence, as well as unlimited registrations on Form S-3 (when and if
we are eligible to register shares on such form). The holders of at least 20% of
the Registrable Securities must request registrations on Form S-3 and the
minimum aggregate price to the public must be expected to be at least
$1,000,000. Further, if we elect to register any of our shares of common stock
for an offering to the public, our holders are entitled to include their
Registrable Securities in such offering, subject to the terms of our
underwriting agreement and underwriter cutbacks. Registration
55
<PAGE> 59
expenses for demand registrations and the first two registrations on Form S-3
shall be borne by us. The holders of at least 50% of the Preferred Stock must
approve any further registration rights granted by us to third parties. In
addition, we shall not engage in a merger or consolidation in which Eprise is
not the surviving company unless the surviving company agrees to assume the
registration rights described herein. Such registration rights shall terminate
on the fifth anniversary of our initial public offering.
We also have granted registration rights to the holders of warrants to
purchase our common stock (the "Warrant Shares"). Under Registration Rights
Agreements between the Company and Silicon Valley Bank dated July 18, 1997 and
December 5, 1997, if we elect to register any of our shares of common stock
under the Securities Act (with certain specified exceptions), we have agreed to
include the Warrant Shares in such offering, subject to the terms of our
underwriting agreement and underwriter cutbacks, if any. The Company must pay
all registration expenses incurred in connection with any such registration.
Under the terms of the warrant issued to Deutsche Bank Securities Inc. as
of September 8, 1999, if we elect to register any of our shares of common stock
for an underwritten offering to the public on a form that would permit
registration of the Warrant Shares, we have agreed to include the Warrant Shares
in such offering, subject to the terms of our underwriting agreement and
underwriter cutbacks, if any. The Company shall pay all registration expenses
incurred in connection with such registration. These registration rights will
terminate on the fifth anniversary of our initial public offering.
We also have granted registration rights to one holder of shares of our
common stock. Under the terms of a Debenture Purchase Agreement between the
Company and Leigh Leeper dated April 1, 1993, if we elect to register any of our
securities under the Securities Act (with certain specified exceptions), we have
agreed to use our best efforts to include in such registration such number of
Mr. Leeper's shares as he may request.
DELAWARE LAW AND CERTAIN CHARTER AND BY-LAW PROVISIONS AND ANTI-TAKEOVER EFFECTS
Upon completion of this offering, the provisions of Section 203 of the
General Corporation Law of Delaware will prohibit Eprise from engaging in a
"business combination" with an "interested stockholder" for a period of three
years after the date of the transaction in which the person became an interested
stockholder, unless the business combination is approved in a prescribed manner.
A "business combination" includes mergers, asset sales and other transactions
resulting in a financial benefit to the interested stockholder. An "interested
stockholder" is defined as a person who, at the time of determination whether a
person is an interested stockholder,
- beneficially owns 15% or more of Eprise's common stock; or
- is an affiliate or associate of Eprise and beneficially owned 15% or more
of Eprise's common stock at any time within three years of the date of
determination.
Eprise's Fourth Amended and Restated Certificate of Incorporation provides
for the division of the Board of Directors into three classes as nearly equal in
size as possible with staggered three-year terms. See "Management -- Election of
Officers and Directors". In addition, our Fourth Amended and Restated
Certificate of Incorporation provides that directors may be removed only for
cause by the affirmative vote of the holders of 75% of the shares of capital
stock of Eprise entitled to vote. Under our Fourth Amended and Restated
Certificate of Incorporation, any vacancy on the Board of Directors, however
occurring, including a vacancy resulting from an enlargement of the Board, may
only be filled by vote of a majority of the directors then in office. The likely
effect of the classification of the Board of Directors and the limitations on
the removal of directors and filling of vacancies is an increase in the time
required
56
<PAGE> 60
for the stockholders to change the composition of the Board of Directors. For
example, because only two to three directors may be replaced by stockholder vote
at each annual meeting of stockholders, stockholders seeking to replace a
majority of the members of the Board of Directors will need at least two annual
meetings of stockholders to effect this change.
Eprise's Fourth Amended and Restated Certificate of Incorporation also
provides that, after the effective date of the registration statement of which
this prospectus is a part, any action required or permitted to be taken by the
stockholders of Eprise at an annual meeting or special meeting of stockholders
may only be taken if it is properly brought before the meeting and may not be
taken by written action in lieu of a meeting. Eprise's Amended and Restated
By-laws provide that special meetings of the stockholders may only be called by
the Board of Directors, the Chairman of the Board of Directors, the Chief
Executive Officer or the President of Eprise. Eprise's Amended and Restated
By-laws further provide that in order for any matter to be considered "properly
brought" before a meeting, a stockholder must comply with requirements regarding
advance notice to Eprise. The foregoing provisions could have the effect of
delaying until the next stockholders meeting stockholder actions which are
favored by the holders of a majority of the outstanding voting securities of
Eprise. These provisions may also discourage another person or entity from
making a tender offer for Eprise's common stock, because such person or entity,
even if it acquired a majority of the outstanding voting securities of Eprise,
would be able to take action as a stockholder, such as electing new directors or
approving a merger, only at a duly called stockholders meeting, and not by
written consent.
The General Corporation Law of Delaware provides that the affirmative vote
of a majority of the shares entitled to vote on any matter is required to amend
a corporation's certificate of incorporation or by-laws, unless a corporation's
certificate of incorporation or by-laws, as the case may be, requires a greater
percentage. Eprise's Fourth Amended and Restated Certificate of Incorporation
requires the affirmative vote of the holders of at least 75% of the shares of
capital stock of Eprise issued and outstanding and entitled to vote to amend or
repeal any of the foregoing provisions of the Fourth Amended and Restated
Certificate of Incorporation. Eprise's Amended and Restated By-laws may be
amended or repealed by a majority vote of the Board of Directors. The Amended
and Restated By-laws may also be amended or repealed by the affirmative vote of
the holders of at least 75% of the shares of capital stock of Eprise issued and
outstanding and entitled to vote. The 75% stockholder vote would be in addition
to any separate class vote that might in the future be required in accordance
with the terms of any series of preferred stock that might be outstanding at the
time any such amendments are submitted to stockholders.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the common stock is EquiServe Trust
Company.
LISTING
We have applied to list the common stock on the Nasdaq National Market
under the symbol "EPRS."
57
<PAGE> 61
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no public market for our common
stock. Sales of substantial amounts of our common stock in the public market
could adversely affect prevailing market prices of our common stock. Since
substantially all of our shares currently outstanding will not be available for
sale immediately following this offering because of certain contractual and
legal restrictions on resale described below, sales of substantial amounts of
common stock in the public market after these restrictions lapse could adversely
affect the prevailing market price and our ability to raise equity capital in
the future.
Upon completion of this offering and based on shares outstanding as of
December 31, 1999, we will have outstanding an aggregate of
shares of common stock, assuming no exercise of the Underwriters' over-allotment
option and no exercise of outstanding options or warrants. Of these shares, all
of the shares sold in this offering will be freely tradable without restriction
or further registration under the Securities Act, unless such shares are
purchased by "affiliates" as that term is defined in Rule 144 under the
Securities Act. In general, affiliates include officers, directors or 10%
stockholders. The remaining shares outstanding are "restricted
securities" within the meaning of Rule 144. Restricted securities may be sold in
the public market only if registered or if they qualify for an exemption from
registration under Rules 144, 144(k) or 701 promulgated under the Securities
Act, which are summarized below. Sales of the restricted securities in the
public market, or the availability of such shares for sale, could adversely
affect the market price of the common stock.
LOCK UP AGREEMENTS
We anticipate that all of our directors and officers and substantially all
of our security holders will enter into lock-up agreements in connection with
this offering generally providing that they will not offer, sell, contract to
sell or grant any option to purchase or otherwise dispose of our common stock or
any securities exercisable for or convertible into our common stock for a period
of 180 days after the date of this prospectus without the prior written consent
of Deutsche Bank Securities Inc. Taking into account the lock-up agreements, and
assuming Deutsche Bank Securities Inc. does not release security holders from
these agreements, the number of shares that will be available for sale in the
public market under the provisions of Rule 144, 144(k) and 701 will be as
follows:
- Beginning on the effective date of this prospectus, only the shares sold
in this offering will be immediately available for sale in the public
market.
- Beginning 180 days after the effective date, approximately 30,077,223
shares will be eligible for sale, including 2,614,114 shares subject to
outstanding warrants and vested options.
- At various times thereafter upon the expiration of applicable holding
periods, 25,005,347 shares will become eligible for sale, including
4,162,392 shares subject to outstanding unvested options.
STOCK OPTIONS
Approximately 180 days after this offering, we intend to file a
registration statement on Form S-8 under the Securities Act covering the shares
of common stock reserved for issuance under our stock incentive and employee
stock purchase plans as well as the resale of the shares issued upon the
exercise of options prior to filing the registration statement on Form S-8. As
of December 31, 1999, options to purchase 5,674,517 shares of common stock were
issued and outstanding. Shares registered under the registration statement on
Form S-8
58
<PAGE> 62
will, subject to vesting provisions and Rule 144 volume limitations applicable
to shares held by our affiliates and to options exercised before the
registration statement is filed, be available for sale in the open market
immediately after the 180-day lock-up period expires or terminates pursuant to
the lock-up agreement.
RULE 144
In general, under Rule 144, after the expiration of the lock-up agreements,
a person who has beneficially owned restricted securities for at least one year
would be entitled to sell within any three-month period a number of shares that
does not exceed the greater of:
- one percent of the number of shares of common stock then outstanding,
which will equal approximately shares immediately after
the offering; or
- the average weekly trading volume of the common stock during the four
calendar weeks preceding the sale.
Sales under Rule 144 are also subject to requirements with respect to
manner of sale, notice and the availability of current public information about
us.
RULE 144(k)
Under Rule 144(k), a person who is not deemed to have been our affiliate at
any time during the three months preceding a sale, and who has beneficially
owned the shares proposed to be sold for at least two years, is entitled to sell
such shares without complying with the manner of sale, public information,
volume limitation or notice provisions of Rule 144.
RULE 701
Rule 701 permits our employees, officers, directors or consultants who
purchased shares pursuant to a written compensatory plan or contract to resell
such shares in reliance upon Rule 144 but without compliance with specific
restrictions. Rule 701 provides that affiliates may sell their Rule 701 shares
under Rule 144 without complying with the holding period requirement and that
non-affiliates may sell such shares in reliance on Rule 144 without complying
with the holding period, public information, volume limitation or notice
provisions of Rule 144.
WARRANTS
Upon the closing of this offering, there will be warrants outstanding to
purchase 1,101,989 shares of common stock at a weighted average exercise price
of $1.09 per share.
REGISTRATION RIGHTS
Upon completion of this offering, the holders of 41,070,137 shares of our
common stock, or their transferees, will be entitled to certain rights with
respect to the registration of such shares under the Securities Act. See
"Description of Capital Stock -- Registration Rights." Upon the effectiveness of
such a registration, these shares would become freely tradable without
restriction under the Securities Act.
59
<PAGE> 63
UNDERWRITING
Subject to the terms and conditions of the underwriting agreement, the
underwriters named below, through their representatives Deutsche Bank Securities
Inc., Dain Rauscher Incorporated, and SoundView Technology Group, Inc., have
severally agreed to purchase from Eprise the following respective number of
shares of common stock at the public offering price less the underwriting
discounts and commissions set forth on the cover page of this prospectus:
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
- ----------- ---------
<S> <C>
Deutsche Bank Securities Inc. ..............................
Dain Rauscher Incorporated..................................
SoundView Technology Group, Inc. ...........................
-------
Total.............................................
=======
</TABLE>
The underwriting agreement provides that the obligations of the
underwriters to purchase the shares of common stock offered hereby are subject
to certain conditions precedent and that the underwriters will be obligated to
purchase all shares of the common stock offered hereby, other than those covered
by the over-allotment option described below, if any are purchased. The
underwriting agreement provides that, in the event of a default by an
underwriter, in certain circumstances the purchase commitments of the
non-defaulting underwriters may be increased or the underwriting agreement may
be terminated.
The underwriters propose to offer the shares of common stock to the public
at the public offering price set forth on the cover of this prospectus and to
dealers at a price that represents a concession not in excess of $ per share
under the public offering price. The underwriters may allow, and these dealers
may re-allow, a concession of not more than $ per share to other dealers.
After the initial public offering, the representatives of the underwriters may
change the offering price and other selling terms.
We have granted to the underwriters an option, exercisable not later than
30 days after the date of this prospectus, to purchase up to
additional shares of common stock at the public offering price less
the underwriting discounts and commissions set forth on the cover page of this
prospectus. The underwriters may exercise this option only to cover over-
allotments made in connection with the sale of the common stock offered hereby.
To the extent that the underwriters exercise this option, each of the
underwriters will become obligated, subject to certain conditions, to purchase
approximately the same percentage of additional shares of common stock as the
number of shares of common stock to be purchased by it in the above table bears
to the total number of shares of common stock offered hereby.
The underwriting fee is equal to the public offering price per share of
common stock less the amount paid by the underwriters to us per share of common
stock. The underwriting fee is % of the initial public offering price. We
have agreed to pay the underwriters the following fees, assuming either no
exercise or full exercise by the underwriters of the underwriters' over-
allotment option:
<TABLE>
<CAPTION>
TOTAL FEES
--------------------------------------
WITHOUT EXERCISE WITH FULL EXERCISE
FEE PER OF OVER-ALLOTMENT OF OVER-ALLOTMENT
SHARE OPTION OPTION
------- ----------------- ------------------
<S> <C> <C> <C>
Fees paid by Eprise.............................. $ $ $
</TABLE>
In addition, we estimate that our share of the total expenses of this
offering, excluding underwriting discounts and commissions, will be
approximately $ .
60
<PAGE> 64
We have agreed to indemnify the underwriters against specified types of
liabilities, including liabilities under the Securities Act and to contribute to
payments the underwriters may be required to make in respect of any of these
liabilities.
Each of our officers and directors and substantially all of our
stockholders and holders of options and warrants to purchase our common stock,
have agreed not to offer, sell, contract to sell or otherwise dispose of or
transfer, or enter into any transaction that is designed to, or could be
expected to, result in the disposition of any portion of our common stock or
common stock issuable upon exercise or conversion of options, warrants or
convertible securities held by these persons for a period of 180 days after the
date of this prospectus without the prior written consent of Deutsche Bank
Securities Inc. This consent may be given at any time without public notice. We
have entered into a similar agreement with the representatives of the
underwriters.
The representatives of the underwriters have advised us that the
underwriters do not intend to confirm sales to any account over which they
exercise discretionary authority in excess of 5% of the shares of common stock
being offered hereby.
At our request, the underwriters have reserved for sale, at the initial
public offering price, up to shares for employees, directors, friends
and family members of our officers and certain other persons with a business
relationship with Eprise. None of these shares will be subject to lock-up
agreements. The number of shares of our common stock available for sale to the
general public will be reduced to the extent these reserved shares are
purchased. Any reserved shares that are not purchased by these persons will be
offered by the underwriters to the general public on the same basis as the other
shares in this offering.
In order to facilitate the offering of our common stock, the underwriters
may engage in transactions that stabilize, maintain or otherwise affect the
market price of our common stock. Specifically, the underwriters may over-allot
shares of our common stock in connection with this offering, thus creating a
short position in our common stock for their own account. A short position
results when an underwriter sells more shares of common stock than that
underwriter is committed to purchase. Additionally, to cover these
over-allotments or to stabilize the market price of our common stock, the
underwriters may bid for, and purchase, shares of our common stock in the open
market. Finally, the representatives, on behalf of the underwriters, may also
reclaim selling concessions allowed to an underwriter or dealer if the
underwriting syndicate repurchases shares distributed by that underwriter or
dealer. Any of these activities may maintain the market price of our common
stock at a level above that which might otherwise prevail in the open market.
These transactions may be effected on the Nasdaq National Market or otherwise.
The underwriters are not required to engage in these activities and, if
commenced, may end any of these activities at any time.
In June 1999, we sold shares of our Series C preferred stock in a private
placement at a price of $1.54 per share. Each of the shares of Series C
preferred stock is convertible at the option of the holder into one share of our
common stock. In this private placement, Deutsche Bank Securities Inc. received
a warrant to purchase 649,227 shares of common stock at an exercise price of
$1.54 per share, ABS Employees' Venture Fund LP, an affiliate of Deutsche Bank
Securities Inc., purchased 246,443 shares of Series C preferred stock at the
purchase price of $1.54 per share and Timothy Dolan, an employee of Deutsche
Bank Securities Inc., purchased 6,494 shares of Series C preferred stock at the
purchase price of $1.54 per share. Each of ABS Employees' Venture Fund LP and
Mr. Dolan purchased the Series C preferred stock on the same terms as the other
investors in the private placement, and the exercise price per share under the
warrant issued to Deutsche Bank Securities Inc. is the same price per share paid
by the investors in the private placement.
61
<PAGE> 65
PRICING OF THIS OFFERING
Prior to this offering, there has been no public market for our common
stock. Consequently, the initial public offering price for our common stock has
been determined by negotiation among us and the representatives of the
underwriters. Among the primary factors considered in determining the public
offering price were:
- prevailing market conditions;
- our results of operations in recent periods;
- the present stage of our development;
- the market capitalizations and stages of development of other companies
that we and the representatives of the underwriters believe to be
comparable to our business; and
- estimates of our business potential.
There can be no assurance that an active trading market will develop for
our common stock or that the common stock will trade in the market subsequent to
the offering at or above the initial public offering price.
62
<PAGE> 66
LEGAL MATTERS
Hill & Barlow, a Professional Corporation, will pass upon the validity of
the shares of common stock offered hereby for us. A purchase trust, the
beneficiaries of which are members of Hill & Barlow, purchased 16,233 shares of
our Series C preferred stock in the private placement that closed on November 8,
1999. Testa, Hurwitz & Thibeault, LLP, Boston, Massachusetts, will pass upon
certain legal matters in connection with this offering for the Underwriters.
EXPERTS
The financial statements as of December 31, 1997 and 1998 and for the four
months ended December 31, 1997 and for the year ended December 31, 1998 included
in this prospectus have been audited by Deloitte & Touche LLP, independent
auditors, as stated in their report appearing herein, and have been so included
in reliance upon the report of such firm given upon their authority as experts
in accounting and auditing.
The financial statements for the year ended August 31, 1997 included in
this prospectus have been audited by Arthur Andersen LLP, independent public
accountants, as indicated in their report with respect thereto, and are included
in reliance upon the authority of said firm as experts in giving said reports.
CHANGE IN ACCOUNTANTS
Effective in May 1998, Deloitte & Touche LLP was engaged as our independent
auditors and replaced Arthur Andersen LLP whose position as our independent
auditors was terminated. The decision to change independent auditors was
approved by our board of directors. In the period from October 1995 to May 1998
(1) Arthur Andersen LLP issued no audit report which was qualified or modified
as to uncertainty, audit scope or accounting principles, (2) Arthur Andersen LLP
issued no adverse opinions or disclaimers of opinion on any of our financial
statements, and (3) there were no disagreements with Arthur Andersen LLP on any
matter of accounting principles or practices, financial statement disclosure, or
auditing scope or procedures. Arthur Andersen LLP has reported on the financial
statements for the year ended August 31, 1997 included in this prospectus. Prior
to May 1998 we had not consulted with Deloitte & Touche LLP on items which
involved our accounting principles or the form of audit opinion to be issued on
our financial statements.
WHERE YOU CAN FIND ADDITIONAL INFORMATION
We have filed with the Commission a registration statement on Form S-1
under the Securities Act with respect to the shares of common stock offered
hereby. This prospectus does not contain all of the information set forth in the
registration statement and the exhibits and schedule filed therewith. For
further information with respect to Eprise Corporation and the common stock
offered hereby, reference is made to the registration statement and the exhibits
and schedule filed therewith. Statements contained in this prospectus regarding
the contents of any contract or any other document to which reference is made
are not necessarily complete, and, in each instance, reference is made to the
copy of such contract or other document filed as an exhibit to the registration
statement, each such statement being qualified in all respects by such
reference. A copy of the registration statement and the exhibits and schedule
filed therewith may be inspected without charge at the public reference
facilities maintained by the Commission in Room 1025, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the Commission's regional offices located in
Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661 and Seven World Trade Center, 13th Floor, New York, New York
10048 and copies of all or any part of the registration statement may be
63
<PAGE> 67
obtained from such offices upon the payment of the fees prescribed by the
Commission. Copies of these materials may also be obtained from the Public
Reference Room of the Commission, 450 Fifth Street, N.W., Washington, D.C.
20549, at prescribed rates. You may obtain information regarding the operation
of the Public Reference Room by calling the Commission at 1-800-SEC-0330. The
Commission maintains a World Wide Web site that contains reports, proxy and
information statements and other information regarding registrants that file
electronically with the Commission. The address of the site is www.sec.gov.
64
<PAGE> 68
EPRISE CORPORATION
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Reports............................... F-2
Balance Sheets at December 31, 1997 and 1998 and (Unaudited)
September 30, 1999.......................................... F-4
Statements of Operations for the Year Ended August 31, 1997,
the Four Months Ended December 31, 1997, the Year Ended
December 31, 1998 and (Unaudited) the Nine Months Ended
September 30, 1998 and 1999............................... F-5
Statements of Changes in Stockholders' Deficiency for the
Year Ended August 31, 1997, the Four Months Ended December
31, 1997, the Year Ended December 31, 1998 and (Unaudited)
the Nine Months Ended September 30, 1999.................. F-6
Statements of Cash Flows for the Year Ended August 31, 1997,
the Four Months Ended December 31, 1997, the Year Ended
December 31, 1998 and (Unaudited) the Nine Months Ended
September 30, 1998 and 1999............................... F-7
Notes to Financial Statements............................... F-8
</TABLE>
F-1
<PAGE> 69
INDEPENDENT AUDITORS' REPORT
To the Stockholders and Board of Directors of Eprise Corporation:
We have audited the accompanying balance sheets of Eprise Corporation (the
"Company") as of December 31, 1997 and 1998, and the related statements of
operations, changes in stockholders' deficiency and cash flows for the four
months ended December 31, 1997, and for the year ended December 31, 1998. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of the Company as of December 31, 1997 and
1998, and the results of its operations and its cash flows for the four-month
period ended December 31, 1997 and for the year ended December 31, 1998, in
conformity with generally accepted accounting principles.
/s/ DELOITTE & TOUCHE LLP
Boston, Massachusetts
March 15, 1999
(March 26, 1999 as to Note 3)
F-2
<PAGE> 70
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders and Board of Directors of Eprise Corporation:
We have audited the accompanying statements of operations, stockholders'
deficit and cash flows of Eprise Corporation (the "Company") for the year ended
August 31, 1997. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the results of the Company's operations and its cash
flows for the year ended August 31, 1997, in conformity with generally accepted
accounting principles.
/s/ ARTHUR ANDERSEN LLP
Boston, Massachusetts
December 18, 1997
(except with respect to the disclosure of the issuance of
Series A Redeemable Preferred Stock (Note 5) as to which
the date is January 28, 1998)
F-3
<PAGE> 71
EPRISE CORPORATION
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, PRO FORMA
------------------------- SEPTEMBER 30, SEPTEMBER 30,
1997 1998 1999 1999
----------- ----------- ------------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........................ $ 3,135,893 $ 6,356,665 $ 963,648
Accounts receivable (less allowance for doubtful
accounts of approximately $83,000, $48,000 and
$82,000 at December 31, 1997 and 1998 and
September 30, 1999, respectively).............. 132,835 103,060 1,100,393
Prepaid expenses and other current assets........ 89,404 129,657 247,254
----------- ----------- ------------
Total current assets........................... 3,358,132 6,589,382 2,311,295
----------- ----------- ------------
Property and equipment:
Computers and equipment.......................... 390,985 672,296 910,567
Furniture and fixtures........................... 24,536 92,758 134,933
Leasehold improvements........................... 29,897 29,897 29,897
----------- ----------- ------------
Total.......................................... 445,418 794,951 1,075,397
Less accumulated depreciation and amortization... (198,879) (345,103) (471,275)
----------- ----------- ------------
Property and equipment, net.................... 246,539 449,848 604,122
----------- ----------- ------------
Other assets, net.................................. 42,019 36,054 42,757
----------- ----------- ------------
Total assets....................................... $ 3,646,690 $ 7,075,284 $ 2,958,174
=========== =========== ============
LIABILITIES AND STOCKHOLDERS' (DEFICIENCY) EQUITY
Current liabilities:
Current portion of equipment line of credit...... $ -- $ 85,920 $ 85,917
Notes payable to related parties................. 25,454 -- --
Accounts receivable financing.................... 37,696 -- --
Accounts payable................................. 219,406 264,273 385,387
Accrued compensation and benefits................ 110,510 220,492 259,636
Other accrued expenses........................... 229,928 100,125 378,835
Deferred revenue................................. 346,200 89,873 363,951
----------- ----------- ------------
Total current liabilities...................... 969,194 760,683 1,473,726
----------- ----------- ------------
Long-term equipment line of credit, less current
portion.......................................... -- 157,510 100,236
----------- ----------- ------------
Commitments (Note 9)
Redeemable convertible preferred stock (Aggregate
liquidation preference of $5,063,889 in 1997 and
$13,818,156 in 1998 and 1999).................... 5,004,341 13,740,189 13,754,901 $ --
----------- ----------- ------------ ------------
Stockholders' (deficiency) equity:
Common stock, $.001 par value; 40,000,000 shares
authorized; 5,513,444, 5,705,194 and 6,140,444
shares issued and outstanding at December 31,
1997 and 1998 and September 30, 1999,
respectively (30,976,815 shares pro forma)..... 5,513 5,706 6,140 30,977
Additional paid-in capital....................... 187,085 206,067 389,157 14,119,221
Accumulated deficit.............................. (2,519,443) (7,794,871) (12,735,986) (12,735,986)
Note receivable from officer..................... (30,000) (30,000)
----------- ----------- ------------ ------------
Total stockholders' (deficiency) equity........ (2,326,845) (7,583,098) (12,370,689) $ 1,384,212
----------- ----------- ------------ ============
Total liabilities and stockholders' (deficiency)
equity........................................... $ 3,646,690 $ 7,075,284 $ 2,958,174
=========== =========== ============
</TABLE>
F-4
<PAGE> 72
EPRISE CORPORATION
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOUR MONTHS NINE MONTHS ENDED
YEAR ENDED ENDED YEAR ENDED SEPTEMBER 30,
AUGUST 31, DECEMBER 31, DECEMBER 31, --------------------------
1997 1997 1998 1998 1999
---------- ------------ ------------ ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
Software licenses............... 33,000 $ 65,000 $ 345,000 $ 177,796 $855,000....
Services...................... 1,387,223 237,541 462,321 346,394 757,444
---------- ----------- ----------- ----------- -----------
Total revenues.............. 1,420,223 302,541 807,321 524,190 1,612,444
Cost of revenues................ 518,456 285,037 459,730 343,512 697,831
---------- ----------- ----------- ----------- -----------
Gross profit.................... 901,767 17,504 347,591 180,678 914,613
Operating expenses:
Research and development...... 179,929 326,718 2,149,289 1,518,779 1,649,830
Selling and marketing......... 800,399 392,537 2,348,835 1,725,170 2,954,246
General and administrative.... 500,715 362,708 1,245,951 894,998 1,202,255
Compensation cost for stock
options..................... -- -- -- -- 140,000
---------- ----------- ----------- ----------- -----------
Total operating expenses.... 1,481,043 1,081,963 5,744,075 4,138,947 5,946,331
---------- ----------- ----------- ----------- -----------
Operating loss.................. (579,276) (1,064,459) (5,396,484) (3,958,269) (5,031,718)
---------- ----------- ----------- ----------- -----------
Other income (expense):
Interest income............... 2,232 4,146 164,105 82,454 125,327
Interest expense.............. (156,364) (103,392) (28,129) (28,651) (20,012)
---------- ----------- ----------- ----------- -----------
Other income (expense),
net....................... (154,132) (99,246) 135,976 53,803 105,315
---------- ----------- ----------- ----------- -----------
Net loss........................ (733,408) (1,163,705) (5,260,508) (3,904,466) (4,926,403)
Accretion of redeemable
convertible preferred
stock....................... -- (1,983) (14,920) (11,190) (14,712)
---------- ----------- ----------- ----------- -----------
Loss to common shareholders..... $ (733,408) $(1,165,688) $(5,275,428) $(3,915,656) $(4,941,115)
========== =========== =========== =========== ===========
Loss per share.................. $ (0.14) $ (0.21) $ (0.94) $ (0.70) $ (0.83)
========== =========== =========== =========== ===========
Weighted-average common shares
outstanding................... 5,285,067 5,498,444 5,609,319 5,607,194 5,922,819
========== =========== =========== =========== ===========
Pro forma loss per share........ $ (0.25) $ (0.16)
=========== ===========
Pro forma weighted-average
common shares outstanding..... 21,424,806 30,631,065
=========== ===========
</TABLE>
See notes to financial statements.
F-5
<PAGE> 73
EPRISE CORPORATION
STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIENCY
YEAR ENDED AUGUST 31, 1997, THE FOUR MONTHS ENDED DECEMBER 31, 1997, THE YEAR
ENDED DECEMBER 31, 1998 AND (UNAUDITED) THE NINE MONTHS ENDED SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL NOTE
------------------ PAID-IN ACCUMULATED RECEIVABLE
SHARES AMOUNT CAPITAL DEFICIT FROM OFFICER TOTAL
--------- ------ ---------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Balance, September 1, 1996.............. 5,271,250 $5,271 $ 93,929 $ (620,347) $ -- $ (521,147)
Exercise of stock options............. 10,000 10 2,490 -- -- 2,500
Issuance of warrants.................. -- -- 12,212 -- -- 12,212
Issuance of stock in exchange for
notes payable....................... 202,194 202 19,798 -- -- 20,000
Net loss.............................. -- -- -- (733,408) -- (733,408)
--------- ------ -------- ------------ -------- ------------
Balance, August 31, 1997................ 5,483,444 5,483 128,429 (1,353,755) -- (1,219,843)
Exercise of stock options............. 30,000 30 7,470 -- -- 7,500
Issuance of warrants.................. -- -- 51,186 -- -- 51,186
Accretion of redeemable preferred
stock to redemption value........... -- -- -- (1,983) -- (1,983)
Net loss.............................. -- -- -- (1,163,705) -- (1,163,705)
--------- ------ -------- ------------ -------- ------------
Balance, December 31, 1997.............. 5,513,444 5,513 187,085 (2,519,443) -- (2,326,845)
Exercise of stock options............. 191,750 193 18,982 -- -- 19,175
Accretion of redeemable preferred
stock to redemption value........... -- -- -- (14,920) -- (14,920)
Net loss.............................. -- -- -- (5,260,508) -- (5,260,508)
--------- ------ -------- ------------ -------- ------------
Balance, December 31, 1998.............. 5,705,194 5,706 206,067 (7,794,871) -- (7,583,098)
Unaudited:
Exercise of stock options........... 435,250 434 43,090 -- -- 43,524
Accretion of redeemable preferred
stock to redemption value......... -- -- (14,712) -- (14,712)
Net loss............................ -- -- -- (4,926,403) -- (4,926,403)
Compensation cost for stock
options........................... -- -- 140,000 -- -- 140,000
Note receivable from officer........ (30,000) (30,000)
--------- ------ -------- ------------ -------- ------------
Balance, September 30, 1999
(Unaudited)........................... 6,140,444 $6,140 $389,157 $(12,735,986) $(30,000) $(12,370,689)
========= ====== ======== ============ ======== ============
</TABLE>
See notes to financial statements.
F-6
<PAGE> 74
EPRISE CORPORATION
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOUR MONTHS NINE MONTHS ENDED
YEAR ENDED ENDED YEAR ENDED SEPTEMBER 30,
AUGUST 31, DECEMBER 31, DECEMBER 31, --------------------------
1997 1997 1998 1998 1999
---------- ------------ ------------ ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss................................. $(733,408) $(1,163,705) $(5,260,508) $(3,904,466) $(4,926,403)
Adjustments to reconcile net loss to net
cash used for operating activities:
Depreciation and amortization.......... 51,312 27,680 146,225 104,250 130,464
Compensation cost for stock options.... -- -- -- -- 140,000
Loss on sale of property and
equipment............................ -- 5,642 -- -- 4,108
Provision for doubtful accounts
receivable........................... -- 4,600 3,200 3,200 51,000
Interest accretion related to
warrants............................. 4,037 59,361 -- -- --
Conversion of interest to note
payable.............................. -- 28,165 -- -- --
Exchange of preferred stock for
services............................. -- 63,888 91,000 91,000 --
Increase (decrease) in cash from:
Accounts receivable.................... 203,110 (63,595) 26,575 58,797 (1,048,423)
Prepaid expenses and other current
assets............................... (18,407) (70,997) (40,253) 1,453 (117,597)
Other assets........................... (10,399) (19,388) 5,965 (10,716) (6,703)
Accounts payable....................... (190) 3,622 44,867 (29,521) 121,114
Accrued expenses....................... 116,317 (11,428) (19,821) 46,357 317,904
Deferred revenue....................... 249,631 (81,985) (256,327) (169,084) 274,078
--------- ----------- ----------- ----------- -----------
Net cash used for operating
activities......................... (137,997) (1,218,140) (5,259,077) (3,808,730) (5,060,458)
--------- ----------- ----------- ----------- -----------
Cash flows from investing activities:
Purchases of property and equipment...... (47,941) (165,539) (349,534) (282,200) (289,556)
Proceeds from sale of property and
equipment.............................. -- 1,010 -- -- 750
--------- ----------- ----------- ----------- -----------
Net cash used for investing
activities......................... (47,941) (164,529) (349,534) (282,200) (288,806)
--------- ----------- ----------- ----------- -----------
Cash flows from financing activities:
Proceeds from issuance of preferred
stock, net of issuance costs........... -- 3,712,581 8,629,928 8,629,928 --
Payments on notes payable................ (202,914) (1,056,167) (77,470) (63,151) (57,278)
Proceeds from issuance of note payable... 491,000 1,750,000 257,750 257,750 --
Proceeds from exercise of stock
options................................ 2,500 7,500 19,175 18,750 13,525
--------- ----------- ----------- ----------- -----------
Net cash provided by (used for)
financing activities............... 290,586 4,413,914 8,829,383 8,843,277 (43,753)
--------- ----------- ----------- ----------- -----------
Net increase (decrease) in cash............ 104,648 3,031,245 3,220,772 4,752,347 (5,393,017)
Cash and cash equivalents, beginning of
period................................... -- 104,648 3,135,893 3,135,893 6,356,665
--------- ----------- ----------- ----------- -----------
Cash and cash equivalents, end of period... $ 104,648 $ 3,135,893 $ 6,356,665 $ 7,888,240 $ 963,648
========= =========== =========== =========== ===========
Supplemental disclosures of cash flow
information -- cash paid for interest.... $ 55,642 $ 16,617 $ 46,987 $ 40,954 $ 14,923
========= =========== =========== =========== ===========
Summary of noncash investing and financing
activities
-- Issuance of stock for notes payable... $ 20,000 $ 1,225,889 $ -- $ -- $ --
========= =========== =========== =========== ===========
-- Issuance of stock for note
receivable............................. $ -- $ -- $ -- $ -- $ 30,000
========= =========== =========== =========== ===========
-- Issuance of preferred stock for
services at fair value................ $ -- $ 63,888 $ 91,000 $ 91,000 $ --
========= =========== =========== =========== ===========
</TABLE>
See notes to financial statements.
F-7
<PAGE> 75
EPRISE CORPORATION
NOTES TO FINANCIAL STATEMENTS
(INFORMATION AS OF SEPTEMBER 30, 1999 AND FOR THE NINE
MONTHS ENDED SEPTEMBER 30, 1998 AND 1999 IS UNAUDITED)
1. NATURE OF BUSINESS
Eprise Corporation (the "Company") develops, markets and implements web
content management solutions that help businesses shape and direct e-business
communications effectively and efficiently. The Company also provides design and
other consultative services designed to help organizations maximize the value
they derive from the Company's web content management solutions. Business is
conducted primarily in the United States.
2. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
UNAUDITED INTERIM INFORMATION
Financial information as of September 30, 1999 and for the nine months
ended September 30, 1998 and 1999 is unaudited and is not necessarily indicative
of the results which would be expected for a full year. In the opinion of
management, the unaudited financial information presented includes all
adjustments, consisting solely of normal recurring accruals and adjustments,
necessary for a fair presentation in accordance with generally accepted
accounting principles.
UNAUDITED PRO FORMA PRESENTATION
The unaudited pro forma balance sheet as of September 30, 1999, reflects
the conversion of all outstanding shares of Series A and B preferred stock to
common stock, which will occur upon closing of an initial public offering.
SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES
The preparation of financial statements requires management to make
estimates that affect the reported amounts of assets, liabilities and reported
results of operations. Actual results could differ from those estimates.
REVENUE RECOGNITION
Software license fees are generally recognized when a signed contract has
been received, the product has been shipped and collectibility is probable.
Revenue from maintenance agreements is deferred and recognized ratably over the
term of the agreement. Consulting revenue is recognized as services are
performed.
COMPREHENSIVE INCOME (LOSS)
The Company does not have any items of comprehensive income (loss) other
than net loss.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist primarily of demand deposits and highly
liquid short-term instruments purchased with remaining maturities of three
months or less.
F-8
<PAGE> 76
EPRISE CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1999 AND FOR THE NINE
MONTHS ENDED SEPTEMBER 30, 1998 AND 1999 IS UNAUDITED)
DEPRECIATION AND AMORTIZATION
Property and equipment are stated at cost. Repairs and maintenance are
expensed as incurred, while betterments are capitalized. Depreciation and
amortization are provided using the straight-line method over estimated useful
lives ranging from three years for computer equipment to seven years for
furniture and fixtures. Leasehold improvements are amortized over the life of
the asset or the lease, whichever is shorter.
LONG-LIVED ASSETS
Upon occurrence of certain events or changes in circumstances, the Company
reviews the carrying value of its long-lived assets to determine if impairment
has occurred and, if necessary, adjusts the carrying value accordingly. No
adjustments have been required to date.
STOCK-BASED COMPENSATION
Compensation expense associated with awards of stock or options to
employees is measured using the intrinsic-value method. Compensation expense
associated with awards to nonemployees is measured using the fair-value method.
(See Note 6)
INCOME TAXES
Deferred income taxes are provided for differences between the financial
statement carrying amounts and tax basis of the Company's assets and liabilities
and tax loss and credit carryforwards, using enacted tax rates in effect in the
years in which the differences are expected to reverse. Valuation allowances are
provided to the extent realization of deferred tax assets is not considered more
likely than not.
RESEARCH AND DEVELOPMENT COSTS
Research and development costs, other than software development costs, are
expensed as incurred. Software development costs are capitalized upon
achievement of technological feasibility. To date, no costs have been incurred
which qualify for capitalization.
NET LOSS PER SHARE
PRO FORMA NET LOSS PER SHARE
Pro forma net loss per share has been computed using the weighted-average
number of shares of common stock outstanding during each period. In addition,
for purposes of pro forma net loss per share, all shares of Series A and B
preferred stock, which are convertible into common stock on a one-for-one basis
and are expected to be converted to common upon closing of this offering, have
been treated as though they were common stock in all periods presented that pro
forma EPS is presented and are included in weighted-average common shares
outstanding.
HISTORICAL NET LOSS PER SHARE
Historical net loss per share has been computed using the weighted-average
number of shares of common stock outstanding during each period. Diluted amounts
per share would include the impact of the Company's outstanding potential common
shares, such as options and
F-9
<PAGE> 77
EPRISE CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1999 AND FOR THE NINE
MONTHS ENDED SEPTEMBER 30, 1998 AND 1999 IS UNAUDITED)
warrants (computed using the treasury stock method) and convertible preferred
stock. However, the effect of these items would be antidilutive in all periods
presented and they are excluded from the computation.
CONCENTRATIONS OF CREDIT RISK AND MAJOR CUSTOMERS
The Company's revenues are derived from various customers who generally are
not required to provide collateral for amounts owed to the Company. The Company
operates in one segment. The Company's customers are dispersed over a wide
geographic area.
Major customers accounted for the following percentages of the Company's
revenues:
<TABLE>
<CAPTION>
NINE MONTHS
YEAR FOUR MONTHS YEAR ENDED
ENDED ENDED ENDED SEPTEMBER 30,
AUGUST 31, DECEMBER 31, DECEMBER 31, -------------
1997 1997 1998 1998 1999
---------- ------------ ------------ ---- ----
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Customer A........... -- 21% 58% 46% 23%
Customer B........... -- 16 -- -- --
Customer C........... -- 15 -- -- --
Customer D........... -- 13 -- -- --
Customer E........... 22% -- -- -- --
</TABLE>
No other customers accounted for more than 10% of revenue in any of the
periods presented.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
DERIVATIVE INSTRUMENTS
On June 1998, the Financial Accounting Standards Board released Statement
of Financial Accounting Standard ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities," effective for fiscal years beginning after
June 15, 2000. The new standard requires that all companies record derivatives
on the balance sheet as assets or liabilities, measured at fair value. Gains or
losses resulting from changes in the values of those derivatives would be
accounted for based on the use of the derivative and whether it qualifies for
hedge accounting. Management is currently assessing the impact of SFAS No. 133
on the financial statements of the Company. The Company will adopt this
accounting standard on January 1, 2001.
SOFTWARE REVENUE RECOGNITION
In December 1998, the American Institute of Certified Public Accountants
released Statement of Position No. 98-9 ("SOP 98-9"), "Modification of SOP 97-2,
Software Revenue Recognition, with Respect to Certain Transactions." SOP 98-9
amends SOP 97-2 to provide guidance related to determination of the allocation
of revenues in multiple element contracts under certain circumstances. SOP 98-9
will be effective for transactions entered into in the Company's fiscal year
beginning January 1, 2000. The Company does not expect that adoption of SOP 98-9
will have a material impact on financial position or the results of operations.
F-10
<PAGE> 78
EPRISE CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1999 AND FOR THE NINE
MONTHS ENDED SEPTEMBER 30, 1998 AND 1999 IS UNAUDITED)
3. LINES OF CREDIT
The Company has lines of credit with a bank providing for borrowings of up
to $1,000,000 for working capital ($800,000 prior to March 26, 1999) and
borrowings of up to $500,000 for equipment purchases ($400,000 prior to March
26, 1999).
Borrowings under the working capital commitment are limited to the lesser
of $1,000,000 or 80% of eligible accounts receivable. The revolving line of
credit expires on March 26, 2000. Any borrowings outstanding under the working
capital line of credit bear interest at the bank's prime rate plus 1%. As of
December 31, 1997 and 1998 and September 30, 1999, there were no borrowings
under the working capital line of credit. The equipment line of credit is
available to purchase equipment acquisitions through December 26, 1999.
Borrowings under the equipment line of credit bear interest at the bank's prime
rate plus 1.5%. At December 31, 1998 and September 30, 1999, $243,430 and
$186,513 were outstanding under the initial tranche of the equipment line of
credit, respectively. As of September 30, 1999, there were no borrowings under
the second tranche of the lease line of credit. Minimum lease payments at
December 31, 1998 are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
- ----------------------
<S> <C>
1999................................................ $105,036
2000................................................ 97,018
2001................................................ 74,658
--------
Total payments...................................... 276,712
Less portion representing interest.................. (33,285)
Net amount due...................................... 243,427
Current portion of note payable..................... (85,917)
--------
Long-term note payable.............................. $157,510
========
</TABLE>
Both the revolving line of credit and the equipment line of credit are
collateralized by substantially all of the Company's assets. The lines of credit
contain certain covenants requiring minimum levels of liquidity and tangible net
worth, and prohibit the payment of cash dividends. At December 31, 1998, the
Company was not in compliance with maximum net loss covenants contained in the
agreements related to the lines of credit; the bank has waived the events of
non-compliance for 1998, and the agreements have been amended. At September 30,
1999, the Company was in compliance with the terms and covenants contained in
the amended lines of credit.
4. NOTES PAYABLE AND OTHER OBLIGATIONS
CONVERTIBLE DEMAND NOTES PAYABLE
In August 1997, the Company entered into a convertible demand note payable
with an investor in the amount of $200,000, bearing interest at a rate of 10%
per annum. Effective with the issuance of the Series A redeemable convertible
preferred stock in December 1997 ("Series A"), the investor elected to convert
the note and accrued interest into 415,983 shares of Series A (see Note 5).
F-11
<PAGE> 79
EPRISE CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1999 AND FOR THE NINE
MONTHS ENDED SEPTEMBER 30, 1998 AND 1999 IS UNAUDITED)
On October 9, 1997, the Company issued a $1,000,000 convertible demand note
payable, bearing interest at 10% per annum. Effective with the issuance of
Series A, the investor elected to convert the note and accrued interest into
2,050,843 shares of Series A (see Note 5). In connection with the issuance of
this note, the Company issued the investor a warrant to purchase 326,995 shares
of Series A for $0.49695 per share (see Note 6).
BRIDGE NOTE PAYABLE
In July 1997, the Company issued a bridge note payable to a bank in the
amount of $250,000 bearing interest at the bank's prime rate plus 1.5%. The
Company used the proceeds from the convertible demand note payable issued on
October 9, 1997 to repay this note.
In connection with the issuance of the bridge note, the Company issued a
warrant to the bank to purchase 50,307 shares of the Company's common stock for
$0.01 per share (see Note 6).
PROMISSORY NOTE
On December 5, 1997, the Company issued a $750,000 promissory note payable
to a bank, bearing interest at the bank's prime rate plus 1.5%. The entire
principal balance plus accrued interest was repaid on December 22, 1997. In
connection with the issuance of the promissory note, the Company issued a
warrant to the bank to purchase 75,460 shares of the Company's common stock for
$0.49695 per share (see Note 6).
NOTES PAYABLE TO RELATED PARTIES
The Company had a note payable to a director's father at December 31, 1997
totaling $20,320. The Company also had a note payable to a relative of the
director at December 31, 1997 totaling $5,134. These notes were repaid during
1998.
ACCOUNTS RECEIVABLE FINANCING
The Company has an agreement with a bank to finance its accounts receivable
with recourse. There were no borrowings under the agreement during 1998 or 1999.
The outstanding balance due to the bank under this agreement at December 31,
1997 was $37,696, which was repaid in 1998. The agreement has no defined
termination date.
5. REDEEMABLE CONVERTIBLE PREFERRED STOCK
SERIES A REDEEMABLE CONVERTIBLE PREFERRED STOCK
In December 1997, the Company issued 10,061,376 shares of Series A, $0.01
par value. The issuance involved the sale of 7,594,550 shares for approximately
$3,774,100 and the conversion of notes payable of $1,225,889 into 2,466,826
shares. Issuance costs approximated $61,500 and are being accreted to the
carrying value of the Series A stock over the period to the stock's scheduled
redemption date.
SERIES B REDEEMABLE CONVERTIBLE PREFERRED STOCK
In August 1998, the Company sold 14,272,113 shares of Series B and received
proceeds of approximately $8,530,000. Issuance costs approximated $33,000 and
are being accreted to
F-12
<PAGE> 80
EPRISE CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1999 AND FOR THE NINE
MONTHS ENDED SEPTEMBER 30, 1998 AND 1999 IS UNAUDITED)
the carrying value of the Series B stock over the period to the stock's
scheduled redemption date.
SERIES C REDEEMABLE CONVERTIBLE PREFERRED STOCK
In November 1999, the Company issued 16,233,766 shares of Series C, $0.01
par value, and received proceeds of $25,000,000. Issuance costs approximated
$1,608,000 and will be accreted to the carrying value of the Series C stock over
the period to the stock's scheduled redemption date.
The rights and preferences of the different classes of preferred stock are
as follows:
Liquidation -- Upon liquidation, dissolution or winding up of the
Company, holders of the Series C will be entitled to receive, before any
distribution is made to any other class of currently outstanding capital
stock, an amount equal to $1.54 per share, plus all accrued and unpaid
dividends, if any. Following this distribution to the holders of the Series
C, the holders of Series A and B will be entitled to receive, on a pari
passu basis, before any distribution or payment is made on the common
stock, an amount equal to $0.49695 and $0.60 per share, respectively, plus
all accrued and unpaid dividends, if any. The remaining assets will be
distributed among the holders of Series A, B and C and the common stock on
an "as if" converted basis. If the assets of the Company are insufficient
to permit payment in full to the holders of Series A and B of all amounts
distributable to them, then the entire assets of the Company available for
distribution will be distributed ratably among the holders of Series A and
B in proportion to the full preferential amount each holder is otherwise
entitled to receive.
Conversion -- Each share of Series A, B or C is convertible at the
option of the holder into shares of common stock on a one-for-one basis,
subject to adjustment in the event of certain dilutive events. Conversion
of all classes of currently outstanding preferred stock into common becomes
automatic upon the closing of an initial public offering with gross
proceeds of at least $15,000,000 and a per share price of at least $2.50,
as to the Series A and B, and $3.08 as to the Series C. Conversion also
becomes automatic if at least two-thirds of the preferred shareholders,
voting as a single class, so elect or if at least 90% of the outstanding
preferred shares have been converted to common.
Dividends -- The holders of Series A, B and C are entitled to receive
dividends, if and when declared on the shares of common stock, on an "as
if" converted basis.
Voting -- The holders of Series A, B and C vote together with all
other classes and series of stock of the corporation as one class. Each
share of Series A, B and C entitles the holder to a number of votes equal
to the number of shares of common stock into which the preferred shares
could be converted on that date.
Redemption -- Upon the election of a majority of the Series C holders
at any time on or after December 18, 2002, the Company will be required to
redeem all of the then outstanding shares of Series C in three equal
installments. The redemption price per share is equal to the greater of
$1.54 per share plus all accrued but unpaid dividends, if any, or the fair
market value of the Series C shares. These redemption rights of the Series
C holders are senior to the redemption rights described below for the
Series A and B shares. Should sufficient funds exist if redemption of the
Series C has occurred and upon the election of the majority of the Series A
and B holders at any time on or after December 18,
F-13
<PAGE> 81
EPRISE CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1999 AND FOR THE NINE
MONTHS ENDED SEPTEMBER 30, 1998 AND 1999 IS UNAUDITED)
2002, the Company will be required to redeem all of the then outstanding
shares of the Series A and B in three equal annual installments. The
redemption price per share is equal to the greater of $0.49695 for Series A
and $0.60 for Series B, plus all declared but unpaid dividends, if any, or
the fair market value of the stock.
Covenants -- The Company's amended certificate of incorporation
provides for separate, identical covenants for all classes of redeemable
preferred stock as follows: except with the approval of a majority of each
class of redeemable preferred stock outstanding, the Company may not amend
its Certificate of Incorporation or By-laws; increase the number of shares
of redeemable preferred stock, or reclassify any common stock into shares
having any preference or priority superior to or in parity with the
redeemable preferred stock; create, authorize or issue any class or classes
of stock senior to or in parity with the redeemable preferred stock; pay or
declare any dividend or distribution on any shares of common stock; or
effect any sale, lease, assignment, transfer or other conveyance (other
than the grant of a mortgage or security interest in connection with
indebtedness for borrowed money) of all or substantially all the assets of
the Company, any liquidation, dissolution or winding up of, or any
consolidation or merger involving the Company, or recapitalization of the
Company.
In addition, except with the approval of 51% of the holders of Series C
preferred stock, the Company may not under, certain circumstances issue
additional securities, adopt or amend its stock option plans, sell or lease the
assets of the Company or impair its ability to perform under the Series C
Purchase Agreement.
As of December 31, 1997 and 1998 and September 30, 1999, the number of
shares, carrying value and liquidation value of each class of redeemable
convertible preferred stock are as follows:
<TABLE>
<CAPTION>
1997 1998 1999
----------- ----------- -----------
<S> <C> <C> <C>
Number of shares:
Series A............................... 10,189,936 10,515,925 10,515,925
Series B............................. -- 14,320,446 14,320,446
Redemption and liquidation value:
Series A............................. $ 5,063,889 $ 5,225,889 $ 5,225,889
Series B............................. -- 8,592,268 8,592,268
</TABLE>
6. STOCKHOLDERS' DEFICIENCY
In August 1998, the Company amended its Certificate of Incorporation to
increase the number of authorized shares of common stock from 25,000,000 to
40,000,000. In November 1999, the number of authorized shares of common stock
was further increased to 58,500,000.
WARRANTS
In connection with the issuance of a bridge note payable to a bank issued
and paid in 1997 (see Note 4), the Company issued a warrant to purchase 50,307
shares of the Company's common stock at an exercise price of $0.01 per share.
The warrant expires five years from the issuance date. The estimated fair value
of the warrant as of the grant date, $12,205, was
F-14
<PAGE> 82
EPRISE CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1999 AND FOR THE NINE
MONTHS ENDED SEPTEMBER 30, 1998 AND 1999 IS UNAUDITED)
recorded as a discount on the bridge note. This discount was amortized to
interest expense over the period the bridge note payable was outstanding.
In connection with the issuance of a convertible demand note payable,
issued and paid in 1997 (see Note 4), the Company issued a warrant to purchase
326,995 shares of the Company's Series A preferred stock at an exercise price of
$0.49695 per share. The warrant expires five years from the issuance date. The
estimated fair value of the warrant as of the date of the grant, $41,589, was
recorded as a discount on the convertible demand note payable and charged to
interest expense during the four months ended December 31, 1997.
In connection with the issuance of a promissory note payable, issued and
paid in 1997 (see Note 4), the Company issued a warrant to purchase 75,460
shares of the Company's common stock at an initial exercise price of $0.49695
per share, which may be adjusted upon issuance of securities at a price less
than the initial exercise price of the warrant. The warrant expires five years
from the issuance date. The estimated fair value of the warrant as of the date
of the grant, $9,597, was recorded as a discount on the promissory note and
charged to interest expense during the four months ended December 31, 1997.
STOCK OPTIONS
In August 1997, the Company adopted the 1997 Stock Option Plan (the "1997
Plan"), which provides, as amended, for the issuance of 5,534,614 shares of
common stock as either incentive stock options ("ISOs") or nonqualified stock
options ("NSOs"). Under the terms of the 1997 Plan, ISOs are to be granted at
the fair market value of the Company's common stock on the date of grant and
NSOs are to be granted at a price determined by the Board of Directors. ISOs and
NSOs generally vest over four years and have contractual lives of up to ten
years.
As of the effective date of the 1997 Plan, any unvested or unexercised
options that were issued under the 1997 Plan's predecessor, the 1994 Plan, that
are forfeited will become available for issuance under the 1997 Plan thereby
increasing the options available for grant
F-15
<PAGE> 83
EPRISE CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1999 AND FOR THE NINE
MONTHS ENDED SEPTEMBER 30, 1998 AND 1999 IS UNAUDITED)
under the 1997 Plan to a maximum of 6,552,614 shares. Option activity under both
the 1997 and 1994 plans is as follows:
<TABLE>
<CAPTION>
WEIGHTED- WEIGHTED-
AVERAGE AVERAGE
NUMBER OF EXERCISE FAIR
SHARES PRICE VALUE
--------- --------- ---------
<S> <C> <C> <C>
Outstanding, September 1, 1996........... 580,000 $0.25
Granted.................................. 1,080,000 0.25 $0.06
Exercised.............................. (10,000) 0.25
Canceled............................... (547,000) 0.25
---------
Outstanding, August 31, 1997............. 1,103,000 0.25
Granted................................ 2,152,408 0.25 0.06
Exercised.............................. (30,000) 0.25
Canceled............................... (284,000) 0.25
---------
Outstanding, December 31, 1997........... 2,941,408 0.25
Granted................................ 2,454,102 0.11 0.03
Exercised.............................. (191,750) 0.10
Canceled............................... (611,250) 0.10
---------
Outstanding, December 31, 1998........... 4,592,510 0.10
Granted................................ 2,669,990 0.19 0.98
Exercised.............................. (435,250) 0.10
Canceled............................... (816,250) 0.10
---------
Outstanding, September 30, 1999.......... 6,011,000 0.14
=========
Exercisable, September 30, 1999.......... 938,574 0.10
=========
Exercisable, December 31, 1998........... 861,650 0.10
=========
Exercisable, December 31, 1997........... 350,000 0.25
=========
Exercisable, August 31, 1997............. 250,000 0.25
=========
</TABLE>
In October 1999, the Company granted options to acquire 341,000 shares of
common stock to employees at an exercise price of $0.25. In December 1999, the
Company granted options to acquire 510,500 shares of common stock to employees
at an exercise price of $1.54. In January 2000, the Company granted options to
acquire 660,750 shares of common stock to employees at an exercise price of
$2.70.
In July, 1999, the Board of Directors approved a stock loan program, which
allows specified employees to fund the purchase of common stock pursuant to the
exercise of stock options through loans from the Company. Borrowings are limited
to 50% of the employee's annual salary. Loans under this program bear interest
at a variable rate of 0.5% over the Company's cost of funds and are secured by
the underlying shares. All loans are due no later than five years from the date
of the loan. At September 30, 1999, $30,000 had been advanced to an employee
under this program.
F-16
<PAGE> 84
EPRISE CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1999 AND FOR THE NINE
MONTHS ENDED SEPTEMBER 30, 1998 AND 1999 IS UNAUDITED)
In December 1999, the Company amended the grants outstanding under its
stock option plans to allow the holder of the affected options to exercise their
options immediately with a resale restriction on the underlying stock which
lapses over a four year period. This amendment did not result in a new
measurement date.
In January 2000, the Board of Directors of the Company approved the 2000
Employee Stock Purchase Plan, which allows employees of the Company to purchase
common stock of the Company through payroll deductions at 85% of the then fair
market value of the Company's stock. The Company reserved 1,500,000 shares for
issuance under the plan.
At December 31, 1998, there were 713,354 options available for grant under
the 1997 Plan, including those shares forfeited under the 1994 Plan. In February
1998, the Company's Board approved the repricing of all outstanding options on
that date, covering approximately 2,941,000 shares, to $0.10 per share to
reflect the Board's estimate of the fair value of the underlying common stock on
the date of the repricing.
Grants made during 1999 contained exercise prices which were the Company's
best estimate of fair value of the underlying common stock on the date of grant.
However, subsequent to the grant date, management concluded that for grants
after the release of the new version of the Company's principal product, these
estimates may not have fully reflected the impact of this event. Management has
concluded that for grants after May 1999, the value of the preferred stock sold
in November 1999 ($1.54 per share) less a 10% discount reflecting the
significant preferences enjoyed by the preferred stock is a more reliable
estimate of the fair value of the common stock during this period. For grants
during this period, compensation cost aggregated $2,623,000, which will be
amortized to expense over the four year vesting period of the option grants. For
the nine months ended September 30, 1999, compensation expense recorded related
to these grants aggregated $140,000.
The fair value of the options on their grant date was measured using the
minimum-value method. Key assumptions used to apply this option pricing model
are as follows:
<TABLE>
<CAPTION>
FOUR MONTHS
YEAR ENDED ENDED YEAR ENDED
AUGUST 31, DECEMBER 31, DECEMBER 31,
1997 1997 1998
----------- ------------ ------------
<S> <C> <C> <C>
Risk-free interest rate.......... 6.1% - 6.75% 6.0% 6.0%
Expected life of option grants... 5 years 5 years 5 years
Expected dividend payment rate,
as a percentage of the stock
price on the date of grant..... -- -- --
</TABLE>
The option-pricing model used was designed to value readily tradable stock
options with relatively short lives. However, management believes that the
assumptions used to value the options and the model applied yield a reasonable
estimate of the fair value of the grants made under the circumstances.
F-17
<PAGE> 85
EPRISE CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1999 AND FOR THE NINE
MONTHS ENDED SEPTEMBER 30, 1998 AND 1999 IS UNAUDITED)
The following table sets forth information regarding options outstanding
and exercisable at December 31, 1998:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
- ------------------------------------------------------------ -------------------
WEIGHTED- WEIGHTED- WEIGHTED-
AVERAGE AVERAGE AVERAGE
EXERCISE REMAINING EXERCISE EXERCISE
SHARES PRICE LIFE PRICE SHARES PRICE
------ ------------ ---------- --------- ------- ---------
<S> <C> <C> <C> <C> <C>
4,592,510............ $0.10 - 0.12 9.18 years $0.10 861,650 $0.10
</TABLE>
As described in Note 2, the Company uses the intrinsic value method to
measure compensation expense associated with grants of stock options to
employees. If the Company had used the fair value method to measure
compensation, reported net loss would have been as follows:
<TABLE>
<CAPTION>
FOUR MONTHS
YEAR ENDED ENDED YEAR ENDED
AUGUST 31, DECEMBER 31, DECEMBER 31,
1997 1997 1998
---------- ------------ ------------
<S> <C> <C> <C>
As reported........................ $(733,408) $(1,163,705) $(5,260,508)
========= =========== ===========
Pro forma.......................... $(743,799) $(1,179,636) $(5,337,568)
========= =========== ===========
Pro forma loss per share........... $ (0.14) $ (0.21) $ (0.95)
========= =========== ===========
</TABLE>
RESERVED SHARES
At December 31, 1998, 30,841,747 shares of common stock were reserved for
issuance under the Company's stock option plans and outstanding warrants and for
potential conversion of preferred stock.
7. INCOME TAXES
The components of the provision (benefit) for income taxes consisted of the
following:
<TABLE>
<CAPTION>
FOUR MONTHS NINE MONTHS ENDED
YEAR ENDED ENDED YEAR ENDED SEPTEMBER 30,
AUGUST 31, DECEMBER 31, DECEMBER 31, -------------------------
1997 1997 1998 1998 1999
---------- ------------ ------------ ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Federal -- deferred... $(226,000) $(358,000) $(1,619,000) $(1,201,000) $(1,473,000)
State -- deferred..... (70,000) (110,000) (500,000) (371,000) (455,000)
Increase in valuation
allowance........... 296,000 468,000 2,119,000 1,572,000 1,928,000
--------- --------- ----------- ----------- -----------
Provison (benefit) for
income taxes........ $ -- $ -- $ -- $ -- $ --
========= ========= =========== =========== ===========
</TABLE>
Taxes during interim periods are computed using the estimated rate
effective for the entire year. Changes to the estimated rate are reflected in
periods in which the change in estimate occurs.
F-18
<PAGE> 86
EPRISE CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1999 AND FOR THE NINE
MONTHS ENDED SEPTEMBER 30, 1998 AND 1999 IS UNAUDITED)
A reconciliation of the statutory federal rate to the effective rate for
all periods is as follows:
<TABLE>
<S> <C>
Statutory Federal rate benefit............................ (34)%
State, net of Federal effect.............................. (6)
Valuation allowance provided.............................. 40
---
Effective rate............................................ --%
===
</TABLE>
Deferred tax assets and liabilities consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1997 1998
------------ ------------
<S> <C> <C>
Deferred tax assets (liabilities):
Property and equipment.......................... $ (29,200) $ (13,400)
Accounts receivable -- allowance for doubtful
accounts................................... 33,200 19,100
Accrued liabilities........................... 5,200 --
Net operating loss carryforwards.............. 1,046,400 3,115,600
Research and development credits.............. -- 125,800
Valuation allowance........................... (1,055,600) (3,247,100)
----------- -----------
$ -- $ --
=========== ===========
</TABLE>
At December 31, 1998, the Company had net operating loss carryforwards for
federal and state tax purposes aggregating approximately $7,500,000 available to
offset future taxable income. These net operating loss carryfowards expire in
varying amounts through 2013. At December 31, 1998, the Company had federal and
state tax credits aggregating approximately $125,800 available to offset future
taxable income, expiring through 2013. Due to changes in ownership due to stock
issuances during 1997, 1998 and 1999, the Company's ability to utilize these
carryforwards and credits is likely to be limited.
The valuation allowance increased by $465,000 and $2,191,500 in 1997 and
1998, respectively, primarily due to the generation of net operating loss
carryforwards and credits for which realization is not reasonably assured.
8. EMPLOYEE BENEFIT PLAN
The Company has a qualified 401(k) retirement plan (the "Plan") under which
eligible employees may contribute up to 20% of their annual compensation,
subject to certain limitations imposed by the Internal Revenue Code. The Company
provides matching contributions of 50% of the employee salary deferral, up to 5%
of eligible earnings. Employees vest immediately in their contributions and
earnings thereon and ratably over six years in the Company's contributions.
During the year ended August 31, 1997, the four months ended December 31, 1997,
the year ended December 31, 1998, and the nine months ended September 30, 1998
and 1999, the Company made matching contributions of approximately $13,900,
$7,200, $55,800, $37,571 and $59,793 respectively.
F-19
<PAGE> 87
EPRISE CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1999 AND FOR THE NINE
MONTHS ENDED SEPTEMBER 30, 1998 AND 1999 IS UNAUDITED)
9. COMMITMENTS
LEASE COMMITMENTS
The Company has operating lease agreements for facilities and equipment.
The Company entered into a three-year, noncancelable operating sublease for its
office facilities commencing October 15, 1997. The lease provides that the
Company pay a base monthly rental of approximately $16,500, plus its
proportionate annual share of the facility's common area expenses and real
estate taxes. On November 30, 1997, the Company terminated its previous lease
for office space and paid a $34,000 termination fee.
Future minimum lease commitments for all noncancelable operating leases at
December 31, 1998 approximated the following:
<TABLE>
<S> <C>
1999................................................ $262,800
2000................................................ 155,900
--------
Total............................................... $418,700
========
</TABLE>
Rent expense under operating lease agreements approximated $148,000,
$113,900, $198,400, $149,402 and $167,934 including the termination fee, for the
year ended August 31, 1997, the four months ended December 31, 1997, the year
ended December 31, 1998, and the nine months ended September 30, 1998 and 1999,
respectively.
F-20
<PAGE> 88
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. WE HAVE
NOT AUTHORIZED ANYONE TO PROVIDE INFORMATION DIFFERENT FROM THAT CONTAINED IN
THIS PROSPECTUS. WE ARE OFFERING TO SELL, AND SEEKING OFFERS TO BUY, SHARES OF
COMMON STOCK ONLY IN JURISDICTIONS WHERE OFFERS AND SALES ARE PERMITTED. THE
INFORMATION CONTAINED IN THIS PROSPECTUS IS ACCURATE ONLY AS OF THE DATE OF THIS
PROSPECTUS, REGARDLESS OF THE TIME OF DELIVERY OF THIS PROSPECTUS OR OF ANY SALE
OF OUR COMMON STOCK.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................... 1
Risk Factors.......................... 5
Special Note Regarding Forward-
Looking Statements and Industry
Data................................ 13
Use of Proceeds....................... 13
Dividend Policy....................... 13
Capitalization........................ 14
Dilution.............................. 16
Selected Financial Data............... 17
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 18
Business.............................. 29
Management............................ 40
Certain Transactions.................. 50
Principal Stockholders................ 51
Description of Capital Stock.......... 54
Shares Eligible for Future Sale....... 58
Underwriting.......................... 60
Legal Matters......................... 63
Experts............................... 63
Change in Accountants................. 63
Where You Can Find Additional
Information......................... 63
Index to Financial Statements......... F-1
</TABLE>
DEALER PROSPECTUS DELIVERY OBLIGATION: UNTIL , 2000 (25 DAYS AFTER
THE DATE OF THIS PROSPECTUS), ALL DEALERS THAT BUY, SELL OR TRADE THE COMMON
STOCK, WHETHER OR NOT PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO DELIVER
A PROSPECTUS. THIS IN ADDITION TO THE DEALERS' OBLIGATION TO DELIVER A
PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
[EPRISE CORPORATION LOGO]
SHARES
COMMON STOCK
DEUTSCHE BANC ALEX. BROWN
DAIN RAUSCHER WESSELS
SOUNDVIEW TECHNOLOGY GROUP
PROSPECTUS
, 2000
<PAGE> 89
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by Eprise in connection with the
sale of the common stock being registered under this registration statement. All
amounts shown are estimated, except the SEC registration fee and the NASD filing
fee.
<TABLE>
<S> <C>
SEC registration fee........................................ $12,144
NASD filing fee............................................. 5,100
Nasdaq National Market listing fee..........................
Blue Sky fee and expenses (including legal fees)............
Printing and engraving expenses.............................
Legal fees and expenses.....................................
Accounting fees and expenses................................
Transfer agent and registrar fees and expenses..............
Miscellaneous expenses......................................
-------
Total............................................. $
=======
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Delaware General Corporation Law and our by-laws, as amended, provide
for indemnification of our directors and officers for liabilities and expenses
that they may incur in such capacities. In general, directors and officers are
indemnified with respect to actions taken in good faith in a manner reasonably
believed to be in, or not opposed to, our best interests and, with respect to
any criminal action or proceeding, actions that the indemnitee had no reasonable
cause to believe were unlawful. For a more complete description, you should
refer to our by-laws, as amended, and our proposed amended and restated by-laws
filed as Exhibits 3.5 and 3.6 to this registration statement.
The Underwriting Agreement (filed as Exhibit 1.1 to this registration
statement) provides that the Underwriters are obligated, under certain
circumstances, to indemnify our directors, officers and controlling persons
against certain liabilities, including liabilities under the Securities Act. For
a more complete description, you should refer to Exhibit 1.1 to the registration
statement.
In addition, we have an existing directors and officers liability insurance
policy in effect.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
In the three years preceding the filing of this registration statement, we
have issued the following securities that were not registered under the
Securities Act:
(a) Issuances of Capital Stock
In August 1997, we issued and sold 202,194 shares of common stock to one
purchaser at a purchase price of approximately $0.10 per share, which was paid
by conversion of a convertible promissory note.
In December 1997, we issued and sold an aggregate of 10,262,604 shares of
Series A preferred stock to four investors at a purchase price of $0.49695 per
share, for an aggregate sales price of $5,100,001. In addition, we issued
253,321 shares of Series A preferred stock to a consultant as a placement fee in
connection with hiring two executives.
II-1
<PAGE> 90
In August 1998, we issued and sold an aggregate of 14,320,446 shares of
Series B preferred stock to ten investors at a purchase price of $0.60 per
share, for an aggregate sales price of $8,592,268.
In November 1999, we issued and sold an aggregate of 16,233,776 shares of
Series C preferred stock to approximately 190 investors at a purchase price of
$1.54 per share, for an aggregate sales price of approximately $25,000,000.
Deutsche Bank Securities Inc. served as placement agent for this offering. As
partial consideration for its services, we issued Deutsche Bank Securities Inc.
a warrant to purchase 649,227 shares of our common stock as described in
paragraph (b) below.
No underwriters were engaged in connection with the foregoing sales of
securities. All such sales were made solely to accredited investors, as defined
in Rule 501 under the Securities Act, and were made in reliance upon the
exemption from registration provided by Section 4(2) of the Securities Act and,
as to the private placement of our Series C preferred stock, Regulation D
promulgated under the Securities Act, for transactions by an issuer not
involving a public offering.
(b) Issuances of Warrants
In July and December 1997, we issued warrants to Silicon Valley Bank to
purchase 50,307 and 75,460 shares of our common stock, respectively, at an
exercise price of $0.01 and $0.49695 per share, respectively, in consideration
for extending two bridge loans to us. These warrants expire in July and December
2002, respectively.
In October 1997, we issued a warrant to an investor to purchase 326,995
shares of our Series A preferred stock at an exercise price of $0.49695 per
share, in consideration for extending a bridge loan to us. This warrant expires
in December 2002.
As of September 1999, we issued a warrant to Deutsche Bank Securities Inc.
to purchase 649,227 shares of our common stock at an exercise price of $1.54 per
share in partial consideration of its services as the placement agent for the
shares of Series C preferred stock offered in November 1999 as described in
paragraph (a) above. This warrant expires in September 2004.
No underwriters were engaged for purposes of the foregoing transactions.
All sales of securities described above were made in reliance upon the exemption
from registration provided by Section 4(2) under the Securities Act for
transactions by an issuer not involving a public offering.
(c) Grants and Exercises of Stock Options
Since January 1, 1997, we have granted stock options to purchase 8,783,000
shares of common stock with exercise prices ranging from $.10 to $1.54 per
share, to employees and directors under our 1994 and 1997 stock plans. Of these
options, 1,522,483 have been exercised for an aggregate consideration of
$207,359 as of December 31, 1999. The issuance of common stock upon exercise of
such options was exempt either pursuant to Rule 701 under the Securities Act, as
a transaction pursuant to a compensatory benefit plan, or pursuant to Section
4(2) under the Securities Act, as a transaction by an issuer not involving a
public offering.
II-2
<PAGE> 91
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
a. Exhibits
<TABLE>
<CAPTION>
NO. DESCRIPTION OF DOCUMENT
- --- -----------------------
<C> <S>
1.1 Form of Underwriting Agreement by and among Eprise and the
Underwriters
3.1 Third Amended and Restated Certificate of Incorporation of
Eprise Corporation filed in the State of Delaware on
November 2, 1999
3.2* Form of Fourth Amended and Restated Certificate of
Incorporation of Eprise (to be filed with the Secretary of
State of Delaware and effective immediately prior to the
effectiveness of the registration statement)
3.3* Form of Certificate of Amendment to Fourth Amended and
Restated Certificate of Incorporation of Eprise (to be filed
with the Secretary of State of Delaware and effective upon
the effectiveness of the offering)
3.4* Form of Certificate of Amendment to Fourth Amended and
Restated Certificate of Incorporation of Eprise (to be filed
with the Secretary of State of Delaware and effective upon
the closing of the offering.)
3.5 Corporate bylaws of Inner Circle Technologies, Inc., as
currently in effect
3.6* Form of Amended and Restated By-Laws (to take effect as of
the effective date of the registration statement)
4.1* Specimen certificate for shares of the common stock of
Eprise
4.2 Description of capital stock (contained in Exhibits 3.1 and
3.2)
4.3 Warrant to purchase 50,307 shares of common stock, issued to
Silicon Valley Bank on July 18, 1997
4.4 Warrant to purchase 326,995 shares of Series A Preferred
Stock, issued to Prism Venture Partners I, L.P. on October
9, 1997
4.5 Warrant to purchase 75,460 shares of common stock, issued to
Silicon Valley Bank on December 5, 1997
4.6 Antidilution Agreement with Silicon Valley Bank, dated
December 5, 1997
4.7 Warrant to purchase 649,227 shares of common stock, issued
to Deutsche Bank Securities Inc. as of September 8, 1999
5.1* Opinion of Hill & Barlow regarding legality of common stock
to be offered hereunder
10.1* Lease dated as of January , 2000 between NDNE 9/90 200
Crossing Boulevard, LLC and Eprise Corporation, relating to
the future principal executive offices of Eprise at 200
Crossing Boulevard, Framingham, Massachusetts
10.2 Sublease Agreement between NovaLink USA Corporation and
Merkert Enterprises, Inc., as amended
10.3 Sublease Agreement dated June 9, 1999 between Aquila
Biopharmaceuticals, Inc. and Eprise Corporation
10.4 Eprise Corporation 1997 Stock Option Plan, as amended
through December 1, 1999
10.5* Eprise 1997 Amended and Restated Stock Option Plan
10.6 Inner Circle Technologies, Inc. 1994 Stock Option Plan
10.7* Eprise 2000 Non-Employee Director Stock Option Plan
10.8 Employment Agreement between Eprise Corporation and Joseph
A. Forgione dated as of November 4, 1997
10.9 Employment Agreement between Eprise Corporation and Jonathan
B. Radoff dated as of December 17, 1997
</TABLE>
II-3
<PAGE> 92
<TABLE>
<CAPTION>
NO. DESCRIPTION OF DOCUMENT
- --- -----------------------
<C> <S>
10.10* Eprise 2000 Employee Stock Purchase Plan dated January 5,
2000
10.11 Eprise Corporation Retirement Savings Plan dated October 14,
1998, as amended
10.12 Second Amended and Restated Stockholders Agreement dated as
of November 8, 1999 among Eprise and the preferred
stockholders of Eprise......................................
10.13 Second Amended and Restated Registration Rights Agreement
dated as of November 8, 1999 among Eprise and the preferred
stockholders of Eprise......................................
10.14 Registration Rights Agreement dated July 18, 1997 among
Eprise and Silicon Valley Bank..............................
10.15 Registration Rights Agreement dated December 5, 1997 among
Eprise and Silicon Valley Bank..............................
10.16 Loan and Security Agreement among Eprise and Silicon Valley
Bank dated January 28, 1998.................................
10.17 Negative Pledge Agreement among Eprise and Silicon Valley
Bank dated , 1997...............................
10.18 First Loan Modification Agreement among Eprise and Silicon
Valley Bank dated March , 1999............................
16 Letter re Change in Certifying Accountant...................
21.1 List of Subsidiaries........................................
23.1 Independent Auditors' Consent -- Deloitte & Touche LLP......
23.2 Independent Accountants' Consent -- Arthur Andersen LLP.....
23.3* Consent of Hill & Barlow, a Professional Corporation
(contained in Exhibit 5.1)..................................
27.1 Eprise Financial Data Schedule for the period ending
December 31, 1998...........................................
27.2 Eprise Financial Data Schedule for the period ending
December 31, 1997...........................................
27.3 Eprise Financial Data Schedule for the period ending August
31, 1997....................................................
</TABLE>
- ------------------------
* To be filed by amendment.
b. Financial Statement Schedules.
None required.
ITEM 17. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of Eprise
pursuant to the provisions described in Item 14, or otherwise, Eprise has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by Eprise of expenses incurred
or paid by a director, officer or controlling person of Eprise in the successful
defense of any action, suit or proceeding) is asserted by such director, officer
or controlling person in connection with the securities being registered, Eprise
will, unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question of whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
Eprise hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act, the
information omitted from the form of prospectus filed as part of this
registration statement in reliance upon
II-4
<PAGE> 93
Rule 430A and contained in a form of prospectus filed by Eprise pursuant to Rule
424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part
of this registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act,
each post-effective amendment that contains a form of prospectus shall be deemed
to be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
Eprise hereby undertakes to provide at the closing of this offering to the
underwriters specified in the underwriting agreement certificates in such
denominations and registered in such names as required by the underwriters to
permit prompt delivery to each purchaser.
II-5
<PAGE> 94
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in Boston, Massachusetts
on January 14, 2000.
EPRISE CORPORATION
By: /s/ JOSEPH A. FORGIONE
-----------------------------------------------
Joseph A. Forgione
President and Chief Executive Officer
POWER OF ATTORNEY
EACH PERSON WHOSE SIGNATURE APPEARS BELOW HEREBY AUTHORIZES AND APPOINTS
JOSEPH A. FORGIONE, MILTON A. ALPERN AND ANDREA M. TEICHMAN, AND EACH OF THEM,
WITH FULL POWER OF SUBSTITUTION AND FULL POWER TO ACT WITHOUT THE OTHER, AS HIS
OR HER TRUE AND LAWFUL ATTORNEY-IN-FACT AND AGENT TO ACT IN HIS OR HER NAME,
PLACE AND STEAD AND TO EXECUTE IN THE NAME AND ON BEHALF OF EACH PERSON,
INDIVIDUALLY AND IN EACH CAPACITY STATED BELOW, AND TO FILE ANY AND ALL
AMENDMENTS TO THIS REGISTRATION STATEMENT, INCLUDING ANY AND ALL POST-EFFECTIVE
AMENDMENTS AND ANY SUBSEQUENT REGISTRATION STATEMENT FOR THE SAME OFFERING WHICH
MAY BE FILED UNDER RULE 462(b).
Pursuant to the requirements of the Securities Act of 1933, as amended,
this registration statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------- ----- ----
<S> <C> <C>
/s/ JOSEPH A. FORGIONE President, Chief Executive January 14, 2000
- ------------------------------------------------ Officer and Director
(Joseph A. Forgione) (Principal Executive
Officer)
/s/ MILTON A. ALPERN Vice President, Finance and January 14, 2000
- ------------------------------------------------ Chief Financial Officer,
(Milton A. Alpern) (Principal Financial and
Accounting Officer)
/s/ EDSON D. DE CASTRO Chairman of the Board January 14, 2000
- ------------------------------------------------
(Edson D. de Castro)
/s/ DEBORAH M. BESEMER Director January 14, 2000
- ------------------------------------------------
(Deborah M. Besemer)
/s/ ROBERT C. FLEMING Director January 14, 2000
- ------------------------------------------------
(Robert C. Fleming)
/s/ ALAIN J. HANOVER Director January 14, 2000
- ------------------------------------------------
(Alain J. Hanover)
</TABLE>
II-6
<PAGE> 95
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------- ----- ----
<S> <C> <C>
/s/ NICHOLAS A. PAPANTONIS Director January 12, 2000
- ------------------------------------------------
(Nicholas A. Papantonis)
/s/ JONATHAN B. RADOFF Director January 14, 2000
- ------------------------------------------------
(Jonathan B. Radoff)
/s/ JOSEPH TISCHLER Director January 14, 2000
- ------------------------------------------------
(Joseph Tischler)
</TABLE>
II-7
<PAGE> 96
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION OF DOCUMENT
- ------- -----------------------
<C> <S>
1.1 Form of Underwriting Agreement by and among Eprise and the
Underwriters
3.1 Third Amended and Restated Certificate of Incorporation of
Eprise Corporation filed in the State of Delaware on
November 2, 1999
3.2* Form of Fourth Amended and Restated Certificate of
Incorporation of Eprise (to be filed with the Secretary of
State of Delaware and effective immediately prior to the
effectiveness of the registration statement)
3.3* Form of Certificate of Amendment to Fourth Amended and
Restated Certificate of Incorporation of Eprise (to be filed
with the Secretary of State of Delaware and effective upon
the effectiveness of the offering)
3.4* Form of Certificate of Amendment to Fourth Amended and
Restated Certificate of Incorporation of Eprise (to be filed
with the Secretary of State of Delaware and effective upon
the closing of the offering.)
3.5 Corporate bylaws of Inner Circle Technologies, Inc., as
currently in effect
3.6* Form of Amended and Restated By-Laws (to take effect as of
the effective date of the registration statement)
4.1* Specimen certificate for shares of the common stock of
Eprise
4.2 Description of capital stock (contained in Exhibits 3.1 and
3.2)
4.3 Warrant to purchase 50,307 shares of common stock, issued to
Silicon Valley Bank on July 18, 1997
4.4 Warrant to purchase 326,995 shares of Series A Preferred
Stock, issued to Prism Venture Partners I, L.P. on October
9, 1997
4.5 Warrant to purchase 75,460 shares of common stock, issued to
Silicon Valley Bank on December 5, 1997
4.6 Antidilution Agreement with Silicon Valley Bank, dated
December 5, 1997
4.7 Warrant to purchase 649,227 shares of common stock, issued
to Deutsche Bank Securities Inc. as of September 8, 1999
5.1* Opinion of Hill & Barlow regarding legality of common stock
to be offered hereunder
10.1* Lease dated as of January , 2000 between NDNE 9/90 200
Crossing Boulevard, LLC and Eprise, relating to the future
principal executive offices of Eprise at 200 Crossing
Boulevard, Framingham, Massachusetts
10.2 Sublease Agreement between NovaLink USA Corporation and
Merkert Enterprises, Inc., as amended
10.3 Sublease Agreement dated June 9, 1999 between Aquila
Biopharmaceuticals Inc. and Eprise Corporation
10.4 Eprise Corporation 1997 Stock Option Plan, as amended
through December 1, 1999
10.5* Eprise 1997 Amended and Restated Stock Option Plan
10.6 Inner Circle Technologies, Inc. 1994 Stock Option Plan
10.7* Eprise 2000 Non-Employee Director Stock Option Plan
10.8 Employment Agreement between Eprise Corporation and Joseph
A. Forgione dated as of November 4, 1997
10.9 Employment Agreement between Eprise Corporation and Jonathan
B. Radoff dated as of December 17, 1997
10.10* Eprise 2000 Employee Stock Purchase Plan dated January 5,
2000
</TABLE>
<PAGE> 97
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION OF DOCUMENT
- ------- -----------------------
<C> <S>
10.11 Eprise Corporation Retirement Saving Plan dated October 14,
1998, as amended
10.12 Second Amended and Restated Stockholders Agreement dated as
of November 8, 1999 among Eprise and the preferred
stockholders of Eprise
10.13 Second Amended and Restated Registration Rights Agreement
dated as of November 8, 1999 among Eprise and the preferred
stockholders of Eprise
10.14 Registration Rights Agreement dated July 18, 1997 among
Eprise and Silicon Valley Bank
10.15 Registration Rights Agreement dated December 5, 1997 among
Eprise and Silicon Valley Bank
10.16 Loan and Security Agreement among Eprise and Silicon Valley
Bank dated January 28, 1998
10.17 Negative Pledge Agreement among Eprise and Silicon Valley
Bank dated , 1997
10.18 First Loan Modification Agreement among Eprise and Silicon
Valley Bank dated March , 1999
16 Letter re Change in Certifying Accountant
21.1 List of Subsidiaries
23.1 Independent Auditors' Consent -- Deloitte & Touche LLP
23.2 Independent Accountants' Consent -- Arthur Andersen LLP
23.3* Consent of Hill & Barlow, a Professional Corporation
(contained in Exhibit 5.1)
27.1 Eprise Financial Data Schedule for the period ending
December 31, 1998
27.2 Eprise Financial Data Schedule for the period ending
December 31, 1997
27.3 Eprise Financial Data Schedule for the period ending August
31, 1997
</TABLE>
- ------------------------
* To be filed by amendment.
<PAGE> 1
EXHIBIT 1.1
_____________ SHARES
EPRISE CORPORATION
COMMON STOCK
($.01 Par Value)
EQUITY UNDERWRITING AGREEMENT
_________ __, 2000
Deutsche Bank Securities Inc.
Dain Rauscher Wessels, a division of Dain Rauscher Incorporated
SoundView Technology Group, Inc.
As Representatives of the Several Underwriters
c/o Deutsche Bank Securities Inc.
One South Street
Baltimore, MD 21202
Ladies and Gentlemen:
Eprise Corporation, a Delaware corporation (the "Company"), proposes to
sell to the several underwriters (the "Underwriters") named in Schedule I hereto
for whom you are acting as representatives (the "Representatives") an aggregate
of _________ shares of the Company's Common Stock, $.001 par value (the "Firm
Shares"). The respective amounts of the Firm Shares to be so purchased by the
several Underwriters are set forth opposite their names in Schedule I hereto.
The Company also proposes to sell, at the Underwriters' option, up to _________
additional shares of the Company's Common Stock (the "Option Shares") as set
forth below.
As the Representatives, you have advised the Company (a) that you are
authorized to enter into this Agreement on behalf of the several Underwriters,
and (b) that the several Underwriters are willing, acting severally and not
jointly, to purchase the number of Firm Shares set forth opposite their
respective names in Schedule I, plus their pro rata portion of the Option
Shares, if you elect to exercise the over-allotment option in whole or in part
for the accounts of the several Underwriters. The Firm Shares and the Option
Shares (to the extent the aforementioned option is exercised) are herein
collectively called the "Shares."
Deutsche Bank Securities Inc. ("DBSI") has agreed to reserve up to
___________ of the Shares to be purchased by it under this Agreement for sale to
the Company's directors, officers, employees and business associates and other
parties related to the Company (collectively, "Participants"), as set forth in
the Prospectus under the heading "Underwriting" (the "Directed Share Program").
The Shares to be sold by DBSI and its affiliates pursuant to the Directed Share
<PAGE> 2
Program are referred to hereinafter as the "Directed Shares." Any Directed
Shares not orally confirmed for purchase by any Participants by the end of the
business day on which this Agreement is executed will be offered to the public
by the Underwriters as set forth in the Prospectus.
In consideration of the mutual agreements contained herein and of the
interests of the parties in the transactions contemplated hereby, the parties
hereto agree as follows:
1. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company represents and warrants to each of the Underwriters as
follows. The representations, warranties and covenants of the Company contained
herein shall be deemed to apply to each of the subsidiaries of the Company
unless otherwise required by the context.
(a) A registration statement on Form S-1 (File No. 33-) with
respect to the Shares has been prepared by the Company in conformity with the
requirements of the Securities Act of 1933, as amended (the "Act"), and the
Rules and Regulations (the "Rules and Regulations") of the Securities and
Exchange Commission (the "Commission") thereunder and has been filed with the
Commission. Copies of such registration statement, including any amendments
thereto, the preliminary prospectuses (meeting the requirements of the Rules and
Regulations) contained therein and the exhibits, financial statements and
schedules, as finally amended and revised, have heretofore been delivered by the
Company to you. Such registration statement, together with any registration
statement filed by the Company pursuant to Rule 462(b) of the Act, herein
referred to as the "Registration Statement," which shall be deemed to include
all information omitted therefrom in reliance upon Rule 430A and contained in
the Prospectus referred to below, has become effective under the Act, and no
post-effective amendment to the Registration Statement has been filed as of the
date of this Agreement. "Prospectus" means the form of prospectus first filed
with the Commission pursuant to Rule 424(b). Each preliminary prospectus
included in the Registration Statement prior to the time it becomes effective is
herein referred to as a "Preliminary Prospectus." Any reference herein to any
Prospectus shall be deemed to include any supplements or amendments thereto
filed with the Commission after the date of filing of the Prospectus under Rules
424(b) or 430A, and prior to the termination of the offering of the Shares by
the Underwriters. For purposes of this Agreement, all references to the
Registration Statement, any Preliminary Prospectus, the Prospectus, or any
amendment or supplement to any of the foregoing, shall be deemed to include all
printed copies thereof and the copies filed with the Commission pursuant to the
Commission's "EDGAR" system.
(b) The Company has been duly organized and is validly
existing as a corporation in good standing under the laws of the State of
Delaware, with corporate power and authority to own or lease its properties and
conduct its business as described in the Registration Statement. The Company is
duly qualified to transact business in all jurisdictions in which the conduct of
its business requires such qualification, except where the failure to so qualify
or be in good standing would not result in a material adverse effect on the
earnings, business, management, properties, assets, rights, operations,
condition (financial or otherwise), or prospects of the Company and its
subsidiaries taken as a whole, or a material adverse effect on the ability of
the Company to consummate the transactions contemplated hereby (a "Material
Adverse Effect").
2
<PAGE> 3
(c) The Company has full legal right, power and authority to
enter into this Agreement and perform the transactions contemplated hereby. This
Agreement has been duly authorized, executed and delivered by the Company and is
a valid and binding agreement on the part of the Company; the performance of
this Agreement and the consummation of the transactions herein contemplated will
not result in a material breach or violation of any of the terms and provisions
of, or constitute a default under, (i) any bond, debenture, note or other
evidence of indebtedness, or under any lease, contract, indenture, mortgage,
deed of trust, loan agreement, joint venture or other agreement or instrument to
which the Company or any Subsidiary is a party, (ii) the charter or bylaws of
the Company, each as currently in effect, or (iii) any law, order, rule,
regulation, writ, injunction, judgment or decree of any court, government or
governmental agency or body, domestic or foreign, having jurisdiction over the
Company or over its properties, except in the case of clauses (i) and (iii) for
such breaches, violations or defaults as would not have a Material Adverse
Effect. No consent, approval, authorization or order of or qualification with
any court, government or governmental agency or body, domestic or foreign,
having jurisdiction over the Company or over its properties is required for the
execution and delivery of this Agreement and the consummation by the Company of
the transactions herein contemplated, except such as may be required under the
Act, the Securities Exchange Act of 1934, as amended (the "Exchange Act") or
under state or other securities or Blue Sky laws, or under the rules and
regulations of the National Association of Securities Dealers, Inc. (the "NASD")
(including the Nasdaq National Market), and all of which requirements which
pertain to the Company have been satisfied by the Company in all material
respects.
(d) The outstanding shares of Common Stock of the Company have
been duly authorized and validly issued and are fully paid and non-assessable;
the Shares have been duly authorized and, when issued and paid for as
contemplated herein, will be validly issued, fully paid and non-assessable; and
no preemptive rights of stockholders exist with respect to any of the Shares or
the issue and sale thereof. Neither the filing of the Registration Statement nor
the offering or sale of the Shares as contemplated by this Agreement gives rise
to any rights, other than those which have been waived or satisfied, for or
relating to the registration of any shares of Common Stock.
(e) The information set forth under the caption
"Capitalization" in the Prospectus is true and correct in all material respects.
All of the Shares conform to the description thereof contained in the
Registration Statement in all material respects. The form of certificates for
the Shares conforms to the requirements of the corporate law of the jurisdiction
of the Company's incorporation. Except as described in or contemplated by the
Registration Statement, there are no outstanding securities of the Company
convertible or exchangeable into or evidencing the right to purchase or
subscribe for any shares of capital stock of the Company and there are no
outstanding or authorized options, warrants or rights of any character
obligating the Company to issue any shares of its capital stock or any
securities convertible or exchangeable into or evidencing the right to purchase
or subscribe for any shares of such stock.
(f) The Commission has not issued an order preventing or
suspending the use of any Prospectus relating to the proposed offering of the
Shares nor instituted proceedings for
3
<PAGE> 4
that purpose. The Registration Statement contains, and the Prospectus and any
amendments or supplements thereto will contain, all statements which are
required to be stated therein by, and will conform to, the requirements of the
Act and the Rules and Regulations in all material respects. The Registration
Statement and any amendment thereto do not contain, and will not contain, any
untrue statement of a material fact and do not omit, and will not omit, to state
any material fact required to be stated therein or necessary to make the
statements therein not misleading. The Prospectus and any amendments and
supplements thereto do not contain, and will not contain, any untrue statement
of material fact; and do not omit, and will not omit, to state any material fact
required to be stated therein or necessary to make the statements therein, in
the light of the circumstances under which they were made, not misleading;
provided, however, that the Company makes no representations or warranties as to
information contained in or omitted from the Registration Statement or the
Prospectus, or any such amendment or supplement, in reliance upon, and in
conformity with, written information furnished to the Company by or on behalf of
any Underwriter through the Representatives, specifically for use in the
preparation thereof.
(f) The financial statements of the Company, together with
related notes and schedules as set forth in the Registration Statement, present
fairly the financial position and the results of operations and cash flows of
the Company, at the indicated dates and for the indicated periods. Such
financial statements and related schedules have been prepared in accordance with
generally accepted accounting principles, consistently applied throughout the
periods involved, except as disclosed therein, and all adjustments necessary for
a fair presentation of results for such periods have been made. The summary
financial and statistical data included in the Registration Statement present
fairly the information shown therein and such data have been compiled on a basis
consistent with the financial statements presented therein and the books and
records of the Company.
(h) The accounting firms that have certified certain of the
financial statements filed with the Commission as part of the Registration
Statement are independent public accountants as required by the Act and the
Rules and Regulations.
(i) There is no action, suit, claim, investigation or
proceeding pending or, to the knowledge of the Company, threatened against the
Company before any court, administrative agency, self-regulatory body or
otherwise which if determined adversely to the Company might result in any
material adverse change in the earnings, business, management, properties,
assets, rights, operations, or condition (financial or otherwise) or prospects
of the Company and its subsidiaries taken as a whole, whether or not arising in
the ordinary course of business (a "Material Adverse Change") or prevent the
consummation of the transactions contemplated hereby, except as set forth in the
Registration Statement.
(j) The Company has good and valid title to all of the
properties and assets reflected in the financial statements (or as described in
the Registration Statement) hereinabove described, subject to no security
interest, lien, mortgage, pledge, charge or encumbrance of any kind except those
reflected in such financial statements and the related notes thereto (or as
described in the Registration Statement) or which are not material in amount.
The Company
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<PAGE> 5
occupies its leased properties under valid and binding leases conforming in all
material respects to the description thereof set forth in the Registration
Statement.
(k) The Company has filed all federal, state, local and
foreign income tax returns which have been required to be filed or timely filed
for extension of the filing of such returns and has paid all taxes indicated by
said returns and all assessments received by them to the extent that such taxes
have become due. All tax liabilities have been adequately provided for in the
financial statements of the Company, and the Company does not know of any actual
or proposed additional material tax assessments relating to any of its
historical periods.
(l) Since the respective dates as of which information is
given in the Registration Statement, as it may be amended or supplemented, to
date there has not been any Material Adverse Change or any development involving
a prospective Material Adverse Change, whether or not occurring in the ordinary
course of business, and since the respective dates as of which information is
given in the Registration Statement, as it may be amended or supplemented, to
date there has not been any material transaction entered into or any material
transaction that is probable of being entered into by the Company other than
transactions in the ordinary course of business and changes and transactions
described in the Registration Statement, as it may be amended or supplemented.
The Company has no material contingent obligations which are not disclosed in
the Company's financial statements which are included in the Registration
Statement.
(m) The Company is not, or with the giving of notice or lapse
of time or both, will not be, in violation of or in default under its corporate
charter or by-laws or under any agreement, lease, contract, indenture or other
instrument or obligation to which it is a party or by which it, or any of its
properties, is bound and which default would have a Material Adverse Effect.
(n) Each approval, consent, order, authorization, designation,
declaration or filing by or with any regulatory, administrative or other
governmental body necessary in connection with the execution and delivery by the
Company of this Agreement and the consummation of the transactions herein
contemplated (except such additional steps as may be required by the Commission,
the NASD or such additional steps as may be necessary to qualify the Shares for
public offering by the Underwriters under state securities laws) has been
obtained and is in full force and effect.
(o) The Company holds all material licenses, certificates and
permits from governmental authorities which are necessary to the conduct of its
business; the Company owns or possesses the right to use all patents, patent
rights, trademarks, trade names, service marks, service names, copyrights,
license rights, know-how (including trade secrets and other unpatented and
unpatentable proprietary or confidential information, systems or procedures) and
other intellectual property rights ("Intellectual Property") necessary to carry
on its business in all material respects; the Company has not, to its knowledge,
infringed, and the Company has not received notice of conflict with, any
Intellectual Property of any other person or entity. The Company has taken all
reasonable steps necessary to secure interests in such Intellectual Property
from its contractors. There are no outstanding options, licenses or agreements
of any kind relating to the Intellectual
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<PAGE> 6
Property of the Company that are required to be described in the Prospectus and
are not described in all material respects. The Company is not a party to or
bound by any options, licenses or agreements with respect to the Intellectual
Property of any other person or entity that are required to be set forth in the
Prospectus and are not described in all material respects. None of the
technology employed by the Company has been obtained or is being used by the
Company in violation of any contractual obligation binding on the Company or, to
its knowledge, any of its officers, directors or employees or otherwise in
violation of the rights of any persons; the Company has not received any written
or oral communications alleging that the Company has violated, infringe or
conflicted with, or, by conducting its business as set forth in the Prospectus,
would violate, infringe or conflict with, any of the Intellectual Property of
any other person or entity. The Company knows of no infringement by others of
Intellectual Property owned by or licensed to the Company.
(p) Neither the Company, nor to the Company's knowledge, any
of its affiliates, has taken or may take, directly or indirectly, any action
designed to cause or result in, or which has constituted or which might
reasonably be expected to constitute, the stabilization or manipulation of the
price of the shares of Common Stock to facilitate the sale or resale of the
Shares.
(q) The Company is not an "investment company" within the
meaning of such term under the Investment Company Act of 1940 and the rules and
regulations of the Commission thereunder (the "1940 Act").
(r) The Company maintains a system of internal accounting
controls sufficient to provide reasonable assurances that (i) transactions are
executed in accordance with management's general or specific authorization; (ii)
transactions are recorded as necessary to permit preparation of financial
statements in conformity with generally accepted accounting principles and to
maintain accountability for assets; (iii) access to assets is permitted only in
accordance with management's general or specific authorization; and (iv) the
recorded accountability for assets is compared with existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.
(s) The Company carries, or is covered by, insurance in such
amounts and covering such risks as is adequate for the conduct of their
respective businesses and the value of their respective properties and as is
customary for companies in the software industry.
(t) The Company is in compliance in all material respects with
all presently applicable provisions of the Employee Retirement Income Security
Act of 1974, as amended, including the regulations and published interpretations
thereunder ("ERISA"); no "reportable event" (as defined in ERISA) has occurred
with respect to any "pension plan" (as defined in ERISA) for which the Company
would have any liability; the Company has not incurred and does not expect to
incur liability under (i) Title IV of ERISA with respect to termination of, or
withdrawal from, any "pension plan" or (ii) Sections 412 or 4971 of the Internal
Revenue Code of 1986, as amended, including the regulations and published
interpretations thereunder (the "Code"); and each "pension plan" for which the
Company would have any liability that is intended to be qualified under Section
401(a) of the Code is so qualified in all material respects and nothing has
occurred, whether by action or by failure to act, which would cause the loss of
such qualification.
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<PAGE> 7
(u) No labor dispute with the employees of the Company exists
or, to the knowledge of the Company, is imminent, and the Company is not aware
of any existing or imminent labor disturbance by the employees of any of its
principal suppliers, customers or vendors, which, in any case, may reasonably be
expected to result in a Material Adverse Effect.
(v) There are no contracts or documents which are required to
be described in the Registration Statement or the Prospectus or to be filed as
exhibits thereto which have not been so described and filed as required.
(w) To the Company's knowledge, there are no affiliations or
associations between any member of the NASD and any of the Company's officers,
directors or 5% or greater security holders.
(x) Other than as disclosed in the Prospectus, there are no
contracts, agreements or understandings between the Company and any person
granting such person the right (other than rights which have been waived or
satisfied) to require the Company to file a registration statement under the Act
with respect to any securities of the Company owned or to be owned by such
person or to require the Company to include such securities in the securities
registered pursuant to the Registration Statement or in any securities being
registered pursuant to any other registration statement filed by the Company
under the Act.
(y) The Company has not been advised, and has no reason to
believe, that it is not conducting business in compliance with all applicable
laws, rules and regulations, of the jurisdictions in which it is conducting
business including, without limitation, all applicable local, state and federal
laws and regulations, except where the failure to so comply would not have a
Material Adverse Effect.
(z) No consent, approval, authorization or order of, or
qualification with, any governmental body or agency, other than those obtained,
is required in connection with the offering of the Directed Shares in any
jurisdiction where the Directed Shares are being offered. The Company has not
offered, or caused DBSI or its affiliates to offer, Shares to any person
pursuant to the Directed Share Program with the specific intent to unlawfully
influence (i) a customer or supplier of the Company to alter the customer's or
supplier's level or type of business with the Company, or (ii) a trade
journalist or publication to write or publish favorable information about the
Company or its products.
2. PURCHASE, SALE AND DELIVERY OF THE FIRM SHARES.
(a) On the basis of the representations, warranties and
covenants herein contained, and subject to the conditions herein set forth, the
Company agrees to sell to the Underwriters and each Underwriter agrees,
severally and not jointly, to purchase, at a price of $_____ per share, the
number of Firm Shares set forth opposite the name of each Underwriter in
Schedule I hereof, subject to adjustments in accordance with Section 11 hereof.
(b) Payment for the Firm Shares to be sold hereunder is to be
made in New York Clearing House funds against delivery of certificates therefor
for the several accounts of
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<PAGE> 8
the Underwriters through the facilities of the Depository Trust Company, New
York, New York at a closing to be held at the offices of Testa, Hurwitz &
Thibeault, LLP, at 10:00 a.m., Eastern time, on the third business day after the
date of this Agreement or at such other time and date not later than five
business days thereafter as you and the Company shall agree upon, such time and
date being herein referred to as the "Closing Date." (As used herein, "business
day" means a day on which the New York Stock Exchange is open for trading and on
which banks in New York are open for business and are not permitted by law or
executive order to be closed.)
(c) In addition, on the basis of the representations and
warranties herein contained and subject to the terms and conditions herein set
forth, the Company hereby grants an option to the several Underwriters to
purchase the Option Shares at the price per share as set forth in the first
paragraph of this Section 2. The option granted hereby may be exercised in whole
or in part by giving written notice (i) at any time before the Closing Date and
(ii) from time to time thereafter within 30 days after the date of this
Agreement, by you, as Representatives of the several Underwriters, to the
Company setting forth the number of Option Shares as to which the several
Underwriters are exercising the option, the names and denominations in which the
Option Shares are to be registered and the time and date at which such
certificates are to be delivered. The time and date at which certificates for
Option Shares are to be delivered shall be determined by the Representatives but
shall not be earlier than three nor later than 10 full business days after the
exercise of such option, nor in any event prior to the Closing Date (such time
and date being herein referred to as the "Option Closing Date"). If the date of
exercise of the option is three or more days before the Closing Date, the notice
of exercise shall set the Closing Date as the Option Closing Date. The number of
Option Shares to be purchased by each Underwriter shall be in the same
proportion to the total number of Option Shares being purchased as the number of
Firm Shares being purchased by such Underwriter bears to the total number of
Firm Shares purchased, adjusted by you in such manner as to avoid fractional
shares. The option with respect to the Option Shares granted hereunder may be
exercised only to cover over-allotments in the sale of the Firm Shares by the
Underwriters. You, as Representatives of the several Underwriters, may cancel
such option at any time prior to its expiration by giving written notice of such
cancellation to the Company. To the extent, if any, that the option is
exercised, payment for the Option Shares shall be made on the Option Closing
Date in the same manner as payment for the Firm Shares.
3. OFFERING BY THE UNDERWRITERS.
It is understood that the several Underwriters are to make a public
offering of the Firm Shares as soon as the Representatives deem it advisable to
do so. The Firm Shares are to be initially offered to the public at the initial
public offering price set forth in the Prospectus. The Representatives may from
time to time thereafter change the public offering price and other selling
terms. To the extent, if at all, that any Option Shares are purchased pursuant
to Section 2 hereof, the Underwriters will offer them to the public on the
foregoing terms.
It is further understood that you will act as the Representatives for
the Underwriters in the offering and sale of the Shares in accordance with a
Master Agreement Among Underwriters entered into by you and the several other
Underwriters.
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<PAGE> 9
4. COVENANTS OF THE COMPANY.
The Company covenants and agrees with the several Underwriters that:
(a) The Company will (i) use its best efforts to cause the
Registration Statement to become effective or, if the procedure in Rule 430A of
the Rules and Regulations is followed, to prepare and timely file with the
Commission under Rule 424(b) of the Rules and Regulations a Prospectus in a form
approved by the Representatives containing information previously omitted at the
time of effectiveness of the Registration Statement in reliance on Rule 430A of
the Rules and Regulations, (ii) not file any amendment to the Registration
Statement or supplement to the Prospectus of which the Representatives shall not
previously have been advised and furnished with a copy or to which the
Representatives shall have reasonably objected in writing or which is not in
compliance with the Rules and Regulations and (iii) file on a timely basis all
reports and any definitive proxy or information statements required to be filed
by the Company with the Commission subsequent to the date of the Prospectus and
prior to the termination of the offering of the Shares by the Underwriters.
(b) The Company will advise the Representatives promptly (i)
when the Registration Statement or any post-effective amendment thereto shall
have become effective, (ii) of receipt of any comments from the Commission,
(iii) of any request of the Commission for amendment of the Registration
Statement or for supplement to the Prospectus or for any additional information,
and (iv) of the issuance by the Commission of any stop order suspending the
effectiveness of the Registration Statement or the use of the Prospectus or of
the institution of any proceedings for that purpose. The Company will use its
best efforts to prevent the issuance of any such stop order preventing or
suspending the use of the Prospectus and to obtain as soon as possible the
lifting thereof, if issued.
(c) The Company will cooperate with the Representatives in
endeavoring to qualify the Shares for sale under the securities laws of such
jurisdictions as the Representatives may reasonably have designated in writing
and will make such applications, file such documents, and furnish such
information as may be reasonably required for that purpose, provided that the
Company shall not be required to qualify as a foreign corporation or to file a
general consent to service of process in any jurisdiction where it is not now so
qualified or required to file such a consent. The Company will, from time to
time, prepare and file such statements, reports, and other documents, as are or
may be required to continue such qualifications in effect for so long a period
as the Representatives may reasonably request for distribution of the Shares.
(d) The Company will deliver to, or upon the order of, the
Representatives, from time to time, as many copies of any Preliminary Prospectus
as the Representatives may reasonably request. The Company will deliver to, or
upon the order of, the Representatives during the period when delivery of a
Prospectus is required under the Act, as many copies of the Prospectus in final
form, or as thereafter amended or supplemented, as the Representatives may
reasonably request. The Company will deliver to the Representatives at or before
the Closing Date, four signed copies of the Registration Statement and all
amendments thereto including all exhibits filed therewith, and will deliver to
the Representatives such number of copies of the Registration Statement
(including such number of copies of the exhibits filed therewith that may
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<PAGE> 10
reasonably be requested), and of all amendments thereto, as the Representatives
may reasonably request.
(e) The Company will comply with the Act and the Rules and
Regulations, and the Exchange Act and the rules and regulations of the
Commission thereunder, so as to permit the completion of the distribution of the
Shares as contemplated in this Agreement and the Prospectus. If during the
period in which a prospectus is required by law to be delivered by an
Underwriter or dealer, any event shall occur as a result of which, in the
judgment of the Company or in the reasonable opinion of the Representatives, it
becomes necessary to amend or supplement the Prospectus in order to make the
statements therein, in the light of the circumstances existing at the time the
Prospectus is delivered to a purchaser, not misleading, or, if it is necessary
at any time to amend or supplement the Prospectus to comply with any law, the
Company promptly will prepare and file with the Commission an appropriate
amendment to the Registration Statement or supplement to the Prospectus so that
the Prospectus as so amended or supplemented will not, in the light of the
circumstances when it is so delivered, be misleading, or so that the Prospectus
will comply with the law.
(f) The Company will make generally available to its security
holders, as soon as it is practicable to do so, but in any event not later than
15 months after the effective date of the Registration Statement, an earnings
statement (which need not be audited) in reasonable detail, covering a period of
at least 12 consecutive months beginning after the effective date of the
Registration Statement, which earnings statement shall satisfy the requirements
of Section 11(a) of the Act and Rule 158 of the Rules and Regulations and will
advise you in writing when such statement has been so made available.
(g) Prior to the Closing Date, the Company will furnish to the
Representatives, as soon as they have been prepared by or are available to the
Company, a copy of any unaudited interim financial statements of the Company for
any period subsequent to the period covered by the most recent financial
statements appearing in the Registration Statement and the Prospectus.
(h) The Company will, for a period of five years from the
Closing Date, deliver to the Representatives copies of annual reports and copies
of all other documents, reports and information furnished by the Company to its
stockholders or filed with any securities exchange pursuant to the requirements
of such exchange or with the Commission pursuant to the Act or the Exchange Act.
(i) No offering, sale, short sale or other disposition of any
shares of Common Stock of the Company or other securities convertible into or
exchangeable or exercisable for shares of Common Stock or derivative of Common
Stock (or agreement for such) will be made for a period of 180 days after the
date of this Agreement, directly or indirectly, by the Company otherwise than
hereunder or with the prior written consent of DBSI, except that the Company
may, without such consent, (A) issue shares upon exercise of options issued
pursuant to the Company's currently existing stock-based compensation plans and
(B) grant options, offer to sell and sell shares of its Common Stock to its
employees, directors and consultants pursuant to its currently existing
stock-based compensation plans.
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(j) The Company will use its best efforts to list, subject to
notice of issuance, the Shares on the Nasdaq National Market.
(k) The Company has caused each officer and director and
specific shareholders of the Company to furnish to you, on or prior to the date
of this agreement, a letter or letters, in form and substance satisfactory to
the Underwriters, pursuant to which each such person shall agree not to sell,
offer or contract to sell, sell short or otherwise dispose of any shares of
Common Stock of the Company or other capital stock of the Company, or any other
securities convertible, exchangeable or exercisable for Common Shares or
derivative of Common Shares owned by such person or request the registration for
the offer or sale of any of the foregoing (or as to which such person has the
right to direct the disposition of) for a period of 180 days after the date of
this Agreement, directly or indirectly, except with the prior written consent of
DBSI ("Lockup Agreements"). The Company further agrees not to file with the
Commission any registration statements on Form S-8 or equivalent on any date
which is earlier than 180 days after the date of this Agreement.
(l) The Company shall apply the net proceeds of its sale of
the Shares as set forth in the Prospectus and shall file such reports with the
Commission with respect to the sale of the Shares and the application of the
proceeds therefrom as may be required in accordance with Rule 463 under the Act.
(m) The Company shall not invest, or otherwise use the
proceeds received by the Company from its sale of the Shares in such a manner as
would require the Company to register as an investment company under the 1940
Act.
(n) The Company will maintain a transfer agent and, if
necessary under the jurisdiction of incorporation of the Company, a registrar
for the Common Stock.
(o) The Company will not take, directly or indirectly, any
action designed to cause or result in, or that has constituted or might
reasonably be expected to constitute, the stabilization or manipulation of the
price of any securities of the Company.
(p) The Company will comply with all applicable securities and
other applicable laws, rules and regulations in each jurisdiction in which the
Directed Shares are offered in connection with the Directed Share Program.
5. COSTS AND EXPENSES.
The Company will pay all costs, expenses and fees incident to the
performance of its obligations under this Agreement, including the following:
accounting fees of the Company; the fees and disbursements of counsel for the
Company; the cost of printing and delivering to, or as reasonably requested by,
the Underwriters copies of the Registration Statement, Preliminary Prospectuses,
the Prospectus, this Agreement, the Underwriters' Selling Memorandum, the
Underwriters' Invitation Letter, the Listing Application, the Blue Sky Survey
and any supplements or amendments thereto; the filing fees of the Commission;
the filing fees and
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<PAGE> 12
expenses (including reasonable legal fees and disbursements) incident to
securing any required review by the NASD of the terms of the sale of the Shares;
the listing fee of the Nasdaq National Market; and the expenses, including the
reasonable fees and disbursements of counsel for the Underwriters, incurred in
connection with the qualification of the Shares under State securities or Blue
Sky laws. Any transfer taxes imposed on the sale of the Shares to the several
Underwriters will be paid by the Company. The Company shall not, however, be
required to pay for any of the Underwriters' expenses (other than those related
to qualification under NASD regulation and State securities or Blue Sky laws)
except that, if this Agreement shall not be consummated because the conditions
in Section 6 hereof are not satisfied, or by reason of any failure, refusal or
inability on the part of the Company to perform any undertaking or satisfy any
condition of this Agreement or to comply with any of the terms hereof on their
part to be performed, unless such failure to satisfy said condition or to comply
with said terms be due to the default or omission of any Underwriter, then the
Company shall reimburse the several Underwriters for reasonable out-of-pocket
expenses, including fees and disbursements of counsel, reasonably incurred in
connection with investigating, marketing and proposing to market the Shares or
in contemplation of performing their obligations hereunder; provided, however,
that the Company shall not in any event be liable to any of the several
Underwriters for damages on account of loss of anticipated profits from the sale
by it of the Shares.
6. CONDITIONS OF OBLIGATIONS OF THE UNDERWRITERS.
The several obligations of the Underwriters to purchase the Firm Shares
on the Closing Date and the Option Shares, if any, on the Option Closing Date
are subject to the accuracy, as of the Closing Date or the Option Closing Date,
as the case may be, of the representations and warranties of the Company
contained herein, and to the performance by the Company of its covenants and
obligations hereunder and to the following additional conditions:
(a) The Registration Statement and all post-effective
amendments thereto shall have become effective and any and all filings required
by Rule 424 and Rule 430A of the Rules and Regulations shall have been made, and
any request of the Commission for additional information (to be included in the
Registration Statement or otherwise) shall have been disclosed to the
Representatives and complied with to their reasonable satisfaction. No stop
order suspending the effectiveness of the Registration Statement, as amended
from time to time, shall have been issued and no proceedings for that purpose
shall have been taken or, to the knowledge of the Company, shall be contemplated
by the Commission and no injunction, restraining order, or order of any nature
by a Federal or state court of competent jurisdiction shall have been issued as
of the Closing Date or Option Closing Date, as the case may be, which would
prevent the issuance of the Shares.
(b) The Representatives shall have received on the Closing
Date or the Option Closing Date, as the case may be, the opinion of Hill &
Barlow, counsel for the Company, dated the Closing Date or the Option Closing
Date, as the case may be, addressed to the Underwriters (and stating that it may
be relied upon by counsel to the Underwriters) to the effect that:
(i) The Company has been duly organized and is
validly existing as a corporation in good standing under the laws of the State
of Delaware, with corporate power and
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<PAGE> 13
authority to own or lease its properties and conduct its business as described
in the Registration Statement; and the Company is duly qualified to transact
business in all jurisdictions in which the conduct of their business requires
such qualification, or in which the failure to qualify would have a Material
Adverse Effect.
(ii) The Company has authorized and outstanding
capital stock as set forth (under the caption "Capitalization") in the
Prospectus; the authorized shares of the Company's Common Stock have been duly
authorized; the outstanding shares of the Company's Common Stock have been duly
authorized and validly issued and are fully paid and non-assessable; all of the
Shares conform to the description thereof contained in the Prospectus in all
material respects; the certificates for the Shares, assuming they are in the
form filed with the Commission, are in due and proper form; the shares of Common
Stock to be sold by the Company pursuant to this Agreement have been duly
authorized and will be validly issued, fully paid and non-assessable when issued
and paid for as contemplated by this Agreement; and to its knowledge no
preemptive rights of stockholders exist with respect to any of the Shares or the
issue or sale thereof.
(iii) Except as described in or contemplated by the
Prospectus, to its knowledge there are no outstanding securities of the Company
convertible or exchangeable into or evidencing the right to purchase or
subscribe for any shares of capital stock of the Company and there are no
outstanding or authorized options, warrants or rights of any character
obligating the Company to issue any shares of its capital stock or any
securities convertible or exchangeable into or evidencing the right to purchase
or subscribe for any shares of such stock; and except as described in the
Prospectus, to its knowledge no holder of any securities of the Company or any
other person has the right, contractual or otherwise, which has not been
satisfied or effectively waived, to cause the Company to sell or otherwise issue
to them, or to permit them to underwrite the sale of, any of the Shares or the
right to have any Common Shares or other securities of the Company included in
the Registration Statement or the right, as a result of the filing of the
Registration Statement, to require registration under the Act of any shares of
Common Stock or other securities of the Company.
(iv) They have been advised by the Commission that
the Registration Statement has become effective under the Act and, to its best
knowledge, no stop order proceedings with respect thereto have been instituted
or are pending or threatened under the Act.
(v) The Registration Statement, the Prospectus and
each amendment or supplement thereto comply as to form in all material respects
with the requirements of the Act or the Exchange Act, as applicable and the
applicable rules and regulations thereunder (except that such counsel need
express no opinion as to the financial information, including the financial
statements, statistical information and related schedules in the Registration
Statement or the Prospectus, as the case may be).
(vi) The statements under the captions "Shares
Eligible For Future Sale" and "Description of Capital Stock" in the Prospectus,
insofar as such statements constitute a summary of documents referred to therein
or matters of law, fairly summarize in all material respects the information
called for with respect to such documents and matters.
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(vii) Such counsel does not know of any contracts or
documents required to be filed as exhibits to the Registration Statement or
described in the Registration Statement or the Prospectus which are not so filed
or described as required, and such contracts and documents as are summarized in
the Registration Statement or the Prospectus are fairly summarized in all
material respects.
(viii) Such counsel knows of no material legal or
governmental proceedings pending or threatened against the Company except as set
forth in the Prospectus.
(ix) The execution and delivery of this Agreement and
the consummation of the transactions herein contemplated do not and will not
conflict with or result in a breach of any of the terms or provisions of, or
constitute a default under, the Charter or bylaws of the Company, or any
material agreement or instrument known to such counsel to which the Company is a
party or by which the Company may be bound.
(x) This Agreement has been duly authorized, executed
and delivered by the Company.
(xi) No approval, consent, order, authorization,
designation, declaration or filing by or with any regulatory, administrative or
other governmental body is necessary in connection with the execution and
delivery of this Agreement and the consummation of the transactions herein
contemplated (other than as may be required by the NASD or as required by state
securities and Blue Sky laws as to which such counsel need express no opinion)
except such as have been obtained or made, specifying the same.
(xii) The Company is not, and will not become, as a
result of the consummation of the transactions contemplated by this Agreement,
and application of the net proceeds therefrom as described in the Prospectus,
required to register as an investment company under the 1940 Act.
In rendering such opinion Hill & Barlow may rely as to matters of fact
upon certificates of officers of the Company, and as to matters governed by the
laws of states other than Delaware or Federal laws on local counsel in such
jurisdictions, provided that in each case Hill & Barlow shall state that they
believe that they and the Underwriters are justified in relying on such other
counsel. In addition to the matters set forth above, such opinion shall also
include a statement to the effect that nothing has come to the attention of such
counsel which leads them to believe that (i) the Registration Statement, at the
time it became effective under the Act (but after giving effect to any
modifications incorporated therein pursuant to Rule 430A under the Act) and as
of the Closing Date or the Option Closing Date, as the case may be, contained an
untrue statement of a material fact or omitted to state a material fact required
to be stated therein or necessary to make the statements therein not misleading,
and (ii) the Prospectus, or any supplement thereto, on the date it was filed
pursuant to the Rules and Regulations and as of the Closing Date or the Option
Closing Date, as the case may be, contained an untrue statement of a material
fact or omitted to state a material fact necessary in order to make the
statements, in the light of the circumstances under which they are made, not
misleading (except that such counsel need express
14
<PAGE> 15
no view as to financial information, including financial statements, schedules
and statistical information in the Registration Statement or the Prospectus, as
the case may be). With respect to such statement, such counsel may state that
their belief is based upon the procedures set forth therein, including reliance
upon certificates of officers of the Company, but is without independent check
and verification.
(c) The Representatives shall have received from Testa,
Hurwitz & Thibeault, LLP, counsel for the Underwriters, an opinion dated the
Closing Date or the Option Closing Date, as the case may be, substantially to
the effect specified in subparagraphs (ii), (iii) and (iv) of Paragraph (b) of
this Section 6, and that the Company is a duly organized and validly existing
corporation under the laws of the State of Delaware and with respect to any
other matters that the Representatives may reasonably require. In rendering such
opinion Testa, Hurwitz & Thibeault, LLP may rely as to all matters governed
other than by the laws of the Commonwealth of Massachusetts or Federal laws on
the opinion of counsel referred to in Paragraph (b) of this Section 6. In
addition to the matters set forth above, such opinion shall also include a
statement to the effect that nothing has come to the attention of such counsel
which leads them to believe that (i) the Registration Statement, or any
amendment thereto, as of the time it became effective under the Act (but after
giving effect to any modifications incorporated therein pursuant to Rule 430A
under the Act) as of the Closing Date or the Option Closing Date, as the case
may be, contained an untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading, and (ii) the Prospectus, or any supplement thereto, on
the date it was filed pursuant to the Rules and Regulations and as of the
Closing Date or the Option Closing Date, as the case may be, contained an untrue
statement of a material fact or omitted to state a material fact, necessary in
order to make the statements, in the light of the circumstances under which they
are made, not misleading (except that such counsel need express no view as to
financial information, including the financial statements, schedules and
statistical information therein). With respect to such statement, such counsel
may state that their belief is based upon the procedures set forth therein, but
is without independent check and verification.
(d) You shall have received, on each of the dates hereof, the
Closing Date and the Option Closing Date, as the case may be, a letter dated the
date hereof, the Closing Date or the Option Closing Date, as the case may be, in
form and substance satisfactory to you, of the auditing firms that have audited
any financial statements contained in the Registration Statement, confirming
that they are independent public accountants within the meaning of the Act and
the applicable published Rules and Regulations thereunder and stating that in
their opinion the financial statements and schedules examined by them and
included in the Registration Statement comply in form in all material respects
with the applicable accounting requirements of the Act and the related published
Rules and Regulations; and containing such other statements and information as
is ordinarily included in accountants' "comfort letters" to Underwriters with
respect to the financial statements and certain financial and statistical
information contained in the Registration Statement and Prospectus.
(e) The Representatives shall have received on the Closing
Date or the Option Closing Date, as the case may be, a certificate or
certificates of the Chief Executive Officer and
15
<PAGE> 16
the Chief Financial Officer of the Company to the effect that, as of the Closing
Date or the Option Closing Date, as the case may be, each of them severally
represents as follows:
(i) The Registration Statement has become effective
under the Act and no stop order suspending the effectiveness of the Registration
Statement has been issued, and no proceedings for such purpose have been taken
or are, to his knowledge, contemplated by the Commission;
(ii) To the best of his knowledge after reasonable
investigation, the representations and warranties of the Company contained in
Section 1 hereof are true and correct as of the Closing Date or the Option
Closing Date, as the case may be;
(iii) All filings required to have been made pursuant
to Rules 424 or 430A under the Act have been made;
(iv) He or she has carefully examined the
Registration Statement and the Prospectus and, to the best of his knowledge
after reasonable investigation, as of the effective date of the Registration
Statement, the statements contained in the Registration Statement were true and
correct in all material respects, and such Registration Statement and Prospectus
did not omit to state a material fact required to be stated therein or necessary
in order to make the statements therein not misleading, and since the effective
date of the Registration Statement, no event has occurred which should have been
set forth in a supplement to or an amendment of the Prospectus which has not
been so set forth in such supplement or amendment; and
(v) Since the respective dates as of which
information is given in the Registration Statement and Prospectus, to the best
of his knowledge after reasonable investigation, there has not been any Material
Adverse Change or any development involving a prospective Material Adverse
Change in or affecting the condition, financial or otherwise, of the Company or
the earnings, business, management, properties, assets, rights, operations,
condition (financial or otherwise) or prospects of the Company, whether or not
arising in the ordinary course of business.
(f) The Company shall have furnished to the Representatives
such further certificates and documents confirming the representations and
warranties, covenants and conditions contained herein and related matters as the
Representatives may reasonably have requested.
(g) The Firm Shares and Option Shares, if any, have been
approved for designation upon notice of issuance on the NASDAQ National Market.
(h) The Lockup Agreements described in Section 5 are in full
force and effect.
The opinions and certificates mentioned in this Agreement
shall be deemed to be in compliance with the provisions hereof only if they are
in all material respects reasonably satisfactory to the Representatives and to
counsel for the Underwriters.
16
<PAGE> 17
If any of the conditions hereinabove provided for in this
Section 6 shall not have been fulfilled when and as required by this Agreement
to be fulfilled, the obligations of the Underwriters hereunder may be terminated
by the Representatives by notifying the Company of such termination in writing
or by telegram at or prior to the Closing Date or the Option Closing Date, as
the case may be.
In such event, the Company and the Underwriters shall not be
under any obligation to each other (except to the extent provided in Sections 5
and 8 hereof).
7. CONDITIONS OF THE OBLIGATIONS OF THE COMPANY.
The obligations of the Company to sell and deliver the Shares required
to be delivered as and when specified in this Agreement are subject to the
conditions that at the Closing Date or the Option Closing Date, as the case may
be, no stop order suspending the effectiveness of the Registration Statement
shall have been issued and in effect or proceedings therefor initiated or
threatened.
8. INDEMNIFICATION.
(a) The Company agrees to indemnify and hold harmless each
Underwriter and each person, if any, who controls any Underwriter within the
meaning of the Act, against any losses, claims, damages or liabilities to which
such Underwriter or any such controlling person may become subject under the Act
or otherwise, insofar as such losses, claims, damages or liabilities (or actions
or proceedings in respect thereof) arise out of or are based upon (i) any untrue
statement or alleged untrue statement of any material fact contained in the
Registration Statement, any Preliminary Prospectus, the Prospectus or any
amendment or supplement thereto, or (ii) the omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading in light of the circumstances under which
they were made; provided, however, that the Company will not be liable (x) in
any such case to the extent that any such loss, claim, damage or liability
arises out of or is based upon an untrue statement or alleged untrue statement,
or omission or alleged omission made in the Registration Statement, any
Preliminary Prospectus, the Prospectus, or such amendment or supplement, in
reliance upon and in conformity with written information furnished to the
Company by or through the Representatives specifically for use in the
preparation thereof and (y) with respect to any untrue statement contained in or
any omission from a Preliminary Prospectus of the untrue statement or omission
from a Preliminary Prospectus was corrected in the applicable Prospectus and the
person asserting any loss, liability, claim or damage was not given or sent a
copy of the applicable Prospectus in the manner and at such time as required by
the Act, provided the Company has furnished you with copies of the applicable
Prospectus. This indemnity obligation will be in addition to any liability which
the Company may otherwise have.
The Company agrees to reimburse each Underwriter and each such
controlling person upon demand for any legal or other out-of-pocket expenses
reasonably incurred by such Underwriter or such controlling person in connection
with investigating or defending any such loss, claim, damage or liability,
action or proceeding or in responding to a subpoena or governmental inquiry
related to the offering of the Shares, whether or not such Underwriter or
17
<PAGE> 18
controlling person is a party to any action or proceeding. In the event that it
is finally judicially determined that the Underwriters were not entitled to
receive payments for legal and other expenses pursuant to this subparagraph, the
Underwriters will promptly return all sums that had been advanced pursuant
hereto.
(b) Each Underwriter severally and not jointly will indemnify
and hold harmless the Company, each of its directors, each of its officers who
have signed the Registration Statement and each person, if any, who controls the
Company within the meaning of the Act, against any losses, claims, damages or
liabilities to which the Company or any such director, officer or controlling
person may become subject under the Act or otherwise, insofar as such losses,
claims, damages or liabilities (or actions or proceedings in respect thereof)
arise out of or are based upon (i) any untrue statement or alleged untrue
statement of any material fact contained in the Registration Statement, any
Preliminary Prospectus, the Prospectus or any amendment or supplement thereto,
or (ii) the omission or the alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading in the light of the circumstances under which they were made; and
will reimburse any legal or other expenses reasonably incurred by the Company or
any such director, officer or controlling person in connection with
investigating or defending any such loss, claim, damage, liability, action or
proceeding; provided, however, that each Underwriter will be liable in each case
to the extent, but only to the extent, that such untrue statement or alleged
untrue statement or omission or alleged omission has been made in the
Registration Statement, any Preliminary Prospectus, the Prospectus or such
amendment or supplement, in reliance upon and in conformity with written
information furnished to the Company by or through the Representatives
specifically for use in the preparation thereof. This indemnity agreement will
be in addition to any liability which such Underwriter may otherwise have.
(c) In case any proceeding (including any governmental
investigation) shall be instituted involving any person in respect of which
indemnity may be sought pursuant to this Section 8, such person (the
"indemnified party") shall promptly notify the person against whom such
indemnity may be sought (the "indemnifying party") in writing. No
indemnification provided for in Section 8(a) or (b) shall be available to any
party who shall fail to give notice as provided in this Section 8(c) if the
party to whom notice was not given was unaware of the proceeding to which such
notice would have related and was materially prejudiced by the failure to give
such notice, but the failure to give such notice shall not relieve the
indemnifying party or parties from any liability which it or they may have to
the indemnified party for contribution or otherwise than on account of the
provisions of Section 8(a) or (b). In case any such proceeding shall be brought
against any indemnified party and it shall notify the indemnifying party of the
commencement thereof, the indemnifying party shall be entitled to participate
therein and, to the extent that it shall wish, jointly with any other
indemnifying party similarly notified, to assume the defense thereof, with
counsel reasonably satisfactory to such indemnified party and shall pay as
incurred the fees and disbursements of such counsel related to such proceeding.
In any such proceeding, any indemnified party shall have the right to retain its
own counsel at its own expense. Notwithstanding the foregoing, the indemnifying
party shall pay as incurred (or within 30 days of presentation) the fees and
expenses of the counsel retained by the indemnified party in the event (i) the
indemnifying party and the indemnified party shall have mutually agreed to the
retention of such counsel, (ii) the named parties to any such proceeding
(including any
18
<PAGE> 19
impleaded parties) include both the indemnifying party and the indemnified party
and representation of both parties by the same counsel would be inappropriate
due to actual or potential differing interests between them or (iii) the
indemnifying party shall have failed to assume the defense and employ counsel
acceptable to the indemnified party within a reasonable period of time after
notice of commencement of the action. It is understood that the indemnifying
party shall not, in connection with any proceeding or related proceedings in the
same jurisdiction, be liable for the reasonable fees and expenses of more than
one separate firm for all such indemnified parties. Such firm shall be
designated in writing by you in the case of parties indemnified pursuant to
Section 8(a) and by the Company in the case of parties indemnified pursuant to
Section 8(b). The indemnifying party shall not be liable for any settlement of
any proceeding effected without its written consent but if settled with such
consent or if there be a final judgment for the plaintiff, the indemnifying
party agrees to indemnify the indemnified party from and against any loss or
liability by reason of such settlement or judgment. In addition, the
indemnifying party will not, without the prior written consent of the
indemnified party, settle or compromise or consent to the entry of any judgment
in any pending or threatened claim, action or proceeding of which
indemnification may be sought hereunder (whether or not any indemnified party is
an actual or potential party to such claim, action or proceeding) unless such
settlement, compromise or consent includes an unconditional release of each
indemnified party from all liability arising out of such claim, action or
proceeding.
(d) The Company agrees to indemnify and hold harmless DBSI and
its affiliates and each person, if any, who controls DBSI or its affiliates
within the meaning of either Section 15 of the Securities Act or Section 20 of
the Exchange Act, from and against any and all losses, claims, damages and
liabilities (including, without limitation, any legal or other expenses
reasonably incurred in connection with defending or investigating any such
action or claim) (i) caused by any untrue statement or alleged untrue statement
of a material fact contained in any material prepared by or with the consent of
the Company for distribution to Participants in connection with the Directed
Share Program, or caused by any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading; (ii) caused by the failure of any Participant to pay for
and accept delivery of Directed Shares that the Participant has agreed to
purchase; or (iii) related to, arising out of, or in connection with the
Directed Share Program other than losses, claims, damages or liabilities (or
expenses relating thereto) that are finally judicially determined to have
resulted from the bad faith, willful misconduct or gross negligence of DBSI.
(e) To the extent the indemnification provided for in this
Section 8 is unavailable to or insufficient to hold harmless an indemnified
party under Section 8(a), (b) or (c) above in respect of any losses, claims,
damages or liabilities (or actions or proceedings in respect thereof) referred
to therein, then each indemnifying party shall contribute to the amount paid or
payable by such indemnified party as a result of such losses, claims, damages or
liabilities (or actions or proceedings in respect thereof) in such proportion as
is appropriate to reflect the relative benefits received by the Company on
19
<PAGE> 20
the one hand and the Underwriters on the other from the offering of the Shares.
If, however, the allocation provided by the immediately preceding sentence is
not permitted by applicable law then each indemnifying party shall contribute to
such amount paid or payable by such indemnified party in such proportion as is
appropriate to reflect not only such relative benefits but also the relative
fault of the Company on the one hand and the Underwriters on the other in
connection with the statements or omissions which resulted in such losses,
claims, damages or liabilities, (or actions or proceedings in respect thereof),
as well as any other relevant equitable considerations. The relative benefits
received by the Company on the one hand and the Underwriters on the other shall
be deemed to be in the same proportion as the total net proceeds from the
offering (before deducting expenses) received by the Company bear to the total
underwriting discounts and commissions received by the Underwriters, in each
case as set forth in the table on the cover page of the Prospectus. The relative
fault shall be determined by reference to, among other things, whether the
untrue or alleged untrue statement of a material fact or the omission or alleged
omission to state a material fact relates to information supplied by the Company
on the one hand or the Underwriters on the other, and the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such statement or omission.
The Company and the Underwriters agree that it would not be
just and equitable if contributions pursuant to this Section 8(e) were
determined by pro rata allocation (even if the Underwriters were treated as one
entity for such purpose) or by any other method of allocation which does not
take account of the equitable considerations referred to above in this Section
8(e). The amount paid or payable by an indemnified party as a result of the
losses, claims, damages or liabilities (or actions or proceedings in respect
thereof) referred to above in this Section 8(e) shall be deemed to include any
legal or other expenses reasonably incurred by such indemnified party in
connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this subsection 8(e), (i) no Underwriter shall
be required to contribute any amount in excess of the underwriting discounts and
commissions applicable to the Shares purchased by such Underwriter and (ii) no
person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. The Underwriters' obligations in
this Section 8(e) to contribute are several in proportion to their respective
underwriting obligations and not joint.
(f) In any proceeding relating to the Registration Statement,
any Preliminary Prospectus, the Prospectus or any supplement or amendment
thereto, each party against whom contribution may be sought under this Section 8
hereby consents to the jurisdiction of any court having jurisdiction over any
other contributing party, agrees that process issuing from such court may be
served upon him or it by any other contributing party and consents to the
service of such process and agrees that any other contributing party may join
him or it as an additional defendant in any such proceeding in which such other
contributing party is a party.
(g) Any losses, claims, damages, liabilities or expenses for
which an indemnified party is entitled to indemnification or contribution under
this Section 8 shall be paid by the indemnifying party to the indemnified party
as such losses, claims, damages, liabilities or expenses are incurred. The
indemnity and contribution agreements of the Company and the Underwriters
contained in this Section 8 and the representations and warranties of the
Company set forth in this Agreement shall remain operative and in full force and
effect, regardless of (i) any investigation made by or on behalf of any
Underwriter or any person controlling any Underwriter, the Company, its
directors or officers or any persons controlling the Company, (ii) acceptance of
any Shares and payment therefor hereunder, and (iii) any termination of this
Agreement. A successor to any Underwriter, or to the Company, its directors or
officers, or any
20
<PAGE> 21
person controlling the Company, shall be entitled to the benefits of the
indemnity, contribution and reimbursement agreements contained in this
Section 8.
9. DEFAULT BY UNDERWRITERS.
If on the Closing Date or the Option Closing Date, as the case may be,
any Underwriter shall fail to purchase and pay for the portion of the Shares
which such Underwriter has agreed to purchase and pay for on such date
(otherwise than by reason of any default on the part of the Company), you, as
Representatives of the Underwriters, shall use your reasonable efforts to
procure within 36 hours thereafter one or more of the other Underwriters, or any
others, to purchase from the Company such amounts as may be agreed upon and upon
the terms set forth herein, the Firm Shares or Option Shares, as the case may
be, which the defaulting Underwriter or Underwriters failed to purchase. If
during such 36 hours you, as such Representatives, shall not have procured such
other Underwriters, or any others, to purchase the Firm Shares or Option Shares,
as the case may be, agreed to be purchased by the defaulting Underwriter or
Underwriters, then (a) if the aggregate number of shares with respect to which
such default shall occur does not exceed 10% of the Firm Shares or Option
Shares, as the case may be, covered hereby, the other Underwriters shall be
obligated, severally, in proportion to the respective numbers of Firm Shares or
Option Shares, as the case may be, which they are obligated to purchase
hereunder, to purchase the Firm Shares or Option Shares, as the case may be,
which such defaulting Underwriter or Underwriters failed to purchase, or (b) if
the aggregate number of shares of Firm Shares or Option Shares, as the case may
be, with respect to which such default shall occur exceeds 10% of the Firm
Shares or Option Shares, as the case may be, covered hereby, the Company or you
as the Representatives of the Underwriters will have the right, by written
notice given within the next 36-hour period to the parties to this Agreement, to
terminate this Agreement without liability on the part of the non-defaulting
Underwriters or the Company except to the extent provided in Section 8 hereof.
In the event of a default by any Underwriter or Underwriters, as set forth in
this Section 9, the Closing Date or Option Closing Date, as the case may be, may
be postponed for such period, not exceeding seven days, as you, as
Representatives, may determine in order that the required changes in the
Registration Statement or in the Prospectus or in any other documents or
arrangements may be effected. The term "Underwriter" includes any person
substituted for a defaulting Underwriter. Any action taken under this Section 9
shall not relieve any defaulting Underwriter from liability in respect of any
default of such Underwriter under this Agreement.
10. NOTICES.
All communications hereunder shall be in writing and, except
as otherwise provided herein, will be mailed, delivered, faxed or telegraphed
and confirmed as follows: if to the Underwriters, to Deutsche Bank Securities
Inc., One South Street, Baltimore, Maryland 21202, Attention: Syndicate
Department; with a copy to Deutsche Bank Securities, Inc., 31 West 52nd Street,
New York, New York 10019, Attention: General Counsel; if to the Company, to
Eprise Corporation, 1671 Worcester Road, Framingham, MA 01701, Attention: Chief
Financial
21
<PAGE> 22
Officer; with a copy to Hill & Barlow, One International Place, Boston, MA
02110, Attention: Dennis W. Townley.
11. TERMINATION.
This Agreement may be terminated by you by notice to the Company as
follows:
(a) at any time prior to the Closing Date if any of the
following has occurred: (i) since the respective dates as of which information
is given in the Registration Statement and the Prospectus, excluding any
amendment or supplement thereto after the date hereof, any Material Adverse
Change or any development involving a prospective Material Adverse Change,
whether or not arising in the ordinary course of business, (ii) any outbreak or
escalation of hostilities or declaration of war or national emergency or other
national or international calamity or crisis or change in economic or political
conditions if the effect of such outbreak, escalation, declaration, emergency,
calamity, crisis or change on the financial markets of the United States would,
in your reasonable judgment, make it impracticable to market the Shares or to
enforce contracts for the sale of the Shares, or (iii) suspension of trading in
securities generally on the New York Stock Exchange or Nasdaq-Amex or limitation
on prices (other than limitations on hours or numbers of days of trading) for
securities on either such exchange, (iv) the enactment, publication, decree or
other promulgation of any statute, regulation, rule or order of any court or
other governmental authority which in your opinion materially and adversely
affects or may materially and adversely affect the business or operations of the
Company, (v) declaration of a banking moratorium by United States or New York
State authorities, (vi) the suspension of trading of the Company's common stock
by the Commission, Nasdaq or any other governmental authority; or (vii) the
taking of any action by any governmental body or agency in respect of its
monetary or fiscal affairs which in your reasonable opinion has a material
adverse effect on the securities markets in the United States; or
(b) as provided in Sections 6 and 9 of this Agreement.
12. SUCCESSORS.
This Agreement has been and is made solely for the benefit of the
Underwriters, the Company and their respective successors, executors,
administrators, heirs and assigns, and the officers, directors and controlling
persons referred to herein, and no other person will have any right or
obligation hereunder. No purchaser of any of the Shares from any Underwriter
shall be deemed a successor or assign merely because of such purchase.
13. INFORMATION PROVIDED BY UNDERWRITERS.
The Company and the Underwriters acknowledge and agree that the only
information furnished or to be furnished by any Underwriter to the Company for
inclusion in any Prospectus or the Registration Statement consists of the
information set forth in the last paragraph on the
22
<PAGE> 23
front cover page (insofar as such information relates to the Underwriters),
legends required by Item 502(d) of Regulation S-K under the Act and the
information under the caption "Underwriting" in the Prospectus.
14. MISCELLANEOUS.
(a) The reimbursement, indemnification and contribution
agreements contained in this Agreement and the representations, warranties and
covenants in this Agreement shall remain in full force and effect regardless of
(i) any termination of this Agreement, (ii) any investigation made by or on
behalf of any Underwriter or controlling person thereof, or by or on behalf of
the Company or its directors or officers and (iii) delivery of and payment for
the Shares under this Agreement.
(b) This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
(c) This Agreement shall be governed by, and construed in
accordance with, the laws of the Commonwealth of Massachusetts.
[Remainder of page intentionally left blank.]
23
<PAGE> 24
If the foregoing letter is in accordance with your understanding of our
agreement, please sign and return to us the enclosed duplicates hereof,
whereupon it will become a binding agreement among the Company and the several
Underwriters in accordance with its terms.
Very truly yours,
EPRISE CORPORATION
By: ____________________________________
The foregoing Underwriting Agreement is hereby confirmed and accepted as of the
date first above written.
DEUTSCHE BANK SECURITIES INC.
DAIN RAUSCHER WESSELS, A DIVISION OF DAIN RAUSCHER INCORPORATED
SOUNDVIEW TECHNOLOGY GROUP, INC.
As Representatives of the several Underwriters listed on Schedule I
By: DEUTSCHE BANK SECURITIES INC.
By: ___________________________
Authorized Officer
24
<PAGE> 25
SCHEDULE I
SCHEDULE OF UNDERWRITERS
<TABLE>
<CAPTION>
Number of Firm Shares
Underwriter to be Purchased
- ----------- ---------------------
<S> <C>
Deutsche Bank Securities Inc.................................................
Dain Rauscher Incorporated...................................................
Soundview Technology Group, Inc..............................................
Total................................................... ------------
============
</TABLE>
25
<PAGE> 1
Ex - 3.1
THIRD AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
EPRISE CORPORATION
The undersigned, Joseph A. Forgione, certifies that he is President of
Eprise Corporation, a corporation organized and existing under the laws of the
State of Delaware, and does hereby further certify as follows:
1. The name of the corporation is Eprise Corporation (the "Corporation").
The name of the Corporation at the time of its incorporation was Inner Circle
Technologies, Inc. The Certificate of Incorporation of the Corporation, as
amended, was filed in the office of the Secretary of State of the State of
Delaware on September 24, 1992.
2. This Third Amended and Restated Certificate of Incorporation of the
Corporation has been duly adopted in accordance with the provisions of Sections
242 and 245 of the General Corporation Law of the State of Delaware.
3. In accordance with Section 228 of the General Corporation Law of the
State of Delaware, this Third Amended and Restated Certificate of Incorporation
has been duly approved by written consent of the holders of not less than (i) a
majority of the issued and outstanding shares of the capital stock of the
Corporation entitled to vote thereon and (ii) a majority of the issued and
outstanding shares of each series entitled to vote thereon as a class .
4. The text of the Certificate of Incorporation of the Corporation, as
heretofore amended, is hereby amended and restated to read in its entirety as
follows:
FIRST: The name of the Corporation is Eprise Corporation.
SECOND: The address of the registered office of the Corporation in the
State of Delaware is the Corporation Trust Center, 1209 Orange Street, City of
Wilmington, County of New Castle. The name of its registered agent at such
address is The Corporation Trust Company.
THIRD: The nature of the business or purposes to be conducted or promoted
by the Corporation is:
(a) To engage in any lawful act or activity for which corporations may be
organized under the General Corporation Law of Delaware; and
<PAGE> 2
(b) In general, to possess and exercise all the powers and privileges
granted by the General Corporation Law of Delaware or by any other law of
Delaware or by this Certificate of Incorporation, together with any powers
incidental thereto, so far as such powers and privileges are necessary or
convenient to the conduct, promotion or attainment of the business or purposes
of the Corporation.
The businesses and purposes specified in the foregoing clauses shall,
except where otherwise expressed, be in no way limited or restricted by
reference to, or inference from, the terms of any other clause in this
Certificate of Incorporation, but the businesses and purposes specified in each
of the foregoing clauses of this article shall be regarded as independent
businesses and purposes.
FOURTH: The Corporation shall have authority to issue 100,163,366 shares of
capital stock, consisting of (i) Fifty-Eight Million Five Hundred Thousand
(58,500,000) shares of Common Stock with a par value of $.001 per share, (ii)
Ten Million Eight Hundred Forty-Two Thousand Nine Hundred Twenty (10,842,920)
shares of Series A Convertible Preferred Stock with a par value of $.01 per
share (the "Series A Preferred Stock"), (iii) Fourteen Million Three Hundred
Twenty Thousand Four Hundred Forty-Six (14,320,446) shares of Series B
Convertible Preferred Stock with a par value of $.01 per share (the "Series B
Preferred Stock") and (iv) Sixteen Million Five Hundred Thousand (16,500,000)
shares of Series C Convertible Preferred Stock with a par value of $.01 per
share (the "Series C Preferred Stock," and, together with the Series A Preferred
Stock and the Series B Preferred Stock, the "Preferred Stock"), amounting to an
aggregate par value of $475,134.
The powers, preferences and rights, and qualifications, limitations and
restrictions thereof, in respect of each class or series of stock of the
Corporation shall be as follows:
SECTION 1. VOTING RIGHTS.
Except as otherwise required by law or hereinafter set forth, the holders
of Preferred Stock shall vote together with all other classes and series of
stock of the Corporation as one class upon any matter submitted to the
stockholders for a vote, including, but not limited to, actions amending the
Certificate of Incorporation to increase the number of authorized shares of
Common Stock.
Each share of Preferred Stock shall entitle the holder thereof to such
number of votes per share on each such action as shall equal the number of
shares of Common Stock into which each such share of Preferred Stock held by
such holder could be converted on the date for determination of stockholders
entitled to vote at the meeting or on the date of any written consent.
SECTION 2. DIVIDENDS.
When and as dividends are declared payable in cash, property or shares of
the Corporation's capital stock on shares of Common Stock, the Corporation shall
(except as
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otherwise provided in SUBSECTION 4.4) declare at the same time and pay, pari
passu to each holder of Preferred Stock, a dividend equal to the dividend which
would have been payable to such holder if the shares of Preferred Stock held by
such holder had been converted into Common Stock on the record date for the
determination of holders of Common Stock entitled to receive such dividend.
SECTION 3. LIQUIDATION.
3.1 LIQUIDATION PAYMENTS.
3.1.1 In the event of any liquidation, dissolution or winding up
of the Corporation, whether voluntary or involuntary, the holders of shares of
Series C Preferred Stock shall be entitled to be paid first out of the assets of
the Corporation available for distribution to holders of the Corporation's
capital stock of all classes an amount equal to $1.54 per share of Series C
Preferred Stock (which amount shall be subject to equitable adjustment whenever
there shall occur a stock dividend, stock split, combination of shares,
reclassification or other similar event with respect to the Series C Preferred
Stock), plus all dividends accrued or declared but unpaid thereon, to and
including the date on which full payment shall be tendered to the holders of the
Series C Preferred Stock with respect to such liquidation, dissolution or
winding up (such aggregate amount, the "Series C Liquidation Payments").
If the assets of the Corporation shall be insufficient to permit
the payment in full of the Series C Liquidation Payments, then the entire assets
of the Corporation available for such distribution shall be distributed ratably
among the holders of the Series C Preferred Stock in proportion to the full
preferential amount each such holder is otherwise entitled to receive under this
SUBSECTION 3.1.1.
3.1.2 In the event of any liquidation, dissolution or winding up
of the Corporation, whether voluntary or involuntary, after payment in full of
the Series C Liquidation Payments, the holders of shares of Series A Preferred
Stock and Series B Preferred Stock shall be entitled to be paid out of the
assets of the Corporation available for distribution to holders of the
Corporation's capital stock of all classes the following amounts:
(a) in the case of the Series A Preferred Stock, an amount
equal to $.49695 per share of Series A Preferred Stock (which amount shall be
subject to equitable adjustment whenever there shall occur a stock dividend,
stock split, combination of shares, reclassification or other similar event with
respect to the Series A Preferred Stock), plus all dividends accrued or declared
but unpaid thereon, to and including the date on which full payment shall be
tendered to the holders of the Series A Preferred Stock with respect to such
liquidation, dissolution or winding up;
(b) in the case of the Series B Preferred Stock, an amount
equal to $0.60 per share of Series B Preferred Stock (which amount shall be
subject to equitable adjustment whenever there shall occur a stock dividend,
stock split, combination of shares, reclassification or other similar event with
respect to the Series B Preferred Stock), plus all
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dividends accrued or declared but unpaid thereon, to and including the date on
which full payment shall be tendered to the holders of the Series B Preferred
Stock with respect to such liquidation, dissolution or winding up.
If the assets of the Corporation remaining after payment in
full of the Series C Liquidation Payments shall be insufficient to permit the
payment in full to the holders of the Series A Preferred Stock and Series B
Preferred Stock of all amounts distributable to them under this SUBSECTION
3.1.2, then the entire remaining assets of the Corporation available for such
distribution shall be distributed ratably among the holders of the Series A
Preferred Stock and Series B Preferred Stock in proportion to the full
preferential amount each such holder is otherwise entitled to receive under this
SUBSECTION 3.1.2.
3.1.3 After the payments described in SUBSECTIONS 3.1.1 AND 3.1.2
shall have been made in full to the holders of the Preferred Stock, or funds
necessary for such payments shall have been set aside by the Corporation in
trust for the account of holders of Preferred Stock so as to be available for
such payments, the remaining assets available for distribution shall be
distributed among the holders of the Preferred Stock and the Common Stock
ratably in proportion to the number of shares of Common Stock then held by them
or issuable to them upon conversion of the Preferred Stock then held by them.
3.1.4 Upon conversion of shares of Preferred Stock into shares of
Common Stock pursuant to SECTION 4 below, the holders of such Common Stock shall
not be entitled to any preferential payment or distribution in case of any
liquidation, dissolution or winding up of the Corporation, but shall share
ratably in any distribution of the assets of the Corporation to all the holders
of Common Stock.
3.1.5 The amounts payable with respect to shares of Series A
Preferred Stock and Series B Preferred Stock under this SUBSECTION 3.1 are
sometimes hereinafter referred to as "Series A Liquidation Payments" and "Series
B Liquidation Payments," respectively, and together with the Series C
Liquidation Payments are sometimes hereinafter referred to as the "Liquidation
Payments."
3.2 DISTRIBUTIONS OTHER THAN CASH. Whenever the distributions
provided for in this SECTION 3 shall be payable in property other than cash, the
value of such distributions shall be the fair market value of such property as
determined in good faith by the Board of Directors of the Corporation.
3.3 MERGER AS LIQUIDATION, ETC. The merger or consolidation of the
Corporation into or with another corporation (except one in which the holders of
capital stock of the Corporation immediately prior to such merger or
consolidation continue to hold at least fifty percent (50%) in voting power
(assuming conversion of all convertible securities and exercise of all
outstanding options and warrants) of the capital stock of the surviving
corporation, in which case the provisions of SUBSECTION 4.6 shall apply), or the
sale of all or substantially all of the assets of the Corporation (other than to
a corporation in which holders of the capital stock of the Corporation hold at
least fifty percent (50%) in voting power (assuming conversion of all
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convertible securities and exercise of all outstanding options and warrants) of
the capital stock), shall be deemed to be a liquidation, dissolution or winding
up of the Corporation for purposes of this SECTION 3 with respect to (1) the
Series C Preferred Stock unless the holders of at least 51% of the then
outstanding shares of Series C Preferred Stock (voting as a separate class)
elect to the contrary and (2) the Series A Preferred Stock and Series B
Preferred Stock unless the holders of at least 51% of the then outstanding
shares of Series A Preferred Stock and Series B Preferred Stock (voting as a
single class) elect to the contrary, any such election to be made by giving
written notice thereof to the Corporation at least three days before the
effective date of such event. If such notice is given, the provisions of
SUBSECTION 4.6 shall apply to the series of Preferred Stock which have provided
such notice. Unless such election is made, any consideration received by the
holders of the Preferred Stock as a result of such merger or consolidation shall
be deemed to be applied toward, and all consideration received by the
Corporation in such asset sale together with all other available assets of the
Corporation shall be distributed toward, the Liquidation Payments attributable
to each such series of Preferred Stock, respectively, as set forth in SUBSECTION
3.1. If such consideration is in the form of property, rights, or other
securities, the value of such property, rights, or other securities shall be
determined in good faith by the Board of Directors of the Corporation.
3.4 NOTICE. Written notice of any proposed liquidation, dissolution
or winding up of the Corporation (including any merger, consolidation or sale of
assets which may be deemed to be a liquidation, dissolution or winding up of the
Corporation under SUBSECTION 3.3), stating a payment date, the amount of the
Liquidation Payments and the place where said Liquidation Payments shall be
payable, shall be given to the holders of record of the Preferred Stock by first
class mail, postage prepaid, or by fax or DHL, Federal Express or other
recognized express international courier service in the case of non-U.S.
stockholders, not less than twenty (20) days prior to the payment date stated
therein, such notice to be addressed to each such holder at its address as shown
by the records of the Corporation. Any holder of outstanding shares of Preferred
Stock may waive any notice required by this Subsection by a written document
specifically indicating such waiver.
SECTION 4. CONVERSION. The holders of the Preferred Stock shall have
conversion rights as follows (the "CONVERSION RIGHTS");
4.1 VOLUNTARY CONVERSION
4.1.1 RIGHT TO CONVERT; CONVERSION PRICE FOR SERIES A PREFERRED
STOCK. Each share of Series A Preferred Stock shall be convertible, without the
payment of any additional consideration by the holder thereof and at the option
of the holder thereof, at any time after the date of issuance of such share, at
the office of the Corporation or any transfer agent for the Series A Preferred
Stock, into such number of fully paid and nonassessable shares of Common Stock
as is determined by dividing $.49695 by the "Series A Conversion Price,"
determined as hereinafter provided, in effect at the time of conversion. The
Series A Conversion Price at which shares of Common Stock shall be deliverable
upon conversion without the payment of any additional consideration by the
holders of Series A Preferred Stock shall initially be $.49695 per share (the
"SERIES A CONVERSION PRICE"). The initial Series A Conversion Price
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shall be subject to adjustment, in order to adjust the number of shares of
Common Stock into which the Series A Preferred Stock is convertible, as provided
in Subsection 4.3.
4.1.2 RIGHT TO CONVERT; CONVERSION PRICE FOR SERIES B PREFERRED
STOCK. Each share of Series B Preferred Stock shall be convertible, without the
payment of any additional consideration by the holder thereof and at the option
of the holder thereof, at any time after the date of issuance of such share, at
the office of the Corporation or any transfer agent for the Series B Preferred
Stock, into such number of fully paid and nonassessable shares of Common Stock
as is determined by dividing $.60 by the "Series B Conversion Price," determined
as hereinafter provided, in effect at the time of conversion. The Series B
Conversion Price at which shares of Common Stock shall be deliverable upon
conversion without the payment of any additional consideration by the holders of
Series A Preferred Stock shall initially be $.60 per share (the "SERIES B
CONVERSION PRICE"). The initial Series B Conversion Price shall be subject to
adjustment, in order to adjust the number of shares of Common Stock into which
the Series B Preferred Stock is convertible, as provided in Subsection 4.3.
4.1.3 RIGHT TO CONVERT; CONVERSION PRICE FOR SERIES C PREFERRED
STOCK. Each share of Series C Preferred Stock shall be convertible, without the
payment of any additional consideration by the holder thereof and at the option
of the holder thereof, at any time after the date of issuance of such share, at
the office of the Corporation or any transfer agent for the Series C Preferred
Stock, into such number of fully paid and nonassessable shares of Common Stock
as is determined by dividing $1.54 by the "Series C Conversion Price," as
defined below, in effect at the time of conversion. The Series C Conversion
Price at which shares of Common Stock shall be deliverable upon conversion
without the payment of any additional consideration by the holders of Series C
Preferred Stock shall initially be $1.54 per share (the "SERIES C CONVERSION
PRICE"). The initial Series C Conversion Price shall be subject to adjustment,
in order to adjust the number of shares of Common Stock into which the Series C
Preferred Stock is convertible, as provided in Subsection 4.3.
4.1.4 MECHANICS OF VOLUNTARY CONVERSION. Before any holder of
Preferred Stock shall be entitled to convert the same into full shares of Common
Stock, such holder shall surrender the certificate or certificates therefor,
duly endorsed for transfer or with duly executed stock transfer powers
sufficient to permit transfer attached, at the office of the Corporation or of
any transfer agent for the Preferred Stock (or such holder shall notify the
Corporation or any transfer agent that such certificates have been lost, stolen
or destroyed and shall execute an agreement reasonably satisfactory to the
Corporation to indemnify the Corporation from any loss incurred by it in
connection therewith), and shall give written notice to the Corporation at such
office that such holder elects to convert the same and shall state therein such
holder's name or the name or names of such holder's nominees in which such
holder wishes the certificate or certificates for shares of Common Stock to be
issued. No fractional shares of Common Stock shall be issued upon conversion of
the Preferred Stock. In lieu of any fractional shares to which the holder would
otherwise be entitled, the Corporation shall pay cash equal to such fraction
multiplied by the then effective Conversion Price. The Corporation shall, as
soon as practicable thereafter, issue and deliver at such office to such holder
of Preferred Stock, or to such holder's nominee or nominees, a certificate or
certificates for the number of
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shares of Common Stock to which such holder shall be entitled as aforesaid,
together with cash in lieu of any fraction of a share. Such conversion shall be
deemed to have been made immediately prior to the close of business on the date
of such surrender of the certificates for the shares of Preferred Stock to be
converted, and the person or persons entitled to receive the shares of Common
Stock issuable upon conversion shall be treated for all purposes as the record
holder or holders of such shares of Common Stock on such date.
4.2 AUTOMATIC CONVERSION
4.2.1 CONVERSION BY TWO-THIRDS VOTE. Each share of Series A
Preferred Stock and Series B Preferred Stock shall automatically be converted
into shares of Common Stock at the then effective Series A Conversion Price or
Series B Conversion Price, respectively, if the holders of at least two-thirds
of the then outstanding Series A Preferred Stock and Series B Preferred Stock,
voting as a single class, shall so elect by giving written notice of such
election to the Corporation. Each share of Series C Preferred Stock shall
automatically be converted into shares of Common Stock at the then effective
Series C Conversion Price if the holders of at least two-thirds of the
then-outstanding Series C Preferred Stock, voting as a separate class, shall so
elect by giving written notice of such election to the Corporation. Any such
conversion shall be deemed to have occurred immediately after the close of
business on the later of the date specified in such notice or the date such
written notice is actually received by the Corporation.
4.2.2 CONVERSION UPON QUALIFYING PUBLIC OFFERING.
(a) Each share of Series A Preferred Stock and Series B
Preferred Stock shall automatically be converted into shares of Common Stock at
the then effective Series A Conversion Price or Series B Conversion Price,
respectively, upon the closing of an underwritten public offering pursuant to an
effective registration statement under the Securities Act of 1933, as amended,
covering the offer and sale of Common Stock for the account of the Corporation
to the public at an initial public offering price per share of not less than
$2.50 (subject to equitable adjustment in the event of any stock split, stock
dividend, combination or reclassification of shares or other similar event) and
with net proceeds to the Corporation of not less than $15,000,000 (a "SERIES A
AND B QUALIFYING INITIAL PUBLIC OFFERING"). In the event of a Series A and B
Qualifying Initial Public Offering, the holders entitled to receive the Common
Stock issuable upon such conversion of the Series A Preferred Stock and Series B
Preferred Stock shall not be deemed to have converted such Preferred Stock until
the closing of the Series A and B Qualifying Initial Public Offering.
(b) Each share of Series C Preferred Stock shall
automatically be converted into shares of Common Stock at the then effective
Series C Conversion Price upon the closing of an underwritten public offering
pursuant to an effective registration statement under the Securities Act of
1933, as amended, covering the offer and sale of Common Stock for the account of
the Corporation to the public at an initial public offering price per share of
not less than $3.08 (subject to equitable adjustment in the event of any stock
split, stock dividend, combination or reclassification of shares or other
similar event) and with net proceeds to the Corporation of not less than
$15,000,000 (a "SERIES C QUALIFYING INITIAL PUBLIC OFFERING"). In
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the event of a Series C Qualifying Initial Public Offering, the holders entitled
to receive the Common Stock issuable upon such conversion of the Series C
Preferred Stock shall not be deemed to have converted their Series C Preferred
Stock until the closing of the Series C Qualifying Initial Public Offering.
4.2.3 CONVERSION UPON CONVERSION OF 90% OF PREFERRED STOCK.
(a) Each share of Series A Preferred Stock and Series B
Preferred Stock then outstanding shall automatically be converted into shares of
Common Stock at the then-effective Series A Conversion Price or Series B
Conversion Price, respectively, upon the conversion of ninety percent (90%) or
more of the authorized Series A Preferred Stock and Series B Preferred Stock
(measured as a single class). Such conversion shall be deemed to have occurred
on the date upon which the aggregate number of shares of Series A Preferred
Stock and Series B Preferred Stock which have been converted to Common Stock
equals or exceeds ninety percent (90%) of the aggregate authorized Series A
Preferred Stock and Series B Preferred Stock.
(b) Each share of Series C Preferred Stock then outstanding
shall automatically be converted into shares of Common Stock at the
then-effective Series C Conversion Price upon the conversion of ninety percent
(90%) or more of the authorized Series C Preferred Stock. Such conversion shall
be deemed to have occurred on the date upon which the number of shares of Series
C Preferred Stock which have been converted to Common Stock equals or exceeds
ninety percent (90%) of the aggregate authorized Series C Preferred Stock.
4.2.4 MECHANICS OF AUTOMATIC CONVERSION. Upon an automatic
conversion pursuant to this SUBSECTION 4.2, all shares of the applicable series
of Preferred Stock shall be converted automatically without any further action
by the holders of such shares and whether or not the certificates representing
such shares are surrendered to the Corporation or its transfer agent; PROVIDED,
HOWEVER, that the Corporation shall not be obligated to issue certificates
evidencing the shares of Common Stock issuable upon such conversion unless
certificates evidencing such shares of the Preferred Stock being converted are
either delivered to the Corporation or its transfer agent, or the holder of such
shares notifies the Corporation or any transfer agent that such certificates
have been lost, stolen, or destroyed and executes an agreement reasonably
satisfactory to the Corporation to indemnify the Corporation from any loss
incurred by it in connection therewith. Upon the delivery of such certificates,
at the office of the Corporation or of its transfer agent, or upon the execution
and delivery to the Corporation of such agreement, there shall be issued and
delivered to such holder, promptly at such office and in the name as shown on
such surrendered certificate or certificates or specified in such agreement, a
certificate or certificates for the number of shares of Common Stock into which
the shares of the Preferred Stock surrendered were convertible on the date on
which such automatic conversion occurred. No fractional shares of Common Stock
shall be issued upon conversion of the Preferred Stock. In lieu of any
fractional shares to which the holder would otherwise be entitled, the
Corporation shall pay cash equal to such fraction multiplied by the then
effective Conversion Price.
4.3 ADJUSTMENTS TO CONVERSION PRICE FOR DILUTING ISSUANCES
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4.3.1 SPECIAL DEFINITIONS. For purposes of this Subsection 4.3,
the following definitions shall apply:
(a) "OPTION" shall mean rights, options or warrants to subscribe for,
purchase or otherwise acquire either Common Stock or Convertible
Securities.
(b) "ORIGINAL ISSUE DATE" shall mean the first date on which a share of
the applicable series of Preferred Stock was issued.
(c) "CONVERTIBLE SECURITIES" shall mean any evidences of indebtedness,
shares (other than shares of Common Stock and Preferred Stock) or other
securities directly or indirectly convertible into or exchangeable for
Common Stock.
(d) "ADDITIONAL SHARES OF COMMON STOCK" shall mean all shares of Common
Stock issued (or, pursuant to SUBSECTION 4.3.3, deemed to be issued) by the
Corporation after the applicable Original Issue Date, other than:
(i) up to 10,842,940 shares of Common Stock issued or issuable upon
conversion of shares of Series A Preferred Stock, provided that the
number of shares referred to in this clause shall be appropriately
adjusted to give effect to any changes in the Series A Conversion
Price pursuant to the antidilution provisions of this SECTION 4;
(ii) up to 14,320,446 shares of Common Stock issued or issuable upon
conversion of shares of Series B Preferred Stock, provided that the
number of shares referred to in this clause shall be appropriately
adjusted to give effect to any changes in the Series B Conversion
Price pursuant to the antidilution provisions of this SECTION 4;
(iii) up to 16,500,000 shares of Common Stock issued or issuable upon
conversion of shares of Series C Preferred Stock, provided that the
number of shares referred to in this clause shall be appropriately
adjusted to give effect to any changes in the Series C Conversion
Price pursuant to the antidilution provisions of this SECTION 4; and
(iv) such number of shares of Common Stock as may be issued or
issuable to officers, employees or directors of the Corporation
pursuant to either a stock purchase or option plan or other employee
stock bonus arrangement approved by the directors of the Corporation
(appropriately adjusted to take account of any stock split, stock
dividend, combination of shares or the like); PROVIDED, HOWEVER, that
such options or purchases must be granted or made at fair market value
and approved by the Board of Directors, and the maximum number of
shares issuable under any such arrangement must be approved by the
holders of a majority in interest of the Preferred Stock, voting as a
single class; and PROVIDED, further, that
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the issuance of up to 8,152,614 shares of Common Stock under option
plans in effect as of November 3, 1999 (less any issuances to date
under such plans) is deemed approved by the holders of Series C
Preferred Stock.
4.3.2 NO ADJUSTMENT OF CONVERSION PRICE. No adjustment in the
number of shares of Common Stock into which the Preferred Stock is convertible
shall be made, by adjustment in the Conversion Price for any series of Preferred
Stock (referred to generally as a "Series Conversion Price"), in respect of the
issuance of Additional Shares of Common Stock or otherwise, unless the
consideration per share for an Additional Share of Common Stock issued or deemed
to be issued by the Corporation is less than the applicable Series Conversion
Price in effect on the date of, and immediately prior to, the issue of such
Additional Share of Common Stock.
4.3.3 ISSUE OR SALE OF SECURITIES DEEMED ISSUE OF ADDITIONAL
SHARES OF COMMON STOCK.
(a) OPTIONS AND CONVERTIBLE SECURITIES. In the event the
Corporation at any time or from time to time after the applicable Original Issue
Date shall issue or sell any Options or Convertible Securities (other than those
excluded from the definition of Additional Shares of Common Stock in SUBSECTION
4.3.1(d) pursuant to clause (iv) thereof) or shall fix a record date for the
determination of holders of any class of securities entitled to receive any such
Options or Convertible Securities, then the maximum number of shares (as set
forth in the instrument relating thereto without regard to any provisions
contained therein for a subsequent adjustment of such number) of Common Stock
issuable upon the exercise of such Options or, in the case of Convertible
Securities and Options therefor, the conversion or exchange of such Convertible
Securities, shall be deemed to be Additional Shares of Common Stock issued as of
the time of such issue or sale or, in case such a record date shall have been
fixed, as of the close of business on such record date, provided that Additional
Shares of Common Stock shall not be deemed to have been issued unless the
consideration per share (determined pursuant to SUBSECTION 4.3.5 hereof)
received for such Additional Shares of Common Stock would be less than any
Series Conversion Price in effect on the date of and immediately prior to such
issue or sale or such record date, as the case may be, and shall be deemed to be
Additional Shares of Common Stock only with respect to the series of Preferred
Stock as to which the consideration received is less than the Conversion Price
therefor, and provided further that in any such case in which Additional Shares
of Common Stock are deemed to be issued:
(i) no further adjustment in the applicable Series Conversion Price shall
be made upon the subsequent issue of Convertible Securities or shares of
Common Stock upon the exercise of such Options or conversion or exchange of
such Convertible Securities;
(ii) if such Options or Convertible Securities by their terms provide, with
the passage of time or otherwise, for any change in the consideration
payable to the Corporation, or change in the number of shares of Common
Stock issuable, upon the exercise, conversion or exchange thereof, the
applicable Series Conversion Price computed upon the original
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issue thereof (or upon the occurrence of a record date with respect
thereto), and any subsequent adjustments based thereon, shall, upon any
such change becoming effective, be recomputed to reflect such change
insofar as it affects such Options or the rights of conversion or exchange
under such Convertible Securities;
(iii) upon the expiration of any such Options or any rights of conversion
or exchange under such Convertible Securities which shall not have been
exercised, the applicable Series Conversion Price computed upon the
original issue thereof (or upon the occurrence of a record date with
respect thereto), and any subsequent adjustments based thereon, shall, upon
such expiration, be recomputed as if:
(A) in the case of Convertible Securities or Options for Common
Stock, the only Additional Shares of Common Stock issued were the
shares of Common Stock, if any, actually issued upon the exercise of
such Options or the conversion or exchange of such Convertible
Securities, and the consideration received therefor was the
consideration actually received by the Corporation for the issue of
all such Options, whether or not exercised, plus the consideration
actually received by the Corporation upon such exercise, or for the
issue of all such Convertible Securities which were actually converted
or exchanged, plus the additional consideration, if any, actually
received by the Corporation upon such conversion or exchange; and
(B) in the case of Options for Convertible Securities, only the
Convertible Securities, if any, actually issued upon the exercise
thereof were issued at the time of issue of such Options, and the
consideration received by the Corporation for the Additional Shares of
Common Stock deemed to have been then issued was the consideration
actually received by the Corporation for the issue of all such
Options, whether or not exercised, plus the consideration deemed to
have been received by the Corporation (determined pursuant to
SUBSECTION 4.3.5) upon the issue of the Convertible Securities with
respect to which such Options were actually exercised;
(iv) in the case of any Options which expire by their terms not more than
30 days after the date of issue thereof, no adjustment of the applicable
Conversion Price shall be made until the expiration or exercise of all such
Options, whereupon such adjustment shall be made in the same manner
provided in clause (iii) above; and
(v) if such record date shall have been fixed and such Options or
Convertible Securities are not issued on the date fixed therefor, the
adjustment previously made in the applicable Series Conversion Price which
became effective on such record date shall be canceled as of the close of
business on such record date, and thereafter the applicable Series
Conversion Price shall be adjusted pursuant to this SUBSECTION 4.3.3 as of
the actual date of their issuance.
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(b) STOCK DIVIDENDS, STOCK DISTRIBUTIONS AND SUBDIVISIONS.
In the event the Corporation at any time or from time to time after the Original
Issue Date shall declare or pay any dividend or make any other distribution on
the Common Stock payable in Common Stock or effect a subdivision of the
outstanding shares of Common Stock (by reclassification or otherwise) then and
in any such event Additional Shares of Common Stock shall be deemed to have been
issued:
(i) in the case of any such dividend or distribution, immediately after
the close of business on the record date for the determination of
holders of any class of securities entitled to receive such dividend or
distribution, or
(ii) in the case of any such subdivision, at the close of business on
the date immediately prior to the date upon which such corporate action
becomes effective.
If such record date shall have been fixed and no part of such dividend shall
have been paid on the date fixed therefor, the adjustment previously made in the
Conversion Price which became effective on such record date shall be canceled as
of the close of business on such record date, and thereafter the Conversion
Price shall be adjusted pursuant to this SUBSECTION 4.3.3 as of the time of
actual payment of such dividend. If such record date shall have been fixed and
part but not all of such dividend shall have been paid on the date fixed
therefor, the adjustment previously made in the Conversion Price which became
effective on such record date shall be revised as of the close of business on
such record date to reflect the amount of such dividend actually paid.
4.3.4 ADJUSTMENT OF SERIES CONVERSION PRICE UPON ISSUANCE, SALE
OR DEEMED ISSUANCE OF ADDITIONAL SHARES OF COMMON STOCK. In the event that at
any time or from time to time after the applicable Original Issue Date, the
Corporation shall issue or sell Additional Shares of Common Stock (including,
without limitation, Additional Shares of Common Stock deemed to be issued
pursuant to SUBSECTION 4.3.3(a) but not including Additional Shares of Common
Stock deemed to be issued pursuant to SUBSECTION 4.3.3(b) as a result of a
dividend or other distribution on the Common Stock payable in Common Stock or a
subdivision of outstanding shares of Common Stock), without consideration or for
a consideration per share less than the applicable Series Conversion Price in
effect on the date of and immediately prior to such issue or sale, then and in
such event, the applicable Series Conversion Price shall be reduced,
concurrently with such issue, to a price (calculated to the nearest cent)
determined in accordance with the following formula:
P1 Ql + P2 Q2
Conversion Price = ------------------------
Ql + Q2
where:
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Conversion Price = New Conversion Price.
P1 = Conversion Price of the applicable series of Preferred Stock in
effect immediately prior to such new issue or sale.
Q1 = Number of shares of Common Stock deemed outstanding immediately
prior to such new issue or sale.
P2 = Weighted average price per share received by the Corporation upon
such new issue or sale.
Q2 = Number of shares of Common Stock issued or sold or deemed to have
been issued in the subject transaction.
For the purpose of this SUBSECTION 4.3.4, (a) the number of shares of Common
Stock outstanding at any given time shall exclude shares in the treasury of the
Corporation or shares of Common Stock held for the account of the Corporation or
any of its subsidiaries and (b) all shares of Common Stock issuable upon
exercise or conversion of Options, Convertible Securities and shares of
Preferred Stock outstanding immediately prior to the issue or sale of Additional
Shares of Common Stock triggering the adjustment provided for by this SUBSECTION
4.3.4 shall be deemed to be outstanding. Anything contained in this SUBSECTION
4.3.4 to the contrary notwithstanding, the applicable Series Conversion Price
shall not be reduced at any time if the amount of such reduction would be an
amount less than $.01, but any such amount shall be carried forward and
reduction with respect thereto made at the time of and together with any
subsequent reduction which, together with such amount and any other amount or
amounts so carried forward, shall aggregate $.01 or more.
4.3.5 DETERMINATION OF CONSIDERATION. For purposes of this
Subsection 4.3, the consideration received by the Corporation for the issue of
any Additional Shares of Common Stock shall be computed as follows:
(a) CASH AND PROPERTY. Such consideration shall:
(i) insofar as it consists of cash, be computed at the aggregate amounts of
cash received by the Corporation excluding amounts paid or payable for
accrued interest or accrued dividends;
(ii) insofar as it consists of property other than cash, be computed at the
fair market value thereof at the time of such issue or sale, as determined
in good faith by the Board of Directors; and
(iii) in the event Additional Shares of Common Stock are issued together
with other shares or securities or other assets of the Corporation for
consideration which covers
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both, be the proportion of such consideration so received, computed as
provided in clauses (i) and (ii) above, as determined in good faith by the
Board of Directors.
(b) OPTIONS AND CONVERTIBLE SECURITIES. The consideration
per share received by the Corporation for Additional Shares of Common Stock
deemed to have been issued pursuant to SUBSECTION 4.3.3(a) relating to Options
and Convertible Securities shall be determined by dividing (x) the total amount,
if any, received or receivable as consideration for the issue of such Options or
Convertible Securities plus the minimum aggregate amount of additional
consideration (as set forth in the instruments relating thereto, without regard
to any provision contained therein for a subsequent adjustment of such
consideration) payable to the Corporation upon the exercise of such Options or
the conversion or exchange of such Convertible Securities, or in the case of
Options for Convertible Securities, the exercise of such Options for Convertible
Securities and the conversion or exchange of such Convertible Securities by (y)
the maximum number of shares of Common Stock (as set forth in the instruments
relating thereto, without regard to any provision contained therein for a
subsequent adjustment of such number) issuable upon the exercise of such Options
or the conversion or exchange of such Convertible Securities.
4.3.6 ADJUSTMENT FOR DIVIDENDS, DISTRIBUTIONS, OR SUBDIVISIONS,
COMBINATIONS OR CONSOLIDATIONS OF COMMON STOCK.
(a) STOCK DIVIDENDS, DISTRIBUTIONS OR SUBDIVISIONS. In the
event Additional Shares of Common Stock shall be deemed to have been issued in a
dividend or other distribution on the Common Stock payable in Common Stock or a
subdivision of the outstanding shares of Common Stock (by reclassification or
otherwise) described in SUBSECTION 4.3.3(b), the applicable Series Conversion
Price in effect immediately prior to the record date or effectiveness, as the
case may be, of such dividend, distribution or subdivision shall, concurrently
with such record date or effectiveness, be proportionately decreased.
(b) COMBINATIONS OR CONSOLIDATIONS. In the event the
outstanding shares of Common Stock shall be combined or consolidated (by
reclassification or otherwise) into a lesser number of shares of Common Stock,
the applicable Series Conversion Price in effect immediately prior to such
combination or consolidation shall, concurrently with the effectiveness of such
combination or consolidation, be proportionately increased.
4.4 ADJUSTMENTS FOR CERTAIN DIVIDENDS AND DISTRIBUTIONS. In the event
that at any time or from time to time after the applicable Original Issue Date
the Corporation shall make or issue, or fix a record date for the determination
of holders of Common Stock entitled to receive, a dividend or other distribution
payable in securities of the Corporation other than shares of Common Stock, then
and in each such event provision shall be made so that the holders of Preferred
Stock shall receive upon conversion thereof in addition to the number of shares
of Common Stock receivable thereupon, the amount of securities of the
Corporation that they would have received had their Preferred Stock been
converted into Common Stock on the date of and immediately prior to such event
and had they thereafter, during the period from the date of such event to and
including the conversion date, retained such securities receivable by them as
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<PAGE> 15
aforesaid during such period, giving application during such period to all
adjustments called for herein.
4.5 ADJUSTMENT FOR RECLASSIFICATION, EXCHANGE, OR SUBSTITUTION. In
the event that at any time or from time to time after the applicable Original
Issue Date, the Common Stock issuable upon the conversion of the Preferred Stock
shall be changed into the same or a different number of shares of any class or
classes of stock, whether by capital reorganization, reclassification, or
otherwise (other than a subdivision or combination of shares or stock dividend
provided for above, or a merger, consolidation, or sale of assets provided for
below), then and in each such event the holder of each such share of Preferred
Stock shall have the right thereafter to convert such share into the kind and
amount of shares of stock and other securities and property receivable upon such
reorganization, reclassification, or other change, by a holder of the number of
shares of Common Stock into which such share of Preferred Stock might have been
converted immediately prior to such reorganization, reclassification or change,
all subject to further adjustment as provided herein.
4.6 ADJUSTMENT FOR MERGER, CONSOLIDATION OR SALE OF ASSETS. In the
event that at any time or from time to time after the applicable Original Issue
Date, the Corporation shall merge or consolidate with or into another entity or
sell all or substantially all of its assets (other than a consolidation, merger
or sale which is treated as a liquidation pursuant to SUBSECTION 3.3), each
share of Preferred Stock shall thereafter be convertible into the kind and
amount of shares of stock or other securities or property to which a holder of
the number of shares of Common Stock of the Corporation deliverable upon
conversion of such Preferred Stock would have been entitled upon such
consolidation, merger or sale; and, in such case, appropriate adjustment (as
determined in good faith by the Board of Directors) shall be made in the
application of the provisions in this SECTION 4 set forth with respect to the
rights and interest thereafter of the holders of Preferred Stock, to the end
that the provisions set forth in this SECTION 4 (including provisions with
respect to changes in and other adjustments of the Series Conversion Prices)
shall thereafter be applicable, as nearly as reasonably may be, in relation to
any shares of stock or other property thereafter deliverable upon the conversion
of the Preferred Stock.
4.7 NO IMPAIRMENT. The Corporation shall not, by amendment of its
Certificate of Incorporation or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms to be observed or performed hereunder by the Corporation but shall at
all times in good faith assist in the carrying out of all the provisions of this
SECTION 4 and in the taking of all such action as may be necessary or
appropriate in order to protect the Conversion Rights of the holders of the
Preferred Stock against impairment.
4.8 CERTIFICATE AS TO ADJUSTMENTS. Upon the occurrence of each
adjustment or readjustment of any Series Conversion Price pursuant to this
SECTION 4, the Corporation at its expense shall promptly compute such adjustment
or readjustment in accordance with the terms hereof and furnish to each affected
holder of Preferred Stock a certificate setting forth such adjustment or
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<PAGE> 16
readjustment and showing in detail the facts upon which such adjustment or
readjustment is based. The Corporation shall, upon the written request at any
time of any affected holder of Preferred Stock, furnish or cause to be furnished
to such holder a like certificate setting forth (i) such adjustments and
readjustments, (ii) the applicable Conversion Price at the time in effect, and
(iii) the number of shares of Common Stock and the amount, if any, of other
property which at the time would be received upon the conversion of each share
of Preferred Stock.
4.9 NOTICES OF RECORD DATE. In the event of any taking by the
Corporation of a record of the holders of any class of securities for the
purpose of determining the holders thereof who are entitled to receive any
dividend (other than a cash dividend which is the same as cash dividends paid in
previous quarters) or other distribution, the Corporation shall mail to each
holder of Preferred Stock at least ten (10) days prior to such record date a
notice specifying the date on which any such record is to be taken for the
purpose of such dividend or distribution.
4.10 COMMON STOCK RESERVED. The Corporation shall reserve and keep
available out of its authorized but unissued Common Stock such number of shares
of Common Stock as shall from time to time be sufficient to effect conversion of
the Preferred Stock.
4.11 CERTAIN TAXES. The Corporation shall pay any stamp, issue or
transfer taxes payable in connection with the conversion of the Preferred Stock;
PROVIDED, HOWEVER, that the Corporation shall not be required to pay any tax
which may be payable in respect of any transfer to a name other than that of the
holder of the Preferred Stock.
4.12 CLOSING OF BOOKS. The Corporation shall at no time close its
transfer books against the transfer of any shares of Preferred Stock or of any
shares of Common Stock issued or issuable upon the conversion of any shares of
Preferred Stock in any manner which interferes with the timely conversion or
transfer of such Preferred Stock or Common Stock, unless otherwise required by
law.
SECTION 5. REDEMPTION.
5.1 At the written election of holders of a majority of the
outstanding shares of Series C Preferred Stock, made at any time on or after
December 18, 2002 (the "Series C Redemption Election"), the Corporation shall be
required to redeem all, but not less than all, of the outstanding shares of
Series C Preferred Stock in three equal annual installments, upon the terms set
forth in this SECTION 5. The first installment of such redemption (the "First
Series C Redemption Date") shall occur on a date specified by the electing
holders in such written election to redeem shares of Series C Preferred Stock,
which date shall not be earlier than 90 days following the date of the Series C
Redemption Election. The second and third installments of such redemption shall
occur on the first and second anniversaries of the First Series C Redemption
Date, respectively. The Corporation shall redeem one-third of the outstanding
shares of Series C Preferred Stock held by each holder on the First Series C
Redemption Date, one-third of the outstanding shares of Series C Preferred Stock
held by each holder immediately prior to the First Series C Redemption Date on
the first anniversary of the First Series C Redemption Date and the remaining
shares on the second anniversary of the First Series C
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<PAGE> 17
Redemption Date. On each such redemption date, the holders shall surrender the
certificate or certificates for the shares to be redeemed duly endorsed for
transfer or with duly executed stock transfer powers sufficient to permit
transfer attached, at the offices of the Corporation or of any transfer agent
for the Series C Preferred Stock. The Corporation shall, as soon as practicable
thereafter, issue and deliver to each holder a certificate or certificates for
the balance of the shares not being redeemed. The redemption price per share of
the Series C Preferred Stock shall be equal to the greater of (i) $1.54 (subject
to equitable adjustment in the event of any stock dividend, stock split,
combination, reclassification of shares or other similar event) plus all accrued
but unpaid dividends thereon, if any, at the time of such redemption and (ii)
the Fair Market Value (as defined in SUBSECTION 5.7) per share as of the date of
the Series C Redemption Election. The Series C redemption rights described in
this SUBSECTION 5.1 shall be senior to the Series A and Series B redemption
rights set forth below. The Corporation shall not redeem any Series A Preferred
Stock or Series B Preferred Stock unless it has set aside sufficient funds to
redeem the Series C Preferred Stock in full as provided in Section 5.4 hereof.
5.2 At the written election of holders of a majority of the
outstanding shares of Series A Preferred Stock and Series B Preferred Stock,
acting as a single class, made at any time on or after December 18, 2002 (the
"Series A and B Redemption Election"), the Corporation shall be required to
redeem all, but not less than all, of the outstanding shares of Series A
Preferred Stock and Series B Preferred Stock in three equal annual installments,
upon the terms set forth in this SECTION 5. The first installment of such
redemption (the "First Series A and B Redemption Date") shall occur on a date
specified by the electing holders in such written election to redeem shares of
Series A Preferred Stock and Series B Preferred Stock, which date shall not be
earlier than 90 days following the date of the Series A and B Redemption
Election. The second and third installments of such redemption shall occur on
the first and second anniversaries of the First Series A and B Redemption Date,
respectively. The Corporation shall redeem one-third of the outstanding shares
of Series A Preferred Stock and/or Series B Preferred Stock held by each holder
on the First Series A and B Redemption Date, one-third of the outstanding shares
of such Preferred Stock held by each holder immediately prior to the First
Series A and B Redemption Date on the first anniversary of the First Series A
and B Redemption Date and the remaining shares on the second anniversary of the
First Series A and B Redemption Date. On each such redemption date, the holders
shall surrender the certificate or certificates for the shares to be redeemed
duly endorsed for transfer or with duly executed stock transfer powers
sufficient to permit transfer attached, at the offices of the Corporation or of
any transfer agent for the Series A Preferred Stock and Series B Preferred
Stock. The Corporation shall, as soon as practicable thereafter, issue and
deliver to each holder a certificate or certificates for the balance of the
shares not being redeemed. The redemption price per share of the Series A
Preferred Stock shall be equal to the greater of (i) $.49695 (subject to
equitable adjustment in the event of any stock dividend, stock split,
combination, reclassification of shares or other similar event) plus all accrued
but unpaid dividends thereon, if any, at the time of such redemption and (ii)
the Fair Market Value (as defined in SUBSECTION 5.7) per share as of the date of
the Series A and B Redemption Election. The redemption price per share of the
Series B Preferred Stock shall be equal to the greater of (i) $.60 (subject to
equitable adjustment in the event of any stock dividend, stock split,
combination, reclassification of shares or other similar event) plus all accrued
but unpaid dividends thereon, if any, at the time of such redemption and (ii)
the Fair Market Value
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(as defined in SUBSECTION 5.7) per share as of the date of the Series A and B
Redemption Election.
5.3 Notice of redemption shall be sent by first class mail, postage
prepaid, to each holder of record of the applicable series of Preferred Stock,
not less than 30 days nor more than 60 days prior to the First Redemption Date
for such series, at the address of such holder as it appears on the books of the
Corporation. Such notice shall set forth (1) the First Redemption Date for such
series, the dates of the second and third installments of such redemption, and
the place of redemption; and (ii) the number of shares to be redeemed on each
date of redemption and the redemption price on each such date, including all
accrued but unpaid dividends thereon, if any, to each redemption date. The
Corporation shall be obligated to redeem the applicable series of Preferred
Stock on the dates and in the amounts set forth in the notice; provided,
however, that any holder of Preferred Stock who is not party to a Redemption
Election may convert any or all of the shares owned by such holder into Common
Stock in accordance with Section 4 at any time prior to the date of redemption
of such shares. The Corporation, if advised before the close of business on the
relevant redemption date by written notice from any holder of record of
Preferred Stock to be redeemed, shall credit against the number of shares of
Preferred Stock required to be redeemed from such holder, and shall not redeem,
the number of shares of Preferred Stock which had been converted by such holder
on or before such date and which had not previously been credited against any
redemption.
5.4 If, on or before a redemption date, the funds necessary for such
redemption shall have been set aside by the Corporation and deposited with a
bank or trust company, in trust for the pro rata benefit of the holders of the
Preferred Stock that has been called for redemption, then, notwithstanding that
any certificates for shares that have been called for redemption shall not have
been surrendered for cancellation, the shares represented thereby shall no
longer be deemed outstanding from and after such redemption date, and all rights
of holders of such shares so called for redemption shall forthwith, after such
redemption date, cease and terminate with respect to such shares, excepting only
the right to receive the redemption funds therefor to which they are entitled.
Any interest accrued on funds so deposited and unclaimed by stockholders
entitled thereto shall be paid to such holders at the time their respective
shares are redeemed or to the Corporation at the time unclaimed amounts are paid
to it. In case the holders of Preferred Stock which shall have been called for
redemption shall not, within six years after the final redemption date, claim
the amounts so deposited with respect to the redemption thereof, any such bank
or trust company shall, upon demand, pay over to the Corporation such unclaimed
amounts and thereupon such bank or trust company shall be relieved of all
responsibility in respect thereof to such holder and such holder shall look only
to the Corporation for the payment thereof. Any funds so deposited with a bank
or trust company which shall not be required for such redemption by reason of
the exercise subsequent to the date of such deposit of the right of conversion
of any shares or otherwise shall be returned to the Corporation forthwith.
5.5 If the Corporation for any reason fails to redeem any of the
shares of Preferred Stock in accordance with SUBSECTIONS 5.1 AND 5.2 on or prior
to the redemption dates
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determined in accordance with this SECTION 5, then, notwithstanding anything to
the contrary contained in this Certificate of Incorporation:
5.5.1 The Corporation may not incur any indebtedness for money
borrowed (unless the proceeds of such incurrence of indebtedness are used to
make all overdue redemptions) or borrow or reborrow any amounts under any lines
of credit which it may then have outstanding without the prior written consent
of the holders of not less than two-thirds of the then outstanding shares of the
Preferred Stock required to be redeemed; and
5.5.2 Notwithstanding any provision to the contrary contained
herein or in any contract or agreement to which the Corporation is a party, the
number of directors constituting the Board of Directors shall be fixed at eight
and the holders of a majority of the outstanding shares of Preferred Stock
required to be redeemed shall have the right, by written consent or at any
special or annual meeting of the stockholders of the Corporation, voting as a
separate class to the exclusion of the holders of Common Stock and any series of
Preferred Stock not being redeemed, or which is being redeemed in accordance
with the schedule set forth in Section 5.1, to elect five of the eight directors
of the Corporation. Such right shall continue until the Corporation is no longer
in default of its obligation to redeem shares of Preferred Stock pursuant to
SUBSECTIONS 5.1 AND 5.2. Each director elected by the holders of shares of any
Preferred Stock pursuant to this SUBSECTION 5.5.2 (each, an "Additional
Director") shall continue to serve as such director until the date that all
obligations of the Corporation pursuant to this SECTION 5 have been satisfied in
full, notwithstanding that prior to such date a default under this SECTION 5
shall cease to exist. Any Additional Director may be removed by, and shall not
be removed except by, the written consent or vote of the holders of record of a
majority of the outstanding shares of the Preferred Stock entitled to have
originally voted for such director's election, voting together as a separate
class to the exclusion of the holders of Common Stock and any series of
Preferred Stock not being redeemed or which is being redeemed in accordance with
the schedule set forth in Section 5.1. So long as a default under this SECTION 5
shall exist, any vacancy in the office of an Additional Director shall be filled
by the vote or written consent of the holders of a majority of the outstanding
shares of the Preferred Stock entitled to have originally voted for the removed
director's election, voting together as a separate class to the exclusion of the
holders of Common Stock and any series of Preferred Stock not being redeemed, or
which is being redeemed in accordance with the schedule set forth in Section
5.1.
5.6 If the funds of the Corporation legally available for redemption
of shares of Preferred Stock on a redemption date are insufficient to redeem the
total number of shares of Preferred Stock submitted for redemption, those funds
which are legally available will be used to redeem the maximum possible number
of whole shares ratably among the holders of such shares in proportion to the
redemption amounts otherwise payable to them, subject to the priority of the
Series C Preferred Stock specified in the last sentence of Section 5.1. The
shares of Preferred Stock not redeemed shall remain outstanding and entitled to
all rights and preferences provided herein. At any time thereafter when
additional funds of the Corporation are legally available for the redemption of
such shares of Preferred Stock, such funds will be used, at the end of the next
succeeding fiscal quarter, to redeem the balance of such shares, or such portion
thereof for which funds are then legally available.
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5.7 For the purposes of SUBSECTIONS 5.1 AND 5.2, the "Fair Market
Value" of each share of Preferred Stock shall be determined as follows: if,
within 20 days after the date of the applicable Redemption Election, the
Corporation and the holders of a majority of the outstanding Series A Preferred
Stock, Series B Preferred Stock or Series C Preferred Stock, as the case may be,
agree upon the fair market value of one share of Series A Preferred Stock,
Series B Preferred Stock or Series C Preferred Stock, as the case may be, then
the Fair Market Value shall be as so agreed. If the Corporation and such holders
do not agree upon the Fair Marker Value within such 20 day period but agree upon
an appraiser to determine the fair market value per share of the Series A
Preferred Stock, Series B Preferred Stock or Series C Preferred Stock, as the
case may be, then such appraiser shall make such determination and such
determination shall govern. If the Corporation and such holders do not, within
such 20 day period, agree as to the Fair Market Value or as to a single
appraiser to determine the fair market value of each share of Series A Preferred
Stock, Series B Preferred Stock or Series C Preferred Stock, as the case may be,
then the Corporation shall, by notice to the holders of the applicable series of
Preferred Stock, appoint one appraiser, and the holders of a majority of the
outstanding shares of all such series of Preferred Stock electing redemption
shall, by notice to the Corporation and acting as a single class, appoint one
appraiser, both experienced in the appraisal of companies engaged in the
business of the Corporation. If either the Corporation or such holders shall
fail to appoint such an appraiser within 15 days after the lapse of such 20-day
period, then the appraiser appointed by the party which does appoint an
appraiser shall make the appraisal of the Fair Market Value, and such appraisal
shall govern. If two appraisers are appointed, then the average of the
appraisals rendered by such appraisers shall be considered the Fair Market
Value. All appraisal reports shall be rendered in writing and shall be signed by
the appraiser(s), and the Corporation and the holders of the series of Preferred
Stock who designated an appraiser shall use reasonable efforts to cause each
appraiser to render its appraisal report within 20 days after the date of its
appointment. The costs of the appraisals shall be borne by the Corporation. All
notices delivered pursuant to this SUBSECTION 5.7 shall be sent by certified
mail, postage prepaid, or by hand or nationally-recognized overnight delivery
service and shall, in the case of notices to holders of Preferred Stock, be sent
to the address of such holder as it appears on the books of the Corporation.
SECTION 6. NEGATIVE COVENANTS
6.1 SERIES A. So long as at least one-fourth of the number of shares
of Series A Preferred Stock (subject to equitable adjustment in the event of any
stock split, stock dividend, combination or reclassification of shares or other
similar event) shall remain issued and outstanding, the Corporation shall not,
without first having provided the written notice of such proposed action to each
holder of outstanding shares of Series A Preferred Stock and having obtained the
affirmative vote or written consent of the holders of 51% of the shares of
Series A Preferred Stock then outstanding:
6.1.1 amend, alter or repeal any provision of, or add any
provision to, the Corporation's Certificate of Incorporation or By-laws;
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6.1.2 increase the number of shares of Series A Preferred Stock
designated as Series A Preferred Stock, or reclassify any Common Stock or
Preferred Stock into shares having any preference or priority as to assets
superior to or on a parity with any such preference or priority of the Series A
Preferred Stock;
6.1.3 create, authorize or issue any other class or classes of
stock or series of Common Stock or Preferred Stock or any security convertible
into or evidencing the right to purchase shares of any class or series of Common
Stock or Preferred Stock or any capital stock of the Corporation senior to or in
parity with the Series A Preferred Stock in any respect;
6.1.4 pay or declare any dividend or distribution on any shares
of Common Stock or apply any of its assets to the redemption, retirement,
purchase or other acquisition, directly or indirectly, through subsidiaries or
otherwise, of any shares of Common Stock except (1) pursuant to that certain
Second Amended and Restated Stockholders Agreement dated on or about November 3,
1999 by and among the Corporation and certain stockholders, or (2) pursuant to
repurchase provisions contained in any Stock Restriction Agreement dated as of
December 18, 1997 by and between the Corporation and any of its stockholders; or
6.1.5 effect any sale, lease, assignment, transfer or other
conveyance (other than the grant of a mortgage or security interest in
connection with indebtedness for borrowed money) of all or substantially all the
assets of the Corporation or any of its subsidiaries; any liquidation,
dissolution or winding up of, or any consolidation or merger involving, the
Corporation or any of its subsidiaries; or any recapitalization of the
Corporation.
6.2 SERIES B. So long as at least one-fourth of the number of shares
of Series B Preferred Stock (subject to equitable adjustment in the event of any
stock split, stock dividend, combination or reclassification of shares or other
similar event) shall remain issued and outstanding, the Corporation shall not,
without first having provided the written notice of such proposed action to each
holder of outstanding shares of Series B Preferred Stock and having obtained the
affirmative vote or written consent of the holders of 51% of the shares of
Series B Preferred Stock then outstanding:
6.2.1 amend, alter or repeal any provision of, or add any
provision to, the Corporation's Certificate of Incorporation or By-laws;
6.2.2 increase the number of shares of Series B Preferred Stock
designated as Series B Preferred Stock, or reclassify any Common Stock or
Preferred Stock into shares having any preference or priority as to assets
superior to or on a parity with any such preference or priority of the Series B
Preferred Stock;
6.2.3 create, authorize or issue any other class or classes of
stock or series of Common Stock or Preferred Stock or any security convertible
into or evidencing the right to purchase shares of any class or series of Common
Stock or Preferred Stock or any capital stock of the Corporation senior to or in
parity with the Series B Preferred Stock in any respect;
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6.2.4 pay or declare any dividend or distribution on any shares
of Common Stock or apply any of its assets to the redemption, retirement,
purchase or other acquisition, directly or indirectly, through subsidiaries or
otherwise, of any shares of Common Stock except (1) pursuant to that certain
Second Amended and Restated Stockholders Agreement dated on or about November 3,
1999 by and among the Corporation and certain stockholders, as the same may be
amended from time to time or (2) pursuant to repurchase provisions contained in
any Stock Restriction Agreement dated as of December 18, 1997 by and between the
Corporation and any of its stockholders; or
6.2.5 effect any sale, lease, assignment, transfer or other
conveyance (other than the grant of a mortgage or security interest in
connection with indebtedness for borrowed money) of all or substantially all the
assets of the Corporation or any of its subsidiaries; any liquidation,
dissolution or winding up of, or any consolidation or merger involving, the
Corporation or any of its subsidiaries; or any recapitalization of the
Corporation.
6.3 SERIES C. So long as at least one-fourth of the number of shares
of Series C Preferred Stock (subject to equitable adjustment in the event of any
stock split, stock dividend, combination or reclassification of shares or other
similar event) shall remain issued and outstanding, the Corporation shall not,
without first having provided the written notice of such proposed action to each
holder of outstanding shares of Series C Preferred Stock and having obtained the
affirmative vote or written consent of the holders of 51% of the shares of
Series C Preferred Stock then outstanding:
6.3.1 amend, alter or repeal any provision of, or add any
provision to, the Corporation's Certificate of Incorporation or By-laws;
6.3.2 increase the number of shares of Series C Preferred Stock
designated as Series C Preferred Stock, or reclassify any Common Stock or
Preferred Stock into shares having any preference or priority as to assets
superior to or on a parity with any such preference or priority of the Series C
Preferred Stock;
6.3.3 create, authorize or issue any other class or classes of
stock or series of Common Stock or Preferred Stock or any security convertible
into or evidencing the right to purchase shares of any class or series of Common
Stock or Preferred Stock or any capital stock of the Corporation senior to or in
parity with the Series C Preferred Stock in any respect;
6.3.4 pay or declare any dividend or distribution on any shares
of Common Stock or any other series of Preferred Stock or apply any of its
assets to the redemption, retirement, purchase or other acquisition, directly or
indirectly, through subsidiaries or otherwise, of any shares of Common Stock or
any other series of Preferred Stock except (1) pursuant to that certain Second
Amended and Restated Stockholders Agreement dated on or about November 3, 1999
by and among the Corporation and certain stockholders, as the same may be
amended from time to time or (2) pursuant to repurchase provisions contained in
any Stock Restriction Agreement dated as of December 18, 1997 by and between the
Corporation and any of its stockholders;
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6.3.5 effect any sale, lease, assignment, transfer or other
conveyance (other than the grant of a mortgage or security interest in
connection with indebtedness for borrowed money) of all or substantially all the
assets of the Corporation or any of its subsidiaries; any liquidation,
dissolution or winding up of, or any consolidation or merger involving, the
Corporation or any of its subsidiaries; or any recapitalization of the
Corporation;
6.3.6 enter into any agreement that would restrict the
Corporation's ability to perform under that certain Series C Stock Purchase
Agreement dated on or about November 3, 1999 by and among the Corporation and
the holders of Series C Preferred Stock;
6.3.7 sell or lease 25% or more of the assets of the Corporation,
except in the ordinary course of business;
6.3.8 issue additional securities to employees, officer or
directors of the Corporation, except securities (a) issued under stock option
plans in existence as of November 3, 1999 or stock option plans approved by the
holders of Series C Preferred Stock as provided herein, (b) issuable upon the
exercise of outstanding options or warrants or (c) issuable upon the exercise of
options granted in the future at fair market value;
6.3.9 adopt any additional stock option plans or increase the
number of shares available for issuance under plans in effect as of November 3,
1999; or
6.3.10 issue any securities for a price less than fair market
value, other than as may be required by contractual commitments in existence as
of November 3, 1999.
6.4 NOTICE. Any other provision of the Corporation's Certificate of
Incorporation or By-laws to the contrary notwithstanding, notice of any action
specified in SUBSECTIONS 6.1, 6.2 OR 6.3 shall be given by the Corporation to
each holder of outstanding shares of the applicable series of Preferred Stock by
first class mail, postage prepaid, addressed to such holder at the last address
of such holder as shown by the records of the Corporation, at least 20 days
before the date on which the books of the Corporation shall close or a record
shall be taken with respect to such proposed action, or, if there shall be no
such date, at least 20 days before the date when such proposed action is
scheduled to occur. Any holder of outstanding shares of Preferred Stock may
waive any notice required by this SUBSECTION 6.4 by a written document
indicating such waiver.
SECTION 7. NO REISSUANCE OF PREFERRED STOCK. No share or shares of
Preferred Stock acquired by the Corporation by reason of redemption, purchase,
conversion or otherwise shall be reissued, and all such shares shall be
canceled, retired and eliminated from the shares which the Corporation shall be
authorized to issue.
SECTION 8. RESIDUAL RIGHTS. All rights accruing to the outstanding shares
of the Corporation not expressly provided for to the contrary herein shall be
vested in the Common Stock.
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Subject to Section 6 above, the Board of Directors of the Corporation shall
have full authority, to the extent permitted by law, to increase, decrease or
otherwise adjust the capital stock of the Corporation, to designate the classes
or series thereof and to determine whether all or any part of such stock shall
have voting powers, full or limited, or no voting powers, and to determine such
designations, and such powers, preferences, relative, participating or optional,
or other special rights and the qualifications, limitations or restrictions
thereof as the Board shall from time to time determine in duly adopted
resolutions.
Subject to Section 6 above, at any time and from time to time when
authorized by resolution of the Board of Directors and without any action by its
stockholders, the Corporation may issue or sell any shares of its capital stock
of any class or series, whether out of the unissued shares thereof authorized by
the Certificate of Incorporation of the Corporation as originally filed or by an
amendment thereof or out of shares of its capital stock acquired by it after the
issue thereof, and whether or not the shares thereof so issued or sold shall
confer upon the holders thereof the right to exchange or convert such shares for
or into other shares of capital stock of the Corporation of any class or classes
or any series thereof. When similarly authorized, but without any action by its
stockholders, the Corporation may issue or grant rights, warrants or options, in
bearer or registered or such other form as the Board of Directors may determine,
for the purchase of shares of the capital stock of any class or series of the
Corporation within such period of time, or without limit as to time, to such
aggregate number of shares, and at such price per share, as the Board of
Directors may determine. Such rights, warrants or options may be issued or
granted separately or in connection with the issue of any bonds, debentures,
notes, obligations or other evidences of indebtedness or shares of the capital
stock of any class or series of the Corporation and for such consideration and
on such terms and conditions as the Board of Directors in its sole discretion
may determine. In each case, the consideration to be received by the Corporation
for any such shares so issued or sold shall be such as shall be fixed from time
to time by resolution of the Board of Directors.
FIFTH: The Corporation shall have perpetual existence.
SIXTH: In furtherance and not in limitation of the powers conferred by
statute, the Board of Directors is expressly authorized:
To make, alter or repeal the by-laws of the Corporation.
To authorize and cause to be executed mortgages and liens upon the real and
personal property of the Corporation.
To set apart out of any of the funds of the Corporation available for
dividends a reserve or reserves for any proper purpose and to abolish any such
reserve in the manner in which it was created.
By a majority of the whole Board, to designate one or more committees, each
committee to consist of one or more of the Directors of the Corporation. The
Board may designate one or
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more Directors as alternate members of any committee, who may replace any absent
or disqualified member at any meeting of the committee. The by-laws may provide
that in the absence or disqualification of a member of a committee, the member
or members thereof present at any meeting and not disqualified from voting
whether or not he or they constitute a quorum, may unanimously appoint another
member of the Board of Directors to act at the meeting in the place of any such
absent or disqualified member. Any such committee, to the extent provided in the
resolution of the Board of Directors, or in the by-laws of the Corporation,
shall have and may exercise all the powers and authority of the Board of
Directors in the management of the business and affairs of the Corporation, and
may authorize the seal of the corporation to be affixed to all papers which may
require it, but no such committee shall have such power or authority in
reference to amending the certificate of incorporation, adopting an agreement of
merger or consolidation, recommending to the stockholders the sale, lease or
exchange of all or substantially all of the Corporation's property and assets,
recommending to the stockholders a dissolution of the Corporation or a
revocation of a dissolution, or amending the by-laws of the Corporation; and,
unless the resolution or by-laws expressly so provide, no such committee shall
have the power or authority to declare a dividend or to authorize the issuance
of stock, or to adopt a Certificate of Ownership and Merger pursuant to the
provisions of Section 253 of Title 8 of the Delaware Code. As used in this
Article SIXTH, "whole Board" means the total number of Directors which the
Corporation would have if there were no vacancies.
When and as authorized by the stockholders in accordance with statute, to
sell, lease or exchange all or substantially all of the property and assets of
the Corporation, including its good will and its corporate franchises, upon such
terms and conditions and for such consideration, which may consist in whole or
in part of money or property including shares of stock in, and/or other
securities of, any other corporation or corporations, as its Board of Directors
may deem expedient and for the best interests of the Corporation.
SEVENTH: Whenever a compromise or arrangement is proposed between this
Corporation and its creditors or any class of them and/or between this
Corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of this Corporation or of any creditor or shareholder thereof, or on the
application of any receiver or receivers appointed for this Corporation under
the provisions of Section 291 of Title 8 of the Delaware Code or on the
application of trustees in dissolution or of any receiver or receivers appointed
for this Corporation under the provisions of Section 279 of Title 8 of the
Delaware Code, order a meeting of the creditors or class of creditors, and/or of
the stockholders or a class of stockholders of this Corporation, as the case may
be, to be summoned in such manner as the said court directs. If a majority in
number representing three-fourths (3/4) in value of the creditors or class of
creditors, and/or of the stockholders or class of stockholders of this
Corporation, as the case may be, agree to any compromise or arrangement and to
any reorganization of this Corporation as a consequence of such compromise or
arrangement, the said compromise or arrangement and the said reorganization
shall, if sanctioned by the Court to which the said application has been made,
be binding on all the creditors or class of creditors, and/or on all the
stockholders or class of stockholders of this Corporation, as the case may be,
and also on this Corporation.
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EIGHTH: Meetings of stockholders may be held within or without the State of
Delaware, as the by-laws may provide. The books of the Corporation may be kept
(subject to any provision contained in the Delaware statutes) outside the State
of Delaware at such place or places as may be designated from time to time by
the Board of Directors or in the by-laws of the Corporation. Elections of
Directors need not be by written ballot unless the by-laws of the Corporation
shall so provide.
NINTH: The Corporation reserves the right to amend, alter, change or repeal
any provision contained in this certificate of incorporation, in the manner now
or hereafter prescribed by statute, and all rights conferred upon stockholders
herein are granted subject to this reservation.
[Remainder of page intentionally has been left blank.]
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THE UNDERSIGNED, being the President of the Corporation, does make this
certificate, hereby declaring and certifying that this is his act and deed and
the facts herein stated are true, and accordingly has hereunto set his hand this
2nd day of November, 1999.
/s/ Joseph A. Forgione
----------------------
Joseph A. Forgione
President
<PAGE> 1
Ex - 3.5
CORPORATE BYLAWS OF INNER CIRCLE TECHNOLOGIES, INC.
ARTICLE I. OFFICES
Section 1. The registered office of the corporation shall be in the City of
Wilmington, County of New Castle, State of Delaware.
Section 2. The corporation may also have offices at such other places both
within and without the State of Delaware as the board of directors may from time
to time determine or the business of the corporation may require.
ARTICLE II. STOCKHOLDERS
Section 1. All meetings of the stockholders for the election of directors shall
be held in the City of Wilmington, State of Delaware, at such place as may be
fixed from time to time by the board of directors, or at such other place either
within or without the State of Delaware as shall be designated from time to time
by the board of directors and stated in the notice of the meeting. Meetings of
stockholders for any other purpose may be held at such time and place, within or
without the State of Delaware, as shall be stated in the notice of the meeting
or in a duly executed waiver of notice thereof.
Section 2. Annual meetings of stockholders, commencing with the year 1993, shall
be held on the first day of September if not a legal holiday, and if a legal
holiday, then on the next secular day following, at 10:00 o'clock A.M., or at
such other date and time as shall be designated from time to time by the board
of directors and stated in the notice of the meeting, at which meeting the
stockholders shall elect a board of directors, and transact such other business
as may properly be brought before the meeting.
Section 3. Written notice of the annual meeting stating the place, date and hour
of the meeting shall be given to each stockholder entitled to vote at such
meeting not less than ten nor more than fifty days before the date of the
meeting.
Section 4. The officer who has charge of the stock ledger of the corporation
shall prepare and make, at least ten days before every meeting of stockholders,
a complete list of the stockholders entitled to vote at the meeting, arranged in
alphabetical order, and showing the address of each stockholder and the number
of shares registered in the name of each stockholder. Such list shall be open to
the examination of any stockholder entitled to vote at the meeting, during
ordinary business hours, for a period of at least ten days prior to the meeting,
either at a place within the city where the meeting is to be held, which place
shall be specified in the notice of the meeting, or, if not so specified, at the
place where the meeting is to be held. The list shall also be produced and kept
at the time and place of the meeting during the whole time thereof, and may be
inspected by any stockholder who is present.
Section 5. Special meetings of the stockholders, for any purpose or purposes,
unless otherwise prescribed by statute or by the certificate of incorporation,
may be called by the president and shall be called by the president or secretary
at the request in writing of a majority of the board of
<PAGE> 2
directors, or at the request in writing of stockholders owning a majority in
amount of the entire capital stock of the corporation issued and outstanding and
entitled to vote. Such request shall state the purpose or purposes of the
proposed meeting.
Section 6. Written notice of a special meeting stating the place, date and hour
of the meeting and the purpose or purposes for which the meeting is called,
shall be given not less than ten nor more than fifty days before the date of the
meeting, to each stockholder entitled to vote at such meeting.
Section 7. Business transacted at any special meeting of stockholders shall be
limited to the purposes stated in the notice.
Section 8. The holders of a majority of the stock issued and outstanding and
entitled to vote thereat, present in person or represented by proxy, shall
constitute a quorum at all meetings of the stockholders for the transaction of
business except as otherwise provided by statute or by the certificate of
incorporation. If, however, such quorum shall not be present or represented at
any meeting of the stockholders, the stockholders entitled to vote thereat,
present in person or represented by proxy, shall have power to adjourn the
meeting from time to time, without notice other than announcement at the
meeting, until a quorum shall be present or represented. At such adjourned
meeting at which a quorum shall be present or represented any business may be
transacted at the meeting as originally notified. If the adjournment is for more
than thirty days, or if after the adjournment a new record date is fixed for the
adjourned meeting, a notice or the adjourned meeting shall be given to each
stockholder of record entitled to vote at the meeting.
Section 9. When a quorum is present at any meeting, the vote of holders of a
majority of the stock having voting power present in person or represented by
proxy shall decide any question brought before such meeting, unless the question
is one upon which by express provision of the statutes or of the certificate of
incorporation, a different vote is required in which case such express provision
shall govern and control the decision of such question.
Section 10. Unless otherwise provided in the certificate of incorporation each
stockholder shall at every meeting of the stockholders be entitled to one vote
in person or by proxy for each share of the capital stock having voting power
held by such stockholder, but no proxy shall be voted on after three years from
its date, unless the proxy provides for a longer period.
Section 11. Unless otherwise provided in the certificate of incorporation, any
action required to be taken at any annual or special meeting of stockholders of
the corporation, or any action which may be taken at any annual or special
meeting of such stockholders, may be taken without a meeting, without prior
notice and without a vote, if a consent in writing, setting forth the action so
taken, shall be signed by the holders of outstanding stock having not less than
the minimum numbers of votes that would be necessary to authorize or take such
action at a meeting at which all shares entitled to vote thereon were present
and voted. Prompt notice of the taking of the corporate action without a meeting
by less than unanimous written consent shall be given to those stockholders who
have not consented in writing.
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ARTICLE III. DIRECTORS
Section 1. The number of directors which shall constitute the whole board shall
not be less than one (1) nor more than ten (10). Within the limits above
specified, the number of directors shall be determined by resolution of the
board of directors or by the stockholders at the annual meeting. The directors
shall be elected at the annual meeting of the stockholders, except as provided
in Section 2 of this Article, and each director elected shall hold office until
his successor is elected and qualified. Directors need not be stockholders.
Section 2. Vacancies and newly created directorships resulting from any increase
in the authorized number of directors may be filled by a majority of the
directors then in office, though less than a quorum, or by a sole remaining
director, and the directors so chosen shall hold office until the next annual
election and until their successors are duly elected and shall qualify, unless
sooner displaced. If there are no directors in office, then an election of
directors may be held in the manner provided by statute. If, at the time of
filling any vacancy or any newly created directorship, the directors then in
office shall constitute less than a majority of the whole board (as constituted
immediately prior to any such increase), the Court of Chancery may, upon
application of any stockholder or stockholders holding at least ten percent of
the total number of the shares at the time outstanding having the right to vote
for such directors, summarily order an election to be held to fill any such
vacancies or newly created directorships, or to replace the directors chosen by
the directors then in office.
Section 3. The business of the corporation shall be managed by its board of
directors which may exercise all such powers of the corporation and do all such
lawful acts and things as are not by statute or by the certificate of
incorporation or by these by-laws directed or required to be exercised or done
by the stockholder.
MEETING OF THE BOARD OF DIRECTORS
Section 4. The board of directors of the corporation may hold meetings, both
regular and special, either within or without the State of Delaware.
Section 5. The first meeting of each newly elected board of directors shall be
held at such time and place as shall be fixed by the vote of the stockholders at
the annual meeting and no notice of such meeting shall be necessary to the newly
elected directors in order legally to constitute the meeting, provided a quorum
shall be present. In the event of the failure of the stockholders to fix the
time or place of such first meeting of the newly elected board of directors, or
in the event such meeting is not held at the time and place so fixed by the
stockholders, the meeting may be held at such time and place as shall be
specified in a notice given as hereinafter provided for special meetings of the
board of directors, or as shall be specified in a written waiver signed by all
of the directors.
Section 6. Regular meetings of the board of directors may be held without notice
at such time and at such place as shall from time to time be determined by the
board.
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Section 7. Special meetings of the board may be called by the president on three
(3) days notice to each director, either personally or by mail or by telegram;
special meetings shall be called by the president or secretary in like manner
and on like notice on the written request of two directors.
Section 8. At all meetings of the board one-third (1/3) of the directors shall
constitute a quorum for the transaction of business and the act of a majority of
the directors present at any meeting at which there is a quorum shall be the act
of the board of directors, except as may be otherwise specifically provided by
statute or by the certificate of incorporation. If a quorum shall not be present
at any meeting of the board of directors the directors present thereat may
adjourn the meeting from time to time, without notice other than announcement at
the meeting, until a quorum shall be present.
Section 9. Unless otherwise restricted by the certificate of incorporation or
these bylaws, any action required or permitted to be taken at any meeting of the
board of directors or of any committee thereof may be taken without a meeting,
if all members of the board or committee, as the case may be, consent thereto in
writing, and the writing or writings are filed with the minutes of proceedings
of the board or committee.
COMMITTEES OF DIRECTORS
Section 10. The board of directors may, by resolution passed by a majority of
the whole board, designate one or more committees, each committee to consist of
one or more of the directors of the corporation. The board may designate one or
more directors as alternate members of any committee, who may replace any absent
or disqualified member at any member of a committee. In the absence or
disqualification of a member of a committee, the member or members thereof
present at any meeting and not disqualified from voting, whether or not he or
they constitute a quorum, may unanimously appoint another member of the board of
directors to act at the meeting in the place of such absent or disqualified
member. Any such committee, to the extent provided in the resolution of the
board of directors, shall have and may exercise all the powers and authority of
the board of directors in the management of the business and affairs of the
corporation, and may authorize the seal of the corporation to be affixed to all
papers which may require it; but no such committee shall have the power or
authority in reference to amending the certificate of incorporation, adopting an
agreement of merger or consolidation, recommending to the stockholders the sale,
lease or exchange of all or substantially all of the corporation's property and
assets, recommending to the stockholders a dissolution of the corporation or a
revocation of a dissolution, or amending the by-laws of the corporation; and,
unless the resolution or the certificate of incorporation expressly so provides,
no such committee shall have the power or authority to declare a dividend or to
authorize the issuance of stock. Such committee or committees shall have such
name or names as may be determined from time to time by resolution adopted by
the board of directors.
Section 11. Each committee shall keep regular minutes of its meetings and report
the same to the board of directors when required.
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<PAGE> 5
COMPENSATION OF DIRECTORS
Section 12. Unless otherwise restricted by the certificate of incorporation, the
board of directors shall have the authority to fix the compensation of
directors. The directors may be paid their expenses, if any, of attendance at
each meeting of the board of directors or a stated salary as director. No such
payment shall preclude any director from serving the corporation in any other
capacity and receiving compensation therefor. Members of special or standing
committees may be allowed like compensation for attending committee meetings.
INDEMNIFICATION OF OFFICERS AND DIRECTORS
Section 13. (a) Definitions. As used herein, the term `director' shall include
each present and former director of the corporation and the term `officer' shall
include each present and former officer of the corporation as such, and the
terms `director' and `officer' shall also include each such director or officer
who, at the corporation's request, is serving or may have served as a director
or officer of another corporation in which the corporation owns, directly or
indirectly, shares of capital stock or of which it is a creditor, in his
capacity as a director or officer of such corporation. The term `officer' means
chairman of the board of directors, president, vice-president, treasurer,
secretary, and each assistant or divisional officer. The term `expenses' shall
include, but shall not be limited to, reasonable amounts for attorneys' fees,
costs, disbursements and other expenses and amounts for attorneys' fees, costs
disbursements and other expenses and the amount or amounts of judgments fines,
penalties and other liabilities;
(b) Indemnification Granted. Each director and officer shall be and hereby
is indemnified by the corporation against:
(i) expenses incurred or paid by him in connection with any claim
made against him, or any actual or threatened action, suit or
proceeding (civil criminal, administrative, investigative or
other, including appeals, and whether or not relating to a date
prior to the adoption of this Bylaw) in which he may be involved
as a party or otherwise, by reason of his being or having been a
director or officer, or by reason of any action taken or not
taken by him in such capacity, and
(ii) the amount or amounts paid by him in settlement of any such
claim, action, suit or proceeding or any judgment or order
entered therein, subject, however, to the following provisions:
(A) excluded from the indemnity given in subparagraphs (i) and
(ii) above are any amounts paid or payable by any such
director or officer to the corporation or to any other
corporation referred to in paragraph (a) hereof, and
(B) a director or officer who has been wholly successful, on the
merits or otherwise, in defense of any such claim, action,
suit or proceeding or in the defense of any claim, issue or
matter therein,
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shall be entitled as of right to indemnification for
expenses incurred by him therein. In any other case
indemnification shall be made only upon a determination
made, in the manner provided in subsection' (C) below, that
the director or officer acted in good faith for a purpose
which he reasonably believed to be in the best interest of
the corporation or such other corporation, as the case may
be, and in addition in any criminal action or proceeding
that he had no reasonable cause to believe that his conduct
was unlawful and, in case of any amount or amounts paid in
settlement, that such settlement is or was reasonable and in
the interest of the corporation; provided, however, if at
any time any provisions are contained in the laws of the
State of Delaware prohibiting indemnification in respect of
any claim, issue or matter except upon a determination of
the extent thereof shall be made only in accordance with
such provisions, and
(C) all determinations required or permitted by this bylaw,
except those to be made pursuant to statutory provisions,
shall be made by a majority of a quorum of the board of
directors comprised of those directors who are not parties
to such claim, action, suit or proceeding, or if no such
quorum exists, or, if such quorum exists and it so resolves,
by a group of three or more disinterested persons to whom
the questions shall be referred by a quorum of the board of
directors. In determining whether a director or officer has
met the standards of conduct above set forth, or whether a
settlement is or was reasonable and in the interest of the
corporation, the said majority of a quorum of the board of
directors, or such disinterested group, as the case may be,
may conclusively rely upon the opinion as to facts or law or
both of independent legal counsel selected by them. Neither
termination of any claim, action, suit or proceeding, civil
or criminal, by judgment, order, settlement or conviction
not the entry in a criminal case of any plea shall create a
presumption that a director or officer did not meet the
standard of conduct above set forth.
Subject to the limitations hereinabove imposed, it is
intended by this bylaw to grant indemnity to the full extent
permissible under the law. It is not intended that the
provisions of this bylaw shall be applicable to, and they
are not to be construed as granting indemnity with respect
to, matters as to which indemnification would be in
contravention of the laws of the State of Delaware or of the
United States of America, whether as a matter of public
policy or pursuant to statutory provision.
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(c) Miscellaneous. (i) Expenses incurred and amounts paid in settlement
with respect to any claim, action, suit or proceeding of the character described
in paragraph (b)(i) above may be advanced by the corporation prior to the final
disposition thereof upon receipt of an undertaking by or on behalf of the
recipient to repay such amount as shall not ultimately be determined to be
payable to him under this bylaw.
(ii) The rights of indemnification herein provided for shall be
severable, shall not be exclusive of other rights to which any
director or officer now or hereafter may be entitled, shall
continue as to a person who has ceased to be an indemnified
person and shall inure to the benefit of the heirs, executors,
administrators and other legal representatives of such a person.
(iii) The provisions of this by-law shall be deemed to be a contract
between the corporation and each director or officer who serves
in such capacity at any time while such by-law is in effect.
(iv) The board of directors shall have the power on behalf of the
corporation to grant indemnification to any person other than a
director or officer to such extent as the Board in its
discretion may from time to time determine.
(v) The corporation shall have the power to but shall not be
obligated to purchase and maintain insurance at its expense on
behalf of any person who is or was a director, officer, employee
or agent of another corporation, partnership, joint venture,
trust or other enterprise, against any liability asserted
against him and incurred by him in any such capacity or arising
out of his status as such, whether or not the corporation would
have the power to indemnify him against such liability.
ARTICLE IV. NOTICES
Section 1. Whenever, under the provisions of the statutes or of the certificate
of incorporation or of these by-laws, notice is required to be given to any
director or stockholder, it shall not be construed to mean personal notice, but
such notice may be given in writing, by mail, addressed to such director or
stockholder, at his address as it appears on the records of the corporation,
with postage thereon prepaid, and such notice shall be deemed to be given at the
time when the same shall be deposited in the United States mail. Notice to
directors may also be given by telegram.
Section 2. Whenever any notice is required to be given under the provisions of
the statutes or of the certificate of incorporation or of these bylaws, a waiver
thereof in writing, signed by the person or persons entitled to said notice,
whether before or after the time stated therein, shall be deemed equivalent
thereto.
ARTICLE V. OFFICERS
Section 1. The officers of the corporation shall be chosen by the board of
directors and shall be a president, a vice-president, a secretary, and a
treasurer. The board of directors may also choose
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additional vice-presidents, and one or more assistant secretaries and assistant
treasurers. Any number of offices may be held by the same person, unless the
certificate of incorporation or these bylaws otherwise provide.
Section 2. The board of directors at its first meeting after each annual meeting
of stockholders shall choose a president, one or more vice presidents, a
secretary and a treasurer.
Section 3. The board of directors may appoint such other officers and agents as
it shall deem necessary who shall hold their offices for such terms and shall
exercise such powers and perform such duties as shall be determined from time to
time by the board.
Section 4. The salaries of all officers and agents of the corporation shall be
fixed by the board of directors.
Section 5. The officers of the corporation shall hold office until their
successors are chosen and qualify. Any officer elected or appointed by the board
of directors may be removed at any time by the affirmative vote of a majority of
the board of directors. Any vacancy occurring in any office of the corporation
shall be filled by the board of directors.
THE PRESIDENT
Section 6. The president shall be the chief executive officer of the
corporation, shall preside at all meetings of the stockholders and the board of
directors, shall have general and active management of the business of the
corporation and shall see that all orders and resolutions of the board of
directors are carried into effect.
Section 7. He shall execute bonds, mortgages and other contracts requiring a
seal, under the seal of the corporation, except where required or permitted by
law to be otherwise signed and executed and except where the signing and
execution thereof shall be expressly delegated by the board of directors to some
other officer or agent of the corporation.
THE VICE-PRESIDENTS
Section 8. In the absence of the president or in the event of his inability or
refusal to act, the vice-president (or in the event there be more than one
vice-president, the vice-presidents in the order designated, or in the absence
of any designation, then in the order of their election) shall perform the
duties of the president, and when so acting, shall have all the powers of and be
subject to all the restrictions upon the president. The vice-presidents shall
perform such other duties and have such other powers as the board of directors
may from time to time prescribe.
THE SECRETARY AND ASSISTANT SECRETARY
Section 9. The secretary shall attend all meetings of the board of directors and
all meetings of the stockholders and record all the proceedings of the meetings
of the corporation and of the board of directors in a book to be kept for that
purpose and shall perform like duties for the standing committees when required.
He shall give, or cause to be given, notice of all meetings
8
<PAGE> 9
of the stockholders and special meetings of the board of directors, and shall
perform such other duties as may be prescribed by the board of directors or
president, under whose supervision he shall be. He shall have custody of the
corporate seal of the corporation and he, or an assistant secretary, shall have
authority to affix the same to any instrument requiring it and when so affixed,
it may be attested by his signature or by the signature of such assistant
secretary. The board of directors may give general authority to any officer to
affix the seal of the corporation and to attest the affixing by his signature.
Section 10. The assistant secretary, or if there be more than one, the assistant
secretaries in the order determined by the board of directors (or if there be no
such determination, then in the order of their election), shall, in the absence
of the secretary or in the event of his inability or refusal to act, perform the
duties and exercise the powers of the secretary and shall perform such other
duties and have such other powers as the board of directors may from time to
time prescribe.
THE TREASURER AND ASSISTANT TREASURERS
Section 11. The treasurer shall have the custody of the corporate funds and
securities and shall keep full and accurate accounts of receipts and
disbursements in books belonging to the corporation and shall deposit all moneys
and other valuable effects in the name and to the credit of the corporation in
such depositories as may be designated by the board of directors.
Section 12. He shall disburse the funds of the corporation as may be ordered by
the board of directors, taking proper vouchers for such disbursements, and shall
render to the president and the board of directors, at its regular meetings, or
when the board of directors so requires, an account of all his transactions as
treasurer and of the financial condition of the corporation.
Section 13. If required by the board of directors, he shall give the corporation
a bond (which shall be renewed every six years) in such sum and with such surety
or sureties as shall be satisfactory to the board of directors for the faithful
performance of the duties of his office and for the restoration to the
corporation, in case of his death, resignation, retirement or removal from
office, of all books, papers, vouchers, money and other property of whatever
kind in his possession or under his control belonging to the corporation.
Section 14. The assistant treasurer, or if there shall be more than one, the
assistant treasurers in the order determined by the board of directors (or if
there be no such determination, then in the order of their election), shall, in
the absence of the treasurer or in the event of his inability or refusal to act,
perform the duties and exercise the powers of the treasurer and shall perform
such other duties and have such other powers as the board of directors may from
time to time prescribe.
ARTICLE VI. CERTIFICATES OF STOCK
Section 1. Every holder of stock in the corporation shall be entitled to have a
certificate, signed by, or in the name of the corporation by, the chairman or
vice-chairman of the board of directors, or the president or vice-president and
the treasurer or an assistant treasurer, or the secretary or an assistant
secretary of the corporation. If the corporation shall be authorized to issue
more than
9
<PAGE> 10
one class of stock or more than one series of any class, the powers,
designations, preferences and relative, participating, optional or other special
rights of each class of stock or series thereof and the qualifications,
limitations or restrictions of such preferences and/or rights shall be set forth
in full or summarized on the face or back of the certificate which the
corporation shall issue to represent such class or series of stock, provided
that, except as otherwise provided in section 202 of the General corporation Law
of Delaware, in lieu of the foregoing requirements, there may be set forth on
the face or back of the certificate which the corporation shall issue to
represent such class or series of stock, a statement that the corporation will
furnish without charge to each stockholder who so requests the powers,
designations, preferences and relative, participating, optional or other special
rights of each class of stock or series thereof and the qualifications,
limitations or restrictions of such preferences and/or rights.
Section 2. Where a certificate is countersigned (1) by a transfer agent other
than the corporation or its employee, or, (2) by a registrar other than the
corporation or its employee, any other signature on the certificate may be a
facsimile. In case any officer, transfer agent or registrar who has signed or
whose facsimile signature has been placed upon a certificate shall have ceased
to be such officer, transfer agent or registrar before such certificate is
issued, it may be issued by the corporation with the same effect as if he were
such officer, transfer agent or registrar at the date of issue.
LOST CERTIFICATES
Section 3. The board of directors may direct a new certificate or certificates
to be issued in place of any certificate or certificates theretofore issued by
the corporation alleged to have been lost, stolen or destroyed, upon the making
of an affidavit of that fact by the person claiming the certificate of stock to
be lost, stolen or destroyed. When authorizing such issuance of a new
certificate or certificates, the board of directors may, in its discretion and
as a condition precedent to the issuance thereof, require the owner of such
lost, stolen or destroyed certificate or certificates, or his legal
representative, to advertise the same in such manner as it shall require and/or
to give the corporation a bond in such sum as it may direct as indemnity against
any claim that may be made against the corporation with respect to the
certificate alleged to have been lost, stolen or destroyed.
TRANSFER OF STOCK
Section 4. Upon surrender to the corporation or the transfer agent of the
corporation of a certificate for shares duly endorsed or accompanied by proper
evidence of succession, assignment or authority to transfer, it shall be the
duty of the corporation to issue a new certificate to the person entitled
thereto, cancel the old certificate and record the transaction upon its books.
FIXING RECORD DATE
Section 5. In order that the corporation may determine the stockholders entitled
to notice of or to vote at any meeting of stockholders or any adjournment
thereof, or to express consent to corporate action in writing without a meeting,
or entitled to receive payment of any dividend or
10
<PAGE> 11
other distribution or allotment of any rights, or entitled to exercise any
rights in respect of any change, conversion or exchange of stock or for the
purpose of any other lawful action, or exchange of stock or for the purpose of
any other lawful action, the board of directors may fix, in advance, a record
date, which shall not be more than sixty days prior to any other action. A
determination of stockholders of record entitled to notice of or to vote at a
meeting of stockholders shall apply to any adjournment of the meeting; provided,
however, that the board of directors may fix a new record date for the adjourned
meeting.
REGISTERED STOCKHOLDERS
Section 6. The corporation shall be entitled to recognize the exclusive right of
a person registered on its books as the owner of shares to receive dividends,
and to vote as such owner, and to hold liable for calls and assessments a person
registered on its books as the owner of shares, and shall not be bound to
recognize any equitable or other claim to or interest in such share or shares on
the part of any other person, whether or not it shall have express or other
notice thereof, except as otherwise provided by the laws of Delaware.
ARTICLE VII. GENERAL PROVISIONS
DIVIDENDS
Section 1. Dividends upon the capital stock of the corporation, subject to any
provisions of the certificate of incorporation, if any, may be declared by the
board of directors at any regular or special meeting, pursuant to law. Dividends
may be paid in cash, in property, or in shares of the capital stock, subject to
the provisions of the certificate of incorporation.
Section 2. Before payment of any dividend, there may be set aside out of any
funds of the corporation available for dividends such sum or sums as the
directors from time to time, in their absolute discretion, think proper as a
reserve or reserves to meet contingencies, or for equalizing dividends, or for
repairing or maintaining any property of the corporation, or for such other
purpose as the directors shall think conductive to the interest of the
corporation, and the directors may modify or abolish any such reserve in the
manner in which it was created.
ANNUAL STATEMENT
Section 3. The board of directors shall present at each annual meeting, and at
any special meeting of the stockholders when called for by vote of the
stockholders, a full and clear statement of the business and conditions of the
corporation.
CHECKS
Section 4. All checks or demands for money and notes of the corporation shall be
signed by such officer or officers or such other person or persons as the board
of directors may from time to time designate.
11
<PAGE> 12
FISCAL YEAR
Section 5. The fiscal year of the corporation shall be fixed by resolution of
the board of directors.
SEAL
Section 6. The corporate seal shall have inscribed thereon the name of the
corporation, the year of its organization and the words "Corporate Seal,
Delaware". The seal may be used by causing it or a facsimile thereof to be
impressed or affixed or reproduced on otherwise.
ARTICLE VIII. AMENDMENTS
Section 1. These bylaws may be altered, amended or repealed or new bylaws may be
adopted by the stockholders or by the board of directors, when such power is
conferred upon the board of directors by the certificate of incorporation at any
regular meeting of the stockholders or of the board of directors or at any
special meeting of the stockholders or of the board of directors if notice of
such alteration, amendment, repeal or adoption of new bylaws be contained in the
notice of such special meeting.
12
<PAGE> 1
Ex - 4.3
THIS WARRANT AND THE SHARES ISSUABLE HEREUNDER HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, PLEDGED, OR
OTHERWISE TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION THEREOF UNDER SUCH ACT
OR PURSUANT TO RULE 144 OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE
CORPORATION AND ITS COUNSEL, THAT SUCH REGISTRATION IS NOT REQUIRED.
WARRANT TO PURCHASE STOCK
Corporation: NovaLink USA Corporation, a Delaware corporation
Number of Shares: Set Forth Below
Class of Stock: common, $.001 par value (the "Common Stock")
Initial Exercise Price: $0.01 per share
Issue Date: July 18, 1997
Expiration Date: July 17, 2002
THIS WARRANT CERTIFIES THAT, for the agreed upon value of $1.00 and for
other good and valuable consideration, SILICON VALLEY BANK ("Holder") is
entitled to purchase the Shares (as defined below) of NovaLink USA Corporation
(the "Company") at an exercise price per Share of $0.01 (the "Warrant Price"),
subject to the provisions and upon the terms and conditions set forth in this
Warrant.
ARTICLE 1. EXERCISE.
1.1 METHOD OF EXERCISE. Holder may exercise this Warrant by
delivering a duly executed Notice of Exercise in substantially the form attached
as APPENDIX 1 to the principal office of the Company. Unless Holder is
exercising the conversion right set forth in Section 1.2, Holder shall also
deliver to the Company a check for the aggregate Warrant Price for the Shares
being purchased.
1.2 CONVERSION RIGHTS. In lieu of exercising this Warrant as
specified in Section 1.1, Holder may from time to time convert this Warrant, in
whole or in part, into a number of Shares determined by dividing (a) the
aggregate fair market value of the Shares or other securities otherwise issuable
upon exercise of this Warrant minus the aggregate Warrant Price of such Shares
by (b) the fair market value of one Share. The fair market value of the Shares
shall be determined pursuant to Section 1.4.
1.3 SHARES. (a) Subject to adjustment as set forth in Article 2, the
Holder shall be entitled to purchase the number of fully paid and nonassessable
shares of Common Stock of the Company (the "Shares") pursuant to this Warrant
that is equal to $25,000.00 divided by the sales price per share of Common Stock
(or the sales price per share of any stock of the Company that is convertible
into Common Stock on an equal share for share basis) issued in connection with
next equity issuance by the Company after the issue date of this Warrant in
which the Company receives aggregate minimum of $1,000,000.00 in exchange for
such equity (an "Equity Issuance") in an arms length transaction. For example,
if the sales price per share of Common Stock in the next Equity Issuance is
$2.00, then the number of Shares that the Holder may purchase pursuant to this
Warrant would be 12,500 (25,000 divided by 2.00).
(b) Subject to adjustment as set forth in Article 2, in the
event that an Equity Issuance does not occur within ninety (90) days from the
issue date of this Warrant, then the number of Shares that may be purchased
pursuant to this Warrant shall be the greater of (i) 25,000, or (ii) the number
that is equal to $25,000 divided by the sales price per share of Common Stock
(or the sales price
<PAGE> 2
per share of any stock of the company that is convertible into Common Stock on
an equal share for share basis) issued in connection with next Equity Issuance.
(c) The Company shall give the Holder at least ten (10) days
prior written notice of the proposed closing date of the next Equity Issuance.
The Company shall give the Holder written notice immediately after the closing
of the next Equity Issuance setting forth (i) the sales price per share of
Common Stock (or the sales price per share of any stock of the Company that is
convertible into Common Stock on an equal share for share basis)issued in
connection with such Equity Issuance, (ii) the class and number of shares of
stock of the Company issued in connection with such Equity Issuance, (iii) the
closing date of such Equity Issuance, and (iv) the number of Shares that the
Holder may purchase pursuant to this Warrant calculated in accordance with
Section 1.3(a) or 1.3(b), as the case may be.
1.4 FAIR MARKET VALUE. If the Shares are traded in a public market,
the fair market value of the Shares shall be the closing price of the Shares (or
the closing price of the Company's stock into which the Shares are convertible)
reported for the business day immediately before Holder delivers its Notice of
Exercise to the Company. If the Shares are not traded in a public market, the
Board of Directors of the Company shall determine fair market value in its
reasonable good faith judgment. The foregoing notwithstanding, if Holder advises
the Board of Directors in writing that Holder disagrees with such determination,
then the Company and Holder shall promptly agree upon a reputable investment
banking firm to undertake such valuation. If the valuation of such investment
banking firm is greater than that determined by the Board of Directors, then all
fees and expenses of such investment banking firm shall be paid by the Company.
In all other circumstances, such fees and expenses shall be paid by Holder.
1.5 DELIVERY OF CERTIFICATE AND NEW WARRANT. Promptly after Holder
exercises or converts this Warrant, the Company shall deliver to Holder
certificates for the Shares acquired and, if this Warrant has not been fully
exercised or converted and has not expired, a new Warrant representing the
Shares not so acquired.
1.6 REPLACEMENT OF WARRANTS. On 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, on delivery of an
indemnity agreement reasonably satisfactory in form and amount to the Company
or, in the case of mutilation, on surrender and cancellation of this Warrant,
the Company at its expense shall execute and deliver, in lieu of this Warrant, a
new warrant of like tenor.
1.7 REPURCHASE ON SALE, MERGER, OR CONSOLIDATION OF THE COMPANY.
1.7.1. "ACQUISITION". For the purpose of this Warrant,
"Acquisition" means any sale, license, or other disposition of all or
substantially all of the assets of the Company, or any reorganization,
consolidation, or merger of the Company where the holders of the Company's
securities before the transaction beneficially own less than 50% of the
outstanding voting securities of the surviving entity after the transaction.
1.7.2. ASSUMPTION OF WARRANT. Upon the closing of any
Acquisition the successor entity shall assume the obligations of this Warrant,
and this Warrant shall be exercisable for the same securities, cash, and
property as would be payable for the Shares issuable upon exercise of the
unexercised portion of this Warrant as if such Shares were outstanding on the
record date for the Acquisition and subsequent closing. The Warrant Price shall
be adjusted accordingly.
1.7.3. PURCHASE RIGHT. Notwithstanding the foregoing, at the
election of Holder, the Company shall purchase the unexercised portion of this
Warrant for cash upon the closing of any Acquisition for an amount equal to (a)
the fair market value of any consideration that would have
<PAGE> 3
been received by Holder in consideration of the Shares had Holder exercised the
unexercised portion of this Warrant immediately before the record date for
determining the shareholders entitled to participate in the proceeds of the
Acquisition, less (b) the aggregate Warrant Price of the Shares, but in no event
less than zero.
ARTICLE 2. ADJUSTMENTS TO THE SHARES.
2.1 STOCK DIVIDENDS, SPLITS, ETC. If the Company declares or pays a
dividend on its Common Stock (or the Shares if the Shares are securities other
than Common Stock) payable in Common Stock, or other securities, subdivides the
outstanding Common Stock into a greater amount of Common Stock, or, if the
Shares are securities other than Common Stock, subdivides the Shares in a
transaction that increases the amount of Common Stock into which the Shares are
convertible, then upon exercise of this Warrant, for each Share acquired, Holder
shall receive, without cost to Holder, the total number and kind of securities
to which Holder would have been entitled had Holder owned the Shares of record
as of the date the dividend or subdivision occurred.
2.2 RECLASSIFICATION, EXCHANGE OR SUBSTITUTION. Upon any
reclassification, exchange, substitution, or other event that results in a
change of the number and/or class of the securities issuable upon exercise or
conversion of this Warrant, Holder shall be entitled to receive, upon exercise
or conversion of this Warrant, the number and kind of securities and property
that Holder would have received for the Shares if this Warrant had been
exercised immediately before such reclassification, exchange, substitution, or
other event. Such an event shall include any automatic conversion of the
outstanding or issuable securities of the Company of the same class or series as
the Shares to Common Stock pursuant to the terms of the Company's Articles of
Incorporation upon the closing of a registered public offering of the Company's
Common Stock. The Company or its successor shall promptly issue to Holder a new
Warrant for such new securities or other property. The new Warrant shall provide
for adjustments which shall be as nearly equivalent as may be practicable to the
adjustments provided for in this Article 2 including, without limitation,
adjustments to the number of securities or property issuable upon exercise of
the new Warrant. The provisions of this Section 2.2 shall similarly apply to
successive reclassifications, exchanges, substitutions, or other events.
2.3 INTENTIONALLY OMITTED
2.4 INTENTIONALLY OMITTED
2.5 NO IMPAIRMENT. The Company shall not, by amendment of its
Articles of Incorporation or through a reorganization, transfer of assets,
consolidation, merger, dissolution, issue, or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms to be observed or performed under this Warrant by the Company, but
shall at all times in good faith assist in carrying out of all the provisions of
this Article 2 and in taking all such action as may be necessary or appropriate
to protect Holder's rights under this Article against impairment.
2.6 FRACTIONAL SHARES. No fractional Shares shall be issuable upon
exercise or conversion of the Warrant and the number of Shares to be issued
shall be rounded down to the nearest whole Share. If a fractional share interest
arises upon any exercise or conversion of the Warrant, the Company shall
eliminate such fractional share interest by paying Holder amount computed by
multiplying the fractional interest by the fair market value of a full Share.
ARTICLE 3. REPRESENTATIONS AND COVENANTS OF THE COMPANY.
<PAGE> 4
3.1 REPRESENTATIONS AND WARRANTIES. The Company hereby represents and
warrants to the Holder as follows:
(a) All Shares which may be issued upon the exercise of the
purchase right represented by this Warrant, and all securities, if any, issuable
upon conversion of the Shares, shall, upon issuance, be duly authorized, validly
issued, fully paid and nonassessable, and free of any liens and encumbrances
except for restrictions on transfer provided for herein or under applicable
federal and state securities laws.
(b) The authorized capital stock of the Company consists of
20,000,000 shares, consisting of 17,000,000 shares of Common Stock, 1,000,000
shares of Preferred Class A Convertible Stock, $.01 par value, and 2,000,000
shares of undesignated preferred stock. Schedule 3.1(b) sets forth all of the
outstanding shares of Common Stock and outstanding options, warrants,
convertible securities, convertible debentures, and rights to acquire, subscribe
for, and/or purchase any Common Stock and/or other capital stock of the Company
or any securities or debentures convertible into or exchangeable for Common
Stock and/or other capital stock of the Company.
(c) The Company has reserved for issuance pursuant to this
Warrant not less than 25,000 shares of the Common Stock of the Company, and the
Company covenants that it shall at all times cause to be reserved and kept
available out of its authorized and unissued shares of Common Stock of the
Company such number of shares of Common Stock as will be sufficient to permit
the exercise in full of this Warrant,
3.2 NOTICE OF CERTAIN EVENTS. If the Company proposes at any time (a)
to declare any dividend or distribution upon its Common Stock, whether in cash,
property, stock, or other securities and whether or not a regular cash dividend;
(b) to offer for subscription pro rata to the holders of any class or series of
its stock any additional shares of stock of any class or series or other rights;
(c) to effect any reclassification or recapitalization of Common Stock; (d) to
merge or consolidate with or into any other corporation, or sell, lease,
license, or convey all or substantially all of its assets, or to liquidate,
dissolve or wind up; or (e) offer holders of registration rights the opportunity
to participate in an underwritten public offering of the company's securities
for cash, then, in connection with each such event, the Company shall give
Holder (1) at least 20 days prior written notice of the date on which a record
will be taken for such dividend, distribution, or subscription rights (and
specifying the date on which the holders of Common Stock will be entitled
thereto) or for determining rights to vote, if any, in respect of the matters
referred to in (c) and (d) above; (2) in the case of the matters referred to in
(c) and (d) above at least 20 days prior written notice of the date when the
same will take place (and specifying the date on which the holders of Common
Stock will be entitled to exchange their Common Stock for securities or other
property deliverable upon the occurrence of such event); and (3) in the case of
the matter referred to in (e) above, the same notice as is given to the holders
of such registration rights.
3.3 INFORMATION RIGHTS. So long as the Holder holds this Warrant
and/or any of the Shares, the Company shall deliver to the Holder (a) promptly
after mailing, copies of all notices or other written communications to the
shareholders of the Company, (b) within ninety (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
(c) such other financial statements required under and in accordance with any
loan documents between Holder and the Company, then within forty-five (45) days
after the end of each of the first three quarters of each fiscal year, the
Company's quarterly, unaudited financial statements.
3.4 REGISTRATION UNDER SECURITIES ACT OF 1933, AS AMENDED. The
Company agrees that the Shares or, if the Shares are convertible into Common
Stock of the Company, such Common Stock, shall be subject to the registration
rights set forth in that certain Registration Rights Agreement, dated as of the
date of this Warrant, by and between Holder and the Company.
<PAGE> 5
ARTICLE 4. MISCELLANEOUS.
4.1 TERM. This Warrant is exercisable, in whole or in part, at any
time and from time to time on or before the Expiration Date set forth above.
4.2 LEGENDS. This Warrant and the Shares (and the securities
issuable, directly or indirectly, upon conversion of the Shares, if any) shall
be imprinted with a legend in substantially the following form:
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, AND MAY NOT BE SOLD, PLEDGED OR OTHERWISE TRANSFERRED WITHOUT AN
EFFECTIVE REGISTRATION THEREOF UNDER SUCH ACT OR PURSUANT TO RULE 144 OR AN
OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE CORPORATION AND ITS
COUNSEL THAT SUCH REGISTRATION IS NOT REQUIRED.
4.3 COMPLIANCE WITH SECURITIES LAWS ON TRANSFER. This Warrant and the
Shares issuable upon exercise this Warrant (and the securities issuable,
directly or indirectly, upon conversion of the Shares, if any) may not be
transferred or assigned in whole or in part without compliance with applicable
federal and state securities laws by the transferor and the transferee
(including, without limitation, the delivery of investment representation
letters and legal opinions reasonably satisfactory to the Company, as reasonably
requested by the Company). The Company shall not require Holder to provide an
opinion of counsel if the transfer is to an affiliate of Holder or if there is
no material question as to the availability of current information as referenced
in Rule 144(c), Holder represents that it has complied with Rule 144(d) and (e)
in reasonable detail, the selling broker represents that it has complied with
Rule 144(f), and the Company is provided with a copy of Holder s notice of
proposed sale.
4.4 TRANSFER PROCEDURE. Subject to the provisions of Section 4.3
Holder may transfer this Warrant at any time to one of the following entities:
Silicon Valley Bancshares, The Silicon Valley Bank Foundation, or, to any other
affiliate of the Holder (any such transferee is referred to herein as a
"Transferee") by giving the Company notice of such transfer setting forth the
name, address and taxpayer identification number of the Transferee and
surrendering this Warrant to the Company for reissuance to the Transferee.
4.5 NOTICES. All notices and other communications from the Company to
the Holder, or vice versa, shall be deemed delivered and effective when given
personally or mailed by first-class registered or certified mail, postage
prepaid, at such address as may have been furnished to the Company or the
Holder, as the case may be, in writing by the Company or such holder from time
to time.
4.6 WAIVER. This Warrant and any term hereof may be changed, waived,
discharged or terminated only by an instrument in writing signed by the party
against which enforcement of such change, waiver, discharge or termination is
sought.
4.7 ATTORNEYS FEES. In the event of any dispute between the parties
concerning the terms and provisions of this Warrant, the party prevailing in
such dispute shall be entitled to collect from the other party all costs
incurred in such dispute, including reasonable attorneys' fees.
4.8 GOVERNING LAW. This Warrant shall be governed by and construed in
accordance with the laws of the Commonwealth of Massachusetts, without giving
effect to its principles regarding conflicts of law.
<PAGE> 6
ATTEST: "COMPANY"
NovaLink USA Corporation
By: /s/ Dave Rodriguez By: /s/ J. Radoff
------------------------------------ -----------------------
Name: David E. Rodriguez Name: Jon Radoff
---------------------------------- ---------------------
Title: Assistant Vice President, SVE Title: CEO
--------------------------------- ---
<PAGE> 7
APPENDIX 1
NOTICE OF EXERCISE
1. The undersigned hereby elects to purchase shares of the common
stock of NovaLink USA Corporation pursuant to Section 1.1 of the attached
Warrant, and tenders herewith payment of the purchase price of such shares in
full.
1. The undersigned hereby elects to convert the attached Warrant into
Shares in the manner specified in Section 1.2 of the attached Warrant. This
conversion is exercised with respect to ________of shares of the common stock of
NovaLink USA Corporation.
[Strike paragraph that does not apply.]
2. Please issue a certificate or certificates representing said shares in
the name of the undersigned or in such other name as is specified below:
_____________________________________
(Name)
_____________________________________
_____________________________________
(Address)
3. The undersigned represents it is acquiring the shares solely for its
own account and not as a nominee for any other party and not with a view toward
the resale or distribution thereof except in compliance with applicable
securities laws.
___________________________________
(Signature)
____________________
(Date)
<PAGE> 8
SCHEDULE 3.1(c) - Capitalization
Outstanding Capital Stock:
Outstanding options, warrants, convertible securities, convertible debentures,
and rights to acquire, subscribe for, and/or purchase any Common Stock and/or
other capital stock of the Company or any securities or debentures convertible
into or exchangeable for Common Stock and/or other capital stock of the Company:
<PAGE> 1
Ex - 4.4
THIS WARRANT AND THE SECURITIES THAT MAY BE ACQUIRED UPON THE EXERCISE OF THIS
WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "SECURITIES ACT"), OR UNDER THE PROVISIONS OF ANY APPLICABLE STATE
SECURITIES LAWS, AND MAY NOT BE SOLD, PLEDGED, HYPOTHECATED OR OTHERWISE
TRANSFERRED UNLESS (I) A REGISTRATION STATEMENT WITH RESPECT THERETO IS
EFFECTIVE UNDER THE SECURITIES ACT OR (II) THE COMPANY HAS RECEIVED AN OPINION
OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT
REQUIRED.
NOVALINK USA CORPORATION
CAPITAL STOCK PURCHASE WARRANT
NovaLink USA Corporation, a Delaware corporation (the "Company"), hereby
certifies that, for value received, Prism Venture Partners I, L.P. ("Holder") is
entitled, subject to the terms set forth below, to purchase from the Company at
any time or from time to time on or after the date hereof and prior to 5:00
P.M., Boston time, on the Expiration Date, the Warrant Number of fully paid and
non-assessable shares of the Venture Financing Security at a price per share
equal to the Conversion Price (the "Purchase Price").
Capitalized terms not defined when used herein shall have the meanings set
forth in Section 6.
SECTION 1. EXERCISE OF WARRANT.
1.1. EXERCISE. This Warrant may be exercised by Holder, in whole or in
part, at any time and from time to time by surrender of this Warrant, together
with (i) the form of subscription at the end hereof duly executed by Holder, to
the Company at its principal office, and (ii) payment, by certified or official
bank check payable to the order of the Company or by wire transfer to its
account, in the amount obtained by multiplying the number of shares of Common
Stock for which this Warrant is then being exercised by the Purchase Price then
in effect. In the event the Warrant is not exercised in full, the Company, at
its expense, shall forthwith issue and deliver to or upon the order of Holder a
new Warrant of like tenor in the name of Holder or as Holder (upon payment by
Holder of any applicable transfer taxes) may request, calling in the aggregate
on the face thereof for the number of shares of Venture Financing Security equal
(without giving effect to any adjustment therein) to (i) the Warrant Number
minus (ii) the number of such shares for which this Warrant shall have been
exercised (without giving effect to any adjustment in number as a result of
changes in the Purchase Price called for above).
1.2 DELIVERY OF STOCK CERTIFICATES. Subject to the terms and conditions of
this Agreement, as soon as practicable after the exercise of this Warrant in
full or in part, the Company at its expense (including, without limitation, the
payment by it of any applicable issue
<PAGE> 2
taxes) will cause to be issued in the name of and delivered to Holder, or as
Holder (upon payment by Holder of any applicable transfer taxes) may direct, a
certificate or certificates for the number of fully paid and non-assessable
shares of the Venture Financing Security to which Holder shall be entitled on
such exercise, together with any other stock or other securities and property
(including cash, where applicable) to which Holder is entitled upon such
exercise.
1.3. FRACTIONAL SHARES. This Warrant may not be exercised as to fractional
shares of the Venture Financing Security. In the event that the exercise of this
Warrant, in full or in part, would result in the issuance of any fractional
share of the Venture Financing Security, then in such event Holder shall be
entitled to cash equal to the fair market value of such fractional share as
determined in good faith by the Board of Directors of the Company.
1.4. COMPLIANCE WITH LAW. This Warrant is subject to all laws, regulations
and orders of any governmental authority that may be applicable hereto and,
notwithstanding any of the provisions hereof, the Holder agrees that the Holder
will not exercise the Warrant nor will the Company be obligated to issue any
shares of stock hereunder if exercise thereof or the issuance of such shares, as
the case may be, would constitute a violation by the Holder or the Company of
any such law, regulation or order or any provision thereof. As a consequence,
the Holder may not be able to exercise this Warrant if it is not an "accredited
investor" as defined in Regulation D promulgated under the Securities Act as of
the time of exercise. The Company shall not be obligated to take any affirmative
action in order to cause the exercise of this Warrant or the issuance of shares
pursuant hereto to comply with any such law, regulation, order or provision.
SECTION 2. ADJUSTMENTS.
2.1. STOCK DIVIDENDS, SPLITS, ETC. If the Company (i) declares or pays a
dividend on its Common Stock or on the Venture Financing Securities if the
Venture Financing Securities are securities other than Common Stock, such
dividend to be paid in Common Stock or other securities of the Company, (ii)
subdivides its outstanding shares of Common Stock into a greater amount of
Common Stock, or, if the Venture Financing Securities are securities other than
Common Stock, subdivides the Venture Financing Securities into a greater among
of Venture Financing Securities, then, upon exercise of this Warrant, for each
Venture Financing Security acquired, the Holder shall receive, without cost to
the Holder, the total number and kind of securities to which the Holder would
have been entitled had the Holder owned the Venture Financing Securities of
record as of the date the dividend or subdivision occurred.
2.2 RECLASSIFICATION, EXCHANGE OR SUBSTITUTION. Upon any reclassification,
exchange, substitution, or other event that results in a change in the number
and/or class of the securities issuable upon exercise of this Warrant, the
Holder shall be entitled to receive, upon exercise of this Warrant, the number
and kind of securities and property that the holder would have received for the
Venture Financing Securities if this Warrant had been exercised immediately
before such reclassification, exchange, substitution or other event. Such an
event shall include, without limitation, any automatic conversion of the
outstanding or issuable securities of the Company of the same class or series as
the Venture Financing Securities to Common Stock pursuant to the terms of the
Company's Certificate of Incorporation upon the closing of a registered public
<PAGE> 3
offering of the Company's Common Stock. The Company or its successor shall
promptly issue to the Holder a new Warrant for such new securities or other
property. The new Warrant shall provide for adjustments which shall be as nearly
equivalent as may be practical to the adjustments provided for in this Article 2
including without limitation, adjustments to the number of securities or
property issuable upon exercise of the new Warrant.
SECTION 3. CERTAIN OBLIGATIONS OF THE COMPANY.
3.1. RESERVATION OF STOCK. From and after the date as of which the nature
of the Venture Financing Security is known by the Company, the Company covenants
that it will at all times reserve and keep available out of its authorized and
unissued capital stock, solely for the purpose of issue upon exercise of the
purchase rights evidenced by this Warrant, a number of shares of the Venture
Financing Security equal to the number of shares of the Venture Financing
Security issuable hereunder. The Company will from time to time, in accordance
with the laws of the State of Delaware, take action to increase the authorized
amount of its Venture Financing Securities if at any time the number of shares
of the Venture Financing Security authorized but remaining unissued and
unreserved for other purposes shall be insufficient to permit the exercise of
this Warrant.
3.2. NO VALUATION OR IMPAIRMENT. The Company will not, by amendment of its
Certificate of Incorporation, including, without limitation, amendment of the
par value of its Common Stock, or through reorganization, consolidation, merger,
dissolution, issuance of capital stock or sale of treasury stock (otherwise than
upon exercise of this Warrant) or sale of assets, or by any other voluntary act
or deed, avoid or seek to avoid the material performance or observance of any of
the covenants, stipulations or conditions in this Warrant to be observed or
performed by the Company. The Company will at all times in good faith assist,
insofar as it is able, in the carrying out of all of the provisions of this
Warrant in a reasonable manner and in the taking of all other action that may be
necessary in order to protect the rights of the holder of this Warrant against
dilution in the manner required by the provisions of this Warrant.
3.3. MAINTENANCE OF OFFICE. The Company will maintain an office where
presentations and demands to or upon the Company in respect of this Warrant may
be made. The Company will give notice in writing to Holder, at the address of
Holder appearing on the books of the Company, of each change in the location of
such office.
SECTION 4. REORGANIZATION, ETC.
If any reorganization or reclassification of the capital stock of the
Company, or consolidation or merger of the Company with another corporation, or
sale of all or substantially all of its assets to another corporation or other
Person shall be effected, then, as a condition of such reorganization,
reclassification, consolidation, merger or sale, lawful and adequate provision
shall be made whereby Holder shall thereafter have the right to purchase and
receive upon the terms and conditions herein specified and in lieu of the shares
of the Venture Financing Securities of the Company immediately theretofore
purchasable and receivable upon exercise of this Warrant such securities or
property as may be issued or payable with respect to or in
<PAGE> 4
exchange for a number of outstanding shares of the Venture Financing Securities
equal to the number of shares of the Venture Financing Securities immediately
theretofore purchasable and receivable upon the exercise of this Warrant had
such reorganization, reclassification, consolidation, merger or sale not taken
place, and in any such case appropriate provision shall be made with respect to
the rights and interests of Holder to the end that the provisions hereof
(including, without limitation, provisions for adjustments of the Purchase Price
and of the number of shares purchasable upon the exercise of this Warrant) shall
thereafter be applicable, as nearly as may be, in relation to any securities or
property thereafter deliverable upon the exercise hereof. The Company shall not
effect any such reorganization, consolidation, merger or sale unless, prior to
or contemporaneously with the consummation thereof, the successor corporation
(if other than the Company) resulting from such consolidation or merger or the
corporation or other Person purchasing such assets shall assume by written
instrument executed and delivered to Holder, the obligation to deliver to Holder
such securities or property as, in accordance with the foregoing provisions,
Holder may be entitled to purchase or receive.
SECTION 5. NOTICES OF RECORD DATE.
In the event of:
(a) any taking by the Company of a record of the holders of any class
of securities for the purpose of determining the holders thereof who are
entitled to receive any dividend or other distribution, or any right to
subscribe for, purchase or otherwise acquire any shares of stock of any class or
any other securities or property, or to receive any other right; or
(b) any capital reorganization of the Company, any reclassification
of the capital stock of the Company or any transfer of all or substantially all
the assets of the Company to or any consolidation or merger of the Company with
or into any other Person; or
(c) any voluntary or involuntary dissolution, liquidation or
winding-up of the Company,
then, and in each such event, the Company will give to Holder a notice
specifying (i) the date on which any such 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, and (ii) the date on which any such
reorganization, reclassification, transfer, consolidation, merger, dissolution,
liquidation or winding-up is to take place, and the time, if any is to be fixed,
as of which the holders of record of the Company's capital stock shall be
entitled to exchange their shares of the Company's capital stock for securities
or other property deliverable on such reorganization, reclassification,
transfer, consolidation, merger, dissolution, liquidation or winding-up. Such
notice shall be mailed at least 10 days prior to the date specified in such
notice on which any such action is to be taken.
<PAGE> 5
SECTION 6. DEFINITIONS.
As used herein, the following terms, unless the context otherwise requires,
have the following respective meanings:
6.1. The term COMMON STOCK means the Company's Common Stock, par value
$.001, and any other securities into which or for which the Common Stock is
converted or exchanged pursuant to a plan of reclassification, reorganization,
consolidation, merger, sale of assets, dissolution, liquidation, or otherwise.
6.2. The term CONVERSION PRICE shall mean the lessor of (i) the actual
price per share of the Venture Financing Security when sold in the Venture
Financing and (ii) $.497 per share of the Venture Financing Security.
6.3 The term EXPIRATION DATE shall mean the fifth anniversary of the date
of this Warrant.
6.4. The term PERSON shall mean an individual, partnership, corporation,
association, trust, joint venture, unincorporated organization or any
government, governmental department or agency or political subdivision thereof.
6.5. The term VENTURE FINANCING shall mean any venture capital
institutional or other equity security financing for the account of the Company
in which stock of the Company is sold for cash and the aggregate gross proceeds
to be received (or commitments for the amounts to be received) by the Company
equals $3,000,000 (exclusive of amounts received under any note held by the
Holder).
6.6. The term VENTURE FINANCING SECURITY shall mean the security of the
Company sold to the investors in the Venture Financing.
6.7. The term WARRANT NUMBER shall mean the number of shares of the Venture
Financing Security obtained by dividing $162,500 by the Conversion Price.
6.8. The term WARRANT STOCK shall mean any equity security issued upon
exercise of this Warrant.
SECTION 7. REPLACEMENT OF WARRANTS.
Upon (a) surrender of this Warrant in mutilated form or receipt of evidence
satisfactory to the Company of the loss, theft or destruction of this Warrant
and (b) in the case of any loss, theft or destruction of any Warrant, receipt of
an indemnity agreement or security reasonably satisfactory in form and amount to
the Company, then, in the absence of actual notice to the Company that this
Warrant has been acquired by a bona fide purchaser, the Company, at its expense,
shall execute and deliver, in lieu of this Warrant, a new Warrant identical in
form to this Warrant.
<PAGE> 6
SECTION 8. REMEDIES.
The Company stipulates that the remedies at law of the Holder in the
event of any breach or threatened breach by the Company of the terms of this
Warrant are not and will not be adequate, and that such terms may be
specifically enforced by a decree for the specific performance of any agreement
contained herein or by an injunction against a breach of any of the terms hereof
or otherwise.
SECTION 9. TRANSFER.
This Warrant and the shares of the Venture Financing Security issuable
hereunder shall not be sold, transferred, pledged or hypothecated unless the
proposed disposition is the subject of a Federal currently effective
registration statement under the Securities Act or unless the Company has
received an opinion of counsel, in form and substance reasonably satisfactory to
the Company, to the effect that such registration is not required in connection
with such disposition. Subject to the first sentence of this Section, this
Warrant and all rights hereunder are transferable, in whole or in part, at the
office or agency of the Company by the registered holder thereof in person or by
a duly authorized attorney, upon surrender of this Warrant together with an
assignment hereof properly endorsed. Until transfer hereof on the registration
books of the Company, the Company may treat the existing registered holder
hereof as the owner hereof for all purposes. Any transferee of this Warrant and
any rights hereunder, by acceptance thereof, agrees to assume all of the
obligations of Holder and to be bound by all of the terms and provisions of this
Warrant.
SECTION 10. NOTICES.
Where this Warrant provides for notice of any event, such notice shall
be given (unless otherwise herein expressly provided) in writing and either (i)
delivered personally, (ii) sent by certified, registered or express mail,
postage prepaid, (iii) telegraphed or (iv) telexed or sent by facsimile
transmission, and shall be deemed given when so delivered personally,
telegraphed, telexed, sent by facsimile transmission (confirmed in writing) or
mailed. Notices shall be addressed, if to Holder, to the address of Holder
appearing in the Company's records or, if to the Company, to its office
maintained pursuant to Section 3.3.
SECTION 11. MISCELLANEOUS.
This Warrant shall be binding upon the Company and Holder and their
legal representatives, successors and assigns. In case any provision of this
Warrant shall be invalid, illegal or unenforceable, or partially invalid,
illegal or unenforceable, the provision shall be enforced to the extent, if any,
that it may legally be enforced and the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby.
This Warrant and any term hereof may be changed, waived, discharged or
terminated only by a statement in writing signed by the party against which
enforcement of such change, waiver, discharge or termination is sought. This
Warrant shall be governed by, and construed and enforced in accordance with, the
laws of the Commonwealth of Massachusetts without regard to
<PAGE> 7
its principles of conflicts of laws. The headings in this Warrant are for
purposes of reference only, and shall not limit or otherwise affect any of the
terms hereof. This Warrant shall take effect as an instrument under seal.
<PAGE> 8
IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by
its duly authorized officer and its corporate seal to be impressed hereon and
attested by its Secretary.
Dated as of October 9, 1997 NOVALINK USA CORPORATION
(Corporate Seal) By: /s/ J Radoff
------------
Its:
Attest:
/s/ Pat Bryant
--------------
Secretary
<PAGE> 9
FORM OF SUBSCRIPTION
(To be signed only on exercise of
Capital Stock Purchase Warrant)
TO: NOVALINK USA CORPORATION
The undersigned, the holder of the within Capital Stock Purchase Warrant, hereby
irrevocably elects to exercise this Capital Stock Purchase Warrant for, and to
purchase thereunder *____ shares of Venture Financing Securities of NOVALINK USA
CORPORATION (the "Company") and herewith makes payment of $ therefor, and
requests that the certificates for such shares be issued in the name of, and
delivered to ______________________, whose address is _________________________.
Dated: ________________________________
(Signature must conform in all
respects to name of Holder as
specified on the face of the
Warrant)
_______________________________________________________________________
(Address)
_________________________
*Insert here the number of shares (all or part of the number of shares
called for in the Capital Stock Purchase Warrant) as to which the Capital
exercised without making any adjustment for any other stock or other securities
or property or cash that, pursuant to the adjustment provisions of the Common
Stock Purchase Warrant, may be deliverable on exercise.
<PAGE> 10
FORM OF ASSIGNMENT
(To be signed only on transfer of
Capital Stock Purchase Warrant)
For value received, the undersigned hereby sells, assigns, and transfers
unto _______________________________________ of _______________________________
the right represented by the within Capital Stock Purchase Warrant to purchase
shares of Venture Financing Securities of NOVALINK USA CORPORATION
to which the within Capital Stock Purchase Warrant relates, and appoints ,
Attorney to transfer such right on the books of NOVALINK USA
CORPORATION with full power of substitution in the premises.
Dated: ____________________________________
(Signature must conform in all
respects to name of Holder as
specified on the face of the
Warrant)
________________________________________________________________________________
(Address)
Signed in the presence of:
________________________________________
<PAGE> 1
Ex - 4.5
THIS WARRANT AND THE SHARES ISSUABLE HEREUNDER HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, PLEDGED, OR
OTHERWISE TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION THEREOF UNDER SUCH ACT
OR PURSUANT TO RULE 144 OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE
CORPORATION AND ITS COUNSEL, THAT SUCH REGISTRATION IS NOT REQUIRED.
WARRANT TO PURCHASE STOCK
Corporation: EPRISE CORPORATION, formerly known as NovaLink USA Corporation, a
Delaware corporation
Number of Shares: 75,453 shares of Common Stock
Class of Stock: common, $.001 par value (the "Common Stock")
Initial Exercise Price: $0.497 per share
Issue Date: December 5, 1997
Expiration Date: December 5, 2002
THIS WARRANT CERTIFIES THAT, for the agreed upon value of $1.00 and for
other good and valuable consideration, SILICON VALLEY BANK ("Holder") is
entitled to purchase the Shares (as defined below) of EPRISE CORPORATION,
formerly known as NovaLink USA Corporation (the "Company") at an exercise price
per Share of $____ (the "Warrant Price"), subject to the provisions and upon the
terms and conditions set forth in this Warrant.
ARTICLE 1. EXERCISE.
1.1 METHOD OF EXERCISE. Holder may exercise this Warrant by
delivering a duly executed Notice of Exercise in substantially the form attached
as Appendix 1 to the principal office of the Company. Unless Holder is
exercising the conversion right set forth in Section 1.2, Holder shall also
deliver to the Company a check for the aggregate Warrant Price for the Shares
being purchased.
1.2 CONVERSION RIGHT. In lieu of exercising this Warrant as specified
in Section 1.1, Holder may from time to time convert this Warrant, in whole or
in part, into a number of Shares determined by dividing (a) the aggregate fair
market value of the Shares or other securities otherwise issuable upon exercise
of this Warrant minus the aggregate Warrant Price of such Shares by (b) the fair
market value of one Share. The fair market value of the Shares shall be
determined pursuant to Section 1.4.
1.3 INTENTIONALLY OMITTED
1.4 FAIR MARKET VALUE. If the Shares are traded in a public market,
the fair market value of the Shares shall be the closing price of the Shares (or
the closing price of the Company's stock into which the Shares are convertible)
reported for the business day immediately before Holder delivers its Notice of
Exercise to the Company. If the Shares are not traded in a public market, the
Board of Directors of the Company shall determine fair market value in its
reasonable good faith judgment. The foregoing notwithstanding, if Holder advises
the Board of Directors in writing that Holder disagrees with such determination,
then the Company and Holder shall promptly agree upon a reputable investment
banking firm to undertake such valuation. If the valuation of such investment
banking firm is greater than that determined by the Board of Directors, then all
fees and expenses of such investment banking firm shall be paid by the Company.
In all other circumstances, such fees and expenses shall be paid by Holder.
<PAGE> 2
1.5 DELIVERY OF CERTIFICATE AND NEW WARRANT. Promptly after Holder
exercises or converts this Warrant, the Company shall deliver to Holder
certificates for the Shares acquired and, if this Warrant has not been fully
exercised or converted and has not expired, a new Warrant representing the
Shares not so acquired.
1.6 REPLACEMENT OF WARRANTS. On 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, on delivery of an
indemnity agreement reasonably satisfactory in form and amount to the Company
or, in the case of mutilation, on surrender and cancellation of this Warrant,
the Company at its expense shall execute and deliver, in lieu of this Warrant, a
new warrant of like tenor.
1.7 REPURCHASE ON SALE, MERGER, OR CONSOLIDATION OF THE COMPANY.
1.7.1. "ACQUISITION". For the purpose of this Warrant,
"Acquisition" means any sale, license, or other disposition of all or
substantially all of the assets of the Company, or any reorganization,
consolidation, or merger of the Company where the holders of the Company's
securities before the transaction beneficially own less than 50% of the
outstanding voting securities of the surviving entity after the transaction.
1.7.2. ASSUMPTION OF WARRANT. Upon the closing of any
Acquisition the successor entity shall assume the obligations of this Warrant,
and this Warrant shall be exercisable for the same securities, cash, and
property as would be payable for the Shares issuable upon exercise of the
unexercised portion of this Warrant as if such Shares were outstanding on the
record date for the Acquisition and subsequent closing. The Warrant Price shall
be adjusted accordingly.
1.7.3. PURCHASE RIGHT. Notwithstanding the foregoing, at the
election of Holder, the Company shall purchase the unexercised portion of this
Warrant for cash upon the closing of any Acquisition for an amount equal to (a)
the fair market value of any consideration that would have been received by
Holder in consideration of the Shares had Holder exercised the unexercised
portion of this Warrant immediately before the record date for determining the
shareholders entitled to participate in the proceeds of the Acquisition, less
(b) the aggregate Warrant Price of the Shares, but in no event less than zero.
ARTICLE 2. ADJUSTMENTS TO THE SHARES.
2.1 STOCK DIVIDENDS, SPLITS, ETC. If the Company declares or pays a
dividend on its Common Stock (or the Shares if the Shares are securities other
than Common Stock) payable in Common Stock, or other securities, subdivides the
outstanding Common Stock into a greater amount of Common Stock, or, if the
Shares are securities other than Common Stock, subdivides the Shares in a
transaction that increases the amount of Common Stock into which the Shares are
convertible, then upon exercise of this Warrant, for each Share acquired, Holder
shall receive, without cost to Holder, the total number and kind of securities
to which Holder would have been entitled had Holder owned the Shares of record
as of the date the dividend or subdivision occurred.
2.2 RECLASSIFICATION, EXCHANGE OR SUBSTITUTION. Upon any
reclassification, exchange, substitution, or other event that results in a
change of the number and/or class of the securities issuable upon exercise or
conversion of this Warrant, Holder shall be entitled to receive, upon exercise
or conversion of this Warrant, the number and kind of securities and property
that Holder would have received for the Shares if this Warrant had been
exercised immediately before such reclassification, exchange, substitution, or
other event. Such an event shall include any automatic
<PAGE> 3
conversion of the outstanding or issuable securities of the Company of the same
class or series as the Shares to Common Stock pursuant to the terms of the
Company's Articles of Incorporation upon the closing of a registered public
offering of the Company's Common Stock. The Company or its successor shall
promptly issue to Holder a new Warrant for such new securities or other
property. The new Warrant shall provide for adjustments which shall be as nearly
equivalent as may be practicable to the adjustments provided for in this Article
2 including, without limitation, adjustments to the number of securities or
property issuable upon exercise of the new Warrant. The provisions of this
Section 2.2 shall similarly apply to successive reclassifications, exchanges,
substitutions, or other events.
2.3 INTENTIONALLY OMITTED
2.4 ADJUSTMENTS FOR DILUTING ISSUANCES. In the event of the issuance
(a "Diluting Issuance") by the Company, after the Issue Date of this Warrant, of
Common Stock at a price per share less than the Warrant Price or securities
convertible into Common Stock at a conversion price per share less than the
Warrant Price, then the number of Shares issuable upon exercise of this Warrant,
shall be adjusted as a result of Diluting Issuances in accordance with that
certain Antidilution Agreement dated as of the date of this Warrant, by and
between Holder and the Company. Under no circumstances shall the aggregate
Warrant Price payable by Holder upon exercise of this Warrant increase as a
result of any adjustment arising from a Diluting Issuance.
2.5 NO IMPAIRMENT. The Company shall not, by amendment of its
Articles of Incorporation or through a reorganization, transfer of assets,
consolidation, merger, dissolution, issue, or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms to be observed or performed under this Warrant by the Company, but
shall at all times in good faith assist in carrying out of all the provisions of
this Article 2 and in taking all such action as may be necessary or appropriate
to protect Holder's rights under this Article against impairment.
2.6 FRACTIONAL SHARES. No fractional Shares shall be issuable upon
exercise or conversion of the Warrant and the number of Shares to be issued
shall be rounded down to the nearest whole Share. If a fractional share interest
arises upon any exercise or conversion of the Warrant, the Company shall
eliminate such fractional share interest by paying Holder amount computed by
multiplying the fractional interest by the fair market value of a full Share.
ARTICLE 3. REPRESENTATIONS AND COVENANTS OF THE COMPANY.
3.1 REPRESENTATIONS AND WARRANTIES. The Company hereby represents and
warrants to the Holder as follows:
(a) All Shares which may be issued upon the exercise of the
purchase right represented by this Warrant, and all securities, if any, issuable
upon conversion of the Shares, shall, upon issuance, be duly authorized, validly
issued, fully paid and nonassessable, and free of any liens and encumbrances
except for restrictions on transfer provided for herein or under applicable
federal and state securities laws.
(b) The authorized capital stock of the Company consists of
20,000,000 shares, consisting of 17,000,000 shares of Common Stock, 1,000,000
shares of Preferred Class A Convertible Stock, $.01 par value, and 2,000,000
shares of undesignated preferred stock. SCHEDULE 3.1(b) sets forth all of the
outstanding shares of Common Stock and outstanding options, warrants,
convertible securities, convertible debentures, and rights to acquire, subscribe
for, and/or purchase any Common Stock and/or other capital stock of the Company
or any securities or debentures convertible into or exchangeable for Common
Stock and/or other capital stock of the Company.
<PAGE> 4
(c) The Company has reserved for issuance pursuant to this
Warrant not less than 75,453 shares of the Common Stock of the Company, and the
Company covenants that it shall at all times cause to be reserved and kept
available out of its authorized and unissued shares of Common Stock of the
Company such number of shares of Common Stock as will be sufficient to permit
the exercise in full of this Warrant,
3.2 NOTICE OF CERTAIN EVENTS. If the Company proposes at any time (a)
to declare any dividend or distribution upon its Common Stock, whether in cash,
property, stock, or other securities and whether or not a regular cash dividend;
(b) to offer for subscription pro rata to the holders of any class or series of
its stock any additional shares of stock of any class or series or other rights;
(c) to effect any reclassification or recapitalization of Common Stock; (d) to
merge or consolidate with or into any other corporation, or sell, lease,
license, or convey all or substantially all of its assets, or to liquidate,
dissolve or wind up; or (e) offer holders of registration rights the opportunity
to participate in an underwritten public offering of the company's securities
for cash, then, in connection with each such event, the Company shall give
Holder (1) at least 20 days prior written notice of the date on which a record
will be taken for such dividend, distribution, or subscription rights (and
specifying the date on which the holders of Common Stock will be entitled
thereto) or for determining rights to vote, if any, in respect of the matters
referred to in (c) and (d) above; (2) in the case of the matters referred to in
(c) and (d) above at least 20 days prior written notice of the date when the
same will take place (and specifying the date on which the holders of Common
Stock will be entitled to exchange their Common Stock for securities or other
property deliverable upon the occurrence of such event); and (3) in the case of
the matter referred to in (e) above, the same notice as is given to the holders
of such registration rights.
3.3 INFORMATION RIGHTS. So long as the Holder holds this Warrant
and/or any of the Shares, the Company shall deliver to the Holder (a) promptly
after mailing, copies of all notices or other written communications to the
shareholders of the Company, (b) within ninety (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
(c) such other financial statements required under and in accordance with any
loan documents between Holder and the Company, then within forty-five (45) days
after the end of each of the first three quarters of each fiscal year, the
Company's quarterly, unaudited financial statements.
3.4 REGISTRATION UNDER SECURITIES ACT OF 1933, AS AMENDED. The
Company agrees that the Shares or, if the Shares are convertible into Common
Stock of the Company, such Common Stock, shall be subject to the registration
rights set forth in that certain Registration Rights Agreement, dated as of the
date of this Warrant, by and between Holder and the Company.
ARTICLE 4. MISCELLANEOUS.
4.1 TERM. This Warrant is exercisable, in whole or in part, at any
time and from time to time on or before the Expiration Date set forth above.
4.2 LEGENDS. This Warrant and the Shares (and the securities
issuable, directly or indirectly, upon conversion of the Shares, if any) shall
be imprinted with a legend in substantially the following form:
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, AND MAY NOT BE SOLD, PLEDGED OR OTHERWISE TRANSFERRED WITHOUT AN
EFFECTIVE REGISTRATION THEREOF UNDER SUCH ACT OR PURSUANT TO RULE 144 OR AN
OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE CORPORATION AND ITS
COUNSEL THAT SUCH REGISTRATION IS NOT REQUIRED.
<PAGE> 5
4.3 COMPLIANCE WITH SECURITIES LAWS ON TRANSFER. This Warrant and the
Shares issuable upon exercise this Warrant (and the securities issuable,
directly or indirectly, upon conversion of the Shares, if any) may not be
transferred or assigned in whole or in part without compliance with applicable
federal and state securities laws by the transferor and the transferee
(including, without limitation, the delivery of investment representation
letters and legal opinions reasonably satisfactory to the Company, as reasonably
requested by the Company). The Company shall not require Holder to provide an
opinion of counsel if the transfer is to an affiliate of Holder or if there is
no material question as to the availability of current information as referenced
in Rule 144(c), Holder represents that it has complied with Rule 144(d) and (e)
in reasonable detail, the selling broker represents that it has complied with
Rule 144(f), and the Company is provided with a copy of Holder s notice of
proposed sale.
4.4 TRANSFER PROCEDURE. Subject to the provisions of Section 4.3
Holder may transfer this Warrant at any time to one of the following entities:
Silicon Valley Bancshares, The Silicon Valley Bank Foundation, or, to any other
affiliate of the Holder (any such transferee is referred to herein as a
"Transferee") by giving the Company notice of such transfer setting forth the
name, address and taxpayer identification number of the Transferee and
surrendering this Warrant to the Company for reissuance to the Transferee.
4.5 NOTICES. All notices and other communications from the Company to
the Holder, or vice versa, shall be deemed delivered and effective when given
personally or mailed by first-class registered or certified mail, postage
prepaid, at such address as may have been furnished to the Company or the
Holder, as the case may be, in writing by the Company or such holder from time
to time.
4.6 WAIVER. This Warrant and any term hereof may be changed, waived,
discharged or terminated only by an instrument in writing signed by the party
against which enforcement of such change, waiver, discharge or termination is
sought.
4.7 ATTORNEYS FEES. In the event of any dispute between the parties
concerning the terms and provisions of this Warrant, the party prevailing in
such dispute shall be entitled to collect from the other party all costs
incurred in such dispute, including reasonable attorneys' fees.
4.8 GOVERNING LAW. This Warrant shall be governed by and construed in
accordance with the laws of the Commonwealth of Massachusetts, without giving
effect to its principles regarding conflicts of law.
ATTEST: "COMPANY"
EPRISE CORPORATION, formerly known as
NovaLink USA Corporation
By: /s/ Pat Bryant By: /s/ J.A. Forgione
-------------- -----------------
Name: Pat Bryant Name: Joseph A. Forgione
---------- ------------------
Title: Secretary Title: President
--------- ---------
<PAGE> 6
APPENDIX 1
NOTICE OF EXERCISE
1. The undersigned hereby elects to purchase _______ shares of the common
stock of EPRISE CORPORATION, formerly known as NovaLink USA Corporation,
pursuant to Section 1.1 of the attached Warrant, and tenders herewith payment of
the purchase price of such shares in full.
1. The undersigned hereby elects to convert the attached Warrant into
Shares in the manner specified in Section 1.2 of the attached Warrant. This
conversion is exercised with respect to _____________________ of shares of the
common stock of EPRISE CORPORATION, formerly known as NovaLink USA Corporation .
[Strike paragraph that does not apply.]
2. Please issue a certificate or certificates representing said shares in
the name of the undersigned or in such other name as is specified below:
_______________________________________
(Name)
_______________________________________
_______________________________________
(Address)
3. The undersigned represents it is acquiring the shares solely for its
own account and not as a nominee for any other party and not with a view toward
the resale or distribution thereof except in compliance with applicable
securities laws.
_________________________________
(Signature)
_____________________
(Date)
<PAGE> 7
SCHEDULE 3.1(c) - Capitalization
Outstanding Capital Stock:
Outstanding options, warrants, convertible securities, convertible debentures,
and rights to acquire, subscribe for, and/or purchase any Common Stock and/or
other capital stock of the Company or any securities or debentures convertible
into or exchangeable for Common Stock and/or other capital stock of the Company:
<PAGE> 1
Exhibit 4.6
ANTIDILUTION AGREEMENT
THIS ANTIDILUTION AGREEMENT is entered into as of December 5, 1997, by
and between Silicon Valley Bank ("Purchaser") and EPRISE CORPORATION, formerly
known as NovaLink USA Corporation (the "Company").
RECITALS
A. Concurrently with the execution of this Antidilution Agreement, the
Purchaser is purchasing from the Company a Warrant (the "Warrant") pursuant to
which Purchaser has the right to acquire from the Company the Shares (as defined
in the Warrant).
B. By this Antidilution Agreement, the Purchaser and the Company desire
to set forth the adjustment in the number of Shares issuable upon exercise of
the Warrant as a result of a Diluting Issuance (as defined in the Warrant).
C. Capitalized terms used herein shall have the same meaning as set
forth in the Warrant.
NOW, THEREFORE, in consideration of the mutual promises, covenants
and conditions hereinafter set forth, the parties hereto mutually agree as
follows:
1. DEFINITIONS. As used in this Antidilution Agreement, the
following terms have the following respective meanings:
(a) "Option" means any right, option, or warrant to subscribe
for, purchase, or otherwise acquire common stock or Convertible Securities.
(b) "Convertible Securities" means any evidences of
indebtedness, shares of stock, or other securities directly or indirectly
convertible into or exchangeable for Common Stock.
(c) "Issue" means to grant, issue, sell, assume, or fix a
record date for determining persons entitled to receive, any security (including
Options), whichever of the foregoing is the first to occur.
(d) "Additional Common Shares" means all Common Stock
(including reissued shares) Issued (or deemed to be issued pursuant to Section
2) after the date of the Warrant. Additional Common Shares does not include,
however, any Common Stock Issued in a transaction described in Sections 2.1 and
2.2 of the Warrant; any Common Stock Issued upon conversion of Options and
Convertible Securities outstanding as of the date of the Warrant; the Shares; or
Common Stock Issued pursuant to a stock option plan which was approved by the
Board of Directors of the Company prior to the date of the Warrant, as an
incentive to, or in a nonfinancing transaction to employees, officers,
directors, or consultants to the Company.
2. DEEMED ISSUANCE OF ADDITIONAL COMMON SHARES. The shares of Common
Stock ultimately issuable upon exercise of an Option (including the shares of
Common Stock ultimately issuable upon conversion or exercise of a Convertible
Security issuable pursuant to an Option) are deemed to be Issued when the Option
is Issued. The shares of Common Stock ultimately issuable upon conversion or
exercise of a Convertible Security (other than a Convertible Security Issued
pursuant to an Option) shall be deemed Issued upon Issuance of the Convertible
Security. The maximum amount of Common Stock issuable is determined without
regard to any future adjustments permitted under the instrument creating the
Options or Convertible Securities.
<PAGE> 2
3. ADJUSTMENT OF WARRANT PRICE FOR DILUTING ISSUANCES.
3.1 WEIGHTED AVERAGE ADJUSTMENT. If the Company issues
Additional Common Shares after the date of the Warrant and the consideration per
Additional Common Share (determined pursuant to Section 4) is less than the
Warrant Price in effect immediately before such Issue, the Warrant Price shall
be reduced, concurrently with such Issue, to a price (calculated to the nearest
hundredth of a cent) determined by multiplying the Warrant Price by a fraction:
(a) the numerator of which is the amount of such Common Stock
outstanding immediately before such Issue plus the amount of Common Stock that
the aggregate consideration received by the Company for the Additional Common
Shares would purchase at the Warrant Price in effect immediately before such
Issue, and
(b) the denominator of which is the amount of Common Stock
outstanding immediately before such Issue plus the number of such Additional
Common Shares.
3.2 INTENTIONALLY OMITTED.
3.3 SECURITIES DEEMED OUTSTANDING. For the purpose of this
Section 3, all securities issuable upon exercise of any outstanding Convertible
Securities or Options, warrants, or other rights to acquire securities of the
Company shall be deemed to be outstanding.
4. COMPUTATION OF CONSIDERATION. The consideration received by the
Company for the Issue of any Additional Common Shares shall be computed as
follows:
(a) CASH shall be valued at the amount of cash received by the
Corporation, excluding amounts paid or payable for accrued interest or accrued
dividends.
(b) PROPERTY. Property other than cash shall be computed at
the fair market value thereof at the time of the Issue as determined in good
faith by the Board of Directors of the Company.
(c) MIXED CONSIDERATION. The consideration for Additional
common Shares Issued together with other property of the Company for
consideration that covers both shall be determined in good faith by the Board of
Directors.
(d) OPTIONS AND CONVERTIBLE SECURITIES. The consideration per
Additional Common Share for Options and Convertible Securities shall be
determined by dividing:
(i) the total amount, if any, received or receivable
by the Company for the Issue of the Options or Convertible Securities, plus the
minimum amount of additional consideration (as set forth in the instruments
relating thereto, without regard to any provision contained therein for a
subsequent adjustment of such consideration) payable to the Company upon
exercise of the Options or conversion of the Convertible Securities, by
(ii) the maximum amount of Common Stock (as set forth in
the instruments relating thereto, without regard to any provision contained
therein for a subsequent adjustment of such number) ultimately issuable upon the
exercise of such Options or the conversion of such Convertible Securities.
5. GENERAL.
<PAGE> 3
5.1 GOVERNING LAW. This Antidilution Agreement shall be governed in
all respects by the laws of the Commonwealth of Massachusetts as such laws are
applied to agreements between Massachusetts residents entered into and to be
performed entirely within Massachusetts.
5.2 SUCCESSORS AND ASSIGNS. 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.
5.3 ENTIRE AGREEMENT. Except as set forth below, this Antidilution
Agreement and the other documents delivered pursuant hereto constitute the full
and entire understanding and agreement between the parties with regard to the
subjects hereof and thereof.
5.4 NOTICES, ETC. All notices and other communications required or
permitted hereunder shall be in writing and shall be mailed by first class mail,
postage prepaid, certified or registered mail, return receipt requested,
addressed (a) if to Purchaser at Purchaser's address as set forth below, or at
such other address as Purchaser shall have furnished to the Company in writing,
or (b) if to the Company, at the Company's address set forth below, or at such
other address as the Company shall have furnished to the Purchaser in writing.
5.5 SEVERABILITY. In case any provision of this Antidilution
Agreement shall be invalid, illegal, or unenforceable, the validity, legality
and enforceability of the remaining provisions of this Antidilution Agreement
shall not in any way be affected or impaired thereby.
5.6 TITLE AND SUBTITLES. The titles of the sections and subsections
of this Agreement are for convenience of reference only and are not to be
considered in construing this Antidilution Agreement.
5.7 COUNTERPARTS. This Antidilution Agreement may be executed in any
number of counterparts, each of which shall be an original, but all of which
together shall constitute one instrument.
PURCHASER: COMPANY:
SILICON VALLEY BANK EPRISE CORPORATION, formerly known
as NovaLink USA Corporation
By: /s/ Dave Rodriguez By: /s/ J.A. Forgione
Name: Dave Rodriguez Name: Joseph A. Forgione
Title: Assistant Vice President Title: President
Address: 3003 Tasman Drive Address: 1671 Worcester Road
P.O. Box 2607 Framingham, MA 01701
Santa Clara, CA 95054-1191
<PAGE> 1
Ex - 4.7
THESE SECURITIES HAVE BEEN ISSUED PURSUANT TO EXEMPTIONS FOR NONPUBLIC OFFERINGS
FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED,
AND APPLICABLE STATE SECURITIES LAWS, AND, ACCORDINGLY, THESE SECURITIES MAY NOT
BE RESOLD OR OTHERWISE DISPOSED OF UNLESS, IN THE OPINION OF COUNSEL FOR OR
SATISFACTORY TO THE ISSUER, REGISTRATION UNDER THE APPLICABLE FEDERAL OR STATE
SECURITIES LAWS IS NOT REQUIRED OR COMPLIANCE IS MADE WITH SUCH REGISTRATION
REQUIREMENTS.
VOID AFTER 5:00 P.M. NEW YORK TIME, ON SEPTEMBER 8, 2004.
WARRANT TO PURCHASE 649,227 SHARES OF COMMON STOCK
OF
EPRISE CORPORATION
This is to certify that, FOR VALUE RECEIVED, DEUTSCHE BANK SECURITIES INC.
or its registered assigns pursuant to Section (d) hereof ("Holder"), is entitled
to purchase, subject to the provisions of this Warrant, from EPRISE CORPORATION,
a Delaware corporation (the "Company"), 649,227 fully paid, validly issued and
nonassessable shares of Common Stock, par value $.001 per share, of the Company
("Common Stock"), at the exercise price of $1.54 per share until September 8,
2004. The number of shares of Common Stock to be received upon the exercise of
this Warrant and the price to be paid for each share of Common Stock may be
adjusted from time to time as hereinafter set forth. The shares of Common Stock
deliverable upon such exercise, and as adjusted from time to time, are
hereinafter sometimes referred to as "Warrant Shares," and the exercise price of
a share of Common Stock as adjusted from time to time is hereinafter sometimes
referred to as the "Exercise Price."
(a) EXERCISE OF WARRANT; NOTIFICATION OF EXPIRATION DATE OF WARRANT. The
Warrant may be exercised as to a minimum of 100,000 Warrant Shares at any time
or from time to time, until 5:00 P.M. New York time on September 8, 2004 (the
"Expiration Date"), provided, however, that if such day is a day on which
banking institutions in the State of New York are authorized by law to close,
then on the next succeeding day which shall not be such a day. The Warrant may
be exercised by presentation and surrender hereof to the Company at its
principal office, or at the office of its stock transfer agent, if any, with the
Purchase Form annexed hereto duly executed (with signature guaranteed if
required by the Company or its stock transfer agent) and accompanied by payment
of the Exercise Price for the number of Warrant Shares specified in such form
and any applicable taxes. The purchase price for any Warrant Shares purchased
pursuant to the exercise of this Warrant shall be paid in full upon such
exercise in cash; or by certified or bank check; or pursuant to a cashless
exercise procedure whereby the Warrant Shares issued upon exercise of this
Warrant will be sold by a broker acceptable to the Company (provided, however,
that any broker affiliated with Deutsche Bank Securities Inc. shall
<PAGE> 2
be deemed acceptable) pursuant to irrevocable instructions of the Holder to such
broker to deliver payment to the Holder promptly upon sale equal to the
difference between the Exercise Price and the sale price, in cash, and deliver
to the Company the Exercise Price for the Warrant Shares, in cash; or any
combination of the foregoing methods of paying the Exercise Price. In the
alternative, the Warrant may be exchanged for shares of Common Stock as
described in Section (1), "Right to Convert Warrant into Common Stock." As soon
as practicable after each such exercise of the Warrant, but not later than seven
(7) business days from the date of such exercise, the Company shall issue and
deliver to the Holder a certificate or certificates for the Warrant Shares
issuable upon such exercise, registered in the name of the Holder or the
Holder's designee, except in the case of a cashless exercise. If the Warrant
should be exercised in part only, the Company shall, upon surrender of the
Warrant for cancellation, execute and deliver a new Warrant evidencing the
rights of the Holder thereof to purchase the balance of the Warrant Shares
purchasable hereunder. In the event of a cash exercise, upon receipt by the
Company of the Warrant at its office, or by the stock transfer agent of the
Company at its office, in proper form for exercise, together with the exercise
price therefor and taxes as aforesaid in cash or certified or bank check and the
investment letter described below, the Holder shall be deemed to be the holder
of record of the shares of Common Stock issuable upon such exercise,
notwithstanding that the stock transfer books of the Company shall then be
closed or that certificates representing such shares of Common Stock shall not
then be physically delivered to the Holder. In order to assure the availability
of an exemption from registration under the federal or applicable state
securities laws, the Company may condition the exercise of the Warrant upon the
Holder delivering to the Company an investment letter in the form as customarily
used by the Company from time to time in connection with the exercise of
non-registered options and warrants which are issued by the Company. It is
further understood that certificates for the Warrant Shares, if any, to be
issued upon exercise of the Warrant may contain a restrictive legend in
accordance with Section (j) hereof.
Notwithstanding anything herein to the contrary, the Company shall mail to
the Holder, by certified mail, return receipt requested, notice of the
Expiration Date of the Warrants, no later than 60 days prior to the Expiration
Date. To the extent the Company shall fail to send the required notice at the
time and in the manner set forth in the preceding sentence, the Expiration Date
of the Warrants shall be extended to a date 60 days following the date that a
written notice of the Expiration Date of the Warrants from the Company is
received by the Holder.
(b) RESERVATION OF SHARES. The Company shall at all times reserve for
issuance and/or delivery upon exercise of this Warrant such number of shares of
its Common Stock as shall be required for issuance and delivery upon exercise of
the Warrants. If the Common Stock is or becomes listed on any national
securities exchange or the Nasdaq National Market, the Company shall also list
such shares on such exchange subject to notice of issuance or maintain the
listing of its Common Stock on Nasdaq, as the case may be.
(c) FRACTIONAL SHARES. No fractional shares or scrip representing
fractional shares shall be issued upon the exercise of the Warrant. With respect
to any fraction of a share called for upon any exercise hereof, the Company
shall pay to the Holder an amount in
2
<PAGE> 3
cash equal to such fraction multiplied by the current market value of a share,
determined as follows:
(1) If the Common Stock is listed on a national securities exchange or
admitted to unlisted trading privileges on such exchange or listed for
trading on the Nasdaq National Market, the current market value shall
be the last reported sale price of the Common Stock on such exchange
or system on the last business day prior to the date of exercise of
this Warrant, or if no such sale is made on such day, the average
closing bid and asked prices for such day on such exchange or system;
(2) If the Common Stock is not so listed or admitted to unlisted
trading privileges, the current market value shall be the mean of the
last reported bid and asked prices reported by the National Quotation
Bureau, Inc., on the last business day prior to the date of the
exercise of this Warrant; or
(3) If the Common Stock is not so listed or admitted to unlisted
trading privileges and bid and asked prices are not so reported, the
current market value shall be an amount, not less than the book value
thereof as at the end of the most recent fiscal year of the Company
ending prior to the date of the exercise of the Warrant, determined in
such reasonable manner as may be prescribed by the Board of Directors
of the Company.
(d) EXCHANGE, TRANSFER, ASSIGNMENT OR LOSS OF WARRANT. The Warrant is
exchangeable, without expense, at the option of the Holder, upon presentation
and surrender hereof to the Company or at the office of its stock transfer
agent, if any, for other Warrants of different denominations entitling the
Holder thereof to purchase in the aggregate the same number of shares of Common
Stock purchasable hereunder. Subject to Section (j) hereof, the Holder may
transfer or assign the Warrant, in whole or in part and from time to time (i) to
a transferee or assignee who acquires a portion of the Warrant exercisable for
at least 100,000 shares or (ii) to an affiliate of the Holder. Upon surrender of
this Warrant to the Company at its principal office or at the office of its
stock transfer agent, if any, with the Assignment Form annexed hereto duly
executed (with signature guaranteed, if required by the Company or its stock
transfer agent) and funds sufficient to pay any transfer tax, the Company shall,
without charge, execute and deliver a new Warrant in the name of the assignee or
assignees named in such instrument of assignment and this Warrant shall promptly
be canceled. This Warrant may be divided by or combined with other Warrants
which carry the same rights upon presentation hereof at the principal office of
the Company or at the office of its stock transfer agent, if any, together with
a written notice specifying the names and denominations in which new Warrants
are to be issued and signed by the Holder hereof. The term "Warrant" as used
herein includes any Warrants into which this Warrant may be divided or
exchanged. Upon receipt by the Company of evidence satisfactory to it of the
loss, theft, destruction or mutilation of this Warrant, and in the case of loss,
theft or destruction, of reasonably satisfactory indemnification, and upon
surrender and cancellation of this Warrant, if mutilated, the Company will
execute and deliver a new Warrant of like tenor, date and amount. Any such new
Warrant executed and delivered shall constitute an additional contractual
obligation on the part of the Company,
3
<PAGE> 4
whether or not the original Warrant shall be at any time enforceable by anyone
(subject to indemnification by the Holder).
(e) RIGHTS OF THE HOLDER. The Holder shall not, by virtue hereof, be
entitled to any rights of a shareholder in the Company, either at law or equity,
and the rights of the Holder are limited to those expressed in the Warrant and
are not enforceable against the Company except to the extent set forth herein.
(f) ANTI-DILUTION PROVISIONS. So long as this Warrant shall be outstanding,
the Exercise Price in effect at any time and the number and kind of securities
purchasable upon the exercise of the Warrants shall be subject to adjustment
from time to time upon the happening of certain events as follows:
(1) In case the Company shall (i) declare a dividend or make a
distribution on its outstanding shares of Common Stock in
shares of Common Stock, (ii) subdivide or reclassify its
outstanding shares of Common Stock into a greater number of
shares, or (iii) combine or reclassify its outstanding
shares of Common Stock into a smaller number of shares, the
Exercise Price in effect at the time of the record date for
such dividend or distribution, the sale of such securities
or the effective date of such subdivision, combination or
reclassification shall be proportionately adjusted as of the
effective date of such event by multiplying such Exercise
Price by a fraction, the denominator of which shall be the
number of shares of Common Stock outstanding immediately
following such event and the numerator of which shall be the
number of shares of Common Stock outstanding immediately
prior thereto. For example, if the Company declares a 2 for
1 stock distribution and the Exercise Price immediately
prior to such event was $1.00 per share, the adjusted
Exercise Price immediately after such event would be $.50
per share. Such adjustment shall be made each time any event
listed above shall occur.
(2) If the Company issues shares of Common Stock or securities
convertible into Common Stock (other than shares of Series
A, Series B and Series C Preferred Stock issued as of
November 4, 1999; Common Stock, stock options, warrants or
rights to purchase shares of Common Stock issued or granted
at not less than fair market value to officers, directors
and employees of the Company pursuant to a stock purchase,
stock option or other employee stock bonus arrangement,
provided that the maximum number of shares issuable under
any such arrangement has been approved by the holders of a
majority in interest of the holders of Preferred Stock,
voting as a single class; stock options and warrants
outstanding as of November 4, 1999; and shares of Common
Stock issuable upon conversion of any of the foregoing) for
consideration less than the Exercise Price of the Warrant on
the date of issuance of such securities, the Exercise Price
hereunder shall be equitably adjusted in accordance with the
provisions of Section 4.3 of the Company's Third Amended and
Restated
4
<PAGE> 5
Certificate of Incorporation (or such similar provisions as
may then be in effect with respect to the Series C Preferred
Stock of the Company).
(3) Whenever the Exercise Price payable upon exercise of each
Warrant is adjusted pursuant to subsection (1) or (2) above,
the number of Warrant Shares purchasable upon exercise of
the Warrant shall simultaneously be adjusted by multiplying
the number of Warrant Shares issuable upon exercise of this
Warrant by the Exercise Price in effect on the date hereof
and dividing the product so obtained by the Exercise Price,
as adjusted pursuant to subsection (1) or (2), as the case
may be.
(4) No adjustment in the Exercise Price shall be required unless
such adjustment would require an increase or decrease of at
least $.05 in such price; provided, however, that any
adjustments which by reason of this subsection (f) (3) are
not required to be made shall be carried forward and taken
into account in any subsequent adjustment required to be
made hereunder.
(5) Each computation required by this Section (f) for purposes
of determine whether the Exercise Price shall be adjusted
shall be performed by the Company's then-engaged firm of
independent certified public accountants, which shall be a
firm of recognized national reputation (the "Accounting
Firm"), on the basis of the Company's internally prepared
unaudited financial statements. Such unaudited financial
statements shall be accompanied by a certificate signed by
the President and Chief Financial Officer certifying that
such unaudited statements have been prepared in accordance
with GAAP on a basis consistently applied and include all
adjustments (consisting only of normal, recurring accruals)
necessary for a fair presentation of the financial position
and results of the Company as of the end of each such
period. The computations of the Accounting Firm shall be
final and binding on the Company and the Holder.
(6) Whenever the Exercise Price is adjusted, as herein provided,
the Company shall promptly cause a notice setting forth the
adjusted Exercise Price and adjusted number of Warrant
Shares issuable upon exercise of the Warrant to be mailed to
the Holder, at its address appearing in the records of the
Company, and shall cause a copy thereof to be mailed to its
transfer agent, if any.
(7) All calculations under this Section (f) shall be made to the
nearest cent or to the nearest Warrant Share, as the case
may be.
(8) In the event that at any time, as a result of an adjustment
made pursuant to this Section (f), the Holder of this
Warrant thereafter shall become entitled to receive any
shares of the Company, other than Common Stock, thereafter
the number of such other shares so receivable upon exercise
of this Warrant shall
5
<PAGE> 6
be subject to adjustment from time to time in a manner and
on terms as nearly equivalent as practicable to the
provisions with respect to the Common Stock contained in
subsections (1) and (2) above.
(9) Irrespective of any adjustments in the Exercise Price or the
number or kind of Warrant Shares purchasable upon exercise
of this Warrant, Warrants theretofore or thereafter issued
may continue to express the same price and number and kind
of shares as are stated in the Warrant initially issuable
pursuant to this Agreement.
(g) OFFICER'S CERTIFICATE. Whenever the Exercise Price shall be adjusted as
required by the provisions of the foregoing Section, the Company shall forthwith
file in the custody of its Secretary or an Assistant Secretary at its principal
office and with its stock transfer agent, if any, an officer's certificate
showing the adjusted Exercise Price determined as herein provided, setting forth
in reasonable detail the facts requiring such adjustment, including a statement
of the number of additional shares of Common Stock, if any, and such other facts
as shall be necessary to show the reason for and the manner of computing such
adjustment. Each such officer's certificate shall be made available at all
reasonable times for inspection by the Holder or any holder of a Warrant
executed and/or delivered pursuant to Section (a) or Section (d), and the
Company shall, forthwith after each such adjustment, mail, by certified mail, a
copy of such certificate to the Holder or any such holder.
(h) NOTICES TO WARRANT HOLDERS. So long as this Warrant shall be
outstanding, (i) if the Company shall pay any dividend or make any distribution
upon the Common Stock, or (ii) if the Company shall offer to the holders of
Common Stock for subscription or purchase by them any shares of any class or any
other rights, or (iii) if any capital reorganization of the Company,
reclassification of the capital stock of the Company, consolidation or merger of
the Company with or into another corporation, sale, lease or transfer of all or
substantially all of the property and assets of the Company to another
corporation, or voluntary or involuntary dissolution, liquidation or winding up
of the Company shall be effected, then in any such case, the Company shall cause
to be mailed by certified mail to the Holder or any holder of a Warrant executed
and/or delivered pursuant to Section (a) or Section (d), at least 15 days prior
to the date specified in (x) or (y) below, as the case may be, a notice
containing a brief description of the proposed action and stating the date on
which (x) a record is to be taken for the purpose of such dividend, distribution
or rights, or (y) such reclassification, reorganization, consolidation, merger,
conveyance, lease, dissolution, liquidation or winding up is to take place and
the date, if any is to be fixed, as of which the holders of Common Stock or
other securities shall receive cash or other property deliverable upon such
reclassification, reorganization, consolidation, merger, conveyance,
dissolution, liquidation or winding up.
(i) RECLASSIFICATION, REORGANIZATION OR MERGER.
(1) In case of any consolidation or merger of the Company with
or into another corporation (other than a merger with
another corporation in which merger the Company is the
continuing corporation and which does not result in any
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reclassification or capital reorganization of outstanding
shares of Common Stock of the class issuable upon exercise
of this Warrant) or in case of any sale, lease or conveyance
to another corporation of the property of the Company as an
entirety, the Company shall provide 21 days' written notice
to the Holder of such transaction, and the Holder shall
exercise the Warrant in full prior to (and conditioned upon)
the consummation of such transaction. If the Holder fails to
exercise the Warrant prior to such time, all rights of the
Holder hereunder shall terminate effective upon the
consummation of the transaction.
(2) In case of any reclassification or capital reorganization of
outstanding shares of Common Stock of the Company not
involving a transaction described in subsection (1) above,
the Company shall, as a condition precedent to such
transaction, cause effective provisions to be made so that
the Holder or any holder of a Warrant executed and/or
delivered pursuant to Section (a) or Section (d) shall have
the right thereafter by exercising the Warrant at any time
prior to the expiration of the Warrant, to purchase the kind
and amount of shares of stock and other securities and
property receivable upon such reclassification or capital
reorganization and consolidation, merger, sale or
conveyance. Any such provision shall include provision for
adjustments which shall be as nearly equivalent as may be
practicable to the adjustments provided for in the Warrant.
The foregoing provisions of this Section (i) shall similarly
apply to successive reclassifications or capital
reorganizations of shares of Common Stock and to successive
consolidations, mergers, sales or conveyances. In the event
that in connection with any such capital reorganization or
reclassification, consolidation, merger, sale or conveyance,
additional shares of Common Stock shall be issued in
exchange, conversion, substitution or payment, in whole or
in part, for a security of the Company other than Common
Stock, any such issue shall be treated as an issue of Common
Stock covered by the provisions of subsection (1) of Section
(f) hereof.
(j) SECURITIES LAW COMPLIANCE
(1) The Holder of the Warrant, by acceptance hereof,
acknowledges that the Warrant and the shares of Common Stock
to be issued upon exercise hereof are being acquired solely
for the Holder's own account and not as a nominee for any
other party, and for investment, and that the Holder will
not offer, sell, transfer, assign or otherwise dispose of
this Warrant or any shares of Common Stock to be issued upon
exercise hereof except under circumstances that will not
result in a violation of the Act or any state securities
laws. Upon exercise of the Warrant, the Holder shall, if
requested by the Company, confirm in writing, in a form
satisfactory to the Company, that the shares of Common Stock
so purchased are being acquired solely for the Holder's own
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<PAGE> 8
account and not as a nominee for any other party, for
investment, and not with a view toward distribution or
resale.
(2) If appropriate, the Warrant and any Warrants issued upon
exercise or substitution or upon assignment or transfer
pursuant to Section (a) or Section (d), as the case may be,
and all shares of Common Stock issued upon exercise hereof
shall be stamped or imprinted with legends setting forth the
restrictions on transfer arising under applicable federal
and state securities laws.
(k) REGISTRATION RIGHTS UNDER THE SECURITIES ACT OF 1933
(1) Commencing the date hereof, the Company shall advise the
Holder of the Warrant or of the Warrant Shares or any then
Holder of Warrants or Warrant Shares (such persons being
collectively referred to herein as "Holders") by written
notice at least 21 days prior to the filing of any
registration statement or post-effective amendment thereto
("Registration Statement") under the Securities Act of 1933,
as amended (the "Act"), covering an underwritten public
offering of equity securities of the Company solely for cash
on a form that would also permit the registration of the
Warrant Shares and shall register in any such Registration
Statement the number of Warrant Shares that the Holder shall
notify the Company it desires to register and shall include
in any such Registration Statement such information as may
be required to permit a public offering of such Warrant
Shares by the Company's underwriter(s). The Company shall
supply prospectuses and other documents as the Holder may
reasonably request in order to facilitate the public sale or
other disposition of the Warrant Shares. The Company shall
bear the entire cost and expense of a registration of
securities initiated by it under this Paragraph (1). The
Holder shall, however, bear the fees of its own counsel and
any transfer taxes and underwriting discounts or commissions
applicable to the Warrant Shares sold by it. The Company may
include other securities in any such registration statement.
The Company shall do any and all other acts and things which
may be necessary or desirable to enable the Holder to
consummate the public sale or other disposition of the
Warrant Shares, and furnish indemnification in the manner as
set forth in Paragraph (2) (a) of this Section (k), but
shall not be required to qualify as a foreign corporation to
qualify the Warrant Shares for sale under the securities
laws of any state. The Holder shall furnish information and
indemnification as set forth in Paragraph (2) (b) of this
Section (k). All decisions as to whether and when to proceed
with any Registration Statement shall be made solely by the
Company, and the Company may, in its discretion, withdraw
any Registration Statement prior to the effectiveness
thereof.
Notwithstanding the foregoing paragraph, in the event that
there is an underwritten offering of the Company's
securities offered pursuant to said
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<PAGE> 9
registration statement pursuant to the immediately preceding
Paragraph, the underwriter(s) shall have the right to refuse
to permit any Warrant Shares, or to limit the amount of
Warrant Shares, to be sold by the Holder to such
underwriter(s) as such underwriter(s) may determine in its
discretion, and the Holder shall refrain from selling such
remainder of its Warrant Shares covered by such registration
statement for the period of 180 days following the effective
date and shall also refrain at any time when notified by the
Company that an amendment or supplement to the prospectus is
required. The Company shall not be obligated to keep any
Registration Statement effective for a total of more than
180 days.
(2) (a) Whenever pursuant to this Section (k) a Registration
Statement relating to the Warrant Shares is filed under the
Act, amended or supplemented, the Company will indemnify and
hold harmless each Holder of Warrant Shares covered by such
Registration Statement, amendment or supplement (such Holder
being hereinafter called the "Distributing Holder"), and
each person, if any, who controls (within the meaning of the
Act) the Distributing Holder, against any losses, claims,
damages or liabilities, joint or several, to which the
Distributing Holder or any such controlling person may
become subject, under the Act or otherwise, insofar as such
losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon any untrue
statement or alleged untrue statement of any material fact
contained in any such Registration Statement or any
preliminary prospectus or final prospectus constituting a
part thereof or any amendment or supplement thereto, or
arise out of or are based upon the omission to state therein
a material fact required to be stated therein or necessary
to make the statements therein not misleading; and will
reimburse the Distributing Holder and each such controlling
person for any legal or other expenses reasonably incurred
by the Distributing Holder and each controlling person for
any legal or other expenses reasonably incurred by the
Distributing Holder or such controlling person or
underwriter in connection with investigating or defending
any such loss, claim, damage, liability or action; provided,
however, that the Company will not be liable in any such
case to the extent that any such loss, claim, damage or
liability arises out of or is based upon an untrue statement
or alleged untrue statement or omission or alleged omission
made in said Registration Statement, preliminary prospectus,
final prospectus or amendment or supplement, in reliance
upon and in conformity with written information furnished by
the Distributing Holder or underwriter for use in the
preparation thereof.
(b) The Distributing Holder will indemnify and hold harmless
the Company, each of its directors, each of its officers who
have signed said Registration Statement and such amendments
and supplements thereto, each person, if any, who controls
the Company (within the meaning of the Act) and the
Company's underwriter(s) and each person, if any, who
controls such
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<PAGE> 10
underwriter(s) (within the meaning of the Act) against any
losses, claims, damages or liabilities to which the Company
or any such director, officer, underwriter or controlling
person may become subject, under the Act or otherwise,
insofar as such losses, claims, damages or liabilities arise
out of or are based upon any untrue or alleged untrue
statement of any material fact contained in said
Registration Statement, preliminary prospectus, final
prospectus, or amendment or supplement, or arise out of or
are based upon the omission or the alleged omission to state
therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, in
each case to the extent, but only to the extent, that such
untrue statement or alleged untrue statement or omission or
alleged omission was made in said Registration Statement,
preliminary prospectus, final prospectus or amendment or
supplement, in reliance upon and in conformity with written
information furnished by such Distributing Holder for use in
the preparation thereof; and will reimburse the Company or
underwriter or any such director, officer or controlling
person for any legal or other expenses reasonably incurred
by them in connection with investigating or defending any
such loss, claim, damage, liability or action.
(c) Promptly after receipt by an indemnified party under
this Paragraph 2 of notice of the commencement of any
action, such indemnified party will, if a claim in respect
thereof is to be made against any indemnifying party, give
the indemnifying party notice of the commencement thereof;
but the omission so to notify the indemnifying party will
not relieve it from any liability which it may have to any
indemnified party otherwise than under this Paragraph 2.
(d) In case any such action is brought against any
indemnified party, and it notifies an indemnifying party of
the commencement thereof, the indemnifying party will be
entitled to participate in, and, to the extent that it may
wish, jointly with any other indemnifying party similarly
notified to assume the defense thereof, with counsel
reasonably satisfactory to such indemnified party, and after
notice from the indemnifying party to such indemnified party
of its election so to assume the defense thereof, the
indemnifying party will not be liable to such indemnified
party under this Paragraph 2 for any legal or other expenses
subsequently incurred by such indemnified party in
connection with the defense thereof other than reasonable
costs of investigation.
(e) The Company's agreements with respect to Warrant Shares
in this Section (k) shall continue in effect regardless of
the exercise or surrender of the Warrant until the fifth
anniversary of the Company's initial public offering
pursuant to a registration statement filed under the
Securities Act of 1933, as amended.
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<PAGE> 11
(1) RIGHT TO CONVERT WARRANT INTO COMMON STOCK.
(1) RIGHT TO CONVERT. The Holder shall have the right to require
the Company to convert this Warrant as provided in this
Section (1), without cash payment, into Common Stock (the
"Net Conversion Right"). Upon exercise of the Net Conversion
Right, the Company shall deliver to the Holder (without
payment by the Holder of any Exercise Price or of any other
cash or consideration) that number of shares of Common Stock
equal to the quotient obtained by dividing (x) the value of
this Warrant at the time the Conversion Right is exercised
(determined by subtracting the aggregate Exercise Price in
effect immediately prior to the exercise of the Net
Conversion Right from the aggregate fair market value of the
shares of Common Stock issuable upon exercise of this
Warrant immediately prior to the exercise of the Net
Conversion Right) by (y) the fair market value of one share
of Common Stock immediately prior to the exercise of the Net
Conversion Right.
(2) METHOD OF EXERCISE. The Net Conversion Right may be
exercised by the Holder by the surrender of this Warrant at
the principal office of the Company together with a written
statement specifying that the Holder thereby intends to
exercise the Net Conversion Right. Certificates for the
shares of Common Stock issuable upon exercise of the Net
Conversion Right shall be delivered to the Holder within
five (5) business days following the Company's receipt of
this Warrant together with the aforesaid written statement.
(3) DETERMINATION OF FAIR MARKET VALUE. For purposes of this
Section (l), fair market value of a share of Common Stock as
of a particular date (the "Determination Date") shall be
determined in accordance with Section (c) of this Warrant.
(m) AMENDMENTS. Neither the Warrant nor any term hereof may be changed,
waived, discharged or terminated without the prior written consent of the
Holder.
(n) NO IMPAIRMENT. The Company will not avoid or seek to avoid the
observance or performance of any of the terms to be observed or performed
hereunder by the Company, but will at all times in good faith assist in the
carrying out of all the provisions of this Warrant and in the taking of all such
action as may be necessary or appropriate in order to protect the rights of any
Holder.
(o) GOVERNING LAW. This Agreement shall be governed by and construed under
the laws of the Commonwealth of Massachusetts.
(p) NOTICES. All notices and other communications required or permitted
hereunder shall be in writing and shall be mailed by first class mail, postage
prepaid, addressed (a) if to the Holder, to Deutsche Banc Alex. Brown, 1 South
Street, Baltimore, Maryland 21202, Attention: Donald Notman or (b) if to the
Company, to Eprise Corporation, 1671 Worcester Road,
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<PAGE> 12
Framingham, MA 01710, Attention: President, or at such other address as to the
Company shall have furnished to the Holder in writing.
IN WITNESS WHEREOF, Eprise Corporation has caused this Warrant to be
executed by its officer thereunto duly authorized.
Dated: as of September 8, 1999
COMPANY: Eprise Corporation
By: /s/ J.A. Forgione
----------------------------
Name: Joseph A. Forgione
--------------------------
Title: President
-------------------------
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PURCHASE FORM
Dated _______________, ___
The undersigned hereby irrevocably elects to exercise its rights pursuant
to this Warrant to the extent of purchasing ______ shares of Common Stock of
Eprise Corporation and hereby makes payment of $___________, in cash, in payment
of the exercise price thereof.
The undersigned hereby irrevocably elects to exercise its rights pursuant
to this Warrant to the extent of purchasing _____ shares of Common Stock and
hereby authorizes you to deliver such shares of Common Stock for sale to
___________, and to retain from the proceeds of such sale $__________, in cash,
in payment of the exercise price thereof and to remit to the undersigned the
balance of such proceeds.
-----------------
INSTRUCTIONS FOR REGISTRATION OF STOCK
Name_____________________________________________________________
(Please typewrite or print in block letters)
Address__________________________________________________________
Signature________________________________________________________
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<PAGE> 14
ASSIGNMENT FORM
FOR VALUE RECEIVED, _________________________________________ hereby sells,
assigns and transfers unto
Name______________________________________________________________
(Please typewrite or print in block letters)
Address___________________________________________________________
the right to purchase Common Stock of Eprise Corporation (the "Company"),
represented by this Warrant to the extent of ______ shares as to which such
right is exercisable and does hereby irrevocably constitute and appoint
_____________________________ as Attorney, to transfer the same on the books of
the Company with full power of substitution in the premises.
Date ___________, ___
Signature__________________________
<PAGE> 1
EXHIBIT 10.2
SUBLEASE AGREEMENT
------------------
This Sublease Agreement ("Sublease") is made as of ____________, 1997
by and between Nova Link USA Corporation, a Massachusetts corporation
(hereinafter referred to as "Sublessee"), and Merkert Enterprises, Inc., a
Massachusetts corporation (hereinafter referred to as "Sublessor").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, pursuant to a Lease dated as of July 30, 1990 between
Toomey-FitzgeraldDelong, Inc., a Massachusetts corporation, as Lessee,
(hereinafter referred to as "Toomey") and Thomas J. Flatley d/b/a The Flatley
Company (hereinafter referred to as "Landlord"), Landlord leased certain space
to Toomey (such Lease, as so amended, is referred to herein as the "Lease"), a
copy of which is attached hereto as EXHIBIT A; and
WHEREAS, pursuant to an Assignment of Lease and Consent to Assignment
Agreement ("Assignment") dated April 14, 1997 between Toomey and Sublessor,
Toomey assigned its rights as Lessee under the Lease to Sublessor.
WHEREAS, Sublessee desires to sublet from Sublessor a portion of the
Premises referred to in the Lease.
NOW, THEREFORE, the parties hereto, for themselves, their successors
and assigns, mutually covenant and agree as follows:
1 . SUBLET PREMISES. Sublessor does hereby sublease to Sublessee and
Sublessee does hereby sublease from Sublessor, for the term and upon the
conditions hereinafter provided, the Sublet Premises, being an area of
approximately 12,399 square feet of rentable floor area on the fourth (4th)
floor, known as Suite 400 of the Framingham Office Park, 1671 Worcester Road,
Framingham, MA 01701, together with the right to use in common with others
entitled thereto, the hallways, stairways and elevators necessary for access to
the Sublet Premises (collectively, the "Sublet Premises"). Sublessee shall have
unlimited access to the Sublet Premises, twentyfour hours per day, seven days
per week, without prior notification of any person or party and shall be
provided with keys and access codes to any and all alarm systems, entry devices,
and the like which would affect Sublessee's ability to access the Sublet
Premises at any time.
2. TERM. The term of this Sublease shall commence on October 15, 1997
and shall end at 11:59 p.m. on September 30, 2000, or on such earlier date upon
which said term may expire or be terminated pursuant to a termination of the
Lease or any of the conditions or limitations or other provisions of this
Sublease or pursuant to law. In the event Landlord has not consented to this
Agreement by October 15, 1997, provided Landlord's failure to consent is not
caused by an issue within Sublessee's control other than Sublessee's refusal to
alter a material term or condition of this Sublease, Sublessee shall receive one
(1) free day of rent for each day thereafter that Landlord has not consented;
provided, however, that Sublessee shall have the right to terminate this
Sublease if Landlord has not consented by November 1, 1997. Sublessor shall
<PAGE> 2
have the right to terminate this Sublease if Landlord fails to consent by
November 8, 1997, and Sublessee has not yet terminated. Notwithstanding anything
in this Sublease to the contrary, Sublessee acknowledges and agrees that all
provisions of the Lease with respect to Sublessor's Option to Extend (as
described in Section 40 of the Lease) shall not operate for the benefit of
Sublessee and may not be enforced by Sublessee, except as may be otherwise
expressly agreed in writing by Sublessor and Sublessee. Sublessor agrees that
Sublessee shall have reasonable access to the Sublet Premises on prior notice to
Sublessor for the purpose of installing, repairing, and/or upgrading utilities
and telecommunications systems at the Sublet Premises from the date Landlord
consents to this Agreement and Sublessee presents a certificate of insurance
acceptable to Sublessor.
3. RENT. During the term of this Sublease, the rent payable by
Sublessee shall be the sum of Sixteen Thousand Five Hundred Thirty-two Dollars
($16,532.00), consisting of the following:
Year One: Base rent of $14.00 per square foot ("Base Rent"),
plus a $2.00 per square foot charge for operating
expenses, real estate taxes and reimbursement of
lease transaction costs ("Additional Rent").
Years Two
and Three: Base Rent of $15.00 per square foot, plus a $1.00
per square foot charge for Additional Rent.
Notwithstanding anything in this Sublease to the contrary, Base Rent
and Additional Rent shall begin to accrue on November 1, 1997, and continue
thereafter on the first day of each and every calendar month during the term of
this Sublease. All payments of Base Rent and Additional Rent shall be paid to
Sublessor in advance of each month for which such rent is due.
Within three (3) days of Landlord's consent to this Sublease, but in no
event later than the date of occupancy, the installments of rent for the first
and last months of the term of this Sublease shall be paid by Sublessee.
Sublessor shall hold all moneys paid to it by Sublessee as prepaid rent in an
interest-bearing account, segregated from Sublessor's other assets and shall pay
all interest accruing thereon annually to Sublessee.
If the obligation of Sublessee to pay rent hereunder begins on a day
other than on the first day of a calendar month, rent from such date until the
first day of the following calendar month shall be prorated at the rate of
one-thirtieth (1/30th) of the monthly installment for each day payable in
advance. The monthly Base Rent, Additional Rent and any other charges herein
reserved or payable shall be paid to Sublessor at the address specified in
Section 22 hereof, or at such other place as Sublessor may designate in writing,
in lawful money of the United States of America without demand therefor and
without any deduction, set-off or abatement whatever.
4. REAL ESTATE TAXES AND OPERATING COSTS. Sublessee agrees to pay
Sublessor, as Additional Rent under this Sublease, Sublessee's pro rata share,
of (i) the amount by which the actual real estate taxes for the applicable
fiscal year exceed the real estate taxes for the base year
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<PAGE> 3
and (ii) the amount by which the operating expenses for the applicable operating
year exceed the operating expenses for the base year. The base year shall be
fiscal year 1997 for purposes of computing any increase in real estate taxes and
calendar year 1997 for purposes of computing any increase in operating expenses.
Sublessee's pro rata share shall equal the square footage of the Sublet Premises
divided by the aggregate of all the rentable square footage (whether or not
rented or improved) within the building. Sublessee shall be responsible for
paying all utility charges in respect of the Sublet Premises, including without
limitation any charges for electricity related to the Sublet Premises. Sublessee
shall also pay to Sublessor, as Additional Rent, all charges for any additional
services requested by and provided to Sublessee, including, without limitation,
charges and fees for after-hours heating and air-conditioning services pursuant
to Section 12 of the Lease, or as may otherwise be agreed between Sublessee and
Landlord. Any Additional Rent which may be payable to Sublessor shall be
apportioned during the year in which the term of this Sublease commences and
during the year in which such term shall end, such that Sublessee shall be
obligated to pay a proportionate share of such Additional Rent which is
attributable to the number of days of their term hereof which are included in
the period for which such Additional Rent is payable by Sublessor under the
Lease. Sublessee shall pay Additional Rent within thirty (30) days of receipt of
this statement. Sublessee's obligations to pay Additional Rent shall survive the
termination of this Sublease.
5. AFTER HOURS AIR-CONDITIONING AND HEATING. Landlord and Sublessor
hereby acknowledge and agree that the Lease is hereby amended to reflect the
parties' agreement that air-conditioning, heating and ventilation shall be
provided to the Sublet Premises from 8:00 AM to 7:00 PM Monday through Friday
and from 8:00 AM to 1:00 PM on Saturdays and that the cost of any additional
air-conditioning, heating and/or ventilation requested by the Sublessee for the
Sublet Premises shall be fixed at the rate of Ten Dollars ($10.00) per hour.
6. SECURITY DEPOSIT. Upon execution of this Sublease, Sublessee shall
pay to Sublessor the sum of Sixteen Thousand Five Hundred and Thirty-two Dollars
($16,532.00), and within three days of the date Landlord consents to this
Sublease, Sublessee shall pay to Sublessor an additional sum of Sixteen Thousand
Five Hundred and Thirty-two Dollars ($16,532.00) as security (the "Security
Deposit) for the faithful performance by Sublessee of its obligations hereunder.
The Security Deposit shall be paid to Sublessor in cash. In the event of an
Event of Default (as defined in Section 19 hereof), Sublessee hereby authorizes
Sublessor, at Sublessor's election (with notice to Sublessee) and with or
without terminating this Sublease and without prejudice to any other right or
remedy Sublessor may have, to apply all or any portion of the Security Deposit
necessary to remedy such default. If said Security Deposit or portion thereof is
so applied, Sublessee, upon demand by Sublessor, shall within seven (7) days
after written notice therefor from Sublessor, deposit with Sublessor an amount
equal to the amount of the Security Deposit so applied. Any unapplied cash
portion of the Security Deposit shall be held by Sublessor in a separate escrow
account and interest earned thereon shall be paid to Sublessee on an annual
basis. On November 1, 1998, a payment in an amount equal to one (1) month's rent
(including any Additional Rent) shall be deducted from the Security Deposit and
applied towards Sublessee's obligations hereunder without any objection on the
part of Sublessor or demand to reinstate such portion of the Security Deposit so
applied, provided that Sublessee has never been and is not currently in default
under this Agreement. Any portion of the Security Deposit
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<PAGE> 4
remaining at the end of the term of this Sublease shall be refunded to
Sublessee.
7. USE; SIGNS. Sublessee will use and occupy the Sublet Premises
solely for general office purposes. Without the prior written consent of
Landlord and Sublessor, the Sublet Premises will not be used for any other
purposes. Landlord hereby consents that Sublessee shall be entitled to place one
(1) exterior sign on the existing marquee at the Sublet Premises, provided the
same is consistent with the size, design and quality of the existing sign and
such sign complies with all applicable zoning laws.
8. CONDITION OF SUBLET PREMISES. Sublessee hereby acknowledges that
the Sublet Premises are hereby subleased in an as is condition, without any
representations or warranties made on the part of Sublessor; provided, however,
that (1) Sublessor hereby warrants and represents that there are no known
material defects to or in the Sublet Premises which have not been previously
disclosed in writing to Sublessee; and (2) Sublessor shall forthwith remove any
and all trash, debris and personal property located in the Sublet Premises at no
cost to Sublessee, including but not limited to that certain commercial
refrigerator located in the mechanical room, and promptly repair any damage to
the Sublet Premises caused by such removal. Sublessor hereby acknowledges that
Sublessee requires access to the Sublet Premises and, in particular, the
mechanical room for the purposes of installing utilities and telecommunications
equipment and that in the event such refrigerator is not removed prior to the
date Landlord consents to the Sublease, Sublessee shall be entitled to an
abatement of rent equal to the number of days for which it remains at the Sublet
Premises.
9. ALTERATIONS. In connection with the execution of this Sublease,
Sublessee shall not make any structural alterations or additions to the Sublet
Premises, but may make non-structural alterations (the "Sublessee Alterations")
at any time and from time to time. All such Sublessee Alterations are subject to
the Landlord's consent in accordance with the terms of the Lease. All such
Sublessee Alterations shall be at Sublessee's sole cost and expense and shall be
of such quality at least equal to the present construction. Without limitation
of the foregoing, Sublessee agrees that its general contractor shall be
licensed, insured and bonded in the Commonwealth of Massachusetts and shall be
subject to the review and approval of Landlord, which approval shall not be
unreasonably withheld or delayed.
If any Sublessee Alterations are made without Landlord's consent,
Landlord may remove the same, and may correct, repair and restore the Sublet
Premises and any damage arising from such removal, and Sublessee shall be liable
for any and all costs and expenses incurred by Landlord in the performance of
this work.
10. SUBLESSEE'S PERSONAL PROPERTY. Upon the expiration or earlier
termination of this Sublease, Sublessee shall remove all of its goods and
effects from the Sublet Premises (including, without limitation, all signs and
lettering affixed or painted by the Sublessee on the Sublet Premises), shall
repair all damage resulting from such removal or its use of the Sublet Premises,
and shall surrender the Sublet Premises, as so required, in good condition,
subject only to reasonable wear and tear and to damage, if any, by fire or other
casualty. The obligations of Sublessee as provided in this Section 10 shall
survive the termination of this Sublease.
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<PAGE> 5
11. TERMS OF LEASE. All of the terms, provisions, covenants and
conditions of the Lease, as amended, are incorporated herein by reference and
hereby made a part of this Sublease and, Sublessee hereby assumes all of the
obligations and shall have all the rights of Sublessor as Tenant under the
covenants, agreements, terms and provisions set forth in the Lease, but only to
the extent they are applicable to the Sublet Premises and specifically excepting
Sections 4, 5, 5A, 8, 20, 39, 40, 41, 42 and 43. In the event that any provision
of this Sublease shall conflict with any provision of the Lease, this Sublease
Agreement shall control. Sublessor shall have all of the rights of the Landlord
under the Lease as against Sublessee and, as between the parties hereto,
Sublessor agrees to observe and perform the terms, covenants and conditions on
its part to be observed and performed hereunder and to use commercially
reasonable efforts to cause Landlord to observe and perform those applicable
terms, covenants and conditions to be observed and performed by Landlord under
the Lease with respect to the Sublet Premises.
12. NON-DISTURBANCE AND ATTORNMENT. So long as Sublessee is not in
default (after any required notice to Sublessee and beyond any period given
Sublessee to cure such default) in the payment of rent or Additional Rent or in
the performance of any of Sublessee's obligations under this Sublease, Landlord
shall not interfere with Sublessee's rights and privileges under this Sublease
or disturb Sublessee's occupancy of the Sublet Premises for any reason during
the term of this Sublease. If Landlord succeeds to the interest of Sublessor
under this Sublease by reason of the termination of the Lease, or by any other
manner, Sublessee shall be bound to Landlord under this Sublease for the balance
of the then remaining term (or any extension or renewal term, if applicable) of
this Sublease with the same effect as if Landlord were the "Sublessor" under
this Sublease and Sublessee, shall attom to Landlord as its landlord, said
attornment to be effective and self-operative without the execution of any
further instruments; provided, however, Sublessee shall be under no obligation
to pay rent to Landlord until Sublessee receives written notice from Landlord
that it has succeeded to the interest of Sublessor under this Sublease by reason
of the termination of the Lease or by any other manner. Upon such attornment, to
the extent of the then remaining balance of the term of this Sublease, Sublessee
and Landlord shall, except as provided herein, have the same respective rights
and obligations as Sublessee and Sublessor have under this Sublease. If Landlord
shall so succeed to the interest of Sublessor under this Sublease by reason of
the termination of the Lease, or by any other manner, Landlord shall be bound to
Sublessee under this Sublease, and Sublessee shall have the same rights and
remedies against Landlord for the breach of an agreement contained in this
Sublease that Sublessee would have had under this Sublease against Sublessor if
Landlord had not succeeded to the interest of Sublessor; provided, however,
Landlord shall not be:
(a) liable for (or be responsible for any cure or costs of cure
of) any default or any act or omission of Sublessor, including
any continuing condition that arose as a result of any such
act or omission or otherwise prior to Landlord succeeding to
Sublessor; or
(b) subject to any offsets or defenses which Sublessee might have
against Sublessor; or
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<PAGE> 6
(c) bound by any rent or additional rent which Sublessee might
have paid for more than the current month to Sublessor except
the last month's rent as provided herein; or
(d) bound by any amendment or modification of this Sublease made
without Landlord's written consent; or
(e) liable for or on account of any security deposit or other sums
held by Sublessor unless the same was or were actually paid to
and received by Landlord.
Sublessor and Sublessee shall provide to Landlord copies of all notices
delivered to the other pursuant to this Sublease and such notices shall not be
effective against Landlord unless and until so provided to Sublessor. The term
"Landlord" shall be deemed to include Thomas J. Flatley d/b/a The Flatley
Company, and any of his or its successors and assigns, including anyone who
shall have succeeded to Sublessor's interest due to the termination of the Lease
or otherwise.
13. SUBLESSOR'S REPRESENTATIONS AND WARRANTIES. Sublessor hereby
represents and warrants as follows, which representations and warranties shall
survive the termination of this Sublease:
(a) Sublessor is a duly organized and validly existing
Massachusetts corporation in good standing with the
Commonwealth of Massachusetts;
(b) Sublessor has taken all necessary corporate action and has all
necessary corporate authority to enter into this Sublease on
the terms and conditions contained herein;
(c) Sublessor is not bound by any agreement, corporate action or
resolution, court order or other matter which would prohibit,
prevent or affect the validity of this Sublease;
(d) Nothing contained in the articles of organization, by-laws or
other governing documents of Sublessor would prohibit, prevent
or affect the validity of this Sublease; and
(e) The undersigned Sidney D. Rogers is the duly authorized and
validly elected Vice President of Sublessor and has been duly
authorized by Sublessor to execute and deliver this Sublease.
14. SUBLESSEE'S REPRESENTATIONS AND WARRANTIES. Sublessee hereby
represents and warrants as follows, which representations and warranties shall
survive the termination of this Sublease:
(a) Sublessee is a duly organized and validly existing
Massachusetts corporation in good standing with the
Commonwealth of Massachusetts;
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<PAGE> 7
(b) Sublessee has taken all necessary corporate action and has all
necessary corporate authority to enter into this Sublease on
the terms and conditions contained herein;
(c) Sublessee is not bound by any agreement, corporate action or
resolution, court order or other matter which would prohibit,
prevent or affect the validity of this Sublease;
(d) Nothing contained in the articles of organization, by-laws or
other governing documents of Sublessee would prohibit, prevent
or affect the validity of this Sublease; and
(e) The undersigned Jon Radoff is the duly authorized and validly
elected President of Sublessee and has been duly authorized by
Sublessee to execute and deliver this Sublease.
15. SUBLESSEE'S AND SUBLESSOR'S COVENANTS. Sublessee covenants and
agrees that Sublessee will not do anything which would constitute a default
under the Lease or omit to do anything which Sublessee is obligated to do under
the terms of this Sublease and which would constitute a default under the Lease.
Sublessor covenants and agrees to pay the rent and any Additional Rent payable
as required under the Lease and not to do anything which would constitute or
give rise to a default under the Lease.
16. INDEMNIFICATION. To the fullest extent permitted by law, Sublessee
shall and hereby does indemnify and hold Sublessor and Landlord harmless from
and against any and all actions, claims, demands, damages, liabilities, expenses
and judgments (including, without limitation, reasonable attorneys' fees)
asserted against, imposed upon or incurred by Sublessor by reason of (a) any
violation caused, by Sublessee, its agents, servants, employees or invitees, of
any of the terms, covenants or conditions of the Lease or this Sublease, and (b)
any damage or injury to persons or property occurring upon or in connection with
Sublessee's use or occupancy of the Sublet Premises, except as a result of the
intentional or grossly negligent acts or omissions of Landlord or Sublessor, or
any of their respective agents, employees or invitees.
17. ASSIGNMENT AND SUBLEASE. Notwithstanding any provision of the Lease
to the contrary, Sublessee shall not assign, mortgage, pledge or otherwise
encumber this Sublease, nor sublet the Sublet Premises or any part thereof,
without in each obtaining the prior written consent of Landlord and Sublessor,
which consent may be given or withheld in Landlord and Sublessor's reasonable
discretion. Notwithstanding the foregoing, Sublessor shall not unreasonably
withhold its consent to one or more sublettings requested by Sublessee, provided
that Sublessee in each instance complies with all of the provisions of Section
31 of the Lease.
18. BROKERS. Sublessee represents and warrants to Sublessor that it has
not directly or indirectly dealt with any broker or agent with respect to the
Sublet Premises other than Cushman & Wakefield and Meredith & Grew. Sublessee
agrees to indemnify and hold harmless Sublessor against any claim by any other
broker or agent arising out of a breach of Sublessee's representations and
warranties in this Section 18. Sublessor represents and warrants to Sublessee
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<PAGE> 8
that it has not directly or indirectly dealt with any broker or agent with
respect to the Sublet Premises other than Cushman & Wakefield and Meredith &
Grew. Sublessor agrees to indemnify and hold harmless Sublessee against any
claim by any other broker or agent arising out a breach of Sublessor's
representations and warranties in this Section 18.
19. DEFAULTS AND REMEDIES. The following shall constitute an event of
default (each, an "Event of Default") under this Sublease:
(i) Sublessee shall fail to pay rent or other sums payable under
this Sublease when due and such failure shall continue for
seven (7) full business days after written notice has been
given from Sublessor to Sublessee;
(ii) Sublessee shall fail to cure any other default under this
Sublease within thirty (30) days (or such further time as may
be required to diligently cure the same) from written notice
thereof from Sublessor to Sublessee;
(iii) Sublessee shall make an assignment for the benefit of
creditors, shall admit in writing its inability to pay its
debts as they come due, or shall file a petition for
liquidation or for reorganization or any arrangement or any
other relief under any provision of any federal or state
bankruptcy or insolvency law;
(iv) an involuntary petition under any provision of any federal or
state bankruptcy law shall be filed against Sublessee and not
be dismissed within sixty (60) days thereafter; or
(v) a lien or other encumbrance shall be filed against Sublessee's
leasehold interest and not be discharged within fifteen (15)
days thereafter.
Sublessee covenants and agrees that upon the occurrence of an Event of
Default, notwithstanding any termination of this Sublease under any of the
provisions of this Section, whether by summary proceedings, or termination, to
pay and be liable for on the days originally fixed herein for the payment
thereof, amounts equal to the several installments of rent and other charges
reserved as they would, under the terms of this Sublease, become due if this
Sublease had not been terminated and whether the Sublet Premises be relet or
remain vacant, in whole or in part, or for a period less than the remainder of
the term, or for the whole thereof, provided that in the event the Sublet
Premises be relet by Sublessor, Sublessee shall be entitled to a credit equal to
the net amount of rent received by Sublessor in reletting, after deduction of
all reasonable expenses incurred in reletting the Sublet Premises (including but
not limited to remodeling costs, brokerage fees, and the like) and in collecting
rent in connection therewith.
In the event that Base Rent or other payments are not made by the date
when such payments are due, then in addition to all other remedies otherwise
available to Sublessor, said past due payments shall carry interest and be
subject to a late charge as set forth in Section 51 of the Lease. Sublessee
specifically agrees to pay any such interest and late charge to Sublessor along
with the payment of Base Rent and other charges.
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<PAGE> 9
20. ENTIRE AGREEMENT. This Sublease, together with those provisions of
the Lease applicable hereto, contains all of the covenants, agreements, terms,
provisions, conditions, warranties and understandings relating to the leasing of
the Sublet Premises and Sublessor's obligations in connection therewith, and
neither Sublessor nor any agent or representative of Sublessor has made or is
making, and Sublessee in executing and delivering this Sublease is not relying
upon, any warranties, representations, promises or statements whatsoever, except
to the extent expressly set forth in this Sublease. The failure of Sublessee or
Sublessor to insist in any instance upon the strict keeping, observance or
performance of any covenant, agreement, term, provision or condition of this
Sublease or to exercise any election herein contained shall not be construed as
a waiver or relinquishment for the future of such covenant, agreement, term,
provision, condition or election, but the same shall continue and remain in full
force and effect. No waiver or modification of any covenant, agreement, term,
provision or condition of this Sublease shall be deemed to have been made unless
expressed in writing and signed by Landlord, Sublessee and Sublessor. No
surrender of possession of the Sublet Premises or of any part thereof by
Sublessee or of any remainder of the term of this Sublease shall release
Sublessee from any of its obligations hereunder unless accepted by Sublessor in
writing. The receipt and retention by Sublessor of monthly Base Rent or
Additional Rent from anyone other than Sublessee shall not be deemed a waiver of
the breach by Sublessee of any covenant, agreement, term or provision of this
Sublease, or as the acceptance of such other person as a tenant, or as a release
of Sublessee from the further keeping, observance or performance by Sublessee of
the covenants, agreements, terms, provisions and conditions herein contained.
The receipt and retention by Sublessor of monthly Base Rent or Additional Rent
with knowledge of the breach of any covenant, agreement, term, provision or
condition herein contained shall not be deemed a waiver of such breach.
21. SUCCESSORS AND ASSIGNS. The obligations of this Sublease shall bind
and benefit the successors and permitted assigns of the parties with the same
effect as if mentioned in each instance where a party hereto is named or
referred to.
22. NOTICES. Any and all communications delivered hereunder shall be
sent by first-class mail postage pre-paid, return-receipt requested or
nationally recognized overnight courier: if to Landlord, at the addresses
specified in Section 24 of the Lease; if to Sublessee, at 200 Friberg Parkway,
Westborough, Massachusetts 01581, Attention: Jon Radoff, with a copy to Dennis
Townley, Esquire, Hill & Barlow, One International Place, Boston, Massachusetts
02110; and if to Sublessor, at Merkert Enterprises, Inc., 500 Turnpike Street,
Canton, Massachusetts 02021, Attn: Sidney D. Rogers, Jr., Vice President, or to
such other address and attention as any of the above shall notify the others in
writing.
23. INSURANCE. Notwithstanding any provisions in the Lease to the
contrary, Sublessee shall maintain the following insurance coverage:
Comprehensive public liability insurance in an amount not less than Three
Million Dollars ($3,000,000.00) per occurrence, with property damage insurance
in an amount not less than Five Hundred Thousand Dollars ($500,000.00), and
otherwise consistent with Section 20 of the Lease.
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<PAGE> 10
24. LANDLORD CHANGES. In the event Landlord, upon review of this
Sublease, requests any minor non-material modifications to this Sublease,
Sublessor and Sublessee agree to cooperate in making those changes and resigning
this Sublease as necessary.
IN WITNESS WHEREOF, Sublessee and Sublessor have duly executed this
Sublease as of the day and year first above written.
Attest: NOVA LINK USA CORPORATION
By: /s/ Pat Bryant By: /s/ J. Radoff
Name: Pat Bryant Name: Jon Radoff
Title: Controller Title: President
(Corporate Seal)
Attest: MERKERT ENTERPRISES, INC.
By: /s/ Michael S. Gold By: /s/ Sidney D. Rogers
Name: Michael S. Gold Name: Sidney D. Rogers
Title: Assistant Clerk Title: Vice President
Attest: This Sublease, specifically Sections 5,
7, 11, and 12 are agreed, assented and
By: ____________________________ approved by: Thomas J. Flatley d/b/a The
Name: ____________________________ Flatley Company
Title: ____________________________
By: ___________________________
Name: ___________________________
Title: ___________________________
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<PAGE> 11
FIRST AMENDMENT TO
SUBLEASE AGREEMENT
------------------
WHEREAS, Merkert Enterprises, Inc., a Massachusetts corporation
("SUBLESSOR") and Nova Link USA Corporation, a Massachusetts corporation
("SUBLESSEE") have entered into a certain Sublease Agreement (the "Sublease");
and
WHEREAS, the parties now wish to modify certain provisions thereof';
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties agree as follows:
1. DEEMED CONSENT. The parties agree that that certain letter from
Landlord (as defined in the Sublease) dated October 30, 1997 shall be deemed to
be Landlord's consent as contemplated by Paragraphs 2 and 3 of the Sublease. As
between Sublessor and Sublessee, Landlord shall be deemed to have consented as
of the date of execution of this First Amendment by both parties hereto (the
"DEEMED CONSENT DATE");
2. SECURITY DEPOSIT. Paragraph 6 of the Sublease is hereby amended by
the deletion and the replacement thereof with the following:
6. SECURITY DEPOSIT. Sublessor hereby acknowledges receipt from
Sublessee of the sum of Sixteen Thousand Five Hundred and
Thirty-two Dollars ($16,532.00) as security (the "Security
Deposit") for the faithful performance by Sublessee of its
obligations hereunder. In the event of an Event of Default (as
defined in Section 19 hereof), Sublessee hereby authorizes
Sublessor, at Sublessor's election (with notice to Sublessee) and
with or without terminating this Sublease and without prejudice to
any other right or remedy Sublessor may have, to apply all or any
portion of the Security Deposit necessary to remedy such default.
If said Security Deposit or portion thereof is so applied,
Sublessee, upon demand by Sublessor, shall within seven (7) days
after written notice therefor from Sublessor, deposit with
Sublessor an amount equal to the amount of the Security Deposit so
applied. Any unapplied cash portion of the Security Deposit shall
be held by Sublessor in a separate escrow account and interest
earned thereon shall be paid to Sublessee on an annual basis. On
December 1, 1998, the Security Deposit, together with any interest
accrued thereon, shall be applied towards Sublessee's obligations
hereunder without any objection on the part of Sublessor or demand
to reinstate the Security Deposit as so applied.
<PAGE> 12
3. RENT COMMENCEMENT. The parties agree that Sublessee's obligation to
pay rent, as set forth in Paragraph 3 of the Sublease, shall commence on the
first business day which is at least fifteen ( 15) days after the Deemed Consent
Date.
4. WAIVER OF RIGHT TO TERMINATE. Each party hereby waives any right it
may have or have had pursuant to the provisions of Paragraph 2 of the Sublease
to terminate the Sublease for Landlord's failure to consent within the allotted
time set forth therein.
IN WITNESS WHEREOF, Sublessee and Sublessor have duly executed this
Sublease as of this _____ day of November, 1997.
Attest: NOVA LINK USA CORPORATION
By: /s/ Angela Bull By: /s/ J. Radoff
Name: Angela Bull Name: Jon Radoff
Title: Director Title: President
Attest: MERKERT ENTERPRISES, INC.
By: /s/ Michael S. Gold By: /s/ Sidney D. Rogers
Name: Michael S. Gold Name: Sidney D. Rogers
Title: Assistant Clerk Title: Vice President
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<PAGE> 1
EXHIBIT 10.3
SUBLEASE
This Sublease is dated June 9, 1999, and is by and between AQUILA
BIOPHARMACEUTICALS, INC., a Delaware corporation, with an address of 175
Crossing Boulevard, Framingham, MA ("Sublessor") and EPRISE CORPORATION, a
Delaware corporation, with an address of 1671 Worcester Road, Framingham, MA
(Sublessee").
WHEREAS, Sublessor is the Lessee under a lease by and between NDNE 9/90
Corporate Center, LLC (the "Prime Lessor") and Sublessor dated as of September
19, 1997, a copy of which is attached hereto as Exhibit A, which lease is
hereinafter referred to as the "Prime Lease"; and
WHEREAS, Sublessee desires to sublet a portion of the premises
described in the Prime Lease being approximately 4,300 square feet on the second
floor and shown on a plan attached hereto as Exhibit B, (the "Premises") and
Sublessor is willing to sublet the same on the conditions hereinafter set forth.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are acknowledged, Sublessor and Sublessee covenant and
agree as follows:
1. Term and Premises. Sublessor hereby sublets and demises unto
Sublessee and Sublessee hereby takes and hires from Sublessor the Premises, for
a term commencing when the Premises are available for Sublessee's occupancy
(anticipated to be July 1, 1999) and ending September 30, 2000 (the "Term"),
subject to the terms and provisions of the Prime Lease and in accordance with
terms, covenants, conditions and provisions herein set forth. In the event the
Premises are not available for Sublessee's occupancy by September 1, 1999, this
sublease may be cancelled by Sublessee by notice to Sublessor given within 10
days after such date, and this Sublease shall be without recourse to either
party. The Premises shall be deemed available for Sublessee's occupancy as soon
as the Landlord's Work set forth on Exhibit D has been substantially completed
insofar as practicable in view of delays or defaults of Sublessee provided
<PAGE> 2
Sublessor is able to procure, at its sole expense, of a Certificate of Occupancy
from the Town of Framingham for Sublessee's use and occupation of the Premises.
The Premises shall not be deemed to be unavailable for Sublessee's occupancy if
only minor or insubstantial detail of construction or mechanical adjustments
remain to be done on the Premises. The Premises are located on certain land
known as 175 Crossing Boulevard, Framingham, Massachusetts and constitute a
portion of a building located thereon (the "Property"). Sublessee shall have, as
appurtenant to the Premises, rights to use in common with others entitled
thereto, subject to the terms and conditions of the Prime Lease and this
Sublease and to reasonable rules from time to time made by Sublessor of which
Sublessee is given notice: (a) the common lobbies, hallways, stairways and
elevators of the Property serving the Premises, (b) common walkways necessary
for access to the Property, and (c) the common toilets on the third floor of the
building in which the Premises is located; and no other appurtenant rights or
easements'.
2. Rent. Sublessee covenants and agrees to pay to Sublessor at the
address set forth on page one of this Sublease, or to such other address as
Sublessor may specify by notice to Sublessee, the minimum annual and minimum
monthly rent ("Rent") in the amounts and at the times specified in Exhibit C,
without notice or demand and without abatement, deduction or set off of any
amount whatsoever.
3. Additional Rent. Sublessee shall pay to Sublessor the following
payments ("Additional Rent"):
If any tax year commencing with fiscal year 2001 (commencing
July 1, 2000 and ending June 30, 2001), the real estate taxes on the Premises
(as allocated in accordance with the terms and conditions of the Prime Lease)
are in excess of the amount of the real estate taxes thereon for fiscal year
2000 (the "Tax Base Year"), Sublessee will pay to Sublessor as additional rent
hereunder, when and as designated by notice in writing by Sublessor, all of such
excess (the "Tax Payment") that may occur in each year of the Term or any
extension or renewal thereof and proportionately for any part of a fiscal year.
Notwithstanding the foregoing, Sublessee shall not
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<PAGE> 3
be responsible for any Tax Payment in excess of 10.5% of the tax escalation for
which Sublessor is liable under the Prime Lease. Sublessee shall not be
responsible for payment of any Park Common Expenses, as that term is used in the
Prime Lease.
4. Utilities. Sublessor shall supply and pay for water, heat, electric,
air conditioning, cleaning, trash removal, security and fire protection.
Sublessee shall pay Sublessor an amount equal to ninety cents (900) per square
foot of the Premises, which amount shall be calculated on an annual basis and
payable on a monthly basis in addition to Rent in accordance with Exhibit C.
5. Use. Sublessee covenants and agrees to use the Premises only for the
purposes permitted by the Prime Lease and for no other purpose whatsoever. The
Premises shall be open to visitors of Sublessee during the following times:
8:00 a.m. to 6:00 p.m. - Monday through Friday (excluding legal holidays)
8:00 a.m. to 1:00 p.m. - Saturday
Sublessee shall have reasonable access to the Premises at all times, provided,
however, that such access shall otherwise be subject to the terms and conditions
of the Prime Lease, including, but not limited to, the Rules and Regulations
attached as Exhibit F thereto.
Sublessee shall not use or store any oil or hazardous material on the
Premises, or discharge any such hazardous material to the septic system or sewer
serving the Premises, except in compliance with all federal, state and local
laws, ordinances and regulations pertaining thereto (hereinafter collectively
referred to as "Applicable Laws"). As used herein, "hazardous material" shall
mean oil and hazardous materials as defined in the Massachusetts Oil and
Hazardous Material Release Prevention and Response Act, Massachusetts General
Laws Chapter 21E and any regulations issued thereunder. Sublessee agrees that,
if Sublessee or anyone claiming under Sublessee shall release or discharge any
hazardous material on, into or under the Premises, or to the septic system or
sewer serving the Premises, or to property adjacent to the Premises,
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<PAGE> 4
Sublessee shall forthwith remove the same in the manner provided by Applicable
Laws and shall indemnify and hold Sublessor harmless from and against any and
all claims, costs, expenses and liabilities, including attorneys' fees, arising
from such release or discharge. Sublessor shall indemnify and hold Sublessee
harmless from and against any and all claims, costs, expenses and liabilities,
including attorneys' fees, arising from a release or discharge of hazardous
material by the Sublessor during the period of its occupancy of the Premises,
on, into or under the Premises, or to the septic system or sewer system serving
the Premises, or, to property adjacent to the Premises. The obligations
contained in this Section shall survive the expiration or termination of the
term of this Sublease.
6. Parking and Loading Area. Sublessee shall have access free of charge
to a minimum of four (4) unassigned parking spaces per one thousand (1,000)
rentable square feet of floor space. Sublessee shall also have access, in common
with others (including any other tenant or tenants of the Property) to the
freight elevator and loading dock located at or in the Property.
7. Signage. In accordance with the terms and conditions contained in
the Prime Lease, including, but not limited to, the Rules and Regulations
attached as Exhibit F thereto, Sublessee shall be permitted to install signage
or other means of identification next to Sublessee's entrance door and Sublessee
shall be included in the Property's lobby directory.
8. Insurance. Sublessee agrees to observe the provisions of Section 7
of the Prime Lease with respect to the use of the Premises and the insurance
requirements with respect thereto except that Sublessee shall not be obligated
to obtain or pay for any of the property or liability insurance coverage
required under the Prime Lease or to provide for environmental insurance.
Sublessee shall maintain a commercial general liability insurance policy with
respect to the Premises reasonably acceptable to Sublessor and the Prime Lessor.
Sublessee shall maintain its own insurance with respect to its personal
property. Sublessee shall provide Sublessor with a Certificate of Insurance
evidencing such insurance coverage as is acceptable to Sublessor and Prime
Lessor prior to the commencement of the Term.
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<PAGE> 5
9. Waiver of Subrogation. Sublessor and Sublessee each hereby release
each other, to the extent of any insurance coverage, from any and all liability
for any loss or damage caused by fire or any of the extended coverage casualties
or any other casualty insured against, even if such fire or other casualty shall
be brought about by the fault or negligence of Sublessor or Sublessee or its or
their agents; provided, however, this release shall be in force and effect only
with respect to loss or damage occurring during such time as' policies covering
such loss or damage shall contain a clause to the effect that this release shall
not affect said policies or the right to recover thereunder. Sublessor and
Sublessee agree that their fire and other casualty insurance policies will
include such a clause so long as the same is includable without extra cost, or
if extra cost is chargeable therefor, so long as the other party is given the
opportunity and elects to pay such extra costs.
10. Condition of Premises; Maintenance and Repairs. Sublessor
represents that, to its knowledge, the building and systems of which the
Premises are a part are in good order and satisfactory condition. Sublessee
acknowledges that it has inspected the Premises and agrees to accept the
Premises in "AS IS" condition, except as expressly set forth herein or on
Exhibit D. and further acknowledges that no other representations or warranties
as to the condition thereof have been made to it by Sublessor. By taking
possession of the Premises, Sublessee is deemed to have accepted the Premises
and agreed that the Premises is in good order and satisfactory condition. In
addition to the provisions set forth in Exhibit D, during the Term, Sublessor,
at its own cost and expense, shall maintain and make all necessary repairs to
the electrical, mechanical, heating, ventilating and air conditioning, plumbing
and other systems inside the Premises, provided, however, that Sublessee shall
(i) promptly give notice to Sublessor notice of any repairs required to be made
by the Sublessor hereunder; (ii) make any repairs, at Sublessee's sole expense,
to the Premises necessitated by the acts or negligence of Sublessee or its
agents, employees or invitees; and (iii) make all interior non-structural and
non-system repairs, replacements and renewals necessary, at Sublessee's sole
expense, to keep the Premises in as good condition, order and repair as the same
are at the commencement of the Term or thereafter
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<PAGE> 6
may be put, reasonable wear and use and damage by fire or other casualty only
excepted (it being understood, however, that the foregoing exception for
reasonable wear and use shall not relieve Sublessee from the obligation to keep
the Premises in good order, repair and condition, free from accumulation of
dirt, rubbish and other debris).
11. Assignment and Subletting. Sublessee shall not assign this
Sublease, nor underlet the whole or any part of the Premises or suffer or permit
any other person to occupy the same without first obtaining, on each occasion,
the written consent of the Sublessor, which shall not be unreasonably withheld
or denied, and in all events, Sublessee agrees to pay all Sublessor's reasonable
attorneys fees in connection with such assignment and/or subletting and the cost
of preparation of any documents required by the Sublessor. Sublessor's consent
under this paragraph shall be expressly conditioned upon Sublessor's ability to
obtain consent for the same from the Prime Lessor and any mortgagee of the
Property, the Premises or any portion(s) thereof. In all events the Sublessee
will continue to remain responsible to the Sublessor for the payment of all rent
and performance of all obligations contained herein. At Sublessor's election,
Sublessor may require Sublessee to cause any permitted Sub-Sublessee to pay its
rent directly to Sublessor.
12. Release and Indemnification. Sublessee will save Sublessor
harmless, and will exonerate, defend and indemnify Sublessor, from and against
any and all claims, liabilities or penalties asserted by or on behalf of any
person, firm, corporation or public authority:
(a) On account of or based upon any injury to person, or loss
of or damage to property, sustained or occurring on the Premises on account of
or based upon the act, omission, fault, negligence or misconduct of any person
whomsoever (other than Sublessor);
(b) On account of or based upon any injury to person, or loss
of or damage to property, sustained or occurring elsewhere (other than on the
Premises) in or about the Property (and, in particular, without limiting the
generality of the foregoing, on or about the elevators,
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<PAGE> 7
stairways, public corridors, sidewalks, approaches, areaways, or other
appurtenances and facilities used in connection with the Property or the
Premises) arising out of the use or occupancy of the Property or the Premises by
the Sublessee, or by any person claiming by, through or under Sublessee, on
account of or based upon the act, omission, fault, negligence or misconduct of
all persons other than and those for whose conduct the Sublessor is legally
responsible;
(c) On account of or based upon (including monies due on
account of) any work or thing whatsoever done (other than by Sublessor or its
contractors, or agents or employees of either) on the Premises during the term
of this Sublease and during the period of time, if any, prior to the
commencement of the Term that Sublessee may have been given access to the
Premises; and
(d) On account of or resulting from the failure of Sublessee
to perform and discharge any of its covenants and obligations under this
Sublease and, in respect of any of the foregoing, from and against all costs,
expenses (including reasonable attorneys' fees), and liabilities incurred in or
in connection with any such claim, or any action or proceeding brought thereon;
and in case any action or proceeding be brought against Sublessor by reason of
any such claim, Sublessee upon notice from Sublessor shall at Sublessee's
expense resist or defend such action or proceeding and employ counsel therefor
reasonably satisfactory to Sublessor, it being agreed that such counsel as may
act for insurance underwriters of Sublessee engaged in such defense shall be
deemed satisfactory.
13. Property of Sublessee. In addition to and not in limitation of the
foregoing, Sublessee covenants and agrees that all merchandise, furniture,
fixtures and property of every kind, nature and description which may be in or
upon the Premises or the Property, in the public corridors, or on the sidewalks,
areaways and approaches adjacent thereto, during the term hereof, shall be at
the sole risk and hazard of Sublessee, and that if the whole or any part thereof
shall be damaged, destroyed, stolen or removed from any cause or reason
whatsoever no part of said
-7-
<PAGE> 8
damage or loss shall be charged to, or borne by, Sublessor.
14. Bursting, of Pipes, Etc. Sublessor shall not be liable for any
injury or damage to persons or property resulting from fire, explosion, falling
plaster, steam, gas, electricity, electrical disturbance, water, rain or snow or
leaks from any part of the Property or from the pipes, appliances or plumbing
works or from the roof, street or sub-surface or from any other place or caused
by dampness or by any other cause of whatever nature, unless caused by or due to
the negligence of Sublessor, its agents, servants or employees, and then only
after (i) notice to Sublessor of the condition claimed to constitute negligence
and (ii) the expiration of a reasonable time after such notice has been received
by Sublessor without Sublessor having taken all reasonable and practical action
to cure or correct such condition; and pending such cure or correction by
Sublessor, Sublessee shall take all reasonably prudent temporary measures and
safeguards to prevent any injury, loss or damage to persons or property. In no
event shall Sublessor be liable for any loss, the risk of which is covered by
Sublessee's insurance; nor shall Sublessor or its agents be liable for any such
damage caused by other tenants or persons in the Property or caused by
operations in construction of any private, public, or quasi-public work; nor
shall Sublessor be liable for any latent defect in the Premises or in the
Property.
15. Damage, Destruction or Taking. Sublessor and Sublessee agree that
in the event the Premises are destroyed, damaged by fire or other casualty, or
taken by eminent domain, payment of rent and the right to terminate this
Sublease shall be governed by the provisions of Section 10 of the Prime Lease;
if the Prime Lease terminates, this Sublease shall simultaneously terminate. In
the event of a casualty or eminent domain taking where the insurance proceeds or
eminent domain award are not adequate to complete restoration, Sublessee agrees
that the obligation to restore shall be conditioned upon Sublessee's agreement
to pay all amounts which shall be required in addition to the insurance proceeds
or the net eminent domain award to enable the Prime Lessor to complete such
restoration. In the event there is a taking by eminent domain which affects any
additions, alterations or improvements made by the Sublessee under plans and
specifications approved by the Sublessor, then the Sublessee shall be entitled
to collect its
-8-
<PAGE> 9
unamortized costs as calculated for tax purposes of all such additions,
alterations and improvements which were realty items, less Sublessee's
proportionate share of the cost of collecting the eminent domain award. With
respect to any additions, alterations and improvements made by the Sublessor,
Sublessor shall be entitled to collect its unamortized costs as calculated for
tax purposes.
16. Default and Remedies. This Sublease is upon the condition, that if
the Sublessee shall neglect or fail to perform or observe any of the Sublessee's
covenants contained herein, or if the estate hereby created shall be taken on
execution, or by other process of law, or to the extent permitted by law, if a
petition shall be filed by or against the Sublessee under the United States
Bankruptcy Code or acts amendatory thereof or supplemental thereto, or if any
assignment shall be made of the Sublessee's property for the benefit of
creditors, or if a receiver, or other similar officer shall be appointed to take
charge of all or any part of the Sublessee's property by a court of competent
jurisdiction, or if Sublessee vacates, deserts or abandons the Premises or
discontinues the conduct of its business therein, then, and in any of the said
cases (notwithstanding any license of any former breach of covenant or waiver of
the benefit thereof or consent in a former instance), the Sublessor lawfully
may, without demand or notice, enter into and upon the Premises or any part
thereof in the name of the whole, and repossess the same as of the Sublessor's
former estate and expel the Sublessee and those claiming through or under the
Sublessee and remove their effects (forcibly if necessary) without being deemed
guilty of any manner of trespass, and without prejudice to any remedies which
might otherwise be used for arrears of rent or preceding breach of covenant, and
upon entry as aforesaid, this Sublease shall terminate; and the Sublessee
covenants that, in case of such termination or of termination under the
provisions of law for the Sublessee's default, the Sublessee will, at the
election of the Sublessor, which election may be made or changed at any time:
(a) pay to the Sublessor sums equal to the rent and other payments to be paid by
the Sublessee at the same times and in the same installments as specified in
this Sublease during the remainder of the term, less the net amount received by
the Sublessor from reletting the Premises, after deducting all costs and
expenses incurred in connection with such reletting; or, (b) pay to the
Sublessor, as damages,
-9-
<PAGE> 10
such a sum as at the time of such termination or at the time to which
installments under (a) above shall have been paid represents the excess of the
rent and other payments to be paid hereunder by the Sublessee above the rental
value of the Premises for the remainder of said term; or, (c) indemnify the
Sublessor against loss of the rent and other payments to be paid hereunder by
the Sublessee from the time of such termination or from the time to which
installments under (a) above shall have been paid to the expiration of said
term.
17. Enforcement and Delivery of Premises at Termination. The Sublessee
agrees that it will pay all the Sublessor's expenses, including attorneys fees
incurred in enforcing any obligation of the Sublessee or remedies of the
Sublessor under this Sublease, or in recovering possession of the Premises.
Sublessee agrees that the Premises will at the expiration or earlier termination
of this Sublease be delivered in the same condition as is specified in Section
9.8 of the Prime Lease and that the Sublessor shall have the same rights to
remove and store Sublessee's property not removed at the termination of this
Sublease as are specified in said Section 9.8 of the Prime Lease.
18. Notices. All notices or other communications hereunder shall be in
writing and delivered by registered or certified mail, return receipt requested,
postage prepaid, addressed as follows: If to Sublessor, at 175 Crossing
Boulevard, Framingham, MA 01701, Attention: Chief Financial Officer; and if to
Sublessee at 1671 Worcester Road, 4th Floor, Framingham, MA 01701, Attention:
Chief Financial Officer. Notices shall be deemed given when mailed and otherwise
on the earlier to occur of the date of delivery or the date delivery was first
attempted, as shown by postal records. The parties hereto may, from time to
time, by notice given hereunder, designate any different address to which
subsequent notices, certificates or other communications shall be sent.
19. Broker. Sublessee warrants and represents that it has not dealt
with any real estate broker other than Fallon, Hines & O'Connor, Inc. and C13
Richard Ellis Whittier Partners (collectively the "Brokers") in connection with
the Premises or this Sublease. Full payment to
-10-
<PAGE> 11
the Brokers will be made by Sublessor pursuant to a separate agreement.
Sublessee shall indemnify and hold Sublessor harmless from and against any
liability for commissions due any real estate broker or finder other than the
Brokers with whom Sublessee has dealt in connection with this Sublease.
20. Security Deposit. Sublessee has, simultaneously herewith, deposited
with Sublessor cash in the principal sum of Nine Thousand Four Hundred
Ninety-five and 00/100 Dollars ($9,495.00). Said deposit shall be held by
Sublessor as security for the faithful performance by Sublessee of the terms,
covenants, provisions and conditions of this Sublease (and in the event of
transfer of ownership of the Premises by Sublessor, Sublessor agrees and
Sublessee consents to the transfer of such security deposit to the new owner).
It is agreed that in the event that Sublessee defaults in respect to any of the
terms, covenants, provisions or conditions of this Lease (including, but not
limited to, the payment of Rent and Additional Rent) Sublessor may use, apply or
retain the whole or any part of the security so deposited to the extent required
for the payment of any Rent or Additional Rent or any other sum as to which
Sublessee is in default or any sum which Sublessor may expend or may be required
to expend by reason of Sublessee's default, in respect to any of the terms,
covenants, provisions, and conditions of this Lease (including, but not limited
to, any damages or deficiencies accrued before or after summary proceedings or
re-entry by Sublessor). Sublessee shall not be entitled to any interest on the
aforesaid deposit of security.
In the event that Sublessee shall fully and faithfully comply with all
the terms, provisions, covenants and conditions of this Sublease, the security
deposit shall be refunded to Sublessee within thirty (30) days following the
later of the date fixed at the end of this Sublease or the date of delivery of
entire possession of the Premises to Sublessor.
21. Subordination. This Sublease shall be subject and subordinate to
any existing or new mortgage covering all or part of the Premises and Sublessee
agrees to execute all documents requested for the purpose of effectuating the
subordination of this Sublease to such mortgage or
-11-
<PAGE> 12
mortgages.
22. Special Provisions - Prime Lease. To the extent not otherwise
inconsistent with the agreements and understandings expressed in this Sublease
or applicable only to the original parties to the Prime Lease, the terms,
provisions, covenants and conditions of the Prime Lease are hereby incorporated
herein by reference on the following understandings:
(a) In any case where the Prime Lessor reserves the right to
enter the Premises, said right shall inure to the Prime Lessor as well as to
Sublessor herein.
(b) Each party hereto agrees to perform and comply with the
terms, provisions, covenants and conditions of the Prime Lease and not to do or
suffer or permit anything to be done which would result in a default under, or
cause the Prime Lease to be terminated or forfeited.
(c) In the event that any mechanic's lien or other lien is
filed against the Premises, or any part thereof, for any reason whatsoever by
reason of Sublessee's acts or failure to act, then Sublessee shall cause same to
be discharged within ten (10) days after notice by Sublessor.
(d) In the event that any provisions of this Sublease are
inconsistent with the provisions of the Prime Lease, then the terms of the Prime
Lease shall control and be binding upon the parties.
(e) All the rights and obligations contained in the Prime
Lease conferred and imposed upon Sublessor (as Lessee therein), except as
modified and amended by this Sublease, are hereby conferred and imposed upon
Sublessee. It is expressly agreed that Sublessee shall have no payment
obligations under the Prime Lease except such as are set forth herein for any
obligation for the portion of Sublessor's Premises under the Prime Lease not
subject to this
-12-
<PAGE> 13
Sublease.
(f) It is understood and agreed (i) that Sublessor, except as
otherwise provided herein, shall not be liable for the performance of any of the
obligations of the Prime Lessor under the Prime Lease; (ii) that Sublessee shall
have no claim against Sublessor by reason of any default in fulfilling such
obligations upon the part of the Prime Lessor unless such default results from
Sublessor's being in default under the Prime Lease and not due to a default of
Sublessee hereunder, or from Sublessor's willful misconduct; (iii) that
Sublessor further agrees to send any notices reasonably requested by the
Sublessee to the Prime Lessor pursuant to the terms of the Prime Lease provided
said notices are received from Sublessee in writing and within reasonable time
to allow Sublessor to satisfy the time requirements for sending such notice
under the terms of the Prime Lease; and (iv) that Sublessee, except as expressly
provided herein, shall not be liable for the performance of any of the
obligations of Sublessor under the Prime Lease.
(g) Sublessee will fully and faithfully perform the terms and
conditions of the Prime Lease on its part to be performed, and in addition
thereto, Sublessee will not do or cause to be done or suffer or permit any act
or thing to be done which would or might cause the Prime Lease or the rights of
Sublessor as Lessee under the Prime Lease to be endangered, cancelled,
terminated, forfeited, or surrendered, or which would or might make Sublessor
liable for any damages, claim or penalty, and in such event, Sublessee, agrees,
as an express inducement for Sublessor's entering into this Sublease, that if
there is any conflict between the provisions of this Sublease and the provisions
of the Prime Lease which would permit Sublessee to do or cause to be done or
suffer or permit any act or thing to be done which is prohibited by the Prime
Lease, then the provisions of the Prime Lease shall prevail.
(h) With respect to work, services, repairs and restoration or
the performance of other obligations required of the Prime Lessor under the
Prime Lease, if any, Sublessor's sole obligation with respect thereto, shall be
to request the same, after requested by Sublessee, and to send all notices
required under the Prime Lease to the Prime Lessor, as the case may be.
-13-
<PAGE> 14
(i) In the event the Prime Lease is terminated prior to the
expiration or earlier termination of this Sublease, this Sublease shall
immediately terminate and be without recourse to either party.
23. Miscellaneous.
(a) Entire Agreement. This instrument contains the entire and
exclusive agreement between the parties and supersedes all prior arrangements,
understandings and agreements, whether oral or written. This Sublease may not be
amended or modified except by a written instrument executed by the Sublessor and
the Sublessee.
(b) Waivers. One or more waivers of any covenant or condition
by Sublessor shall not be construed as a waiver of a subsequent breach of the
same or any other covenant or conditions, and the consent or approval by
Sublessor to or of any act by Sublessee requiring Sublessor's consent or
approval shall not be construed to waive or render unnecessary Sublessor's
consent or approval to or of any subsequent similar act by Sublessee.
(c) Governing Law and Severability. This Sublease shall be
governed by and interpreted in accordance with the laws of The Commonwealth of
Massachusetts. In the event any provision of this Sublease shall be determined
invalid or unenforceable under applicable law, or shall be determined to be a
violation of the Prime Lease, this Sublease shall be construed as if such
provision had never been made part hereof, but shall otherwise continue in full
force and effect.
(d) Headings. The headings used herein are used only for
convenience of reference and are not to be considered part of this Sublease or
to be used in determining the intent of the parties hereto.
-14-
<PAGE> 15
(e) Binding Effect. This Sublease shall be binding upon and
inure to all successors and permitted assigns, including all permitted
subtenants, of the parties hereto.
(f) No Joint Venture. Sublessor shall in no event be
construed, held or become in any way or for any purpose a partner, associate or
joint venturer of Sublessee or any party associated with Sublessee in the
conduct of its business or otherwise.
(g) Waiver. SUBLESSEE KNOWINGLY AGREES TO AND HEREBY WAIVES
ANY AND ALL RIGHTS TO TRIAL BY JURY IN ANY MATTER ARISING OUT OF THIS SUBLEASE
OR OTHERWISE WITH THE SUBLESSOR.
(h) Cumulative Remedies. The specific remedies to which
Sublessor may resort under the terms of this Sublease are cumulative and are not
intended to be exclusive of any other remedies or means of redress to which it
may be lawfully entitled in case of any breach or threatened breach by Sublessee
of any provisions of this Sublease. In addition to the other remedies provided
in this Sublease, Sublessor shall be entitled to the restraint by injunction of
the violation or attempted or threatened violation of any of the covenants,
conditions or provisions of this Sublease or to a decree compelling specific
performance of any such covenants, conditions or provisions.
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<PAGE> 16
(i) Time of Essence. All times are of the essence in this
Sublease.
IN WITNESS WHEREOF, Sublessor and Sublessee have executed this Sublease
as an instrument under seal by their duly authorized officers on the day and the
year first above written
Sublessor: AQUILA BIOPHARMACEUTICALS, INC.
By:____________________________________________
Its: President and Chief Executive Officer
Sublessee: EPRISE CORPORATION
By: /s/ Milton Alpern
Its: Chief Financial Officer
-16-
<PAGE> 17
EXHIBIT A
The Prime Lease
<PAGE> 18
EXHIBIT B
Plan of Premises
<PAGE> 19
EXHIBIT C
Any installments of rent accruing under the provisions of this Sublease or any
other payments to be made by Sublessee to Sublessor under the terms of this
Sublease which are not paid when due shall bear interest upon default at the
rate of I-V2% per month (18% per annum) from the date due until paid.
Rent per Square Footage Minimum Minimum
Square Foot of the Premises Annual Rent Monthly Rent Payment Date
$26.50 4,300 $113,950 $9,495.83 1st day of each
month in advance
Utilities per Square Footage Annual Monthly
Square Foot of the Premises Utilities Utilities Payment Date
$.90 4,300 $3,870 $322.50 1st day of each
month in advance
<PAGE> 20
EXHIBIT D
Work Letter
This Exhibit is attached to and made a part of the Sublease dated June
9, 1999, by and between Aquila Biopharmaceuticals, Inc., a Delaware corporation,
with an address of 175 Crossing Boulevard, Framingham, Massachusetts
("Sublessor") and Eprise Corporation, a Delaware corporation, with an address of
1671 Worcester Road, Framingham, MA (Sublessee").
1. This Work Letter shall set forth the obligations of Sublessor and
Sublessee with respect to the preparation of the Premises for Sublessee's
occupancy. All improvements described in this Work Letter to be constructed in
and upon the Premises by Sublessor are hereinafter referred to as the
"Sublessor's Work" and which term is described further in Section 6 below. It is
agreed that construction of the Sublessor's Work will be completed at
Sublessor's sole cost and expense. Sublessor shall enter into a direct contract
for the Sublessor's Work with a general contractor selected by Sublessor. In
addition, Sublessor shall have the right to select and/or approve of any
subcontractors used in connection with the Sublessor's Work.
2. Sublessor shall prepare the final architectural, electrical and
mechanical construction drawings, plans and specifications consistent with the
sketch attached hereto (the "Plans") necessary to construct the Sublessor's
Work, which Plans shall be subject to Sublessee's review and approval within
five (5) business days, as further described below. Sublessor shall be
responsible for all elements of the design of the Plans.
3. Sublessor shall provide Sublessee with five (5) business days to
review the Plans prior to commencing the Sublessor's Work. If Sublessee shall
request any change within such five (5) day period, addition or alteration in
any of the Plans and Sublessor elects, in its sole discretion, to consent to
such change, addition or alteration, Sublessor shall have such revisions to the
Plans prepared, and Sublessee shall reimburse Sublessor for the reasonable cost
thereof upon demand. Promptly upon completion of the revisions, Sublessor shall
notify Sublessee in writing of the increased cost that will be chargeable to
Sublessee by reason of such change, addition or deletion. Sublessee, within
three (3) business days, shall notify Sublessor in writing whether it desires to
proceed with such change, addition or deletion and be responsible for the Excess
Costs (as defined below) resulting therefrom. In the absence of such written
authorization, Sublessor shall have the option to continue work on the Premises
disregarding the requested change, addition or alteration, or Sublessor may
elect to discontinue work on the Premises until it receives notice of
Sublessor's decision, in which event Sublessee shall be responsible for any
delay in completion of the Premises resulting therefrom. In the event Sublessee
elects to provide such written authorization, Sublessee agrees to reimburse
Sublessor for any increase in the estimated cost of construction and/or higher
actual construction costs which are result of such change, alteration or
addition ("Excess Costs").
4. Following finalization of the Plans and the payment by Sublessee of
the required
<PAGE> 21
portion of the Excess Costs, if any, Sublessor shall cause the Sublessor's Work
to be constructed substantially in accordance with the approved Plans. During
such time as the Sublessor is completing Sublessor's Work, Sublessee shall be
provided with reasonable access to the Premises provided such access does not
unreasonably interfere with Sublessor's ability to complete Sublessor's Work.
Sublessor shall notify Sublessee of substantial completion of Sublessor's Work.
5. Sublessor's Work shall be performed in a good and workmanlike manner
in accordance with all applicable laws, regulations, codes, ordinances and rules
of municipal and other authorities having jurisdiction.
6. Sublessor's Work shall consist of the completion of improvements to
the Premises in accordance with the Plans, which improvements shall include the
construction of four (4) offices, one (1) copy/fax/storage room, one (1)
conference room suitable for ten (10) occupants, one (1) conference room
suitable for twelve (12) occupants, one room for the siting of phone and data
cabling, one (1) sink, and a reception area. Sublessee shall be solely
responsible the cost of the installation of phone and data cabling. The
carpeting, walls (including wall coverings) and ceilings to be utilized in the
completion of the Sublessor's Work shall be of the same type and material
utilized by Sublessor in that portion of the premises described in the Prime
Lease presently being used and occupied by the Sublessor.
7. Sublessee shall be conclusively deemed to have agreed that Sublessor
has performed all of its obligations under this Work Letter unless not later
than the end of the second calendar month next beginning after the commencement
of the Term Sublessee shall give Sublessor written notice specifying the respect
in which Sublessor has not performed any such obligation.
IN WITNESS WHEREOF, Sublessor and Sublessee have executed this exhibit
as of June 9, 1999.
Sublessor: AQUILA BIOPHARMACEUTICALS, INC.
By: /s/
Its: President and Chief Executive Officer
Sublessee: EPRISE CORPORATION
By: /s/ Milton A. Alpern
Chief Financial Officer
-2-
<PAGE> 1
Ex - 10.4
EPRISE CORPORATION
1997 Stock Option Plan
As adopted August 20, 1997, and amended
November 1, 1997, August 13, 1998,
May 12, 1999, September 15, 1999 and December 1, 1999
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
1. Purpose; Restrictions........................................................................................ 1
2. Effective Date............................................................................................... 1
3. Stock Covered by the Plan.................................................................................... 1
4. Administration............................................................................................... 2
5. Eligible Recipients.......................................................................................... 2
6. Duration of the Plan......................................................................................... 3
7. Terms and Conditions of Options.............................................................................. 3
8. Restrictions on Incentive Options............................................................................ 6
9. Suspension of Rights Prior to a Dissolution, Reorganization, Etc............................................. 6
10. Adjustment in Shares......................................................................................... 6
11. Investment Representations; Transfer Restrictions............................................................ 6
12. Change in Control............................................................................................ 7
13. Company's Right of First Refusal............................................................................. 9
14. No Exercise of Option if Employment Terminated for Misconduct................................................ 10
15. Company's Right of Repurchase................................................................................ 11
16. Lock-up Agreement............................................................................................ 12
17. Definitions.................................................................................................. 13
18. Termination or Amendment of Plan............................................................................. 13
</TABLE>
<PAGE> 3
As adopted 8/20/97 and amended 11/1/97,
08/13/98, 05/12/99, 9/15/99 and 12/1/99
EPRISE CORPORATION
1997 STOCK OPTION PLAN
1. Purpose; Restrictions. The purpose of this Eprise Corporation 1997
Stock Option Plan (the "Plan") is to advance the interests of Eprise
Corporation, a Delaware corporation (the "Company"), by strengthening the
ability of the Company to attract, retain and motivate key employees,
consultants and other individual contributors of or to the Company or any
present or future parent or subsidiary of the Company (the "Company Group") by
providing them with an opportunity to purchase stock of the Company and thereby
permitting them to share in the Company's success. It is intended that this
purpose will be effected by granting (i) incentive stock options ("Incentive
Options"), which are intended to qualify under the provisions of Section 422 of
the Code (as hereinafter defined), and (ii) non-statutory stock options
("Nonqualified Options"), which are not intended to meet the requirements of
Section 422 of the Code and which are intended to be taxed upon exercise under
Section 83 of the Code. (Both Incentive Options and Nonqualified Options shall
be collectively referred to as "Options".)
Notwithstanding the foregoing, no Incentive Options shall be granted
under this Plan unless this Plan shall have been approved by the stockholders of
the Company within twelve (12) months before or after the Effective Date (as
hereinafter defined).
2. Effective Date. This Plan was adopted on August 20, 1997, which is
also the Effective Date of the Plan.
3. Stock Covered by the Plan. Subject to adjustment as provided in
Sections 9 and 10 below, the initial maximum number of shares that may be made
subject to Options under this Plan through the end of the Company's fiscal year
ending December 31, 1999 ("Shares") shall not exceed in the aggregate Seven
Million One Hundred Thirty-Four Thousand Six Hundred Fourteen (7,134,614) shares
of the common stock, $.001 par value, of the Company ("Common Stock"), subject
to the proviso in the following sentence. Any Shares subject to an Option which
for any reason expires or is terminated unexercised as to such Shares and any
Shares reacquired by the Company pursuant to forfeiture or a repurchase right
hereunder may again be the subject of an Option under the Plan; provided, that
Shares subject to an option under the Company's 1994 Stock Option Plan (the
"1994 Plan") which would have become available for subsequent option grants
under the 1994 Plan upon expiration, termination, forfeiture or repurchase in
the manner described in the first part of this sentence, shall instead become
available for grants under this Plan (thereby increasing the initial maximum
number of Shares that may be made subject to Options hereunder through the end
of the Company's fiscal year ending December 31, 1999 to a number greater than
7,134,614). In addition, effective January 1, 2000 and each January 1
<PAGE> 4
thereafter during the next two succeeding years, the number of Shares that may
be made subject to Options under this Plan shall be increased automatically to
an amount equal to 5% of the total number of issued and outstanding shares of
Common Stock (including shares held in treasury) as of the close of business on
December 31 of the preceding year. Notwithstanding the foregoing, the maximum
cumulative number of shares of Common Stock that may be made subject to
Incentive Options under this Plan shall be [ ]. The Shares purchased pursuant to
the exercise of Options under this Plan may, in whole or in part, be either
authorized but unissued Shares or issued Shares reacquired by the Company.
4. Administration. This Plan shall be administered by the Compensation
Committee of the Board of Directors (the "Committee") as follows:
(a) So long as the Company is not subject to the Exchange Act (as
hereinafter defined), the Committee shall consist of one or more persons
appointed by, and serving at the pleasure of, the Board of Directors.
(b) If the Company becomes subject to the Exchange Act, the Committee
thereafter shall consist of not less than three (3) members of the Board, who
shall be appointed by and shall serve at the pleasure of the Board; provided
that each of such members of the Committee shall be a person who in the opinion
of counsel to the Company is (i) a "non-employee director" as such term is used
in Rule 16b-3 promulgated under the Exchange Act and (ii) an "outside director"
as such term is used in regulation Section 1.162.27(e)(3) under Section 162(m)
of the Code.
(c) The Committee shall have the authority, subject to the express
provisions of the Plan, to construe the Plan and the respective Options and
related agreements, to prescribe, amend and rescind rules and regulations
relating to the Plan, to determine the terms and provisions of the respective
Options and related agreements, and to make all other determinations in the
judgment of the Committee necessary or desirable for the administration of the
Plan. The Committee may correct any defect or supply any omission or reconcile
any inconsistency in the Plan or in any Option or related agreement in the
manner and to the extent it shall deem expedient to carry the Plan into effect,
and it shall be the sole and final judge of such expediency. No member of the
Committee shall be liable for any action or determination made in good faith.
5. Eligible Recipients. Subject to the restrictions of Section 1 above,
Options may be granted to such key employees, consultants or other individual
contributors of or to the Company Group, including without limitation members of
the Board, as are selected by the Committee (a "Participant"); provided, that
only Employees (as defined below) of the Company Group shall be eligible for
grants of Incentive Options.
6. Duration of the Plan. This Plan shall terminate ten (10) years from
the Effective Date hereof, unless terminated earlier pursuant to Section 13
below, and no Options may be granted thereafter.
7. Terms and Conditions of Options. Options granted under this Plan shall
be evidenced by grant forms in such form and containing such terms and
conditions as the
2
<PAGE> 5
Committee shall determine; provided, however, that such grant forms shall
evidence among their terms and conditions the following:
(a) Price. The purchase price per Share payable upon the exercise of
each Option granted hereunder shall be determined by the Committee at the time
the Option is granted. Subject to Section 7(j)(i), if applicable, the purchase
price per Share payable upon the exercise of each Incentive Option granted
hereunder shall not be less than one hundred percent (100%) of the fair market
value per Share of the Common Stock on the day the Incentive Option is granted.
Fair market value shall be determined in accordance with procedures to be
established in good faith by the Committee. The purchase price per Share payable
upon the exercise of each Nonqualified Option granted hereunder shall be
determined by the Board at the time of the grant. No Share shall be issued for
less than its par value, if any.
(b) Number of Shares. Each grant form shall specify the number of
Shares to which it pertains.
(c) Exercise of Options. Each Option shall be exercisable for the
full amount or for any part thereof and at such intervals or in such
installments as the Committee may determine at the time it grants such Option;
provided, however, that no Option shall be exercisable with respect to any
Shares later than ten (10) years after the date of the grant of such Option (or
five (5) years in the case of Incentive Options to which Section 7(j)(ii)
applies). An Option shall be exercisable only by delivery of a written notice to
the Company's President, or any other officer of the Company designated by the
Committee to accept such notices on its behalf, specifying the number of Shares
for which the Option is exercised and accompanied by either (i) payment or (ii)
if permitted by the Committee, irrevocable instructions to a broker to promptly
deliver to the Company full payment in accordance with Section 7(d)(ii) below of
the amount necessary to pay the aggregate exercise price. With respect to an
Incentive Option, the permission of the Committee referred to in clause (ii) of
the preceding sentence must be granted at the time the Incentive Option is
granted.
(d) Payment. Payment shall be made in full (i) at the time the Option
is exercised or (ii) promptly after the Participant forwards the irrevocable
instructions referred to in Section 7(c)(ii) above to the appropriate broker, if
exercise of an Option is made pursuant to Section 7(c)(ii) above. Payment shall
be made either (I) in cash, (II) by check, (III) if permitted by the Committee
(with respect to an Incentive Option, such permission to have been granted at
the time the Incentive Option is granted), by delivery and assignment to the
Company of shares of Company stock having a fair market value (as determined by
the Committee) equal to the exercise price, (IV) if permitted by the Committee,
as stated in the grant form evidencing the Option, and to the extent permitted
by any applicable law, by the Participant's recourse promissory note, which note
must be due and payable not more than five (5) years after the date the Option
is exercised, or (V) by a combination of one or more of the foregoing methods.
If shares of Company stock are to be used to pay the exercise price of an
Incentive Option, the Company prior to such payment must be furnished with
evidence satisfactory to it that the acquisition of such shares and their
transfer in payment of the exercise price satisfy the requirements of Section
422 of the Code and other applicable laws.
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<PAGE> 6
(e) Withholding Taxes; Delivery of Shares. The Company's obligation
to deliver Shares upon exercise of an Option shall be subject to the
Participant's satisfaction of all applicable federal, state and local income and
employment tax withholding obligations. Without limiting the generality of the
foregoing, the Company shall have the right to deduct from payments of any kind
otherwise due to the Participant any federal, state or local taxes of any kind
required by law to be withheld with respect to any Shares issued upon exercise
of Options. The Participant may elect to satisfy such obligation(s), in whole or
in part, by (i) delivering to the Company a check for the amount required to be
withheld or (ii) if the Committee in its sole discretion approves in any
specific or general case, having the Company withhold Shares or delivering to
the Company already owned shares of Common Stock having a value equal to the
amount required to be withheld, as determined by the Committee.
(f) Non-Transferability. No Option shall be transferable by the
Participant otherwise than by will or the laws of descent or distribution, and
each Option shall be exercisable during the Participant's lifetime only by the
Participant.
(g) Termination of Options. Except to the extent the Committee
provides specifically in a grant form or Option agreement for a lesser period
(or a greater period, in the case of Nonqualified Options only), each Option
shall terminate and may no longer be exercised if the Participant ceases for any
reason to render continuous Service (as hereinafter defined), in accordance with
the following provisions:
(i) if the Participant ceases to render Service for any reason
other than death or Disability (as hereinafter defined), the
Participant may, at any time within a period of three (3) months after
the date of such cessation of Service, exercise the Option to the
extent that the Option was exercisable on the date of such cessation;
(ii) if the Participant ceases to render Service because of
Disability, the Participant may, at any time within a period of one
(1) year after the date of such cessation of Service, exercise the
Option to the extent that the Option was exercisable on the date of
such cessation; and
(iii) if the Participant ceases to render Service because of
death, the Option, to the extent that the Participant was entitled to
exercise it on the date of death, may be exercised within a period of
one (1) year after the Participant's death by the person or persons to
whom the Participant's rights under the Option pass by will or by the
laws of descent or distribution;
provided, however, that no Option may be exercised to any extent by anyone after
the date of its expiration; and provided, further, that Options may be exercised
at any time only as to Shares which at such time are available for acquisition
pursuant to the terms of the applicable grant form or agreement.
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<PAGE> 7
(h) Rights as Stockholder. A Participant shall have no rights as a
stockholder with respect to any Shares covered by an Option until the date of
issuance of a stock certificate in the Participant's name for such Shares.
(i) Repurchase of Shares by the Company. Any Shares acquired upon
exercise of an Option may in the discretion of the Committee be subject to
repurchase by or forfeiture to the Company if and to the extent and at the
repurchase price, if any, specifically set forth in the option grant form or
agreement pursuant to which the Shares were acquired. Certificates representing
Shares subject to such repurchase or forfeiture may be subject to such escrow
and stock legending provisions as may be set forth in the option grant form or
agreement pursuant to which the Shares were acquired.
(j) 10% Stockholder. If any Participant to whom an Incentive Option
is granted pursuant to the provisions of the Plan is on the date of grant the
owner of stock (as determined under Section 424(d) of the Code) possessing more
than 10% of the total combined voting power or value of all classes of stock of
the Company, its parent, if any, or subsidiaries, then the following special
provisions shall be applicable:
(i) The exercise price per Share subject to such Option shall not
be less than 110% of the fair market value of each Share on the date
of grant; and
(ii) The Option shall not have a term in excess of five (5) years
from the date of grant.
(k) Confidentiality Agreements. Each Participant shall execute, prior
to or contemporaneously with the grant of any Option hereunder, the Company's
then standard form of agreement, if any, relating to nondisclosure of
confidential information, assignment of inventions and related matters.
(l) Aggregate Limitation. The maximum number of Shares with respect
to which any Options may be granted under the Plan to any individual during each
successive twelve-month period commencing on the Effective Date of the Plan
shall not exceed the total number of Shares reserved for the Plan pursuant to
Section 3 above.
(m) Right to Terminate. Nothing contained in the Plan or in any
Option granted hereunder shall restrict the right of any member of the Company
Group to terminate the employment of any Participant or other Service by the
Participant at any time and for any reason, with or without notice.
8. Restrictions on Incentive Options. Incentive Options granted under
this Plan shall be specifically designated as such and shall be subject to the
additional restriction that the aggregate fair market value, determined as of
the date the Incentive Option is granted, of the Shares with respect to which
Incentive Options are exercisable for the first time by a Participant during any
calendar year shall not exceed $100,000. If an Incentive Option which exceeds
the $100,000 limitation of this Section 8 is granted, the portion of such Option
which is exercisable
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<PAGE> 8
for Shares in excess of the $100,000 limitation shall be treated as a
Nonqualified Option pursuant to Section 422(d) of the Code. In the event that
such Participant is eligible to participate in any other stock incentive plans
of the Company, its parent, if any, or a subsidiary which are also intended to
comply with the provisions of Section 422 of the Code, such annual limitation
shall apply to the aggregate number of shares for which options may be granted
under all such plans.
9. Suspension of Rights Prior to a Dissolution, Reorganization, Etc.
Prior to any dissolution, liquidation, merger, consolidation or reorganization
of the Company as to which the Company will not be the surviving corporation, or
the sale or exchange of substantially all of the Common Stock or the sale of
substantially all of the assets of the Company (the "Event"), the Board or the
Committee may decide to terminate each outstanding Option. If the Board or the
Committee so decides, each Option shall terminate as of the effective date of
the Event, but the Board or the Committee shall suspend the exercise of all
outstanding Options a reasonable time prior to the Event, giving each person
affected thereby not less than fourteen days written notice of the date of
suspension, prior to which date such person may purchase in whole or in part the
Shares otherwise available to him as of the date of purchase. For purposes of
this section, the Shares available to any person as of the date of purchase
shall include all Shares issuable under any Accelerated Options of such person,
as defined in Section 12 hereof. If the Event is not consummated, the suspension
shall be removed and all Options shall continue in full force and effect,
subject to their terms.
10. Adjustment in Shares. Appropriate adjustment shall be made by the
Committee in the maximum number of Shares subject to the Plan and in the number,
kind, and exercise price of Shares covered by outstanding Options granted
hereunder to give effect to any stock dividends, stock splits, stock
combinations, recapitalizations and other similar changes in the capital
structure of the Company after the Effective Date of the Plan. In the event of a
change of the Common Stock resulting from a merger or similar reorganization as
to which the Company is the surviving corporation, the number and kind of Shares
which thereafter may be purchased pursuant to an Option under the Plan and the
number and kind of Shares then subject to Options granted hereunder and the
price per Share thereof shall be appropriately adjusted in such manner as the
Committee may deem equitable to prevent dilution or enlargement of the rights
available or granted hereunder.
11. Investment Representations; Transfer Restrictions. The Company may
require Participants, as a condition of purchasing Shares pursuant to the
exercise of an Option, to give written assurances in substance and form
satisfactory to the Company to the effect that such person is acquiring the
Shares for the Participant's own account for investment and not with any present
intention of selling or otherwise distributing the same, and to such other
effects as the Company deems necessary or appropriate (including without
limitation confirmation that the Participant is aware of any applicable
restrictions on transfer of the Shares, as specified in the by-laws of the
Company or otherwise) in order to comply with federal and applicable state
securities laws.
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<PAGE> 9
12. Change in Control
Notwithstanding anything to the contrary in the Plan or in any Option grant
(but subject to the provisions of this Section 12), upon the occurrence of a
Change in Control (as defined below) of the Company, the right to purchase
shares under each option granted under the Plan that is then vested or that will
become vested on the next scheduled vesting date, as set forth in the applicable
Option grant, shall vest and become exercisable immediately on the date of
occurrence of a Change in Control (any such options, the "Accelerated Options").
Notwithstanding the foregoing, the Board of Directors may, by vote of a majority
of the entire Board (such majority to include the two directors appointed by the
Investors, as such term is defined in the Stock Purchase Agreement dated
December 18, 1997 by and among the Company, Prism Venture Partners I, L.P.,
Tredegar Investments, Inc., The Still River Fund and Gustin Partners, L.P., for
so long as such agreement remains in effect), provide for acceleration rights
upon a Change in Control in addition to those provided in this Section 12. For
the purpose of this Plan a "Change in Control" shall mean:
(a) The acquisition by any individual, entity or group (within the meaning
of Sections 13(d)(3) or 14(d)(2) of the Exchange Act) (a "Person") of beneficial
ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act)
of 35 percent or more of either (i) the then outstanding shares of Common Stock
or (ii) the combined voting power of the then outstanding voting securities of
the Company entitled to vote generally in the election of the directors (the
"Outstanding Company Voting Securities"); provided, however, that the following
acquisitions shall not constitute a Change in Control: (A) any acquisition
directly from the Company; (B) any acquisition by the Company or by any
corporation controlled by the Company; (C) any acquisition by any employee
benefit plan (or related trust) sponsored or maintained by the Company or any
corporation controlled by the Company; or (D) any acquisition by any corporation
pursuant to a consolidation or merger, if, following such consolidation or
merger, the conditions described in clauses (i), (ii) and (iii) of paragraph (c)
of this Section 12 are satisfied; or
(b) Individuals who, as of the Effective Date, constitute the Board (the
"Incumbent Board") ceasing for any reason to constitute at least two-thirds of
the Board over any period of 24 consecutive months or less; provided, however,
that any individual becoming a director subsequent to the Effective Date whose
election, or nomination for election by the Company's stockholders, was approved
by a vote or resolution of at least a majority of the directors then comprising
the Incumbent Board shall be considered as though such individual were a member
of the Incumbent Board, but excluding, for this purpose, any such individual
whose initial assumption of office occurs as a result of either an actual or
threatened election contest (as such terms are used in Rule 14a-11 of Regulation
14A promulgated under the Exchange Act) or other actual or threatened
solicitation of proxies or consents by or on behalf of a Person other than the
Board; or
(c) Adoption by the Board of a resolution approving an agreement of
consolidation of the Company with or merger of the Company into another
corporation or business entity in each case unless, following such consolidation
or merger, (i) more than 60 percent of, respectively, the
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<PAGE> 10
then outstanding shares of common stock of the corporation resulting from such
consolidation or merger and/or the combined voting power of the then outstanding
voting securities of such corporation or business entity entitled to vote
generally in the election of directors (or other persons having the general
power to direct the affairs of such entity) is then beneficially owned, directly
or indirectly, by all or substantially all of the individuals and entities who
were the beneficial owners, respectively, of the Common Stock and Outstanding
Company Voting Securities immediately prior to such consolidation or merger in
substantially the same proportions as their ownership, immediately prior to such
consolidation or merger, of the Common Stock and/or Outstanding Company Voting
Securities, as the case may be, (ii) no Person (excluding the Company; any
employee benefit plan (or related trust) of the Company or such corporation or
other business entity resulting from such consolidation or merger; and any
Person beneficially owning, immediately prior to such consolidation or merger,
directly or indirectly, 35 percent or more of the Common Stock and/or
Outstanding Company Voting Securities, as the case may be) beneficially owns,
directly or indirectly, 35 percent or more of, respectively, the then
outstanding shares of common stock of the corporation resulting from such
consolidation or merger or the combined voting power of the then outstanding
voting securities of such corporation or business entity entitled to vote
generally in the election of its directors (or other persons having the general
power to direct the affairs of such entity) and (iii) at least two-thirds of the
members of the board of directors (or other group of persons having the general
power to direct the affairs of the corporation or other business entity)
resulting from such consolidation or merger were members of the Incumbent Board
at the time of the execution of the initial agreement providing for such
consolidation or merger; provided that any right which shall vest by reason of
the action of the Board pursuant to this paragraph (c) shall be divested, with
respect to any such right not already exercised, upon (A) the rejection of such
agreement of consolidation or merger by the stockholders of the Company or (B)
its abandonment by either party thereto in accordance with its terms; or
(d) Adoption by the requisite majority of the whole Board, or by the
holders of such majority of stock of the Company as is required by law or by the
Certificate of Incorporation or By-Laws of the Company as then in effect, of a
resolution or consent authorizing (i) the dissolution of the Company or (ii) the
sale or other disposition of all or substantially all of the assets of the
Company, other than to a corporation or other business entity with respect to
which, following such sale or other disposition, (A) more than 60 percent of,
respectively, the then outstanding shares of common stock of such corporation
and/or the combined voting power of the outstanding voting securities of such
corporation or other business entity entitled to vote generally in the election
of directors (or other persons having the general power to direct the affairs of
such entity) is then beneficially owned, directly or indirectly, by all or
substantially all of the individuals and entities who were the beneficial
owners, respectively, of the Common Stock and Outstanding Company Voting
Securities immediately prior to such sale or other disposition in substantially
the same proportions as their ownership, immediately prior to such sale or other
disposition, of the Common Stock and/or Outstanding Company Voting securities,
as the case may be, (B) no Person (excluding the Company; any employee benefit
plan (or related trust) of the Company or such corporation or other business
entity; and any Person beneficially owning, immediately prior to such sale or
other disposition, directly or indirectly, 35 percent or more of the Common
Stock and/or Outstanding Company Voting Securities, as the
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<PAGE> 11
case may be) beneficially owns, directly or indirectly, 35 percent or more of,
respectively, the then outstanding shares of common stock of such corporation
and/or the combined voting power of the then outstanding voting securities of
such corporation or other business entity entitled to vote generally in the
election of directors (or other persons having the general power to direct the
affairs of such entity) and (C) at least two-thirds of the members of the board
of directors (or other group of persons having the general power to direct the
affairs of such corporation or other entity) were members of the Incumbent Board
at the time of the execution of the initial agreement or action of the Board
providing for such sale or other disposition of assets of the Company; provided
that any right which shall vest by reason of the action of the Board or the
stockholders pursuant to this paragraph (d) shall be divested, with respect to
any such right not already exercised, upon the abandonment by the Company of
such dissolution, or such sale or other disposition of assets, as the case may
be.
A Change in Control shall not occur upon the mere reincorporation of the
Company in another state.
13. Company's Right of First Refusal.
(a) Exercise of Right. If the Employee desires to sell all or any
part of the shares acquired under an Option (including any securities received
in respect thereof pursuant to any stock dividend, stock split,
reclassification, reorganization, recapitalization and the like), and an offeror
(the "Offeror") has made an offer therefor, which offer the Employee desires to
accept, the Employee shall: (i) obtain in writing an irrevocable and
unconditional bona fide offer (the "Bona Fide Offer") for the purchase thereof
from the Offeror; and (ii) give written notice (the "Option Notice") to the
Company setting forth his or her desire to sell such shares, which Option Notice
shall be accompanied by a photocopy of the original executed Bona Fide Offer and
shall set forth at least the name and address of the Offeror and the price and
terms of the Bona Fide Offer. Upon receipt of the Option Notice, the Company
shall have an assignable option to purchase any or all of such shares (the
"Option Shares") specified in the Option Notice, such option to be exercisable
by giving, within 30 days after receipt of the Option Notice, a written
counter-notice to the Employee. If the Company elects to purchase any or all of
such Option Shares, it shall be obligated to purchase, and the Employee shall be
obligated to sell to the Company, such Option Shares at the price and terms
indicated in the Bona Fide Offer within 60 days from the date of receipt by the
Company of the Option Notice.
(b) Sale of Option Shares to Offeror. The Employee may sell, pursuant
to the terms of the Bona Fide Offer, any or all of such Option Shares not
purchased or agreed to be purchased by the Company for 60 days after the
expiration of the 30-day period during which the Company may give the aforesaid
counter-notice; provided, however, that the Employee shall not sell such Option
Shares to the Offeror if the Offeror is a competitor of the Company and the
Company gives written notice to the Employee, within 30 days of its receipt of
the Option Notice, stating that the Employee shall not sell his Option Shares to
the Offeror; and provided, further, that prior to the sale of such Option Shares
to the Offeror, the Offeror shall execute an agreement with the Company pursuant
to which the Offeror agrees to be subject to the restrictions set forth in this
Section 13. If any or all of such Option Shares are not sold pursuant
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<PAGE> 12
to a Bona Fide Offer within the time permitted above, the unsold Option Shares
shall remain subject to the terms of this Section 13.
(c) Adjustments for Changes in Capital Structure. If there shall be
any change in the Common Stock of the Company through merger, consolidation,
reorganization, recapitalization, stock dividend, split-up, combination or
exchange of shares, or the like, the restrictions contained in this Section 13
shall apply with equal force to additional and/or substitute securities, if any,
received by the Employee in exchange for, or by virtue of his or her ownership
of, Option Shares.
(d) Failure to Deliver Option Shares. In the event the Employee fails
or refuses to deliver on a timely basis duly endorsed certificates representing
Option Shares to be sold to the Company pursuant to this Section 13 the Company
shall have the right to deposit the purchase price for the Option Shares in a
special account with any bank or trust company in the Commonwealth of
Massachusetts, giving notice of such deposit to the Employee, whereupon such
Option Shares shall be deemed to have been purchased by the Company. All such
monies shall be held by the bank or trust company for the benefit of the
Employee. All monies deposited with the bank or trust company but remaining
unclaimed for two (2) years after the date of deposit shall be repaid by the
bank or trust company to the Company on demand, and the Employee shall
thereafter look only to the Company for payment. The Company may place a legend
on any stock certificate delivered to the Employee reflecting the restrictions
on transfer provided in this Section 13.
(e) Expiration of Company's Right of First Refusal. The refusal
rights of the Company forth above shall remain in effect until the earlier of
(i) the date which is ten years from the date of grant of this option or (ii)
such time, if ever, as a distribution to the public is made of shares of the
Company's Common Stock for an aggregate public offering price of at least
$5,000,000 or more pursuant to a registration statement filed under the
Securities Act of 1933, as amended, or a successor statute, at which time the
refusal rights of the Company set forth herein will automatically expire.
14. No Exercise of Option if Employment Terminated for Misconduct. If the
employment of the Employee is terminated for "Misconduct", an Option shall
terminate on the date of such termination of employment with respect to any
shares which have become exercisable during the period commencing on the date
which is six months prior to the date upon which such Misconduct is determined
by the Board of Directors to have commenced or occurred and shall thereupon not
be exercisable to the extent of such termination. "Misconduct" is conduct, as
determined by the Board of Directors, involving one or more of the following:
(i) the substantial and continuing failure of the Employee to render services to
the Company in accordance with his assigned duties; (ii) a determination by
two-thirds of the members of the Board of Directors that the Employee has
inadequately performed the duties of his employment; (iii) disloyalty, gross
negligence, dishonesty or breach of fiduciary duty to the Company; (iv) the
commission of an act of embezzlement, fraud, disloyalty, dishonesty or
deliberate disregard of the rules or policies of the Company which results in
loss, damage or injury to the Company, whether directly or indirectly; (v) the
unauthorized disclosure of any trade secret or confidential
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information of the Company; or (vi) the commission of an act which constitutes
unfair competition with the Company or which induces any customer of the Company
to withdraw from or not enter into a contract with the Company. In making such
determination, the Board of Directors shall act fairly and in utmost good faith
and shall give the Employee an opportunity to appear and to be heard at a
hearing before the Board of Directors or any Committee and present evidence on
his or her behalf. For the purposes of this Section 14, termination of
employment shall be deemed to occur when the Employee receives notice that his
or her employment is terminated.
15. Company's Right of Repurchase.
(a) Rights of Repurchase. If any of the events specified in Section
15(b) below occur, then:
(i) with respect to shares acquired upon exercise of an Option
prior to the occurrence of such event, within 60 days after the
Company receives actual knowledge of the event, and
(ii) with respect to shares acquired upon exercise of an Option
after the occurrence of such event, within 60 days following the later
of the date of such exercise or the date the Company receives actual
knowledge of such event,
(in either case, the "Repurchase Period"), the Company shall have the right, but
not the obligation, to repurchase all, but not a portion of, the shares from the
Employee, or his or her legal representatives, as the case may be (the
"Repurchase Right"). The Repurchase Right shall be exercised by the Company by
giving the Employee, or his or her legal representative, written notice of its
intention to exercise the Repurchase Right on or before the last day of the
Repurchase Period, and, together with such notice, tendering to the Employee, or
his or her legal representative, an amount equal to the higher of the Option
price or the fair market value of the shares. The Company may, in exercising the
Repurchase Right, designate one or more nominees to purchase the shares either
within or without the Company. Upon timely exercise of the Repurchase Right in
the manner provided in this Section 15(a), Employee, or his or her legal
representative, shall deliver to the Company the stock certificate or
certificates representing the shares being repurchased, duly endorsed and free
and clear of any and all liens, charges and encumbrances.
If shares are not purchased under the Repurchase Right, the Employee and
his or her successor in interest, if any, will hold any such shares in his or
her possession subject to all of the provisions of this Plan.
(b) Company's Right to Exercise Repurchase Right. The Company shall
have the Repurchase Right in the event that any of the following events shall
occur:
(i) The termination of the Employee's employment with the
Company or any other member of the Company Group, voluntarily or involuntarily,
for any
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<PAGE> 14
reason whatsoever, including death or permanent disability, prior to the time
the Option shall be fully vested as provided in the applicable Option grant;
(ii) The receivership or bankruptcy of the Employee, any other
creditor's proceeding affecting the Employee's ownership of any shares acquired
upon exercise of this option or the taking of any of Employee's shares acquired
upon exercise of this option by legal process, such as a levy of execution;
(iii) Distribution of shares held by the Employee to his or her
spouse as such spouse's joint or community interest pursuant to a decree of
dissolution, operation of law, divorce, property settlement agreement or for any
other reason, except as may be otherwise permitted by the Company; or
(iv) The termination of the Employee's employment by the Company
for Misconduct (as defined in Section 14 hereof).
(c) Determination of Fair Market Value. The fair market value of the
shares subject to the Repurchase Right shall be, for purposes of this Section
15, an amount per share determined on the basis of the price at which shares of
the Common Stock could reasonably be expected to be sold in an arms-length
transaction, for cash, other than on an installment basis, to a person not
employed by, controlled by, in control of or under common control with the
Company. Fair market value shall be determined by the Board of Directors, giving
due consideration to recent grants of incentive stock options for shares of
Common Stock, recent transactions involving shares of the Common Stock, if any,
earnings of the Company to the date of such determination, projected earnings of
the Company, the effect of the transfer restrictions to which the shares are
subject under law and this Agreement, the absence of a public market for the
Common Stock and such other matters as the Board of Directors deems pertinent.
The determination by the Board of Directors of the fair market value shall be
conclusive and binding. The fair market value of the shares shall be determined
as of the day on which the event occurs.
16. Lock-up Agreement. The Employee agrees that the Employee will not, for
such period following the effective date of the Company's initial distribution
of securities in an underwritten public offering to the general public pursuant
to a registration statement filed with the Securities and Exchange Commission as
the managing underwriter of such offering shall reasonably request, but in any
event not to exceed 120 days, directly or indirectly, sell, offer to sell or
otherwise dispose of the Company's securities other than any securities which
are included in such initial public offering.
17. Definitions.
(a) "Board" means the Board of Directors of the Company.
(b) "Code" means the Internal Revenue Code of 1986, as heretofore and
hereafter amended, and the regulations promulgated thereunder.
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(c) "Exchange Act" means the Securities Exchange Act of 1934, as
heretofore and hereafter amended.
(d) "Service" means the performance of work for one or more members
of the Company Group as an employee, director, consultant or
other individual contributor.
(e) "Subsidiary" has the meaning set forth in Section 424(f) of the
Code.
18. Termination or Amendment of Plan. The Board may by written action at
any time terminate the Plan or make such changes in or additions to the Plan as
it deems advisable without further action on the part of the stockholders of the
Company, provided:
(a) that no such termination or amendment shall adversely affect or
impair any then outstanding Option or related agreement without the consent of
the Participant holding such Option or related agreement; and
(b) that if the Plan itself shall have been approved by the
stockholders of the Company, no such amendment which (i) increases the maximum
number of Shares subject to this Plan (except to the extent provided in Section
3), (ii) materially increases the benefits accruing to Participants, or (iii)
materially modifies the requirements as to eligibility for participation in the
Plan may be made without obtaining, or being conditioned upon, stockholder
approval.
With the consent of the Participant affected, the Committee may amend
outstanding Options or related agreements in a manner not inconsistent with the
Plan. The Committee shall have the right to amend or modify the terms and
provisions of the Plan and of any outstanding Incentive Options granted under
the Plan to the extent necessary to qualify any or all such Options for such
favorable federal income tax treatment (including deferral of taxation upon
exercise) as may be afforded incentive stock options under Section 422 of the
Code.
13
<PAGE> 1
Ex - 10.6
INNER CIRCLE TECHNOLOGIES, INC.
1994 STOCK OPTION-PLAN.
1. PURPOSE. This 1994 Stock Option Plan (the "Plan") is intended to
provide incentives: (a) to the officers and other employees of Inner Circle
Technologies, Inc. (the "Company"), its parent (if any) and any present or
future subsidiaries of the Company (collectively, "Related Corporations") by
providing them with opportunities to purchase stock in the Company pursuant to
options granted hereunder which qualify as "incentive stock options" ("ISO" or
"ISOs") under Section 422A(b) of the Internal Revenue Code of 1986, as amended
from time to time (the "Code"); (b) to directors, officers, employees and
consultants of the Company and Related Corporations by providing them with
opportunities to purchase stock in the Company pursuant to options granted
hereunder which do not qualify as ISOs ("Non-Qualified Option" or "Non-Qualified
Options"); (c) to directors, officers, employees and consultants of the Company
and Related Corporations by providing them with awards of stock in the Company
("Awards"); and (d) to directors, officers, employees and consultants of the
Company and Related Corporations by providing them with opportunities to make
direct purchases of stock in the Company ("Purchases"). Both ISOs and
Non-Qualified Options are referred to hereafter individually as an "Option" and
collectively as "Options". Options, Awards and authorization to make Purchases
are referred to hereinafter collectively as "Stock Rights". As used herein, the
terms "parent" and "subsidiary" mean "parent corporation" and "subsidiary
corporation", respectively, as those terms are defined in Section 425 of the
Code.
2. ADMINISTRATION OF THE PLAN.
A. BOARD OR COMMITTEE ADMINISTRATION. The Plan shall be administered by
the Board of Directors of the Company (the "Board"). The Board may appoint a
Stock Plan Committee (the "Committee") of three or more of its members to
administer this Plan. If the Committee has been so appointed, no member of the
committee, while a member, shall be eligible to participate in the Plan.
Hereinafter, all references in this Plan to the "Committee" shall mean the Board
if no Committee has been appointed. Subject to ratification of the grant or
authorization of each Stock Right by the Board (if so required by applicable
state law), and subject to the terms of the Plan, the Committee shall have the
authority to (i) determine the employees of the Company and Related Corporations
(from among the class of employees eligible under paragraph 3 to receive ISOs)
to whom ISOs may be granted, and to determine (from among the class of
individuals and entities eligible under paragraph 3 to receive Non-Qualified
Options and Awards and to make Purchases) to whom Non-Qualified Options, Awards
and authorizations to make Purchases may be granted; (ii) determine the time or
times at which Options or Awards may be granted or Purchases made; (iii)
determine the option price of shares subject to each Option, which price shall
not be less than the minimum price specified in paragraph 6, and the purchase
price of shares subject to each Purchase; (iv) determine whether each Option
granted shall be an ISO or a Non-Qualified Option; (v) determine (subject to
<PAGE> 2
paragraph 7) the time or times when each option shall become exercisable and the
duration of the exercise period; (vi) determine whether restrictions such as
repurchase options are to be imposed on shares subject to Options, Awards and
Purchases and the nature of such restrictions, if any, and (vii) interpret the
Plan and prescribe and rescind rules and regulations relating to it. If the
Committee decides to issue a Non-Qualified Option, it shall take whatever
actions it deems necessary, under Section 422A of the Code and the regulations
promulgated thereunder, to ensure that such Option is not treated as an ISO. The
interpretation and construction by the Committee of any provisions of the Plan
or of any Stock Right granted under it shall be final unless otherwise
determined by the Board. The Committee may from time to time adopt such rules
and regulations for carrying out the Plan as it may deem best. No member of the
Board or the Committee shall be liable for any action or determination made in
good faith with respect to the Plan or any Stock right granted under it.
B. COMMITTEE ACTIONS. The Committee may select one of its members as its
chairman, and shall hold meetings at such times and places as it may determine.
Acts by a majority of the Committee, or acts reduced to or approved in writing
by a majority of the members of the Committee, shall be the valid acts of the
Committee. From time to time the Board may increase the size of the Committee
and appoint additional members thereof, remove members (with or without cause)
and appoint new members in substitution therefor, fill vacancies however caused,
or remove all members of the Committee and thereafter directly administer the
Plan.
C. GRANT OF STOCK RIGHTS TO BOARD MEMBERS. Stock Rights may be granted to
members of the Board, but any such grant shall be made and approved in
accordance with paragraph 2(D), if applicable. All grants of Stock Rights to
members of the Board shall in all other respects be made in accordance with the
provisions of the Plan applicable to other eligible persons. Members of the
Board who are either (i) eligible for Stock Rights pursuant to the Plan or (ii)
have been granted Stock Rights may vote on any matters affecting the
administration of the Plan or the grant of any Stock Rights pursuant to the
Plan, except that no such member shall act upon the granting to him or herself
of Stock Rights, but any such member may be counted in determining the existence
of a quorum at any meeting of the Board during which action is taken with
respect to the granting to him or her of Stock Rights.
D. COMPLIANCE WITH FEDERAL SECURITIES LAWS. In the event the Company
registers any class of any equity security pursuant to Section 12 of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), any grant of
Stock Rights to a member of the Board (made at any time from the effective date
of such registration until six months after the termination of such
registration) must be approved by a majority vote of the other members of the
Board; provided, however, that if a majority of the Board is eligible for
selection to participate in the Plan or in any other stock option or other stock
plan of the Company or any of its affiliates, or has been so eligible at any
time within the preceding year, any grant of Stock Rights to a member of the
Board must be made by, or only in accordance with the recommendation of, the
Committee or a committee consisting of three or more persons, who may but need
not be directors or employees of the Company, appointed by the Board but having
full authority to act in the matter, none of whom is eligible to participate in
the Plan or any other stock option or other stock plan of the
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<PAGE> 3
Company or any of its affiliates, or has been so eligible at any time within the
preceding year. The requirements imposed by the preceding sentence shall also
apply with respect to grants to officers who are not also directors. Once
appointed, such committee shall continue to serve until otherwise directed by
the Board.
3. ELIGIBLE EMPLOYEES AND OTHERS. ISOs may be granted to any employee of
the Company or any Related Corporation. Those officers and directors of the
Company who are not employees may not be granted ISOs under the Plan.
Non-Qualified Options, Awards and authorizations to make Purchases may be
granted to any employee, officer or director (whether or not also an employee)
or consultant of the Company or any Related Corporation. The Committee may take
into consideration a recipient's individual circumstances in determining whether
to grant an ISO, a Non-Qualified option, an Award or an authorization to make a
Purchase. The grant of any Stock Right to any individual or entity shall neither
entitle that individual or entity to, nor disqualify that individual from,
participating in any other grant of Stock Rights.
4. STOCK. The stock subject to Options, Awards and Purchases shall be
authorized but unissued shares of the common stock of the Company, $.001 par
value per share (the "Common Stock"), or shares of Common Stock reacquired by
the Company in any manner. The aggregate number of shares which may be issued
pursuant to the Plan is 1,000,000, subject to adjustment as provided in
paragraph 13. Any such shares may be issued as ISOs, Non-Qualified Options or
Awards, or to persons or entities making Purchases, so long as the number of
shares so issued does not exceed such number, as adjusted. If any Option granted
under the Plan shall expire or terminate for any reason without having been
exercised in full or shall cease for any reason to be exercisable in whole or in
part, or if the Company shall reacquire any unvested shares issued pursuant to
Awards or Purchases, the unpurchased shares subject to such Options and any
unvested shares so reacquired by the Company shall again be available for grants
of Stock Rights under the Plan.
5. GRANTING OF STOCK RIGHTS. Stock Rights may be granted under the Plan
at any time after March 17, 1994 and prior to March 16, 2004. The date of grant
of a Stock Right under the Plan will be the date specified by the Committee at
the time it grants the Stock Right; provided, however, that such date shall not
be prior to the date on which the Committee acts to approve the grant. The
Committee shall have the right, with the consent of the optionee, to convert an
ISO granted under the Plan to a Non-Qualified Option pursuant to paragraph 16.
6. MINIMUM OPTION PRICE; ISO LIMITATIONS.
A. PRICE FOR NON-QUALIFIED OPTIONS. The exercise price per share
specified in the agreement relating to each Non-Qualified Option granted under
the Plan shall in no event be less than the lesser of (i) the book value per
share of Common Stock as of the end of the fiscal year of the Company
immediately preceding the date of such grant, or (ii) fifty percent (50%) of the
f air market value per share of Common Stock on the date of such grant.
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<PAGE> 4
B. PRICE FOR ISOS. The exercise price per share specified in the
agreement relating to each ISO granted under the Plan shall not be less than the
fair market value per share of Common Stock on the date of such grant. In the
case of an ISO to be granted to an employee owning stock possessing more than
ten percent' (10%) of the total combined voting power of all classes of stock of
the Company or any Related Corporation, the price per share specified in the
agreement relating to such ISO shall not be less than one hundred ten percent
(110%) of the fair market value per share of Common Stock on the date of grant.
C. $100,000 ANNUAL LIMITATION ON ISOS. Each eligible employee may be
granted ISOs only to the extent that, in the aggregate under this Plan and all
incentive stock option plans of the Company And any Related Corporation, such
ISOs do not become exercisable for the first time by such employee during any
calendar year in a manner which would entitle the employee to purchase more than
$100,000 in fair market value (determined at the time the ISOs were granted) of
Common Stock in that year. Any options granted to an employee in excess of such
amount will be granted as Non-Qualified Options.
7. OPTION DURATION. Subject to earlier termination as provided in
paragraphs 9 and 10, each Option shall expire on the date specified by the
Committee, but not more than (i) ten years and one day from the date of grant in
the case of Non-Qualified Options,(ii) ten years from the date of grant in the
case of ISOs generally, and (iii) five years from the date of grant in the case
of ISOs granted to an employee owning stock possessing more than ten percent
(10%) of the total combined voting power of all classes of stock of the Company
or any Related Corporation. Subject to earlier termination as provided in
paragraphs 9 and 10, the term of each ISO shall be the term set forth in the
original instrument granting such ISO, except with respect to any part of such
ISO that is converted into a Non-Qualified Option pursuant to paragraph 16.
8. EXERCISE OF OPTION. Subject to the provisions of paragraphs 9 through
12, each Option granted under the Plan shall be-exercisable as follows:
A. VESTING. The Option shall either be fully exercisable on the date of
grant or shall become exercisable thereafter in such installments as the
Committee may specify.
B. FULL VESTING OF INSTALLMENTS. Once an installment becomes exercisable
it shall remain exercisable until expiration or termination of the Option,
unless otherwise specified by the Committee at the time of the grant of such
option.
C. PARTIAL EXERCISE. Each Option or installment may be exercised at any
time or from time to time, in whole or in part, for up to the total number of
shares with respect to which it is then exercisable.
D. ACCELERATION OF VESTING. The Committee shall have the right to
accelerate the date of exercise of any installment of any Option; provided that
the Committee shall not, without the consent of an optionee, accelerate the
exercise date of any installment of any Option granted to any employee as an ISO
(and hot previously converted into a Non-Qualified option pursuant
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<PAGE> 5
to paragraph 16) if such acceleration would violate the annual vesting
limitation contained in Section 422A(d) of the Code, as described in paragraph
6(c).
9. TERMINATION OF EMPLOYMENT. If an ISO optionee ceases to be employed by
the Company and all Related Corporations other than by reason of death or
disability as defined in paragraph 10, no further installments of his ISOs shall
become exercisable, and his ISOs shall terminate after the passage of ninety
(90) days from the date of termination of his employment, but in no event later
than on their specified expiration dates, except to the extent that such ISOs
(or unexercised installments thereof) have been converted into Non-Qualified
Options pursuant to paragraph 16. Employment shall be considered as continuing
uninterrupted during any bona fide leave of absence (such as those attributable
to illness, military obligations or governmental service) provided that the
period of such leave does not exceed 90 days or, if longer, any period during
which such optionee's right to reemployment is guaranteed by statute. A bona
fide leave of absence with the written approval of the Committee shall not be
considered an interruption of employment under the Plan, provided that such
written approval contractually obligates the Company or any Related Corporation
to continue the employment of the optionee after the approved period of absence.
ISOs granted under the Plan shall not be affected by any change of employment
within or among the Company and Related Corporations, so long as the optionee
continues to be an employee of the Company or any Related Corporation. Nothing
in the Plan shall be deemed to give any grantee of any Stock Right the right to
be retained in employment or other service by the Company or any Related
Corporation for any period of time.
10. DEATH; DISABILITY.
A. DEATH. If an ISO optionee ceases to be employed by the Company and all
Related Corporations by reason of his death, any ISO of his may be exercised, to
the extent of the number of shares with respect to which he could have exercised
it on the date of his death, by his estate, personal representative or
beneficiary who has acquired the ISO by will or by the laws of descent and
distribution, at any time prior to the earlier of the specified expiration date
of the ISO or 90 days from the date of the optionee's death.
B. DISABILITY. If an ISO optionee ceases to be employed by the Company
and all Related Corporations by reason of his disability, he shall have the
right to exercise any ISO held by him on the date of termination of employment,
to the extent of the number of shares with respect to which he could have
exercised it on the date, at any time prior to the earlier of the specified
expiration date of the ISO or 90 days from the date of termination of the
optionee's employment. For the purposes of the Plan, the term "disability" shall
mean "permanent and total disability" as defined in Section 22(e)(3) of the Code
or successor statute.
11. ASSIGNABILITY. No Option shall be assignable or transferable by the
optionee except by will or by the laws of descent and distribution, and during
the lifetime of the optionee each option shall be exercisable only by him.
12. TERMS AND CONDITIONS OF THE OPTIONS. Options shall be evidenced by
instruments (which need not be identical) in such forms as the Committee may
from time to time
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<PAGE> 6
approve. Such instruments shall conform to the terms and conditions set forth in
paragraphs 6 through 11 hereof and may contain such other provisions as the
Committee deems advisable which are not inconsistent with the Plan, including
restrictions applicable to shares of Common Stock issuable upon exercise of
options. In granting any Non-Qualified Option, the Committee may specify that
such Non-Qualified Option shall be subject to the restrictions set forth herein
with respect to ISOs, or to such other termination and cancellation provisions
as the Committee may determine. The Committee may from time to time confer
authority and responsibility on one or more of its own members and/or one or
more officers of the Company to execute and deliver such instruments. The proper
officers of the Company are authorized and directed to take any and all action
necessary or advisable from time to time to carry out the terms of such
instruments.
13. ADJUSTMENTS GENERALLY. Upon the occurrence of any of the following
events, an optionee's rights with respect to Options granted to him hereunder
shall be adjusted as hereinafter provided, unless otherwise specifically
provided in the written agreement between the optionee and the Company relating
to such Option:
A. STOCK DIVIDENDS-AND STOCK SPLITS. If the shares of Common Stock shall
be subdivided or combined into a greater or smaller number of shares or if the
Company shall issue any shares of Common Stock as a stock dividend on its
outstanding Common Stock, the number of shares of Common Stock deliverable upon
the exercise of Options shall be appropriately increased or decreased
proportionately, and appropriate adjustments shall be made in the purchase-price
per share to reflect such subdivision, combination or stock dividend.
B. CONSOLIDATION OR MERGERS. If the Company is to be consolidated with or
acquired by another entity in a merger, sale of all or substantially all of the
Company's assets or otherwise (an "Acquisition"), the Committee or the board of
directors of any entity assuming the obligations of the Company hereunder (the
"Successor Board"), shall, as to outstanding Options, either (i) make
appropriate provision for the continuation of such options by substituting on an
equitable basis for the shares then subject to such Options the consideration
payable with respect to the outstanding shares of Common Stock in connection
with the Acquisition; or (ii) upon written notice to the optionee, provide that
all Options must be exercised, to the extent then exercisable, within a
specified number of days of the date of such notice, at the end of which period
the Options shall terminate; or (iii) terminate all options in exchange for a
cash payment equal to the excess, if any, of the fair market value of the shares
subject to such Options (to the extent then exercisable) over the exercise price
thereof.
C. RECAPITALIZATION OR REORGANIZATION. In the event of a recapitalization
or reorganization of the Company (other than a transaction described in
subparagraph B above) pursuant to which securities of the Company or of another
corporation are issued with respect to the outstanding shares of Common Stock,
an optionee upon exercising an Option shall be entitled to receive for the
purchase price paid upon such exercise the securities he would have received if
he had exercised his option prior to such recapitalization or reorganization.
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<PAGE> 7
D. MODIFICATION OF ISOS. Notwithstanding the foregoing, any adjustments
made pursuant to subparagraphs A, B or C with respect to ISOs shall be made only
after the Committee, after consulting with counsel for the Company, determined
whether such adjustments would constitute a "modification" of such ISOs (as that
term is defined in Section 425 of the Code) or would cause any adverse tax
consequences for the holders of such ISOs. If the Committee determined that such
adjustments made with respect to ISOs would constitute a modification of such
ISOs, it may refrain from making such adjustments.
E. DISSOLUTION OR LIQUIDATION. In the event of the proposed dissolution
or liquidation of the Company, each Option will terminate immediately prior to
the consummation of such proposed action or at such other time and subject to
such other conditions as shall be determined by the Committee.
F. ISSUANCE OF SECURITIES. Except as expressly provided herein, no
issuance by the Company of shares of stock of any class, or securities
convertible into shares of stock of any class, shall affect, and no adjustment
by reason thereof shall be made with respect to, the number or price of shares
subject to Options. No adjustments shall be made for dividends paid in cash or
in property other than securities of the Company.
G. FRACTIONAL SHARES. No fractional shares shall be issued under the Plan
and the optionee shall receive from the Company cash in lieu of such fractional
shares.
H. ADJUSTMENTS. Upon the happening of any of the events described in
subparagraphs A, B or C above, the class and aggregate number of shares set
forth in paragraph 4 hereof that are subject to Stock Rights which previously
have been or subsequently may be granted under the Plan shall also be
appropriately adjusted to reflect the events described in such subparagraphs.
The Committee or the Successor Board shall determine the specific adjustments to
be made under this paragraph 13 and, subject to paragraph 2, its determination
shall be conclusive.
If any person or entity owning restricted Common Stock obtained by exercise
of a Stock Right made hereunder receives shares or Securities or cash in
connection with a corporate transaction described in subparagraphs A, B or C
above as a result of owning such restricted Common Stock, such shares or
securities or cash shall be subject to all of the conditions and restrictions
applicable to the restricted Common Stock with respect to which such shares or
securities or cash were issued, unless otherwise determined by the Committee or
the Successor Board.
14. MEANS OF EXERCISING STOCK RIGHTS. A Stock Right or any part or
installment thereof) shall be exercised by giving written notice to the Company
at its principal office address. Such notice shall identify the Stock Right
being exercised and specify the number of shares as to which such Stock Right is
being exercised, accompanied by full payment of the purchase price therefor
either (a) in United States dollars in cash or by check or (b) at the discretion
of the Committee, through delivery of shares of Common Stock having a fair
market value equal as of the date of exercise to the cash exercise price of the
Stock Right, or (c) at the discretion of the
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<PAGE> 8
Committee, by delivery of the grantee's personal recourse note bearing interest
payable not less than annually at no less than 100% of the lowest applicable
Federal rate, as defined in Section 1274(d) of the Code, or (d) at the
discretion of the Committee, by any combination of (a), (b) and (c) above. If
the Committee exercises its discretion to permit payment of the exercise price
of an ISO by means of the methods set forth in clauses (b), (c) or (d) of the
preceding sentence, such discretion shall be exercised in writing at the time of
the grant of the ISO in question. The holder of a Stock Right shall not have the
rights of a shareholder with respect to the shares discovered by his Stock Right
until the date of issuance of a stock certificate to him for such shares. Except
as expressly provided above in paragraph 13 with respect to changes in
capitalization and stock dividends, no adjustment shall be made for dividends or
similar rights for which the record date is before the date such stock
certificate is issued.
15. TERM AND AMENDMENT OF PLAN. This Plan was adopted by the Board on
March 17, 1994. The Plan shall expire at the end of the day on March 16, 2004
(except as to Options outstanding on that date). Subject to the provisions of
paragraph 5 above, Stock Rights may be granted under the Plan prior to the date
of stockholder approval of the Plan. The Board may terminate or amend the Plan
in any respect at any time, except that, without the approval of the
stockholders obtained within 12 months before or after the Board adopts a
resolution authorizing any of the following actions: (a) the total number of
shares that may be issued under the Plan may not be increased (except by
adjustment pursuant to paragraph 13); (b) the provisions of paragraph 3
regarding eligibility for grants of ISOs may not be modified; (c) the provisions
of paragraph 6(B) regarding the exercise price at which shares may be offered
pursuant to ISOs may not be modified (except by adjustment pursuant to paragraph
13); and (d) the expiration date of the Plan may not be extended. Except as
otherwise provided in this paragraph 15, in no event may action of the Board or
stockholders alter or impair the rights of a grantee, without his consent, under
any Stock Right previously granted to him.
16. CONVERSION OF ISOS INTO NON-QUALIFIED OPTIONS;
TERMINATION OF ISOS. The Committee, at the written request of any optionee,
may in its discretion, take such actions as may be necessary to convert such
optionee's ISOs (or any installments or portions of installments thereof) that
have not been exercised on the date of conversion into Non-Qualified Options at
any time prior to the expiration of such ISOs, regardless of whether the
optionee is an employee of the Company or a Related Corporation at the time of
such conversion. Such actions may include, but not be limited to, extending the
exercise period or reducing the exercise price of the appropriate installments
of such ISOs. At the time of such conversion, the Committee (with the consent of
the optionee) may impose such conditions on the exercise of the resulting
Non-Qualified Options as the Committee in its discretion may determine, provided
that such conditions shall not be inconsistent with this Plan. Nothing in the
Plan shall be deemed to give any optionee the right to have such optionee's ISOs
converted into Non-Qualified Options, and no such conversion shall occur until
and unless the Committee takes appropriate action. The Committee, with the
consent of the optionee, may also terminate any portion of any ISO that has not
been exercised at the time of such termination.
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<PAGE> 9
17. APPLICATION OF FUNDS. The proceeds received by the Company from the
sale of shares pursuant to Options granted and Purchases authorized under the
Plan shall be used for general corporate purposes.
18. GOVERNMENT REGULATION. The Company's obligation to sell and deliver
shares of the Common Stock under this Plan is subject to the approval of any
governmental authority required in connection with the authorization, issuance
or sale of such shares.
19. WITHHOLDING OF ADDITIONAL INCOME TAXES. Upon the exercise of a
Non-Qualified Option, the grant of an Award, the making of a Purchase of Common
Stock for less than its fair market value, the making of a Disqualifying
Disposition (as defined in paragraph 20) or the vesting of restricted Common
Stock acquired on the exercise of a Stock Right hereunder, the Company, in
accordance with Section 3402(a) of the Code, may require the optionee, Award
recipient or purchaser to pay additional withholding taxes in respect of the
amount that is considered compensation includable in such person's gross income.
The Committee in its discretion may condition (i) the exercise of an Option,
(ii) the grant of an Award, (iii) the making of a Purchase of Common stock for
less than its fair market value, or (iv) the vesting of restricted Common Stock
acquired by exercising a Stock Right, on the grantee's payment of such
additional withholding taxes.
20. NOTICE TO COMPANY OF DISQUALIFYING DISPOSITION. Each employee who
receives an ISO must agree to notify the Company in writing immediately after
the employee makes a Disqualifying Disposition of any Common stock acquired
pursuant to the exercise of an ISO. A Disqualifying Disposition is any
disposition (including any sale) of such Common Stock before the later of (a)
two years after the date the employee was granted the ISO, or (b) one year after
the date the employee acquired Common Stock by exercising the ISO. If the
employee has died before such stock is sold, these holding period requirements
do not apply and no Disqualifying Disposition can occur thereafter.
21. GOVERNING LAW; CONSTRUCTION. The validity and construction of the Plan
and the instruments evidencing Stock rights shall be governed by the laws of the
State of Delaware, or the laws of any jurisdiction in which the Company or its
successor in interest may be organized. In construing this Plan, the singular
shall include the plural and the masculine gender shall include the feminine and
neuter, unless the context otherwise requires.
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<PAGE> 1
Ex - 10.8
JOSEPH A. FORGIONE
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT, signed as of the 4th day of November, 1997 (this
"Agreement"), between NovaLink USA Corporation, a Massachusetts corporation,
having a place of business at 200 Friberg Parkway, Westborough, Massachusetts
01581 (the "Company"), and Joseph A. Forgione, an individual residing at 158
Langelier Lane, Marlboro, MA 01752 (the "Employee").
In consideration of the mutual agreements and covenants herein contained,
the adequacy and the sufficiency of which are hereby acknowledged, the parties
hereby agree as follows:
1. Effective Date. The effective date of this Agreement shall be November
19, 1997 (the "Effective Date").
2. Employment. The Company hereby engages the Employee as an employee of
the Company and the Employee hereby accepts such engagement upon the terms and
conditions of this Agreement.
3. Term. The term of this Agreement shall commence on the Effective Date
and shall continue until otherwise terminated by either party at any time with
or without cause (the "Term").
4. Employment Duties. During the Term, the Employee will serve as
President and Chief Executive Officer of the Company and shall perform such
duties as may be reasonably assigned to him from time to time by the Board of
Directors of the Company (the "Board"). During the term hereof, the Employee
shall be employed by the Company on a full-time basis and shall devote his full
business time and best efforts to the advancement of the business and interests
of the Company. It is expected that the Employee will be nominated and elected
to the Board and shall serve as a member of the Board so long as he is President
and Chief Executive Officer of the Company.
5. Consideration.
(a) In consideration of the services performed by the Employee under
this Agreement, the Company shall pay the Employee a base salary at the rate of
$225,000 per year payable bi-weekly, subject to increase from time to time by
the Compensation Committee of the Board (the "Compensation Committee") in its
sole discretion. Compensation under this Agreement shall be paid in arrears in
equal monthly installments, and will be reviewed annually.
(b) The Company shall reimburse the Employee for all ordinary and
necessary business expenses paid or incurred by the Employee in connection with
the execution of his responsibilities under this Agreement in accordance with
its usual reimbursement policies, which policies are subject to change on no
less than thirty (30) days' prior written notice to Employee.
<PAGE> 2
Reimbursement shall be made not less frequently than once each month against
presentation by the Employee of written reports, in reasonable detail and in the
then standard format in use by the Company, of all amounts so expended.
(c) The Employee shall be eligible to receive an annual bonus of up to
$50,000. The amount and timing of payment of the annual bonus shall be
established by the Compensation Committee. The Compensation Committee shall
award the bonus based upon Employees meeting or exceeding certain performance
objectives (the "Performance Objectives") to be established initially by the
Employee and the Board by not later than ninety (90) days after the Effective
Date and thereafter by the Compensation Committee. Any failure to establish such
Performance Objectives shall not affect the validity and enforceability of this
Agreement.
(d)
(i) The Company shall grant to the Employee, within ninety (90)
days of the Effective Date, qualified stock options to purchase a number of
shares of the Company's Common Stock equal to five percent (5%) of the Company's
"Common Stock Equivalents" (as defined in Sections 5(d)(iv) after the Company's
first round of outside venture capital financing, for a price of $.25 per share.
The options shall vest ratably on a monthly basis over a four year (48 month)
period beginning on the Effective Date, provided that no stock options shall
vest until six (6) months after the Effective Date, at which time options shall
vest retroactively for the prior six (6) months (i.e., ________ options). The
options shall be exercisable for a period of ten years, subject to termination
ninety (90) days after termination of the Employee's employment hereunder.
(ii) If the Employee shall meet or exceed the Performance
Objectives, the Company shall grant to the Employee on the first anniversary of
the Effective Date qualified stock options in addition to those described in
Section 5(d)(i) to purchase a number of shares of the Company's Common Stock
equal to an additional one percent (1%) of the Company's Common Stock
Equivalents (as defined in Section 5(d)(iv) after the Company's first round of
outside venture capital financing, for a price of $.25 per share. These
additional options shall have the same terms and conditions as those granted
under Section 5(d)(i) above, except that the four year (48 month) vesting period
shall begin on the first anniversary of the Effective Date.
(iii) All options granted to you pursuant to this Section 5(d)
shall fully vest upon a "Change of Control" of the Company. A "Change of
Control" will occur upon the acquisition by any individual, entity or group of
50 percent or more of the combined voting power of the then outstanding
securities of the Company entitled to vote generally in the election of
directors; provided, however, that the following acquisitions shall not
constitute a Change of Control: (A) any acquisition of voting securities
directly from the Company (excluding an acquisition by virtue of the exercise of
a conversion privilege); (B) any acquisition by the Company or by any
corporation controlled by the Company; (C) any acquisition by an employee
benefit plan (or related trust) sponsored or maintained by the Company or any
corporation controlled by the Company; or (D) any acquisition by any corporation
pursuant to a consolidation or merger, if, following such consolidation, the
holders of the capital stock of the Company hold a majority of the voting stock
of the consolidated entity or following such merger,
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<PAGE> 3
the Company is the surviving entity, or (E) any acquisition of additional shares
of capital stock of the Company by any person or entity who or which has
previously provided financing to the Company.
(iv) "Common Stock Equivalents" for purposes of this Section 5(d)
means (A) outstanding shares of common stock of the Company, (B) shares of
common stock into which any outstanding preferred stock of the Company is
convertible, (C) shares of common stock which are issuable upon exercise of
outstanding warrants, options and the like and (D) all common stock reserved for
issuance under stock option, restricted stock or other similar employee benefit
plans.
(e) The Employee shall be entitled to participate in the Company's
standard employee welfare plans, including a PPO medical insurance plan, short
and long term disability and life insurance, and a 401(k) retirement plan. The
Company will match the Employee's contribution to the 401(k) retirement plan in
an amount equal to one-half of the Employee's contribution up to the first five
percent (5%) of his income. The Employee will also receive fifteen (15) days of
paid vacation annually, one day of which will accrue each month commencing with
the third month of Employee's employment by the Company and five (5) days of
which will accrue at the completion of six (6) months of Employee's employment
with the Company.
(f) In the event of termination of the employment of the Employee
hereunder by reason of death or permanent disability (as determined in good
faith by the Board), the Employee shall be entitled to compensation hereunder
through the date of such termination and to those benefits to which the Employee
may be entitled pursuant to the Company's standard benefit plans referred to in
subparagraph (e) of this paragraph 5.
6. Related Agreements.
(a) Non-Solicitation and Non-Competition. As a material inducement to
the Company to employ the Employee, and in order to protect the Company's
proprietary information and good will, the Employee agrees to the following:
(i) For a period of twelve (12) months after termination of
employment with the Company or its present or future affiliates for
any reason, whether with or without cause, Employee will not directly
or indirectly solicit or accept business relating to Competing
Products from any of the customers or accounts of the Company with
which Employee had any contact as a result of his employment.
(ii) For a period of twelve (12) months after termination of
employment with the Company or its present or future affiliates for
any reason, whether with or without cause, the Employee will not
render services, directly or indirectly, as an employee, consultant or
otherwise, to any Competing Organization in connection with research
on or the acquisition, development, production, distribution,
marketing, or providing of any Competing Product.
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<PAGE> 4
(iii) For a period of twelve (12) months after termination of
employment with the Company or its present or future affiliates for any
reason, whether with or without cause, Employee will not recruit or
otherwise solicit or induce employees or consultants of the Company or its
present or future affiliates to terminate their employment with, or
otherwise cease their relationships with, the Company or any such
affiliates.
(iv) For a period of twelve (12) months after termination of
employment with the Company or its present or future affiliates for any
reason, whether with or without cause, Employee will not directly or
indirectly induce or attempt to induce a customer, prospective customer,
supplier, agent, vendor, contractor, subcontractor, developer, employee or
consultant to terminate or not enter into any contract with the Company or
its present or future affiliates.
Employee agrees that the restrictions set forth in this Section 6 are fair
and reasonable and are reasonably required for the protection of the interests
of the Company. However, should an arbitrator or court nonetheless determine at
a later date that such restrictions are unreasonable in light of the
circumstances as they then exist, then Employee agrees that this Section shall
be construed in such a manner as to impose on Employee such restrictions as may
then be reasonable and sufficient to assure Company of the intended benefits of
this Section.
(b) For the purposes of Section 6:
(i) "Competing Product" means any product, process, or service of any
person or organization other than the Company, in existence or under
development, (A) which is identical to, substantially the same as, or
performs the same or a similar function as, any product, process, or
service of the Company, in existence or under development, and (B) which is
(or could reasonably be anticipated to be) marketed or distributed in such
a manner and in such a geographic area as to actually compete with such
product, process or service of the Company.
(ii) "Competing Organization" means any person or organization,
including Employee, engaged in, or about to become engaged in, research on
or the acquisition, development, production, distribution, marketing, or
providing of a Competing Product.
(c) Nondisclosure and Assignment of Inventions. The Employee shall execute
the Nondisclosure and Assignment of Inventions Agreement attached hereto as
Exhibit A (the "Nondisclosure Agreement"), the provisions of which are deemed to
be incorporated by reference herein.
7. Termination. This Agreement may be terminated by either party at any
time with or without cause; provided, however, that, the provisions of Section 6
shall survive any termination of this Agreement.
8. Severance. Upon termination of Employee's employment by the Company
other than for "Cause", the Company shall pay to the Employee his base salary
and shall continue his employee welfare benefits set forth in Section 5(e) of
this Agreement for the six (6) month period
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<PAGE> 5
following termination. If at the end of such six (6) month period, Employee has
not obtained "Comparable Work" as an employee or consultant for any other firm
or entity, the Company shall pay to the Employee his base salary and provide his
employee welfare benefits until the earlier of (i) the Employee's obtaining
Comparable Work or (ii) twelve (12) months from the date of termination of his
employment by the Company. "Comparable Work" means full time work, providing
remuneration to the Employee on an annualized base of at least ninety percent
(90%) of Employee's base salary; provided, however, that full-time consultancy
shall constitute Comparable Work only if it can reasonably be expected to have a
duration of six (6) months or more. As used herein, "Cause" shall be defined as
the Employee having (a) engaged in gross negligence relative to the affairs of
the Company, or (b) been convicted of a felony. Prior to terminating the
Employee for cause, the Company shall first provide him with notice and the
opportunity to be heard. In addition to his rights to continuation of base
salary and employee welfare benefits as described above in this Section 8, the
Employee shall be entitled to any COBRA or other statutory benefits and to any
conversion rights or privileges that he may have under insurance policies.
9. Binding Effect. This Agreement is binding upon and shall inure to the
benefit of the successors, assigns and legal representatives of the parties
hereto.
10. Miscellaneous.
(a) Entire Agreement. This instrument contains the entire agreement
of the parties with respect to the employment of the Employee and may not be
changed orally but only by an agreement in writing signed by the party against
whom enforcement is sought. This Agreement supersedes any and all earlier
agreements concerning the provision of services to the Company by the Employee,
which, as of the Effective Date, shall be terminated and be of no further force
or effect, and Employee hereby acknowledges satisfaction by the Company of all
requirements thereunder, including without limitation any and all obligations to
pay salary, bonuses, benefits or severance payments.
(b) Employee Representation. Employee represents that his employment
by the Company hereunder will not violate any agreement between Employee and any
of his previous employers.
(c) Enforcement of Covenants. The Employee acknowledges that he has
carefully read and considered all the terms and conditions of this Agreement and
the Nondisclosure Agreement, including the restraints imposed on the Employee by
Section 6 hereof. The Employee agrees that said restraints are necessary for the
reasonable and proper protection of the Company and its affiliates and that each
and every one of the restraints is reasonable in respect to subject matter,
length of time and geographic area. The Employee further acknowledges that, were
he to breach any of the covenants contain in Section 6 hereof, the damage to the
Company would be irreparable. The Employee therefore agrees that the Company, in
addition to any other remedies available to it, shall be entitled to preliminary
and permanent injunctive relief against any breach or threatened breach by the
Employee of any of said covenants, without having to post bond. The parties
further agree that, in the event that any
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<PAGE> 6
provision of Section 6 hereof shall be determined by any court of competent
jurisdiction to be unenforceable by reason of its being extended over too great
a period of time, too large a geographic area or too great a range of
activities, such provision shall be deemed to be modified to permit its
enforcement to the maximum extent permitted by law.
(d) Remedies.
(i) Subject to subsection (d)(ii) below, any claim or controversy
arising out of or relating to this Agreement, including (without limitation) a
claim by the Company that the Employee has violated any one or more of the
restrictions set forth in Section 6, shall be settled by arbitration before a
single arbitrator (who shall be a lawyer) in Boston, Massachusetts in accordance
with the Commercial Arbitration Rules of the American Arbitration Association.
If the arbitrator finds that a violation of the foregoing restrictions exists or
is threatened, he shall prescribe appropriate relief which may include an award
that the Employee desist from such violation, whether or not such an order would
issue, in the circumstances, under the equity powers of a court. Judgment upon
the award rendered by the arbitrator may be entered in any court of competent
jurisdiction.
(ii) The Company shall have the right, which may be exercised in
lieu of or in addition to the procedure set forth in subsection (d)(i) above, to
submit a claim that the Employee has violated any one or more of the
restrictions set forth in Section 6 to any court of competent jurisdiction and
the Company will be entitled, in addition to any other remedies available to it
from such court, to obtain injunctive relief from such court to enforce the
terms of this Agreement. The Employee, upon receipt of written notice of the
institution of proceedings in such court, hereby agrees to submit to the
jurisdiction of such court.
(e) Notice. Unless written designation of a different address is
filed with each of the other parties hereto, all notices, requests, demands or
other communications required by or otherwise issued with respect to this
Agreement shall be in writing and shall be deemed to have been duly given to any
party when delivered personally (by courier service or otherwise); when
delivered by facsimile, transmission confirmed; the next business day after
timely delivery to the courier, if sent by overnight courier guaranteeing next
day delivery; or five days after being mailed by first-class mail, postage
prepaid and return receipt requested, in each case to the applicable address set
forth at the beginning of this Agreement.
(f) Waiver. The waiver by either party of a breach of any provision
of this Agreement shall not operate or be construed as a waiver of any
subsequent breach thereof.
(g) Severability. If any portion or portions of this Agreement are
declared to be void for illegality, then the remaining portions of the Agreement
shall remain and be valid and binding.
(h) Governing Law. This Agreement shall be governed by and construed
under the laws of the Commonwealth of Massachusetts, without regard to its
conflict of laws principles.
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<PAGE> 7
(i) Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but all of which together
shall constitute one and the same instrument.
(j) Captions. The captions of the sections of this Agreement are
inserted for convenience only and are not intended to be a part of this
Agreement.
IN WITNESS WHEREOF, each of the parties has executed this Agreement, or
caused this Agreement to be executed by its duly authorized officer, under seal,
as of the date first written above.
NOVALINK USA CORPORATION
By: /s/ J. Radoff
Jon Radoff, Chairman
EMPLOYEE
/s/ Joseph A. Forgione
Joseph A. Forgione
7
<PAGE> 8
EXHIBIT A
Joseph A. Forgione
------------------
Employee
NONDISCLOSURE AND ASSIGNMENT OF INVENTIONS AGREEMENT
In consideration of my employment or the continuation of my employment by
NovaLink USA Corporation (the "Company"), I hereby agree as follows:
I. Confidential Information. I understand that the Company's confidential
information includes matters not generally known outside the Company, such as
software and systems, methods, designs, processes and trade secrets relating to
existing and future projects involving internet website development products and
services marketed or used by the Company, any contracts and other data including
sales and customer information, relating to the business operations,
methodologies and techniques of the Company such as information relating to the
Company's e-prise software. I further understand that while I am employed by the
Company, I may obtain or hear of confidential information of the Company and of
other parties which has been provided to the Company in confidence. I agree not
to disclose, use or copy any confidential information of the Company (whether or
not produced by me) or of other parties which has been provided to the Company
in confidence, except as the Company may authorize or direct.
II. Business Opportunities and Discoveries. I agree to make full and
prompt disclosure to the Company of all business opportunities relating to
internet web site development (collectively, "Business Opportunities"), as well
as of all computer software systems, methods, designs, processes and trade
secrets whether patentable, copyrightable or not, made, conceived or reduced to
practice by me or under my direction or jointly with others during my employment
by the Company, whether or not made, conceived or reduced to practice during
normal working hours or on the premises of the Company (all of which are
collectively termed "Discoveries"). I hereby assign and transfer to the Company
without further compensation the entire worldwide right, title and interest in
and to all Discoveries and any patents, patent applications, copyrights,
copyright registrations, or trade secrets covering such Discoveries. I further
agree, both during and after my employment with the Company, to execute and
deliver such assignments, patents, copyrights and applications, and other
documents as the Company may direct, and agree to cooperate fully with the
Company to enable the Company to secure and patent, copyright and otherwise
perfect and protect such Discoveries in any and all countries. This paragraph
will not apply to Discoveries which do not relate to the actual, planned or
anticipated business or research and development of the Company or affiliated
business entities and which are made, conceived or reduced to practice by me
during other than normal working hours, not on the Company's premises and
without the use of any of the Company's tools, devices, equipment, resources or
confidential information.
III. Intellectual Property Rights. I acknowledge and agree that ownership
of copyrights, patents and any other intellectual property rights in the
designs, drawings, and related documents and works of authorship created for the
Company or within the scope of my employment belong to the Company exclusively
throughout the world. There shall be no obligation of the Company or any of
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<PAGE> 9
its direct or indirect licensees to designate me as author of any such design,
drawing, related documentation or other work of authorship when distributed
publicly or otherwise, nor to make any such distribution. I hereby waive and
release all my rights, if any, to the foregoing and hereby assign and transfer
to the Company without further compensation any interest I may have in the
entire worldwide right, title and interest in and to the foregoing. I further
agree to execute any papers and to assist the Company in any manner deemed
necessary by the Company to permit the Company to apply for, obtain and defend
copyrights and other intellectual property rights related to the foregoing.
IV. Obligations to Other Parties. I hereby represent that I have no
present obligation to assign to any former employer or any other person,
corporation, business entity or firm, any items covered by paragraphs 2 and 3,
and I am not bound by any employment contracts or restrictive agreements which
would prevent full performance of my duties to the Company, including but not
limited to the duties set forth in this Agreement. I will not disclose and have
not disclosed to the Company, and I will not induce or cause and have not
induced or caused the Company to use, any confidential information of other
persons, corporations or firms, including former employers. In addition, I will
not bring or provide and have not brought or provided to the Company, any
documents or other tangible items containing confidential information of other
persons, corporations or firms, including any former employers.
V. Affiliates or Subsidiaries. If my employment is transferred to a
subsidiary or affiliated business entity of the Company, this agreement will
continue to apply as though I were still employed by the Company unless I sign
an agreement provided to me by such other company covering essentially the same
matters as this Agreement.
VI. Termination of Employment. Upon any termination of my employment by
the Company, I agree to leave with or return to the Company all records,
drawings, files, notebooks, software, including object and source code versions
thereof, and other documents, including such items in electronic or other
intangible format, pertaining to the Company's confidential information, whether
prepared by me or others, and any equipment, tools or devices owned by the
Company then in my possession or under my control however such items were
obtained.
VII. Vesting of Rights. The rights, title and other interests granted by me
to the Company under this Agreement shall automatically vest in the Company as
each item to which a right, title or other interest applies comes into
existence.
VIII. Photographs. I hereby give the Company and its assigns permission to
use photographs of me (whether or not I am identified by name) during and after
my employment by the Company in connection with the reasonable business purposes
of the Company or its assigns.
IX. Not a Contract of Employment. I understand that this Agreement does
not constitute a contract of employment or give me rights to employment or
continued employment by the Company.
X. Survival. My obligations under this Agreement shall survive any
termination of my employment with the Company, shall be binding upon my heirs,
executors and administrators and shall inure to the benefit of the Company and
its successors and assigns.
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<PAGE> 10
XI. Enforcement of Covenants. I acknowledge that I have carefully read and
considered all the terms and conditions of this Agreement, including the
restraints imposed on me pursuant to Sections 1, 2, 3 and 4 hereof. I agree that
said restraints are necessary for the reasonable and proper protection of the
Company and its affiliates, and I further acknowledge that, were I to breach any
of the covenants contained in Sections 1, 2, 3 and 4 hereof, the damage to the
Company would be irreparable. I therefore agree that the Company, in addition to
any other remedies available to it, shall be entitled to preliminary and
permanent injunctive relief against any breach or threatened breach by me of any
of said covenants, without having to post bond.
XII. Severability. In the event that any one or more of the provisions of
this Agreement shall be invalid, illegal or unenforceable in any respect for any
reason, the validity, legality and enforceability of any such provision in every
other respect and of the remaining provisions of this Agreement shall not be in
any way impaired.
XIII. Entire Agreement; Modifications. This Agreement constitutes the
entire agreement covering the subject matter set forth herein and may be
modified only by agreement in writing signed by me and an officer of the
Company.
14. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the Commonwealth of Massachusetts.
Date: Nov. 4, 1997 /s/ Joseph A. Forgione
Signature of Employee
Joseph A. Forgione
Printed Name of Employee
Witness:
/s/ J. Radoff
Jon Radoff
10
<PAGE> 1
Ex - 10.9
EPRISE CORPORATION
AT-WILL EMPLOYMENT AGREEMENT
Eprise Corporation, a Delaware corporation ("Company"), offers employment,
and Jonathan B. Radoff ("Employee") accepts employment, upon the terms and
conditions as follows:
1. Employee will have the title of Chairman and Chief Technology Officer,
and will perform such duties as are commensurate with such positions.
2. Employee's salary shall be $140,000 per annum, subject to such
periodic increases as may be determined by the Compensation Committee and
approved by the Board of Directors.
3. The first date of Employee's employment was September 26, 1992. This
Agreement is effective as of December 17, 1997.
4. During the term of this Agreement, Company shall permit Employee to
participate in any of its fringe benefit plans in accordance with the respective
provisions thereof from time to time in effect. A description of the current
benefit plans and requirements for participating in them is available upon
request.
5. Should the Company move its principal headquarters during the term of
this Agreement to a location which is 25 miles or more from its current
location, the Company will reimburse Employee for all reasonable expenses
incurred in connection with Employee relocating his residence to a more
convenient location.
6. Employee shall have a workspace, facilities and services that are
suitable to the position and appropriate for the performance of Employee's
duties.
7. Company shall reimburse Employee for all reasonable expenses incurred,
pursuant to Company's specified guidelines, in the performance of Employee's
business, e.g. entertainment, travel, etc. Employee will be reimbursed upon
submission of an itemized account of such expenditures with receipts where
practicable.
8. Employee understands that he is an at-will employee and that the
Company may terminate his employment at any time, for any reason or for no
reason at all, but only by the vote of at least 5/7ths of the Board of
Directors.
9. If Employee is terminated without Cause, as such term is defined
below, he shall be entitled to one (1) year of severance pay, payable in 12
equal monthly installments, in an aggregate amount equal to Employee's annual
base salary at the time of termination. For the purposes of this Section 9,
"Cause" shall mean that the Employee has (a) in the reasonable and good faith
determination of the majority of the Board of Directors, engaged in gross
negligence relative to the affairs of the Company, or (b) been convicted of a
felony. Prior to terminating the
<PAGE> 2
Employee for Cause, the Company shall first provide Employee with notice and the
opportunity to be heard.
10. Any notice required to be given hereunder shall be either: (i)
personally delivered, or (ii) sent by U.S. Postal Service, postage pre-paid,
certified mail, return receipt requested to Company at the place of employment
and to the Employee at the last residence address given to and on file with
Company.
11. During the course of employment, Employee will become aware of certain
methods, practices and procedures with which Company conducts its business,
including but not limited to marketing strategies, administrative practices,
sales data, information about customers, technological innovations, software
development and software mechanics all of which Company and Employee agree are
proprietary information and as such are trade secrets.
12. Employee will not at any time, either during his employment or
thereafter, divulge, furnish or make available, either directly or indirectly,
to any person, firm, corporation or other entity any proprietary information
used by Company. Employee agrees that all such matters and information shall be
kept strictly and absolutely confidential.
13. Upon the cessation of his employment, irrespective of the time, manner
or reason of termination, Employee will immediately surrender and deliver to
Company all lists, books, records, memoranda and data of every kind relating to
all proprietary information and all property belonging to Company.
14. Employee agrees that all inventions, computer programs and products
created by Employee either for use by Company or which could be used by Company
in furtherance of Company's business activity, which are created or conceived
during the course of employment by Company, shall be considered as Works Made
For Hire and all rights to said Works shall and do vest in Company.
15. Employee further agrees that said Works are proprietary information
not to be divulged, furnished, or made available, either directly or indirectly,
to any person, firm or corporation or any other entity.
16. As a material inducement to the Company to employ Employee, and in
order to protect the Company's proprietary information and good will, Employee
agrees to the following stipulations:
(i) For a period of twelve (12) months after termination of employment
with the Company or its present or future affiliates for any reason,
whether with or without cause, Employee will not directly or indirectly
solicit or accept business relating in any manner to Competing Products or
to products, processes or services of the Company from any of the customers
or accounts of the Company with which Employee had any contact as a result
of his employment, nor will Employee divert any such business from the
Company.
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<PAGE> 3
(ii) For a period of twelve (12) months after termination of employment
with the Company or its present or future affiliates for any reason,
whether with or without cause, Employee will not render services, directly
or indirectly, as an employee, consultant or otherwise, to any Competing
Organization in connection with research on or the acquisition,
development, production, distribution, marketing, or providing of any
Competing Product.
(iii) For a period of twelve (12) months after termination of employment
with the Company or its present or future affiliates for any reason,
whether with or without cause, Employee will not recruit or otherwise
solicit or induce employees or consultants of the Company or its present or
future affiliates to terminate their employment with, or otherwise cease
their relationships with, the Company or any such affiliates.
(iv) For a period of twelve (12) months after termination of employment
with the Company or its present or future affiliates for any reason,
whether with or without cause, Employee will not directly or indirectly
induce or attempt to induce a customer, prospective customer, supplier,
agent, vendor, contractor, subcontractor, developer, employee or consultant
to terminate or not enter into any contract with Company or its present or
future affiliates.
Employee agrees that the restrictions set forth in this Section are fair
and reasonable and are reasonably required for the protection of the interests
of the Company. However, should an arbitrator or court nonetheless determine at
a later date that such restrictions are unreasonable in light of the
circumstances as they then exist, then Employee agrees that this Section shall
be construed in such a manner as to impose on Employee such restrictions as may
then be reasonable and sufficient to assure Company of the intended benefits of
this Section.
17. For the purposes of Section 16:
(i) "Competing Product" means any product, process, or service of any
person or organization other than the Company, in existence or under
development, (A) which is identical to, substantially the same as, or an
adequate substitute for any product, process, or service of the Company, in
existence or under development, and (B) which is (or could reasonably be
anticipated to be) marked or distributed in such a manner and in such a
geographic area as to actually compete with such product, process or
service of the Company.
(ii) "Competing Organization" means any person or organization, including
Employee, engaged in, or about to become engaged in, research on or the
acquisition, development, production, distribution, marketing, or providing
of a Competing Product.
18. Employee acknowledges that a breach of any of the provisions of this
Agreement may result in continuing and irreparable damages to Company for which
there may be no adequate remedy at law and that Company in addition to all other
relief available to it shall be entitled to the issuance of an injunction
restraining Employee from committing or continuing any breach of this Agreement.
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<PAGE> 4
19. A waiver of a breach of any provision of this Employment Agreement
shall not operate or be construed as a waiver of any subsequent breach. The
terms of this Agreement may be amended only by a writing signed by both of the
parties hereto.
20. The services of Employee are personal and unique and therefore
Employee may not assign this Employment Agreement nor delegate the duties and
obligations hereunder except in the normal course of business.
21. This Employment Agreement contains the entire understanding of the
parties, except as may be set forth in writing signed by the party against whom
enforcement may be sought, simultaneously with or subsequent to the execution of
this Employment Agreement. Employee agrees and understands that Company will,
from time to time, announce certain policies which it may publish in the form of
an Employee Handbook or similar document, and that such policies shall not act
to amend this agreement and shall exist only as a general guideline under which
management intends to operate.
22. If any provision of this Agreement shall be determined, by a court
having jurisdiction, to be invalid, or illegal or unenforceable, the remainder
of this Agreement shall not be affected but shall continue in full force and
effect as though such invalid, illegal or unenforceable provision were not
originally a part of this Agreement.
23. This Agreement shall be construed in accordance with and governed by
the laws of the Commonwealth of Massachusetts, irrespective of the fact that a
party hereto may not be a resident thereof.
INTENDING TO BE LEGALLY BOUND, the parties have executed this Employment
Agreement as of the date below written.
Date: December 17, 1997
BY: J.A. Forgione
-------------
(Eprise Corporation)
BY: J. Radoff
---------
(Employee)
###-##-####
-----------
Social Security Number
508-370-9262
------------
Home Phone Number
4
<PAGE> 1
EXHIBIT 10.11
THE ANGELL PENSION GROUP, INC. REGIONAL PROTOTYPE
DEFINED CONTRIBUTION PENSION PLAN AND TRUST
Copyright 1996 The Angell Pension Group, Inc.
<PAGE> 2
TABLE OF CONTENTS
ARTICLE PAGE
ARTICLE I: DEFINITIONS.........................................................1
ARTICLE II:TOP HEAVY PROVISIONS AND ADMINISTRATION............................16
2.1 TOP HEAVY PLAN REQUIREMENTS............................................16
2.2 DETERMINATION OF TOP HEAVY STATUS......................................16
2.3 POWERS AND RESPONSIBILITIES OF THE EMPLOYER............................19
2.4 DESIGNATION OF ADMINISTRATIVE AUTHORITY................................20
2.5 ALLOCATION AND DELEGATION OF...........................................20
2.6 POWERS AND DUTIES OF THE ADMINISTRATOR.................................20
2.7 RECORDS AND REPORTS....................................................22
2.8 APPOINTMENT OF ADVISERS................................................22
2.9 INFORMATION FROM EMPLOYER..............................................22
2.10 PAYMENT OF EXPENSES...................................................22
2.11 MAJORITY ACTIONS......................................................22
2.12 CLAIMS PROCEDURE......................................................23
2.13 CLAIMS REVIEW PROCEDURE...............................................23
ARTICLE III: ELIGIBILITY......................................................24
3.1 CONDITIONS OF ELIGIBILITY..............................................24
3.2 EFFECTIVE DATE OF PARTICIPATION........................................24
3.3 DETERMINATION OF ELIGIBILITY...........................................24
3.4 TERMINATION OF ELIGIBILITY.............................................24
3.5 OMISSION OF ELIGIBLE EMPLOYEE..........................................24
3.6 INCLUSION OF INELIGIBLE EMPLOYEE.......................................25
3.7 ELECTION NOT TO PARTICIPATE............................................25
3.8 CONTROL OF ENTITIES BY OWNER-EMPLOYEE..................................25
ARTICLE IV: CONTRIBUTION AND ALLOCATION.......................................27
4.1 FORMULA FOR DETERMINING EMPLOYER'S CONTRIBUTION........................27
4.2 TIME OF PAYMENT OF EMPLOYER'S CONTRIBUTION.............................27
4.3 ALLOCATION OF CONTRIBUTION, FORFEITURES AND EARNINGS...................28
4.4 MAXIMUM ANNUAL ADDITIONS...............................................34
4.5 ADJUSTMENT FOR EXCESSIVE ANNUAL ADDITIONS..............................40
4.6 TRANSFERS FROM QUALIFIED PLANS.........................................41
4.7 VOLUNTARY CONTRIBUTIONS................................................42
4.8 DIRECTED INVESTMENT ACCOUNT............................................43
4.9 QUALIFIED VOLUNTARY EMPLOYEE CONTRIBUTIONS.............................44
4.10 ACTUAL CONTRIBUTION PERCENTAGE TESTS..................................44
4.11 INTEGRATION IN MORE THAN ONE PLAN.....................................44
ARTICLE V: VALUATIONS.........................................................46
<PAGE> 3
5.1 VALUATION OF THE TRUST FUND............................................46
5.2 METHOD OF VALUATION....................................................46
ARTICLE VI: DETERMINATION AND DISTRIBUTION OF BENEFITS........................47
6.1 DETERMINATION OF BENEFITS UPON RETIREMENT..............................47
6.2 DETERMINATION OF BENEFITS UPON DEATH...................................47
6.3 DETERMINATION OF BENEFITS IN EVENT OF DISABILITY.......................48
6.4 DETERMINATION OF BENEFITS UPON TERMINATION.............................48
6.5 DISTRIBUTION OF BENEFITS...............................................52
6.6 DISTRIBUTION OF BENEFITS UPON DEATH....................................56
6.7 TIME OF SEGREGATION OR DISTRIBUTION....................................61
6.8 DISTRIBUTION FOR MINOR BENEFICIARY.....................................61
6.9 LOCATION OF PARTICIPANT OR BENEFICIARY UNKNOWN.........................61
6.10 PRE-RETIREMENT DISTRIBUTION...........................................61
6.11 ADVANCE DISTRIBUTION FOR HARDSHIP.....................................62
6.12 LIMITATIONS ON BENEFITS AND DISTRIBUTIONS.............................62
6.13 SPECIAL RULE FOR NON-ANNUITY PLANS....................................63
ARTICLE VII: TRUSTEE..........................................................65
7.1 BASIC RESPONSIBILITIES OF THE TRUSTEE..................................65
7.2 INVESTMENT POWERS AND DUTIES OF THE TRUSTEE............................65
7.3 OTHER POWERS OF THE TRUSTEE............................................66
7.4 LOANS TO PARTICIPANTS..................................................69
7.5 DUTIES OF THE TRUSTEE REGARDING PAYMENTS...............................71
7.6 TRUSTEE'S COMPENSATION AND EXPENSES AND TAXES..........................71
7.7 ANNUAL REPORT OF THE TRUSTEE...........................................72
7.8 AUDIT..................................................................72
7.9 RESIGNATION, REMOVAL AND SUCCESSION OF TRUSTEE.........................73
7.10 TRANSFER OF INTEREST..................................................74
7.11 TRUSTEE INDEMNIFICATION...............................................74
7.12 EMPLOYER SECURITIES AND REAL PROPERTY.................................75
ARTICLE VIII: AMENDMENT, TERMINATION, AND MERGERS.............................76
8.1 AMENDMENT..............................................................76
8.2 TERMINATION............................................................77
8.3 MERGER OR CONSOLIDATION................................................77
ARTICLE IX: MISCELLANEOUS.....................................................78
9.1 EMPLOYER ADOPTIONS.....................................................78
9.2 PARTICIPANT'S RIGHTS...................................................78
9.3 ALIENATION.............................................................78
9.4 CONSTRUCTION OF PLAN...................................................79
9.5 GENDER AND NUMBER......................................................79
9.6 LEGAL ACTION...........................................................79
9.7 PROHIBITION AGAINST DIVERSION OF FUNDS.................................79
<PAGE> 4
9.8 BONDING................................................................80
9.10 INSURER'S PROTECTIVE CLAUSE...........................................80
9.11 RECEIPT AND RELEASE FOR PAYMENTS......................................80
9.12 ACTION BY THE EMPLOYER................................................80
9.13 NAMED FIDUCIARIES AND ALLOCATION OF RESPONSIBILITY....................81
9.14 HEADINGS..............................................................81
9.15 APPROVAL BY INTERNAL REVENUE SERVICE..................................81
9.16 UNIFORMITY............................................................82
9.17 PAYMENT OF BENEFITS...................................................82
ARTICLE X: PARTICIPATING EMPLOYERS............................................83
10.1 ELECTION TO BECOME A PARTICIPATING EMPLOYER...........................83
10.2 REQUIREMENTS OF PARTICIPATING EMPLOYERS...............................83
10.3 DESIGNATION OF AGENT..................................................83
10.4 EMPLOYEE TRANSFERS....................................................83
10.5 PARTICIPATING EMPLOYER'S CONTRIBUTION AND FORFEITURES.................84
10.6 AMENDMENT.............................................................84
10.7 DISCONTINUANCE OF PARTICIPATION.......................................84
10.8 ADMINISTRATOR'S AUTHORITY.............................................84
10.9 PARTICIPATING EMPLOYER CONTRIBUTION FOR AFFILIATE.....................85
ARTICLE XI: CASH OR DEFERRED PROVISIONS.......................................86
11.1 FORMULA FOR DETERMINING EMPLOYER'S CONTRIBUTION.......................86
11.2 PARTICIPANT'S SALARY REDUCTION ELECTION...............................87
11.3 ALLOCATION OF CONTRIBUTION, FORFEITURES AND EARNINGS..................91
11.4 ACTUAL DEFERRAL PERCENTAGE TESTS......................................93
11.5 ADJUSTMENT TO ACTUAL DEFERRAL PERCENTAGE TESTS........................95
11.6 ACTUAL CONTRIBUTION PERCENTAGE TESTS..................................99
11.7 ADJUSTMENT TO ACTUAL CONTRIBUTION PERCENTAGE TESTS...................102
11.8 ADVANCE DISTRIBUTION FOR HARDSHIP....................................106
AMENDMENT....................................................................108
TRANSFER OF ASSETS FROM A MONEY PURCHASE PLAN.............................108
UNIFORMED SERVICES........................................................108
<PAGE> 5
- --------------------------------------------------------------------------------
ARTICLE I
DEFINITIONS
- --------------------------------------------------------------------------------
As used in this Plan, the following words and phrases shall have the
meanings set forth herein unless a different meaning is clearly required by the
context:
1.1 "ACT" means the Employee Retirement Income Security Act of 1974, as it may
be amended from time to time.
1.2 "ADMINISTRATOR" means the person(s) or entity designated by the Employer
pursuant to Section 2.4 to administer the Plan on behalf of the Employer.
1.3 "ADOPTION AGREEMENT" means the separate Agreement which is executed by the
Employer and accepted by the Trustee which sets forth the elective provisions of
this Plan and Trust as specified by the Employer.
1.4 "AFFILIATED EMPLOYER" means the Employer and any corporation which is a
member of a controlled group of corporations (as defined in Code Section 414(b))
which includes the Employer; any trade or business (whether or not incorporated)
which is under common control (as defined in Code Section 414(c)) with the
Employer; any organization (whether or not incorporated) which is a member of an
affiliated service group (as defined in Code Section 414(m)) which includes the
Employer; and any other entity required to be aggregated with the Employer
pursuant to Regulations under Code Section 414(o).
1.5 "AGGREGATE ACCOUNT" means with respect to each Participant, the value of all
accounts maintained on behalf of a Participant, whether attributable to Employer
or Employee contributions, subject to the provisions of Section 2.2.
1.6 "ANNIVERSARY DATE" means the anniversary date specified in C3 of the
Adoption Agreement.
1.7 "BENEFICIARY" means the person to whom a share of a deceased Participant's
interest in the Plan is payable, subject to the restrictions of Sections 6.2 and
6.6.
1.8 "CODE" means the Internal Revenue Code of 1986, as amended or replaced from
time to time.
1.9 "COMPENSATION" with respect to any Participant means one of the following as
elected in the Adoption Agreement. However, Compensation for any Self-Employed
Individual shall be equal to his Earned Income.
(a) Information required to be reported under Sections 6041, 6051 and
6052 (wages, tips and other Compensation Box on Form W-2). Compensation
is defined as wages. as defined in Code Section 3401(a), and all other
payments of Compensation to an
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Employee by the Employer (in the course of the Employer's trade or
business) for which the Employer is required to furnish the Employee a
written statement under Code Sections 6041(d) and 6051(a)(3).
Compensation must be determined without regard to any rules under Code
Section 3401(a) that limit the remuneration included in wages based on
the nature or location of the employment or the services performed
(such as the exception for agricultural labor in Section 3401(a)(2)).
(b) Section 3401(a) wages. Compensation is defined as wages within the
meaning of Code Section 3401(a) for the purposes of income tax
withholding at the source but determined without regard to any rules
that limit the remuneration included in wages based on the nature or
location of the employment or the services performed (such as the
exception for agricultural labor in Code Section 3401(a)(2)).
(c) 415 safe-harbor compensation. Compensation is defined as wages,
salaries, and fees for professional services and other amounts received
(without regard to whether or not an amount is paid in cash) for
personal services actually rendered in the course of employment with
the Employer maintaining the Plan to the extent that the amounts are
includible in gross income (including, but not limited to, commissions
paid salesmen, compensation for services on the basis of a percentage
of profits, commissions on insurance premiums, tips, bonuses, fringe
benefits, and reimbursements, or other expense allowances under a
non-accountable plan (as described in Regulation Section 1.62-2(c)),
and excluding the following:
(1) Employer contributions to a plan of deferred compensation
which are not includible in the Employee's gross income for
the taxable year in which contributed, or Employer
contributions under a simplified employee pension plan to the
extent such contributions are deductible by the Employee, or
any distributions from a plan of deferred compensation;
(2) Amounts realized from the exercise of a nonqualified stock
option, or when restricted stock (or property) held by the
Employee either becomes freely transferable or is no longer
subject to a substantial risk of forfeiture;
(3) Amounts realized from the sale, exchange or other
disposition of stock acquired under a qualified stock option,
and
(4) other amounts which received special tax benefits, or
contributions made by the Employer (whether or not under a
salary reduction agreement) towards the purchase of an annuity
contract described in section 403(b) of the Internal Revenue
Code (whether or not the contributions are actually excludable
from the gross income of the Employee).
If, in connection with the adoption of any amendment, the definition of
Compensation has been modified, then, for Plan Years prior to the Plan Year
which includes the adoption date of such amendment, Compensation means
compensation determined pursuant to the Plan then in
2
<PAGE> 7
effect.
In addition, if specified in the Adoption Agreement, Compensation for
all Plan purposes shall also include compensation which is not currently
includible in the Participant's gross income by reason of the application of
Code Sections 125, 402(a)(8), 402(h)(1)(B), or 403(b).
Compensation in excess of $200,000 shall be disregarded. Such amount
shall be adjusted at the same time and in such manner as permitted under Code
Section 415(d). In applying this limitation, the family group of a Highly
Compensated Participant who is subject to the Family Member aggregation rules of
Code Section 414(q)(6) because such Participant is either a "five percent owner"
of the Employer or one of the ten (10) Highly Compensated Employees paid the
greatest "415 Compensation" during the year, shall be treated as a single
Participant, except that for this purpose Family Members shall include only the
affected Participant's spouse and any lineal descendants who have not attained
age nineteen (19) before the close of the year. If, as a result of the
application of such rules. the adjusted $200,000 limitation is exceeded. then
(except for purposes of determining the portion of Compensation up to the
integration level if this plan is integrated), the limitation shall be prorated
among the affected individuals in proportion to each such individual's
Compensation as determined under this Section prior to the application of this
limitation.
For Plan Years beginning prior to January 1, 1989, the $200,000 limit
(without regard to Family Member aggregation) shall apply only for Top Heavy
Plan Years and shall not be adjusted.
In addition to other applicable limitations set forth in the Plan, and
notwithstanding any other provision of the Plan to the contrary, for Plan Years
beginning on or after January 1, 1994, the annual Compensation for each Employee
taken into account under the Plan shall not exceed the OBRA `93 annual
Compensation limit. The OBRA `93 annual Compensation limit is $150,000, as
adjusted by the Commissioner for increases in the cost of living in accordance
with Section 401(a)(17)(B) of the Internal Revenue Code. The cost-of-living
adjustment in effect for a calendar year applies to any period, not exceeding 12
months, over which Compensation is determined (determination period) beginning
in such calendar year. If a determination period consists of fewer than 12
months, the OBRA `93 annual Compensation limit will be multiplied by a fraction,
the numerator of which is the number of months in the determination period, and
the denominator of which is 12.
For Plan Years beginning on or after January 1, 1994, any reference in
this Plan to the limitation under Section 401(a)(17) of the Code shall mean the
OBRA `93 annual Compensation limit set forth in this provision.
If Compensation for any prior determination period is taken into
account in determining an Employee's benefits accruing in the current Plan Year,
the Compensation for that prior determination period is subject to the OBRA `93
Compensation limit in effect for that prior determination period. For this
purpose, for determination periods beginning before the First day of the Plan
Year beginning on or after January 1, 1994, the OBRA `93 annual Compensation
3
<PAGE> 8
limit is $150,000.
1.10 "CONTRACT" OR "POLICY" means any life insurance policy, retirement income
policy, or annuity contract (group or individual) issued by the Insurer. In the
event of any conflict between the terms of this Plan and the terms of any
insurance contract purchased hereunder, the Plan provisions shall control.
1.11 "DEFERRED COMPENSATION" means, with respect to any Participant, that
portion of the Participant's total Compensation which has been contributed to
the Plan in accordance with the Participant's deferral election pursuant to
Section 11.2.
1.12 "EARLY RETIREMENT DATE" means the date specified in the Adoption Agreement
on which a Participant or Former Participant has satisfied the age and service
requirements specified in the Adoption Agreement (Early Retirement Age). A
Participant shall become fully Vested upon satisfying this requirement if still
employed at his Early Retirement Age.
A Former Participant who terminates employment after satisfying the
service requirement for Early Retirement and who thereafter reaches the age
requirement contained herein shall be entitled to receive his benefits under
this Plan.
1.13 "EARNED INCOME" means with respect to a Self-Employed Individual, the net
earnings from self-employment in the trade or business with respect to which the
Plan is established, for which the personal services of the individual are a
material income-producing factor. Net earnings will be determined without regard
to items not included in gross income and the deductions allocable to such
items. Net earnings are reduced by contributions by the Employer to a qualified
Plan to the extent deductible under Code Section 404. In addition. for Plan
Years beginning after December 31, 1989, net earnings shall be determined with
regard to the deduction allowed to the Employer by Code Section 164(f).
1.14 "ELECTIVE CONTRIBUTION" means the Employer's contributions to the Plan that
are made pursuant to the Participant's deferral election pursuant to Section
11.2, excluding any such amounts distributed as "excess annual additions"
pursuant to Section 4.4. In addition, if selected in E3 of the Adoption
Agreement. the Employer's matching contribution made pursuant to Section 11.1(b)
shall or shall not be considered an Elective Contribution for purposes of the
Plan, as provided in Section 11.1(b), Elective Contributions shall be subject to
the requirements of Sections 11.2(b) and 11.2(c) and shall further be required
to satisfy the discrimination requirements of Regulation 1.401(k)-l(b)(3), the
provisions of which are specifically incorporated herein by reference.
1.15 "ELIGIBLE EMPLOYEE" means any Employee specified in DI of the Adoption
Agreement.
1.16 "EMPLOYEE" means any person who is employed by the Employer, but excludes
any person who is employed as an independent contractor. The term Employee shall
also include Leased Employees as provided in Code Section 414(n) or (o).
4
<PAGE> 9
Except as provided in the Non-Standardized Adoption Agreement, all
Employees of all entities which are an Affiliated Employer will be treated as
employed by a single employer.
1.17 "EMPLOYER" means the entity specified in the Adoption Agreement, any
Participating Employer (as defined in Section 10.1) which shall adopt this Plan,
any successor which shall maintain this Plan and any predecessor which has
maintained this Plan.
1.18 "EXCESS COMPENSATION" means, with respect to a Plan that is integrated with
Social Security, a Participant's Compensation which is in excess of the amount
set forth in the Adoption Agreement.
1.19 "EXCESS CONTRIBUTIONS" means, with respect to a Plan Year, the excess of
Elective Contributions and Qualified Non-Elective Contributions made on behalf
of Highly Compensated Participants for the Plan Year over the maximum amount of
such contributions permitted under Section 11.4(a).
1.20 "EXCESS DEFERRED COMPENSATION" means, with respect to any taxable year of a
Participant, the excess of the aggregate amount of such Participant's Deferred
Compensation and the elective deferrals pursuant to Section 11.2(f) actually
made on behalf of such Participant for such taxable year, over the dollar
limitation provided for in Code Section 402(g), which is incorporated herein by
reference. Excess Deferred Compensation shall be treated as an "annual addition"
pursuant to Section 4.4 when contributed to the Plan unless distributed to the
affected Participant not later than the first April 15th following the close of
the Participant's taxable year.
1.21 "FAMILY MEMBER" means, with respect to an affected Participant, such
Participant's spouse, and such Participant's lineal descendants and ascendants
and their spouses, all as described in Code Section 414(q)(6)(B).
1.22 "FIDUCIARY" means any person who (a) exercises any discretionary authority
or discretionary control respecting management of the Plan or exercises any
authority or control respecting management or disposition of its assets, (b)
renders investment advice for a fee or other compensation, direct or indirect,
with respect to any monies or other property of the Plan or has any authority or
responsibility to do so, or (c) has any discretionary authority or discretionary
responsibility in the administration of the Plan, including, but not limited to,
the Trustee, the Employer and its representative body, and the Administrator.
1.23 "FISCAL YEAR" means the Employer's accounting year as specified in the
Adoption Agreement.
1.24 "FORFEITURE" means that portion of a Participant's Account that is not
Vested, and occurs on the earlier of:
(a) the distribution of the entire Vested portion of a Participant's
Account. or
(b) the last day of the Plan Year in which the Participant incurs five
(5) consecutive
5
<PAGE> 10
1-Year Breaks in Service.
Furthermore, for purposes of paragraph (a) above, in the case of a
Terminated Participant whose Vested benefit is zero, such Terminated Participant
shall be deemed to have received a distribution of his Vested benefit upon his
termination of employment. In addition, the term Forfeiture shall also include
amounts deemed to be Forfeitures pursuant to any other provision of this Plan.
1.25 "FORMER PARTICIPANT" means a person who has been a Participant, but who has
ceased to be a Participant for any reason.
1.26 "414(s) COMPENSATION" with respect to any Employee means his Compensation
as defined in Section 1.9. However, for purposes of this Section, Compensation
shall be Compensation paid and, if selected in the Adoption Agreement, shall
only be recognized as of an Employee's effective date of participation. If, in
connection with the adoption of any amendment, the definition of "414(s)
Compensation" has been modified, then for Plan Years prior to the Plan Year
which includes the adoption date of such amendment, "414(s) Compensation" means
compensation determined pursuant to the Plan Year in effect.
1.27 "415 COMPENSATION" means compensation as defined in Section 4.4(f)(2).
If, in connection with the adoption of any amendment, the definition of
"415 Compensation" has been modified, then, for Plan Years prior to the Plan
Year which includes the adoption date of such amendment, "415 Compensation"
means compensation determined pursuant to the Plan then in effect.
1.28 "HIGHLY COMPENSATED EMPLOYEE" means an Employee described in Code Section
414(q) and the Regulations thereunder and generally means an Employee who
performed services for the Employer during the "determination year" and is in
one or more of the following groups:
(a) Employees who at any time during the "determination year" or
"look-back year" were "five percent owners" as defined in Section
1.35(c).
(b) Employees who received "415 Compensation" during the "look-back
year" from the Employer in excess of $75,000.
(c) Employees who received "415 Compensation" during the "look-back
year" from the Employer in excess of $50,000 and were in the Top Paid
Group of Employees for the Plan Year.
(d) Employees who during the "look-back year" were officers of the
Employer (as that term is defined within the meaning of the Regulations
under Code Section 416) and received "415 Compensation" during the
"look-back year" from the Employer greater than 50 percent of the limit
in effect under Code Section 415(b)(1)(A) for any such Plan
6
<PAGE> 11
Year. The number of officers shall be limited to the lesser of (i) 50
employees; or (ii) the greater of 3 employees or 10 percent of all
employees. If the Employer does not have at least one officer whose
annual "415 Compensation" is in excess of 50 percent of the Code
Section 415(b)(1)(A) limit, then the highest paid officer of the
Employer will be treated as a Highly Compensated Employee.
(e) Employees who are in the group consisting of the 100 Employees paid
the greatest "415 Compensation" during the "determination year" and are
also described in (b), (c) or (d) above when these paragraphs are
modified to substitute "determination year" for "look-back year."
The "determination year" shall be the Plan Year for which testing is
being performed, and the "look-back year" shall be the immediately preceding
twelve-month period. However, if the Plan Year is a calendar year, or if another
Plan of the Employer so provides, then the "look-back year" shall be the
calendar year ending with or within the Plan Year for which testing is being
performed, and the "determination year" (if applicable) shall be the period of
time, if any, which extends beyond the "look-back year" and ends on the last day
of the Plan Year for which testing is being performed (the "lag period"). With
respect to this election, it shall be applied on a uniform and consistent basis
to all plans, entities, and arrangements of the Employer.
For purposes of this Section, the determination of "415 Compensation"
shall be made by including amounts that would otherwise be excluded from a
Participant's gross income by reason of the application of Code Sections 125,
402(a)(8), 402(h)(1)(B) and, in the case of Employer contributions made pursuant
to a salary reduction agreement, Code Section 403(b). Additionally, the dollar
threshold amounts specified in (b) and (c) above shall be adjusted at such time
and in such manner as is provided in Regulations. In the case of such an
adjustment, the dollar limits which shall be applied are those for the calendar
year in which the "determination year" or "look back year" begins.
In determining who is a Highly Compensated Employee, Employees who are
non-resident aliens and who received no earned income (within the meaning of
Code Section 911(d)) from the Employer constituting United States source income
within the meaning of Code Section 861(a)(3) shall not be treated as Employees.
Additionally, all Affiliated Employers shall be taken into account as a single
employer and Leased Employees within the meaning of Code Sections 414(n)(2) and
414(o)(2) shall be considered Employees unless such Leased Employees are covered
by a plan described in Code Section 414(n)(5) and are not covered in any
qualified plan maintained by the Employer. The exclusion of Leased Employees for
this purpose shall be applied on a uniform and consistent basis for all of the
Employer's retirement plans. In addition, Highly Compensated Former Employees
shall be treated as Highly Compensated Employees without regard to whether they
performed services during the "determination year."
1.29 "HIGHLY COMPENSATED FORMER EMPLOYEE" means a former Employee who had a
separation year prior to the "determination year" and was a Highly Compensated
Employee in the year of separation from service or in any "determination year"
after attaining age 55. Notwithstanding the foregoing, an Employee who separated
from service prior to 1987 will be
7
<PAGE> 12
treated as a Highly Compensated Former Employee only if during the separation
year (or year preceding the separation year) or any year after the Employee
attains age 55 (or the last year ending before the Employee's 55th birthday),
the Employee either received "415 Compensation" in excess of $50,000 or was a
"five percent owner." For purposes of this Section, "determination year," "415
Compensation" and "five percent owner" shall be determined in accordance with
Section 1.28. Highly Compensated Former Employees shall be treated as Highly
Compensated Employees. The method set forth in this Section for determining who
is a "Highly Compensated Former Employee" shall be applied on a uniform and
consistent basis for all purposes for which the Code Section 414(q) definition
is applicable.
1.30 "HIGHLY COMPENSATED PARTICIPANT" means any Highly Compensated Employee who
is eligible to participate in the Plan.
1.31 "HOUR OF SERVICE" means (1) each hour for which an Employee is directly or
indirectly compensated or entitled to compensation by the Employer for the
performance of duties during the applicable computation period; (2) each hour
for which an Employee is directly or indirectly compensated or entitled to
compensation by the Employer (irrespective of whether the employment
relationship has terminated.) for reasons other than performance of duties (such
as vacation, holidays, sickness, jury duty, disability, lay-off, military duty
or leave of absence) during the applicable computation period; (3) each hour for
which back pay is awarded or agreed to by the Employer without regard to
mitigation of damages. The same Hours of Service shall not be credited both
under (1) or (2), as the case may be, and under (3).
Notwithstanding the above, (i) no more than 501 Hours of Service are
required to be credited to an Employee on account of any single continuous
period during which the Employee performs no duties (whether or not such period
occurs in a single computation period); (ii) an hour for which an Employee is
directly or indirectly paid, or entitled to payment, on account of a period
during which no duties are performed is not required to be credited to the
Employee if such payment is made or due under a plan maintained solely for the
purpose of complying with applicable worker's compensation, or unemployment
compensation or disability insurance laws; and (iii) Hours of Service are not
required to be credited for a payment which solely reimburses an Employee for
medical or medically related expenses incurred by the Employee.
For purposes of this Section, a payment shall be deemed to be made by
or due from the Employer regardless of whether such payment is made by or due
from the Employer directly, or indirectly through, among others, a trust fund,
or insurer, to which the Employer contributes or pays premiums and regardless of
whether contributions made or due to the trust fund, insurer, or other entity
are for the benefit of particular Employees or are on behalf of a group of
Employees in the aggregate.
An Hour of Service must be counted for the purpose of determining a
Year of Service, a year of participation for purposes of accrued benefits, a
1-Year Break in Service, and employment commencement date (or reemployment
commencement date). The provisions of Department of Labor regulations
2530.200b-2(b) and (c) are incorporated herein by reference.
8
<PAGE> 13
Hours of Service will be credited for employment with all Affiliated
Employers and for any individual considered to be a Leased Employee pursuant to
Code Sections 414(n) or 414(o) and the Regulations thereunder.
Hours of Service will be determined on the basis of the method selected
in the Adoption Agreement.
1.32 "INSURER" means any legal reserve insurance company which shall issue one
or more policies under the Plan.
1.33 "INVESTMENT MANAGER" means an entity that (a) has the power to manage,
acquire, or dispose of Plan assets and (b) acknowledges fiduciary responsibility
to the Plan in writing. Such entity must be a person, firm, or corporation
registered as an investment adviser under the Investment Advisers Act of 1940, a
bank, or an insurance company.
1.34 "JOINT AND SURVIVOR ANNUITY" means an annuity for the life of a Participant
with a survivor annuity for the life of the Participant's spouse which is not
less than 1/2, nor greater than the amount of the annuity payable during the
joint lives of the Participant and the Participant's spouse. The Joint and
Survivor Annuity will be the amount of benefit which can be purchased with the
Participant's Vested interest in the Plan.
1.35 "KEY EMPLOYEE" means an Employee as defined in Code Section 416(i) and the
Regulations thereunder. Generally, any Employee or former Employee (as well as
each of his Beneficiaries) is considered a Key Employee if he, at any time
during the Plan Year that contains the "Determination Date" or any of the
preceding four (4) Plan Years, has been included in one of the following
categories:
(a) an officer of the Employer (as that term is defined within the
meaning of the Regulations under Code Section 416) having annual "415
Compensation" greater than 50 percent of the amount in effect under
Code Section 415(b)( 1)(A) for any such Plan Year.
(b) one of the ten employees having annual "415 Compensation" from the
Employer for a Plan Year greater than the dollar limitation in effect
under Code Section 415(c)(1)(A) for the calendar year in which such
Plan Year ends and owning (or considered as owning within the meaning
of Code Section 318) both more than one-half percent interest and the
largest interests in the Employer.
(c) a "five percent owner" of the Employer. "five percent owner" means
any person who owns (or is considered as owning within the meaning of
Code Section 318) more than five percent (5%) of the outstanding stock
of the Employer or stock possessing more than five percent (5%) of the
total combined voting power of all stock of the Employer or, in the
case of an unincorporated business, any person who owns more than five
percent (5%) of the capital or profits interest in the Employer. In
determining percentage ownership hereunder, employers that would
otherwise be aggregated under Code Sections 414(b), (c), (m) and (o)
shall be treated as separate employers.
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(d) a "one percent owner" of the Employer having an annual "415
Compensation" from the Employer of more than $150,000. "One percent
owner" means any person who owns (or is considered as owning within the
meaning of Code Section 318) more than one percent (1%) of the
outstanding stock of the Employer or stock possessing more than one
percent (1%) of the total combined voting power of all stock of the
Employer or, in the case of an unincorporated business, any person who
owns more than one percent (1 %) of the capital or profits interest in
the Employer. In determining percentage ownership hereunder, employers
that would otherwise be aggregated under Code Sections 414(b), (c), (m)
and (o) shall be treated as separate employers. However, in determining
whether an individual has "415 Compensation" of more than $150,000,
"415 Compensation" from each employer required to be aggregated under
Code Sections 414(b), (c), (m) and (o) shall be taken into account.
For purposes of this Section, the determination of "415 Compensation"
shall be made by including amounts that would otherwise be excluded from a
Participant's gross income by reason of the application of Code Sections 125,
402(a)(8), 402(h)(1)(B) and, in the case of Employer contributions made pursuant
to a salary reduction agreement, Code Section 403(b).
1.36 "LATE RETIREMENT DATE" means the date of, or the first day of the month or
the Anniversary Date coinciding with or next following, whichever corresponds to
the election made for the Normal Retirement Date, a Participant's actual
retirement after having reached his Normal Retirement Date.
1.37 "LEASED EMPLOYEE" means any person (other than an Employee of the
recipient) who pursuant to an agreement between the recipient and any other
person ("leasing organization") has performed services for the recipient (or for
the recipient and related persons determined in accordance with Code Section
414(n)(6)) on a substantially full time basis for a period of at least one year,
and such services are of a type historically performed by employees in the
business field of the recipient employer. Contributions or benefits provided a
leased employee by the leasing organization which are attributable to services
performed for the recipient employer shall be treated as provided by the
recipient employer.
A leased employee shall not be considered an Employee of the recipient
if, (i) such employee is covered by a money purchase pension plan providing: (1)
a nonintegrated employer contribution rate of at least 10 percent of
compensation, as defined in Code Section 415(c)(3), but including amounts
contributed pursuant to a salary reduction agreement which are excludable from
the employee's gross income under Code Sections 125, 402(a)(8), 402(h), or
403(b), (2) immediate participation, and (3) full and immediate vesting; and
(ii) leased employees do not constitute more than 20 percent of the recipient's
non-highly compensated workforce.
1.38 "NET PROFIT" means with respect to any Fiscal Year the Employer's net
income or profit for such Fiscal Year determined upon the basis of the
Employer's books of account in accordance with generally accepted accounting
principles, without any reduction for taxes based upon income. or for
contributions made by the Employer to this Plan and any other qualified
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plan.
1.39 "NON-ELECTIVE CONTRIBUTION" means the Employer's contributions to the Plan
other than those made pursuant to the Participant's deferral election made
pursuant to Section 11.2 and any Qualified Non-Elective Contribution. In
addition, if selected in E3 of the Adoption Agreement, the Employer's Matching
Contribution made pursuant to Section 4.3(b) shall be considered a Non-Elective
Contribution for purposes of the Plan.
1.40 "NON-HIGHLY COMPENSATED PARTICIPANT" means any Participant who is neither a
Highly Compensated Employee nor a Family Member.
1.41 "NON-KEY EMPLOYEE" means any Employee or former Employee (and his
Beneficiaries) who is not a Key Employee.
1.42 "NORMAL RETIREMENT AGE" means the age specified in the Adoption Agreement
at which time a Participant shall become fully Vested in his Participant's
Account.
1.43 "NORMAL RETIREMENT DATE" means the date specified in the Adoption Agreement
on which a Participant shall become eligible to have his benefits distributed to
him.
1.44 "1-YEAR BREAK IN SERVICE" means the applicable computation period during
which an Employee has not completed more than 500 Hours of Service with the
Employer. Further, solely for the purpose of determining whether a Participant
has incurred a 1-Year Break in Service, Hours of Service shall be recognized for
"authorized leaves of absence" and "maternity and paternity leaves of absence."
"Authorized leave of absence" means an unpaid, temporary cessation from
active employment with the Employer pursuant to an established nondiscriminatory
policy, whether occasioned by illness, military service, or any other reason.
A "maternity or paternity leave of absence" means, for Plan Years
beginning after December 31, 1984, an absence from work for any period by reason
of the Employee's pregnancy, birth of the Employee's child, placement of a child
with the Employee in connection with the adoption of such child, or any absence
for the purpose of caring for such child for a period immediately following such
birth or placement. For this purpose, Hours of Service shall be credited for the
computation period in which the absence from work begins, only if credit
therefore is necessary to prevent the Employee from incurring a 1-year break in
Service, or, in any other case, in the immediately following computation period.
The Hours of Service credited for a "maternity or paternity leave of absence"
shall be those which would normally have been credited but for such absence, or,
in any case in which the Administrator is unable to determine such hours
normally credited, eight (8) Hours of Service per day. The total Hours of
Service required to be credited for a "maternity or paternity leave of absence"
shall not exceed 501.
1.45 "OWNER-EMPLOYEE" means a sole proprietor who owns the entire interest in
the Employer or a partner who owns more than 10% of either the capital interest
or the profits
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interest in the Employer and who receives income for personal services from the
Employer.
1.46 "PARTICIPANT" means any Eligible Employee who participates in the Plan as
provided in Section 3.2 and has not for any reason become ineligible to
participate further in the Plan.
1.47 "PARTICIPANT'S ACCOUNT" means the account established and maintained by the
Administrator for each Participant with respect to his total interest under the
Plan resulting from (a) the Employer's contributions in the case of a Profit
Sharing Plan or Money Purchase Plan, and (b) the Employer's Non-Elective
Contributions in the case of a 401(k) Profit Sharing Plan.
1.48 "PARTICIPANT'S COMBINED ACCOUNT" means the account established and
maintained by the Administrator for each Participant with respect to his total
interest under the Plan resulting from the Employer's contributions.
1.49 "PARTICIPANT'S ELECTIVE ACCOUNT" means the account established and
maintained by the Administrator for each Participant with respect to his total
interest in the Plan and Trust resulting from the Employer's Elective
Contributions and Qualified Non-Elective Contributions. A separate accounting
shall be maintained with respect to that portion of the Participant's Elective
Account attributable to Elective Contributions made pursuant to Section 11.2,
Employer matching contributions if they are deemed to be Elective Contributions,
and any Qualified Non-Elective Contributions.
1.50 "PARTICIPANT'S ROLLOVER ACCOUNT" means the account established and
maintained by the Administrator for each Participant with respect to his total
interest in the Plan resulting from amounts transferred from another qualified
plan or "conduit" Individual Retirement Account in accordance with Section 4.6.
1.51 "PLAN" means this instrument (hereinafter referred to as The Angell Pension
Group, Inc. Regional Prototype Defined Contribution Pension Plan and Trust Basic
Plan Document #01) including all amendments thereto, and the Adoption Agreement
as adopted by the Employer.
1.52 "PLAN YEAR" means the Plan's accounting year as specified in C2 of the
Adoption Agreement.
1.53 "PRE-RETIREMENT SURVIVOR ANNUITY" means an immediate annuity for the life
of the Participant's spouse, the payments under which must be equal to the
actuarial equivalent of 50% of the Participant's Vested interest in the Plan as
of the date of death.
1.54 "QUALIFIED NON-ELECTIVE ACCOUNT" means the account established hereunder to
which Qualified Non-Elective Contributions are allocated.
1.55 "QUALIFIED NON-ELECTIVE CONTRIBUTION" means the Employer's contributions to
the Plan that are made pursuant to E5 of the Adoption Agreement and Section
11.1(d) which are used to satisfy the "Actual Deferral Percentage" tests.
Qualified Non-Elective Contributions are non-forfeitable when made and are
distributable only as specified in Sections 11.2(c) and 11.8. In
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addition, the Employer's contributions to the Plan that are made pursuant to
Section 11.7(h) and which are used to satisfy the "Actual Contribution
Percentage" tests shall be considered Qualified Non-Elective Contributions.
1.56 "QUALIFIED VOLUNTARY EMPLOYEE CONTRIBUTION ACCOUNT" means the account
established and maintained by the Administrator for each Participant with
respect to his total interest under the Plan resulting from the Participant's
tax deductible qualified voluntary employee contributions made pursuant to
Section 4.9.
1.57 "REGULATION" means the Income Tax Regulations as promulgated by the
Secretary of the Treasury or his delegate, and as amended from time to time.
1.58 "RETIRED PARTICIPANT" means a person who has been a Participant, but who
has become entitled to retirement benefits under the Plan.
1.59 "RETIREMENT DATE" means the date as of which a Participant retires for
reasons other than Total and Permanent Disability, whether such retirement
occurs on a Participant's Normal Retirement Date, Early or Late Retirement Date
(see Section 6.1),
1.60 "SELF-EMPLOYED INDIVIDUAL" means an individual who has earned income for
the taxable year from the trade or business for which the Plan is established,
and, also, an individual who would have had earned income but for the fact that
the trade or business had no net profits for the taxable year. A Self-Employed
Individual shall be treated as an Employee.
1.61 "SHAREHOLDER-EMPLOYEE" means a Participant who owns more than five percent
(5%) of the Employer's outstanding capital stock during any year in which the
Employer elected to be taxed as a Small Business Corporation under the
applicable Code Section.
1.62 "SHORT PLAN YEAR" means, if specified in the Adoption Agreement, that the
Plan Year shall be less than a 12 month period. If chosen, the following rules
shall apply in the administration of this Plan. In determining whether an
Employee has completed a Year of Service for benefit accrual purposes in the
Short Plan Year, the number of the Hours of Service required shall be
proportionately reduced based on the number of days in the Short Plan Year. The
determination of whether an Employee has completed a Year of Service for vesting
and eligibility purposes shall be made in accordance with Department of Labor
Regulation 2530.203-2(c). In addition, if this Plan is integrated with Social
Security, the integration level shall also be proportionately reduced based on
the number of days in the Short Plan Year.
1.63 "SUPER TOP HEAVY PLAN" means a plan described in Section 2.2(b).
1.64 "TAXABLE WAGE BASE" means, with respect to any year, the maximum amount of
earnings which may be considered wages for such year under Code Section
3121(a)(1).
1.65 "TERMINATED PARTICIPANT" means a person who has been a Participant, but
whose employment has been terminated other than by death, Total and Permanent
Disability or
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retirement.
1.66 "TOP HEAVY PLAN" means a plan described in Section 2.2(a).
1.67 "TOP HEAVY PLAN YEAR" means a Plan Year commencing after December 31, 1983
during which the Plan is a Top Heavy Plan.
1.68 "TOP PAID GROUP" shall be determined pursuant to Code Section 414(q) and
the Regulations thereunder and generally means the top 20 percent of Employees
who performed services for the Employer during the applicable year, ranked
according to the amount of "415 Compensation" (as determined pursuant to Section
1.28) received from the Employer during such year. All Affiliated Employers
shall be taken into account as a single employer, and Leased Employees shall be
treated as Employees pursuant to Code Section 414(n) or (o). Employees who are
non-resident aliens who received no earned income (within the meaning of Code
Section 911(d)(2)) from the Employer constituting United States source income
within the meaning of Code Section 861(a)(3) shall not be treated as Employees.
Additionally, for the purpose of determining the number of active Employees in
any year, the following additional Employees shall also be excluded; however,
such Employees shall still be considered for the purpose of identifying the
particular Employees in the Top Paid Group:
(a) Employees with less than six (6) months of service;
(b) Employees who normally work less than 17 1/2 hours per week;
(c) Employees who normally work less than six (6) months during a year:
and
(d) Employees who have not yet attained age 21.
In addition, if 90 percent or more of the Employees of the Employer are
covered under agreements the Secretary of Labor finds to be collective
bargaining agreements between Employee representatives and the Employer, and the
Plan covers only Employees who are not covered under such agreements, then
Employees covered by such agreements shall be excluded from both the total
number of active Employees as well as from the identification of particular
Employees in the Top Paid Group.
The foregoing exclusions set forth in this Section shall be applied on
a uniform and consistent basis for all purposes for which The Code Section
414(q) definition is applicable.
1.69 "TOTAL AND PERMANENT DISABILITY" means the inability to engage in any
substantial gainful activity by reason of any medically determinable physical or
mental impairment that can be expected to result in death or which has lasted or
can be expected to last for a continuous period of not less than 12 months. The
disability of a Participant shall be determined by a licensed physician chosen
by the Administrator. However, if the condition constitutes total disability
under the federal Social Security Acts, the Administrator may rely upon such
determination that the Participant is Totally and Permanently Disabled for the
purposes of this
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Plan. The determination shall be applied uniformly to all Participants.
1.70 "TRUSTEE" means the person or entity named in B6 of the Adoption Agreement
and any successors.
1.71 "TRUST FUND" means the assets of the Plan and Trust as the same shall exist
from time to time.
1.72 "VESTED" means the non-forfeitable portion of any account maintained on
behalf of a Participant.
1.73 "VOLUNTARY CONTRIBUTION ACCOUNT" means the account established and
maintained by the Administrator for each Participant with respect to his total
interest in the Plan resulting from the Participant's nondeductible voluntary
contributions made pursuant to Section 4.7.
1.74 "YEAR OF SERVICE" means the computation period of twelve (12) consecutive
months, herein set forth, and during which an Employee has completed at least
1000 Hours of Service.
For purposes of eligibility for participation, the initial computation
period shall begin with the date on which the Employee first performs an Hour of
Service (employment commencement date). The computation period beginning after a
1-Year Break in Service shall be measured from the date on which an Employee
again performs an Hour of Service. The succeeding computation periods shall
begin with the first anniversary of the Employee's employment commencement date.
However, if one (1) Year of Service or less is required as a condition of
eligibility, then after the initial eligibility computation period, the
eligibility computation period shall shift to the current Plan Year which
includes the anniversary of the date on which the Employee first performed an
Hour of Service. An Employee who is credited with 1,000 Hours of Service in both
the initial eligibility computation period and the First Plan Year which
commences prior to the first anniversary of the Employee's initial eligibility
computation period will be credited with two Years of Service for purposes of
eligibility to participate.
For vesting purposes, and all other purposes not specifically addressed
in this Section, the computation period shall be the Plan Year, including
periods prior to the Effective Date of the Plan unless specifically excluded
pursuant to the Adoption Agreement.
Years of Service and breaks in service will be measured on the same
computation period.
Years of Service with any predecessor Employer which maintained this
Plan shall be recognized. Years of Service with any other predecessor Employer
shall be recognized as specified in the Adoption Agreement.
Years of Service with any Affiliated Employer shall be recognized.
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ARTICLE II
TOP HEAVY PROVISIONS AND ADMINISTRATION
2.1 TOP HEAVY PLAN REQUIREMENTS
For any Top Heavy Plan Year, the Plan shall provide the special vesting
requirements of Code Section 416(b) pursuant to Section 6.4 of the Plan and the
special minimum allocation requirements of Code Section 416(c) pursuant to
Section 4.3(i) of the Plan.
2.2 DETERMINATION OF TOP HEAVY STATUS
(a) This Plan shall be a Top Heavy Plan for any Plan Year beginning
after December 31, 1983, in which, as of the Determination Date, (1)
the Present Value of Accrued Benefits of Key Employees and (2) the sum
of the Aggregate Accounts of Key Employees under this Plan and all
plans of an Aggregation Group, exceeds sixty percent (60%) of the
Present Value of Accrued Benefits and the Aggregate Accounts of all Key
and Non-Key Employees under this Plan and all plans of an Aggregation
Group.
If any Participant is a Non-Key Employee for any Plan Year,
but such Participant was a Key Employee for any prior Plan Year, such
Participant's Present Value of Accrued Benefit and/or Aggregate Account
balance shall not be taken into account for purposes of determining
whether this Plan is a Top Heavy or Super Top Heavy Plan (or whether
any Aggregation Group which includes this Plan is a Top Heavy Group).
In addition, if a Participant or Former Participant has not performed
any services for any Employer maintaining the Plan at any time during
the five year period ending on the Determination Date, any accrued
benefit for such Participant or Former Participant shall not be taken
into account for the purposes of determining whether this Plan is a Top
Heavy or Super Top Heavy Plan.
(b) This Plan shall be a Super Top Heavy Plan for any Plan Year
beginning after December 31, 1983, in which, as of the Determination
Date, (1) the Present Value of Accrued Benefits of Key Employees and
(2) the sum of the Aggregate Accounts of Key Employees under this Plan
and all plans of an Aggregation Group, exceeds ninety percent (90%) of
the Present Value of Accrued Benefits and the Aggregate Accounts of all
Key and Non-Key Employees under this Plan and all plans of an
Aggregation Group.
(c) Aggregate Account: A Participant's Aggregate Account as of the
Determination Date is the sum of:
(1) his Participant's Combined Account balance as of the most
recent valuation occurring within a twelve (12) month period
ending on the Determination Date;
(2) for a Profit Sharing Plan, an adjustment for any
contributions due as of the Determination Date. Such
adjustment shall be the amount of any contributions
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<PAGE> 21
actually made after the valuation date but before the
Determination Date, except for the First Plan Year when such
adjustment shall also reflect the amount of any contributions
made after the Determination Date that are allocated as of a
date in that first Plan Year:
(3) for a Money Purchase Plan, contributions that would be
allocated as of a date not later than the Determination Date.
even though those amounts are not yet made or required to be
made.
(4) any Plan distributions made within the Plan Year that
includes the Determination Date or within the four (4)
preceding Plan Years. However, in the case of distributions
made after the valuation date and prior to the Determination
Date, such distributions are not included as distributions for
top heavy purposes to the extent that such distributions are
already included in the Participant's Aggregate Account
balance as of the valuation date. In the case of a
distribution of an annuity Contract, the amount of such
distribution is deemed to be the current actuarial value of
the Contract, determined on the date of the distribution.
Notwithstanding anything herein to the contrary, all
distributions, including distributions made prior to January
1, 1984, and distributions under a terminated plan which if it
had not been terminated would have been required to be
included in an Aggregation Group, will be counted. Further,
distributions from the Plan (including the cash value of life
insurance policies) of a Participant's account balance because
of death shall be treated as a distribution for the purpose of
this paragraph.
(5) any Employee contributions, whether voluntary or
mandatory. However, amounts attributable to tax deductible
qualified voluntary employee contributions shall not be
considered to be a part of the Participant's Aggregate Account
balance.
(6) with respect to unrelated rollovers and plan-to-plan
transfers (ones which are both initiated by the Employee and
made from a plan maintained by one employer to a plan
maintained by another employer), if this Plan provides the
rollovers or plan-to-plan transfers, it shall always consider
such rollovers or plan-to-plan transfers as a distribution for
the purposes of this Section. If this Plan is the plan
accepting such rollovers or plan-to-plan transfers, it shall
not consider such rollovers or plan-to-plan transfers accepted
after December 31, 1983 as part of the Participant's Aggregate
Account balance. However, rollovers or plan-to-plan transfers
accepted prior to January 1, 1984 shall be considered as part
of the Participant's Aggregate Account balance.
(7) with respect to related rollovers and plan-to-plan
transfers (ones either not initiated by the Employee or made
to a plan maintained by the same employer), if this Plan
provides the rollover or plan-to-plan transfer, it shall not
be counted as a distribution for purposes of this Section. If
this Plan is the plan accepting such
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<PAGE> 22
rollover or plan-to-plan transfer, it shall consider such
rollover or plan-to-plan transfer as part of the Participant's
Aggregate Account balance, irrespective of the date on which
such rollover or plan-to-plan transfer is accepted.
(8) For the purposes of determining whether two employers are
to be treated as the same employer in 2.2(c)(6) and 2.2(c)(7)
above, all employers aggregated under Code Section 414(b),
(c), W and (o) are treated as the same employer.
(d) "Aggregation Group" means either a Required Aggregation Group or a
Permissive Aggregation Group as hereinafter determined.
(1) Required Aggregation Group: In determining a Required
Aggregation Group hereunder, each qualified plan of the
Employer, including any Simplified Employee Pension Plan, in
which a Key Employee is a participant in the Plan Year
containing the Determination Date or any of the four preceding
Plan Years, and each other qualified plan of the Employer
which enables any qualified plan in which a Key Employee
participates to meet the requirements of Code Sections
401(a)(4) or 4 10, will be required to be aggregated. Such
group shall be known as a Required Aggregation Group.
In the case of a Required Aggregation Group, each
plan in the group will be considered a Top Heavy Plan if the
Required Aggregation Group is a Top Heavy Group. No plan in
the Required Aggregation Group will be considered a Top Heavy
Plan if the Required Aggregation Group is not a Top Heavy
Group.
(2) Permissive Aggregation Group: The Employer may also
include any other plan of the Employer, including any
Simplified Employee Pension Plan, not required to be included
in the Required Aggregation Group, provided the resulting
group, taken as a whole, would continue to satisfy the
provisions of Code Sections 401(a)(4) and 410. Such group
shall be known as a Permissive Aggregation Group.
In the case of a Permissive Aggregation Group, only a
plan that is part of the Required Aggregation Group will be
considered a Top Heavy Plan if the Permissive Aggregation
Group is a Top Heavy Group. No plan in the Permissive
Aggregation Group will be considered a Top Heavy Plan if the
Permissive Aggregation Group is not a Top Heavy Group.
(3) Only those plans of the Employer in which the
Determination Dates fall within the same calendar year shall
be aggregated in order to determine whether such plans are Top
Heavy Plans.
(4) An Aggregation Group shall include any terminated plan of
the Employer if it was maintained within the last five (5)
years ending on the Determination Date.
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(e) "Determination Date" means (a) the last day of the preceding Plan
Year, or (b) in the case of the first Plan Year, the last day of such
Plan Year.
(f) Present Value of Accrued Benefit: In the case of a defined benefit
plan, the Present Value of Accrued Benefit for a Participant other than
a Key Employee shall be as determined using the single accrual method
used for all plans of the Employer and Affiliated Employers, or if no
such single method exists, using a method which results in benefits
accruing not more rapidly than the slowest accrual rate permitted under
Code Section 411(b)(1)(C). The determination of the Present Value of
Accrued Benefit shall be determined as of the most recent valuation
date that falls within or ends with the 12-month period ending on the
Determination Date, except as provided in Code Section 416 and the
Regulations thereunder for the first and second plan years of a defined
benefit plan.
However, any such determination must include present value of
accrued benefit attributable to any Plan distributions referred to in
Section 2.2(c)(4) above, any Employee contributions referred to in
Section 2.2(c)(5) above or any related or unrelated rollovers referred
to in Sections 2.2(c)(6) and 2.2(c)(7) above.
(g) "Top Heavy Group" means an Aggregation Group in which, as of the
Determination Date, the sum of:
(1) the Present Value of Accrued Benefits of Key Employees
under all defined benefit plans included in the group, and
(2) the Aggregate Accounts of Key Employees under all defined
contribution plans included in the group,
exceeds sixty percent (60%) of a similar sum determined for all
Participants.
(h) The Administrator shall determine whether this Plan is a Top Heavy
Plan on the Anniversary Date specified in the Adoption Agreement. Such
determination of the top heavy ratio shall be in accordance with Code
Section 416 and the Regulations thereunder.
2.3 POWERS AND RESPONSIBILITIES OF THE EMPLOYER
(a) The Employer shall be empowered to appoint and remove the Trustee
and the Administrator from time to time as it deems necessary for the
proper administration of the Plan to assure that the Plan is being
operated for the exclusive benefit of the Participants and their
Beneficiaries in accordance with the terms of the Plan, the Code, and
the Act.
(b) The Employer shall establish a "funding policy and method," i.e.,
it shall determine whether the Plan has a short run need for liquidity
(e.g., to pay benefits) or
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<PAGE> 24
whether liquidity is a long run goal and investment growth (and
stability of same) is a more current need, or shall appoint a qualified
person to do so. The Employer or its delegate shall communicate such
needs and goals to the Trustee, who shall coordinate such Plan needs
with its investment policy. The communication of such a "funding policy
and method" shall not, however, constitute a directive to the Trustee
as to investment of the Trust Funds. Such "funding policy and method"
shall be consistent with the objectives of this Plan and with the
requirements of Title I of the Act.
(c) The Employer may, in its discretion, appoint an Investment Manager
to manage all or a designated portion of the assets of the Plan. In
such event, the Trustee shall follow the directive of the Investment
Manager in investing the assets of the Plan managed by the Investment
Manager.
(d) The Employer shall periodically review the performance of any
Fiduciary or other person to whom duties have been delegated or
allocated by it under the provisions of this Plan or pursuant to
procedures established hereunder. This requirement may be satisfied by
formal periodic review by the Employer or by a qualified person
specifically designated by the Employer, through day-to-day conduct and
evaluation, or through other appropriate ways.
2.4 DESIGNATION OF ADMINISTRATIVE AUTHORITY
The Employer shall appoint one or more Administrators. Any person,
including, but not limited to, the Employees of the Employer, shall be eligible
to serve as an Administrator. Any person so appointed shall signify his
acceptance by filing written acceptance with the Employer. An Administrator may
resign by delivering his written resignation to the Employer or be removed by
the Employer by delivery of written notice of removal, to take effect at a date
specified therein, or upon delivery to the Administrator if no date is
specified.
The Employer, upon the resignation or removal of an Administrator,
shall promptly designate in writing a successor to this Position. If the
Employer does not appoint an Administrator. the Employer will function as the
Administrator.
2.5 ALLOCATION AND DELEGATION OF
If more than one person is appointed as Administrator, the
responsibilities of each Administrator may be specified by the Employer and
accepted in writing by each Administrator. In the event that no such delegation
is made by the Employer, the Administrators may allocate the responsibilities
among themselves, in which event the Administrators shall notify the Employer
and the Trustee in writing of such action and Specify the responsibilities of
each Administrator. The Trustee thereafter shall accept and rely upon any
documents executed by the appropriate Administrator until such time as the
Employer or the Administrators file with the Trustee a written revocation of
such designation.
2.6 POWERS AND DUTIES OF THE ADMINISTRATOR
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The primary responsibility of the Administrator is to administer the
Plan for the exclusive benefit of the Participants and their Beneficiaries,
subject to the specific terms of the Plan. The Administrator shall administer
the Plan in accordance with its terms and shall have the power and discretion to
construe the terms of the Plan and determine all questions arising in connection
with the administration, interpretation, and application of the Plan. Any such
determination by the Administrator shall be conclusive and binding upon all
persons. The Administrator may establish procedures, correct any defect, supply
any information, or reconcile any inconsistency in such manner and to such
extent as shall be deemed necessary or advisable to carry out the purpose of the
Plan; provided, however, that any procedure, discretionary act, interpretation
or construction shall be done in a nondiscriminatory manner based upon uniform
principles consistently applied and shall be consistent with the intent that the
Plan shall continue to be deemed a qualified plan under the terms of Code
Section 401(a), and shall comply with the terms of the Act and all regulations
issued pursuant thereto. The Administrator shall have all powers necessary or
appropriate to accomplish his duties under this Plan.
The Administrator shall be charged with the duties of the general
administration of the Plan, including, but not limited to, the following:
(a) the discretion to determine all questions relating to the
eligibility of Employees to participate or remain a Participant
hereunder and to receive benefits under the Plan;
(b) to compute, certify, and direct the Trustee with respect to the
amount and the kind of benefits to which any Participant shall be
entitled hereunder;
(c) to authorize and direct the Trustee with respect to all
non-discretionary or otherwise directed disbursements from the Trust
Fund;
(d) to maintain all necessary records for the administration of the
Plan;
(e) to interpret the provisions of the Plan and to make and publish
such rules for regulation of the Plan as are consistent with the terms
hereof;
(f) to determine the size and type of any Contract to be purchased from
any Insurer, and to designate the Insurer from which such Contract
shall be purchased;
(g) to compute and certify to the Employer and to the Trustee from time
to time the sums of money necessary or desirable to be contributed to
the Trust Fund;
(h) to consult with the Employer and the Trustee regarding the short
and long-term liquidity needs of the Plan in order that the Trustee can
exercise any investment discretion in a manner designed to accomplish
specific objectives;
(i) to prepare and distribute to Employees a procedure for notifying
Participants and Beneficiaries of their rights to elect Joint and
Survivor Annuities and Pre-Retirement
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Survivor Annuities if required by the Code and Regulations thereunder;
(j) to assist any Participant regarding his rights, benefits, or
elections available under the Plan.
2.7 RECORDS AND REPORTS
The Administrator shall keep a record of all actions taken and shall
keep all other books of account, records, and other data that may be necessary
for proper administration of the Plan and shall be responsible for supplying all
information and reports to the Internal Revenue Service, Department of Labor,
Participants, Beneficiaries and others as required by law.
2.8 APPOINTMENT OF ADVISERS
The Administrator, or the Trustee with the consent of the
Administrator, may appoint counsel, specialists, advisers, and other persons as
the Administrator or the Trustee deems necessary or desirable in connection with
the administration of this Plan.
2.9 INFORMATION FROM EMPLOYER
To enable the Administrator to perform his functions, the Employer
shall supply full and timely information to the Administrator on all matters
relating to the Compensation of all Participants, their Hours of Service, their
Years of Service, their retirement, death, disability, or termination of
employment, and such other pertinent facts as the Administrator may require; and
the Administrator shall advise the Trustee of such of the foregoing facts as may
be pertinent to the Trustee's duties under the Plan. The Administrator may rely
upon such information as is supplied by the Employer and shall have no duty or
responsibility to verify such information.
2.10 PAYMENT OF EXPENSES
All expenses of administration may be paid out of the Trust Fund unless
paid by the Employer. Such expenses shall include any expenses incident to the
functioning of the Administrator, including, but not limited to, fees of
accountants, counsel, and other specialists and their agents, and other costs of
administering the Plan. Until paid, the expenses shall constitute a liability of
the Trust Fund. However, the Employer may reimburse the Trust Fund for any
administration expense incurred. Any administration expense paid to the Trust
Fund as a reimbursement shall not be considered an Employer contribution.
2.11 MAJORITY ACTIONS
Except where there has been an allocation and delegation of
administrative authority pursuant to Section 2.5, if there shall be more than
one Administrator, they shall act by a majority of their number, but may
authorize one or more of them to sign all papers on their behalf.
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2.12 CLAIMS PROCEDURE
Claims for benefits under the Plan may be filed in writing with the
Administrator. Written notice of the disposition of a claim shall be furnished
to the claimant within 90 days after the application is filed. In the event the
claim is denied, the reasons for the denial shall be specifically set forth in
the notice in language calculated to be understood by the claimant, pertinent
provisions of the Plan shall be cited, and, where appropriate, an explanation as
to how the claimant can perfect the claim will be provided. In addition, the
claimant shall be furnished with an explanation of the Plan's claims review
procedure.
2.13 CLAIMS REVIEW PROCEDURE
Any Employee, former Employee, or Beneficiary of either, who has been
denied a benefit by a decision of the Administrator pursuant to Section 2.12
shall be entitled to request the Administrator to give further consideration to
his claim by filing with the Administrator a written request for a hearing. Such
request, together with a written statement of the reasons why the claimant
believes his claim should be allowed, shall be filed with the Administrator no
later than 60 days after receipt of the written notification provided for in
Section 2.12. The Administrator shall then conduct a hearing within the next 60
days, at which the claimant may be represented by an attorney or any other
representative of his choosing and expense and at which the claimant shall have
an opportunity to submit written and oral evidence and arguments in support of
his claim. At the hearing (or prior thereto upon 5 business days written notice
to the Administrator) the claimant or his representative shall have an
opportunity to review all documents in the possession of the Administrator which
are pertinent to the claim at issue and its disallowance. Either the claimant or
the Administrator may cause a court reporter to attend the hearing and record
the proceedings. In such event, a complete written transcript of the proceedings
shall be furnished to both parties by the court reporter. The full expense of
any such court reporter and such transcripts shall be borne by the party causing
the court reporter to attend the hearing. A final decision as to the allowance
of the claim shall be made by the Administrator within 60 days of receipt of the
appeal (unless there has been an extension of 60 days due to special
circumstances, provided the delay and the special circumstances occasioning it
are communicated to the claimant within the 60 day period). Such communication
shall be written in a manner calculated to be understood by the claimant and
shall include specific reasons for the decision and specific references to the
pertinent Plan provisions on which the decision is based.
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ARTICLE III
ELIGIBILITY
3.1 CONDITIONS OF ELIGIBILITY
Any Eligible Employee shall be eligible to participate hereunder on the
date he has satisfied the requirements specified in the Adoption Agreement.
3.2 EFFECTIVE DATE OF PARTICIPATION
An Eligible Employee who has become eligible to be a Participant shall
become a Participant effective as of the day specified in the Adoption
Agreement.
In the event an Employee who has satisfied the Plan's eligibility
requirements and would otherwise have become a Participant shall go from a
classification of a non-eligible Employee to an Eligible Employee, such Employee
shall become a Participant as of the date he becomes an Eligible Employee.
In the event an Employee who has satisfied the Plan's eligibility
requirements and would otherwise become a Participant shall go from a
classification of an Eligible Employee to a non-eligible Employee and becomes
ineligible to participate and has not incurred a 1-year break in Service, such
Employee shall participate in the Plan as of the date he returns to an eligible
class of Employees. If such Employee does incur a 1-Year Break in Service,
eligibility will be determined under the Break in Service rules of the Plan.
3.3 DETERMINATION OF ELIGIBILITY
The Administrator shall determine the eligibility of each Employee for
participation in the Plan based upon information furnished by the Employer. Such
determination shall be conclusive and binding upon all persons, as long as the
same is made pursuant to the Plan and the Act. Such determination shall be
subject to review per Section 2.13.
3.4 TERMINATION OF ELIGIBILITY
In the event a Participant shall go from a classification of an
Eligible Employee to an ineligible Employee, such Former Participant shall
continue to vest in his interest in the Plan for each Year of Service completed
while a non-eligible Employee, until such time as his Participant's Account
shall be forfeited or distributed pursuant to the terms of the Plan.
Additionally, his interest in the Plan shall continue to share in the earnings
of the Trust Fund.
3.5 OMISSION OF ELIGIBLE EMPLOYEE
If, in any Plan Year, any Employee who should be included as a
Participant in the Plan is erroneously omitted and discovery of such omission is
not made until after a contribution by his Employer for the year has been made,
the Employer shall make a subsequent contribution, if
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<PAGE> 29
necessary after the application of Section 4.3(e), so that the omitted Employee
receives a total amount which the said Employee would have received had he not
been omitted. Such contribution shall be made regardless of whether or not it is
deductible in whole or in part in any taxable year under applicable provisions
of the Code.
3.6 INCLUSION OF INELIGIBLE EMPLOYEE
If, in any Plan Year, any person who should not have been included as a
Participant in the Plan is erroneously included and discovery of such incorrect
inclusion is not made until after a contribution for the year has been made, the
Employer shall not be entitled to recover the contribution made with respect to
the ineligible person regardless of whether or not a deduction is allowable with
respect to such contribution. In such event, the amount contributed with respect
to the ineligible person shall constitute a Forfeiture for the Plan Year in
which the discovery is made.
3.7 ELECTION NOT TO PARTICIPATE
An Employee may, subject to the approval of the Employer, elect
voluntarily not to participate in the Plan. The election not to participate must
be communicated to the Employer, in writing, at least thirty (30) days before
the beginning of a Plan Year. For Standardized Plans, a Participant or an
Eligible Employee may not elect not to participate. Furthermore, the foregoing
election not to participate shall not be available with respect to partners in a
partnership.
3.8 CONTROL OF ENTITIES BY OWNER-EMPLOYEE
(a) If this Plan provides contributions or benefits for one or more
Owner-Employees who control both the business for which this Plan is
established and one or more other entities, this Plan and the plan
established for other trades or businesses must, when looked at as a
single Plan, satisfy Code Sections 401(a) and (d) for the Employees of
this and all other entities.
(b) If the Plan provides contributions or benefits for one or more
Owner-Employees who control one or more other trades or businesses. the
employees of the other trades or businesses must be included in a plan
which satisfies Code Sections 401(a) and (d) and which provides
contributions and benefits not less favorable than provided for
Owner-Employees under this Plan.
(c) If an individual is covered as an Owner-Employee under the plans of
two or more trades or businesses which are not controlled and the
individual controls a trade or business, then the benefits or
contributions of the employees under the plan of the trades or
businesses which are controlled must be as favorable as those provided
for him under the most favorable plan of the trade or business which is
not controlled.
(d) For purposes of the preceding paragraphs, an Owner-Employee, or two
or more Owner-Employees, will be considered to control an entity if the
Owner-Employee, or two
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<PAGE> 30
or more Owner-Employees together:
(1) own the entire interest in an unincorporated entity, or
(2) in the case of a partnership, own more than 50 percent of
either the capital interest or the profits interest in the
partnership.
(e) For purposes of the preceding sentence, an Owner-Employee, or two
or more Owner-Employees shall be treated as owning any interest in a
partnership which is owned, directly or indirectly, by a partnership
which such Owner-Employee, or such two or more Owner-Employees, are
considered to control within the meaning of the preceding sentence.
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ARTICLE IV
CONTRIBUTION AND ALLOCATION
4.1 FORMULA FOR DETERMINING EMPLOYER'S CONTRIBUTION
(a) For a Money Purchase Plan:
(1) The Employer shall make contributions over such period of
years as the Employer may determine on the following basis. On
behalf of each Participant eligible to share in allocations,
for each year of his participation in this Plan, the Employer
shall contribute the amount specified in the Adoption
Agreement. All contributions by the Employer shall be made in
cash or in such property as is acceptable to the Trustee. The
Employer shall be required to obtain a waiver from the
Internal Revenue Service for any Plan Year in which it is
unable to make the full required contribution to the Plan. In
the event a waiver is obtained, this Plan shall be deemed to
be an individually designed plan.
(2) For any Plan Year beginning prior to January 1, 1990, and
if elected in the non-standardized Adoption Agreement for any
Plan Year beginning on or after January 1, 1990, the Employer
shall not contribute on behalf of a Participant who performs
less than a Year of Service during any Plan Year, unless there
is a Short Plan Year or a contribution is required pursuant to
4.3(h).
(3) Notwithstanding the foregoing, the Employer's contribution
for any Fiscal Year shall not exceed the maximum amount
allowable as a deduction to the Employer under the provisions
of Code Section 404. However, to the extent necessary to
provide the top heavy minimum allocations, the Employer shall
make a contribution even if it exceeds the amount which is
deductible under Code Section 404.
(b) For a Profit Sharing Plan:
(1) For each Plan Year, the Employer shall contribute to the
Plan such amount as specified by the Employer in the Adoption
Agreement. Notwithstanding the foregoing, however, the
Employer's contribution for any Fiscal Year shall not exceed
the maximum amount allowable as a deduction to the Employer
under the provisions of Code Section 404. All contributions by
the Employer shall be made in cash or in such property as is
acceptable to the Trustee.
(2) Except, however, to the extent necessary to provide the
top heavy minimum allocations, the Employer shall make a
contribution even if it exceeds current or accumulated Net
Profit or the amount which is deductible under Code Section
404.
4.2 TIME OF PAYMENT OF EMPLOYER'S CONTRIBUTION
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<PAGE> 32
The Employer shall generally pay to the Trustee its contribution to the
Plan for each Plan Year within the time prescribed by law, including extensions
of time, for the filing of the Employer's federal income tax return for the
Fiscal Year.
4.3 ALLOCATION OF CONTRIBUTION, FORFEITURES AND EARNINGS
(a) The Administrator shall establish and maintain an account in the
name of each Participant to which the Administrator shall credit as of
each Anniversary Date, or other valuation date, all amounts allocated
to each such Participant as set forth herein.
(b) The Employer shall provide the Administrator with all information
required by the Administrator to make a proper allocation of the
Employer's contributions for each Plan Year. within a reasonable period
of time after the date of receipt by the Administrator of such
information, the Administrator shall allocate such contribution as
follows:
(1) For a Money Purchase Plan:
(i) The Employer's Contribution shall be allocated to
each Participant's Combined Account in the manner set forth in
Section 4.1 herein and as specified in Section E2 of the
Adoption Agreement.
(2) For an Integrated Profit Sharing Plan:
(i) The Employer's contribution shall be allocated to
each Participant's Account, except as provided in
Section 4.3(f), in a dollar amount equal to 5.7% of
the sum of each Participant's total Compensation plus
Excess Compensation. If the Employer does not
contribute such amount for all Participants, each
Participant will be allocated a share of the
contribution in the same proportion that his total
Compensation plus his total Excess Compensation for
the Plan Year bears to the total Compensation plus
the total Excess Compensation of all Participants for
that year.
Regardless of the preceding, 4.3% shall be
substituted for 5.7% above if Excess Compensation is
based on more than 20% and less than or equal to 80%
of the Taxable Wage Base. If Excess Compensation is
based on less than 100% and more than 80% of the
Taxable Wage Base, then 5.4% shall be substituted for
5.7% above.
(ii) The balance of the Employer's contribution over
the amount allocated above, if any, shall be
allocated to each Participant's Combined Account in
the same proportion that his total Compensation for
the Year bears to the total Compensation of all
Participants for such year.
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(iii) Except, however, for any Plan Year beginning
prior to January 1, 1990, and if elected in the
non-standardized Adoption Agreement for any Plan Year
beginning on or after January, 1, 1990, a Participant
who performs less than a Year of Service during any
Plan Year shall not share in the Employer's
contribution for that year, unless there is a Short
Plan Year or a contribution is required pursuant to
Section 4.3(h).
(3) For a Non-Integrated Profit Sharing Plan:
(i) The Employer's contribution shall be allocated to
each Participant's Account in the same proportion
that each such Participant's Compensation for the
year bears to the total Compensation of 0
Participants for such year.
(ii) Except, however, for any Plan Year beginning
prior to January 1, 1990, and if elected in the
non-standardized Adoption Agreement for any Plan Year
beginning on or after January 1, 1990, a Participant
who performs less than a Year of Service during any
Plan Year shall not share in the Employer's
contribution for that year, unless there is a Short
Plan Year or a contribution is required pursuant to
Section 4.3(h).
(c) As of each Anniversary Date or other valuation date, before
allocation of Employer contributions and Forfeitures, any earnings or
losses (net appreciation or net depreciation) of the Trust Fund shall
be allocated in the same proportion that each Participant's and Former
Participant's non-segregated accounts bear to the total of all
Participants' and Former Participants' non-segregated accounts as of
such date. If any non-segregated account of a Participant has been
distributed prior to the Anniversary Date or other valuation date
subsequent to a Participant's termination of employment, no earnings or
losses shall be credited to such account.
Notwithstanding the above, with respect to contributions made
to the Plan after the previous Anniversary Date or allocation date, the
method specified in the Adoption Agreement shall be used.
(d) Participants' Accounts shall be debited for any insurance or
annuity premiums paid, if any, and credited with any dividends or
interest received on insurance contracts.
(e) As of each Anniversary Date any amounts which became Forfeitures
since the last Anniversary Date shall first be made available to
reinstate previously forfeited account balances of Former Participants,
if any, in accordance with Section 6.4(g)(2) or be used to satisfy any
contribution that may be required pursuant to Section 3.5 and/or 6.9.
The remaining Forfeitures, if any, shall be treated in accordance with
the Adoption Agreement. Provided, however, that in the event the
allocation of Forfeitures provided herein shall cause the "annual
addition" (as defined in Section 4.4) to any Participant's
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<PAGE> 34
Account to exceed the amount allowable by the Code, the excess shall be
reallocated in accordance with Section 4.5. Except, however, for any
Plan Year beginning prior to January 1, 1990, and if elected in the
non-standardized Adoption Agreement for any Plan Year beginning on or
after January 1, 1990, a Participant who performs less than a Year of
Service during any Plan Year shall not share in the Plan Forfeitures
for that year, unless there is a Short Plan Year or a contribution
required pursuant to Section 4.3(h).
(f) Minimum Allocations Required for Top Heavy Plan Years:
Notwithstanding the foregoing, for any Top Heavy Plan Year, the sum of
the Employer's contributions and Forfeitures allocated to the
Participant's Combined Account of each Non-Key Employee shall be equal
to at least three percent (3%) of such Non-Key Employee's "415
Compensation" (reduced by contributions and forfeitures, if any,
allocated to each Non-Key Employee in any defined contribution plan
included with this plan in a Required Aggregation Group). However, if
(i) the sum of the Employer's contributions and Forfeitures allocated
to the Participant's Combined Account of each Key Employee for such Top
Heavy Plan Year is less than three percent (3%) of each Key Employee's
"415 Compensation" and (ii) this Plan is not required to be included in
an Aggregation Group to enable a defined benefit plan to Meet the
requirements of Code Section 401(a)(4) or 410, the sum of the
Employer's contributions and Forfeitures allocated to the Participant's
Combined Account of each Non-Key Employee shall be equal to the largest
percentage allocated to the Participant's Combined Account of any Key
Employee.
However, for each Non-Key Employee who is a Participant in a
paired Profit Sharing Plan or 401(k) Profit Sharing Plan and a paired
Money Purchase Plan, the minimum 3% allocation specified above shall be
provided in the Money Purchase Plan.
If this is an integrated Plan, then for any Top Heavy Plan
Year the Employer's contribution shall be allocated as follows:
(1) An amount equal to 3% multiplied by each Participant's
Compensation for the Plan Year shall be allocated to each
Participant's Account. If the Employer does not contribute
such amount for all Participants, the amount shall be
allocated to each Participant's Account in the same proportion
that his total Compensation for the Plan Year bears to the
total Compensation of all Participants for such year.
(2) The balance of the Employer's contribution over the amount
allocated under subparagraph (1) hereof shall be allocated to
each Participant's Account in a dollar amount equal to 3%
multiplied by a Participant's Excess Compensation. If the
Employer does not contribute such amount for all Participants,
each Participant will be allocated a share of the contribution
in the same proportion that his Excess Compensation bears to
the total Excess Compensation of all Participants for that
year.
(3) The balance of the Employer's contribution over the amount
allocated under subparagraph (2) hereof shall be allocated to
each Participant's Account in
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<PAGE> 35
a dollar amount equal to 2.7% multiplied by the sum of each
Participant's total Compensation plus Excess Compensation. If
the Employer does not contribute such amount for all
Participants, each Participant will be allocated a share of
the contribution in the same proportion that his total
Compensation plus his total Excess Compensation for the Plan
Year bears to the total Compensation plus the total Excess
Compensation of all Participants for that year.
Regardless of the preceding, 1.3% shall be
substituted for 2.7% above if Excess Compensation is based on
more than 20% and less than or equal to 80% of the Taxable
Wage Base. If Excess Compensation is based on less than 100%
and more than 80% of the Taxable Wage Base, then 2.4% shall be
substituted for 2.7% above.
(4) The balance of the Employer's contributions over the
amount allocated above, if any, shall be allocated to each
Participant's Account in the same proportion that his total
Compensation for the Plan Year bears to the total Compensation
of all Participants for such year.
For each Non-Key Employee who is a Participant in
this Plan and another non-paired defined contribution plan
maintained by the Employer, the minimum 3% allocation
specified above shall be provided as specified in F3 of the
Adoption Agreement.
(g) For purposes of the minimum allocations set forth above. the
percentage allocated to the Participant's Combined Account of any Key
Employee shall be equal to the ratio of the sum of the Employer's
contributions and Forfeitures allocated on behalf of such Key Employee
divided by the "415 Compensation" for such Key Employee.
(h) For any Top Heavy Plan Year, the minimum allocations set forth in
this Section shall be allocated to the Participant's Combined Account
of all Non-Key Employees who are Participants and who are employed by
the Employer on the last day of the Plan Year, including Non-Key
Employees who have (1) failed to complete a Year of Service; or (2)
declined to make mandatory contributions (if required) or, in the case
of a cash or deferred arrangement, elective contributions to the Plan.
(i) Notwithstanding anything herein to the contrary, in any Plan Year
in which the Employer maintains both this Plan and a defined benefit
pension plan included in a Required Aggregation Group which is top
heavy, the Employer shall not be required to provide a Non-Key Employee
with both the full separate minimum defined benefit plan benefit and
the full separate defined contribution plan allocations. Therefore, if
the Employer maintains both a Defined Benefit and a Defined
Contribution Plan that are a Top Heavy Group, the top heavy minimum
benefits shall be provided as follows:
(1) Applies if Flb of the Adoption Agreement is Selected:
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<PAGE> 36
(i) The requirements of Section 2.1 shall apply
except that each Non-Key Employee who is a
Participant in the Profit Sharing Plan or Money
Purchase Plan and who is also a Participant in the
Defined Benefit Plan shall receive a minimum
allocation of five percent (5%) of such Participant's
"415 Compensation" from the applicable Defined
Contribution Plan(s).
(ii) For each Non-Key Employee who is a Participant
only in the Defined Benefit Plan the Employer will
provide a minimum non-integrated benefit equal to 2%
of his highest five consecutive year average "415
Compensation" for each Year of Service while a
Participant in the Plan, in which the Plan is top
heavy, not to exceed ten.
(iii) For each Non-Key Employee who is a Participant
only in this Defined Contribution Plan, the Employer
shall provide a contribution equal to 3% of his "415
Compensation."
(2) Applies if Flc of the Adoption Agreement is Selected:
(i) The minimum allocation specified in Section
4.3(i)(00) shall be 7 1/2% if the Employer elects in
the Adoption Agreement for years in which the Plan is
Top Heavy, but not Super Top Heavy.
(ii) The minimum benefit specified in Section
4.3(i)(1)(ii) shall be 3% if the Employer elects in
the Adoption Agreement for years in which the Plan is
Top Heavy, but not Super Top Heavy.
(iii) The minimum allocation specified in Section
4.36)(1)(iii) shall be 4% if the Employer elects in
the Adoption Agreement for years in which the Plan is
Top Heavy, but not Super Top Heavy.
(j) For the purposes of this Section, "415 Compensation" shall be
limited to $200,000 (unless adjusted in such manner as permitted under
Code Section 415(d)). However, for Plan Years beginning prior to
January 1, 1989, the $200,000 limit shall apply only for Top Heavy Plan
Years and shall not be adjusted.
(k) Notwithstanding anything herein to the contrary, any Participant
who terminated employment during the Plan Year for reasons other than
death. Total and Permanent Disability, or retirement shall or shall not
share in the allocations of the Employer's Contributions and
Forfeitures as provided in the Adoption Agreement. Notwithstanding the
foregoing, for Plan Years beginning after 1989, if this is a
standardized Plan, any such terminated Participant shall share in the
allocations as provided in this Section provided such Participant
completed more than 500 Hours of Service.
(l) Notwithstanding anything herein to the contrary, Participants
terminating for
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<PAGE> 37
reasons of death, Total and Permanent Disability, or retirement shall
share in the allocations as provided in this Section regardless of
whether they completed a Year of Service during the Plan Year.
(m) If a Former Participant is re-employed after five (5) consecutive
1-Year Breaks in Service, then separate accounts shall be maintained as
follows:
(1) one account for non-forfeitable benefits attributable to
pre-break service; and
(2) one account representing his employer derived account
balance in the Plan attributable to post-break service.
(n) Notwithstanding any election in the Adoption Agreement to the
contrary, if this is a non-standardized Plan that would otherwise fail
to meet the requirements of Code Sections 401(a)(26), 410(b)(1), or
410(b)(2)(A)(i) and the Regulations thereunder because Employer
Contributions have not been allocated to a sufficient number or
percentage of Participants for a Plan Year, then the following rules
shall apply:
(1) The group of Participants eligible to share in the
Employer's contribution and Forfeitures for the Plan Year
shall be expanded to include the minimum number of
Participants who would not otherwise be eligible as are
necessary to satisfy the applicable test specified above. The
specific participants who shall become eligible under the
terms of this paragraph shall be those who are actively
employed on the last day of the Plan Year and, when compared
to similarly situated Participants, have completed the
greatest number of Hours of Service in the Plan Year.
(2) If after application of paragraph (1) above, the
applicable test is still not satisfied, then the group of
Participants eligible to share in the Employer's contribution
and Forfeitures for the Plan Year shall be further expanded to
include the minimum number of Participants who are not
actively employed on the last day of the Plan Year as are
necessary to satisfy the applicable test. The specific
Participants who shall become eligible to share shall be those
Participants, when compared to similarly situated
Participants, who have completed the greatest number of Hours
of Service in the Plan Year before terminating employment.
Nothing in this Section shall permit the reduction of a
Participant's accrued benefit. Therefore any amounts that have
previously been allocated to Participants may not be reallocated to
satisfy these requirements. In such event, the Employer shall make an
additional contribution equal to the amount such affected Participants
would have received had they been included in the allocations. even if
it exceeds the amount which would be deductible under Code Section 404.
Any adjustment to the allocations pursuant to this paragraph shall be
considered a retroactive amendment adopted by the last day of the Plan
Year.
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4.4 MAXIMUM ANNUAL ADDITIONS
(a) (1) If the Participant does not participate in, and has never
participated in another qualified plan maintained by the
Employer, or a welfare benefit fund (as defined in Code
Section 419(c)), maintained by the Employer. or an individual
medical account (as defined in Code Section 415(1)(2))
maintained by the Employer, which provides Annual Additions,
the amount of Annual Additions which may be credited to the
Participant's accounts for any Limitation Year shall not
exceed the lesser of the Maximum Permissible Amount or any
other limitation contained in this Plan. If the Employer
contribution that would otherwise be contributed or allocated
to the Participant's accounts would cause the Annual Additions
for the Limitation Year to exceed the Maximum Permissible
Amount, the amount contributed or allocated will be reduced so
that the Annual Additions for the Limitation Year will equal
the Maximum Permissible Amount.
(2) Prior to determining the Participant's actual Compensation
for the Limitation Year, the Employer may determine the
Maximum Permissible Amount for a Participant on the basis of a
reasonable estimation of the Participant's Compensation for
the Limitation Year, uniformly determined for all Participants
similarly situated.
(3) As soon as is administratively feasible after the end of
the Limitation Year, the Maximum Permissible Amount for such
Limitation Year shall be determined on the basis of the
Participant's actual compensation for such Limitation Year.
(4) If there is an excess amount pursuant to Section 4.4(a)(2)
or Section 4.5, the excess will be disposed of in one of the
following manners, as uniformly determined by the Plan
Administrator for all Participants similarly situated:
(i) Any Deferred Compensation or nondeductible
Voluntary Employee Contributions, to the extent they
would reduce the Excess Amount, will be distributed
to the Participant;
(ii) If, after the application of subparagraph (i),
an Excess Amount still exists, and the Participant is
covered by the Plan at the end of the Limitation
Year, the Excess Amount in the Participant's account
will be used to reduce Employer contributions
(including any allocation of Forfeitures) for such
Participant in the next Limitation Year, and each
succeeding Limitation Year if necessary;
(iii) If, after the application of subparagraph (i),
an Excess Amount still exists. and the Participant is
not covered by the Plan at the end of a Limitation
Year, the Excess Amount will be held unallocated in a
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<PAGE> 39
suspense account. The suspense account will be
applied to reduce future Employer contributions
(including allocation of any Forfeitures) for all
remaining Participants in the next Limitation Year,
and each succeeding Limitation Year if necessary;
(iv) If a suspense account is in existence at any
time during a Limitation Year pursuant to this
Section, it will not participate in the allocation of
investment gains and losses. If a suspense account is
in existence at any time during a particular
limitation year, all amounts in the suspense account
must be allocated and reallocated to participants'
accounts before any employer contributions or any
employee contributions may be made to the plan for
that ]imitation year. Excess amounts may not be
distributed to participants or former participants.
(b) (1) this subsection applies if, in addition to this Plan. the
Participant is covered under another qualified Regional
Prototype defined contribution plan maintained by the
Employer, or a welfare benefit fund (as defined in Code
Section 419(c)) maintained by the Employer, or an individual
medical account (as defined in Code Section 415(l)(2))
maintained by the Employer, which provides Annual Additions,
during any Limitation Year. The Annual Additions which may be
credited to a Participant's accounts under this Plan for any
such Limitation Year shall not exceed the Maximum Permissible
Amount reduced by the Annual Additions credited to a
Participant's accounts under the other plans and welfare
benefit funds for the same Limitation Year. If the Annual
Additions with respect to the Participant under other defined
contribution plans and welfare benefit funds maintained by the
Employer are less than the Maximum Permissible Amount and the
Employer contribution that would otherwise be contributed or
allocated to the Participant's accounts under this Plan would
cause the Annual Additions for the Limitation Year to exceed
this limitation, the amount contributed or allocated will be
reduced so that the Annual Additions under all such plans and
welfare benefit funds for the Limitation Year will equal the
Maximum Permissible Amount. If the Annual Additions with
respect to the Participant under such other defined
contribution plans and welfare benefit funds in the aggregate
are equal to or greater than the Maximum Permissible Amount,
no amount will be contributed or allocated to the
Participant's account under this Plan for the Limitation Year.
(2) Prior to determining the Participant's actual Compensation
for the Limitation Year, the Employer may determine the
Maximum Permissible Amount for a Participant in the manner
described in Section 4.4(a)(2).
(3) As soon as is administratively feasible after the end of
the Limitation Year, the Maximum Permissible Amount for the
Limitation Year will be determined on the basis of the
Participant's actual Compensation for the Limitation Year.
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<PAGE> 40
(4) If, pursuant to Section 4.4(b)(2) or Section 4.5, a
Participant's Annual Additions under this Plan and such other
plans would result in an Excess Amount for a Limitation Year,
the Excess Amount will be deemed to consist of the Annual
Additions last allocated, except that Annual Additions
attributable to a welfare benefit fund or individual medical
account will be deemed to have been allocated first regardless
of the actual allocation date.
(5) If an Excess Amount was allocated to a Participant on an
allocation date of this Plan which coincides with an
allocation date of another plan, the Excess Amount attributed
to this Plan will be the product of:
(i) the total Excess Amount allocated as of such
date, times
(ii) the ratio of (1) the Annual Additions allocated
to the Participant for the Limitation Year as of such
date under this Plan to (2) the total Annual
Additions allocated to the Participant for the
Limitation Year as of such date under this and all
the other qualified defined contribution plans.
(6) Any Excess Amount attributed to this Plan will be disposed
in the manner described in Section 4.4(a)(4).
(c) If the Participant is covered under another qualified defined
contribution plan maintained by the Employer which is not a Regional
Prototype Plan, Annual Additions which may be credited to the
Participant's account under this Plan for any Limitation Year will be
limited in accordance with Section 4.4(b), unless the Employer provides
other limitations in the Adoption Agreement.
(d) If the Employer maintains, or at any time maintained, a qualified
defined benefit plan covering any Participant in this Plan the sum of:
the Participant's Defined Benefit Plan Fraction and Defined
Contribution Plan Fraction will not exceed 1.0 in any Limitation Year.
The Annual Additions which may be credited to the Participant's account
under this Plan for any Limitation Year will be limited in accordance
with the Limitation on Allocations Section of the Adoption Agreement.
(e) For purposes of applying the limitations of Code Section 415, the
Transfer of funds from one qualified plan to another is not an "annual
addition." In addition. the following are not Employee contributions
for the purposes of Section 4.4(f)(1)(2); (1) rollover contributions
(as defined in Code Sections 402(a)(5),403(a)(4),403(b)(8) and
408(d)(3)); (2) repayments of loans made to a Participant from the
Plan; (3) repayments of distributions received by an Employee pursuant
to Code Section 411(a)(7)(B) (cash-outs); (4) repayments of
distributions received by an Employee pursuant to Code Section
411(a)(3)(D) (mandatory contributions); and (5) Employee contributions
to a simplified employee pension excludable from gross income under
Code Section 408(k)(6).
(f) For purposes of this Section, the following terms shall be defined
as follows:
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<PAGE> 41
(1) Annual Additions means the sum credited to a Participant's
accounts for any Limitation Year of (1) Employer
contributions, (2) effective with respect to "limitation
years" beginning after December 31, 1986, Employee
contributions, (3) forfeitures, (4) amounts allocated, after
March 31, 1984, to an individual medical account, as defined
in Code Section 415(l)(2), which is part of a pension or
annuity plan maintained by the Employer and (5) amounts
derived from contributions paid or accrued after December 31,
1985, in taxable years ending after such date, which are
attributable to post-retirement medical benefits allocated to
the separate account of a key employee (as defined in Code
Section 419A(d)(3)) under a welfare benefit fund (as defined
in Code Section 419(e)) maintained by the Employer. Except,
however, the "415 Compensation" percentage limitation referred
to in paragraph (a)(2) above shall not apply to: (1) any
contribution for medical benefits (within the meaning of Code
Section 419A(f)(2)) after separation from service which is
otherwise treated as an "annual addition," or (2) any amount
otherwise treated as an "annual addition" under Code Section
415(l)(1). Notwithstanding the foregoing, for "limitation
years" beginning prior to January 1, 1987, only that portion
of Employee contributions equal to the lesser of Employee
contributions in excess of six percent (6%) of "415
Compensation" or one-half of Employee contributions shall be
considered an "annual addition,"
For this purpose, any Excess Amount applied under
Sections 4.4(a)(4) and 4.4(b)(6) in the Limitation Year to
reduce Employer contributions shall be considered Annual
Additions for such Limitation Year.
(2) Compensation means a Participant's Compensation as elected
in the Adoption Agreement. However, regardless of any
selection made in the Adoption Agreement, "415 Compensation"
shall exclude compensation which is not currently includible
in the Participant's gross income by reason of the application
of Code Sections 125, 402(a)(8), 402(h)(1)(B), or 403(b).
For limitation years beginning after December 31,
1991, for purposes of applying the limitations of this
article, compensation for a limitation year is the
compensation actually paid or made available during such
limitation year.
Notwithstanding the preceding sentence, compensation
for a participant in a defined contribution plan who is
permanently and totally disabled (as defined in section
22(c)(3) of the Internal Revenue Code) is the compensation
such participant would have received for the limitation year
if the participant had been paid at the rate of compensation
paid immediately before becoming permanently and totally
disabled; such imputed compensation for the disabled
participant may be taken into account only if the participant
is not a Highly Compensated Employee and contributions made on
behalf of such participant are non-forfeitable when made.
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<PAGE> 42
(3) Defined Benefit Fraction means a fraction, the numerator
of which is the sum of the Participant's Projected Annual
Benefits under all the defined benefit plans (whether or not
terminated) maintained by the Employer. and the denominator of
which is the lesser of 125 percent of the dollar limitation
determined for the Limitation Year under Code Sections 415(b)
and (d) or 140 percent of his Highest Average Compensation
including any adjustments under Code Section 415(b).
Notwithstanding the above, if the Participant was a
Participant as of the first day of the first Limitation Year
beginning after December 31, 1986, in one or more defined
benefit plans maintained by the Employer which were in
existence on May 6, 1986, the denominator of this fraction
will not be less than 125 percent of the sum of the annual
benefits under such plans which the Participant had accrued as
of the end of the close of the last Limitation Year beginning
before January 1, 1987, disregarding any changes in the terms
and conditions of the plan after May 5, 1986. The preceding
sentence applies only if the defined benefit plans
individually and in the aggregate satisfied the requirements
of Code Section 415 for all Limitation Years beginning before
January 1, 1987.
Notwithstanding the foregoing, for any Top Heavy Plan
Year, 100 shall be substituted for 125 unless the extra
minimum allocation is being made pursuant to the Employer's
election in FI of the Adoption Agreement. However, for any
Plan Year in which this Plan is a Super Top Heavy Plan, 100
shall be substituted for 125 in any event.
(4) Defined Contribution Dollar Limitation means $30,000, or,
if greater, one-fourth of the defined benefit dollar
limitation set forth in Code Section 415(b)(1) as in effect
for the Limitation Year.
(5) Defined Contribution Fraction means a fraction, the
numerator of which is the sum of the Annual Additions to the
Participant's account under all the defined contribution plans
(whether or not terminated) maintained by the Employer for the
current and all prior Limitation Years, (including the Annual
Additions attributable to the Participant's nondeductible
voluntary employee contributions to any defined benefit plans,
whether or not terminated, maintained by the Employer and the
annual additions attributable to all welfare benefit funds, as
defined in Code Section 419(e), and individual medical
accounts, as defined in Code Section 415(l)(2), maintained by
the Employer), and the denominator of which is the sum of the
maximum aggregate amounts for the current and all prior
Limitation Years of Service with the Employer (regardless of
whether a defined contribution plan was maintained by the
Employer). The maximum aggregate amount in any Limitation Year
is the lesser of 125 percent of the Defined Contribution
Dollar Limitation or 35 percent of the Participant's
Compensation for such year. For Limitation Years beginning
prior to January 1, 1987, the
38
<PAGE> 43
"annual addition" shall not be recomputed to treat all
Employee contributions as an Annual Addition.
If the Employee was a Participant as of the end of
the first day of the First Limitation Year beginning after
December 31, 1986, in one or more defined contribution plans
maintained by the Employer which were in existence on May 5,
1986, the numerator of this fraction will be adjusted if the
sum of this fraction and the Defined Benefit Fraction would
otherwise exceed 1.0 under the terms of this Plan. Under the
adjustment, an amount equal to the product of (1) the excess
of the sum of the fractions over 1.0 times (2) the denominator
of this fraction, will be permanently subtracted from the
numerator of this fraction. The adjustment is calculated using
the fractions as they would be computed as of the end of the
last Limitation Year beginning before January 1, 1987, and
disregarding any changes in the terms and conditions of the
plan made after May 5, 1986, but using the Code Section 415
limitation applicable to the First Limitation Year beginning
on or after January 1, 1987.
Notwithstanding the foregoing, for any Top Heavy Plan
Year, 100 shall be substituted for 125 unless the extra
minimum allocation is being made pursuant to the Employer's
election in Fl of the Adoption Agreement. However, for any
Plan Year in which this Plan is a Super Top Heavy Plan, 100
shall be substituted for 125 in any event.
(6) Employer means the Employer that adopts this Plan and all
Affiliated Employers, except that for purposes of this
Section, Affiliated Employers shall be determined pursuant to
the modification made by Code Section 415(h).
(7) Excess Amount means the excess of the Participant's Annual
Additions for the Limitation Year over the Maximum Permissible
Amount.
(8) Highest Average Compensation means the average
Compensation for the three consecutive Years of Service with
the Employer that produces the highest average. A Year of
Service with the Employer is the 12 consecutive month period
defined in Section El of the Adoption Agreement which is used
to determine Compensation under the Plan.
(9) Limitation Year means the Compensation Year (a 12
consecutive month period) as elected by the Employer in the
Adoption Agreement. All qualified plans maintained by the
Employer must use the same Limitation Year. If the Limitation
Year is amended to a different 12 consecutive month period,
the new Limitation Year must begin on a date within the
Limitation Year in which the amendment is made.
(10) Maximum Permissible Amount means the maximum Annual
Addition that may be contributed or allocated to a
Participant's account under the plan for any
39
<PAGE> 44
Limitation Year, which shall not exceed the lesser of:
(i) the Defined Contribution Dollar Limitation, or
(ii) 25 percent of the Participant's Compensation for
the Limitation Year.
The Compensation Limitation referred to in
(ii) shall not apply to any contribution for medical
benefits (within the meaning of Code Sections 401(h)
or 419A(0(2)) which is otherwise treated as an annual
addition under Code Sections 415(l)(1) or 419A(d)(2).
If a short Limitation Year is created
because of an amendment changing the Limitation Year
to a different 12 consecutive month period, the
Maximum Permissible Amount will not exceed the
Defined Contribution Dollar Contribution multiplied
by the following fraction:
NUMBER OF MONTHS IN THE SHORT LIMITATION YEAR
12
(11) Projected Annual Benefit means the annual retirement
benefit (adjusted to an actuarially equivalent straight life
annuity if such benefit is expressed in a form other than a
straight life annuity or qualified Joint and Survivor Annuity)
to which the Participant would be entitled under the terms of
the plan assuming:
(i) the Participant will continue employment until
Normal Retirement Age (or current age, if later), and
(ii) the Participant's Compensation for the current
Limitation Year and all other relevant factors used
to determine benefits under the Plan will remain
constant for all future Limitation Years.
(g) Regional Prototype Plan means a plan the form of which has been the
subject of a favorable notification letter from the Internal Revenue
Service.
(h) Notwithstanding anything contained in this Section to the contrary,
the limitations, adjustments and other requirements prescribed in this
Section shall at all times comply with the provisions of Code Section
415 and the Regulations thereunder, the terms of which are specifically
incorporated herein by reference.
4.5 ADJUSTMENT FOR EXCESSIVE ANNUAL ADDITIONS
(a) If as a result of the allocation of Forfeitures, a reasonable error
in estimating a Participant's annual Compensation, a reasonable error
in determining the amount of
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<PAGE> 45
elective deferrals (within the meaning of Code Section 402(g)(3)) that
may be made with respect to any Participant under the limits of Section
4.4, or other facts and circumstances to which Regulation 1.415-6(b)(6)
shall be applicable, the "annual additions" under this Plan would cause
the maximum provided in Section 4.4 to be exceeded, the Administrator
shall treat the excess in accordance with Section 4.4(a)(4).
4.6 TRANSFERS FROM QUALIFIED PLANS
(a) If specified in the Adoption Agreement and with the consent of the
Administrator, amounts may be transferred from other qualified plans,
provided that the trust from which such funds are transferred permits
the transfer to be made and the transfer will not jeopardize the tax
exempt status of the Plan or create adverse tax consequences for the
Employer. The amounts transferred shall be set up in a separate account
herein referred to as a "Participant's Rollover Account." Such account
shall be fully Vested at all times and shall not be subject to
forfeiture for any reason.
(b) Amounts in a Participant's Rollover Account shall be held by the
Trustee pursuant to the provisions of this Plan and may not be
withdrawn by, or distributed to the Participant, in whole or in part,
except as provided in Paragraphs (c) and (d) of this Section.
(c) Amounts attributable to elective contributions (as defined in
Regulation 1.401(k)-1(g)(4)), including amounts treated as elective
contributions, which are transferred from another qualified plan in a
plan-to-plan transfer shall be subject to the distribution limitations
provided for in Regulation 1.401(k)-1(d).
(d) At Normal Retirement Date, or such other date when the Participant
or his Beneficiary shall be entitled to receive benefits, the fair
market value of the Participant's Rollover Account shall be used to
provide additional benefits to the Participant or his Beneficiary. Any
distributions of amounts held in a Participant's Rollover Account shall
be made in a manner which is consistent with and satisfies the
provisions of Section 6.5, including, but not limited to, all notice
and consent requirements of Code Sections 411(a)(11) and 417 and the
Regulations thereunder. Furthermore, such amounts shall be considered
as part of a Participant's benefit in determining whether an
involuntary cash-out of benefits without Participant consent may be
made.
(e) The Administrator may direct that employee transfers made after a
valuation date be segregated into a separate account for each
Participant. until such time as the allocations pursuant to this Plan
have been made, at which time they may remain segregated or be invested
as part of the general Trust Fund, to be determined by the
Administrator.
(f) For purposes of this Section, the term "qualified plan" shall mean
any tax qualified plan under Code Section 401(a). The term "amounts
transferred from other qualified plans" shall mean:
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<PAGE> 46
(i) amounts transferred to this Plan directly from another
qualified plan;
(ii) lump-sum distributions received by an Employee from
another qualified plan which are eligible for tax free
rollover to a qualified plan and which are transferred by the
Employee to this Plan within sixty (60) days following his
receipt thereof;
(iii) amounts transferred to this Plan from a conduit
individual retirement account provided that the conduit
individual retirement account has no assets other than assets
which (A) were previously distributed to the Employee by
another qualified plan as a lump-sum distribution (B) were
eligible for tax-free rollover to a qualified plan and (C)
were deposited in such conduit individual retirement account
within sixty (60) days of receipt thereof and other than
earnings on said assets; and
(iv) amounts distributed to the Employee from a conduit
individual retirement account meeting the requirements of
clause (iii) above, and transferred by the Employee to this
Plan within sixty (60) days of his receipt thereof from such
conduit individual retirement account.
(g) Prior to accepting any transfers to which this Section applies, the
Administrator may require the Employee to establish that the amounts to
be transferred to this Plan meet the requirements of this Section and
may also require the Employee to provide an opinion of counsel
satisfactory to the Employer that the amounts to be transferred meet
the requirements of this Section.
(h) Notwithstanding anything herein to the contrary, a transfer
directly to this Plan from another qualified plan (or a transaction
having the effect of such a transfer) shall only be permitted if it
will not result in the elimination or reduction of any "Section
41l(d)(6) protected benefit" as described in Section 8.1.
4.7 VOLUNTARY CONTRIBUTIONS
(a) If this is an amendment to a Plan that had previously allowed
voluntary Employee contributions, then, except as provided in 4.7(b)
below, this Plan will not accept voluntary Employee contributions for
Plan Years beginning after the Plan Year in which this Plan is adopted
by the Employer.
(b) For 401(k) Plans, if elected in the Adoption Agreement, each
Participant may, at the discretion of the Administrator in a
nondiscriminatory manner, elect to voluntarily contribute a portion of
his compensation earned while a Participant under this Plan. Such
contributions shall be paid to the Trustee within a reasonable period
of time but in no event later than 90 days after the receipt of the
contribution.
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<PAGE> 47
(c) The balance in each Participant's Voluntary Contribution Account
shall be fully Vested at all times and shall not be subject to
Forfeiture for any reason.
(d) A Participant may elect to withdraw his voluntary contributions
from his Voluntary Contribution Account and the actual earnings thereon
in a manner which is consistent with and satisfies the provisions of
Section 6.5, including, but not limited to, all notice and consent
requirements of Code Sections 411(a)(11) and 417 and the Regulations
thereunder. If the Administrator maintains sub-accounts with respect to
voluntary contributions (and earnings thereon) which were made on or
before a specified date, a Participant shall be permitted to designate
which sub-account shall be the source for his withdrawal. No
Forfeitures shall occur solely as a result of an Employee's withdrawal
of Employee contributions.
In the event such a withdrawal is made, or in the event a
Participant has received a hardship distribution pursuant to Regulation
1.401(k)-1(d)(2)(iii)(B) from any plan maintained by the Employer. then
such Participant shall be barred from making any voluntary
contributions for a period of twelve (12) months after receipt of the
withdrawal or distribution.
(e) At Normal Retirement Date, or such other date when the Participant
or his Beneficiary shall be entitled to receive benefits, the fair
market value of the Voluntary Contribution Account shall be used to
provide additional benefits to the Participant or his Beneficiary.
(f) The Administrator may direct that voluntary contributions made
after a valuation date be segregated into a separate account until such
time as the allocations pursuant to this Plan have been made, at which
time they may remain segregated or be invested as part of the general
Trust Fund, to be determined by the Administrator.
4.8 DIRECTED INVESTMENT ACCOUNT
(a) If elected in the Adoption Agreement, all Participants may direct
the Trustee as to the investment of all or a portion of any one or more
of their individual account balances. Participants may direct the
Trustee in writing to invest their account in specific assets as
permitted by the Administrator provided such investments are in
accordance with the Department of Labor regulations and are permitted
by the Plan. That portion of the account of any Participant so
directing will thereupon be considered a Directed Investment Account.
(b) A separate Directed Investment Account shall be established for
each Participant who has directed an investment. Transfers between the
Participant's regular account and their Directed Investment Account
shall be charged and credited as the case may be to each account. The
Directed Investment Account shall not share in Trust Fund Earnings, but
it shall be charged or credited as appropriate with the net earnings,
gains, losses and expenses as well as any appreciation or depreciation
in market value during each Plan
43
<PAGE> 48
Year attributable to such account.
(c) The Administrator shall establish a procedure, to be applied in a
uniform and nondiscriminatory manner, setting forth the permissible
investment options under this Section, how often changes between
investments may be made, and any other limitations that the
Administrator shall impose on a Participant's right to direct
investments.
4.9 QUALIFIED VOLUNTARY EMPLOYEE CONTRIBUTIONS
(a) If this is an amendment to a Plan that previously permitted
deductible voluntary contributions. then each Participant who made a
"Qualified Voluntary Employee Contribution" within the meaning of Code
Section 219(c)(2) as it existed prior to the enactment of the Tax
Reform Act of 1986, shall have his contribution held in a separate
Qualified Voluntary Employee Contribution Account which shall be fully
Vested at all times. Such contributions, however, shall not be
permitted if they are attributable to taxable years beginning after
December 31, 1986.
(b) A Participant may, upon written request delivered to the
Administrator, make withdrawals from his Qualified Voluntary Employee
Contribution Account. Any distribution shall be made in a manner which
is consistent with and satisfies the provisions of Section 6.5,
including, but not limited to, all notice and consent requirements of
Code Sections 411(a)(11) and 417 and the Regulations thereunder,
(c) At Normal Retirement Date, or such other date when the Participant
or his Beneficiary shall be entitled to receive benefits, the fair
market value of the Qualified Voluntary Employee Contribution Account
shall be used to provide additional benefits to the Participant or his
Beneficiary.
(d) Unless the Administrator directs Qualified Voluntary Employee
Contributions made pursuant to this Section be segregated into a
separate account for each Participant, they shall be invested as part
of the general Trust Fund and share in earnings and losses.
4.10 ACTUAL CONTRIBUTION PERCENTAGE TESTS
In the event this Plan previously provided for voluntary or mandatory
Employee contributions, then, with respect to Plan Years beginning after
December 31, 1986, such contributions must satisfy the provisions of Code
Section 401(m) and the Regulations thereunder.
4.11 INTEGRATION IN MORE THAN ONE PLAN
If the Employer and/or an Affiliated Employer maintain qualified
retirement plans integrated with Social Security such that any Participant in
this Plan is covered under more than one of such plans, then such plans will be
considered to be one plan and will be considered to be integrated if the extent
of the integration of all such plans does not exceed 100%. For purposes of
44
<PAGE> 49
the preceding sentence, the extent of integration of a plan is the ratio,
expressed as a percentage, which the actual benefits, benefit rate, offset rate,
or employer contribution rate, whatever is applicable under the Plan bears to
the limitation applicable to such Plan. If the Employer maintains two or more
standardized paired plans, only one plan may be integrated with Social Security.
45
<PAGE> 50
ARTICLE V
VALUATIONS
5.1 VALUATION OF THE TRUST FUND
The Administrator shall direct the Trustee, as of each Anniversary
Date, and at such other date or dates deemed necessary by the Administrator,
herein called "valuation date," to determine the net worth of the assets
comprising the Trust Fund as it exists on the "valuation date." In determining
such net worth, the Trustee shall value the assets comprising the Trust Fund at
their fair market value as of the "valuation date" and shall deduct all expenses
for which the Trustee has not yet obtained reimbursement from the Employer or
the Trust Fund.
5.2 METHOD OF VALUATION
In determining the fair market value of securities held in the Trust
Fund which are listed on a registered stock exchange, the Administrator shall
direct the Trustee to value the same at the prices they were last traded on such
exchange preceding the close of business on the "valuation date." If such
securities were not traded on the "valuation date," or if the exchange on which
they are traded was not open for business on the "valuation date." then the
securities shall be valued at the prices at which they were last traded prior to
the "valuation date." Any unlisted security held in the Trust Fund shall be
valued at its bid price next preceding the close of business on the "valuation
date," which bid price shall be obtained from a registered broker or an
investment banker. In determining the fair market value of assets other than
securities for which trading or bid prices can be obtained, the Trustee may
appraise such assets itself, or in its discretion, employ one or more appraisers
for that purpose and rely on the values established by such appraiser or
appraisers.
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ARTICLE VI
DETERMINATION AND DISTRIBUTION OF BENEFITS
6.1 DETERMINATION OF BENEFITS UPON RETIREMENT
Every Participant may terminate his employment with the Employer and
retire for the purposes hereof on or after his Normal Retirement Date or Early
Retirement Date. Upon such Normal Retirement Date or Early Retirement Date, all
amounts credited to such Participant's Combined Account shall become
distributable. However, a Participant may postpone the termination of his
employment with the Employer to a later date, in which event the participation
of such Participant in the Plan, including the right to receive allocations
pursuant to Section 4.3, shall continue until his Late Retirement Date. Upon a
Participant's Retirement Date, or as soon thereafter as is practicable, the
Administrator shall direct the distribution of all amounts credited to such
Participant's Combined Account in accordance with Section 6.5.
6.2 DETERMINATION OF BENEFITS UPON DEATH
(a) Upon the death of a Participant before his Retirement Date or other
termination of his employment, all amounts credited to such
Participant's Combined Account shall become fully Vested. The
Administrator shall direct, in accordance with the provisions of
Sections 6.6 and 6.7, the distribution of the deceased Participant's
accounts to the Participant's Beneficiary.
(b) Upon the death of a Former Participant, the Administrator shall
direct, in accordance with the provisions of Sections 6.6 and 6.7, the
distribution of any remaining amounts credited to the accounts of such
deceased Former Participant to such Former Participant's Beneficiary.
(c) The Administrator may require such Proper proof of death and such
evidence of the right of any person to receive payment of the value of
the account of a deceased Participant or Former Participant as the
Administrator may deem desirable. The Administrator's determination of
death and of the right of any person to receive payment shall be
conclusive.
(d) Unless otherwise elected in the manner prescribed in Section 6.6,
the Beneficiary of the Pre-Retirement Survivor Annuity shall be the
Participant's spouse. Except, however, the Participant may designate a
Beneficiary other than his spouse for the Pre-Retirement Survivor
Annuity if:
(1) the Participant and his spouse have validly waived the
Pre-Retirement Survivor Annuity in the manner prescribed in
Section 6.6, and the spouse has waived his or her right to be
the Participant's Beneficiary, or
(2) the Participant is legally separated or has been abandoned
(within the meaning of local law) and the Participant has a
court order to such effect (and
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there is no "qualified domestic relations order" as defined in
Code Section 414(p) which provides otherwise), or
(3) the Participant has no spouse, or
(4) the spouse cannot be located.
In such event the designation of a Beneficiary shall
be made on a form satisfactory to the Administrator. A
Participant may at any time revoke his designation of a
Beneficiary or change his Beneficiary by filing written notice
of such revocation or change with the Administrator. However,
the Participant's Spouse must again consent in writing to any
change in Beneficiary unless the original consent acknowledged
that the spouse had the right to limit consent only to a
specific Beneficiary and that the spouse voluntarily elected
to relinquish such right. The Participant may, at any time,
designate a Beneficiary for death benefits payable under the
Plan that are in excess of the Pre-Retirement Survivor
Annuity. In the event no valid designation of Beneficiary
exists at the time of the Participant's death, the death
benefit shall be payable to his estate.
(e) If the Plan provides an insured death benefit and a Participant
dies before any insurance coverage to which he is entitled under the
Plan is effected, his death benefit from such insurance coverage shall
be limited to the standard rated premium which was or should have been
used for such purpose.
(f) In the event of any conflict between the terms of this Plan and the
terms of any Contract issued hereunder, the Plan provisions shall
control.
6.3 DETERMINATION OF BENEFITS IN EVENT OF DISABILITY
In the event of a Participant's Total and Permanent Disability prior to
his Retirement Date or other termination of his employment, all amounts credited
to such Participant's Combined Account shall become fully Vested. In the event
of a Participant's Total and Permanent Disability, the Administrator, in
accordance with the provisions of Sections 6.5 and 6.7, shall direct the
distribution to such Participant of all amounts credited to such Participant's
Combined Account as though he had retired.
6.4 DETERMINATION OF BENEFITS UPON TERMINATION
(a) On or before the Anniversary Date, or other valuation date,
coinciding with or subsequent to the termination of a Participant's
employment for any reason other than retirement, death, or Total and
Permanent Disability, the Administrator may direct that the amount of
the Vested portion of such Terminated Participant's Combined Account be
segregated and invested separately. In the event the Vested portion of
a Participant's Combined Account is not segregated, the amount shall
remain in a separate account for the Terminated Participant and share
in allocations pursuant to Section 4.3 until such time
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<PAGE> 53
as a distribution is made to the Terminated Participant. The amount of
the portion of the Participant's Combined Account which is not Vested
may be credited to a separate account (which will always share in gains
and losses of the Trust Fund) and at such time as the amount becomes a
Forfeiture shall be treated in accordance with the provisions of the
Plan regarding Forfeitures.
Regardless of whether distributions in kind are permitted, in
the event that the amount of the Vested portion of the Terminated
Participant's Combined Account equals or exceeds the fair market value
of any insurance Contracts, the Trustee, when so directed by the
Administrator and agreed to by the Terminated Participant. shall
assign, transfer, and set over to such Terminated Participant all
Contracts on his life in such form or with such endorsements, so that
the settlement options and forms of payment are consistent with the
provisions of Section 6.5. In the event that the Terminated
Participant's Vested portion does not at least equal the fair market
value of the Contracts, if any, the Terminated Participant may pay over
to the Trustee the sum needed to Make the distribution equal to the
value of the Contracts being assigned or transferred, or the Trustee,
pursuant to the Participant's election, may borrow the cash value of
the Contracts from the Insurer so that the value of the Contracts is
equal to the Vested portion of the Terminated Participant's Combined
Account and then assign the Contracts to the Terminated Participant.
Distribution of the funds due to a Terminated Participant
shall be made on the occurrence of an event which would result in the
distribution had the Terminated Participant remained in the employ of
the Employer (upon the Participant's death. Total and Permanent
Disability, Early or Normal Retirement). However, at the election of
the Participant, the Administrator shall direct that the entire Vested
portion of the Terminated Participant's Combined Account to be payable
to such Terminated Participant provided the conditions, if any, set
forth in the Adoption Agreement have been satisfied. Any distribution
under this paragraph shall be made in a manner which is consistent with
and satisfies the provisions of Section 6.5, including but not limited
to, all notice and consent requirements of Code Sections 41l(a)(11) and
417 and the Regulations thereunder.
Notwithstanding the above, if the value of a Terminated
Participant's Vested benefit derived from Employer and Employee
contributions does not exceed, and at the time of any prior
distribution, has never exceeded $3,500, the Administrator shall direct
that the entire Vested benefit be paid to such Participant in a single
lump-sum without regard to the consent of the Participant or the
Participant's spouse. A Participant's Vested benefit shall not include
Qualified Voluntary Employee Contributions within the meaning of Code
Section 72(o)(5)(B) for Plan Years beginning prior to January 1, 1989.
(b) The Vested portion of any Participant's Account shall be a
percentage of such Participant's Account determined on the basis of the
Participant's number of Years of Service according to the vesting
schedule specified in the Adoption Agreement.
(c) For any Top Heavy Plan Year, one of the minimum top heavy vesting
schedules
49
<PAGE> 54
as elected by the Employer in the Adoption Agreement will automatically
apply to the Plan. The minimum top heavy vesting schedule applies to
all benefits within the meaning of Code Section 411(a)(7) except those
attributable to Employee contributions, including benefits accrued
before the effective date of Code Section 416 and benefits accrued
before the Plan became top heavy. Further, no decrease in a
Participant's Vested percentage may occur in the event the Plan's
status as top heavy changes for any Plan Year. However, this Section
does not apply to the account balances of any Employee who does not
have an Hour of Service after the Plan has initially become top heavy
and the Vested percentage of such Employee's Participant's Account
shall be determined without regard to this Section 6.4(c).
If in any subsequent Plan Year, the Plan ceases to be a Top
Heavy Plan, the Administrator shall continue to use the vesting
schedule in effect while the Plan was a Top Heavy Plan for each
Employee who had an Hour of Service during a Plan Year when the Plan
was Top Heavy.
(d) Notwithstanding the vesting schedule above, upon the complete
discontinuance of the Employer's contributions to the Plan or upon any
full or partial termination of the Plan, all amounts credited to the
account of any affected Participant shall become 100% Vested and shall
not thereafter be subject to Forfeiture.
(e) If this is an amended or restated Plan, then notwithstanding the
vesting schedule specified in the Adoption Agreement, the Vested
percentage of a Participant's Account shall not be less than the Vested
percentage attained as of the later of the effective date or adoption
date of this amendment and restatement. The computation of a
Participant's non-forfeitable percentage of his interest in the Plan
shall not be reduced as the result of any direct or indirect amendment
to this Article, or due to changes in the Plan's status as a Top Heavy
Plan.
(f) If the Plan's vesting schedule is amended, or if the Plan is
amended in any way that directly or indirectly affects the computation
of the Participant's non-forfeitable percentage or if the Plan is
deemed amended by an automatic change to a top heavy vesting schedule,
then each Participant with at least 3 Years of Service as of the
expiration date of the election period may elect to have his
non-forfeitable percentage Computed under the Plan without regard to
such amendment or change. Notwithstanding the foregoing, for Plan Years
beginning before January 1, 1989, or with respect to Employees who fail
to complete at least one (1) Hour of Service in a Plan Year beginning
after December 31, 1988, five (5) shall be substituted for three (3) in
the preceding sentence. If a Participant fails to make such election,
then such Participant shall be subject to the new vesting schedule. The
Participant's election period shall commence on the adoption date of
the amendment and shall end 60 days after the latest of:
(1) the adoption date of the amendment,
(2) the effective date of the amendment, or
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<PAGE> 55
(3) the date the Participant receives written notice of the
amendment from the Employer or Administrator.
(g) (1) If any Former Participant shall be re-employed by the
Employer before a 1-Year Break in Service occurs, he shall
continue to participate in the Plan in the same manner as if
such termination had not occurred.
(2) If any Former Participant shall be re-employed by the
Employer before five (5) consecutive 1-Year Breaks in Service,
and such Former Participant had received a distribution of his
entire Vested interest prior to his reemployment, his
forfeited account shall be reinstated only if he repays the
full amount distributed to him before the earlier of five (5)
years after the first date on which the Participant is
subsequently re-employed by the Employer or the close of the
first period of 5 consecutive 1-year breaks in Service
commencing after the distribution. If a distribution occurs
for any reason other than a separation from service, the time
for repayment may not end earlier than five (5) years after
the date of separation. In the event the Former Participant
does repay the full amount distributed to him, the
undistributed portion of the Participant's Account must be
restored in full, unadjusted by any gains or losses occurring
subsequent to the Anniversary Date or other valuation date
preceding his termination. If an employee receives a
distribution pursuant to this section and the employee resumes
employment covered under this plan, the employee's
Employer-derived account balance will be restored to the
amount on the date of distribution if the employee repays to
the plan the full amount of the distribution attributable to
employer contributions before the earlier of 5 years after the
first date on which the participant is subsequently
re-employed by the employer, or the date the participant
incurs 5 consecutive 1-year breaks in service following the
date of the distribution. If a non-Vested Former Participant
was deemed to have received a distribution and such Former
Participant is re-employed by the Employer before five (5)
consecutive 1-year breaks in Service, then such Participant
will be deemed to have repaid the deemed distribution as of
the date of reemployment.
(3) If any Former Participant is re-employed after a 1-Year
Break in Service has occurred, Years of Service shall include
Years of Service prior to his 1-Year Break in Service subject
to the following rules:
(i) Any Former Participant who under the Plan does
not have a non-forfeitable right to any interest in
the Plan resulting from Employer contributions shall
lose credits if his consecutive 1-Year Breaks in
Service equal or exceed the greater of (A) five (5)
or (B) the aggregate number of his pre-break Years of
Service;
(ii) After five (5) consecutive 1-Year Breaks in
Service, a Former Participant's Vested Account
balance attributable to pre-break service
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<PAGE> 56
shall not be increased as a result of post-break
service;
(iii) A Former Participant who is re-employed and who
has not had his Years of Service before a 1-year
break in Service disregarded pursuant to (i) above,
shall participate in the Plan as of his date of
reemployment;
(iv) If a Former Participant completes a Year of
Service (a 1-Year Break in Service previously
occurred, but employment had not terminated), he
shall participate in the Plan retroactively from the
first day of the Plan Year during which he completes
one (1) Year of Service.
(h) In determining Years of Service for purposes of vesting under the
Plan, Years of Service shall be excluded as specified in the Adoption
Agreement.
6.5 DISTRIBUTION OF BENEFITS
(a) (1) Unless otherwise elected as provided below, a Participant
who is married on the "annuity starting date" and who does not
die before the "annuity starting date" shall receive the value
of all of his benefits in the form of a Joint and Survivor
Annuity. The Joint and Survivor Annuity is an annuity that
commences immediately and shall be equal in value to a single
life annuity. Such joint and survivor benefits following the
Participant's death shall continue to the spouse during the
spouse's lifetime at a rate equal to 50% of the rate at which
such benefits were payable to the Participant. This Joint and
Survivor Annuity shall be considered the designated qualified
Joint and Survivor Annuity and automatic form of payment for
the purposes of this Plan. However, the Participant may elect
to receive a smaller annuity benefit with continuation of
payments to the spouse at a rate of seventy-five percent (75%)
or one hundred percent (100%) of the rate payable to a
Participant during his lifetime which alternative Joint and
Survivor Annuity shall be equal in value to the automatic
Joint and 50% Survivor Annuity. An unmarried Participant shall
receive the value of his benefit in the form of a life
annuity. Such unmarried Participant, however, may elect in
writing to waive the life annuity. The election must comply
with the provisions of this Section as if it were an election
to waive the Joint and Survivor Annuity by a married
Participant, but without the spousal consent requirement. The
Participant may elect to have any annuity provided for in this
Section distributed upon the attainment of the "earliest
retirement age" under the Plan. The "earliest retirement age"
is the earliest date on which, under the Plan, the Participant
could elect to receive retirement benefits.
(2) Any election to waive the Joint and Survivor Annuity must
be made by the Participant in writing during the election
period and be consented to by the Participant's spouse. If the
spouse is legally incompetent to give consent, the spouse's
legal guardian, even if such guardian is the Participant, may
give consent. Such election shall designate a Beneficiary (or
a form of benefits) that
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<PAGE> 57
may not be changed without spousal consent (unless the consent
of the spouse expressly permits designations by the
Participant without the requirement of further consent by the
spouse's consent). Such spouse's consent shall be irrevocable
and must acknowledge the effect of such election and be
witnessed by a Plan representative or a notary public. Such
consent shall not be required if it is established to the
satisfaction of the Administrator that the required consent
cannot be obtained because there is no spouse, the spouse
cannot be located, or other circumstances that may be
prescribed by Regulations. The election made by the
Participant and consented to by his spouse may be revoked by
the Participant in writing without the consent of the spouse
at any time during the election period. The number of
revocations shall not be limited. Any new election must comply
with the requirements of this paragraph. A former spouse's
waiver shall not be binding on a new spouse.
(3) The election period to waive the Joint and Survivor
Annuity shall be the 90 day period ending on the "annuity
starting date."
(4) For purposes of this Section and Section 6.6, the "annuity
starting date" means the first day of the first period for
which an amount is paid as an annuity, or, in the case of a
benefit not payable in the form of an annuity, the first day
on which all events have occurred which entitles the
Participant to such benefit.
(5) With regard to the election, the Administrator shall
provide to the Participant no less than 30 days and no more
than 90 days before the "annuity starting date" a written
explanation of.
(i) the terms and conditions of the Joint and
Survivor Annuity, and
(ii) the Participant's right to make and the effect
of an election to waive the Joint and Survivor
Annuity, and
(iii) the right of the Participant's spouse to
consent to any election to waive the Joint and
Survivor Annuity, and
(iv) the right of the Participant to revoke such
election, and the effect of such revocation.
(b) In the event a married Participant duly elects pursuant to
paragraph (a)(2) above not to receive his benefit in the form of a
Joint and Survivor Annuity, or if such Participant is not married, in
the form of a life annuity, the Administrator, pursuant to the election
of the Participant, shall direct the distribution to a Participant or
his Beneficiary any amount to which he is entitled under the Plan in
one or more of the following methods which are permitted pursuant to
the Adoption Agreement:
(1) One lump-sum payment in cash or in property;
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<PAGE> 58
(2) Payments over a period certain in monthly, quarterly,
semiannual, or annual cash installments. In order to provide
such installment payments, the Administrator may direct that
the Participant's interest in the Plan be segregated and
invested separately, and that the funds in the segregated
account be used for the payment of the installments. The
period over which such payment is to be made shall not extend
beyond the Participant's life expectancy (or the life
expectancy of the Participant and his designated Beneficiary);
(3) Purchase of or providing an annuity. However, such annuity
may not be in any form that will provide for payments over a
period extending beyond either the life of the Participant (or
the lives of the Participant and his designated Beneficiary)
or the life expectancy of the Participant (or the life
expectancy of the Participant and his designated Beneficiary).
(c) The present value of a Participant's Joint and Survivor Annuity
derived from Employer and Employee contributions may not be paid
without his written consent if the value exceeds, or has ever exceeded
at the time of any prior distribution, $3,500. Further, the spouse of a
Participant must consent in writing to any immediate distribution. If
the value of the Participant's benefit derived from Employer and
Employee contributions does not exceed $3,500 and has never exceeded
$3,500 at the time of any prior distribution, the Administrator may
immediately distribute such benefit without such Participant's consent.
No distribution may be made under the preceding sentence after the
"annuity starting date" unless the Participant and his spouse consent
in writing to such distribution. Any written consent required under
this paragraph must be obtained not more than 90 days before
commencement of the distribution and shall be made in a manner
consistent with Section 6.5(a)(2).
(d) Any distribution to a Participant who has a benefit which exceeds.
or has ever exceeded at the time of any prior distribution, $3,500
shall require such Participant's consent if such distribution commences
prior to the later of his Normal Retirement Age or age 62. With regard
to this required consent:
(1) No consent shall be valid unless the Participant has
received a general description of the material features and an
explanation of the relative values of the optional forms of
benefit available under the Plan that would satisfy the notice
requirements of Code Section 417.
(2) The Participant must be informed of his right to defer
receipt of the distribution. If a Participant fails to
consent, it shall be deemed an election to defer the
commencement of payment of any benefit. However, any election
to defer the receipt of benefits shall not apply with respect
to distributions which are required under Section 6.5(e).
(3) Notice of the rights specified under this paragraph shall
be provided no
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less than 30 days and no more than 90 days before the "annuity
starting date."
(4) Written consent of the Participant to the distribution
must not be made before the Participant receives the notice
and must not be made more than 90 days before the "annuity
starting date."
(5) No consent shall be valid if a significant detriment is
imposed under the Plan on any Participant who does not consent
to the distribution.
(e) Notwithstanding any provision in the Plan to the contrary, the
distribution of a Participant's benefits, made on or after January 1,
1985, whether under the Plan or through the purchase of an annuity
Contract, shall be made in accordance with the following requirements
and shall otherwise comply with Code Section 401(a)(9) and the
Regulations thereunder (including Regulation Section 1.401(a)(9)-2),
the provisions of which are incorporated herein by reference:
(1) A Participant's benefits shall be distributed to him not
later than April 1st of the calendar year following the later
of (i) the calendar year in which the Participant attains age
70 1/2 or (ii) the calendar year in which the Participant
retires, provided, however, that this clause (ii) shall not
apply in the case of a Participant who is a "five (5) percent
owner" at any time during the five (5) Plan Year period ending
in the calendar year in which he attains age 70 1/2 or, in the
case of a Participant who becomes a "five (5) percent owner"
during any subsequent Plan Year, clause (ii) shall no longer
apply and the required beginning date shall be the April 1st
of the calendar year following the calendar year in which such
subsequent Plan Year ends. Alternatively, distributions to a
Participant must begin no later than the applicable April 1st
as determined under the preceding sentence and must be made
over the life of the Participant (or the lives of the
Participant and the Participant's designated Beneficiary) or,
if benefits are paid in the form of a Joint and Survivor
Annuity, the life expectancy of the Participant (or the life
expectancies of the Participant and his designated
Beneficiary) in accordance with Regulations. For Plan Years
beginning after December 31, 1988, clause (ii) above shall not
apply to any Participant unless the Participant had attained
age 70 1/2 before January 1, 1988 and was not a "five (5)
percent owner" at any time during the Plan Year ending with or
within the calendar year in which the Participant attained age
66 1/2 or any subsequent Plan Year.
(2) Distributions to a Participant and his Beneficiaries shall
only be made in accordance with the incidental death benefit
requirements of Code Section 401(a)(9)(G) and the Regulations
thereunder.
Additionally, for calendar years beginning before
1989, distributions may also be made under an alternative
method which provides that the then present value of the
payments to be made over the period of the Participant's life
expectancy exceeds fifty percent (50%) of the then present
value of the total
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<PAGE> 60
payments to be made to the Participant and his Beneficiaries.
(f) For purposes of this Section, the life expectancy of a Participant
and a Participant's spouse (other than in the case of a life annuity)
shall be re-determined annually in accordance with Regulations if
permitted pursuant to the Adoption Agreement. If the Participant or the
Participant's spouse may elect whether recalculations will be made,
then the election, once made, shall be irrevocable. If no election is
made by the time distributions must commence, then the life expectancy
of the Participant and the Participant's spouse shall not be subject to
recalculation. Life expectancy and joint and last survivor expectancy
shall be computed using the return multiples in Tables V and VI of
Regulation 1.72-9.
(g) All annuity Contracts under this Plan shall be non-transferable
when distributed. Furthermore, the terms of any annuity Contract
purchased and distributed to a Participant or spouse shall comply with
all of the requirements of this Plan.
(h) Subject to the spouse's right of consent afforded under the Plan,
the restrictions imposed by this Section shall not apply if a
Participant has, prior to January 1, 1984, made a written designation
to have his retirement benefit paid in an alternative method acceptable
under Code Section 401(a) as in effect prior to the enactment of the
Tax Equity and Fiscal Responsibility Act of 1982.
(i) If a distribution is made at a time when a Participant who has not
terminated employment is not fully Vested in his Participant's Account
and the Participant may increase the Vested percentage in such account:
(1) A separate account shall be established for the
Participant's interest in the Plan as of the time of the
distribution, and
(2) At any relevant time the Participant's Vested portion of
the separate account shall be equal to an amount ("X")
determined by the formula:
X equals P(AB plus (RxD))-(R x D)
For purposes of applying the formula: P is the Vested
percentage at the relevant time, AB is the account balance at
the relevant time, D is the amount of distribution, and R is
the ratio of the account balance at the relevant time to the
account balance after distribution.
6.6 DISTRIBUTION OF BENEFITS UPON DEATH
(a) Unless otherwise elected as provided below, a Vested Participant
who dies before the annuity starting date and who has a surviving
spouse shall have the Pre-Retirement Survivor Annuity paid to his
surviving spouse. The Participant's spouse may direct that payment of
the Pre-Retirement Survivor Annuity commence within a reasonable period
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<PAGE> 61
after the Participant's death. If the spouse does not so direct,
payment of such benefit will commence at the time the Participant would
have attained the later of his Normal Retirement Age or age 62.
However, the spouse may elect a later commencement date. Any
distribution to the Participant's spouse shall be subject to the rules
specified in Section 6.6(h).
(b) Any election to waive the Pre-Retirement Survivor Annuity before
the Participant's death must be made by the Participant in writing
during the election period and shall require the spouse's irrevocable
consent in the same manner provided for in Section 6.5(a)(2). Further,
the spouse's consent must acknowledge the specific non-spouse
Beneficiary. Notwithstanding the foregoing, the non-spouse Beneficiary
need not be acknowledged, provided the consent of the spouse
acknowledges that the spouse has the right to limit consent only to a
specific Beneficiary and that the spouse voluntarily elects to
relinquish such right.
(c) The election period to waive the Pre-Retirement Survivor Annuity
shall begin on the first day of the Plan Year in which the Participant
attains age 35 and end on the date of the Participant's death. An
earlier waiver (with spousal consent) may be made provided a written
explanation of the Pre-Retirement Survivor Annuity is given to the
Participant and such waiver becomes invalid at the beginning of the
Plan Year in which the Participant turns age 35. In the event a Vested
Participant separates from service prior to the beginning of the
election period, the election period shall begin on the date of such
separation from service.
(d) With regard to the election, the Administrator shall provide each
Participant within the applicable period, with respect to such
Participant (and consistent with Regulations), a written explanation of
the Pre-Retirement Survivor Annuity containing comparable information
to that required pursuant to Section 6.5(a)(4). For the purposes of
this paragraph, the term "applicable period" means, with respect to a
Participant, whichever of the following periods ends last:
(1) The period beginning with the first day of the Plan Year
in which the Participant attains age 32 and ending with the
close of the Plan Year preceding the Plan Year in which the
Participant attains age 35;
(2) A reasonable period after the individual becomes a
Participant. For this purpose, in the case of an individual
who becomes a Participant after age 32, the explanation must
be provided by the end of the three-year period beginning with
the first day of the first Plan Year for which the individual
is a Participant;
(3) A reasonable period ending after the Plan no longer fully
subsidizes the cost of the Pre-Retirement Survivor Annuity
with respect to the Participant;
(4) A reasonable period ending after Code Section 401(a)(11)
applies to the Participant; or
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<PAGE> 62
(5) A reasonable period after separation from service in the
case of a Participant who separates before attaining age 35.
For this purpose, the Administrator must provide the
explanation beginning one year before the separation from
service and ending one year after separation.
(e) The Pre-Retirement Survivor Annuity provided for in this Section
shall apply only to Participants who are credited with an Hour of
Service on or after August 23, 1984. Former Participants who are not
credited with an Hour of Service on or after August 23, 1984 shall be
provided with rights to the Pre-Retirement Survivor Annuity in
accordance with Section 303(c)(2) of the Retirement Equity Act of 1984.
(f) If the value of the Pre-Retirement Survivor Annuity derived from
Employer and Employee Contributions does not exceed $3,500 and has
never exceeded $3,500 at the time of any prior distribution, the
Administrator shall direct the immediate distribution of such amount to
the Participant's spouse. No distribution may be made under the
preceding sentence after the annuity starting date unless the spouse
consents in writing. If the value exceeds. or has ever exceeded at the
time of any prior distribution, $3,500, an immediate distribution of
the entire amount may be made to the surviving spouse, provided such
surviving spouse consents in writing to such distribution. Any written
consent required under this paragraph must be obtained not more than 90
days before commencement of the distribution and shall be made in a
manner consistent with Section 6.5(a)(2).
(g) (1) In the event there is an election to waive the
Pre-Retirement Survivor Annuity, and for death benefits in
excess of the Pre-Retirement Survivor Annuity, such death
benefits shall be paid to the Participant's Beneficiary by
either of the following methods, as elected by the Participant
(or if no election has been made prior to the Participant's
death, by his Beneficiary) subject to the rules specified in
Section 6.6(h) and the selections made in the Adoption
Agreement:
(i) One lump-sum payment in cash or in property;
(ii) Payment in monthly, quarterly, semi-annual, or
annual cash installments over a period to be
determined by the Participant or his Beneficiary.
After periodic installments commence, the Beneficiary
shall have the right to reduce the period over which
such periodic installments shall be made, and the
cash amount of such periodic installments shall be
adjusted accordingly.
(iii) If death benefits in excess of the
Pre-Retirement Survivor Annuity are to be paid to the
surviving spouse, such benefits may be paid pursuant
to (i) or (ii) above, or used to purchase an annuity
so as to increase the payments made pursuant to the
Pre-Retirement Survivor Annuity;
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(2) In the event the death benefit payable pursuant to Section
6.2 is payable in installments, then, upon the death of the
Participant, the Administrator may direct that the death
benefit be segregated and invested separately, and that the
funds accumulated in the segregated account be used for the
payment of the installments.
(h) Notwithstanding any provision in the Plan to the contrary,
distributions upon the death of a Participant made on or after January
1, 1985, shall be made in accordance with the following requirements
and shall otherwise comply with Code Section 401(a)(9) and the
Regulations thereunder.
(1) If it is determined, pursuant to Regulations, that the
distribution of a Participant's interest has begun and the
Participant dies before his entire interest has been
distributed to him, the remaining portion of such interest
shall be distributed at least as rapidly as under the method
of distribution selected pursuant to Section 6.5 as of his
date of death.
(2) If a Participant dies before he has begun to receive any
distributions of his interest in the Plan or before
distributions are deemed to have begun pursuant to
Regulations, then his death benefit shall be distributed to
his Beneficiaries in accordance with the following rules
subject to the selections made in the Adoption Agreement and
Subsections 6.6(h)(3) and 6.6(i) below:
(i) The entire death benefit shall be distributed to
the Participant's Beneficiaries by December 31st of
the calendar year in which the fifth anniversary of
the Participant's death occurs;
(ii) The 5-year distribution requirement of (i) above
shall not apply to any portion of the deceased
Participant's interest which is payable to or for The
benefit of a designated Beneficiary. In such event.
such portion shall be distributed over the life of
such designated Beneficiary (or over a period not
extending beyond the life expectancy of such
designated Beneficiary) provided such distribution
begins not later than December 31st of the calendar
year immediately following the calendar year in which
the Participant died;
(iii) However, in the event the Participant's spouse
(determined as of the date of the Participant's
death) is his designated Beneficiary, the provisions
of (ii) above shall apply except that the requirement
that distributions commence within one year of the
Participant's death shall not apply. In lieu thereof,
distributions must commence on or before the later
of, (1) December 31st of the calendar year
immediately following the calendar year in which the
Participant died; or (2) December 31st of the
calendar year in which the Participant would have
attained age 70 1/2. If the surviving spouse dies
before distributions to such spouse begin, then the
5-
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year distribution requirement of this Section shall
apply as if the spouse was the Participant.
(3) Notwithstanding subparagraph (2) above, or any selections
made in the Adoption Agreement, if a Participant's death
benefits are to be paid in the form of a Pre-Retirement
Survivor Annuity, then distributions to the Participant's
surviving spouse must commence on or before the later of: (1)
December 31st of the calendar year immediately following the
calendar year in which the Participant died: or (2) December
31st of the calendar year in which the Participant would have
attained age 70 1/2.
(i) For purposes of Section 6.6(h)(2), the election by a designated
Beneficiary to be excepted from the 5-year distribution requirement (if
permitted in the Adoption Agreement) must be made no later than
December 31st of the calendar year following the calendar year of the
Participant's death. Except, however, with respect to a designated
Beneficiary who is the Participant's surviving spouse, the election
must be made by the earlier of: (1) December 31st of the calendar year
immediately following the calendar year in which the Participant died
or, if later, the calendar year in which the Participant would have
attained age 70 1/2; or (2) December 31st of the calendar year which
contains the fifth anniversary of the date of the Participant's death.
An election by a designated Beneficiary must be in writing and shall be
irrevocable as of the last day of the election period stated herein. In
the absence of an election by the Participant or a designated
Beneficiary, the 5-year distribution requirement shall apply.
(j) For purposes of this Section, the life expectancy of a Participant
and a Participant's spouse (other than in the case of a life annuity)
shall or shall not be re-determined annually as provided in the
Adoption Agreement and in accordance with Regulations. If the
Participant or the Participant's spouse may elect, pursuant to the
Adoption Agreement, to have life expectancies recalculated, then the
election, once made shall be irrevocable. If no election is made by the
time distributions must commence, then the life expectancy of the
Participant and the Participant's spouse shall not be subject to
recalculation. Life expectancy and joint and last survivor expectancy
shall be computed using the return Multiples in Tables V and VI of
Regulation Section 1.72-9.
(k) In the event that less than 100% of a Participant's interest in the
Plan is distributed to such Participant's spouse, the portion of the
distribution attributable to the Participant's Voluntary Contribution
Account shall be in the same proportion that the Participant's
Voluntary Contribution Account bears to the Participant's total
interest in the Plan.
(l) Subject to the spouse's right of counsel afforded under the Plan,
the restrictions imposed by this Section shall not apply if a
Participant has, prior to January 1, 1984, made a written designation
to have his death benefits paid in an alternative method acceptable
under Code Section 401(a) as in effect prior to the enactment of the
Tax Equity and Fiscal Responsibility Act of 1982.
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6.7 TIME OF SEGREGATION OR DISTRIBUTION
Except as limited by Sections 6.5 and 6.6, whenever a distribution is
to be made, or a series of payments are to commence, on or as of an Anniversary
Date, the distribution or series of payments may be made or begun on such date
or as soon thereafter as is practicable, but in no event later than 180 days
after the Anniversary Date. However, unless a Former Participant elects in
writing to defer the receipt of benefits (such election may not result in a
death benefit that is more than incidental), the payment of benefits shall begin
not later than the 60th day after the close of the Plan Year in which the latest
of the following events occurs: (a) the date on which the Participant attains
the earlier of age 65 or the Normal Retirement Age specified herein; (b) the
10th anniversary of the year in which the Participant commenced participation in
the Plan; or (c) the date the Participant terminates his service with the
Employer.
Notwithstanding the foregoing, the failure of a Participant and, if
applicable, the Participant's spouse, to consent to a distribution pursuant to
Section 6.5(d), shall be deemed to be an election to defer the commencement of
payment of any benefit sufficient to satisfy this Section.
6.8 DISTRIBUTION FOR MINOR BENEFICIARY
In the event a distribution is to be made to a minor, then the
Administrator may direct that such distribution be paid to the legal guardian,
or if none, to a parent of such Beneficiary or a responsible adult with whom the
Beneficiary maintains his residence, or to the custodian for such Beneficiary
under the Uniform Gift to Minors Act or Gift to Minors Act, if such is permitted
by the laws of the state in which said Beneficiary resides. Such a payment to
the legal guardian, custodian or parent of a minor Beneficiary shall fully
discharge the Trustee, Employer, and Plan from further liability on account
thereof.
6.9 LOCATION OF PARTICIPANT OR BENEFICIARY UNKNOWN
In the event that all, or any portion, of the distribution payable to a
Participant or his Beneficiary hereunder shall, at the later of the
Participant's attainment of age 62 or his Normal Retirement. Age, remain unpaid
solely by reason of the inability of the Administrator, after sending a
registered letter, return receipt requested, to the last known address, and
after further diligent effort, to ascertain the whereabouts of such Participant
or his Beneficiary, the amount so distributable shall be treated as a Forfeiture
pursuant to the Plan. In the event a Participant or Beneficiary is located
subsequent to his benefit being reallocated. such benefit shall be restored,
first from Forfeitures, if any, and then from an additional Employer
contribution if necessary.
6.10 PRE-RETIREMENT DISTRIBUTION
For Profit Sharing Plans and 401(k) Profit Sharing Plans, if elected in
the Adoption Agreement, at such time as a Participant shall have attained the
age specified in the Adoption Agreement, the Administrator, at the election of
the Participant, shall direct the distribution of up
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to the entire amount then credited to the accounts maintained on behalf of the
Participant. However, no such distribution from the Participant's Account shall
occur prior to 100% Vesting. In the event that the Administrator makes such a
distribution, the Participant shall continue to be eligible to participate in
the Plan on the same basis as any other Employee. Any distribution made pursuant
to this Section shall be made in a manner consistent with Section 6.5,
including, but not limited to, all notice and consent requirements of Code
Sections 411(a)(11) and 417 and the Regulations thereunder.
6.11 ADVANCE DISTRIBUTION FOR HARDSHIP
(a) For Profit Sharing Plans, if elected in the Adoption Agreement, the
Administrator. at the election of the Participant. shall direct the
distribution to any Participant in any one Plan Year up to the lesser
of 100% of his Participant's Combined Account valued as of the last
Anniversary Date or other valuation date or the amount necessary to
satisfy the immediate and heavy financial need of the Participant. Any
distribution made pursuant to this Section shall be deemed to be made
as of the first day of the Plan Year or, if later, the valuation date
immediately preceding the date of distribution, and the account from
which the distribution is made shall be reduced accordingly. Withdrawal
under this Section shall be authorized only if the distribution is on
account of:
(1) Medical expenses described in Code Section 213(d) incurred
by the Participant, his spouse, or any of his dependents (as
defined in Code Section 152) or expenses necessary for these
persons to obtain medical care;
(2) The purchase (excluding mortgage payments) of a principal
residence for the Participant;
(3) Funeral expenses for a member of the Participant's family;
(4) Payment of tuition and related educational fees for the
next 12 months of post-secondary education for the
Participant, his spouse, children, or dependents; or
(5) The need to prevent the eviction of the Participant from
his principal residence or foreclosure on the mortgage of the
Participant's principal residence.
(b) No such distribution shall be made from the Participant's Account
until such Account has become fully Vested.
(c) Any distribution made pursuant to this Section shall be made in a
manner which is consistent with and satisfies the provisions of Section
6.5, including, but not limited to, all notice and consent requirements
of Code Sections 411(a)(11) and 417 and the Regulations thereunder.
6.12 LIMITATIONS ON BENEFITS AND DISTRIBUTIONS
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All rights and benefits, including elections, provided to a Participant
in this Plan shall be subject to the rights afforded to any "alternate payee"
under a "qualified domestic relations order." Furthermore, a distribution to an
"alternate payee" shall be permitted if such distribution is authorized by a
"qualified domestic relations order," even if the affected Participant has not
reached the "earliest retirement age" under the Plan. For the purposes of this
Section, "alternate payee," "qualified domestic relations order" and "earliest
retirement age" shall have the meaning set forth under Code Section 414(p).
6.13 SPECIAL RULE FOR NON-ANNUITY PLANS
If elected in the Adoption Agreement, the following shall apply to a
Participant in a Profit Sharing Plan or 401(k) Profit Sharing Plan and to any
distribution, made on or after the first day of the First plan year beginning
after December 31, 1988, from or under a separate account attributable solely to
accumulated deductible employee contributions, as defined in Code Section
72(o)(5)(B), and maintained on behalf of a participant in a money purchase
pension plan, (including a target benefit plan):
(a) The Participant shall be prohibited from electing benefits in the
form of a life annuity;
(b) Upon the death of the Participant, the Participant's entire Vested
account balances will be paid to his or her surviving spouse, or, if
there is no surviving spouse or the surviving spouse has already
consented to waive his or her benefit; in accordance with Section 6.6,
to his designated Beneficiary;
(c) Except to the extent otherwise provided in this Section and Section
6.5(h), the other provisions of Sections 6.2, 6.5 and 6.6 regarding
spousal consent and the forms of distributions shall be inoperative
with respect to this Plan.
(d) If a distribution is one to which Sections 401(a)(11) and 417 of
the Internal Revenue Code do not apply, such distribution may commence
less than 30 days after the notice required under Section
1.411(a)-11(c) of the Income Tax Regulations is given, provided that:
(1) the Plan Administrator clearly informs the Participant
that the Participant has a right to a period of at least 30
days after the notice to consider the decision of whether or
not to elect a distribution (and, if applicable, a particular
distribution option), and
(2) the Participant, after receiving the notice, affirmatively
elects a distribution.
This Section shall not apply to any Participant if it
is determined that this Plan is a direct or indirect
transferee of a defined benefit plan or money purchase
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plan, or a target benefit plan, stock bonus or profit sharing
plan which would otherwise provide for a life annuity form of
payment to the Participant.
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ARTICLE VII
TRUSTEE
7.1 BASIC RESPONSIBILITIES OF THE TRUSTEE
The Trustee shall have the following categories of responsibilities:
(a) Consistent with the "funding policy and method" determined by the
Employer to invest, manage, and control the Plan assets subject,
however, to the direction of an Investment Manager if the Employer
should appoint such manager as to all or a portion of the assets of the
Plan;
(b) At the direction of the Administrator, to pay benefits required
under the Plan to be paid to Participants, or, in the event of their
death, to their Beneficiaries;
(c) To maintain records of receipts and disbursements and furnish to
the Employer and/or Administrator for each Plan Year a written annual
report per Section 7.7; and
(d) If there shall be more than one Trustee, they shall act by a
majority of their number, but may authorize one or more of them to sign
papers on their behalf.
7.2 INVESTMENT POWERS AND DUTIES OF THE TRUSTEE
(a) The Trustee shall invest and reinvest the Trust Fund to keep the
Trust Fund invested without distinction between principal and income
and in such securities or property, real or personal, wherever
situated, as the Trustee shall deem advisable, including, but not
limited to, stocks, common or preferred, bonds and other evidences of
indebtedness or ownership, and real estate or any interest therein. The
Trustee shall at all times in making investments of the Trust Fund
consider, among other factors, the short and long-term financial needs
of the Plan on the basis of information furnished by the Employer. In
making such investments, the Trustee shall not be restricted to
Securities or other property of the character expressly authorized by
the applicable law for trust investments; however, the Trustee shall
give due regard to any limitations imposed by the Code or the Act so
that at all times this Plan may qualify as a qualified Plan and Trust.
(b) The Trustee may employ a bank or trust company pursuant to the
terms of its usual and customary bank agency agreement, under which the
duties of such bank or trust company shall be of a custodial, clerical
and record-keeping nature.
(c) The Trustee may from time to time transfer to a common, collective,
or pooled trust fund maintained by any corporate Trustee hereunder
pursuant to Revenue Ruling 8 1-100, all or such part of the Trust Fund
as the Trustee may deem advisable, and such part or all of the Trust
Fund so transferred shall be subject to all the terms and provisions of
the common, collective, or pooled trust fund which contemplate the
commingling for investment purposes of such trust assets with trust
assets of other trusts. The Trustee may
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withdraw from such common, collective, or pooled trust fund all or such
part of the Trust Fund as the Trustee may deem advisable.
(d) The Trustee, at the direction of the Administrator and pursuant to
instructions from the individual designated in the Adoption Agreement
for such purpose and subject to the conditions set forth in the
Adoption Agreement, shall ratably apply for, own, and pay all premiums
on Contracts on the lives of the Participants. Any initial or
additional Contract purchased on behalf of a Participant shall have a
face amount of not less than $1,000, the amount set forth in the
Adoption Agreement, or the limitation of the Insurer, whichever is
greater. If a life insurance Contract is to be purchased for a
Participant, the aggregate premium for ordinary life insurance for each
Participant must be less than 50% of the aggregate contributions and
Forfeitures allocated to a Participant's Combined Account. For purposes
of this limitation, ordinary life insurance Contracts are Contracts
with both non-decreasing death benefits and non-increasing premiums. If
term insurance or universal life insurance is purchased with such
contributions, the aggregate premium must be 25% or less of the
aggregate contributions and Forfeitures allocated to a Participant's
Combined Account. If both term insurance and ordinary life insurance
are purchased with such contributions, the amount expended for term
insurance plus one-half of the premium for ordinary life insurance may
not in the aggregate exceed 25% of the aggregate Employer contributions
and Forfeitures allocated to a Participant's Combined Account. The
Trustee must distribute the Contracts to the Participant or convert the
entire value of the Contracts at or before retirement into cash or
provide for a periodic income so that no portion of such value may be
used to continue life insurance protection beyond retirement.
Notwithstanding the above, the limitations imposed herein with respect
to the purchase of life insurance shall not apply, in the case of a
Profit Sharing Plan, to the portion of a Participant's Account that has
accumulated for at least two (2) Plan Years.
Notwithstanding anything hereinabove to the contrary, amounts
credited to a Participant's Qualified Voluntary Employee Contribution
Account pursuant to Section 4.9, shall not be applied to the purchase
of life insurance contracts.
(e) The Trustee will be the owner of any life insurance Contract
purchased under the terms of this Plan. The Contract must provide that
the proceeds will be payable to the Trustee; however, the Trustee shall
be required to pay over all proceeds of the Contract to the
Participant's designated Beneficiary in accordance with the
distribution provisions of Article VI. A Participant's spouse will be
the designated Beneficiary pursuant to Section 6.2, unless a qualified
election has been made in accordance with Sections 6.5 and 6.6 of the
Plan. if applicable. Under no circumstances shall the Trust retain any
part of the proceeds. However, the Trustee shall not pay the proceeds
in a method that would violate the requirements of the Retirement
Equity Act, as stated in Article VI of the Plan, or Code Section
401(a)(9) and the Regulations thereunder.
7.3 OTHER POWERS OF THE TRUSTEE
The Trustee, in addition to all powers and authorities under common
law, statutory
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authority, including the Act, and other provisions of this Plan, shall have the
following powers and authorities to be exercised in the Trustee's sole
discretion:
(a) To purchase, or subscribe for, any securities or other property and
to retain the same. In conjunction with the purchase of securities,
margin accounts may be opened and maintained;
(b) To sell, exchange, convey, transfer, grant options to purchase, or
otherwise dispose of any securities or other property held by the
Trustee, by private contract or at public auction. No person dealing
with the Trustee shall be bound to see to the application of the
purchase money or to inquire into the validity, expediency, or
propriety of any such sale or other disposition, with or without
advertisement;
(c) To vote upon any stocks, bonds, or other securities; to give
general or special proxies or powers of attorney with or without power
of substitution; to exercise any conversion privileges, subscription
rights or other options, and to make any payments incidental thereto;
to oppose, or to consent to, or otherwise participate in, corporate
reorganizations or other changes affecting corporate securities, and to
delegate discretionary powers, and to pay any assessments or charges in
connection therewith; and generally to exercise any of the powers of an
owner with respect to stocks, bonds, securities, or other property;
(d) To cause any securities or other property to be registered in the
Trustee's own name or in the name of one or more of the Trustee's
nominees, and to hold any investments in bearer form, but the books and
records of the Trustee shall at all times show that all such
investments are part of the Trust Fund;
(e) To borrow or raise money for the purposes of the Plan in such
amount, and upon such terms and conditions, as the Trustee shall deem
advisable; and for any sum so borrowed, to issue a promissory note as
Trustee, and to secure the repayment thereof by pledging all, or any
part, of the Trust Fund, and no person lending money to the Trustee
shall be bound to see to the application of the money lent or to
inquire into the validity, expediency, or propriety of any borrowing;
(f) To keep such portion of the Trust Fund in cash or cash balances as
the Trustee may, from time to time, deem to be in the best interests of
the Plan, without liability for interest thereon;
(g) To accept and retain for such time as it may deem advisable any
securities or other property received or acquired by it as Trustee
hereunder, whether or not such securities or other property would
normally be purchased as investments hereunder;
(h) To make, execute, acknowledge, and deliver any and all documents of
transfer and conveyance and any and all other instruments that may be
necessary or appropriate to Carry out the powers herein granted;
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(i) To Settle, compromise, or submit to arbitration any claims, debts,
or damages due or owing to or from the Plan, to commence or defend
suits or legal or administrative proceedings, and to represent the Plan
in all suits and legal and administrative proceedings;
(j) To employ suitable agents and counsel and to pay their reasonable
expenses an compensation, and such agent or counsel may or may not be
agent or counsel for the Employer:
(k) To apply for and procure from the Insurer as an investment of the
Trust Fund such annuity, or other Contracts (on the life of any
Participant) as the Administrator shall deem proper; to exercise, at
any time or from time to time, whatever rights and privileges may be
granted under such annuity, or other Contracts; to collect, receive,
and settle for the proceeds of all such annuity, or other Contracts as
and when entitled to do so under the provisions thereof;
(l) To invest funds of the Trust in time deposits or savings accounts
bearing a reasonable rate of interest in the Trustee's bank;
(m) To invest in Treasury Bills and other forms of United States
government obligations;
(n) To sell, purchase and acquire put or call options if the options
are traded on and purchased through a national securities exchange
registered under the Securities Exchange Act of 1934, as amended, or,
if the options are not traded on a national securities exchange, are
guaranteed by a member firm of the New York Stock Exchange;
(o) To deposit monies in federally insured savings accounts or
certificates of deposit in banks or savings and loan associations;
(p) To pool all or any of the Trust Fund, from time to time, with
assets belonging to any other qualified employee pension benefit trust
created by the Employer or any Affiliated Employer, and to commingle
such assets and make joint or common investments and carry joint
accounts on behalf of this Plan and such other trust or trusts,
allocating undivided shares or interests in such investments or
accounts or any pooled assets of the two or more trusts in accordance
with their respective interests;
(q) To do all such acts and exercise all such rights and privileges,
although not specifically mentioned herein, as the Trustee may deem
necessary to carry out the purposes of the Plan;
(r) Directed Investment Account. The powers granted to the Trustee
shall be exercised in the sole Fiduciary discretion of the Trustee.
However, if elected in the Adoption Agreement, each Participant may
direct the Trustee to separate and keep
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separate all or a portion of his interest in the Plan; and further each
Participant is authorized and empowered, in his sole and absolute
discretion, to give directions to the Trustee in such form as the
Trustee may require concerning the investment of the Participant's
Directed Investment Account, which directions must be followed by the
Trustee subject, however, to restrictions on payment of life insurance
premiums. Neither the Trustee nor any other persons including the
Administrator or otherwise shall be under any duty to question any such
direction of the Participant or to review any securities or other
property, real or personal, or to make any suggestions to the
Participant in connection therewith, and the Trustee shall comply as
promptly as practicable with directions given by the Participant
hereunder. Any such direction may be of a continuing nature or
otherwise and may be revoked by the Participant at any time in such
form as the Trustee may require. The Trustee may refuse to comply with
any direction from the Participant in the event the Trustee, in its
sole and absolute discretion, deems such directions improper by virtue
of applicable law, and in such event, the Trustee shall not be
responsible or liable for any loss or expense which may result. Any
costs and expenses related to compliance with the Participant's
directions shall be borne by the Participant's Directed Investment
Account.
Notwithstanding anything hereinabove to the contrary, the
Trustee shall not, at any time after December 31, 1981, invest any
portion of a Directed Investment Account in "collectibles" within the
meaning of that Term as employed in Code Section 408(m).
7.4 LOANS TO PARTICIPANTS
(a) If specified in the Adoption Agreement, the Trustee (or, if loans
are treated as Directed Investment pursuant to the Adoption Agreement,
the Administrator) may, in the Trustee's (or, if applicable, the
Administrator's) sole discretion, make loans to Participants or
Beneficiaries under the following circumstances: (1) loans shall be
made available to all Participants and Beneficiaries on a reasonably
equivalent basis; (2) loans shall not be made available to Highly
Compensated Employees in an amount greater than the amount made
available to other Participants; (3) loans shall bear a reasonable rate
of interest; (4) loans shall be adequately secured; and (5) shall
provide for periodic repayment over a reasonable period of time.
(b) Loans shall not be made to any Shareholder-Employee or
Owner-Employee unless an exemption for such loan is obtained pursuant
to Act Section 408 and further provided that such loan would not be
subject to tax pursuant to Code Section 4975.
(c) Loans shall not be granted to any Participant that provide for a
repayment period extending beyond such Participant's Normal Retirement
Date.
(d) Loans made pursuant to this Section (when added to the outstanding
balance of all other loans made by the Plan to the Participant) shall
be limited to the lesser of:
(1) $50,000 reduced by the excess (if any) of the highest
outstanding balance
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of loans from the Plan to the Participant during the one year
period ending on the day before the date on which such loan is
made, over the outstanding balance of loans from the Plan to
the Participant on the date on which such loan was made, or
(2) the greater of (A) one-half (1/2) of the present value of
the non-forfeitable accrued benefit of the Employee under the
Plan, or (B), if permitted pursuant to the Adoption Agreement,
$10,000.
For purposes of this limit, all plans of the Employer
shall be considered one plan. Additionally, with respect to
any loan made prior to January 1, 1987, the $50,000 limit
specified in (1) above shall be unreduced.
(e) No Participant loan shall take into account the present value of
such Participant's Qualified Voluntary Employee Contribution Account.
(f) Loans shall provide for level amortization with payments to be made
not less frequently than quarterly over a period not to exceed Eve (5)
years. However, loans used to acquire any dwelling unit which, within a
reasonable time, is to be used (determined at the time the loan is
made) as a principal residence of the Participant shall provide for
periodic repayment over a reasonable period of time that may exceed
five (5) years. Notwithstanding the foregoing, loans made prior to
January 1, 1987 which are used to acquire, construct, reconstruct or
substantially rehabilitate any dwelling unit which, within a reasonable
period of time is to be used (determined at the time the loan is made)
as a principal residence of the Participant or a member of his family
(within the meaning of Code Section 267(c)(4)) may provide for periodic
repayment over a reasonable period of time that may exceed five (5)
years. Additionally, loans made prior to January 1, 1987, may provide
for periodic payments which are made less frequently than quarterly and
which do not necessarily result in level amortization.
(g) An assignment or pledge of any portion of a Participant's interest
in the Plan and a loan, pledge, or assignment with respect to any
insurance Contract purchased under the Plan, shall be treated as a loan
under this Section.
(h) Any loan made pursuant to this Section after August 18, 1985 where
the Vested interest of the Participant is used to secure such loan
shall require the written consent of the Participant's spouse in a
manner consistent with Section 6.5(a) provided the spousal consent
requirements of such Section apply to the Plan. Such written consent
must be obtained within the 90-day period prior to the date the loan is
made. Any security interest held by the Plan by reason of an
outstanding loan to the Participant shall be taken into account in
determining the amount of the death benefit or Pre-Retirement Survivor
Annuity. However, no spousal consent shall be required under this
paragraph if the total accrued benefit subject to the security is not
in excess of $3,500.
(i) With regard to any loans granted or renewed on or after the last
day of the first
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Plan Year beginning after December 31, 1988, a Participant loan program
shall be established which must include, but need not be limited to,
the following:
(1) the identity of the person or positions authorized to
administer the Participant loan program;
(2) a procedure for applying for loans;
(3) the basis on which loans will be approved or denied;
(4) limitations, if any, on the types and amounts of loans
offered, including what constitutes a hardship or financial
need if selected in the Adoption Agreement,
(5) the procedure under the program for determining a
reasonable rate of interest;
(6) the types of collateral which may secure a Participant
loan; and
(7) the events constituting default and the steps that will be
taken to preserve plan assets.
Such Participant loan program shall be contained in a
separate written document which, when properly executed, is
hereby incorporated by reference and made a part of this plan.
Furthermore, such Participant loan program may be modified or
amended in writing from time to time without the necessity of
amending this Section of the Plan.
7.5 DUTIES OF THE TRUSTEE REGARDING PAYMENTS
At the direction of the Administrator, the Trustee shall, from time to
time, in accordance with the terms of the Plan, make payments out of the Trust
Fund. The Trustee shall not bc responsible in any way for the application of
such payments.
7.6 TRUSTEE'S COMPENSATION AND EXPENSES AND TAXES
The Trustee shall be paid such reasonable compensation as set forth in
the Trustee's fee schedule (if the Trustee has such a schedule) or as agreed
upon in writing by the Employer and the Trustee. An individual serving as
Trustee who already receives full-time pay from the Employer shall not receive
compensation from ,his Plan. In addition, the Trustee shall be reimbursed for
any reasonable expenses, including reasonable counsel fees incurred by it as
Trustee. Such compensation and expenses shall be paid from the Trust Fund unless
paid or advanced by the Employer. All taxes of any kind and all kinds whatsoever
that may be levied or assessed under existing or future laws upon, or in respect
of, the Trust Fund or the income thereof, shall be paid from the Trust Fund.
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7.7 ANNUAL REPORT OF THE TRUSTEE
Within a reasonable period of time after the later of the Anniversary
Date or receipt of the Employer's contribution for each Plan Year, the Trustee,
or its agent, shall furnish to the Employer and Administrator a written
statement of account with respect to the Plan Year for which such contribution
was made setting forth:
(a) the net income, or loss, of the Trust Fund;
(b) the gains, or losses, realized by the Trust Fund upon sales or
other disposition of the assets;
(c) the increase, or decrease, in the value of the Trust Fund;
(d) all payments and distributions made from the Trust Fund; and
(e) such further information as the Trustee and/or Administrator deems
appropriate. The Employer, forthwith upon its receipt of each such
statement of account, shall acknowledge receipt thereof in writing and
advise the Trustee and/or Administrator of its approval or disapproval
thereof. Failure by the Employer to disapprove any such statement of
account within thirty (30) days after its receipt thereof shall be
deemed an approval thereof. The approval by the Employer of any
statement of account shall be binding as to all matters embraced
therein as between the Employer and the Trustee to the same extent as
if the account of the Trustee had been settled by judgment or decree in
an action for a judicial settlement of its account in a court of
competent jurisdiction in which the Trustee, the Employer and all
persons having or claiming an interest in the Plan were parties;
provided, however, that nothing herein contained shall deprive the
Trustee of its right to have its accounts judicially settled if the
Trustee so desires.
7.8 AUDIT
(a) If an audit of the Plan's records shall be required by the Act and
the regulations thereunder for any Plan Year, the Administrator shall
direct the Trustee to engage on behalf of all Participants an
independent qualified public accountant for that purpose. Such
accountant shall, after an audit of the books and records of the Plan
in accordance with generally accepted auditing standards, within a
reasonable period after the close of the Plan Year, furnish to the
Administrator and the Trustee a report of his audit setting forth his
opinion as to whether any statements, schedules or lists, that are
required by Act Section 103 or the Secretary of Labor to be filed with
the Plan's annual report. are presented fairly in conformity with
generally accepted accounting principles applied consistently.
(b) All auditing and accounting fees shall be an expense of and may, at
the election of the Administrator, be paid from the Trust Fund.
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(c) If some or all of the information necessary to enable the
Administrator to comply with Act Section 103 is maintained by a bank,
insurance company, or similar institution, regulated and supervised and
subject to periodic examination by a state or federal agency, it shall
transmit and certify the accuracy of that information to the
Administrator as provided in Act Section 103(b) within one hundred and
twenty ( 120) days after the end of the Plan Year or such other date as
may be prescribed under regulations of the Secretary of Labor.
7.9 RESIGNATION, REMOVAL AND SUCCESSION OF TRUSTEE
(a) The Trustee may resign at any time by delivering to the Employer,
at least thirty (30) days before its effective date, a written notice
of his resignation.
(b) The Employer may remove the Trustee by mailing by registered or
certified mail, addressed to such Trustee at his last known address, at
least thirty (30) days before its effective date, a written notice of
his removal.
(c) Upon the death, resignation, incapacity, or removal of any Trustee,
a successor may be appointed by the Employer; and such successor, upon
accepting such appointment in writing and delivering same to the
Employer, shall, without further act, become vested with all the
estate, rights, powers, discretions, and duties of his predecessor with
like respect as if he were originally named as a Trustee herein. Until
such a successor is appointed, the remaining Trustee or Trustees shall
have full authority to act under the terms of the Plan.
(d) The Employer may designate one or more successors prior to the
death, resignation, incapacity, or removal of a Trustee. In the event a
successor is so designated by the Employer and accepts such
designation, the successor shall, without further act, become vested
with all the estate, rights, powers, discretions, and duties of his
predecessor with the like effect as if he were originally named as
Trustee herein immediately upon the death, resignation, incapacity, or
removal of his predecessor.
(e) Whenever any Trustee hereunder ceases to serve as such, he shall
furnish to the Employer and Administrator a written statement of
account with respect to the portion of the Plan Year during which he
served as Trustee. This statement shall be either (i) included as part
of the annual statement of account for the Plan Year required under
Section 7.7 or (ii) set forth in a special statement. Any such special
statement of account should be rendered to the Employer no later than
the due date of the annual statement of account for the Plan Year. The
procedures set forth in Section 7.7 for the approval by the Employer of
annual statements of account shall apply to any special statement of
account rendered hereunder and approval by the Employer of any such
special statement in the manner provided in Section 7.7 shall have the
same effect upon the statement as the Employer's approval of an annual
statement of account. No successor to the Trustee shall have any duty
or responsibility to investigate the acts or transactions of any
predecessor
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who has rendered all statements of account required by Section 7.7 and
this subparagraph.
7.10 TRANSFER OF INTEREST
Notwithstanding any other provision contained in this Plan, the Trustee
at the direction of the Administrator shall transfer the Vested interest, if
any, of such Participant in his account to another trust forming part of a
pension, profit sharing, or stock bonus plan maintained by such Participant's
new employer and represented by said employer in writing as meeting the
requirements of Code Section 401(a), provided that the trust to which such
transfers are made permits the transfer to be made.
(a) Notwithstanding any provision of the plan to the contrary, with
respect to distributions made after December 31, 1992, a Participant
shall be permitted to elect to have any "eligible rollover
distribution" transferred directly to an "eligible retirement plan"
specified by the Participant. The Plan provisions otherwise applicable
to distributions continue to apply to the direct transfer option. The
Participant shall, in the time and manner prescribed by the
Administrator. Specify the amount to be directly transferred and the
"eligible retirement plan" to receive the transfer, Any portion of a
distribution which is not transferred shall be distributed to the
Participant.
(b) For purposes of this Section, the term "eligible rollover.
distribution" means any distribution other than a distribution of
substantially equal periodic payments over the life or life expectancy
of the Participant (or joint life or joint life expectancies of the
Participant and the designated beneficiary) or a distribution over a
period certain of ten years or more. Amounts required to be distributed
under Code Section 401(a)(9) are not eligible rollover distributions.
The direct transfer option described in subsection (a) applies only to
eligible rollover distributions which would otherwise be includible in
gross income if not transferred.
(c) For purposes of this Section, the term "eligible retirement plan"
means an individual retirement account as described in Code Section
408(a), an individual retirement annuity as described in Code Section
408(b), an annuity plan as described in Code Section 403(a), or a
defined contribution plan as described in Code Section 401(a) which is
exempt from tax under Code Section 501(a) and which accepts rollover
distributions.
(d) The election described in subsection (a) also applies to the
surviving spouse after the Participant's death; however, distributions
to the surviving spouse may only be transferred to an individual
retirement account or individual retirement annuity. For purposes of
subsection (a), a spouse or former spouse who is the alternate payee
under a qualified domestic relations order as defined in Code Section
414(p) will be treated as the Participant.
7.11 TRUSTEE INDEMNIFICATION
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The Employer agrees to indemnify and save harmless the Trustee against
any and all claims, losses, damages, expenses and liabilities the Trustee may
incur in the exercise and performance of the Trustee's powers and duties
hereunder, unless the same are determined to be due to gross negligence or
willful misconduct.
7.12 EMPLOYER SECURITIES AND REAL PROPERTY
The Trustee shall be empowered to acquire and hold "qualifying Employer
securities" and "qualifying Employer real property," as those terms are defined
in the Act. However, no more than 100%, in the case of a Profit Sharing Plan or
401(k) Plan or 10%, in the case of a Money Purchase Plan of the fair market
value of all the assets in the Trust Fund may be invested in "qualifying
Employer securities" and "qualifying Employer real property."
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ARTICLE VIII
AMENDMENT, TERMINATION, AND MERGERS
8.1 AMENDMENT
(a) The Employer shall have the right at any time to amend this Plan
subject to the limitations of this Section. However, any amendment
which affects the rights, duties or responsibilities of the Trustee and
Administrator may only be made with the Trustee's and Administrator's
written consent. Any such amendment shall become effective as provided
therein upon its execution. The Trustee shall not be required to
execute any such amendment unless the amendment affects the duties of
the Trustee hereunder.
(b) The Employer may (1) change the choice of options in the Adoption
Agreement; (2) add overriding language in the Adoption Agreement when
such language is necessary to satisfy Code Sections 415 or 416 because
of the required aggregation of multiple plans; and (3) add certain
model amendments published by the Internal Revenue Service which
specifically provide that their adoption will not cause the Plan to be
treated as an individually designed plan. An Employer that amends the
Plan for any other reason. including a waiver of the minimum funding
requirement under Code Section 412(d), will no longer participate in
this Regional Prototype Plan and will be considered to have an
individually designed plan.
(c) The Employer expressly delegates authority to the sponsoring
organization of this Plan, the right to amend this Plan by submitting a
copy of the amendment to each Employer who has adopted this Plan after
first having received a ruling or favorable determination from the
Internal Revenue Service that the Plan as amended qualifies under Code
Section 401(a) and the Act.
(d) No amendment to the Plan shall be effective if it authorizes or
permits any part of the Trust Fund (other than such part as is required
to pay taxes and administration expenses) to be used for or diverted to
any purpose other than for the exclusive benefit of the Participants or
their Beneficiaries or estates, or causes any reduction in the amount
credited to the account of any Participant; or causes or permits any
portion of the Trust Fund to revert to or become property of the
Employer.
(e) Except as permitted by Regulations (including Regulation
1.411(d)(4), no Plan amendment or transaction having the effect of a
Plan amendment (such as a merger, plan transfer or similar transaction)
shall be effective if it eliminates or reduces any "Section 411(d)(6)
protected benefit" or adds or modifies conditions relating to "Section
411(d)(6) protected benefits" the result of which is a further
restriction on such benefit unless such protected benefits are
preserved with respect to benefits accrued as of the later of the
adoption date or effective date of the amendment. "Section 411(d)(6)
protected benefits" are benefits described in Code Section
411(d)(6)(A), early retirement benefits and retirement-type subsidies,
and optional forms of benefit.
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8.2 TERMINATION
(a) The Employer shall have the right at any time to terminate the Plan
by delivering to the Trustee and Administrator written notice of such
termination. Upon any full or partial termination all amounts credited
to the affected Participants' Combined Accounts shall become 100%
Vested and shall not thereafter be subject to forfeiture, and all
unallocated amounts shall be allocated to the accounts of all
Participants in accordance with the provisions hereof.
(b) Upon the full termination of the Plan, the Employer shall direct
the distribution of the assets to Participants in a manner which is
consistent with and satisfies the provisions of Section 6.5.
Distributions to a Participant shall be made in cash (or in property if
permitted in the Adoption Agreement) or through the purchase of
irrevocable nontransferable deferred commitments from the Insurer.
Except as permitted by Regulations, the termination of the Plan shall
not result in the reduction of "Section 411(d)(6) protected benefits"
as described in Section 8.1.
8.3 MERGER OR CONSOLIDATION
This Plan may be merged or consolidated with, or its assets and/or
liabilities may be transferred to any other plan only if the benefits which
would be received by a Participant of this Plan, in the event of a termination
of the plan immediately after such transfer, merger or consolidation, are at
least equal to the benefits the Participant would have received if the Plan had
terminated immediately before the transfer, merger or consolidation and such
merger or consolidation does not otherwise result in the elimination or
reduction of any "Section 41 l(d)(6) protected benefits" as described in Section
8.1(c).
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ARTICLE IX
MISCELLANEOUS
9.1 EMPLOYER ADOPTIONS
(a) Any organization may become the Employer hereunder by executing the
Adoption Agreement in form satisfactory to the Trustee, and it shall
provide such additional information as the Trustee may require. The
consent of the Trustee to act as such shall be signified by its
execution of the Adoption Agreement.
(b) Except as otherwise provided in this Plan, the affiliation of the
Employer and the participation of its Participants shall be separate
and apart from that of any other employer and its participants
hereunder.
9.2 PARTICIPANT'S RIGHTS
This Plan shall not be deemed to constitute a contract between the
Employer and any Participant or to be a consideration or an inducement for the
employment of any Participant or Employee. Nothing contained in this Plan shall
be deemed to give any Participant or Employee the right to be retained in the
service of the Employer or to interfere with the right of the Employer to
discharge any Participant or Employee at any time regardless of the effect which
such discharge shall have upon him as a Participant of this Plan.
9.3 ALIENATION
(a) Subject to the exceptions provided below, no benefit which shall be
payable to any person (including a Participant or his Beneficiary)
shall be subject in any manner to anticipation, alienation, sale,
transfer, assignment, pledge, encumbrance, or charge, and any attempt
to anticipate, alienate, sell, transfer, assign, pledge, encumber, or
charge the same shall be void; and no such benefit shall in any manner
be liable for, or subject to, the debts, contracts, liabilities,
engagements, or torts of any such person, nor shall it be subject to
attachment or legal process for or against such person, and the same
shall not be recognized except to such extent as may be required by
law.
(b) This provision shall not apply to the extent a Participant or
Beneficiary is indebted to the Plan, for any reason, under any
provision of this Plan. At the time a distribution is to be made to or
for a Participant's or Beneficiary's benefit, such proportion of the
amount to be distributed as shall equal such indebtedness shall be paid
to the Plan, to apply against or discharge such indebtedness. Prior to
making a payment, however, the Participant or Beneficiary must be given
written notice by the Administrator that such indebtedness is to be so
paid in whole or pan from his Participant's Combined Account. If the
Participant or Beneficiary does not agree that the indebtedness is a
valid claim against his Vested Participant's Combined Account, he shall
be entitled to a review of the validity of the claim in accordance with
procedures provided in Sections 2.12 and 2.13.
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(c) This provision shall not apply to a "qualified domestic relations
order" defined in Code Section 414(p), and those other domestic
relations orders permitted to be so treated by the Administrator under
the provisions of the Retirement Equity Act of 1984. The Administrator
shall establish a written procedure to determine the qualified status
of domestic relations orders and to administer distributions under such
qualified orders. Further, to the extent provided under a "qualified
domestic relations order." a former spouse of a Participant shall be
treated as the spouse or surviving spouse for all purposes under the
Plan.
9.4 CONSTRUCTION OF PLAN
This Plan and Trust shall be construed and enforced according to the
Act and the laws of the State or Commonwealth in which the Employer's principal
office is located, other than its laws respecting choice of law, to the extent
not pre-empted by the Act.
9.5 GENDER AND NUMBER
Wherever any words are used herein in the masculine, feminine or neuter
gender, they shall be construed as though they were also used in another gender
in all cases where they would so apply, and whenever any words are used herein
in the singular or plural form, they shall be construed as though they were also
used in the other form in all cases where they would so apply.
9.6 LEGAL ACTION
In the event any claim, suit, or proceeding is brought regarding the
Trust and/or Plan established hereunder to which the Trustee or the
Administrator may be a party, and such claim, suit, or proceeding is resolved in
favor of the Trustee or Administrator, they shall be entitled to be reimbursed
from the Trust Fund for any and all costs, attorney's fees, and other expenses
pertaining thereto incurred by them for which they shall have become liable.
9.7 PROHIBITION AGAINST DIVERSION OF FUNDS
(a) Except as provided below and otherwise specifically permitted by
law, it shall be impossible by operation of the Plan or of the Trust,
by termination of either, by power of revocation or amendment, by the
happening of any contingency, by collateral arrangement or by any other
means, for any part of the corpus or income of any Trust Fund
maintained pursuant to the Plan or any funds contributed thereto to be
used for, or diverted to, purposes other than the exclusive benefit of
Participants, Retired Participants, or their Beneficiaries.
(b) In the event the Employer shall make a contribution under a mistake
of fact pursuant to Section 403(c)(2)(A) of the Act. the Employer may
demand repayment of such contribution at any time within one (1) year
following the time of payment and the Trustees shall return such amount
to the Employer within the one (1) year period. Earnings of the Plan
attributable to the contributions may not be returned to the Employer
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but any losses attributable thereto must reduce the amount so returned.
9.8 BONDING
Every Fiduciary, except a bank or an insurance company, unless exempted
by the Act and regulations thereunder, shall be bonded in an amount not less
than 10% of the amount of the funds such Fiduciary handles; provided, however,
that the minimum bond shall be $1,000 and the maximum bond, $500,000. The amount
of funds handled shall be determined at the beginning of each Plan Year by the
amount of funds handled by such person, group, or class to be covered and their
predecessors, if any, during the preceding Plan Year, or if there is no
preceding Plan Year, then by the amount of the funds to be handled during the
then current year. The bond shall provide protection to the Plan against any
loss by reason of acts of fraud or dishonesty by the Fiduciary alone or in
connivance with others. The surety shall be a corporate surety company (as such
term is used in Act Section 412(a)(2)), and the bond shall be in a form approved
by the Secretary of Labor. Notwithstanding anything in the Plan 10 the contrary,
the cost of such bonds shall be an expense of and may, at the election of the
Administrator, be paid from the Trust Fund or by the Employer.
9.9 EMPLOYER'S AND TRUSTEE'S PROTECTIVE CLAUSE
Neither the Employer nor the Trustee, nor their successors, shall be
responsible for the validity of any Contract issued hereunder or for the failure
on the part of the Insurer to make payments provided by any such Contract, or
for the action of any person which may delay payment or render a Contract null
and void or unenforceable in whole or in part.
9.10 INSURER'S PROTECTIVE CLAUSE
The Insurer who shall issue Contracts hereunder shall not have any
responsibility for the validity of this Plan or for the tax or legal aspects of
this Plan. The Insurer shall be protected and held harmless in acting in
accordance with any written direction of the Trustee, and shall have no duty to
see to the application of any funds paid to the Trustee, nor be required to
question any actions directed by the Trustee. Regardless of any provision of
this Plan, the Insurer shall not be required to take or permit any action or
allow any benefit or privilege contrary to the terms of any Contract which it
issues hereunder, or the rules of the Insurer.
9.11 RECEIPT AND RELEASE FOR PAYMENTS
Any payment to any Participant, his legal representative, Beneficiary,
or to any guardian or committee appointed for such Participant or Beneficiary in
accordance with the provisions of this Plan, shall, to the extent thereof, be in
full satisfaction of all claims hereunder against the Trustee and the Employer.
9.12 ACTION BY THE EMPLOYER
Whenever the Employer under the terms of the Plan is permitted or
required to do or
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perform any act or matter or thing, it shall be done and performed by a person
duly authorized by its legally constituted authority.
9.13 NAMED FIDUCIARIES AND ALLOCATION OF RESPONSIBILITY
The "named Fiduciaries" of this Plan are (1) the Employer, (2) the
Administrator, (3) the Trustee, and (4) any Investment Manager appointed
hereunder. The named Fiduciaries shall have only those specific powers, duties,
responsibilities, and obligations as are specifically given them under the Plan,
In general, the Employer shall have the sole responsibility for making the
contributions provided for under Section 4.1; and shall have the sole authority
to appoint and remove the Trustee and the Administrator; to formulate the Plan's
"funding policy and method"; and to amend the elective provisions of the
Adoption Agreement or terminate, in whole or in part, the Plan. The
Administrator shall have the sole responsibility for the administration of the
Plan, which responsibility is specifically described in the Plan. The Trustee
shall have the sole responsibility of management of the assets held under the
Trust, except those assets, the management of which has been assigned to an
Investment Manager, who shall be solely responsible for the management of the
assets assigned to it, all as specifically provided in the Plan. Each named
Fiduciary warrants that any directions given, information furnished. or action
taken by it shall be in accordance with the provisions of the Plan, authorizing
or providing for such direction, information or action. Furthermore, each named
Fiduciary may rely upon any such direction, information or action of another
named Fiduciary as being proper under the Plan, and is not required under the
Plan to inquire into the propriety of any such direction, information or action.
It is intended under the Plan that each named Fiduciary shall be responsible for
the proper exercise of his own powers, duties, responsibilities and obligations
under the Plan. No named Fiduciary shall guarantee the Trust Fund in any manner
against investment loss or depreciation in asset value. Any person or group may
serve in more than one Fiduciary capacity.
9.14 HEADINGS
The headings and subheadings of this Plan have been inserted for
convenience of reference and are to be ignored in any construction of the
provisions hereof.
9.15 APPROVAL BY INTERNAL REVENUE SERVICE
(a) Notwithstanding anything herein to the contrary, if, pursuant to a
timely application filed by or in behalf of the Plan, the Commissioner
of Internal Revenue Service or his delegate should determine that the
Plan does not initially qualify as a tax-exempt plan under Code
Sections 401 and 501, and such determination is not contested, or if
contested, is finally upheld, then if the Plan is a new plan, it shall
be void ab initio and all amounts contributed to the Plan, by the
Employer, less expenses paid, shall be returned within one year and the
Plan shall terminate, and the Trustee shall be discharged from all
further obligations. If the disqualification relates to an amended
plan, then the Plan shall operate as if it had not been amended and
restated.
(b) Except as specifically stated in the Plan, any contribution by the
Employer to the
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Trust Fund is conditioned upon the deductibility of the contribution by
the Employer under the Code and, to the extent any such deduction is
disallowed, the Employer may within one (1) year following a final
determination of the disallowance, whether by agreement with the
Internal Revenue Service or by final decision of a court of competent
jurisdiction, demand repayment of such disallowed contribution and the
Trustee shall return such contribution within one (1) year following
the disallowance. Earnings of the Plan attributable to the excess
contribution may not be returned to the Employer, but any losses
attributable thereto must reduce the amount so returned.
9.16 UNIFORMITY
All provisions of this Plan shall be interpreted and applied in a
uniform, nondiscriminatory manner.
9.17 PAYMENT OF BENEFITS
Benefits under this Plan shall be paid, subject to Section 6.10 and
Section 6.11 only upon death, Total and Permanent Disability, normal or early
retirement. termination of employment, or upon Plan Termination.
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ARTICLE X
PARTICIPATING EMPLOYERS
10.1 ELECTION TO BECOME A PARTICIPATING EMPLOYER
Notwithstanding anything herein to the contrary, with the consent of
the Employer and Trustee, any Affiliated Employer may adopt this Plan and all of
the provisions hereof. and participate herein and be known as a Participating
Employer, by a properly executed document evidencing said intent and will of
such Participating Employer.
10.2 REQUIREMENTS OF PARTICIPATING EMPLOYERS
(a) Each Participating Employer shall be required to select the same
Adoption Agreement provisions as those Selected by the Employer other
than the Plan Year, the Fiscal Year, and such other items that must, by
necessity, vary among employers.
(b) Each such Participating Employer shall be required to use the same
Trustee as provided in this Plan.
(c) The Trustee may, but shall not be required to, commingle, hold and
invest as one Trust Fund all contributions made by Participating
Employers, as well as all increments thereof.
(d) The transfer of any Participant from or to an Employer
participating in this Plan, whether he be an Employee of the Employer
or a Participating Employer, shall not affect such Participant's rights
under the Plan, and all amounts credited to such Participant's Combined
Account as well as his accumulated service time with the transferor or
predecessor, and his length of participation in the Plan, shall
continue to his credit.
(e) Any expenses of the Plan which are to be paid by the Employer or
borne by the Trust Fund shall be paid by each Participating Employer in
the same proportion that the total amount standing to the credit of all
Participants employed by such Employer bears to the total standing to
the credit of all Participants.
10.3 DESIGNATION OF AGENT
Each Participating Employer shall be deemed to be a part of this Plan;
provided, however, that with respect to all of its relations with the Trustee
and Administrator for the purpose of this Plan, each Participating Employer
shall be deemed to have designated irrevocably the Employer as its agent. Unless
the context of the Plan clearly indicates the contrary, the word "Employer"
shall be deemed to include each Participating Employer as related to its
adoption of the Plan.
10.4 EMPLOYEE TRANSFERS
It is anticipated that an Employee may be transferred between
Participating Employers,
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and in the event of any such transfer, the Employee involved shall carry with
him his accumulated service and eligibility. No such transfer shall effect a
termination of employment hereunder, and the Participating Employer to which the
Employee is transferred shall thereupon become obligated hereunder with respect
to such Employee in the same manner as was the Participating Employer from whom
the Employee was transferred.
10.5 PARTICIPATING EMPLOYER'S CONTRIBUTION AND FORFEITURES
Any contribution or Forfeiture subject to allocation during each Plan
Year shall be allocated among all Participants of all Participating Employers in
accordance with the provisions of this Plan. On the basis of the information
furnished by the Administrator, the Trustee shall keep separate books and
records concerning the affairs of each Participating Employer hereunder and as
to the accounts and credits of the Employees of each Participating Employer. The
Trustee may, but need not, register Contracts so as to evidence that a
particular Participating Employer is the interested Employer hereunder, but in
the event of an Employee transfer from one Participating Employer to another,
the employing Employer shall immediately notify the Trustee thereof.
10.6 AMENDMENT
Amendment of this Plan by the Employer at any time when there shall be
a Participating Employer hereunder shall only be by the written action of each
and every Participating Employer and with the consent of the Trustee where such
consent is necessary in accordance with the terms of this Plan.
10.7 DISCONTINUANCE OF PARTICIPATION
Except in the case of a Standardized Plan, any Participating Employer
shall be permitted to discontinue or revoke its participation in the Plan at any
time. At the time of any such discontinuance or revocation, satisfactory
evidence thereof and of any applicable conditions imposed shall be delivered to
the Trustee. The Trustee shall thereafter transfer, deliver and assign Contracts
and other Trust Fund assets allocable to the Participants of such Participating
Employer to such new Trustee as shall have been designated by such Participating
Employer, in the event that it has established a separate pension plan for its
Employees provided, however, that no such transfer shall be made if the result
is the elimination or reduction of any "Section 41l(d)(6) protected benefits" in
accordance with Section 8.1(c). If no successor is designated, the Trustee shall
retain such assets for the Employees of said Participating Employer pursuant to
the provisions of Article VII hereof. In no such event shall any part of the
corpus or income of the Trust Fund as it relates to such Participating Employer
be used for or diverted for purposes other than for the exclusive benefit of the
Employees of such Participating Employer.
10.8 ADMINISTRATOR'S AUTHORITY
The Administrator shall have authority to make any and all necessary
rules or regulations, binding upon all Participating Employers and all
Participants, to effectuate the purpose of this
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Article.
10.9 PARTICIPATING EMPLOYER CONTRIBUTION FOR AFFILIATE
If any Participating Employer is prevented in whole or in part from
making a contribution which it would otherwise have made under the Plan by
reason of having no current or accumulated earnings or profits, or because such
earnings or profits are less than the contribution which it would otherwise have
made, then, pursuant to Code Section 404(a)(3)(B), so much of the contribution
which such Participating Employer was so prevented from making may be made, for
the benefit of the participating employees of such Participating Employer, by
other Participating Employers who are members of the same affiliated group
within the meaning of Code Section 1504 to the extent of their current or
accumulated earnings or profits, except that such contribution by each such
other Participating Employer shall be limited to the proportion of its total
current and accumulated earnings or profits remaining after adjustment for its
contribution to the Plan made without regard to this paragraph which the total
prevented contribution bears to the total current and accumulated earnings or
profits of all the Participating Employers remaining after adjustment for all
contributions made to the Plan without regard to this paragraph.
A Participating Employer on behalf of whose employees a contribution is
made under this paragraph shall not be required to reimburse the contributing
Participating Employers.
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ARTICLE XI
CASH OR DEFERRED PROVISIONS
Notwithstanding any provisions in the Plan to the contrary, the
provisions of this Article shall apply with respect to any 401(k) Profit Sharing
Plan.
Notwithstanding anything in this Article to the contrary, effective as
of the Plan Year in which this amendment becomes effective, the Actual Deferral
Percentage Test and the Actual Contribution Percentage Test shall be applied
(and adjusted) by applying the Family Member aggregation rules of Code Section
414(q)(6).
11.1 FORMULA FOR DETERMINING EMPLOYER'S CONTRIBUTION
For each Plan Year, the Employer shall contribute to the Plan:
(a) The amount of the total salary reduction elections of all
Participants made pursuant to Section 11.2(a), which amount shall be
deemed an Employer's Elective Contribution, plus
(b) If specified in E3 of the Adoption Agreement, a matching
contribution equal to the percentage specified in the Adoption
Agreement of the Deferred Compensation of each Participant eligible to
share in the allocations of the matching contribution, which amount
shall be deemed an Employer's Non-Elective or Elective Contribution as
selected in the Adoption Agreement, plus
(c) If specified in E4 of the Adoption Agreement, a discretionary
amount, if any, which shall be deemed an Employer's Non-Elective
Contribution, plus
(d) If specified in E5 of the Adoption Agreement, a Qualified
Non-Elective Contribution.
(e) Notwithstanding the foregoing, however, the Employer's
contributions for any Fiscal Year shall not exceed the maximum amount
allowable as a deduction to the Employer under the provisions of Code
Section 404. All contributions by the Employer shall be made in cash or
in such property as is acceptable to the Trustee.
(f) Except, however, to the extent necessary to provide the top heavy
minimum allocations, the Employer shall make a contribution even if it
exceeds current or accumulated Net Profit or the amount which is
deductible under Code Section 404.
(g) Employer Elective Contributions accumulated through payroll
deductions shall be paid to the Trustee as of the earliest date on
which such contributions can reasonably be segregated from the
Employer's general assets, but in any event within ninety (90) days
from the date on which such amounts would otherwise have been payable
to the Participant in cash. The provisions of Department of Labor
regulations 2510.3-102 are
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incorporated herein by reference. Furthermore, any additional Employer
contributions which are allocable to the Participant's Elective Account
for a Plan Year shall be paid to the Plan no later than the
twelve-month period immediately following the close of such Plan Year.
11.2 PARTICIPANT'S SALARY REDUCTION ELECTION
(a) If selected in the Adoption Agreement, each Participant may elect
to defer his Compensation which would have been received in the Plan
Year, but for the deferral election, subject to the limitations of this
Section and the Adoption Agreement. A deferral election (or
modification of an earlier election) may not be made with respect to
Compensation which is currently available on or before the date the
Participant executed such election, or if later, the latest of the date
the Employer adopts this cash or deferred arrangement, or the date such
arrangement first became effective. Any elections made pursuant to this
Section shall become effective as soon as is administratively feasible.
Additionally, if elected in the Adoption Agreement, each
Participant may elect to defer and have allocated for a Plan Year all
or a portion of any cash bonus attributable to services performed by
the Participant for the Employer during such Plan Year and which would
have been received by the Participant on or before two and one-half
months following the end of the Plan Year but for the deferral. A
deferral election may not be made with respect to cash bonuses which
are currently available on or before the date the Participant executed
such election. Notwithstanding the foregoing, cash bonuses attributable
to services performed by the Participant during a Plan Year but which
are to be paid to the Participant later than two and one-half months
after the close of such Plan Year will be subjected to whatever
deferral election is in effect at the time such cash bonus would have
otherwise been received.
The amount by which Compensation and/or cash bonuses are
reduced shall be that Participant's Deferred Compensation and be
treated as an Employer Elective Contribution and allocated to that
Participant's Elective Account.
Once made, a Participant's election to reduce Compensation
shall remain in effect until modified or terminated. Modifications may
be made as specified in the Adoption Agreement, and terminations may be
made at any time. Any modification or termination of an election will
become effective as soon as is administratively feasible.
(b) The balance in each Participant's Elective Account shall be fully
Vested at all times and shall not be subject to Forfeiture for any
reason.
(c) Amounts held in the Participant's Elective Account and Qualified
Non-Elective Account may be distributable as permitted under the Plan,
but in no event prior to the earlier of,
(1) a Participant's termination of employment, Total and
Permanent
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Disability, or death;
(2) a Participant's attainment of age 59 1/2;
(3) the proven financial hardship of a Participant, subject to
the limitations of Section 11.8;
(4) the termination of the Plan without the existence at the
time of Plan termination of another defined contribution plan
(other than an employee stock ownership plan as defined in
Code Section 4975(e)(7)) or the establishment of a successor
defined contribution plan (other than an employee stock
ownership plan as defined in Code Section 4975(c)(7)) by the
Employer or an Affiliated Employer within the period ending
twelve months after distribution of all assets from the Plan
maintained by the Employer;
(5) the date of the sale by the Employer to an entity that is
not an Affiliated Employer of substantially all of the assets
(within the meaning of Code Section 409(d)(2)) with respect to
a Participant who continues employment with the corporation
acquiring such assets; or
(6) the date of the sale by the Employer or an Affiliated
Employer of its interest in a subsidiary (within the meaning
of Code Section 409(d)(3)) to an entity that is not an
Affiliated Employer with respect to a Participant who
continues employment with such subsidiary.
(d) In any Plan Year beginning after December 31, 1986, a Participant's
Deferred Compensation made under this Plan and all other plans,
contracts or arrangements of the Employer maintaining this Plan shall
not exceed the limitation imposed by Code Section 402(g), as in effect
for the calendar year in which such Plan Year began. If such dollar
limitation is exceeded solely from elective deferrals made under this
Plan or any other Plan maintained by the Employer, a Participant will
be deemed to have notified the Administrator of such excess amount
which shall be distributed in a manner consistent with Section 11.2(f).
This dollar limitation shall be adjusted annually pursuant to the
method provided in Code Section 415(d) in accordance with Regulations.
(e) In the event a Participant has received a hardship distribution
pursuant to Regulation 1.401(k)-1(d)(2)(iii)(B) from any other plan
maintained by the Employer or from his Participant's Elective Account
pursuant to Section 11.8, then such Participant shall not be permitted
to elect to have Deferred Compensation contributed to the Plan on his
behalf for a period of twelve (12) months following the receipt of the
distribution. Furthermore, the dollar limitation under Code Section
402(g) shall be reduced, with respect to the Participant's taxable year
following the taxable year in which the hardship distribution was made,
by the amount of such Participant's Deferred Compensation, if any, made
pursuant to this Plan (and any other plan maintained by the Employer)
for the taxable year of the hardship distribution.
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(f) If a Participant's Deferred Compensation under this Plan together
with any elective deferrals (as defined in Regulation 1.402(g)-1(b))
under another qualified cash or deferred arrangement (as defined in
Code Section 401(k)), a simplified employee pension (as defined in Code
Section 408(k)), a salary reduction arrangement (within the meaning of
Code Section 3121(a)(5)(D)), a deferred compensation plan under Code
Section 457, or a trust described in Code Section 501(c)(18)
cumulatively exceed the limitation imposed by Code Section 402(g) (as
adjusted annually in accordance with the method provided in Code
Section 415(d) pursuant to Regulations) for such Participant's taxable
year, the Participant may, not later than March 1st following the close
of his taxable year, notify the Administrator in writing of such excess
and request that his Deferred Compensation under this Plan be reduced
by an amount specified by the Participant. In such event, the
Administrator shall direct the Trustee to distribute such excess amount
(and any Income allocable to such excess amount) to the Participant not
later than the first April 15th following the close of the
Participant's taxable year. Distributions in accordance with this
paragraph may be made for any taxable year of the Participant which
begins after December 31, 1986. Any distribution of less than the
entire amount of Excess Deferred Compensation and Income shall be
treated as a pro rata distribution of Excess Deferred Compensation and
Income. The amount distributed shall not exceed the Participant's
Deferred Compensation under the Plan for the taxable year. Any
distribution on or before the last day of the Participant's taxable
year must satisfy each of the following conditions:
(1) the Participant shall designate the distribution as Excess
Deferred Compensation;
(2) the distribution must be made after the date on which the
Plan received the Excess Deferred Compensation, and
(3) the Plan must designate the distribution as a distribution
of Excess Deferred Compensation.
Any distribution under this Section shall be made
first from unmatched Deferred Compensation and, thereafter,
simultaneously from Deferred Compensation which is matched and
matching contributions which relate to such Deferred
Compensation. However, any such matching contributions which
are not Vested shall be forfeited in lieu of being
distributed.
For the purpose of this Section, "Income" means the
amount of income or loss allocable to a Participant's Excess
Deferred Compensation and shall be equal to the sum of the
allocable gain or loss for the taxable year of the Participant
and the allocable gain or loss for the period between the end
of the taxable year of the Participant and the date of
distribution ("gap period"). The income or loss allocable to
each such period is calculated separately and is determined by
multiplying the income or loss allocable to the Participant's
Deferred
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Compensation for the respective period by a fraction. The
numerator of the fraction is the Participant's Excess Deferred
Compensation for the taxable year of the Participant. The
denominator is the balance, as of the last day of the
respective period. of the Participant's Elective Account that
is attributable to the Participant's Deferred Compensation
reduced by the gain allocable to such total amount for the
respective period and increased by the loss allocable to such
total amount for the respective period.
In lieu of the "fractional method" described above, a
"safe harbor method" may be used to calculate the allocable
income or loss for the "gap period." Under such "safe harbor
method," allocable income or loss for the "gap period" shall
be deemed to equal ten percent (10%) of the income or loss
allocable to a Participant's Excess Deferred Compensation for
the taxable year of the Participant multiplied by the number
of calendar months in the "gap period." For purposes of
determining the number of calendar months in the "gap period,"
a distribution occurring on or before the fifteenth day of the
month shall be treated as having been made on the last day of
the preceding month and a distribution occurring after such
fifteenth day shall be treated as having been made on the
first day of the next subsequent month.
Income or loss allocable to any distribution of
Excess Deferred Compensation on or before the last day of the
taxable year of the Participant shall be calculated from the
first day of the taxable year of the Participant to the date
on which the distribution is made pursuant to either the
"fractional method" or the "safe harbor method."
Notwithstanding the above, for any distribution under
this Section which is made after August 15, 1991, such
distribution shall not include any income for the "gap
period". Further provided, for any distribution under this
Section which is made after August 15, 1991, the amount of
Income may be computed using a reasonable method that is
consistent with Section 4.3(c), provided such method is used
consistently for all Participants and for all such
distributions for the Plan Year.
Notwithstanding the above, for the 1987 calendar
year, Income during the "gap period" shall not be taken into
account.
(g) Notwithstanding the above, a Participant's Excess Deferred
Compensation shall be reduced, but not below zero, by any distribution
and/or re-characterization of Excess Contributions pursuant to Section
11.5(a) for the Plan Year beginning with or within the taxable year of
the Participant.
(h) At Normal Retirement Date, or such other date when the Participant
shall be entitled to receive benefits. the fair market value of the
Participant's Elective Account shall be used to provide benefits to the
Participant or his Beneficiary.
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(i) Employer Elective Contributions made pursuant to this Section may
be segregated into a separate account for each Participant in a
federally insured savings account, certificate of deposit in a bank or
savings and loan association, money market certificate, or other
short-term debt security acceptable to the Trustee until such time as
the allocations pursuant to Section 11.3 have been made.
(j) The Employer and the Administrator shall adopt a procedure
necessary to implement the salary reduction elections provided for
herein.
11.3 ALLOCATION OF CONTRIBUTION, FORFEITURES AND EARNINGS
(a) The Administrator shall establish and maintain an account in the
name of each Participant to which the Administrator shall credit as of
each Anniversary Date, or other valuation date, all amounts allocated
to each such Participant as set forth herein.
(b) The Employer shall provide the Administrator with all information
required by the Administrator to make a proper allocation of the
Employer's contributions for each Plan Year. Within a reasonable period
of time after the date of receipt by the Administrator of such
information, the Administrator shall allocate such contribution as
follows:
(1) With respect to the Employer's Elective Contribution made
pursuant to Section 11.1(a), to each Participant's Elective
Account in an amount equal to each such Participant's Deferred
Compensation for the year.
(2) With respect to the Employer's Matching Contribution made
pursuant to Section 11.1(b), to each Participant's Account, or
Participant's Elective Account as selected in E3 of the
Adoption Agreement, in accordance with Section 11.1(b).
Except, however, a Participant who is not credited
with a Year of Service during any Plan Year shall or shall not
share in the Employer's Matching Contribution for that year as
provided in E3 of the Adoption Agreement. However, for Plan
Years beginning after 1989, if this is a standardized Plan, a
Participant shall share in the Employer's Matching
Contribution regardless of Hours of Service.
(3) With respect to the Employer's Non-Elective Contribution
made pursuant to Section 1.1(c), to each Participant's Account
in accordance with the provisions of Sections 4.3(b)(2) or
4.3(b)(3), whichever is applicable, 4.3(k) and 4.3(l).
(4) With respect to the Employer's Qualified Non-Elective
Contribution made pursuant to Section 11.1(d), to each
Participant's Qualified Non-Elective Contribution Account in
the same proportion that each such Participant's Compensation
for the year bears to the total Compensation of all
Participants for
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such year. However, for any Plan Year beginning prior to
January 1, 1990, and if elected in the non-standardized
Adoption Agreement for any Plan Year beginning on or after
January 1, 1990, a Participant who is not credited with a Year
of Service during any Plan Year shall not share in the
Employer's Qualified Non-Elective Contribution for that year,
unless required pursuant to Section 4.3(h). In addition, the
provisions of Sections 4.3(k) and 4.3(o) shall apply with
respect to the allocation of the Employer's Qualified
Non-Elective contribution.
(c) Notwithstanding anything in the Plan to the contrary, for Plan
Years beginning after December 31, 1988, in determining whether a
Non-Key Employee has received the required minimum allocation pursuant
to Section 4.3(l) such Non-Key Employee's Deferred Compensation and
matching contributions used to satisfy the "Actual Deferral Percentage"
test pursuant to Section 11.4(a) or the "Actual Contribution
Percentage" test of Section 11.6(a) shall not be taken into account.
(d) Notwithstanding anything herein to the contrary, participants who
terminated employment during the Plan Year shall share in the salary
reduction contributions made by the Employer for the year of
termination without regard to the Hours of Service credited.
(e) Notwithstanding anything herein to the contrary (other than
Sections 11.3(d) and 11.3(g)), any Participant who terminated
employment during the Plan Year for reasons other than death, Total and
Permanent Disability, or retirement shall or shall not share in the
allocations of the Employer's Matching Contribution made pursuant to
Section 11.1(b). the Employer's Non-Elective Contributions made
pursuant to Section 11.1(c). the Employer's Qualified Non-Elective
Contribution made pursuant to Section 11.1(d), and Forfeitures as
provided in the Adoption Agreement. Notwithstanding the foregoing. for
Plan Years beginning, after 1989, if this is a standardized Plan, any
such terminated Participant shall share in such allocations provided
the terminated Participant completed more than 500 Hours of Service.
(f) Notwithstanding anything herein to the contrary, Participants
terminating for reasons of death, Total and Permanent Disability, or
retirement shall share in the allocation of the Employer's Matching
Contribution made pursuant to Section 11.1(b), the Employer's
Non-Elective Contributions made pursuant to Section 11.1(c), the
Employer's Qualified Non-Elective Contribution made pursuant to Section
11.1(d), and Forfeitures as provided in this Section regardless of
whether they completed a Year of Service during the Plan Year.
(g) Notwithstanding any election in the Adoption Agreement to the
contrary, if this is a non-standardized Plan that would otherwise fail
to meet the requirements of Code Sections 401(a)(26),410(b)(1), or
410(b)(2)(A)(i) and the Regulations thereunder because Employer
matching Contributions made pursuant to Section 11.1(b), Employer
Non-Elective Contributions made pursuant to Section 11.1(c) or Employer
Qualified Non-Elective Contributions made pursuant to Section 11.1(d)
have not been allocated to a
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sufficient number or percentage of Participants for a Plan Year, then
the following rules shall apply:
(1) The group of Participants eligible to share in the
respective contributions for the Plan Year shall be expanded
to include the minimum number of Participants who would not
otherwise be eligible as are necessary to satisfy the
applicable test specified above. The specific participants who
shall become eligible under the terms of this paragraph shall
be those who are actively employed on the last day of the Plan
Year and, when compared to similarly situated Participants,
have completed the greatest number of Hours of Service in the
Plan Year.
(2) If after application of paragraph (1) above, the
applicable test is still not satisfied, then the group of
Participants eligible to share for the Plan Year shall be
further expanded to include the minimum number of Participants
who are not actively employed on the last day of the Plan Year
as are necessary to satisfy the applicable test. The specific
Participants who shall become eligible to share shall be those
Participants, when compared to similarly situated
Participants. who have completed the greatest number of Hours
of Service in the Plan Year before terminating employment.
11.4 ACTUAL DEFERRAL PERCENTAGE TESTS
(a) Maximum Annual Allocation: For each Plan Year beginning after
December 31, 1986, the annual allocation derived from Employer Elective
Contributions and Qualified Non-Elective Contributions to a
Participant's Elective Account and Qualified Non-Elective Account shall
satisfy one of the following tests:
(1) The "Actual Deferral Percentage" for the Highly
Compensated Participant group shall not be more than the
"Actual Deferral Percentage" of the Non-Highly Compensated
Participant group multiplied by 1.25, or
(2) The excess of the "Actual Deferral Percentage" for the
Highly Compensated Participant group over the "Actual Deferral
Percentage" for the Non-Highly Compensated Participant group
shall not be more than two percentage points. Additionally,
the "Actual Deferral Percentage" for the Highly Compensated
Participant group shall not exceed the "Actual Deferral
Percentage" for the Non-Highly Compensated Participant group
multiplied by 2. The provisions of Code Section 401(k)(3) and
Regulation 1.401(k)-1(b) are incorporated herein by reference.
However, for Plan Years beginning after December 31,
1988, to prevent the multiple use of the alternative method
described in (2) above and Code Section 401(m)(9)(A), any
Highly Compensated Participant eligible to make elective
deferrals pursuant to Section 11.2 and to make Employee
contributions or
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to receive matching contributions under this Plan or under any
other plan maintained by the Employer or an Affiliated
Employer shall have his actual contribution ratio reduced
pursuant to Regulation 1.401(m)-2, the provisions of which are
incorporated herein by reference.
(b) For the purposes of this Section "Actual Deferral Percentage"
means, with respect to the Highly Compensated Participant group and
Non-Highly Compensated Participant group for a Plan Year, the average
of the ratios, calculated separately for each Participant in such
group, of the amount of Employer Elective Contributions and Qualified
Non-Elective Contributions allocated to each Participant's Elective
Account and Qualified Non-Elective Account for such Plan Year, to such
Participant's "414(s) Compensation" for such Plan Year. The actual
deferral ratio for each Participant and the "Actual Deferral
Percentage" for each group, for Plan Years beginning after December 31,
1988, shall be calculated to the nearest one-hundredth of one percent
of the Participant's "414(s) Compensation." Employer Elective
Contributions allocated to each Non-Highly Compensated Participant's
Elective Account shall be reduced by Excess Deferred Compensation to
the extent such excess amounts are made under this Plan or any other
plan maintained by the Employer.
(c) For the purpose of determining the actual deferral ratio of a
Highly Compensated Participant who is subject to the Family Member
aggregation rules of Code Section 414(q)(6) because such Participant is
either a "five percent owner" of the Employer or one of the ten (10)
Highly Compensated Employees paid the greatest "415 Compensation"
during the year, the following shall apply:
(1) The combined actual deferral ratio for the family group
(which shall be treated as one Highly Compensated Participant)
shall be the greater of: (i) the ratio determined by
aggregating Employer Elective Contributions and "414(s)
Compensation" of all eligible Family Members who are Highly
Compensated Participants without regard to family aggregation;
and (ii) the ratio determined by aggregating Employer Elective
Contributions and "414(s) Compensation" of all eligible Family
Members (including Highly Compensated Participants). However,
in applying the $200.000 limit to "414(s) Compensation" for
Plan Years beginning after December 31, 1988, Family Members
shall include only the affected Employee's spouse and any
lineal descendants who have not attained age 19 before the
close of the Plan Year.
(2) The Employer Elective Contributions and "414(s)
Compensation" of all Family Members shall be disregarded for
purposes of determining the "Actual Deferral Percentage" of
the Non-Highly Compensated Participant group except to the
extent taken into account in paragraph (1) above.
(3) If a Participant is required to be aggregated as a member
of more than one family group in a plan, all Participants who
are members of those family groups that include the
Participant are aggregated as one family group in accordance
with
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paragraphs (1) and (2) above.
(d) For the purposes of this Section and Code Sections 401(a)(4);
410(b) and 401(k), if two or more plans which include cash or deferred
arrangements are considered one plan for the purposes of Code Section
401(a)(4) or 410(b) (other than Code Section 401(b)(2)(A)(ii) as in
effect for Plan Years beginning after December 31, 1988), the cash or
deferred arrangements included in such plans shall be treated as one
arrangement. In addition, two or more cash or deferred arrangements may
be considered as a single arrangement for purposes of determining
whether or not such arrangements satisfy Code Sections 401(a)(4),
410(b) and 401(k). In such a case. the cash or deferred arrangements
included in such plans and the plans including such arrangements shall
be treated as one arrangement and as one plan for purposes of this
Section and Code Sections 401(a)(4), 410(b) and 401(k). For plan years
beginning after December 31, 1989, plans may be aggregated under this
paragraph (e) only if they have the same plan year.
Notwithstanding the above, for Plan Years beginning after
December 31, 1988, an employee stock ownership plan described in Code
Section 4975(e)(7) may not be combined with this Plan for purposes of
determining whether the employee stock ownership plan or this Plan
satisfies this Section and Code Sections 401(a)(4), 410(b) and 401(k).
(e) For the purposes of this Section, if a Highly Compensated
Participant is a Participant under two (2) or more cash or deferred
arrangements (other than a cash or deferred arrangement which is part
of an employee stock ownership plan as defined in Code Section
4975(e)(7) for Plan Years beginning after December 31, 1988) of the
Employer or an Affiliated Employer, all such cash or deferred
arrangements shall be treated as one cash or deferred arrangement for
the purpose of determining the actual deferral ratio with respect to
such Highly Compensated Participant. However, for Plan Years beginning
after December 31, 1988, if the cash or deferred arrangements have
different Plan Years, this paragraph shall be applied by treating all
cash or deferred arrangements ending with or within the same calendar
year as a single arrangement.
11.5 ADJUSTMENT TO ACTUAL DEFERRAL PERCENTAGE TESTS
In the event that the initial allocations of the Employer's Elective
Contributions and Qualified Non-Elective Contributions do not satisfy one of the
tests set forth in Section 11.4, for Plan Years beginning after December 31,
1986, the Administrator shall adjust Excess Contributions pursuant to the
options set forth below:
(a) On or before the fifteenth day of the third month following the end
of each Plan Year, the Highly Compensated Participant having the
highest actual deferral ratio shall have his portion of Excess
Contributions distributed to him and/or at his election
re-characterized as a voluntary Employee contribution pursuant to
Section 4.7 until one of the tests set forth in Section 11.4 is
satisfied, or until his actual deferral ratio equals the actual
deferral ratio of the Highly Compensated Participant having the second
highest
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actual deferral ratio. This process shall continue until one of the
tests set forth in Section 11.4 is satisfied. For each Highly
Compensated Participant, the amount of Excess Contributions is equal to
the Elective Contributions and Qualified Non-Elective Contributions
made on behalf of such Highly Compensated Participant (determined prior
to the application of this paragraph) minus the amount determined by
Multiplying the Highly Compensated Participant's actual deferral ratio
(determined after application of this paragraph) by his "414(s)
Compensation." However, in determining the amount of Excess
Contributions to be distributed and/or re-characterized with respect to
an affected Highly Compensated Participant as determined herein, such
amount shall be reduced by any Excess Deferred Compensation previously
distributed to such affected Highly Compensated Participant for his
taxable year ending with or within such Plan Year. Any distribution
and/or re-characterization of Excess Contributions shall be made in
accordance with the following:
(1) With respect to the distribution of Excess Contributions
pursuant to (a) above, such distribution:
(i) may be postponed but not later than the close of
the Plan Year following the Plan Year to which they
are allocable:
(ii) shall be made first from unmatched-Deferred
Compensation and, thereafter, simultaneously from
Deferred Compensation which is matched and matching
contributions which relate to such Deferred
Compensation. However, any such matching
contributions which are not Vested shall be forfeited
in lieu of being distributed;
(iii) shall be made from Qualified Non-Elective
Contributions only to the extent that Excess
Contributions exceed the balance in the Participant's
Elective Account attributable to Deferred
Compensation and Employer matching contributions.
(iv) shall be adjusted for Income; and
(v) shall be designated by the Employer as a
distribution of Excess Contributions (and Income).
(2) With respect to the re-characterization of Excess
Contributions pursuant to (a) above, such re-characterized
amounts:
(i) shall be deemed to have occurred on the date on
which the last of those Highly Compensated
Participants with Excess Contributions to be
re-characterized is notified of the
re-characterization and the tax consequences of such
re-characterization,
(ii) for Plan Years ending on or before August 8,
1988, may be
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postponed but not later than October 24, 1988;
(iii) shall not exceed the amount of Deferred
Compensation on behalf of any Highly Compensated
Participant for any Plan Year;
(iv) shall be treated as voluntary Employee
contributions for purposes of Code Section 401(a)(4)
and Regulation 1.401(k)-1(b). However, for purposes
of Sections 2.2 and 4.3(f), re-characterized Excess
Contributions continue to be treated as Employer
contributions that are Deferred Compensation. For
Plan Years beginning after December 31, 1988, Excess
Contributions re-characterized as voluntary Employee
contributions shall continue to be non-forfeitable
and subject to the same distribution rules provided
for in Section 11.2(c);
(v) which relate to Plan Years ending on or before
October 24, 1988, may be treated as either Employer
contributions or voluntary Employee contributions and
therefore shall not be subject to the restrictions of
Section I 1.2(c);
(vi) are not permitted if the amount re-characterized
plus voluntary Employee contributions actually made
by such Highly Compensated Participant, exceed the
maximum amount of voluntary Employee contributions
(determined prior to application of Section 11.6)
that such Highly Compensated Participant is permitted
to make under the Plan in the absence of
re-characterization:
(vii) shall be adjusted for Income.
(3) Any distribution and/or re-characterization of less than
the entire amount of Excess Contributions shall be treated as
a pro rata distribution and/or re-characterization of Excess
Contributions and Income.
(4) The determination and correction of Excess Contributions
of a Highly Compensated Participant whose actual deferral
ratio is determined under the family aggregation rules shall
be accomplished as follows:
(i) If the actual deferral ratio for the Highly
Compensated Participant is determined in accordance
with Section 11.4(c)(1)(ii), then the actual deferral
ratio shall be reduced as required herein and the
Excess Contributions for the family unit shall be
allocated among the Family Members in proportion to
the Elective Contributions of each Family Member that
were combined to determine the group actual deferral
ratio.
(ii) If the actual deferral ratio for the Highly
Compensated Participant is determined under Section
11.4(c)(1)(i), then the actual deferral ratio
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shall first be reduced as required herein, but not
below the actual deferral ratio of the group of
Family Members who are not Highly Compensated
Participants without regard to family aggregation.
The Excess Contributions resulting from this initial
reduction shall be allocated (in proportion to
Elective Contributions) among the Highly Compensated
Participants whose Elective Contributions were
combined to determine the actual deferral ratio. If
further reduction is still required, then Excess
Contributions resulting from this further reduction
shall be determined by taking into account the
contributions of all Family Members and shall be
allocated among them in proportion to their
respective Elective Contributions.
(b) Within twelve (12) months after the end of the Plan Year, the
Employer shall make a special Qualified Non-Elective Contribution on
behalf of Non-Highly Compensated Participants in an amount sufficient
to satisfy one of the tests set forth in Section 11.4(a). Such
contribution shall be allocated to the Participant's Qualified
Non-Elective Account of each Non-Highly Compensated Participant in the
same proportion that each Non-Highly Compensated Participant's
Compensation for the year bears to the total Compensation of all
Non-Highly Compensated Participants.
(c) For purposes of this Section, "Income" means the income or loss
allocable to Excess Contributions which shall equal the sum of the
allocable gain or loss for the Plan Year and the allocable gain or loss
for the period between the end of the Plan Year and the date of
distribution ("gap period"). The income or loss allocable to Excess
Contributions for the Plan Year and the "gap period" is calculated
separately and is determined by multiplying the income or loss for the
Plan Year or the "gap period" by a fraction. The numerator of the
fraction is the Excess Contributions for the Plan Year. The denominator
of the fraction is the total of the Participant's Elective Account
attributable to Elective Contributions and the Participant's Qualified
Non-Elective Account as of the end of the Plan Year or the "gap
period." reduced by the gain allocable to such total amount for the
Plan Year or the "gap period" and increased by the loss allocable to
such total amount for the Plan Year or the "gap period."
In lieu of the "Fractional method" described above. a "safe
harbor method" may be used to calculate the allocable Income for the
"gap period." Under such "safe harbor Method," allocable Income for the
"gap period" shall be deemed to equal ten percent (10%) of the Income
allocable to Excess Contributions for the Plan Year of the Participant
multiplied by the number of calendar months in the "gap period." For
purposes of determining the number of calendar months in the "gap
period." a distribution occurring on or before the fifteenth day of the
month shall be treated as having been made on the last day of the
preceding month and a distribution occurring after such Fifteenth day
shall be treated as having been made on the first day of the next
subsequent month.
Notwithstanding the above, for Plan Years which began in 1987.
Income during
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the "gap period" shall not be taken into account.
Notwithstanding the above, for any distribution under this
Section which is made after August 15, 1991, such distribution shall
not include any Income for the "gap period." Further provided, for any
distribution under this Section which is made after August 15, 1991,
the amount of Income may be computed using a reasonable method that is
consistent with Section 4.3(c), provided such method is used
consistently for all Participants and for all such distributions for
the Plan Year.
(d) Any amounts not distributed or re-characterized within 2 1/2 months
after the end of the Plan Year shall be subject to the 10% Employer
excise tax imposed by Code Section 4979.
11.6 ACTUAL CONTRIBUTION PERCENTAGE TESTS
(a) The "Actual Contribution Percentage," for Plan Years beginning
after the later of the Effective Date of this Plan or December 31,
1986, for the Highly Compensated Participant group shall not exceed the
greater of:
(1) 125 percent of such percentage for the Non-Highly
Compensated Participant group; or
(2) the lesser of 200 percent of such percentage for the
Non-Highly Compensated Participant group, or such percentage
for the Non-Highly Compensated Participant group plus 2
percentage points. However, for Plan Years beginning after
December 31, 1988, to prevent the multiple use of the
alternative method described in this paragraph and Code
Section 401(m)(9)(A), any Highly Compensated Participant
eligible to make elective deferrals pursuant to Section 11.2
or any other cash or deferred arrangement maintained by the
Employer or an Affiliated Employer and to make Employee
contributions or to receive matching contributions under any
plan maintained by the Employer or an Affiliated Employer
shall have his actual contribution ratio reduced pursuant to
Regulation 1.401(m)-2. The provisions of Code Section 401(m)
and Regulations 1.401(m)-1(b) and 1.401(m)-2 are incorporated
herein by reference.
(b) For the purposes of this Section and Section 11.7, "Actual
Contribution Percentage" for a Plan Year means, with respect to the
Highly Compensated Participant group and Non-Highly Compensated
Participant group, the average of the ratios (calculated separately for
each Participant in each group) of:
(1) the sum of Employer matching contributions made pursuant
to Section 11.1(b) (to the extent such matching contributions
are not used to satisfy the tests set forth in Section 11.4),
voluntary Employee contributions made pursuant to Section 4.7
and Excess Contributions re-characterized as voluntary
Employee contributions pursuant to Section 11.5 on behalf of
each such Participant for such
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<PAGE> 104
Plan Year; to
(2) the Participant's "414(s) Compensation" for such Plan
Year.
(c) For purposes of determining the "Actual Contribution Percentage"
and the amount of Excess Aggregate Contributions pursuant to Section
11.7(d), only Employer matching contributions (excluding matching
contributions forfeited or distributed pursuant to Section 11.2(f),
11.5(a), or 11.7(a)) contributed To the Plan prior to the end of the
succeeding Plan Year shall be considered. In addition, the
Administrator may elect to take into account, with respect to Employees
eligible to have Employer matching contributions made pursuant to
Section 11.1(b) or voluntary Employee contributions made pursuant to
Section 4.7 allocated to their accounts, elective deferrals (as defined
in Regulation 1.402(g)-1(b)) and qualified non-elective contributions
(as defined in Code Section 401(m)(4)(Q) contributed to any plan
maintained by the Employer. Such elective deferrals and qualified
non-elective contributions shall he treated as Employer matching
contributions subject to Regulation 1.401(m)-l(b)(2) which is
incorporated herein by reference. However, for Plan Years beginning
after December 31, 1988, the Plan Year must be the same as the plan
year of the plan to which the elective deferrals and the qualified
non-elective contributions are made.
(d) For the purpose of determining the actual contribution ratio of a
Highly Compensated Employee who is subject to the Family Member
aggregation rules of Code Section 414(q)(6) because such Employee is
either a "five percent owner" of the Employer or one of the ten (10)
Highly Compensated Employees paid the greatest "415 Compensation"
during the year, the following shall apply:
(1) The combined actual contribution ratio for the family
group (which shall be treated as one highly Compensated
Participant) shall be the greater of:
(i) the ratio determined by aggregating Employer
matching contributions made pursuant to Section
11.1(b) (to the extent such matching contributions
are not used to satisfy the tests set forth in
Section 11.4), voluntary Employee contributions made
pursuant to Section 4.7, Excess Contributions
re-characterized as voluntary Employee contributions
pursuant to Section 11.5 and "414(s) Compensation" of
all eligible Family Members who are Highly
Compensated Participants without regard to family
aggregation; and
(ii) the ratio determined by aggregating Employer
matching contributions made pursuant to Section
11.1(b) (to the extent such matching contributions
are not used to satisfy the tests set forth in
Section 11.4), voluntary Employee contributions made
pursuant to Section 4.7, Excess Contributions
re-characterized as voluntary Employee contributions
pursuant to Section 11.5 and "414(s) Compensation" of
all eligible Family Members (including Highly
Compensated Participants). However, in
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applying the $200,000 limit to "414(s) Compensation"
for Plan Years beginning after December 31, 1988,
Family Members shall include only the affected
Employee's spouse and any lineal descendants who have
not attained age 19 before the close of the Plan
Year.
(2) The Employer matching contributions made pursuant to
Section 11.1(b) (to the extent such matching contributions are
not used to satisfy the tests set forth in Section 11.4),
voluntary Employee contributions made pursuant to Section 4.7,
Excess Contributions re-characterized as voluntary Employee
contributions pursuant to Section 11.5 and "414(s)
Compensation" of all Family Members shall be disregarded for
purposes of determining the "Actual Contribution Percentage"
of the Non-Highly Compensated Participant group except to the
extent taken into account in paragraph (1) above.
(3) If a Participant is required to be aggregated as a member
of more than one family group in a plan, all Participants who
are members of those family groups that include the
Participant are aggregated as one family group in accordance
with paragraphs (I) and (2) above.
(e) For purposes of this Section and Code Sections 401(a)(4), 410(b)
and 401(m), if two or more plans of the Employer to which matching
contributions, Employee contributions, or both, are made are treated as
one plan for purposes of Code Sections 401(a)(4) or 410(b) (other than
the average benefits test under Code Section 410(b)(2)(A)(ii) as in
effect for Plan Years beginning after December 31, 1988), such plans
shall be treated as one plan. In addition, two or more plans of the
Employer to which matching contributions. Employee contributions, or
both, are made may be considered as a single plan for purposes of
determining whether or not such plans satisfy Code Sections 401(a)(4),
410(b) and 401(m). In such a case, the aggregated plans must satisfy
this Section and Code Sections 401(a)(4), 410(b) and 401(m) as though
such aggregated plans were a single plan. For plan years beginning
after December 31, 1989, plans may be aggregated under this paragraph
only if they have the same plan year.
Notwithstanding the above, for Plan Years. beginning after
December 31, 1988, an employee stock ownership plan described in Code
Section 4975(e)(7) may not be aggregated with this Plan for purposes of
determining whether the employee stock ownership plan or this Plan
satisfies this Section and Code Sections 401(a)(4), 410(b) and 401(m).
(f) If a Highly Compensated Participant is a Participant under two or
more plans (other than an employee stock ownership plan as defined in
Code Section 4975(e)(7) for Plan Years beginning after December 31,
1988) which are maintained by the Employer or an Affiliated Employer to
which matching contributions, Employee contributions, or both, are
made, all such contributions on behalf of such Highly Compensated
Participant shall be aggregated for purposes of determining such Highly
Compensated Participant's actual contribution ratio. However, for Plan
Years beginning after December 31, 1988, if
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<PAGE> 106
the plans have different plan years, this paragraph shall be applied by
treating all plans ending with or within the same calendar year as a
single plan.
(g) For purposes of Section 11.6(a) and 11.7, a Highly Compensated
Participant and a Non-Highly Compensated Participant shall include any
Employee eligible to have matching contributions made pursuant to
Section 11.1(b) (whether or not a deferred election was made or
suspended pursuant to Section 11.2(e)) allocated to his account for the
Plan Year or to make salary deferrals pursuant to Section 11.2 (if the
Employer uses salary deferrals to satisfy the provisions of this
Section) or voluntary Employee contributions pursuant to Section 4.7
(whether or not voluntary Employee contributions are made) allocated to
his account for the Plan Year.
(h) For purposes of this Section, "Matching Contribution" shall mean an
Employer contribution made to the Plan, or to a contract described in
Code Section 403(b), on behalf of a Participant on account of an
Employee contribution made by such Participant, or on account of a
participant's deferred compensation, under a plan maintained by the
Employer.
11.7 ADJUSTMENT TO ACTUAL CONTRIBUTION PERCENTAGE TESTS
(a) In the event that for Plan Years beginning after December 31, 1986,
the "Actual Contribution Percentage" for the Highly Compensated
Participant group exceeds the "Actual Contribution Percentage" for the
Non-Highly Compensated Participant group pursuant to Section 11.6(a),
the Administrator (on or before the fifteenth day of the third month
following the end of the Plan Year. but in no event later than the
close of the following Plan Year) shall direct the Trustee to
distribute to the Highly Compensated Participant having the highest
actual contribution ratio, his portion of Excess Aggregate
Contributions (and Income allocable to such contributions) or, if
forfeitable. forfeit such non-Vested, Excess Aggregate Contributions
attributable to Employer matching contributions (and Income allocable
to such Forfeitures) until either one of the tests set forth in Section
I 1.6(a) is satisfied, or until his actual contribution ratio equals
the actual contribution ratio of the Highly Compensated Participant
having the second highest actual contribution ratio. This process shall
continue until one of the tests Set forth in Section 11.6(a) is
satisfied. The distribution and/or Forfeiture of Excess Aggregate
Contributions shall be made in the following order:
(1) Employer matching contributions distributed and/or
forfeited pursuant to Section 11.5(a)(1);
(2) Voluntary Employee contributions including Excess
Contributions re-characterized as voluntary Employee
contributions pursuant to Section 11.5(a)(2);
(3) Remaining Employer matching contributions.
(b) Any distribution or Forfeiture of less than the entire amount of
Excess Aggregate
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Contributions (and Income) shall be treated as a pro rata distribution
of Excess Aggregate Contributions and Income. Distribution of Excess
Aggregate Contributions shall be designated by the Employer as a
distribution of Excess Aggregate Contributions (and Income).
Forfeitures of Excess Aggregate Contributions shall be treated in
accordance with Section 4.3. However, no such Forfeiture may be
allocated to a Highly Compensated Participant whose contributions are
reduced pursuant to this Section.
(c) Excess Aggregate Contributions attributable to amounts other than
voluntary Employee contributions, including forfeited matching
contributions, shall be treated as Employer contributions for purposes
of Code Sections 404 and 415 even if distributed from the Plan.
(d) For the purposes of this Section and Section 11.6, "Excess
Aggregate Contributions" means, with respect to any Plan Year, the
excess of:
(1) the aggregate amount of Employer matching contributions
made pursuant to Section 11.1(b) (to the extent such
contributions are taken into account pursuant to Section
11.6(a)), voluntary Employee contributions made pursuant to
Section 4.7, Excess Contributions re-characterized as
voluntary Employee contributions pursuant to Section 11.5 and
any Qualified Non-Elective Contributions or elective deferrals
taken into account pursuant to Section I 1.6(c) actually made
on behalf of the Highly Compensated Participant group for such
Plan Year, over
(2) the maximum amount of such contributions permitted under
the limitations of Section 11.6(a).
(e) For each Highly Compensated Participant, the amount of Excess
Aggregate Contributions is equal to the total Employer matching
contributions made pursuant to Section 11.1(b) (to the extent taken
into account pursuant to Section 11.6(a)), voluntary Employee
contributions made pursuant to Section 4.7, Excess Contributions
re-characterized as voluntary Employee contributions pursuant to
Section 11.5 and any Qualified Non-Elective Contributions or elective
deferrals taken into account pursuant to Section 11.6(c) on behalf of
the Highly Compensated Participant (determined prior to the application
of this paragraph) minus the amount determined by multiplying the
Highly Compensated Participant's actual contribution ratio (determined
after application of this paragraph) by his "414(s) Compensation." the
actual contribution ratio must be rounded to the nearest one-hundredth
of one percent for Plan Years beginning after December 31, 1988. In no
case shall the amount of Excess Aggregate Contribution with respect to
any Highly Compensated Participant exceed the amount of Employer
matching contributions made pursuant to Section 11.1(b) (to the extent
taken into account pursuant to Section 11.6(a)), voluntary Employee
contributions made pursuant to Section 4.7, Excess Contributions
re-characterized as voluntary Employee contributions pursuant to
Section 11.5 and any Qualified Non-Elective Contributions or elective
deferrals taken into account pursuant to Section I 1.6(c) on behalf of
such Highly Compensated Participant
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for such Plan Year.
(f) The determination of the amount of Excess Aggregate Contributions
with respect to any Plan Year shall be made after first determining the
Excess Contributions, if any, to be treated as voluntary Employee
contributions due to re-characterization for the plan year of any other
qualified cash or deferred arrangement (as defined in Code Section
401(k)) maintained by the Employer that ends with or within the Plan
Year or which are treated as voluntary Employee contributions due to
re-characterization pursuant to Section 11.5.
(g) "The determination and correction of Excess Aggregate Contributions
of a Highly
Compensated Participant whose actual contribution ratio is determined
under the family aggregation rules shall be accomplished as follows:
(1) If the actual contribution ratio for the Highly
Compensated Participant is determined in accordance with
Section 11.6(d)(1), then the actual contribution ratio shall
be reduced and the Excess Aggregate Contributions for the
family unit shall be allocated among the Family Members in
proportion to the sum of Employer matching contributions made
pursuant to Section 11.1(b) (to the extent taken into account
pursuant to Section 11.6(a)), voluntary Employee contributions
made pursuant to Section 4.7, Excess Contributions
re-characterized as voluntary Employee contributions pursuant
to Section 11.5 and any Qualified Non-Elective Contributions
or elective deferrals taken into account pursuant to Section
11.6(c) of each Family Member that were combined to determine
the group actual contribution ratio.
(2) If the actual contribution ratio for the Highly
Compensated Participant is determined under Section
11.6(d)(2), then the actual contribution ratio shall first be
reduced, as required herein, but not below the actual
contribution ratio of the group of Family Members who are not
Highly Compensated Participants without regard to family
aggregation. The Excess Aggregate Contributions resulting from
this initial reduction shall be allocated among the Highly
Compensated Participants whose Employer matching contributions
made pursuant to Section 11.1(b) (to the extent taken into
account pursuant to Section I 1.6(a)), voluntary Employee
contributions made pursuant to Section 4.7, Excess
Contributions re-characterized as voluntary Employee
contributions pursuant to Section 11.5 and any Qualified
Non-Elective Contributions or elective deferrals taken into
account pursuant to Section 11.6(c) were combined to determine
the actual contribution ratio. If further reduction is still
required, then Excess Aggregate Contributions resulting from
this further reduction shall be determined by taking into
account the contributions of all Family Members and shall be
allocated among them in proportion to their respective
Employer matching contributions made pursuant to Section
11.1(b) (to the extent taken into account pursuant to Section
I 1.6(a)), voluntary Employee contributions made pursuant to
Section 4.7, Excess
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Contributions re-characterized as voluntary Employee
contributions pursuant to Section 11.5 and any Qualified
Non-Elective Contributions or elective deferrals taken into
account pursuant to Section 11.6(c).
(h) Notwithstanding the above, within twelve (12) months after the end
of the Plan Year, the Employer may make a special Qualified
Non-Elective Contribution on behalf of Non-Highly Compensated
Participants in an amount sufficient to satisfy one of the tests set
forth in Section 11.6. Such contribution shall be allocated to the
Participant's Qualified Non-Elective Account of each Non-Highly
Compensated Participant in the same proportion that each Non-Highly
Compensated Participant's Compensation for the year bears to the total
Compensation of all Non-Highly Compensated Participants. A separate
accounting shall be maintained for the purpose of excluding such
contributions from the "Actual Deferral Percentage" tests pursuant to
Section 11.4.
(i) For purposes of this Section, "Income" means the income or loss
allocable to Excess Aggregate Contributions which shall equal the sum
of the allocable gain or loss for the Plan Year and the allocable gain
or loss for the period between the end of the Plan Year and the date of
distribution ("gap period"). The income or loss Allocable to Excess
Aggregate Contributions for the Plan Year and the "gap period" is
calculated separately and is determined by multiplying the income or
loss for the Plan Year or the "gap period" by a fraction, The numerator
of the fraction is the Excess Aggregate Contributions for the Plan
Year. The denominator of the fraction is the total Participant's
Account and Voluntary Contribution Account attributable to Employer
matching contributions subject to Section 11.6, voluntary Employee
contributions made pursuant to Section 4.7, and any qualified
Non-Elective Contributions and Elective deferrals taken into account
pursuant to Section 11.6(c) as of the end of the Plan Year or the "gap
period," reduced by the gain allocable to such total amount for the
Plan Year or the "gap period" and increased by the loss allocable to
such total amount for the Plan Year or the "gap period."
In lieu of the "fractional method" described above, a "safe
harbor method" may be used to calculate the allocable Income for the
"gap period." Under such "safe harbor method," allocable Income for the
"gap period" shall be deemed to equal ten percent (10%) of the Income
allocable to Excess Aggregate Contributions for the Plan Year of the
Participant multiplied by the number of calendar months in the "gap
period." For purposes of determining the number of calendar months in
the "gap period," a distribution occurring on or before the fifteenth
day of the month shall be treated as having been made on the last day
of the preceding month and a distribution occurring after such
fifteenth day shall be treated as having been made on the first day of
the next subsequent month.
The Income allocable to Excess Aggregate Contributions
resulting from re-characterization of Elective Contributions shall be
determined and distributed as if such re-characterized Elective
Contributions had been distributed as Excess Contributions.
Notwithstanding the above, for any distribution under
this-Section which is made
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after August 15, 1991, such distribution shall not include any Income
for the "gap period." Further provided, for any distribution under this
Section which is made after August 15, 1991, the amount of Income may
be computed using a reasonable method that is consistent with Section
4.3(c), provided such method is used consistently for all Participants
and for all such distributions for the Plan Year.
Notwithstanding the above, for Plan Years which began in 1987,
Income during the "gap period" shall not be taken into account.
Notwithstanding the above, for any distribution under this
Section which is made after August 15, 1991, such distribution shall
not include any Income for the "gap period". Further provided, for any
distribution under this Section which is made after August 15, 1991,
the amount of Income may be computed using a reasonable method that is
consistent with Section 4.3(c), provided such method is used
consistently for all Participants and for all such distributions for
the Plan Year.
11.8 ADVANCE DISTRIBUTION FOR HARDSHIP
(a) The Administrator, at the election of the Participant, shall direct
the Trustee to distribute to any Participant in any one Plan Year up to
the lesser of (1) 100% of his accounts as specified in the Adoption
Agreement valued as of the last Anniversary Date or other valuation
date or (2) the amount necessary to satisfy the immediate and heavy
financial need of the Participant. Any distribution made pursuant to
this Section shall be deemed to be made as of the first day of the Plan
Year or, if later, the valuation date immediately preceding the date of
distribution, and the account from which the distribution is made shall
be reduced accordingly. Withdrawal under this Section shall be
authorized only if the distribution is on account of one of the
following or any other items permitted by the Internal Revenue Service:
(1) Medical expenses described in Code Section 213(d) incurred
by the Participant, his spouse, or any of his dependents (as
defined in Code Section 152) or expenses necessary for these
persons to obtain medical care;
(2) The purchase (excluding mortgage payments) of a principal
residence for the Participant;
(3) Payment of tuition and related educational fees for the
next 12 months of post-secondary education for the
Participant, his spouse, children, or dependents; or
(4) The need to prevent the eviction of the Participant from
his principal residence or foreclosure on the mortgage of the
Participant's principal residence.
(b) No such distribution shall be made from the Participant's Account
until such Account has become fully Vested.
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(c) No distribution shall be made pursuant to this Section unless the
Administrator, based upon the Participant's representation and such
other facts as are known to the Administrator. determines that all of
the following conditions are satisfied:
(1) The distribution is not in excess of the amount of the
immediate and heavy financial need of the Participant
(including any amounts necessary to pay any federal, state, or
local taxes or penalties reasonably anticipated to result from
the distribution);
(2) The Participant has obtained all distributions, other than
hardship distributions, and all nontaxable loans currently
available under all plans maintained by the Employer;
(3) The Plan, and all other plans maintained by the Employer,
provide that the Participant's elective deferrals and
voluntary Employee contributions will be suspended for at
least twelve (12) months after receipt of the hardship
distribution; and
(4) The Plan, and all other plans maintained by the Employer,
provide that the Participant may not make elective deferrals
for the Participant's taxable year immediately following the
taxable year of the hardship distribution in excess of the
applicable limit under Code Section 402(g) for such next
taxable year less the amount of such Participant's elective
deferrals for the taxable year of the hardship distribution.
(d) Notwithstanding the above, distributions from the Participant's
Elective Account and Qualified Non-Elective Account pursuant to this
Section shall be limited solely to the Participant's Deferred
Compensation and any income attributable thereto credited to the
Participant's Elective Account as of December 31, 1988.
(e) Any distribution made pursuant to this Section shall be made in a
manner which is consistent with and satisfies the provisions of Section
6.5, including, but not limited to, all notice and consent requirements
of Code Sections 411(a)(11) and 417 and the Regulations thereunder.
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AMENDMENT TO
THE ANGELL PENSION GROUP, INC. REGIONAL PROTOTYPE
DEFINED CONTRIBUTION PENSION PLAN AND TRUST
1. Article VI of the Plan is amended by the addition of the new subsection,
effective as of the following date:
a. For Plans not entitled to extended reliance as described in Revenue
Ruling 9476, the first day of the first Plan Year beginning on or after
December 31, 1994, or if later, 90 days after December 31, 1994; or
b. For Plans entitled to extended reliance as described in Revenue
Ruling 94-76, as of the first day of the first plan year beginning in
1999. However, in the event of a transfer of assets to the Plan from a
money purchase plan that occurs after the date of the most recent
determination letter, the effective date of the amendment shall, be the
date immediately preceding the date of such transfer of assets.
TRANSFER OF ASSETS FROM A MONEY PURCHASE PLAN
Notwithstanding any provision of this plan to the contrary, to the
extent that any optional form of benefit under this Plan permits a distribution
prior to the employee's retirement, death, disability, or severance from
employment, and prior to plan termination, the optional form of benefit is not
available with respect to benefits attributable to assets (including the
post-transfer earnings thereon) and liabilities that are transferred, within the
meaning of Section 414(l) of the Internal Revenue Code, to this plan from a
money purchase pension plan qualified under 401(a) of the Internal Revenue Code
(other than any portion of those assets and liabilities attributable to
voluntary employee contributions).
2. Article VI is amended by the addition of the following new subsection,
effective as of December 12, 1994:
UNIFORMED SERVICES
Notwithstanding any provision of this plan to the contrary,
contributions, benefits and service credit with respect to qualified military
service will be provided in accordance with Section 414(u) of the Internal
Revenue Code.
Loan repayments will be suspended under this plan as permitted under
Code Section 414(u)(4).
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Pursuant to the terms of the Plan regarding amendments, THE ANGELL PENSION
GROUP, INC, as the sponsor of the prototype, hereby adopts this amendment as
of the date set forth below.
The Angell Pension Group, Inc.
By: /s/ David G. Cram
-------------------
Title: President
Date: June 30, 1997
<PAGE> 114
ADOPTION AGREEMENT FOR
THE ANGELL PENSION GROUP, INC. REGIONAL PROTOTYPE
NON-STANDARDIZED 401(K) PROFIT SHARING
PLAN AND TRUST
The undersigned Employer adopts The Angell Pension Group, Inc. Regional
Prototype Non-Standardized 401(k) Profit Sharing Plan and Trust for those
Employees who shall qualify as Participants hereunder, to be known as the
A1 EPRISE CORPORATION RETIREMENT SAVINGS PLAN
----------------------------------------------------------------------
(Enter Plan Name)
It shall be effective as of the date specified below. The Employer hereby
selects the following Plan specifications:
CAUTION: The failure to properly fill out this Adoption Agreement may result in
disqualification of the Plan.
EMPLOYER INFORMATION
B1 Name of Employer EPRISE CORPORATION
----------------------------------------------------------
----------------------------------------------------------
B2 Address 1671 WORCESTER ROAD
----------------------------------------------------------
FRAMINGHAM MA 01701
----------------------------------------------------------
City State Zip
Telephone: 508-872-0200
B3 Employer Identification Number: 04-3179480
B4 Date Business Commenced:
B5 TYPE OF ENTITY
a. [ ] S Corporation
b. [ ] Professional Service Corporation
c. [X] Corporation
d. [ ] Sole Proprietorship
e. [ ] Partnership
Copyright 1996-R The Angell Pension Group, Inc.
<PAGE> 115
f. [ ] Other: __________________________
AND, is the Employer a member of ...
g. a controlled group? [ ] Yes [X] No
h. an affiliated service group? [ ] Yes [X] No
B6 NAMES(S) OF TRUSTEE(S)
a. MILTON ALPERN
b. JOSEPH FORGIONE
c.
B7 TRUSTEES' ADDRESS
a. [X] Use Employer Address
b. [ ]
-----------------------------------------------------------------------
Street
-----------------------------------------------------------------------
City State Zip
B8 LOCATION OF EMPLOYER'S PRINCIPAL OFFICE:
a. [ ] state b. [X] commonwealth of c. MASSACHUSETTS and
this Plan and Trust shall be governed under the same.
B9 EMPLOYER FISCAL YEAR means the 12 consecutive month period:
Commencing on a. JANUARY 1ST (e.g., January 1st)
---------------------
month day
and ending on b. DECEMBER 31ST
---------------------
month day
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<PAGE> 116
PLAN INFORMATION
C1 EFFECTIVE DATE
This Adoption agreement of The Angell Pension Group, Inc. Regional
Prototype Non-Standardized 401(k) Profit Sharing Plan and Trust shall:
a. [ ] establish a new Plan and Trust effective as of ______________
(hereinafter called the "Effective Date").
b. [X] constitute an amendment and restatement in its entirety of a
previously established qualified Plan and Trust of the
Employer which was effective JANUARY 1, 1995 (hereinafter
called the "Effective Date"). Except as specifically provided
in the Plan, the effective date of this Amendment and
restatement is JANUARY 1, 1998. (For TRA '86 amendments,
enter the first day of the first Plan Year beginning in 1989.
C2 PLAN YEAR means the 12 consecutive month period::
Commencing on a. JANUARY 1ST (e.g., January 1st)
---------------------
month day
and ending on b. DECEMBER 31ST
---------------------
month day
IS THERE A SHORT PLAN YEAR?
c. [X] No
d. [ ] Yes, beginning _____________
and ending _________________
C3 ANNIVERSARY DATE of Plan (Annual Valuation Date)
a. DECEMBER 31ST
---------------------
month day
C4 PLAN NUMBER assigned by the Employer (select one)
a. [X] 001 b. [ ] 002 c. [ ] 003 d. [ ] Other ____________
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<PAGE> 117
C5. NAME OF PLAN ADMINISTRATOR (Document provides for the Employer to appoint
an Administrator. If none is named, the Employer will become the
Administrator.)
a. [X] Employer (Use Employer Address)
b. [ ] Name __________________________________________________
Address [ ] Use Employer Address
__________________________________________________
__________________________________________________
City State Zip
Telephone: ____________________
Administrator's I.D. Number: _____-__________
C6 PLAN'S AGENT FOR SERVICE OF LEGAL PROCESS
a. [X] Employer (use Employer Address)
b. [ ] Name ________________________________________________
Address ________________________________________________
________________________________________________
City State Zip
ELIGIBILITY, VESTING AND RETIREMENT AGE
D1 ELIGIBLE EMPLOYEES (Plan Section 1.15) shall mean:
a. [ ] all Employees who have satisfied the eligibility requirements.
b. [X] all Employees who have satisfied the eligibility requirements
except those checked below:
1. [ ] Employees paid by commissions only.
2. [ ] Employees hourly paid.
3. [ ] Employees paid by salary.
4. [X] Employees whose employment is governed by a collective
bargaining agreement between the Employer and "employee
representatives" under which retirement benefits were
the subject of good faith bargaining. For this purpose,
the term "employee representatives" does not include any
organization more than half of whose members are
employees who are owners, officers, or executives of the
Employer.
5. [ ] Highly Compensated Employees.
6. [X] Employees who are non-resident aliens who received no
earned income
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<PAGE> 118
(within the meaning of Code Section 911(d)(2)) from the
Employer which constitutes income from sources within
the United States (within the meaning of Code Section
861(a)(3)).
7. [ ] Other _______________
NOTE: For purposes of this section, the term Employee shall include all
Employees of this Employer and any leased employees deemed to be
Employees under code Section 414(n) or 414(o).
D2 EMPLOYEES OF AFFILIATED EMPLOYERS (Plan Section 1.16)
Employees of Affiliated Employers:
a. [X] will not or N/A
b. [ ] will
be treated as Employees of the Employer adopting the Plan.
NOTE: If D2b is elected, each Affiliated Employer should execute this
Adoption Agreement as a Participating Employer.
D3 HOURS OF SERVICE (Plan Section 1.31) will be determined on the basis of
the method selected below. Only one method may be selected. The method
selected will be applied to all Employees covered under the Plan.
a. [X] On the basis of actual hours for which an Employee is paid or
entitled to payment.
b. [ ] On the basis of days worked. An Employee will be credited with
ten (10) Hours of Service if under the Plan such Employee
would be credited with at least one (1) Hour of Service during
the day.
c. [ ] On the basis of weeks worked. An Employee will be credited
forty-five (45) Hours of Service if under the Plan such
Employee would be credited with at least one (1) Hour of
Service during the week.
d. [ ] On the basis of semi-monthly payroll periods. An Employee will
be credited with ninety-five (95) Hours of Service if under
the Plan such Employee would be credited with at least one (1)
Hour of Service during the semi-monthly payroll period.
e [ ] On the basis of months worked. An Employee will be credited
with one hundred ninety (190_ Hours of Service if under the
plan such Employee would be credited with at least one (1)
Hour of Service during the month.
D4 CONDITIONS OF ELIGIBILITY (Plan Section 3.1) (Check either a OR b and c, and
if applicable, d)
Any Eligible Employee will be eligible to participate in the Plan if
such Eligible Employee has satisfied the service and age requirements,
if any, specified below:
a. [ ] NO AGE OR SERVICE REQUIRED.
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<PAGE> 119
b. [X] SERVICE REQUIREMENT. (may not exceed 1 year)
1. [ ] None
2. [ ] 1/2 Year of Service
3. [ ] 1 Year of Service
4. [X] Other 60 DAYS OF EMPLOYMENT
---------------------------
NOTE: If the Year(s) of Service selected is or includes a fractional
year, an Employee will not be required to complete any specified number
of Hours of Service to receive credit for such fractional year. If
expressed in Months of Service, an Employee will not be required to
complete any specified number of Hours of Service in a particular
month.
c. [ ] AGE REQUIREMENT (may not exceed 21)
1. [ ] N/A - No Age Requirement.
2. [ ] 20 1/2
3. [X] 21
4. [ ] Other ____________________
d. [ ] FOR NEW PLANS ONLY - Regardless of any of the above age or
service requirements, any Eligible Employee who was employed
on the Effective Date of the Plan shall be eligible to
participate hereunder and shall enter the Plan as of such
date.
D5 EFFECTIVE DATE OF PARTICIPATION (Plan Section 3.2) An Eligible
Employee shall become a Participant as of:
a. [ ] the first day of the Plan Year in which he met the
requirements.
b. [ ] the first day of the Plan Year in which he met the
requirements, if he met the requirements in the first 6 months
of the Plan Year, or as of the first day of the next
succeeding Plan Year if he met the requirements in the last 6
months of the Plan Year.
c. [ ] the earlier of the first day of the seventh month or the first
day of the Plan Year coinciding with or next following the
date on which he met the requirements.
d. [ ] the first day of the Plan Year next following the date on
which he met the requirements. (Eligibility must be 1/2 Year
of Service or less and age 20 1/2 or less.)
e. [ ] the first day of the month coinciding with or next following
the date on which he met the requirements.
f. [X] Other: FIRST DAY OF THE MONTH COINCIDENT WITH OR NEXT
FOLLOWING AGE AND SERVICE REQUIREMENT, provided that an
Employee who has satisfied the maximum age and service
requirements that are permissible in Section D4 above and who
is otherwise entitled to participate, shall commence
participation no later than the earlier of (a) 6 months after
such requirements are satisfied, or (b) the first day of the
first Plan Year after such requirements are satisfied, unless
the Employee separates from service before such participation
date.
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<PAGE> 120
D6 VESTING OF PARTICIPANT'S INTEREST (Plan Section 6.4(b))
The vesting schedule, based on number of Years of Service, shall be as
follows:
a. [ ] 100% upon entering Plan. (Required if eligibility requirements
is greater than one (1) Year of Service.)
b. [ ] 0-2 years 0% c. [ ] 0-4 years 0%
3 years 100% 5 years 100%
d. [X] 0-1 year 0% e. [ ] 1 year 25%
2 years 20% 2 years 50%
3 years 40% 3 years 75%
4 years 60% 4 years 100%
5 years 80%
6 years 100%
f. [ ] 1 year 20% g. [ ] 0-2 years 0%
2 years 40% 3 years 20%
3 years 60% 4 years 40%
4 years 80% 5 years 60%
5 years 100% 6 years 80%
7 years 100%
h. [ ] Other - Must be at least as liberal as either c or g above.
YEARS OF SERVICE PERCENTAGE
-------------------------- --------------------------
-------------------------- --------------------------
-------------------------- --------------------------
D7 FOR AMENDED PLANS (Plan Section 6.4(f)) If the vesting schedule has
been amended to a less favorable schedule, enter the pre-amended
schedule below:
a. [X] Vesting schedule has not been amended or amended schedule is
more favorable in all years.
b. [ ] YEARS OF SERVICE PERCENTAGE
------------------- -------------------
------------------- -------------------
------------------- -------------------
-7-
<PAGE> 121
------------------- -------------------
D8 TOP HEAVY VESTING (Plan Section 6.4(c)) If this Plan becomes a Top
Heavy Plan, the following vesting schedule, based on number of Years of
Service, for such Plan Year and each succeeding Plan Year, whether or
not the Plan is a Top Heavy Plan, shall apply and shall be treated as a
Plan amendment pursuant to this Plan. Once effective, this schedule
shall also apply to any contributions made prior to the effective date
of Code Section 416 and/or before the Plan became a Top Heavy Plan.
a. [X] N/A (D5a, b d, e or f was selected)
b. [ ] 0-1 year 0% c. [ ] 0-2 years 0%
2 years 20% 3 years 100%
3 years 40%
4 years 60%
5 years 80%
6 years 100%
NOTE: This section does not apply to the Account balances of any
Participant who does not have an Hour of Service after the Plan has
initially become top heavy. Such Participant's Account balance
attributable to Employer contributions and Forfeitures will be
determined without regard to this section.
D9 VESTING (Plan Section 6.4(h)) In determining Years of Service for
vesting purposes, Years of Service attributable to the following shall
be excluded:
a. [ ] Service prior to the Effective Date of b. [X] N/A
the Plan or a predecessor plan.
c. [ ] Service prior to the time an Employee d. [X] N/A
attained age 18.
D10 PLAN SHALL RECOGNIZE SERVICE WITH PREDECESSOR EMPLOYER
a. [ ] No.
b. [X] Yes: Years of Service with NOVALINK, USA CORPORATION shall be
recognized for the purpose of this Plan.
NOTE: If the predecessor Employer maintained this qualified Plan, then
Years of Service with such predecessor Employer shall be recognized
pursuant to Section 1.74 and b. must be marked.
D11 NORMAL RETIREMENT AGE ("NRA") (Plan Section 1.42) means:
a. [X] the date a Participant attains his 65TH birthday. (not to
exceed 65th)
b. [ ] the later of the date a Participant attains his _______
birthday (not to exceed 65th) or the c. _____ (not to exceed
5th) anniversary of the first day of the Plan Year in which
participation in the Plan commenced.
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<PAGE> 122
D12 NORMAL RETIREMENT DATE (Plan Section 1.43) shall commence:
a [X] as of the participant's "NRA."
OR (must select b. or c. AND 1. or 2.)
b. [ ] as of the first day of the month...
c. [ ] as of the Anniversary Date.
1. [ ] coinciding with or next following the Participant's
"NRA."
2. [ ] nearest the Participant's "NRA."
D13 EARLY RETIREMENT DATE (Plan Section 1.12) means the:
a. [X] No Early Retirement provision provided.
b. [ ] date on which a Participant...
c. [ ] first day of the month coinciding with or next following the
date on which a Participant...
d. [ ] Anniversary Date coinciding with or next following the date on
which a Participant...
AND, if b, c or d was selected ...
1. [ ] attains his ____ birthday and has
2. [ ] completed at least ______ Years of Service.
CONTRIBUTIONS, ALLOCATIONS, AND DISTRIBUTIONS
E1 a. COMPENSATION (Plan Section 1.9) with respect to any
Participant means:
1. [X] Wages, tips and other Compensation on Form W-2.
2. [ ] Section 3401(a) wages (wages for withholding purposes).
3. [ ] 415 safe-harbor compensation.
AND COMPENSATION
1. [X] shall
2. [ ] shall not
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<PAGE> 123
exclude (even if includible in gross income) reimbursements or
other expenses allowances, fringe benefits (cash or noncash),
moving expenses, deferred compensation, and welfare benefits.
b. COMPENSATION shall be
1. [X] actually paid (must be selected if Plan is integrated)
2. [ ] accrued
c. HOWEVER, for non-integrated plans, Compensation shall exclude
(select all that apply);
a. [X] N/A. No exclusions
2. [ ] overtime
3. [ ] bonuses
4. [ ] commissions
5. [ ] other _____________________
d. FOR PURPOSES OF THIS SECTION E1, Compensation shall be based on:
1. [X] the Plan Year.
2. [ ] the Fiscal Year coinciding with or ending within the
Plan Year.
3. [ ] the Calendar Year coinciding with or ending within
the Plan Year.
NOTE: The Limitation Year shall be the same as the year on which
Compensation is based.
e. HOWEVER, for an Employee's first year of Participation,
Compensation shall be recognized as of:
1. [ ] the first day of the Plan Year.
2. [X] the date the participant entered the Plan.
f. IN ADDITION, COMPENSATION and 414(s) Compensation
1. [X] shall 2. [ ] shall not include compensation which is
not currently includible in the Participant's gross income by
reason of the application of Code Sections 125, 402(a)(8),
402(h)(1)(B) or 403(b).
E2. SALARY REDUCTION ARRANGEMENT - ELECTIVE CONTRIBUTION (Plan Section
11.2) Each Employee may elect to have his Compensation reduced by:
a. [ ] _____ %
b. [ ] up to _____ &
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<PAGE> 124
c. [X] from 1 % to 20 %
----- ------
d. [ ] up to the maximum percentage allowable not to exceed the
limits of Code Sections 401(k), 404 and 415.
AND ...
e. [ ] A Participant may elect to commence salary reductions as of
THE FIRST DAY OF ANY month (ENTER AT LEAST ONE DATE OR
PERIOD). A Participant may modify the amount of salary
reductions as of THE FIRST DAY OF ANY MONTH (ENTER AT LEAST
ONE DATE OR PERIOD).
AND ...
Shall cash bonuses paid within 2 1/2 months after the end of the Plan
Year be subject to the salary reduction election?
f. [ ] Yes
g. [X] No
E3 FORMULA FOR DETERMINING EMPLOYER'S MATCHING CONTRIBUTION (Plan Section
11.1(b))
a. [ ] N/A. There shall be no matching contributions.
b. [X] The Employer shall make matching contributions equal to 50%
(e.g. 50%) of the Participant's salary reductions.
c. [ ] The Employer may make matching contributions equal to a
discretionary percentage, to be determined by the Employer, of
the Participant's salary reductions.
d. [ ] The Employer shall make matching contributions equal to the
sum of ____ % of the portion of the Participant's salary
reduction which does not exceed ____% of the Participant's
Compensation plus ____ % of the portion of the Participant's
salary reduction which exceeds ____% of the Participant's
Compensation, but does not exceed ____% of the Participant's
Compensation.
e. [ ] The Employer shall make matching contributions equal to the
percentage determined under the following schedule:
PARTICIPANT'S TOTAL MATCHING
YEARS OF SERVICE PERCENTAGE
------------------- -----------------
------------------- -----------------
------------------- -----------------
FOR PLANS WITH MATCHING CONTRIBUTIONS
f. [X] Matching contributions g. [ ] shall h. [X] shall not be used
in satisfying the deferral percentage tests. (If used, full
vesting and restrictions on withdrawals will apply and the
match will be deemed to be an Elective Contribution.)
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<PAGE> 125
i. [X] Shall a Year of Service be required in order to share in the
matching contributions?
With respect to Plan Years beginning after 1989 ...
1. [ ] Yes (Could cause Plan to violate minimum
participation and coverage requirements under Code
Sections 401(a)(26) and 410)
2. [X] No
With respect to Plan Years beginning before 1990 ...
1. [X] N/A New Plan or same as years beginning after 1989.
2. [ ] Yes
3. [ ] No
j. [X] In determining matching contributions, only salary reductions
up to 5 % of a participant's Compensation will be
matched. k. [ ] N/A
l. [ ] The matching contribution made on behalf of a Participant for
any Plan Year shall not exceed $_____________. m. [ ] N/A
n. [X] Matching contributions shall be made on behalf of
1. [X] all Participants.
2. [ ] only Non-Highly Compensated Employees.
o. [ ] Notwithstanding anything in the Plan to the contrary, all
matching contributions which relate to distributions of Excess
Deferred Compensation, Excess Contributions, and Excess
Aggregate Contributions shall be Forfeited. (Select this
option only if it is applicable.)
E4. WILL A DISCRETIONARY EMPLOYER CONTRIBUTION BE PROVIDED (OTHER THAN A
DISCRETIONARY MATCHING OR QUALIFIED NON-ELECTIVE CONTRIBUTION) (Plan
Section 11.1(c))?
a. [ ] No.
b. [ ] Yes, the Employer may make a discretionary contribution out of
its current or accumulated Net Profit.
c. [X] Yes, the Employer may make a discretionary contribution which
is not limited to its current or accumulated Net Profit.
IF YES (b. or c. is selected above), the Employer's discretionary
contribution shall be allocated as follows:
d. [X] FOR A NON-INTEGRATED PLAN
The Employer discretionary contribution for the Plan Year shall be
allocated in the same ratio as each Participant's Compensation bears to
the total of such Compensation of all Participants.
-12-
<PAGE> 126
e. [ ] FOR AN INTEGRATED PLAN
The Employer discretionary contribution for the Plan Year shall be
allocated in accordance with Plan Section 4.3(b)(2) based on a
Participant's Compensation in excess of:
f. [ ] The Taxable Wage Base.
g. [ ] The greater of $10,000 or 20% of the Taxable Wage Base.
h. [ ] _____ % of the Taxable Wage Base. (See Note below)
i. [ ] $__________ (see Note below)
NOTE: The integration percentage of 5.7% shall be reduced to:
1. 4.3% if h. or i. above is more than 20% and less than
or equal to 80% of the Taxable Wage Base.
2. 5.4% if h. or i. above is less than 100% and more
than 80% of the Taxable Wage Base.
E5 QUALIFIED NON-ELECTIVE CONTRIBUTIONS (Plan Section 11.1(d))
a. [ ] N/A. There shall be no Qualified Non-Elective Contributions
except as provided in Section 11.5(b) and 11.7(h).
b. [ ] The Employer shall make a Qualified Non-Elective Contribution
equal to ____ % of the total Compensation of all Participants
eligible to share in the allocations.
c. [X] The Employer may make a Qualified Non-Elective Contribution in
an amount to be determined by the Employer.
E6 FORFEITURES (Plan Section 4.3(e))
a. Forfeitures of contributions other than matching contributions
shall be ...
1. [X] added to the Employer's contribution under the Plan.
2. [ ] allocated to all participants eligible to share in
the allocations in the same proportion that each
Participant's Compensation for the year bears to the
Compensation of all Participants for such year.
b. Forfeitures of matching contributions shall be ...
1. [ ] N/A. No matching contributions or match is fully
vested.
2. [ ] used to reduce the Employer's matching contribution.
3. [X] allocated to all Participants eligible to share in
the allocations in proportion to each such
Participant's Compensation for the year.
4. [ ] allocated to all Non-Highly Compensated Employee's
eligible to share in the allocations in proportion to
each such Participant's Compensation for the year.
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<PAGE> 127
E7 ALLOCATIONS TO ACTIVE PARTICIPANTS (Plan Section 4.3) With respect to
Plan Years beginning after 1989, a Participant ...
a. [ ] shall (Plan may become discriminatory)
b. [X] shall not
be required to complete a Year of Service in order to share in any
Non-Elective Contributions (other than matching contributions) or
Qualified Non-Elective Contributions. For Plan Years beginning before
1990, the Plan provides that a Participant must complete a Year of
Service to share in the allocations.
E8 ALLOCATIONS TO TERMINATED PARTICIPANTS (Plan Section 4.3(k)) Any
Participant who terminated employment during the Plan Year (i.e. not
actively employed on the last day of the Plan Year) for reasons other
than death, Total and Permanent Disability or retirement:
a. With respect to Employer Non-Elective Contributions (other
than matching), Qualified Non-Elective Contributions, and
Forfeitures:
1. For Plan Years beginning after 1989,
i. [ ] N/A, Plan does not provide for such
contributions.
ii. [X] shall share in the allocations provided such
Participant completed more than 500 Hours of
Service.
iii. [ ] shall share in such allocations provided
such Participant completed a Year of
Service.
iv. [X] shall not share in such allocations,
regardless of Hours of Service.
2. For Plan Years beginning before 1990,
i. [X] N/A, new Plan or same as for Plan Years
beginning after 1989.
ii. [ ] shall share in such allocations provided
such participant completed a Year of
Service.
iii. [ ] shall not share in such allocations,
regardless of Hours of Service.
NOTE: If a.1.iii or iv is selected, the Plan could violate minimum
participation and coverage requirements under Code Sections 401(a)(26)
and 410.
b. With respect to the allocation of Employer Matching
contributions, a Participant:
1. For Plan Years beginning after 1989,
i. [ ] N/A, Plan does not provide for matching
contributions.
ii. [X] shall share in the allocations, regardless
of Hours of Service.
iii. [ ] shall share in the allocations provided such
Participant completed more than 500 Hours of
Service.
iv. [ ] shall share in such allocations provided
such participant completed a Year of
Service.
v. [ ] shall not share in such allocations,
regardless of Hours of Service.
-14-
<PAGE> 128
2. For Plan Years beginning before 1990,
i. [X] N/A, new Plan, or same as years beginning
after 1989.
ii. [ ] shall share in the allocations, regardless
of Hours of Service.
iii. [ ] shall share in such allocations provided
such Participant completed a Year of
Service.
iv. [ ] shall not share in such allocations,
regardless of Hours of Service.
NOTE: If b.1.iv or v is selected, the Plan could violate minimum
participation and coverage requirements under Code Section 401(a)(26)
and 410.
E9 ALLOCATIONS OF EARNINGS (Plan Section 4.3(c))
Allocations of earnings with respect to amounts contributed to the Plan
after the previous Anniversary Date or other valuation date shall be
determined ...
a. [ ] by using a weighted average.
b. [ ] by treating one-half of all such contributions as being a part
of the Participant's nonsegregated account balance as of the
previous Anniversary Date or valuation date.
c. [ ] by using the method specified in Section 4.3(c).
d. [X] other INDIVIDUAL ACCOUNTS.
-----------------------
E10 LIMITATIONS ON ALLOCATIONS (Plan Section 4.4)
a. If any Participant is or was covered under another qualified
defined contribution plan maintained by the Employer, or if
the Employer maintains a welfare benefit fund, as defined in
Code Section 419(e), or an individual medical account, as
defined in Code Section 415(1)(2), under which amounts are
treated as Annual Additions with respect to any participant in
this Plan:
1. [X] N/A.
2. [ ] The provisions of Section 4.4(b) of the Plan will
apply.
3. [ ] Provide the method under which the Plan will limit
total Annual Additions to the Maximum Permissible
Amount, and will properly reduce any Excess Amounts,
in a manner that precludes Employer discretion.
-----------------------------------------------------
-----------------------------------------------------
-----------------------------------------------------
b. If any participant is or ever has been a Participant in a
defined benefit plan maintained by the Employer:
1. [X] N/A.
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<PAGE> 129
2. [ ] In any Limitation Year, the Annual Additions credited
to the Participant under this Plan may not cause the
sum of the Defined Benefit Plan Fraction and Defined
Contribution Fraction to exceed 1.0. If the
Employer's contribution that would otherwise be made
on the Participant's behalf during the limitation
year would cause the 1.0 limitation to be exceeded,
the rate of contribution under this Plan will be
reduced so that the sum of the fraction equals 1.0.
If the 1.0 limitation is exceeded because of an
excess Amount, such Excess Amount will be reduced in
accordance with section 4.4(a)(4) of the Plan.
3. [ ] Provide the method under which the Plans involved
will satisfy the 1.0 limitation in a manner that
precludes Employer discretion.
-----------------------------------------------------
-----------------------------------------------------
-----------------------------------------------------
E11 DISTRIBUTIONS UPON DEATH (Plan Section 6.6(h)) Distributions upon the
death of Participant prior to receiving any benefits shall ...
a. [X] be made pursuant to the election of the Participant or
beneficiary.
b. [ ] begin within 1 year of death for a designated beneficiary and
be payable over the life (or over a period not exceeding the
life expectancy) of such beneficiary, except that if the
beneficiary is the Participant's spouse, begin within the time
the Participant would have attained age 70 1/2.
c. [ ] be made within 5 years of death for all beneficiaries.
d. [ ] other ______________________
E12 LIFE EXPECTANCIES (Plan Section 6.5(f)) for minimum distributions
required pursuant to Code Section 401(a)(9) shall ...
a. [X] be recalculated at the Participant's election.
b. [ ] be recalculated.
c. [ ] not be recalculated.
E13 CONDITIONS FOR DISTRIBUTIONS UPON TERMINATION Distributions upon
termination of employment pursuant to Section 6.4(a) of the Plan shall
not be made unless the following conditions have been satisfied:
a. [ ] N/A. Immediate distributions may be made at Participant's
election.
b. [ ] The Participant has incurred _____ 1-Year Break(s) in Service.
c. [ ] The Participant has reached his or her Early or Normal
Retirement Age.
d. [ ] Distributions may be made at the Participant's election on or
after the Anniversary Date following termination of
employment.
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<PAGE> 130
e. [X] Other 45 DAYS FOLLOWING TERMINATION OF EMPLOYMENT
-------------------------------------------------
E14 FORM OF DISTRIBUTIONS (Plan Sections 6.5 and 6.6) Distributions under
the Plan may be made...
a. 1. [ ] in lump sums.
2. [X] in lump sums or installments.
b. AND, pursuant to Plan Sections 6.13,
1. [X] no annuities are allowed (avoids Joint and Survivor
rules).
2. [ ] annuities are allowed (Plan Section 6.13 shall not
apply).
NOTE: b.1. above may not be elected if this is an amendment to a plan
which permitted annuities as a form of distribution or if this Plan has
accepted a plan to plan transfer of assets from a plan which permitted
annuities as a form of distribution.
c. AND may be made in ...
1. [X] chase only (except for insurance or annuity
contracts).
2. [ ] cash or property.
TOP HEAVY REQUIREMENTS
F1 TOP HEAVY DUPLICATIONS (Plan Section 4.3(i)): When a Non-Key Employee
is a Participant in this Plan and a Defined Benefit Plan maintained by
the Employer, indicate which method shall be utilized to avoid
duplication of top heavy minimum benefits.
a. [X] The Employer does not maintain a Defined Benefit Plan.
b. [ ] A minimum, non-integrated contribution of 5% of each Non-Key
Employee's total Compensation shall be provided in this Plan,
as specified in Section 4.3(i). The defined Benefit and
Defined Contribution Fractions will be computed using 100% if
this choice is selected.)
c. [ ] A minimum, non-integrated contribution of 7 1/2% of each
Non-Key Employee's total Compensation shall be provided in
this Plan, as specified in Section 4.3(i). (If this choice is
selected, the Defined Benefit and Defined Contribution
Fractions will be computed using 125% for all Plan Years in
which the Plan is Top Heavy, but not Super Top Heavy.)
d. [ ] Specify the method under which the Plan will provide top heavy
minimum benefits for Non-Key Employees that will preclude
Employer discretion and avoid inadvertent omissions, including
any adjustments required under Code Section 415(e).
--------------------------------------------------------------
--------------------------------------------------------------
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-17-
<PAGE> 131
F2 PRESENT VALUE OF ACCRUED BENEFIT (Plan Section 2.2) for Top Heavy
purposes where the Employer maintains a Defined Benefit Plan in
addition to this Plan, shall be based on ...
a. [X] N/A. The Employer does not maintain a defined benefit plan.
b. [ ] Interest Rate: ______________________________
Mortality Table: ____________________________
F3 TOP HEAVY DUPLICATIONS: Employer maintaining two (2) or more Defined
Contribution Plans:
a. [X] N/A/
b. [ ] A minimum, non-integrated contribution of 3% of each Non-Key
Employee's total Compensation shall be provided in the Money
Purchase Plan (or other plan subject to Code Section 412),
where the Employer maintains two (2) or more non-paired
Defined Contribution Plans.
c. [ ] Specify the method under which the Plans will provide top
heavy minimum benefits for Non-Key Employees that will
preclude Employer discretion and avoid inadvertent omissions,
including any adjustments required under Code Section 415(e).
--------------------------------------------------------------
--------------------------------------------------------------
--------------------------------------------------------------
MISCELLANEOUS
G1 LOANS TO PARTICIPANTS (Plan Section 7.4)
a. [X] Yes, loans may be made up to $50,000 or 1/2 Vested interest.
b. [ ] No, loans may not be made.
If YES, (check all that apply) ...
c. [X] loans shall be treated as a Directed Investment.
d. [ ] loans shall only be made for hardship or financial necessity.
e. [X] the minimum loan shall be $1,000.
f. [ ] $10,000 de minimis loans may be made regardless of Vested
interest. (If selected, Plan may need security in addition to
Vested interest.)
NOTE: Department of Labor Regulations require the adoption of a
separate written loan program setting forth the requirements outlined
in Plan Section 7.4.
-18-
<PAGE> 132
G2 DIRECTED INVESTMENT ACCOUNTS (Plan Section 4.8) are permitted for the
interest in any one or more accounts.
a. [X] Yes, regardless of the Participant's Vested interest in the
Plan.
b. [ ] Yes, but only with respect to the Participant's Vested
interest in the Plan.
c. [ ] Yes, but only with respect to those accounts which are 100%
Vested.
d. [ ] No directed investments are permitted.
G3 TRANSFERS FROM QUALIFIED PLANS (Plan Section 4.6)
a. [X] Yes, transfers from qualified plans (and rollovers) will be
allowed.
b. [ ] No, transfers from qualified plans (and rollovers) will not be
allowed.
AND, transfers shall be permitted ...
c. [X] from any Employee, even if not a Participant.
d. [ ] from Participants only.
G4 EMPLOYEES' VOLUNTARY CONTRIBUTIONS (Plan Section 4.7)
a. [ ] Yes, Voluntary Contributions are allowed subject to the limits
of Section 4.10.
b. [X] No, Voluntary Contributions will not be allowed.
NOTE: TRA '86 subjects voluntary contributions to strict
discrimination rules.
G5 HARDSHIP DISTRIBUTIONS (Plan Section 6.11 and 11.8)
a. [ ] Yes, from any accounts which are 100% Vested.
b. [X] Yes, from Participant's Elective Account only.
c. [ ] Yes, but limited to the participant's Account only.
d. [ ] No.
NOTE: Distributions from a Participant's Elective Account are limited
to the portion of such account attributable to such Participant's
Deferred Compensation and earnings attributable thereto up to December
31, 1988. Also hardship distributions are not permitted from a
Participant's Qualified Non-Elective Account.
-19-
<PAGE> 133
G6 PRE-RETIREMENT DISTRIBUTION (Plan Section 6.10)
a. [X] If a Participant has reached the age of _______, distributions
may be made, at the Participant's election, from any accounts
which are 100% Vested without requiring the Participant to
terminate employment.
b. [ ] No pre-retirement distribution may be made.
NOTE: Distributions from a Participant's Elective Account and Qualified
Non-Elective Account are not permitted prior to age 59 1/2.
G7 LIFE INSURANCE (Plan Section 7.2(d)) may be purchased with Plan
contributions.
a. [X] No life insurance may be purchased.
b. [ ] Yes, at the option of the Administrator.
c. [ ] Yes, at the option of the Participant.
AND, the purchase of initial or additional life insurance shall be
subject to the following limitations: (select all that apply)
d. [ ] N/A, no limitations.
e. [ ] each initial Contract shall have a minimum face amount of
$____________.
f. [ ] each additional Contract shall have a minimum face amount of
$______________.
g. [ ] the Participant ahs completed _____ Years of Service.
h. [ ] the participant has completed _____ Years of Service while a
Participant in the Plan.
i. [ ] the Participant is under age _____ on the Contract issue date.
j. [ ] the maximum amount of all Contracts on behalf of a Participant
shall not exceed $______.
k. [ ] the maximum face amount of life insurance shall be $________.
-20-
<PAGE> 134
The adopting Employer may not rely on a notification letter issued by the Key
District Office of the Internal Revenue Service as evidence that the plan is
qualified under Code Section 401. In order to obtain reliance with respect to
plan qualification, the Employer must apply to the appropriate Key District
Office for a determination letter.
The Adoption Agreement may be used only in conjunction with basic Plan document
#01. This Adoption Agreement and the basic Plan document shall together be known
as The Angell Pension Group, Inc. Regional Prototype Non-Standardized 401(k)
Profit Sharing Plan and Trust #01-005.
The adoption of this Plan, its qualification by the IRS, and the related tax
consequences are the responsibility of the Employer and its independent tax and
legal advisors.
The Angell Pension Group, Inc. will notify the Employer of any amendments made
to the Plan or of the discontinuance or abandonment of the Plan provided this
Plan has been acknowledged by The Angell Pension Group, Inc. or its authorized
representative. Furthermore, in order to be eligible to receive such
notification, we agree to notify The Angell Pension Group, Inc. of any change in
address.
-21-
<PAGE> 135
IN WITNESS WHEREOF, the Employer and Trustee(s) hereby cause this Plan
to be executed on this 14th day of October, 1998. Furthermore, this Plan may not
be used unless acknowledged by The Angell Pension Group, Inc.
or its authorized representative.
EPRISE CORPORATION
By: /s/ Milton Alpern
Vice President of Finance
/s/ Milton Alpern
MILTON ALPERN, TRUSTEE
/s/ J.A. Forgione
JOSEPH FORGIONE, TRUSTEE
This Plan may not be used, and shall not be deemed to be a Prototype Plan,
unless an authorized representative of The Angell Pension Group, Inc. has
acknowledged the use of the Plan. Such acknowledgment is for administerial
purposes only. It acknowledges that the Employer is using the Plan but does not
represent that this Plan, including the choices selected on the Adoption
Agreement, has been reviewed by a representative of the sponsor or constitutes a
qualified retirement plan.
The Angell Pension Group, Inc.
By: /s/ Peter L. Karlsa
-22-
<PAGE> 136
AMENDMENT TO THE
EPRISE CORPORATION RETIREMENT SAVINGS PLAN
WHEREAS, Eprise Corporation (the "Employer") adopted the Eprise
Corporation Retirement Savings Plan (the "Plan") for the benefit of its
employees, originally effective January 1, 1995; and
WHEREAS, the Plan was thereafter amended form time to time; and
WHEREAS, the Employer wishes to further amend the Plan;
NOW, THEREFORE, pursuant to the power reserved to the Employer in
Article Eight of the Plan, the Plan is hereby amended as follows, effective
January 1, 1999:
FIRST: Item E3 of the Adoption Agreement is amended to read as follows:
E3 FORMULA FOR DETERMINING EMPLOYER'S MATCHING CONTRIBUTION (Plan Section
11.1(b))
a. [ ] N/A. There shall be no matching contributions.
b. [ ] The Employer shall make matching contributions equal to ____%
(e.g. 50%) of the Participant's salary reductions.
c. [X] The Employer may make matching contributions equal to a
discretionary percentage, to be determined by the Employer, of
the Participant's salary reductions.
d. [ ] The Employer shall make matching contributions equal to the
sum of ____ % of the portion of the Participant's salary
reduction which does not exceed ____% of the Participant's
Compensation plus ____ % of the portion of the Participant's
salary reduction which exceeds ____% of the Participant's
Compensation, but does not exceed ____% of the Participant's
Compensation.
e. [ ] The Employer shall make matching contributions equal to the
percentage determined under the following schedule:
PARTICIPANT'S TOTAL MATCHING
YEARS OF SERVICE PERCENTAGE
------------------- -----------------
------------------- -----------------
------------------- -----------------
<PAGE> 137
SECOND: Item E7 of the Adoption Agreement is amended to read as
follows:
E7 ALLOCATIONS TO ACTIVE PARTICIPANTS (Plan Section 4.3) With respect to
Plan Years beginning after 1989, a Participant ...
a. [X] shall (Plan may become discriminatory)
b. [ ] shall not
be required to complete a Year of Service in order to share in any
Non-Elective Contributions (other than matching contributions) or
Qualified Non-Elective Contributions. For Plan Years beginning before
1990, the Plan provides that a Participant must complete a Year of
Service to share in the allocations.
E8 ALLOCATIONS TO TERMINATED PARTICIPANTS (Plan Section 4.3(k)) Any
Participant who terminated employment during the Plan Year (i.e. not
actively employed on the last day of the Plan Year) for reasons other
than death, Total and Permanent Disability or retirement:
a. With respect to Employer Non-Elective Contributions (other
than matching), Qualified Non-Elective Contributions, and
Forfeitures:
1. For Plan Years beginning after 1989,
i. [ ] N/A, Plan does not provide for such
contributions.
ii. [ ] shall share in the allocations provided such
Participant completed more than 500 Hours of
Service.
iii. [ ] shall share in such allocations provided
such Participant completed a Year of
Service.
iv. [X] shall not share in such allocations,
regardless of Hours of Service.
2. For Plan Years beginning before 1990,
i. [X] N/A, new Plan or same as for Plan Years
beginning after 1989.
ii. [ ] shall share in such allocations provided
such participant completed a Year of
Service.
iii. [ ] shall not share in such allocations,
regardless of Hours of Service.
NOTE: If a.1.iii or iv is selected, the Plan could violate minimum
participation and coverage requirements under Code Sections 401(a)(26)
and 410.
b. With respect to the allocation of Employer Matching
contributions, a Participant:
1. For Plan Years beginning after 1989,
i. [ ] N/A, Plan does not provide for matching
contributions.
ii. [ ] shall share in the allocations, regardless
of Hours of Service.
iii. [ ] shall share in the allocations provided such
Participant completed more than 500 Hours of
Service.
<PAGE> 138
iv. [ ] shall share in such allocations provided
such participant completed a Year of
Service.
v. [X] shall not share in such allocations,
regardless of Hours of Service.
2. For Plan Years beginning before 1990,
i. [X] N/A, new Plan, or same as years beginning
after 1989.
ii. [ ] shall share in the allocations, regardless
of Hours of Service.
iii. [ ] shall share in such allocations provided
such Participant completed a Year of
Service.
iv. [ ] shall not share in such allocations,
regardless of Hours of Service.
NOTE: If b.1.iv or v is selected, the Plan could violate minimum
participation and coverage requirements under Code Section 401(a)(26)
and 410.
IN WITNESS WHEREOF, the Employer, but its duly authorized officer, has
caused this Amendment to be executed this 14th day of October, 1998.
EPRISE CORPORATION
By: /s/ Milton Alpern
Milton A. Alpern
Vice President of Finance
<PAGE> 139
EPRISE CORPORATION RETIREMENT SAVINGS PLAN
SUMMARY OF MATERIAL MODIFICATIONS
The Eprise Corporation Retirement Savings Plan (referred to as the "Plan") has
recently been amended. Effective January 1, 1999, the formula for determining
the Company's match contribution has been revised. The amount of the Company's
match contributions will now be a discretionary percentage to be determined each
year, rather than 50% of your salary deferrals up to a maximum of 5% of your
compensation. In addition, you will now need to complete a Year of Service
(1,000 hours) and be employed on the last day of the Plan Year (December 31) to
share in any discretionary profit sharing contribution the Company may make.
You should keep this notice with your copy of the Summary Plan Description.
October 14, 1998 /s/ Milton Alpern
Date Plan Administrator
Plan Name: Eprise Corporation Retirement Savings Plan
Plan Number 001
Plan Sponsor: Eprise Corporation
1671 Worcester Road
Framingham, MA 01701
04-3179480
(508) 872-0200
Trustee: Milton Alpern, Joseph Forgione
Plan Administrator: Plan Sponsor
Effective Date
of Amendment: January 1, 1999
<PAGE> 1
Ex - 10.12
SECOND AMENDED AND RESTATED
STOCKHOLDERS AGREEMENT
THIS SECOND AMENDED AND RESTATED STOCKHOLDERS AGREEMENT ("Agreement") is
entered into as of the 8th day of November, 1999, by and among Eprise
Corporation (the "Corporation"), with its principal place of business located at
1671 Worcester Road, Framingham, Massachusetts 01701, the holders of Series A
Convertible Preferred Stock, par value $.01 per share (the "Series A Preferred
Stock"), of the Corporation listed on the Schedule of Investors hereto (such
holders being hereinafter referred to individually as a "Series A Investor" and
collectively as the "Series A Investors"), the holders of Series B Convertible
Preferred Stock, par value $.01 per share (the "Series B Preferred Stock"), of
the Corporation listed on the Schedule of Investors hereto (such holders being
hereinafter referred to individually as a "Series B Investor" and collectively
as the "Series B Investors"), the purchasers of Series C Convertible Preferred
Stock, par value $.01 per share (the "Series C Preferred Stock"), of the
Corporation listed on the Schedule of Investors hereto (such purchasers
hereinafter referred to individually as a "Series C Investor" and collectively
as the "Series C Investors"), Angela Bull ("Bull"), Joseph A. Forgione
("Forgione") and Jonathan B. Radoff ("Radoff"). The Series A Investors, Series B
Investors and Series C Investors hereinafter are sometimes referred to
individually as an "Investor" and collectively as the "Investors;" Radoff, Bull
and Forgione hereinafter are sometimes referred to individually as a "Principal"
and collectively as the "Principals;" and the Corporation, the Series A
Investors, the Series B Investors, the Series C Investors and the Principals
hereinafter are sometimes referred to collectively as the "Parties".
WHEREAS, the Principals own an aggregate of 5,301,250 shares of the
Common Stock, par value $.001 (the "Common Stock"), of the Corporation and
options to purchase in the aggregate 2,250,000 shares of Common Stock;
WHEREAS, the Series A Investors own an aggregate of 10,515,925 shares
of Series A Preferred Stock and one Series A Investor owns a warrant to purchase
326,995 shares of Series A Preferred Stock;
WHEREAS, the Series B Investors own an aggregate of 14,320,446 shares
of Series B Preferred Stock;
WHEREAS, the Series C Investors are acquiring simultaneously with the
execution hereof 16,233,766 shares of Series C Preferred Stock of the
Corporation pursuant to a certain Series C Convertible Preferred Stock Purchase
Agreement of even date herewith by and among the Corporation and the Series C
Investors (the "Purchase Agreement");
WHEREAS, the Corporation, the Principals, the Series A Investors and
the Series B Investors have previously entered into an Amended and Restated
Stockholders Agreement, dated August 24, 1998, which amended the Stockholders
Agreement by and between the Principals and the Series A Investors, dated
December 18, 1997 (collectively, the "Stockholders Agreement"); and
<PAGE> 2
WHEREAS, the Parties wish to further amend and restate the
Stockholders Agreement to maintain certain agreements regarding the election of
directors and to place certain restrictions on the Shares (as defined below) now
or hereafter owned by each Principal and each Investor;
NOW, THEREFORE, in consideration of the mutual covenants herein
contained and other valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the Parties hereby agree as follows:
1. Board of Directors.
(a) The Principals and the Investors agree to vote all shares of
Common Stock, Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock and any other class of voting security of the Corporation now or
hereafter owned or controlled by them (collectively, the "Shares"), and
otherwise to use their respective best efforts as shareholders of the
Corporation, to set the number of directors of the Corporation at eight and to
elect as directors in any subsequent election of directors of the Corporation:
the Chief Executive Officer of the Corporation; one person designated by the
holders of a majority of all outstanding shares of Common Stock voting as a
class (the "Common Stockholder Director") who shall initially be Jonathan B.
Radoff; one person designated by the holders of a majority of all outstanding
shares of Series A Preferred Stock voting as a class, who shall initially be
Robert C. Fleming; one person designated by Alliance Technology Ventures II,
L.P. ("ATV") who shall initially be Nick Papantonis (the director being
designated by the holders of a majority of all outstanding shares of Series A
Preferred Stock and the director designated by ATV being hereinafter referred to
collectively as the "Investor Directors") and four directors having relevant
industry experience and approved by the Principals and the Series A Investors
and Series B Investors jointly, who shall initially be Deborah Besemer, Joseph
J. Tischler, Edson deCastro and Alain Hanover.
(b) The holders of a majority in interest of the Common Stock, the
Series A Investors and ATV shall each furnish written notice of their respective
director-designees to the other Parties at least 3 days prior to any election of
directors. In the absence of such notice, the director-designees then serving
and previously designated shall be reelected if still eligible to serve as
provided herein. No Party shall vote to remove any Investor Director unless a
majority in interest of the Series A Investors or ATV, as applicable, so votes,
and if a majority in interest of the Series A Investors or ATV, as applicable,
so votes then the other Parties shall likewise so vote. No Party shall vote to
remove any director approved by a majority in interest of the Investors without
the prior written consent of a majority in interest of the Investors.
(c) Any vacancy on the Board of Directors created by the resignation,
removal, incapacity or death of any person designated or approved under this
Section 1 shall be filled by another person designated or approved by the
original designating or approving party
2
<PAGE> 3
or parties. The Investors and the Principals shall vote their respective Shares
in accordance with such new designation or approval, and any such vacancy shall
not be filled in the absence of a new designation or approval by the original
designating or approving party or parties or by the other members of the Board
of Directors, as the case may be.
(d) If and for so long as TGI Fund I, LC ("Tredegar") does not have
the power to designate a representative on the Corporation's Board of Directors,
Tredegar will be permitted to send one representative (the "Representative") to
attend in a nonvoting observer capacity all meetings of the Board of Directors
and the Corporation will give the Representative copies of all notices, minutes,
consents and other material that the Corporation provides to its Directors;
provided, however, that the Corporation reserves the right to exclude the
Representative from access to any material or from all or any portion of any
meeting, if the Corporation believes upon advice of counsel that such exclusion
is reasonably necessary (i) to preserve attorney-client privilege, (ii) due to a
conflict of interest or potential conflict of interest between the Corporation
and Tredegar or (iii) to preserve highly confidential information of the
Corporation; and provided, further, that Tredegar, itself and on behalf of the
Representative, agrees to abide by the terms of Section 8.1 of the Purchase
Agreement, with respect to all material and information obtained by the
Representative by virtue of the observer rights granted in this subsection as
though such material and information were "Proprietary Information" as defined
in Section 8.1 of the Purchase Agreement. The Representative shall be entitled
to reimbursement by the Company of such Representative's reasonable expenses
actually incurred in connection with the attendance of meetings of the Board of
Directors. The rights granted to Tredegar under this subsection shall terminate
and be of no further force or effect upon the earlier to occur of (x) the date
as of which Tredegar or its Affiliates ceases to hold at least 500,000 shares of
the Corporation's Preferred Stock, or (y) the closing of a Qualified Public
Offering (defined below).
2. Committees. The Parties shall cause the Board of Directors to
establish a Compensation Committee of the Board of Directors, which shall
conduct performance reviews of management, set annual compensation of management
and make recommendations regarding the granting of options under the
Corporation's Stock Option Plan or otherwise, and an Audit Committee of the
Board of Directors, which shall review the accounting practices of the
Corporation, including the selection of the Corporation's accountants and review
of significant accounting policies and procedures. The Parties shall cause the
Board of Directors to nominate and appoint (a) as members of the Compensation
Committee, a director who is an officer of the Corporation, one of the Investor
Directors and one of the directors having relevant industry experience and (b)
as members of the Audit Committee, a director who is an officer of the
Corporation, one of the Investor Directors and one of the directors having
relevant industry experience. All determinations by the Compensation Committee
regarding compensation of management shall be subject to the approval of the
Investor Director selected to serve on such Compensation Committee.
3. Director Indemnification.
3
<PAGE> 4
(a) The Corporation shall, to the fullest extent permitted by
applicable law as then in effect, indemnify any person (the "Indemnitee") who is
or was a director of the Corporation and who is or was involved in any manner
(including, without limitation, as a party or a witness) or is threatened to be
made so involved in any threatened, pending or completed investigation, claim,
action, suit or proceeding, whether civil, criminal, administrative or
investigative (including, without limitation, any action, suit or proceeding by
or in the right of the Corporation to procure a judgment in its favor) (a
"Proceeding"), by reason of the fact that such person is or was a director of
the Corporation, or is or was serving any other corporation or entity in any
capacity at the request of the Corporation, against all expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by such person in connection with such Proceeding; provided,
however, that, except where the Indemnitee seeks adjudication of his or her
entitlement to such indemnification, the foregoing shall not apply to a director
of the Corporation with respect to a Proceeding that was commenced by such
director. Such indemnification shall be a contract right and shall include the
right to receive payment in advance of any expenses incurred by the Indemnitee
in connection with such Proceeding, without regard to the Indemnitee's ability
to repay such advance payments.
(b) In the event that any director elected pursuant to the terms of
this Agreement shall be made or threatened to be made a party to any Proceeding
with respect to which such director may be entitled to indemnification by the
Corporation pursuant to this Agreement, the Corporation's Certificate of
Incorporation or otherwise, such director shall be entitled to be represented in
such Proceeding by counsel selected by such director and the reasonable expenses
of such representation shall be reimbursed by the Corporation to the extent
provided in or authorized by this Agreement, the Corporation's Certificate of
Incorporation or other provision and permitted by applicable law.
(c) The Parties agree not to take any action to amend any provision
of the Certificate of Incorporation or By-laws of the Corporation relating to
indemnification of directors, as presently in effect, without the prior written
consent of the Investors.
4. Prohibited Transfers. None of the Principals or the Investors (each a
"Restricted Stockholder") shall sell, assign or transfer, by gift or otherwise,
all or any part of the Shares now or hereafter owned by such Restricted
Stockholder except in compliance with the terms of this Agreement.
5. Offer of Sale; Notice of Proposed Sale. If any Restricted Stockholder
desires to sell, transfer or otherwise dispose of any Shares now or hereafter
owned by such Restricted Stockholder in a bona fide transaction to an unrelated
third party, or of any interest in such Shares, whether voluntarily or by
operation of law, in any transaction other than pursuant to Section 9 of this
Agreement, such Restricted Stockholder (the "Selling Restricted Stockholder")
shall first provide written notice of the Selling Restricted Stockholder's
desire to do so (the
4
<PAGE> 5
"Notice") to the Corporation and each of the Investors and each of the
Principals. The Notice must specify: (i) the name and address of the party to
which the Selling Restricted Stockholder proposes to sell or otherwise dispose
of the Shares or an interest in the Shares (the "Offeree"), (ii) the number of
Shares the Selling Restricted Stockholder proposes to sell or otherwise dispose
of (the "Offered Shares"), (iii) the consideration per share to be delivered to
the Selling Restricted Stockholder for the proposed sale, transfer or
disposition and (iv) all other material terms and conditions of the proposed
transaction, which must be bona fide.
6. Corporation's Option to Purchase.
(a) Subject to Section 8(a), the Corporation shall have the first
option to purchase all or any part of the Offered Shares for the consideration
per share and on the terms and conditions specified in the relevant Notice. If
the Corporation wishes to exercise such option, it must do so by written notice
to the Selling Restricted Stockholder no later than 15 business days after such
Notice is given to it (the "Primary Option Period").
(b) In the event the Corporation does not exercise its option within
the Primary Option Period with respect to all of the Offered Shares, the
Corporation shall, on or before the last day of such period, give written notice
of that fact to the Investors and the Principals (the "Investor/Principal
Notice"). The Investor/Principal Notice shall specify the number of Offered
Shares the Corporation has not elected to purchase (the "Remaining Shares").
(c) In the event the Corporation duly exercises its option to
purchase all of the Offered Shares, the closing of such purchase shall take
place at the offices of the Corporation on the date five business days after the
expiration of the Primary Option Period. In the event the Corporation duly
exercises its option to purchase a portion of the Offered Shares, the closing of
such purchase shall take place at the offices of the Corporation on the date of
the closing of the purchase and sale of the Offered Shares pursuant to Section
7(c) or 8(b) hereof.
(d) To the extent that the consideration proposed to be paid by the
Offeree for the Offered Shares consists of property other than cash or a
promissory note, the consideration required to be paid by the Corporation and
any Investors and Principals exercising their options under Sections 6 and 7
hereof (collectively, the "Purchasing Parties") may consist of cash equal to the
Fair Market Value of such property. For the purposes of this Section 6(d), the
"Fair Market Value" of such property shall be determined as follows: If, within
20 days after the termination of the applicable Option Period, the Selling
Restricted Stockholder and the Purchasing Parties agree upon the fair market
value of such property, then the Fair Market Value shall be as so agreed. If the
Selling Restricted Stockholder and the Purchasing Parties do not agree upon the
Fair Market Value within such 20 day period but agree upon an appraiser to
determine the fair market value of such property, then such appraiser shall make
such determination and such determination shall govern. If the Selling
Restricted Stockholder and the Purchasing Parties do not, within such 20 day
period, agree as to the Fair Market Value or as
5
<PAGE> 6
to a single appraiser to determine the fair market value of such property, then
the Selling Restricted Stockholder shall, by notice to the Purchasing Parties,
appoint one appraiser, and the Purchasing Parties shall, by notice to the
Selling Restricted Stockholder, appoint one appraiser, both experienced in the
appraisal of the type of property to be appraised. If either the Selling
Restricted Stockholder or the Purchasing Parties shall fail to appoint such an
appraiser within 15 days after the lapse of such 20-day period, then the
appraiser appointed by the party which does appoint an appraiser shall make the
appraisal of the Fair Market Value, and such appraisal shall govern. If two
appraisers are appointed, then the average of the appraisals rendered by such
appraisers shall be considered the Fair Market Value. All appraisal reports
shall be rendered in writing and shall be signed by the appraiser(s), and the
Selling Restricted Stockholder and the Purchasing Parties shall use reasonable
efforts to cause each appraiser to render its appraisal report within 20 days
after the date of its appointment. The costs of the appraisals shall be borne by
the Corporation.
7. Investors'/Principals' Option to Purchase or Right to Participate in
Sales.
(a) Subject to Section 8(a), each Investor (other than the Selling
Restricted Stockholder, if an Investor) and each Principal (other than the
Selling Restricted Stockholder, if a Principal) shall have an option,
exercisable for a period of 15 business days from the date of delivery to such
Investor or Principal, as the case may be, of the Investor/Principal Notice (the
"Secondary Option Period" and, together with the Primary Option Period, the
"Option Period"), to purchase, on a pro rata basis, its Proportionate Percentage
(as defined below) of the Remaining Shares for the consideration per share and
on the terms and conditions set forth in the Investor/Principal Notice. Such
option shall be exercised by providing written notice to the Corporation.
Alternatively, if the Selling Restricted Stockholder has sold in the immediately
preceding 12 months, or, together with the Offered Shares, will sell more than
1,000 Common Equivalent Shares, each Investor (other than the Selling Restricted
Stockholder, if an Investor) may, within the Secondary Option Period, notify the
Corporation of its desire to participate in the sale of the Offered Shares at an
Equivalent Price Per Share (as defined in Section 8 below), on the terms set
forth in the Investor/Principal Notice, up to an equivalent proportion of the
shares of Common Stock owned by such Investor or issuable to such Investor
pursuant to the conversion of all outstanding shares of Series A Preferred
Stock, Series B Preferred Stock and Series C Preferred Stock owned by such
Investor ("Common Equivalent Shares") as the proposed sale represents with
respect to all Common Equivalent Shares then owned by the Selling Restricted
Stockholder.
(b) In the event options to purchase have been exercised by the
Investors or the Principals with respect to some but not all of the Remaining
Shares, the Corporation shall, on or before the last day of the Option Period,
give written notice of that fact to those Investors and Principals who have
exercised their options in full within such period (the "Second
Investor/Principal Notice"). The Second Investor/Principal Notice shall specify
the number of Remaining Shares the Investors and Principals have not elected to
purchase. Each Investor and Principal who has exercised its options in full
within the Option Period shall have an additional
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<PAGE> 7
option (the "Over-Allotment Option"), for a period of 10 business days after the
Second Investor/Principal Notice is given to such Investor or Principal, as the
case may be, to purchase all or any part of the balance of such Remaining Shares
on the terms and conditions set forth in the Notice, which option shall be
exercised by the delivery of written notice to the Corporation. In the event
that there are two or more such Investors or Principals that choose to exercise
the Over-Allotment Option for a total number of Remaining Shares in excess of
the number available, the Remaining Shares available for each such Investor's or
Principal's option shall be allocated to such Investors and Principals pro rata
based on the number of Common Equivalent Shares owned by the Investors and
Principals electing to exercise the Over-Allotment Option.
(c) If the options to purchase the Remaining Shares are exercised in
full by the Investors or Principals, the Corporation shall immediately notify
all of the exercising Investors and Principals of that fact. If such options are
so exercised, the closing of the purchase of the Remaining Shares shall take
place at the offices of the Corporation five business days after delivery of
such notice to the Investors and Principals.
(d) As used in this Section 7, the term "Proportionate Percentage"
shall mean, with respect to each Investor and each Principal, a fraction, the
numerator of which shall be the total number of Common Equivalent Shares owned
by such Investor or Principal, and the denominator of which shall be the total
number of Common Equivalent Shares owned by all Investors (other than the
Selling Restricted Stockholder, if an Investor) and Principals (other than the
Selling Restricted Stockholder, if a Principal).
8. Failure Fully to Exercise Options; Co-Sale.
(a) If the Corporation, the Investors and the Principals do not
exercise their options to purchase all of the Offered Shares within their
respective Option Periods, then the Offered Shares with respect to which such
options have not been exercised may be sold by the Selling Restricted
Stockholder to the Offeree, at a price not greater than that set forth and on
terms no less favorable to the Selling Restricted Stockholder than those set
forth in the Investor/Principal Notice, at any time on or prior to 60 days after
the expiration of the relevant Option Period; provided, however, that each
Investor which has, pursuant to Section 7, expressed a desire to sell shares in
the transaction (a "Participating Investor") shall be entitled to do so. The
Corporation shall promptly, on expiration of the Option Period, notify the
Selling Restricted Stockholder of the aggregate number of Common Equivalent
Shares the Participating Investors wish to sell. The Selling Restricted
Stockholder shall use his or her best efforts to interest the Offeree in
purchasing, in addition to the Offered Shares, the shares the Participating
Investors wish to sell. If the Offeree does not wish to purchase all of the
shares made available by the Selling Restricted Stockholder and the
Participating Investors, then each Participating Investor and the Selling
Restricted Stockholder shall be entitled to sell, at the price and on the terms
and conditions set forth in the Notice, a portion of the shares being sold to
the Offeree, in the same proportion as such Selling Restricted Stockholder or
Participating Investor's ownership
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<PAGE> 8
of Common Equivalent Shares bears to the aggregate number of Common Equivalent
Shares owned by the Selling Restricted Stockholder and the Participating
Investors.
(b) If the Corporation, the Investors and the Principals do not
exercise their options to purchase all of the Offered Shares within their
respective Option Periods, the closings of any purchases of the Offered Shares
by the Corporation or the Offeree and the closings of any purchases or sales of
the Offered Shares by the Investors and the Principals shall take place
simultaneously at the offices of the Corporation on a date within 60 days after
the expiration of the relevant Option Period.
(c) If the Participating Investors do not elect to sell the full
number of shares which they are entitled to sell pursuant to Section 8(a), the
Selling Restricted Stockholder shall be entitled to sell to the Offeree,
according to the terms set forth in the Investor/Principal Notice, that number
of Shares which equals the difference between the number of shares desired to be
purchased by the Offeree and the number of Common Equivalent Shares the
Participating Investors wish to sell. If the Selling Restricted Stockholder
wishes to sell, transfer or otherwise dispose of any Shares at a price per share
which differs from that set forth in the Investor/Principal Notice, upon terms
different from those previously offered to the Corporation, the Investors and
the Principals, or more than 60 days after the expiration of the relevant Option
Period, as a condition precedent to such transaction, such Shares must first be
offered to the Corporation, the Investors and the Principals on the same terms
and conditions as given the Offeree, and in accordance with the procedures and
time periods set forth above.
(d) The proceeds of any sale made by the Selling Restricted
Stockholder without compliance with the provisions of this Section 8 shall be
deemed to be held in constructive trust in such amount as would have been due
the Participating Investors if the Selling Restricted Stockholder had complied
with this Agreement.
(e) As used in Section 7, the term an "Equivalent Price Per Share"
with respect to a Share proposed to be sold by a Restricted Stockholder means:
(i) in the case of a share of Common Stock, the same price per share as the
share of Common Stock proposed to be sold by the Restricted Stockholder; (ii) in
the case of a share of Preferred Stock (A) if the Shares proposed to be sold by
the Selling Restricted Stockholder are shares of Common Stock, a price per share
equal to the price per share of Common Stock proposed to be sold by the Selling
Restricted Stockholder multiplied by the number of shares of Common Stock into
which each such share of the applicable series of Preferred Stock is then
convertible or (B) if the Shares proposed to be sold are shares of Preferred
Stock, the same price per share as the share of the applicable series of
Preferred Stock proposed to be sold by the Selling Restricted Stockholder.
9. Permitted Transfers. Anything herein to the contrary notwithstanding,
and subject to the next sentence of this Section 9, the provisions of Sections 5
through 8 shall not apply to: (a) any transfer by gift or bequest to, or for the
benefit of, any member or members of
8
<PAGE> 9
a Principal's or an Investor's immediate family (if applicable), provided that
such transfers do not, in the aggregate, exceed 49% of the aggregate number of
shares of Common Stock held by such Principal or such Investor, as the case may
be; (b) any transfer of shares of Common Stock by a Principal, or an Investor,
as the case may be, to a trust (i) in respect of which such Principal or such
Investor, as the case may be, serves as trustee, provided that the trust
instrument governing such trust shall provide that such Principal, or such
Investor, as the case may be, as trustee, shall retain sole and exclusive
control over the voting and disposition of such shares until the termination of
this Agreement, and (ii) which is for the benefit of any member or members of
such Principal's or Investor's immediate family; (c) any sale or transfer of
Shares to the Corporation; (d) any sale or transfer of Shares by an Investor to
an affiliate of such Investor (including, without limitation, any partner of
such Investor); and (e) any public offering of Shares pursuant to an effective
registration statement under the Securities Act of 1933, as amended, at an
initial public offering price per share of not less than $3.08 (appropriately
adjusted to take account of any stock split, stock dividend, combination of
shares, recapitalization or the like) and with aggregate net proceeds to the
Corporation of not less than $15,000,000 (a "Qualified Public Offering"). In the
event of any transfer described in the first sentence of this Section 9, other
than pursuant to clause (c) or (e) of this Section 9, the transferee of the
shares shall hold the shares so acquired subject to all the restrictions imposed
by this Agreement and shall be deemed a Principal, if such shares are acquired
from a Principal, or an Investor, if such shares are acquired from an Investor,
for all purposes hereof. As a condition to any such transfer, (i) the Selling
Restricted Stockholder shall give written notice thereof to the Investors and
the Principals, which notice shall include a brief description of the terms of
such transfer, and (ii) each such transferee shall execute and deliver a written
instrument agreeing to be bound by the provisions of this Agreement. As used
herein, "immediate family" shall mean a person's spouse, parents, children and
siblings.
10. Effect of Prohibited Transfer. The Corporation shall not (a) transfer
on its books any Shares which shall have been sold or transferred in violation
of any of the provisions set forth in this Agreement, or (b) treat as the owner
of or pay dividends to any transferee to whom any Shares shall have been sold or
transferred in violation of any of the provisions set forth in this Agreement.
11. Restrictive Legend. All certificates representing Shares held by
Principals or Investors or their permitted transferees under Section 9 hereof
shall have affixed thereto a legend in substantially the following form, in
addition to any other legends that may be required under federal or state
securities laws or by the terms of any other agreement:
"The shares of stock represented by this certificate are
subject to a certain Stockholders Agreement among the
Corporation and certain stockholders of the Corporation.
Such Agreement is available for inspection without charge
at the office of the Treasurer of the Corporation."
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<PAGE> 10
12. Other Parties. The Corporation shall cause each of its and its
subsidiaries' employees who becomes the beneficial owner of two percent (2%) or
more of the outstanding shares of Common Stock of the Corporation (calculated in
accordance with Rule 13d-3 under the Securities Exchange Act of 1934, as
amended, or any successor rule thereto) to execute a counterpart of this
Agreement, countersigned by the Corporation, as if the employee were a
Principal, at which time the employee shall be bound by, and shall be entitled
to all the benefits of, this Agreement, as if the employee were a Principal. The
Corporation shall from time to time promptly furnish each Party a copy of each
such counterpart of this Agreement.
13. Termination. Except as expressly otherwise provided herein, this
Agreement, and the respective rights and obligations of the Parties hereunder,
shall terminate upon the closing of a Qualified Public Offering; provided,
however, that the provisions of Section 3(a) and (b) shall survive any
termination of this Agreement.
14. Notices. All notices and other communications hereunder shall be given
in accordance with Section 17 of the Purchase Agreement.
15. Equitable Relief. The Parties agree and acknowledge that money damages
are not an adequate remedy for breach of the provisions of this Agreement and
that, in addition to any other remedy a Party may have for a breach of this
Agreement, such Party may be entitled to an injunction restraining any such
breach or threatened breach, or a decree of specific performance, without
posting any bond or security. The remedy in this Section 15 is in addition to,
and not in lieu of, any other rights or remedies a party may have.
16. Entire Agreement. This Agreement constitutes the entire agreement
among the Parties with respect to the subject matter hereof and supersedes all
prior agreements and understandings between them or any of them as to such
subject matter.
17. Waivers and Further Agreements. Any of the rights of the Investors may
be waived with the written consent of the holders of two-thirds in voting power
of the shares of Common Stock, Series A Preferred Stock, Series B Preferred
Stock and Series C Preferred Stock (counted as a single class) owned by the
Investors, or their successors, assigns and transferees of their rights
hereunder. Any of the rights of the Principals may be waived with the written
consent of the holders of two-thirds in voting power of the shares of Common
Stock owned by the Principals, or their successors, assigns and transferees of
their rights hereunder. Any waiver of a breach of any provision of this
Agreement shall not operate or be construed as a waiver of any subsequent breach
of that provision or of any other provision hereof. Each of the Parties agrees
to execute all such further instruments and documents and to take all such
further action as any other Party may reasonably require in order to effectuate
the terms and purposes of this Agreement.
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<PAGE> 11
18. Amendments. Except as otherwise expressly provided herein, this
Agreement may not be amended except by the written agreement of the holders of
two-thirds in voting power of the Investors (voting as a single class) and
two-thirds in voting power of the Principals (voting separately as a single
class), or their respective successors, assigns and transferees of their rights
hereunder. Notwithstanding the foregoing, any Additional Purchaser (as defined
in the Purchase Agreement) shall, by executing a counterpart of this Agreement,
become an Investor hereunder for all purposes of this Agreement.
19. Assignment; Successors and Assigns. The rights of any Investor under
this Agreement may be transferred to any transferee of any Shares, provided that
such transferee shall agree to be bound by and execute a counterpart of this
Agreement. This Agreement shall be binding upon, and shall inure to the benefit
of, the Parties hereto and their respective heirs, legal representatives,
successors and permitted assigns and transferees, except as may be expressly
provided otherwise herein.
20. Severability. In case any one or more of the provisions contained in
this Agreement shall for any reason be held to be invalid, illegal or
unenforceable in any respect, such invalidity, illegality or unenforceability
shall not affect any other provision of this Agreement and such invalid, illegal
or unenforceable provision shall be reformed and construed so that it will be
valid, legal and enforceable to the maximum extent permitted by law.
21. "Market Stand-Off" Agreement. Each of the Investors and Principals
agrees, severally and not jointly, if requested by the Corporation and an
underwriter of Common Stock (or other securities) of the Corporation, not to
sell or otherwise transfer or dispose of any Common Stock (or other securities)
of the Corporation held by such Investor or Principal during a period of up to
one hundred and eighty (180) days following the closing of a Qualified Public
Offering; provided, however, that (a) such agreement only applies to the first
such registration statement of the Corporation including securities to be sold
on its behalf to the public in an underwritten offering; and (b) all principal
officers and directors of the Corporation and all persons including shares in
such offering enter into similar agreements. The Corporation may impose
stop-transfer instructions with respect to the shares (or securities) subject to
the foregoing restriction until the end of such period.
22. Counterparts. This Agreement may be executed in counterparts, each of
which shall be deemed an original, but all of which shall constitute one and the
same instrument.
23. Section Headings. The headings contained in this Agreement are for
reference purposes only and shall not in any way affect the meaning or
interpretation of this Agreement.
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<PAGE> 12
24. Governing Law. This Agreement shall be governed by, and construed and
enforced in accordance with, the substantive laws of The Commonwealth of
Massachusetts, without regard to its principles of conflicts of laws.
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<PAGE> 13
IN WITNESS WHEREOF, the parties have executed this Agreement under seal as
of the day and year first above written.
EPRISE CORPORATION
By: /s/ J.A. Forgione
------------------------
Name: Joseph A. Forgione
Title:
PRINCIPALS:
/s/ Jon Radoff
Jonathan B. Radoff
/s/ Angela Bull
Angela Bull
/s/ J. A. Forgione
Joseph A. Forgione
INVESTORS:
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<PAGE> 1
Ex - 10.13
SECOND AMENDED AND RESTATED
REGISTRATION RIGHTS AGREEMENT
THIS SECOND AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT
("Agreement") is entered into as of the 8th day of November, 1999, by and among
Eprise Corporation, a Delaware corporation (the "Corporation") with its
principal place of business located at 1671 Worcester Road, Framingham,
Massachusetts 01701, the holders (the "Series A Investors") of Series A
Convertible Preferred Stock, par value $.01 per share (the "Series A Preferred
Stock"), the holders (the "Series B Investors") of Series B Convertible
Preferred Stock, par value $.01 per share (the "Series B Preferred Stock"), and
the purchasers (the "Series C Investors") of Series C Convertible Preferred
Stock, par value $.01 per share (the "Series C Preferred Stock" and,
collectively with the Series A and Series B Preferred Stock, the "Preferred
Stock"). The Series A Investors, Series B Investors and Series C Investors
listed on the Schedule of Investors hereto are referred to herein collectively
as the "Investors" and each such party is referred to herein individually as an
"Investor".
WHEREAS, the Corporation wishes to sell to the Series C Investors shares of
Series C Preferred Stock which are convertible into shares of the Common Stock,
par value $.001 per share, of the Corporation ("Common Stock");
WHEREAS, as a condition to their purchase of Series C Preferred Stock, in a
Series C Convertible Preferred Stock Purchase Agreement of even date herewith
(the "Purchase Agreement"), the Investors have required that the Corporation
execute this Agreement to provide the Series C Investors rights to register
their Registrable Securities (as defined below);
WHEREAS, the Company, the Series A Investors and the Series B Investors are
parties to an Amended and Restated Registration Rights Agreement dated as of
August 24, 1998, which amended and restated the Registration Rights Agreement by
and between the Company and the Series A Investors, dated as of December 18,
1997 (collectively, the "Registration Rights Agreement"); and
WHEREAS, the parties hereto wish to further amend and restate the
Registration Rights Agreement as set forth herein;
NOW, THEREFORE, in consideration of the mutual covenants herein contained
and other valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereby agree as follows:
1. Definitions. As used in this Agreement, the following terms shall have
the following meanings:
(a) The term "Act" means the Securities Act of 1933, as amended;
<PAGE> 2
(b) The term "1934 Act" means the Securities Exchange Act of 1934, as
amended;
(c) The term "Holder" means any Investor holding Registrable
Securities and any other person or entity holding Registrable Securities to whom
the registration rights granted in this Agreement have been transferred pursuant
to Section 15 hereof. The Series C Investors are referred to herein as the
"Series C Holders," and the Series A Investors and Series B Investors are
referred to herein collectively as the "Series A and B Holders";
(d) The terms "register", "registered", and "registration" refer to a
registration effected by preparing and filing a registration statement in
compliance with the Act and the declaration or ordering of effectiveness of such
registration statement; and
(e) The term "Registrable Securities" means (1) the Common Stock
issuable upon conversion of the Preferred Stock, (2) the Common Stock purchased
by an Investor pursuant to Section 9.2 of the Purchase Agreement (or Common
Stock for or into which New Securities (as therein defined) purchased by the
Investor pursuant to such Section 9.2 may be exercised or converted) or pursuant
to the Stockholders Agreement referred to in Section 5.3 of the Purchase
Agreement; (3) any Common Stock issued as a dividend or other distribution with
respect to, or in exchange or in replacement of, such Preferred Stock or Common
Stock, (4) any Common Stock issuable upon conversion, exercise or exchange of
convertible securities, warrants, options or similar rights issued as a dividend
or other distribution with respect to, or in exchange or in replacement of, such
Preferred Stock or Common Stock and (5) any other shares of Common Stock
acquired by an Investor.
In addition, for purposes of all calculations, and notices under, and all
provisions of this Agreement, where the context permits, the term "Registrable
Securities" shall include securities issuable upon conversion of the Preferred
Stock, a holder of the Preferred Stock shall be deemed the Holder of such
securities and such securities shall be deemed outstanding Registrable
Securities hereunder. The foregoing notwithstanding, nothing in this Agreement
shall require the Corporation actually to register any share of the Preferred
Stock or any other class of security other than Common Stock.
2. Request for Registration.
(a) If, at any time after the earlier to occur of (i) December 18, 2000,
and (ii) the date which is six months after the effective date of a registration
statement under the Act in connection with the initial public offering of the
Corporation's securities for its own account or the account of its stockholders
(the "Initial Public Offering") the Corporation shall receive a written request
(specifying that it is being made pursuant to this Section 2) from Series C
Holders of forty percent (40%) or more of the then outstanding Registrable
Securities held by the Series C Holders that the Corporation file a registration
statement under the Act for a public offering of Registrable Securities with a
reasonably anticipated aggregate price to the public of at least $10,000,000 (or
a similar document pursuant to any other statute then in effect corresponding to
the Act) then the Corporation shall promptly notify all other Series C Holders
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<PAGE> 3
of such request. Each Series C Holder so notified shall have twenty (20) days
after mailing of any such notice by the Corporation to request that some or all
of such Series C Holder's Registrable Securities be included in such
registration. The Corporation shall use its best efforts to cause to be
registered under the Act all Registrable Securities that Series C Holders have
requested be so registered under the Act in accordance with this Section 2.
(b) If, at any time after the earlier to occur of (i) December 18, 2000,
and (ii) the date which is six months after the effective date of a registration
statement under the Act in connection with the initial public offering of the
Corporation's securities for its own account or the account of its stockholders
(the "Initial Public Offering") the Corporation shall receive a written request
(specifying that it is being made pursuant to this Section 2) from the Series A
and B Holders of forty percent (40%) or more of the then outstanding Registrable
Securities held by the Series A and B Holders that the Corporation file a
registration statement under the Act, or a similar document pursuant to any
other statute then in effect corresponding to the Act, then the Corporation
shall promptly notify all other Series A and B Holders of such request. Each
Series A and B Holder so notified shall have twenty (20) days after mailing of
any such notice by the Corporation to request that some or all of such Series A
and B Holder's Registrable Securities be included in such registration. The
Corporation shall use its best efforts to cause to be registered under the Act
all Registrable Securities that Series A and B Holders have requested be so
registered under the Act in accordance with this Section 2.
(c) The foregoing notwithstanding, the Corporation shall not be obligated
to effect a registration pursuant to this Section 2: (i) during the thirty (30)
days prior to the Corporation's estimated date of filing of a registration
statement pertaining to an underwritten public offering of securities for the
account of the Corporation, provided that the Corporation is actively employing
in good faith its best efforts to cause such registration statement to become
effective and that the Corporation's estimate of the date of filing such
registration statement is made in good faith, or (ii) if the Corporation shall
furnish to the requesting Holders a certificate signed by the President of the
Corporation stating that in the good faith judgment of the Board of Directors it
would be seriously detrimental to the Corporation or its stockholders for a
registration statement to be filed in the near future and setting forth the
reasons for such judgment, in which case the Company's obligation to use its
best efforts to file a registration statement shall be deferred for a period not
to exceed three (3) months, provided, however, that the Corporation may not
obtain a deferral pursuant to this clause (ii) more than once.
The Corporation shall not be obligated to effect more than two (2)
registrations pursuant to each of Section 2(a) and Section 2(b); provided,
however, that if, for any reason, a registration pursuant to this Section 2
fails to become effective and provide for the distributions of all the
Registrable Securities that the requesting Holders have requested be registered,
the Corporation shall not be deemed to have effected a registration pursuant to
this Section 2.
3. Corporation Registration. Subject to Section 8 of this Agreement, if
at any time the Corporation proposes to register any of its Common Stock under
the Act in connection with the public offering of such securities for its own
account or for the accounts of other shareholders, solely for cash on a form
that would also permit the registration of the Registrable
3
<PAGE> 4
Securities, the Corporation shall, each such time, promptly give each Holder
written notice of such determination. Upon the written request of any Holder
given within twenty (20) days after mailing of any such notice by the
Corporation, the Corporation shall use its best efforts to cause to be
registered under the Act all of the Registrable Securities that each such Holder
has requested be registered. The foregoing notwithstanding, the Corporation may,
in its discretion, withdraw any registration statement referred to in this
Section 3 prior to the effectiveness thereof.
4. Obligations of the Corporation. Whenever required under Section 2, 3
or 11 to use its best efforts to effect the registration of any Registrable
Securities, the Corporation shall, as expeditiously as reasonably possible:
(a) Prepare and file with the Securities and Exchange Commission
("SEC") a registration statement with respect to such Registrable Securities and
use its best efforts to cause such registration statement to become and remain
effective; provided, however, that in connection with any proposed registration
intended to permit an offering of any securities from time to time (i.e., a
so-called "shelf registration"), the Corporation shall in no event be obligated
to cause any such registration to remain effective for more than one hundred
eighty (180) days.
(b) Prepare and file with the SEC such amendments and supplements to
such registration statement and the prospectus used in connection with such
registration statement as may be necessary to comply with the provisions of the
Act with respect to the disposition of all securities covered by such
registration statement.
(c) Furnish to the selling Holders such numbers of copies of a
prospectus, including a preliminary prospectus, in conformity with the
requirements of the Act, and such other documents as they may reasonably request
in order to facilitate the disposition of Registrable Securities owned by them.
(d) Use its best efforts to register and qualify the securities
covered by such registration statement under such other securities or Blue Sky
laws of such jurisdictions as shall be reasonably appropriate for the
distribution of the securities covered by the registration statement, provided
that the Corporation shall not be required in connection therewith or as a
condition thereto to qualify to do business or to file a general consent to
service of process in any such states or jurisdictions.
(e) Provide a transfer agent for the Common Stock no later than the
effective date of the first registration of any Registrable Securities.
(f) Otherwise use its best efforts to comply with all applicable
rules and regulations of the SEC.
(g) Use its best efforts to cause all the applicable Registrable
Securities either (i) to be listed on a national securities exchange (if the
Registrable Securities are not already so listed) and on each additional
national securities exchange on which similar securities issued by the
Corporation are then listed, if the listing of the Registrable Securities is
then permitted under
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<PAGE> 5
the rules of such exchange, or (ii) to secure designation of all the Registrable
Securities as a NASDAQ "national market system security" within the meaning of
Rule 11Aa2-1 of the SEC or, failing that, to secure listing on NASDAQ for the
Registrable Securities and, without limiting the generality of the foregoing, to
arrange for at least two (2) market makers to register as such with respect to
Registrable Securities with the National Association of Securities Dealers, Inc.
(h) Enter into such customary agreements (including an underwriting
agreement in customary form) and take such other actions as sellers of
applicable Registrable Securities shall reasonably request in order to expedite
or facilitate the disposition of such Registrable Securities.
(i) In the case of an underwritten offering, on the date of delivery
of the Registrable Securities sold pursuant thereto, cause to be delivered to
the selling Holders and the underwriters, opinions of counsel for the
Corporation, which counsel and opinions (in form, scope and substance) shall be
reasonably satisfactory to counsel for the underwriters and counsel for the
selling Holders, covering the matters customarily covered in opinions given to
underwriters in primary underwritten public offerings. At the time of delivery
of any Registrable Securities sold pursuant to an underwritten offering, the
Corporation shall cause to be delivered to the selling Holders and the
underwriters a letter from the Corporation's independent public accountants,
addressed to the underwriters and the selling Holders, stating that they are
independent public accountants within the meaning of the Act and the applicable
published rules and regulations of the SEC thereunder, and otherwise in
customary form and covering such financial and accounting matters as are
customarily covered by letters of the independent public accountants delivered
in connection with underwritten public offerings.
(j) Make available for inspection by any seller of Registrable
Securities, by any underwriter participating in any disposition to be effected
pursuant to such registration statement and by any attorney, accountant or other
agent retained by any such seller or any such underwriter, all pertinent
financial and other records and pertinent corporate documents and properties of
the Corporation, and cause all of the Corporation's officers, directors and
employees to supply all information reasonably requested by any such seller,
underwriter, attorney, accountant or agent in connection with such registration
statement.
(k) Permit any selling Holder of Registrable Securities which Holder,
in the sole and exclusive judgment, exercised in good faith, of such Holder,
might be deemed to be a controlling person of the Corporation (within the
meaning of the Act or the 1934 Act) to participate in the preparation of such
registration statement and to request the insertion therein of material,
furnished to the Corporation in writing, which in the judgment of such
controlling Holder should be included and which is reasonably acceptable to the
Corporation.
(l) Use every reasonable effort to prevent the issuance of any stop
order suspending the effectiveness of such registration statement or of any
order preventing or suspending the use of any preliminary prospectus and, if any
such order is issued, to obtain the lifting thereof at the earliest reasonable
time.
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<PAGE> 6
(m) Make such representations and warranties to the selling Holders
and the underwriters as are customarily made by issuers to underwriters and
selling Holders, as the case may be, in underwritten public offerings.
5. Furnish Information. It shall be a condition precedent to the
obligations of the Corporation to take any action pursuant to this Agreement
that the selling Holders shall furnish to the Corporation such information
regarding themselves, the Registrable Securities held by them, and the intended
method of disposition of such securities as the Corporation shall reasonably
request and as shall be required in connection with the action to be taken by
the Corporation.
6. Expenses of Demand Registration. All expenses incurred in connection
with the registration of securities effected pursuant to Section 2 (excluding
underwriters' discounts and commissions), including, without limitation, all
registration and qualification fees, printers' and accounting fees, fees and
disbursements of counsel for the Corporation, and the reasonable fees and
disbursements of one counsel for the selling Holders, shall be borne by the
Corporation.
7. Corporation Registration Expenses. All expenses (excluding
underwriters' discounts and commissions) incurred in connection with a
registration pursuant to Section 3 hereto, including, without limitation, any
additional registration and qualification fees and any additional fees and
disbursements of counsel to the Corporation that result from the inclusion of
securities held by the Holders in such registration and the reasonable fees and
disbursements of one counsel for the selling Holders, shall be borne by the
Corporation.
8. Underwriting Requirements.
(a) In connection with any offering involving an underwriting of
shares being issued by the Corporation or sold by Holders of Registrable
Securities exercising their rights under Section 2(a) or 2(b) hereof, the
Corporation shall not be required under Section 3 to include any of the Holders'
Registrable Securities in such underwriting unless they accept the terms of the
underwriting as agreed upon between the Corporation and the underwriters
selected by it. If the total amount of securities that all selling Holders
request to be included in an underwritten offering exceeds the amount of
securities that the underwriters reasonably believe compatible with the success
of the offering, the Corporation shall only be required to include in the
offering so many of the securities of the selling Holders as the underwriters
reasonably believe will not jeopardize the success of the offering (the
securities so included to be apportioned pro rata among the selling Holders
according to the total amount of securities owned by said selling Holders, or in
such other proportions as shall mutually be agreed to by such selling Holders);
provided, however, that (i) no securities of any shareholder who is not a
selling Holder shall be included unless all securities which the selling Holders
have requested to be included are included, (ii) in the case of any registration
subject to Section 3 (other than the Corporation's first registration under the
Act), no reduction in the number of Registrable Securities the selling Holders
have requested to be included in such registration shall limit the number of
Registrable Securities being offered pursuant to such registration for the
account of selling Holders to less than thirty percent (30%) of the aggregate
shares offered under the
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<PAGE> 7
registration, (iii) subject to clause (ii) of this proviso, in the case of any
registration subject to Section 3, no such reduction shall be made with respect
to any securities offered by the Corporation for its own account, and (iv) in
the case of a registration subject to Section 2(a) for the account of the Class
C Holders or Section 2(b) for the account of the Class A and B Holders, the
Registrable Securities of the Holders who did not elect under Section 2 (or
whose election was received by the Corporation after its receipt of another
election under Section 2(a) or 2(b), as the case may be) shall be reduced in
full before there is any reduction in the Registrable Securities to be included
in the registration by the Holders who elected under Section 2 (provided,
however, that if requests have been made under Sections 2(a) and 2(b) and all of
the Registrable Securities requested to be included by both such groups are
included in full, then such registration shall count as one registration under
Section 2 for each such group of Holders.
(b) In connection with any underwriting of shares to be registered
hereunder, the Corporation shall have the right to designate the managing
underwriter or underwriters, subject to the consent of the Holders of a majority
of the Registrable Securities participating in the underwriting, which consent
shall not be unreasonably withheld or delayed if such underwriter or
underwriters are of recognized national or regional standing.
9. Delay of Registration. No Holder shall have any right to take any
action to restrain, enjoin, or otherwise delay any registration as the result of
any controversy that might arise with respect to the interpretation or
implementation of this Agreement.
10. Indemnification and Contribution. In the event any Registrable
Securities are included in a registration statement under this Agreement:
(a) To the extent permitted by law, the Corporation will indemnify
and hold harmless each Holder requesting or joining in a registration, any
underwriter (as defined in the Act) for it, and each person, if any, who
controls such Holder or underwriter within the meaning of the Act, against any
losses, claims, damages or liabilities, joint or several, to which they may
become subject under the Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are based
on any untrue or alleged untrue statement of any material fact contained in such
registration statement, including, without limitation, any preliminary
prospectus or final prospectus contained therein or any amendments or
supplements thereto, or arise out of or are based upon the omission or alleged
omission to state therein a material fact required to be stated therein, or
necessary to make the statements therein not misleading, or arise out of any
violation by the Corporation of any rule or regulation promulgated under the Act
applicable to the Corporation and relating to action or inaction required of the
Corporation in connection with any such registration; and will reimburse each
such Holder, such underwriter, or controlling person for any legal or other
expenses reasonably incurred by them in connection with investigating or
defending any such loss, claim, damage, liability, or action, provided, however,
that the indemnity agreement contained in this Section 10(a) shall not apply to
amounts paid in settlement of any such loss, claim, damage, liability or action
if such settlement is effected without the consent of the Corporation (which
consent shall not be unreasonably withheld or delayed), nor shall the
Corporation be liable in any such case with respect to any such Holder or
underwriter for any such loss, claim, damage, liability or
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<PAGE> 8
action to the extent that it arises out of or is based upon an untrue statement
or alleged untrue statement or omission or alleged omission made in connection
with such registration statement, preliminary prospectus, final prospectus, or
amendments or supplements thereto, in reliance upon and in conformity with
written information furnished expressly for use in connection with such
registration by such Holder, underwriter or controlling person.
(b) To the extent permitted by law, each Holder requesting or joining
in a registration will indemnify and hold harmless the Corporation, each of its
directors, each of its officers who has signed the registration statement, each
person, if any, who controls the Corporation within the meaning of the Act, and
any underwriter for the Corporation (within the meaning of the Act) against any
losses, claims, damages or liabilities to which the Corporation or any such
director, officer, controlling person or underwriter may become subject, under
the Act or otherwise, insofar as such losses, claims, damages or liabilities (or
actions in respect thereto) arise out of or are based upon any untrue statement
or alleged untrue statement of any material fact contained in such registration
statement, including any preliminary prospectus or final prospectus contained
therein or any amendments or supplements thereto, or arise out of or are based
upon the omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not misleading,
in each case to the extent, but only to the extent, that such untrue statement
or alleged untrue statement or omission or alleged omission was made in such
registration statement, preliminary prospectus or final prospectus, or
amendments or supplements thereto, in reliance upon and in conformity with
written information furnished by such Holder expressly for use in connection
with such registration; and will reimburse the Corporation or any such director,
officer, controlling person or underwriter for any legal or other expenses
reasonably incurred by them in connection with investigating or defending any
such loss, claim, damage, liability or action; provided, however, that the
indemnity agreement contained in this Section 10(b) shall not apply to amounts
paid in settlement of any such loss, claim, damage, liability or action if such
settlement is effected without the consent of such Holder (which consent shall
not be unreasonably withheld or delayed) and provided further that no Holder
shall have any liability under this Section 10(b) in excess of the net proceeds
actually received by such Holder in the relevant public offering.
(c) Promptly after receipt by an indemnified party under this Section
10 of notice of the commencement of any action, such indemnified party will, if
a claim in respect thereof is to be made against any indemnifying party under
this Section 10, notify the indemnifying party in writing of the commencement
thereof and the indemnifying party shall have the right to participate in, and,
to the extent the indemnifying party so desires, jointly with any other
indemnifying party similarly noticed, to assume the defense thereof with counsel
mutually satisfactory to the parties; provided, however, that if the defendants
in any such action include both the indemnified party and the indemnifying party
and the indemnified party shall have reasonably concluded that there may be
legal defenses available to it or other indemnified parties which are different
from or additional to those available to the indemnifying party, the indemnified
party or parties shall have the right to select separate counsel to defend such
action on behalf of such indemnified party or parties. Upon receipt of notice
from the indemnifying party to such indemnified party of its election so to
appoint counsel to defend such action and approval by the indemnified party of
such counsel, the indemnifying party will not be liable to
8
<PAGE> 9
such indemnified party under this Section 10 or otherwise for any legal or other
expenses subsequently incurred by such indemnified party in connection with the
defense thereof unless (i) the indemnified party shall have employed separate
counsel in accordance with the proviso to the immediately preceding sentence (it
being understood, however, that the indemnifying party shall not be liable for
the expenses of more than one separate counsel (plus any local counsel)
representing each indemnified party who or which is a party to such action),
(ii) the indemnifying party shall not have employed counsel reasonably
satisfactory to the indemnified party to represent the indemnified party within
a reasonable time after notice of commencement of the action or (iii) the
indemnifying party has authorized the employment of counsel for the indemnified
party at the expense of the indemnifying party; and except that, if clause (i)
or (iii) is applicable, such liability shall be only in respect of the counsel
referred to in such clause (i) or (iii). The failure to notify an indemnifying
party promptly of the commencement of any such action, to the extent prejudicial
to his ability to defend such action, shall relieve such indemnifying party of
liability to the indemnified party under this Section 10 to such extent, but the
omission so to notify the indemnifying party will not relieve him of any
liability that he may have to any indemnified party otherwise than under this
Section 10.
(d) In order to provide for just and equitable contribution to joint
liability under the Act in any case in which either (i) any Holder of
Registrable Securities exercising rights under this Agreement, or any
controlling person of any such Holder, makes a claim for indemnification
pursuant to this Section 10 but it is judicially determined (by the entry of a
final judgment or decree by a court of competent jurisdiction and the expiration
of time to appeal or the denial of the last right of appeal) that such
indemnification may not be enforced in such case notwithstanding the fact that
this Section 10 provides for indemnification in such case, or (ii) contribution
under the Act may be required on the part of any such selling Holder or any such
controlling person in circumstances for which indemnification is provided under
this Section 10; then, and in each such case, the Corporation and such Holder
will contribute to the aggregate losses, claims, damages or liabilities to which
they may be subject (after contribution from others) in such proportion so that
such Holder is responsible for the portion represented by the percentage that
the public offering price of its Registrable Securities offered by the
registration statement bears to the public offering price of all securities
offered by such registration statement, and the Corporation is responsible for
the remaining portion; provided, however, that, in any such case, (A) no such
Holder of Registrable Securities will be required to contribute any amount in
excess of the net proceeds received from the sale of all such Registrable
Securities offered by it pursuant to such registration statement; and (B) no
person or entity guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the Act) will be entitled to contribution from any person or
entity who was not guilty of such fraudulent misrepresentation.
11. Registrations on Form S-3.
(a) If, at any time after the Corporation becomes eligible to file a
registration statement on Form S-3 (or any successor form to Form S-3 regardless
of its designation), the Corporation shall receive a written request (specifying
that it is being made pursuant to this Section 11) from Series C Holders of
twenty percent (20%) or more of the then-outstanding Registrable Securities held
by the Series C Holders that the Corporation file a registration
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<PAGE> 10
statement on Form S-3 (or any successor form to Form S-3 regardless of its
designation) for a public offering of shares of the Series C Holders'
Registrable Securities the reasonably anticipated aggregate price to the public
of which would exceed One Million Dollars ($1,000,000), then the Corporation
shall use its best efforts to cause such shares to be registered on Form S-3 (or
any successor form to Form S-3). The foregoing notwithstanding, if the
Corporation shall furnish to the Series C Holders a certificate signed by the
President of the Corporation stating that in the good faith judgment of the
Board of Directors it would be seriously detrimental to the Corporation or its
stockholders for a registration statement to be filed in the near future and
setting forth the reasons for such judgment, then the Company's obligation to
use its best efforts to file a registration statement shall be deferred for a
period not to exceed three (3) months, provided, however, that the Corporation
may not obtain a deferral pursuant to this clause more than once.
(b) If, at any time after the Corporation becomes eligible to file a
registration statement on Form S-3 (or any successor form to Form S-3 regardless
of its designation), the Corporation shall receive a written request (specifying
that it is being made pursuant to this Section 11) from any Series A and B
Holder or Holders of twenty percent (20%) or more of the then-outstanding
Registrable Securities held by the Series A and B Holders that the Corporation
file a registration statement on Form S-3 (or any successor form to Form S-3
regardless of its designation) for a public offering of shares of the Series A
and B Holders' Registrable Securities the reasonably anticipated aggregate price
to the public of which would exceed One Million Dollars ($1,000,000), then the
Corporation shall use its best efforts to cause such shares to be registered on
Form S-3 (or any successor form to Form S-3). The foregoing notwithstanding, if
the Corporation shall furnish to the Series A and B Holders a certificate signed
by the President of the Corporation stating that in the good faith judgment of
the Board of Directors it would be seriously detrimental to the Corporation or
its stockholders for a registration statement to be filed in the near future and
setting forth the reasons for such judgment, then the Company's obligation to
use its best efforts to file a registration statement shall be deferred for a
period not to exceed three (3) months, provided, however, that the Corporation
may not obtain a deferral pursuant to this clause more than once.
(c) All expenses (excluding underwriters' discounts and commissions)
incurred in connection with a registration requested pursuant to Section 11(a)
or Section 11(b), including, without limitation, all registration,
qualification, printing and accounting fees, and fees and disbursements of one
counsel for the selling Holder or Holders and counsel to the Corporation, for
the first two such requested registrations under each of Section 11(a) and
Section 11(b), shall be borne by the Corporation and thereafter shall be borne
by the selling Holder or Holders.
(d) Holders' rights to registration under this Section 11 are in
addition to, and not in lieu of, their rights to registration under Sections 2
and 3 of this Agreement.
12. Limitation on Corporation Offerings. The Corporation shall not
register securities for sale for its own account (or, except as permitted by
Section 14, any securities other than Registrable Securities held by a Series C
Holder, in the case of a registration requested pursuant
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<PAGE> 11
to Section 2(a) hereof, or by a Series A Holder or Series B Holder, in the case
of a registration requested pursuant to Section 2(b) hereof) in any registration
requested pursuant to Section 2 except (i) if permitted to do so by the written
consent of the Holders of more than eighty percent (80%) of the Registrable
Securities as to which registration has been requested or (ii) to the extent
that, in the reasonable opinion of the underwriter, the registration of such
securities would not adversely affect the marketing of the Registrable
Securities to be sold. The Corporation may not cause any other registration of
securities for its own account (other than a registration effected solely to
implement an employee benefit plan) which would become effective less than
ninety (90) days after the effective date of any registration requested pursuant
to Section 2 to be initiated after such requested registration.
13. Reports Under the 1934 Act. With a view to making available to the
Holders the benefits of Rule 144 promulgated under the Act and any other rule or
regulation of the SEC that may at any time permit a Holder to sell securities of
the Corporation to the public without registration, the Corporation agrees to
use its best efforts to:
(a) make and keep public information available, within the meaning of
Rule 144, at all times after the effective date of (i) the first registration
statement covering an underwritten public offering filed by the Corporation or
(ii) registration by the Corporation under the 1934 Act;
(b) following a public offering or a registration under the 1934 Act,
file with the SEC in a timely manner all reports and other documents required of
the Corporation under the Act and the 1934 Act; and
(c) furnish to any Holder forthwith upon request a written statement
by the Corporation that it has complied with the reporting requirements of Rule
144 (at any time after ninety (90) days after the effective date of said first
registration statement filed by the Corporation), and of the Act and the 1934
Act (at any time after it has become subject to such reporting requirements), a
copy of the most recent annual or quarterly report of the Corporation, and such
other reports and documents filed by the Corporation with the SEC as may be
reasonably requested in availing any such holder to take advantage of any rule
or regulation of the SEC permitting the selling of any such securities without
registration.
14. Limitations in Connection with Future Grants of Registration Rights.
(a) Without the prior written consent of more than fifty percent
(50%) in voting power of the Series C Holders (voting as a separate class), the
Corporation shall not grant rights to cause the Corporation to register any of
its securities to any person or entity if, as a consequence of the granting of
any such rights, the rights of any Series C Holder would be adversely affected
(it being understood that any such registration rights that could result in any
reduction in the number of Registrable Securities to be included in an
underwritten public offering for the account of the Series C Holders shall be
deemed to affect adversely the rights of the Series C Holders under this
Agreement).
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<PAGE> 12
(b) Without the prior written consent of more than fifty
percent (50%) in voting power of the Series A and B Holders (voting as
a single class), the Corporation shall not grant rights to cause the
Corporation to register any of its securities to any person or entity
if, as a consequence of the granting of any such rights, the rights of
any of the Series A and B Holders would be adversely affected (it being
understood that any such registration rights that could result in any
reduction in the number of Registrable Securities to be included in an
underwritten public offering for the account of the Series A and B
Holders shall be deemed to affect adversely the rights of the Series A
and B Holders under this Agreement).
15. Transfer of Registration Rights. The registration rights of any Holder
(and of any permitted transferee of any Holder or such Holder's permitted
transferees) under this Agreement with respect to any Registrable Securities may
be transferred to any assignee who acquires not less than 100,000 shares
(appropriately adjusted to take account of any stock split, stock dividend,
combination of shares, or the like) of Common Stock or Preferred Stock and
executes an instrument agreeing to be bound by this Agreement. The Holder shall
give written notice to the Corporation promptly after any such transfer stating
the name and address of the transferee and identifying the securities with
respect to which the rights under this Agreement are being assigned.
16. Mergers, Etc. The Corporation shall not, directly or indirectly, enter
into any merger, consolidation or reorganization in which the Corporation shall
not be the surviving corporation unless the proposed surviving corporation
shall, prior to such merger, consolidation or reorganization, agree in writing
to assume the obligations of the Corporation under this Agreement, and for that
purpose references hereunder to "Registrable Securities" shall be deemed to be
references to the securities which the Holders would be entitled to receive in
exchange for Registrable Securities under any such merger, consolidation or
reorganization; provided, however, that the provisions of this Agreement shall
not apply in the event of any merger, consolidation or reorganization in which
the Corporation is not the surviving corporation if the Holders of Registrable
Securities are entitled to receive in exchange therefor (i) cash or (ii)
securities of the acquiring corporation which may be immediately sold to the
public without registration under the Act.
17. Each of the Series A Investors and Series B Investors acknowledges and
consents to the registration rights being granted to the Series C Investors
hereunder, pursuant to and in accordance with Section 14 of that certain Amended
and Restated Registration Rights Agreement dated August 24, 1998 (the "Prior
Registration Rights Agreement"). Each of the Series A Investors and Series B
Investors hereby acknowledges and agrees that the rights granted to them in this
Agreement are meant to supersede the rights granted under the Prior Registration
Rights Agreement.
18. Termination of Rights. The rights granted the Holders pursuant to
Sections 2, 3 or 11 hereof shall terminate after the fifth anniversary of the
Initial Public Offering.
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19. Miscellaneous.
(a) This Agreement states the entire agreement of the parties
concerning the subject matter hereof, and supersedes all prior agreements,
written or oral, between or among them concerning such subject matter.
(b) This Agreement may be amended, and compliance with any provision
of this Agreement may be omitted or waived, only by the written agreement of
two-thirds in voting power of each of the Series C Investors (or permitted
transferees of their rights hereunder), acting as a separate class, and the
Series A and B Investors (or permitted transferees of their rights hereunder),
acting as a single class. For purposes of this Section 19, each share of Common
Stock held by an Investor shall be entitled to one vote and each share of
Preferred Stock held by an Investor shall be entitled to a number of votes equal
to the number of shares of Common Stock into which such share of Preferred Stock
is then convertible. A waiver on one occasion shall not constitute a waiver on
any further occasion. Notwithstanding the foregoing, any additional Purchaser
(as defined in the Purchase Agreement) of Series C Preferred Stock shall, by
executing a counterpart of this Agreement, become a Series C Investor hereunder
for all purposes of this Agreement.
(c) This Agreement shall be governed by, and construed and enforced
in accordance with, the substantive laws of The Commonwealth of Massachusetts
without regard to its principles of conflicts of laws.
[signature page immediately follows]
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<PAGE> 14
IN WITNESS WHEREOF, the parties have executed this Agreement under seal as
of the day and year first above written.
EPRISE CORPORATION
By: /s/ J. A. Forgione
__________________________________
Name: Joseph A. Forgione
Title: President
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<PAGE> 1
Ex - 10.14
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT is entered into as of July 18, 1997, by
and between Silicon Valley Bank ("Purchaser") and the Company whose name appears
on the last page of this Agreement.
RECITALS
A. Concurrently with the execution of this Agreement, the Purchaser is
purchasing from the Company a warrant (the "Warrant") pursuant to which
Purchaser has the right to acquire from the Company the Shares (as defined in
the Warrant).
B. By this Agreement, the Purchaser and the Company desire to set forth
the registration rights of the Shares all as provided herein.
NOW, THEREFORE, in consideration of the mutual promises, covenants and
conditions hereinafter set forth, the parties hereto mutually agree as follows:
1. REGISTRATION RIGHTS. The Company covenants and agrees as follows:
1.1 DEFINITIONS. For purposes of this Section 1:
(a) The term "register," "registered," and "registration" refer
to a registration effected by preparing and filing a registration statement or
similar document in compliance with the Securities Act of 1933, as amended (the
"Securities Act"), and the declaration or ordering of effectiveness of such
registration statement or document;
(b) The term "Registrable Securities" means (i) the Shares (of
Common Stock (as defined in the Warrant)) and (ii) any Common Stock of the
Company issued as (or issuable upon the conversion or exercise of any warrant,
right or other security which is issued as) a dividend or other distribution
with respect to, or in exchange for or in replacement of, any stock referred to
in (i).
(c) The terms "Holder" or "Holders" means the Purchaser or
qualifying transferees under subsection 1.8 hereof who hold Registrable
Securities.
(d) The term "SEC" means the Securities and Exchange Commission.
1.2 COMPANY REGISTRATION.
(a) REGISTRATION. If at any time or from time to time, the
Company shall determine to register any of its securities, for its own account
or the account of any of its shareholders, other than a registration on Form S-1
or S-8 relating solely to employee stock option or purchase plans, or a
registration on Form S-4 relating solely to an SEC Rule 145 transaction, or a
registration on any other form (other than Form S-1, S-2, S-3 or S-18, or their
successor forms) or any successor to such forms, which does not include
substantially the same information as would be required to be included in a
registration statement covering the sale of Registrable Securities, the Company
will:
(i) promptly give to each Holder written notice thereof
(which shall include a list of the jurisdictions in which the Company intends to
attempt to qualify such securities under the applicable blue sky or other state
securities laws); and
<PAGE> 2
(ii) include in such registration (and compliance), and in
any underwriting involved therein, all the Registrable Securities specified in a
written request or requests, made within 30 days after receipt of such written
notice from the Company, by any Holder or Holders, except as set forth in
subsection 1.2(b) below.
(b) UNDERWRITING. If the registration of which the Company gives
notice is for a registered public offering involving an underwriting, the
Company shall so advise the Holders as a part of the written notice given
pursuant to subsection 1.2(a)(i). In such event the right of any Holder to
registration pursuant to this subsection 1.2 shall be conditioned upon such
Holder's participation in such underwriting and the inclusion of such Holder's
Registrable Securities in the underwriting to the extent provided herein. All
Holders proposing to distribute their securities through such underwriting shall
(together with the Company and the other shareholders distributing their
securities through such underwriting) enter into an underwriting agreement in
customary form with the underwriter or underwriters selected for such
underwriting by the Company.
(c) PRIORITY ON REGISTRATION. In the case of any registration of
Common Stock by the Company, if the managing underwriters give written advice to
the Company of an Underwriters' Maximum Number (as defined herein), then: (i)
the Company will be obligated and required to include in such registration that
number of Registrable Securities which shall have been requested by the Holders
to be included in such registration and which shall not be more than (A) in the
case of the Company's initial public offering, 20% of the Underwriters' Maximum
Number, or (B) in the case of any other registration 30% of the Underwriters'
Maximum Number, and such number of Registrable Securities shall be allocated pro
rata among all the Holders of such Registrable Securities on the basis of the
number of Registrable Securities requested to be included therein by each such
Holder; (ii) the Company shall be entitled to include in such registration that
number of securities which the Company proposed to offer and sell for its own
account in such registration and which does not exceed the difference between
the Underwriters' Maximum Number and the number of Registrable Securities which
the Company shall be required to include in such registration; and (iii) if the
Underwriters' Maximum Number exceeds the sum of the number of Registrable
Securities which the Company shall be required to include in such registration
and the number of securities which the Company proposes to offer and sell for
its own account in such registration, then the Company may include in such
registration that number of other securities which persons shall have requested
be included in such registration and which shall not be greater than such
excess.
(d) UNDERWRITERS' MAXIMUM NUMBER. "Underwriters' Maximum Number"
means for any registration that number of securities to which such registration
should, in the opinion of the managing underwriters of such registration based
on marketing factors, be limited.
1.3 EXPENSES OF REGISTRATION. All expenses incurred in connection
with any registration, qualification or compliance pursuant to this Section 1
including without limitation, all registration, filing and qualification fees,
printing expenses, fees and disbursements of counsel for the Company and
expenses of any special audits incidental to or required by such registration,
shall be borne by the Company. All expenses of any registered offering not
otherwise borne by the Company shall be borne pro rata among the Holders
participating in the offering and the Company.
1.4 REGISTRATION PROCEDURES. In the case of each registration,
qualification or compliance effected by the Company pursuant to this
Registration Rights Agreement which includes Registrable Securities, the Company
will keep each Holder participating therein advised in writing as to the
initiation of each registration, qualification and compliance and as to the
completion thereof. At its expense the Company will:
(a) Prepare and file with the SEC a registration statement with
respect to such Registrable Securities and use its best efforts to cause such
registration statement to become
<PAGE> 3
effective, and, upon the request of the Holders of a majority of the Registrable
Securities registered thereunder, keep such registration statement effective for
up to 120 days.
(b) Prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in connection
with such registration statement as may be necessary to comply with the
provisions of the Securities Act with respect to the disposition of all
securities covered by such registration statement.
(c) Furnish to the Holders such numbers of copies of a
prospectus, including a preliminary prospectus, in conformity with the
requirements of the Securities Act, and such other documents as they may
reasonably request in order to facilitate the disposition of Registrable
Securities owned by them.
(d) Use its best efforts to register and qualify the securities
covered by such registration statement under such other securities or Blue Sky
laws of such jurisdictions as shall be reasonably requested by the Holders,
provided that the Company shall not be required in connection therewith or as a
condition thereto to qualify to do business or to file a general consent to
service of process in any such states or jurisdictions.
(e) In the event of any underwritten public offering, enter into
and perform its obligations under an underwriting agreement, in usual and
customary form, with the managing underwriter of such offering. Each Holder
participating in such underwriting shall also enter into and perform its
obligations under such an agreement.
(f) Notify each Holder of Registrable Securities covered by such
registration statement at any time when a prospectus relating thereto is
required to be delivered under the Securities Act or the happening of any event
as a result of which the prospectus included in such registration statement, as
then in effect, includes an untrue statement of a material fact or omits to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances then
existing.
1.5 INDEMNIFICATION.
(a) The Company will indemnify each Holder of Registrable
Securities and each of its officers, directors and partners, and each person
controlling such Holder, with respect to which such registration, qualification
or compliance has been effected pursuant to this Rights Agreement, and each
underwriter, if any, and each person who controls any underwriter of the
Registrable Securities held by or issuable to such Holder, against all claims,
losses, expenses, damages and liabilities (or actions in respect thereto)
arising out of or based on any untrue statement (or alleged untrue statement) of
a material fact contained in any prospectus, offering circular or other document
(including any related registration statement, notification or the like)
incident to any such registration, qualification or compliance, or based on any
omission (or alleged omission) to state therein a material fact required to be
stated therein or necessary to make the statement therein not misleading, or any
violation or alleged violation by the Company of the Securities Act, the
Securities Exchange Act of 1934, as amended, ("Exchange Act") or any state
securities law applicable to the Company or any rule or regulation promulgated
under the Securities Act, the Exchange Act or any such state law and relating to
action or inaction required of the Company in connection with any such
registration, qualification or compliance, and will reimburse each such Holder,
each of its officers, directors and partners, and each person controlling such
Holder, each such underwriter and each person who controls any such underwriter,
within a reasonable amount of time after incurred for any reasonable legal and
any other expenses incurred in connection with investigating, defending or
settling any such claim, loss, damage, liability or action; provided, however,
that the indemnity agreement contained in this subsection 1.5(a) shall not apply
to amounts paid in settlement of any such claim, loss, damage, liability, or
action if such settlement is effected without the consent of the Company (which
consent shall not be unreasonably withheld); and provided further, that the
Company will not be liable in any such case to the extent that
<PAGE> 4
any such claim, loss, damage or liability arises out of or is based on any
untrue statement or omission based upon written information furnished to the
Company by an instrument duly executed by such Holder or underwriter
specifically for use therein.
(b) Each Holder will, if Registrable Securities held by or
issuable to such Holder are included in the securities as to which such
registration, qualification or compliance is being effected, indemnify the
Company, each of its directors and officers, each underwriter, if any, of the
Company's securities covered by such a registration statement, each person who
controls the Company within the meaning of the Securities Act, and each other
such Holder, each of its officers, directors and partners and each person
controlling such Holder, against all claims, losses, expenses, damages and
liabilities (or actions in respect thereof) arising out of or based on any
untrue statement (or alleged untrue statement) of a material fact contained in
any such registration statement, prospectus, offering circular or other
document, or any omission (or alleged omission) to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, and will reimburse the Company, such Holders, such directors,
officers, partners, persons or underwriters for any reasonable legal or any
other expenses incurred in connection with investigating, defending or settling
any such claim, loss, damage, liability or action, in each case to the extent,
but only to the extent, that such untrue statement (or alleged untrue statement)
or omission (or alleged omission) is made in such registration statement,
prospectus, offering circular or other document in reliance upon and in
conformity with written information furnished to the Company by an instrument
duly executed by such Holder specifically for use therein; provided, however,
that the indemnity agreement contained in this subsection 1.5(b) shall not apply
to amounts paid in settlement of any such claim, loss, damage, liability or
action if such settlement is effected without the consent of the Holder, (which
consent shall not be unreasonably withheld); and provided further, that the
total amount for which any Holder shall be liable under this subsection 1.5(b)
shall not in any event exceed the aggregate proceeds received by such Holder
from the sale of Registrable Securities held by such Holder in such
registration.
(c) Each party entitled to indemnification under this subsection
1.5 (the "Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified Party
has actual knowledge of any claim as to which indemnity may be sought, and shall
permit the Indemnifying Party to assume the defense of any such claim or any
litigation resulting therefrom; provided that counsel for the Indemnifying
Party, who shall conduct the defense of such claim or litigation, shall be
approved by the Indemnified Party (whose approval shall not be unreasonably
withheld), and the Indemnified Party may participate in such defense at such
party's expense; and provided further, that the failure of any Indemnified Party
to give notice as provided herein shall not relieve the Indemnifying Party of
its obligations hereunder, unless such failure resulted in prejudice to the
Indemnifying Party; and provided further, that an Indemnified Party (together
with all other Indemnified Parties which may be represented without conflict by
one counsel) shall have the right to retain one separate counsel, with the fees
and expenses to be paid by the Indemnifying Party, if representation of such
Indemnified Party by the counsel retained by the Indemnifying Party would be
inappropriate due to actual or potential differing interests between such
Indemnified Party and any other party represented by such counsel in such
proceeding. No Indemnifying Party, in the defense of any such claim or
litigation, shall, except with the consent of each Indemnified Party, consent to
entry of any judgment or enter into any settlement which does not include as an
unconditional term thereof the giving by the claimant or plaintiff to such
Indemnified Party of a release from all liability in respect to such claim or
litigation.
1.6 INFORMATION BY HOLDER. Any Holder or Holders of Registrable
Securities included in any registration shall promptly furnish to the Company
such information regarding such Holder or Holders and the distribution proposed
by such Holder or Holders as the Company may request in writing and as shall be
required in connection with any registration, qualification or compliance
referred to herein.
<PAGE> 5
1.7 RULE 144 REPORTING. With a view to making available to Holders
the benefits of certain rules and regulations of the SEC which may permit the
sale of the Registrable Securities to the public without registration, the
Company agrees at all times to:
(a) make and keep public information available, as those terms
are understood and defined in SEC Rule 144, after 90 days after the effective
date of the first registration filed by the Company for an offering of its
securities to the general public;
(b) file with the SEC in a timely manner all reports and other
documents required of the Company under the Securities Act and the Exchange Act
(at any time after it has become subject to such reporting requirements); and
(c) so long as a Holder owns any Registrable Securities, to
furnish to such Holder forthwith upon request a written statement by the Company
as to its compliance with the reporting requirements of said Rule 144 (at any
time after 90 days after the effective date of the first registration statement
filed by the Company for an offering of its securities to the general public),
and of the Securities Act and the Exchange Act (at any time after it has become
subject to such reporting requirements), a copy of the most recent annual or
quarterly report of the Company, and such other reports and documents so filed
by the Company as the Holder may reasonably request in complying with any rule
or regulation of the SEC allowing the Holder to sell any such securities without
registration.
1.8 TRANSFER OF REGISTRATION RIGHTS. Holders' rights to cause the
Company to register their securities and keep information available, granted to
them by the Company under subsections 1.2 and 1.7 may be assigned to the
Transferee (defined in the Warrant), provided, that the Company is given written
notice by such Holder at the time of or within a reasonable time after said
transfer, stating the name and address of said Transferee and identifying the
securities with respect to which such registration rights are being assigned.
2. GENERAL.
2.1 WAIVERS AND AMENDMENTS. With the written consent of the record or
beneficial holders of at least a majority of the Registrable Securities, the
obligations of the Company and the rights of the Holders of the Registrable
Securities under this agreement may be waived (either generally or in a
particular instance, either retroactively or prospectively, and either for a
specified period of time or indefinitely), and with the same consent the
Company, when authorized by resolution of its Board of Directors, may enter into
a supplementary agreement for the purpose of adding any provisions to or
changing in any manner or eliminating any of the provisions of this Agreement;
provided, however, that no such modification, amendment or waiver shall reduce
the aforesaid percentage of Registrable Securities without the consent of all of
the Holders of the Registrable Securities. Upon the effectuation of each such
waiver, consent, agreement of amendment or modification, the Company shall
promptly give written notice thereof to the record holders of the Registrable
Securities who have not previously consented thereto in writing. This Agreement
or any provision hereof may be changed, waived, discharged or terminated only by
a statement in writing signed by the party against which enforcement of the
change, waiver, discharge or termination is sought, except to the extent
provided in this subsection 2.1.
2.2 GOVERNING LAW. This Agreement shall be governed in all respects
by the laws of the Commonwealth of Massachusetts as such laws are applied to
agreements between Massachusetts residents entered into and to be performed
entirely within Massachusetts.
2.3 SUCCESSORS AND ASSIGNS. 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.
<PAGE> 6
2.4 ENTIRE AGREEMENT. Except as set forth below, this Agreement and
the other documents delivered pursuant hereto constitute the full and entire
understanding and agreement between the parties with regard to the subjects
hereof and thereof.
2.5 NOTICES, ETC. All notices and other communications required or
permitted hereunder shall be in writing and shall be mailed by first class mail,
postage prepaid, certified or registered mail, return receipt requested,
addressed (a) if to Holder, at such Holder's address as set forth below, or at
such other address as such Holder shall have furnished to the Company in
writing, or (b) if to the Company, at the Company's address set forth below, or
at such other address as the Company shall have furnished to the Holder in
writing.
2.6 SEVERABILITY. In case any provision of this Agreement shall be
invalid, illegal, or unenforceable, the validity, legality and enforceability of
the remaining provisions of this Agreement or any provision of the other
Agreement s shall not in any way be affected or impaired thereby.
2.7 TITLES AND SUBTITLES. The titles of the sections and subsections
of this Agreement are for convenience of reference only and are not to be
considered in construing this Agreement.
2.8 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
PURCHASER COMPANY
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
<S> <C>
Silicon Valley Bank NovaLink USA Corporation
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
By: /s/ Dave Rodriguez By: /s/ J. Radoff
- ---------------------------------------------------------------------------------------------------------------------
Name: David G. Rodriguez Name: Jon Radoff
(print) (print)
- ---------------------------------------------------------------------------------------------------------------------
Title: Assistant Vice President Title: President
- ---------------------------------------------------------------------------------------------------------------------
Address: 3003 Tasman Drive Address: 200 Friberg Parkway
Santa Clara, CA 95054-1191 Suite 4003
Westboro, MA 01581
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 1
Ex - 10.15
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT is entered into as of December 5 , 1997,
by and between Silicon Valley Bank ("Purchaser") and the Company whose name
appears on the last page of this Agreement.
RECITALS
A. Concurrently with the execution of this Agreement, the Purchaser is
purchasing from the Company a warrant (the "Warrant") pursuant to which
Purchaser has the right to acquire from the Company the Shares (as defined in
the Warrant).
B. By this Agreement, the Purchaser and the Company desire to set forth
the registration rights of the Shares all as provided herein.
NOW, THEREFORE, in consideration of the mutual promises, covenants and
conditions hereinafter set forth, the parties hereto mutually agree as follows:
1. REGISTRATION RIGHTS. The Company covenants and agrees as follows:
1.1 DEFINITIONS. For purposes of this Section 1:
(a) The term "register," "registered," and "registration" refer
to a registration effected by preparing and filing a registration statement or
similar document in compliance with the Securities Act of 1933, as amended (the
"Securities Act"), and the declaration or ordering of effectiveness of such
registration statement or document;
(b) The term "Registrable Securities" means (i) the Shares (of
Common Stock (as defined in the Warrant)) and (ii) any Common Stock of the
Company issued as (or issuable upon the conversion or exercise of any warrant,
right or other security which is issued as) a dividend or other distribution
with respect to, or in exchange for or in replacement of, any stock referred to
in (i).
(c) The terms "Holder" or "Holders" means the Purchaser or
qualifying transferees under subsection 1.8 hereof who hold Registrable
Securities.
(d) The term "SEC" means the Securities and Exchange Commission.
1.2 COMPANY REGISTRATION.
(a) REGISTRATION. If at any time or from time to time, the
Company shall determine to register any of its securities, for its own account
or the account of any of its shareholders, other than a registration on Form S-1
or S-8 relating solely to employee stock option or purchase plans, or a
registration on Form S-4 relating solely to an SEC Rule 145 transaction, or a
registration on any other form (other than Form S-1, S-2, S-3 or S-18, or their
successor forms) or any successor to such forms, which does not include
substantially the same information as would be required to be included in a
registration statement covering the sale of Registrable Securities, the Company
will:
(i) promptly give to each Holder written notice thereof
(which shall include a list of the jurisdictions in which the Company intends to
attempt to qualify such securities under the applicable blue sky or other state
securities laws); and
<PAGE> 2
(ii) include in such registration (and compliance), and in
any underwriting involved therein, all the Registrable Securities specified in a
written request or requests, made within 30 days after receipt of such written
notice from the Company, by any Holder or Holders, except as set forth in
subsection 1.2(b) below.
(b) UNDERWRITING. If the registration of which the Company gives
notice is for a registered public offering involving an underwriting, the
Company shall so advise the Holders as a part of the written notice given
pursuant to subsection 1.2(a)(i). In such event the right of any Holder to
registration pursuant to this subsection 1.2 shall be conditioned upon such
Holder's participation in such underwriting and the inclusion of such Holder's
Registrable Securities in the underwriting to the extent provided herein. All
Holders proposing to distribute their securities through such underwriting shall
(together with the Company and the other shareholders distributing their
securities through such underwriting) enter into an underwriting agreement in
customary form with the underwriter or underwriters selected for such
underwriting by the Company.
(c) PRIORITY ON REGISTRATION. In the case of any registration of
Common Stock by the Company, if the managing underwriters give written advice to
the Company of an Underwriters' Maximum Number (as defined herein), then: (i)
the Company will be obligated and required to include in such registration that
number of Registrable Securities which shall have been requested by the Holders
to be included in such registration and which shall not be more than (A) in the
case of the Company's initial public offering, 20% of the Underwriters' Maximum
Number, or (B) in the case of any other registration 30% of the Underwriters'
Maximum Number, and such number of Registrable Securities shall be allocated pro
rata among all the Holders of such Registrable Securities on the basis of the
number of Registrable Securities requested to be included therein by each such
Holder; (ii) the Company shall be entitled to include in such registration that
number of securities which the Company proposed to offer and sell for its own
account in such registration and which does not exceed the difference between
the Underwriters' Maximum Number and the number of Registrable Securities which
the Company shall be required to include in such registration; and (iii) if the
Underwriters' Maximum Number exceeds the sum of the number of Registrable
Securities which the Company shall be required to include in such registration
and the number of securities which the Company proposes to offer and sell for
its own account in such registration, then the Company may include in such
registration that number of other securities which persons shall have requested
be included in such registration and which shall not be greater than such
excess.
(d) UNDERWRITERS' MAXIMUM NUMBER. "Underwriters' Maximum Number"
means for any registration that number of securities to which such registration
should, in the opinion of the managing underwriters of such registration based
on marketing factors, be limited.
1.3 EXPENSES OF REGISTRATION. All expenses incurred in connection
with any registration, qualification or compliance pursuant to this Section 1
including without limitation, all registration, filing and qualification fees,
printing expenses, fees and disbursements of counsel for the Company and
expenses of any special audits incidental to or required by such registration,
shall be borne by the Company. All expenses of any registered offering not
otherwise borne by the Company shall be borne pro rata among the Holders
participating in the offering and the Company.
1.4 REGISTRATION PROCEDURES. In the case of each registration,
qualification or compliance effected by the Company pursuant to this
Registration Rights Agreement which includes Registrable Securities, the Company
will keep each Holder participating therein advised in writing as to the
initiation of each registration, qualification and compliance and as to the
completion thereof. At its expense the Company will:
(a) Prepare and file with the SEC a registration statement with
respect to such Registrable Securities and use its best efforts to cause such
registration statement to become
<PAGE> 3
effective, and, upon the request of the Holders of a majority of the Registrable
Securities registered thereunder, keep such registration statement effective for
up to 120 days.
(b) Prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in connection
with such registration statement as may be necessary to comply with the
provisions of the Securities Act with respect to the disposition of all
securities covered by such registration statement.
(c) Furnish to the Holders such numbers of copies of a
prospectus, including a preliminary prospectus, in conformity with the
requirements of the Securities Act, and such other documents as they may
reasonably request in order to facilitate the disposition of Registrable
Securities owned by them.
(d) Use its best efforts to register and qualify the securities
covered by such registration statement under such other securities or Blue Sky
laws of such jurisdictions as shall be reasonably requested by the Holders,
provided that the Company shall not be required in connection therewith or as a
condition thereto to qualify to do business or to file a general consent to
service of process in any such states or jurisdictions.
(e) In the event of any underwritten public offering, enter into
and perform its obligations under an underwriting agreement, in usual and
customary form, with the managing underwriter of such offering. Each Holder
participating in such underwriting shall also enter into and perform its
obligations under such an agreement.
(f) Notify each Holder of Registrable Securities covered by such
registration statement at any time when a prospectus relating thereto is
required to be delivered under the Securities Act or the happening of any event
as a result of which the prospectus included in such registration statement, as
then in effect, includes an untrue statement of a material fact or omits to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances then
existing.
1.5 INDEMNIFICATION.
(a) The Company will indemnify each Holder of Registrable
Securities and each of its officers, directors and partners, and each person
controlling such Holder, with respect to which such registration, qualification
or compliance has been effected pursuant to this Rights Agreement, and each
underwriter, if any, and each person who controls any underwriter of the
Registrable Securities held by or issuable to such Holder, against all claims,
losses, expenses, damages and liabilities (or actions in respect thereto)
arising out of or based on any untrue statement (or alleged untrue statement) of
a material fact contained in any prospectus, offering circular or other document
(including any related registration statement, notification or the like)
incident to any such registration, qualification or compliance, or based on any
omission (or alleged omission) to state therein a material fact required to be
stated therein or necessary to make the statement therein not misleading, or any
violation or alleged violation by the Company of the Securities Act, the
Securities Exchange Act of 1934, as amended, ("Exchange Act") or any state
securities law applicable to the Company or any rule or regulation promulgated
under the Securities Act, the Exchange Act or any such state law and relating to
action or inaction required of the Company in connection with any such
registration, qualification or compliance, and will reimburse each such Holder,
each of its officers, directors and partners, and each person controlling such
Holder, each such underwriter and each person who controls any such underwriter,
within a reasonable amount of time after incurred for any reasonable legal and
any other expenses incurred in connection with investigating, defending or
settling any such claim, loss, damage, liability or action; provided, however,
that the indemnity agreement contained in this subsection 1.5(a) shall not apply
to amounts paid in settlement of any such claim, loss, damage, liability, or
action if such settlement is effected without the consent of the Company (which
consent shall not be unreasonably
<PAGE> 4
withheld); and provided further, that the Company will not be liable in any such
case to the extent that any such claim, loss, damage or liability arises out of
or is based on any untrue statement or omission based upon written information
furnished to the Company by an instrument duly executed by such Holder or
underwriter specifically for use therein.
(b) Each Holder will, if Registrable Securities held by or
issuable to such Holder are included in the securities as to which such
registration, qualification or compliance is being effected, indemnify the
Company, each of its directors and officers, each underwriter, if any, of the
Company's securities covered by such a registration statement, each person who
controls the Company within the meaning of the Securities Act, and each other
such Holder, each of its officers, directors and partners and each person
controlling such Holder, against all claims, losses, expenses, damages and
liabilities (or actions in respect thereof) arising out of or based on any
untrue statement (or alleged untrue statement) of a material fact contained in
any such registration statement, prospectus, offering circular or other
document, or any omission (or alleged omission) to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, and will reimburse the Company, such Holders, such directors,
officers, partners, persons or underwriters for any reasonable legal or any
other expenses incurred in connection with investigating, defending or settling
any such claim, loss, damage, liability or action, in each case to the extent,
but only to the extent, that such untrue statement (or alleged untrue statement)
or omission (or alleged omission) is made in such registration statement,
prospectus, offering circular or other document in reliance upon and in
conformity with written information furnished to the Company by an instrument
duly executed by such Holder specifically for use therein; provided, however,
that the indemnity agreement contained in this subsection 1.5(b) shall not apply
to amounts paid in settlement of any such claim, loss, damage, liability or
action if such settlement is effected without the consent of the Holder, (which
consent shall not be unreasonably withheld); and provided further, that the
total amount for which any Holder shall be liable under this subsection 1.5(b)
shall not in any event exceed the aggregate proceeds received by such Holder
from the sale of Registrable Securities held by such Holder in such
registration.
(c) Each party entitled to indemnification under this subsection
1.5 (the "Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified Party
has actual knowledge of any claim as to which indemnity may be sought, and shall
permit the Indemnifying Party to assume the defense of any such claim or any
litigation resulting therefrom; provided that counsel for the Indemnifying
Party, who shall conduct the defense of such claim or litigation, shall be
approved by the Indemnified Party (whose approval shall not be unreasonably
withheld), and the Indemnified Party may participate in such defense at such
party's expense; and provided further, that the failure of any Indemnified Party
to give notice as provided herein shall not relieve the Indemnifying Party of
its obligations hereunder, unless such failure resulted in prejudice to the
Indemnifying Party; and provided further, that an Indemnified Party (together
with all other Indemnified Parties which may be represented without conflict by
one counsel) shall have the right to retain one separate counsel, with the fees
and expenses to be paid by the Indemnifying Party, if representation of such
Indemnified Party by the counsel retained by the Indemnifying Party would be
inappropriate due to actual or potential differing interests between such
Indemnified Party and any other party represented by such counsel in such
proceeding. No Indemnifying Party, in the defense of any such claim or
litigation, shall, except with the consent of each Indemnified Party, consent to
entry of any judgment or enter into any settlement which does not include as an
unconditional term thereof the giving by the claimant or plaintiff to such
Indemnified Party of a release from all liability in respect to such claim or
litigation.
1.6 INFORMATION BY HOLDER. Any Holder or Holders of Registrable
Securities included in any registration shall promptly furnish to the Company
such information regarding such Holder or Holders and the distribution proposed
by such Holder or Holders as the Company may request in writing and as shall be
required in connection with any registration, qualification or compliance
referred to herein.
<PAGE> 5
1.7 RULE 144 REPORTING. With a view to making available to Holders
the benefits of certain rules and regulations of the SEC which may permit the
sale of the Registrable Securities to the public without registration, the
Company agrees at all times to:
(a) make and keep public information available, as those terms
are understood and defined in SEC Rule 144, after 90 days after the effective
date of the first registration filed by the Company for an offering of its
securities to the general public;
(b) file with the SEC in a timely manner all reports and other
documents required of the Company under the Securities Act and the Exchange Act
(at any time after it has become subject to such reporting requirements); and
(c) so long as a Holder owns any Registrable Securities, to
furnish to such Holder forthwith upon request a written statement by the Company
as to its compliance with the reporting requirements of said Rule 144 (at any
time after 90 days after the effective date of the first registration statement
filed by the Company for an offering of its securities to the general public),
and of the Securities Act and the Exchange Act (at any time after it has become
subject to such reporting requirements), a copy of the most recent annual or
quarterly report of the Company, and such other reports and documents so filed
by the Company as the Holder may reasonably request in complying with any rule
or regulation of the SEC allowing the Holder to sell any such securities without
registration.
1.8 TRANSFER OF REGISTRATION RIGHTS. Holders' rights to cause the
Company to register their securities and keep information available, granted to
them by the Company under subsections 1.2 and 1.7 may be assigned to the
Transferee (defined in the Warrant), provided, that the Company is given written
notice by such Holder at the time of or within a reasonable time after said
transfer, stating the name and address of said Transferee and identifying the
securities with respect to which such registration rights are being assigned.
2. GENERAL.
2.1 WAIVERS AND AMENDMENTS. With the written consent of the record or
beneficial holders of at least a majority of the Registrable Securities, the
obligations of the Company and the rights of the Holders of the Registrable
Securities under this agreement may be waived (either generally or in a
particular instance, either retroactively or prospectively, and either for a
specified period of time or indefinitely), and with the same consent the
Company, when authorized by resolution of its Board of Directors, may enter into
a supplementary agreement for the purpose of adding any provisions to or
changing in any manner or eliminating any of the provisions of this Agreement;
provided, however, that no such modification, amendment or waiver shall reduce
the aforesaid percentage of Registrable Securities without the consent of all of
the Holders of the Registrable Securities. Upon the effectuation of each such
waiver, consent, agreement of amendment or modification, the Company shall
promptly give written notice thereof to the record holders of the Registrable
Securities who have not previously consented thereto in writing. This Agreement
or any provision hereof may be changed, waived, discharged or terminated only by
a statement in writing signed by the party against which enforcement of the
change, waiver, discharge or termination is sought, except to the extent
provided in this subsection 2.1.
2.2 GOVERNING LAW. This Agreement shall be governed in all respects
by the laws of the Commonwealth of Massachusetts as such laws are applied to
agreements between Massachusetts residents entered into and to be performed
entirely within Massachusetts.
2.3 SUCCESSORS AND ASSIGNS. 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.
<PAGE> 6
2.4 ENTIRE AGREEMENT. Except as set forth below, this Agreement and
the other documents delivered pursuant hereto constitute the full and entire
understanding and agreement between the parties with regard to the subjects
hereof and thereof.
2.5 NOTICES, ETC. All notices and other communications required or
permitted hereunder shall be in writing and shall be mailed by first class mail,
postage prepaid, certified or registered mail, return receipt requested,
addressed (a) if to Holder, at such Holder's address as set forth below, or at
such other address as such Holder shall have furnished to the Company in
writing, or (b) if to the Company, at the Company's address set forth below, or
at such other address as the Company shall have furnished to the Holder in
writing.
2.6 SEVERABILITY. In case any provision of this Agreement shall be
invalid, illegal, or unenforceable, the validity, legality and enforceability of
the remaining provisions of this Agreement or any provision of the other
Agreement s shall not in any way be affected or impaired thereby.
2.7 TITLES AND SUBTITLES. The titles of the sections and subsections
of this Agreement are for convenience of reference only and are not to be
considered in construing this Agreement.
2.8 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
<TABLE>
<CAPTION>
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PURCHASER COMPANY
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
<S> <C>
Silicon Valley Bank EPRISE CORPORATION, formerly known as NovaLink USA
Corporation
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
By: /s/ Dave Rodriguez By: /s/ J. A. Forgione
________________________________
- ---------------------------------------------------------------------------------------------------------------------
Name: Dave Rodriguez Name: Joseph A. Forgione
________________________________
(print) (print)
- ---------------------------------------------------------------------------------------------------------------------
Title: Assistant Vice President Title: President
- ---------------------------------------------------------------------------------------------------------------------
Address: 2003 Tasman Drive Address: 1671 Worcester Road
P.O. Box 2607 Suite 400
Santa Clara, CA 95054-1191 Framingham, MA 01701
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 1
10.16
LOAN AND SECURITY AGREEMENT
This LOAN AND SECURITY AGREEMENT is entered into as of January 28, 1998, by
and between SILICON VALLEY BANK, a California-chartered bank, with its principal
place of business at 3003 Tasman Drive, Santa Clara, California 95054 and with a
loan production office located at Wellesley Office Park, 40 William Street,
Suite 350, Wellesley, Massachusetts 02181, doing business under the name
"Silicon Valley East" ("Bank") and EPRISE CORPORATION, formerly known as
NovaLink USA Corporation, a Delaware corporation with its principal place of
business at 1671 Worcester Road, Framingham, Massachusetts 01701 ("Borrower").
RECITALS
Borrower wishes to obtain credit from time to time from Bank, and Bank
desires to extend credit to Borrower. This Agreement sets forth the terms on
which Bank will advance credit to Borrower, and Borrower will repay the amounts
owing to Bank.
AGREEMENT
The parties agree as follows:
1. DEFINITIONS AND CONSTRUCTION
1.1 DEFINITIONS. As used in this Agreement, the following terms shall have
the following definitions:
"Accounts" means all presently existing and hereafter arising accounts,
contract rights, and all other forms of obligations owing to Borrower arising
out of the sale or lease of goods (including, without limitation, the licensing
of software and other technology) or the rendering of services by Borrower,
whether or not earned by performance, and any and all credit insurance,
guaranties, and other security therefor, as well as all merchandise returned to
or reclaimed by Borrower and Borrower's Books relating to any of the foregoing.
"Advance" or "Advances" means a loan advance under the Committed Revolving
Line.
"Affiliate" means, with respect to any Person, any Person that owns or
controls directly or indirectly such Person, any Person that controls or is
controlled by or is under common control with such Person, and each of such
Person's senior executive officers, directors, partners and, for any Person that
is a limited liability company, such Persons, managers and members.
"Agreement" means this Loan and Security Agreement.
"Bank Expenses" means all reasonable costs or expenses (including
reasonable attorneys' fees and expenses) incurred in connection with the
preparation, negotiation, administration, and enforcement of the Loan Documents;
and Bank's reasonable attorneys' fees and expenses incurred in amending,
enforcing or defending the Loan Documents, (including fees and expenses of
appeal or review, or those incurred in any Insolvency Proceeding) whether or not
suit is brought.
"Borrower's Books" means all of Borrower's books and records including,
without limitation: ledgers; records concerning Borrower's assets or
liabilities, the Collateral, business operations or financial condition; and all
computer programs, or tape files, and the equipment, containing such
information.
"Borrowing Base" means an amount equal to Seventy-Five percent (75.0%) of
Eligible Accounts, as determined by Bank with reference to the most recent
Borrowing Base Certificate delivered by
<PAGE> 2
Borrower.
"Business Day" means any day that is not a Saturday, Sunday, or other day
on which banks in the Commonwealth of Massachusetts are authorized or required
to close.
"Closing Date" means the date of this Agreement.
"Code" means the Massachusetts Uniform Commercial Code.
"Collateral" means the property described on EXHIBIT A attached hereto.
"Committed Revolving Line" means a credit extension of up to Eight Hundred
Thousand Dollars ($800,000.00).
"Committed Equipment Line" means a credit extension of up to Four Hundred
Thousand Dollars ($400,000.00).
"Contingent Obligation" means, as applied to any Person, any direct or
indirect liability, contingent or otherwise, of that Person with respect to (i)
any indebtedness, lease, dividend, letter of credit or other obligation of
another, including, without limitation, any such obligation directly or
indirectly guaranteed, endorsed, co-made or discounted or sold with recourse by
that Person, or in respect of which that Person is otherwise directly or
indirectly liable; (ii) any obligations with respect to undrawn letters of
credit issued for the account of that Person; and (iii) all obligations arising
under any interest rate, currency or commodity swap agreement, interest rate cap
agreement, interest rate collar agreement, or other agreement or arrangement
designated to protect a Person against fluctuation in interest rates, currency
exchange rates or commodity prices; provided, however, that the term "Contingent
Obligation" shall not include endorsements for collection or deposit in the
ordinary course of business. The amount of any Contingent Obligation shall be
deemed to be an amount equal to the stated or determined amount of the primary
obligation in respect of which such Contingent Obligation is made or, if not
stated or determinable, the maximum reasonably anticipated liability in respect
thereof as determined by such Person in good faith; provided, however, that such
amount shall not in any event exceed the maximum amount of the obligations under
the guarantee or other support arrangement.
"Credit Extension" means each Advance, Equipment Advance, or any other
extension of credit by Bank for the benefit of Borrower hereunder.
"Current Liabilities" means, as of any applicable date, all amounts that
should, in accordance with GAAP, be included as current liabilities on the
consolidated balance sheet of Borrower and its Subsidiaries, as at such date,
plus, to the extent not already included therein, all outstanding Credit
Extensions made under this Agreement, including all Indebtedness that is payable
upon demand or within one year from the date of determination thereof unless
such Indebtedness is renewable or extendable at the option of Borrower or any
Subsidiary to a date more than one year from the date of determination, but
excluding Subordinated Debt.
"Eligible Accounts" means those Accounts that arise in the ordinary course
of Borrower's business that comply with all of Borrower's representations and
warranties to Bank set forth in Section 5.4. Unless otherwise agreed to by Bank
in writing, Eligible Accounts shall not include the following:
(a) Accounts that the account debtor has failed to pay within ninety
(90) days of invoice date;
(b) Accounts with respect to an account debtor, fifty percent (50%)
of whose Accounts the account debtor has failed to pay within ninety (90) days
of invoice date;
<PAGE> 3
(c) Accounts with respect to an account debtor, including Affiliates,
whose total obligations to Borrower exceed twenty-five percent (25%) of all
Accounts, to the extent such obligations exceed the aforementioned percentage,
except as approved in writing by Bank;
(d) Accounts with respect to which the account debtor does not have
its principal place of business in the United States except for Eligible Foreign
Accounts;
(e) Accounts with respect to which the account debtor is a federal,
state, or local governmental entity or any department, agency, or
instrumentality thereof, except for those Accounts of the United States or any
department, agency or instrumentality thereof as to which the payee has assigned
its rights to payment thereof to Bank and the assignment has been acknowledged,
pursuant to the Assignment of Claims Act of 1940, as amended (31 U.S.C. 3727);
(f) Accounts with respect to which Borrower is liable to the account
debtor, but only to the extent of any amounts owing to the account debtor
(sometimes referred to as "contra" accounts, e.g. accounts payable, customer
deposits, credit accounts etc.);
(g) Accounts generated by demonstration or promotional equipment, or
with respect to which goods are placed on consignment, guaranteed sale, sale or
return, sale on approval, bill and hold, or other terms by reason of which the
payment by the account debtor may be conditional;
(h) Accounts with respect to which the account debtor is an
Affiliate, officer, employee, or agent of Borrower;
(i) Accounts with respect to which the account debtor disputes
liability or makes any claim with respect thereto as to which Bank believes, in
its sole discretion, that there may be a basis for dispute (but only to the
extent of the amount subject to such dispute or claim), or is subject to any
Insolvency Proceeding, or becomes insolvent, or goes out of business;
(j) Accounts the collection of which Bank reasonably determines to be
doubtful.
"Eligible Foreign Accounts" means Accounts with respect to which the
account debtor does not have its principal place of business in the United
States and that are: (1) covered by credit insurance in form and amount, and by
an insurer satisfactory to Bank less the amount of any deductible(s) which may
be or become owing thereon; or (2) supported by one or more letters of credit
either advised or negotiated through Bank or in favor of Bank as beneficiary, in
an amount and of a tenor, and issued by a financial institution, acceptable to
Bank; or (3) that Bank approves on a case-by-case basis.
"Equipment" means all present and future machinery, equipment, tenant
improvements, furniture, fixtures, vehicles, tools, parts and attachments in
which Borrower has any interest.
"Equipment Advance" has the meaning set forth in Section 2.1.2.
"Equipment Availability End Date" has the meaning set forth in Section
2.1.2.
"Equipment Maturity Date" means the date which is thirty-six (36) months
from the Equipment Availability End Date.
"ERISA" means the Employment Retirement Income Security Act of 1974, as
amended, and the regulations thereunder.
"GAAP" means generally accepted accounting principles as in effect in the
United States from time to time.
<PAGE> 4
"Indebtedness" means (a) all indebtedness for borrowed money or the
deferred purchase price of property or services, including without limitation
reimbursement and other obligations with respect to surety bonds and letters of
credit, (b) all obligations evidenced by notes, bonds, debentures or similar
instruments, (c) all capital lease obligations and (d) all Contingent
Obligations.
"Insolvency Proceeding" means any proceeding commenced by or against any
person or entity under any provision of the United States Bankruptcy Code, as
amended, or under any other bankruptcy or insolvency law, including assignments
for the benefit of creditors, formal or informal moratoria, compositions,
extension generally with its creditors, or proceedings seeking reorganization,
arrangement, or other relief.
"Inventory" means all present and future inventory in which Borrower has
any interest, including merchandise, raw materials, parts, supplies, packing and
shipping materials, work in process and finished products intended for sale or
lease or to be furnished under a contract of service, of every kind and
description now or at any time hereafter owned by or in the custody or
possession, actual or constructive, of Borrower, including such inventory as is
temporarily out of its custody or possession or in transit and including any
returns upon any accounts or other proceeds, including insurance proceeds,
resulting from the sale or disposition of any of the foregoing and any documents
of title representing any of the above.
"Investment" means any beneficial ownership of (including stock,
partnership interest or other securities) any Person, or any loan, advance or
capital contribution to any Person.
"IRC" means the Internal Revenue Code of 1986, as amended, and the
regulations thereunder.
"Lien" means any mortgage, lien, deed of trust, charge, pledge, security
interest or other encumbrance.
"Loan Documents" means, collectively, this Agreement, any note or notes
executed by Borrower, and any other present or future agreement entered into
between Borrower and/or for the benefit of Bank in connection with this
Agreement, all as amended, extended or restated from time to time.
"Material Adverse Effect" means a material adverse effect on (i) the
business operations or condition (financial or otherwise) of Borrower and its
Subsidiaries taken as a whole or (ii) the ability of Borrower to repay the
Obligations or otherwise perform its obligations under the Loan Documents.
"Negotiable Collateral" means all of Borrower's present and future letters
of credit of which it is a beneficiary, notes, drafts, instruments, securities,
documents of title, and chattel paper.
"Obligations" means all debt, principal, interest, Bank Expenses and other
amounts owed to Bank by Borrower pursuant to this Agreement or any other
agreement, whether absolute or contingent, due or to become due, now existing or
hereafter arising, including any interest that accrues after the commencement of
an Insolvency Proceeding and including any debt, liability, or obligation owing
from Borrower to others that Bank may have obtained by assignment or otherwise.
"Payment Date" means the first calendar day of each month commencing on the
first such date after the Closing Date and ending on the Revolving Maturity
Date.
"Permitted Indebtedness" means:
(a) Indebtedness of Borrower in favor of Bank arising under this
Agreement or any other Loan Document;
(b) Indebtedness existing on the Closing Date and disclosed in the
Schedule;
<PAGE> 5
(c) Subordinated Debt;
(d) Indebtedness to trade creditors incurred in the ordinary course
of business; and
(e) Indebtedness secured by Permitted Liens.
"Permitted Investment" means:
(a) Investments existing on the Closing Date disclosed in the
Schedule; and
(b) (i) marketable direct obligations issued or unconditionally
guaranteed by the United States of America or any agency or any State thereof
maturing within one (1) year from the date of acquisition thereof, (ii)
commercial paper maturing no more than one (1) year from the date of creation
thereof and currently having the highest rating obtainable from either Standard
& Poor's Corporation or Moody's Investors Service, Inc., and (iii) certificates
of deposit maturing no more than one (1) year from the date of investment
therein issued by Bank.
"Permitted Liens" means the following:
(a) Any Liens existing on the Closing Date and disclosed in the
Schedule or arising under this Agreement or the other Loan Documents;
(b) Liens for taxes, fees, assessments or other governmental charges
or levies, either not delinquent or being contested in good faith by appropriate
proceedings and as to which adequate reserves are maintained on Borrower's Books
in accordance with GAAP, provided the same have no priority over any of Bank's
security interests;
(c) Liens (i) upon or in any Equipment acquired or held by Borrower
or any of its Subsidiaries to secure the purchase price of such Equipment or
indebtedness incurred solely for the purpose of financing the acquisition of
such Equipment, or (ii) existing on such equipment at the time of its
acquisition, provided that the Lien is confined solely to the property so
acquired and improvements thereon, and the proceeds of such equipment;
(d) Leases or subleases and licenses or sublicenses granted to others
in the ordinary course of Borrower's business not interfering in any material
respect with the business of Borrower and its Subsidiaries taken as a whole, and
any interest or title of a lessor, licensor or under any lease or license
provided that such leases, subleases, licenses and sublicenses do not prohibit
the grant of the security interest granted hereunder; and
(e) Liens incurred in connection with the extension, renewal or
refinancing of the indebtedness secured by Liens of the type described in
clauses (a) through (c) above, provided that any extension, renewal or
replacement Lien shall be limited to the property encumbered by the existing
Lien and the principal amount of the indebtedness being extended, renewed or
refinanced does not increase.
"Person" means any individual, sole proprietorship, partnership, limited
liability company, joint venture, trust, unincorporated organization,
association, corporation, institution, public benefit corporation, firm, joint
stock company, estate, entity or governmental agency.
"Prime Rate" means the variable rate of interest, per annum, most recently
announced by Bank, as its "prime rate," whether or not such announced rate is
the lowest rate available from Bank.
"Quick Assets" means, as of any applicable date, the consolidated cash and
accounts receivable of Borrower.
<PAGE> 6
"Responsible Officer" means each of the Chief Executive Officer, the
President, the Chief Financial Officer and the Controller of Borrower.
"Revolving Maturity Date" means the date which is one day prior to one year
from the Closing Date.
"Schedule" means the schedule of exceptions attached hereto, if any.
"Subordinated Debt" means any debt incurred by Borrower that is
subordinated to the debt owing by Borrower to Bank on terms acceptable to Bank
(and identified as being such by Borrower and Bank).
"Subsidiary" means with respect to any Person, corporation, partnership,
company association, joint venture, or any other business entity of which more
than fifty percent (50%) of the voting stock or other equity interests is owned
or controlled, directly or indirectly, by such Person or one or more Affiliates
of such Person.
"Tangible Net Worth" means as of any applicable date, the consolidated
total assets of Borrower and its Subsidiaries minus, without duplication, (i)
the sum of any amounts attributable to (a) goodwill, (b) intangible items such
as unamortized debt discount and expense, patents, trade and service marks and
names, copyrights and research and development expenses except prepaid expenses,
and (c) all reserves not already deducted from assets, and (ii) Total
Liabilities.
"Total Liabilities" means as of any date as of which the amount thereof
shall be determined, all obligations that should, in accordance with GAAP be
classified as liabilities on the consolidated balance sheet of Borrower,
including in any event all Indebtedness, but specifically excluding Subordinated
Debt.
"Unrestricted Cash" means all cash or cash equivalents (determined in
accordance with GAAP) which are not subject to a lien other than to the Bank,
and arise out of the Borrower's Accounts. Unrestricted Cash shall exclude,
without limitation, any amounts due or allocated for taxes.
1.2 Accounting and Other Terms. All accounting terms not specifically
defined herein shall be construed in accordance with GAAP and all calculations
and determinations made hereunder shall be made in accordance with GAAP. When
used herein, the term "financial statements" shall include the notes and
schedules thereto. The terms "including"/ "includes" shall always be read as
meaning "including (or includes) without limitation", when used herein or in any
other Loan Document.
2. LOAN AND TERMS OF PAYMENT
2.1 CREDIT EXTENSIONS. Borrower promises to pay to the order of Bank, in
lawful money of the United States of America, the aggregate unpaid principal
amount of all Credit Extensions made by Bank to Borrower hereunder. Borrower
shall also pay interest on the unpaid principal amount of such Credit Extensions
at rates in accordance with the terms hereof.
2.1.1 (a) Subject to and upon the terms and conditions of this
Agreement, Bank agrees to make Advances to Borrower in an aggregate outstanding
amount not to exceed the Committed Revolving Line or the Borrowing Base,
whichever is less. Subject to the terms and conditions of this Agreement,
amounts borrowed pursuant to this Section 2.1 may be repaid and reborrowed at
any time during the term of this Agreement.
(b) Whenever Borrower desires an Advance, Borrower will notify Bank
by facsimile transmission or telephone no later than 3:00 p.m. Pacific time, on
the Business Day that the Advance is to be made. Each such notification shall be
promptly confirmed by a Payment/Advance Form in substantially the form of
Exhibit B hereto. Bank is authorized to make Advances under this Agreement,
based upon instructions received from a Responsible Officer or a designee of a
Responsible Officer, or
<PAGE> 7
without instructions if in Bank's discretion such Advances are necessary to meet
Obligations which have become due and remain unpaid. Bank shall be entitled to
rely on any telephonic notice given by a person who Bank reasonably believes to
be a Responsible Officer or a designee thereof, and Borrower shall indemnify and
hold Bank harmless for any damages or loss suffered by Bank as a result of such
reliance. Bank will credit the amount of Advances made under this Section 2.1 to
Borrower's deposit account.
(c) The Committed Revolving Line shall terminate on the Revolving
Maturity Date, at which time all Advances under this Section 2.1 and other
amounts due under this Agreement (except as otherwise expressly specified
herein) shall be immediately due and payable.
2.1.2 EQUIPMENT ADVANCES.
(a) Subject to and upon the terms and conditions of this Agreement,
at any time from the date hereof through nine (9) months from the Closing Date
(the "Equipment Availability End Date"), Bank agrees to make advances (each an
"Equipment Advance" and collectively, the "Equipment Advances") to Borrower in
an aggregate outstanding amount not to exceed the Committed Equipment Line. To
evidence the Equipment Advance or Equipment Advances, Borrower shall deliver to
Bank, at the time of each Equipment Advance request, an invoice for the
equipment purchased or to be purchased. The Equipment Advances shall be used
only to purchase or refinance Equipment purchased on or after June 1, 1997 and
shall not exceed One Hundred Percent (100%) of the invoice amount of such
equipment approved from time to time by Bank, excluding taxes, shipping,
warranty charges, freight discounts and installation expense. Software may,
however, constitute only up to One Hundred Fifty Thousand Dollars ($150,000.00)
of aggregate Equipment Advances.
(b) Interest shall accrue from the date of each Equipment Advance at
the per annum rate equal to One and One Half (1.5) percentage points above the
Prime Rate and shall be payable monthly for each month through the month in
which the Equipment Availability End Date falls. Any Equipment Advances that are
outstanding on the Equipment Availability End Date will be payable in Thirty-Six
(36) equal monthly installments of principal, plus all accrued interest,
beginning on the Payment Date of the month following the Equipment Availability
End Date and ending on the Equipment Maturity Date. Equipment Advances, once
repaid, may not be reborrowed.
(c) When Borrower desires to obtain an Equipment Advance, Borrower
shall notify Bank (which notice shall be irrevocable) by facsimile transmission
to be received no later than 3:00 p.m. Pacific time one (1) Business Day before
the day on which the Equipment Advance is to be made. Such notice shall be
substantially in the form of Exhibit B. The notice shall be signed by a
Responsible Officer or its designee and include a copy of the invoice for the
Equipment to be financed.
2.2 OVERADVANCES. If, at any time or for any reason, the amount of
Obligations owed by Borrower to Bank pursuant to Section 2.1.1 of this Agreement
is greater than the lesser of (i) the Committed Revolving Line or (ii) the
Borrowing Base, Borrower shall immediately pay to Bank, in cash, the amount of
such excess.
2.3 INTEREST RATES, PAYMENTS AND CALCULATIONS.
(a) INTEREST RATE. Except as set forth in Section 2.3(b), any
Advances shall bear interest, on the average daily balance thereof, at a per
annum rate equal to One (1.0) percentage point above the Prime Rate.
(b) DEFAULT RATE. All Obligations shall bear interest, from and after
the occurrence of an Event of Default, at a rate equal to five (5) percentage
points above the interest rate applicable immediately prior to the occurrence of
the Event of Default.
(c) PAYMENTS. Interest hereunder shall be due and payable on each
Payment
<PAGE> 8
Date. Borrower hereby authorizes Bank to debit any accounts with Bank,
including, without limitation, Account Number _____________________ for payments
of principal and interest due on the Obligations and any other amounts owing by
Borrower to Bank. Bank will notify Borrower of all debits which Bank has made
against Borrower's accounts. Any such debits against Borrower's accounts in no
way shall be deemed a set-off. Any interest not paid when due shall be
compounded by becoming a part of the Obligations, and such interest shall
thereafter accrue interest at the rate then applicable hereunder.
(d) COMPUTATION. In the event the Prime Rate is changed from time to
time hereafter, the applicable rate of interest hereunder shall be increased or
decreased effective as of 12:01 a.m. on the day the Prime Rate is changed, by an
amount equal to such change in the Prime Rate. All interest chargeable under the
Loan Documents shall be computed on the basis of a three hundred sixty (360) day
year for the actual number of days elapsed.
2.4 CREDITING PAYMENTS. Prior to the occurrence of an Event of Default,
Bank shall credit a wire transfer of funds, check or other item of payment to
such deposit account or Obligation as Borrower specifies. After the occurrence
of an Event of Default, the receipt by Bank of any wire transfer of funds,
check, or other item of payment, whether directed to Borrower's deposit account
with Bank or to the Obligations or otherwise, shall be immediately applied to
conditionally reduce Obligations, but shall not be considered a payment in
respect of the Obligations unless such payment is of immediately available
federal funds or unless and until such check or other item of payment is honored
when presented for payment. Notwithstanding anything to the contrary contained
herein, any wire transfer or payment received by Bank after 12:00 noon Pacific
time shall be deemed to have been received by Bank as of the opening of business
on the immediately following Business Day. Whenever any payment to Bank under
the Loan Documents would otherwise be due (except by reason of acceleration) on
a date that is not a Business Day, such payment shall instead be due on the next
Business Day, and additional fees or interest, as the case may be, shall accrue
and be payable for the period of such extension.
2.5 FEES. Borrower shall pay to Bank the following:
(a) COMMITTED REVOLVING LINE FACILITY FEE. A Committed Revolving Line
Facility Fee equal to Four Thousand Dollars ($4,000.00), which fee shall be due
on the Closing Date and shall be fully earned and non-refundable;
(b) COMMITTED EQUIPMENT LINE FACILITY FEE. A Committed Equipment Line
Facility Fee equal to Two Thousand Dollars ($2,000.00), which fee shall be due
on the Closing Date and shall be fully earned and non-refundable;
(c) FINANCIAL EXAMINATION AND APPRAISAL FEES. Bank's customary fees
and out-of-pocket expenses for Bank's audits of Borrower's Accounts, and for
each appraisal of Collateral and financial analysis and examination of Borrower
performed from time to time by Bank or its agents;
(d) BANK EXPENSES. Upon demand from Bank, including, without
limitation, upon the date hereof, all Bank Expenses incurred through the date
hereof, including reasonable attorneys' fees and expenses, and after the date
hereof, all Bank Expenses, including reasonable attorneys' fees and expenses, as
and when they become due.
2.6 ADDITIONAL COSTS. In case any change in any law, regulation, treaty or
official directive or the interpretation or application thereof by any court or
any governmental authority charged with the administration thereof or the
compliance with any guideline or request of any central bank or other
governmental authority (whether or not having the force of law), in each case
after the Closing Date:
(a) subjects Bank to any tax with respect to payments of principal or
interest or any other amounts payable hereunder by Borrower or otherwise with
respect to the transactions contemplated
<PAGE> 9
hereby (except for taxes on the overall net income of Bank imposed by the United
States of America or any political subdivision thereof);
(b) imposes, modifies or deems applicable any deposit insurance, reserve,
special deposit or similar requirement against assets held by, or deposits in or
for the account of, or loans by, Bank; or
(c) imposes upon Bank any other condition with respect to its performance
under this Agreement, and the result of any of the foregoing is to increase the
cost to Bank, reduce the income receivable by Bank or impose any expense upon
Bank with respect to any loans, Bank shall notify Borrower thereof. Borrower
agrees to pay to Bank the amount of such increase in cost, reduction in income
or additional expense as and when such cost, reduction or expense is incurred or
determined, upon presentation by Bank of a statement of the amount and setting
forth Bank's calculation thereof, all in reasonable detail, which statement
shall be deemed true and correct absent manifest error.
2.7 TERM. Except as otherwise set forth herein, this Agreement shall
become effective on the Closing Date and, subject to Section 12.7, shall
continue in full force and effect for a term ending on the later of the
Revolving Maturity Date or the Equipment Maturity Date. Notwithstanding the
foregoing, Bank shall have the right to terminate its obligation to make Credit
Extensions under this Agreement immediately and without notice upon the
occurrence and during the continuance of an Event of Default. Notwithstanding
termination of this Agreement, Bank's lien on the Collateral shall remain in
effect for so long as any Obligations are outstanding.
3. CONDITIONS OF LOANS
3.1 CONDITIONS PRECEDENT TO INITIAL CREDIT EXTENSION. The obligation of
Bank to make the initial Credit Extension is subject to the condition precedent
that Bank shall have received, in form and substance satisfactory to Bank, the
following:
(a) this Agreement;
(b) a certificate of the Secretary of Borrower with respect to
articles, bylaws, incumbency and resolutions authorizing the execution and
delivery of this Agreement;
(c) an Opinion of Borrower's Counsel;
(d) payment of the fees and Bank Expenses then due specified in
Section 2.5 hereof;
(e) Certificate of Good Standing and Foreign Qualification; and
(f) such other documents, and completion of such other matters, as
Bank may reasonably deem necessary or appropriate.
3.2 CONDITIONS PRECEDENT TO ALL CREDIT EXTENSIONS. The obligation of Bank
to make each Credit Extension, including the initial Credit Extension, is
further subject to the following conditions:
(a) timely receipt by Bank of the Payment/Advance Form as provided in
Section 2.1; and
(b) the representations and warranties contained in Section 5 shall
be true and
<PAGE> 10
correct in all material respects on and as of the date of such Payment/Advance
Form and on the effective date of each Credit Extension as though made at and as
of each such date, and no Event of Default shall have occurred and be
continuing, or would result from such Credit Extension. The making of each
Credit Extension shall be deemed to be a representation and warranty by Borrower
on the date of such Credit Extension as to the accuracy of the facts referred to
in this Section 3.2(b).
4. CREATION OF SECURITY INTEREST
4.1 GRANT OF SECURITY INTEREST. Borrower grants and pledges to Bank a
continuing security interest in all presently existing and hereafter acquired or
arising Collateral in order to secure prompt payment of any and all Obligations
and in order to secure prompt performance by Borrower of each of its covenants
and duties under the Loan Documents. Except as set forth in the Schedule, such
security interest constitutes a valid, first priority security interest in the
presently existing Collateral, and will constitute a valid, first priority
security interest in Collateral acquired after the date hereof. Borrower
acknowledges that Bank may place a "hold" on any Deposit Account pledged as
Collateral to secure the Obligations. Notwithstanding termination of this
Agreement, Bank's Lien on the Collateral shall remain in effect for so long as
any Obligations are outstanding.
4.2 DELIVERY OF ADDITIONAL DOCUMENTATION REQUIRED. Borrower shall from
time to time execute and deliver to Bank, at the request of Bank, all Negotiable
Collateral, all financing statements and other documents that Bank may
reasonably request, in form satisfactory to Bank, to perfect and continue
perfected Bank's security interests in the Collateral and in order to fully
consummate all of the transactions contemplated under the Loan Documents.
4.3 RIGHT TO INSPECT. Bank (through any of its officers, employees, or
agents) shall have the right, upon reasonable prior notice, from time to time
during Borrower's usual business hours, to inspect Borrower's Books and to make
copies thereof and to check, test, and appraise the Collateral in order to
verify Borrower's financial condition or the amount, condition of, or any other
matter relating to, the Collateral.
4.4 NEGATIVE PLEDGE AGREEMENT. Borrower hereby ratifies the terms of a
certain Negative Pledge Agreement dated December 5, 1997 and confirms that it
shall remain in full force and effect until the payment in full of the
Obligations.
5. REPRESENTATIONS AND WARRANTIES
Borrower represents and warrants as follows:
5.1 DUE ORGANIZATION AND QUALIFICATION. Borrower and each Subsidiary is a
corporation duly existing and in good standing under the laws of its state of
incorporation and qualified and licensed to do business in, and is in good
standing in, any state in which the failure to so qualify would be a Material
Adverse Effect.
5.2 DUE AUTHORIZATION; NO CONFLICT. The execution, delivery, and
performance of the Loan Documents are within Borrower's powers, have been duly
authorized, and are not in conflict with and do not constitute a breach of any
provision contained in Borrower's Articles/Certificate of Incorporation or
Bylaws, nor will they constitute an event of default under any material
agreement to which Borrower is a party or by which Borrower is bound. Borrower
is not in default under any agreement to which it is a party or by which it is
bound, which default could have a Material Adverse Effect.
5.3 NO PRIOR ENCUMBRANCES. Borrower has good and indefeasible title to the
Collateral, free and clear of Liens, except for Permitted Liens.
5.4 BONA FIDE ELIGIBLE ACCOUNTS. The Eligible Accounts are bona fide
existing
<PAGE> 11
obligations. The service or property giving rise to such Eligible Accounts has
been performed or delivered to the account debtor or to the account debtor's
agent for immediate shipment to and unconditional acceptance by the account
debtor. Borrower has not received notice of actual or imminent Insolvency
Proceeding of any account debtor whose accounts are included in any Borrowing
Base Certificate as an Eligible Account.
5.5 MERCHANTABLE INVENTORY. All Inventory is in all material respects of
good and marketable quality, free from all material defects.
5.6 NAME: LOCATION OF CHIEF EXECUTIVE OFFICE. Except as disclosed in the
Schedule, Borrower has not done business and will not without at least thirty
(30) days prior written notice to Bank do business under any name other than
that specified on the signature page hereof. The chief executive office of
Borrower is located at the address indicated in Section 10 hereof.
5.7 LITIGATION. Except as set forth in the Schedule, there are no actions
or proceedings pending, or, to Borrower's knowledge, threatened by or against
Borrower or any Subsidiary before any court or administrative agency in which an
adverse decision could have a Material Adverse Effect or a material adverse
effect on Borrower's interest or Bank's security interest in the Collateral.
5.8 NO MATERIAL ADVERSE CHANGE IN FINANCIAL STATEMENTS. All consolidated
financial statements related to Borrower and any Subsidiary that have been
delivered by Borrower to Bank fairly present in all material respects Borrower's
consolidated financial condition as of the date thereof and Borrower's
consolidated results of operations for the period then ended. There has not been
a material adverse change in the consolidated financial condition of Borrower
since the date of the most recent of such financial statements submitted to Bank
on or about the Closing Date.
5.9 SOLVENCY. Borrower is able to pay its debts (including trade debts) as
they mature.
5.10 REGULATORY COMPLIANCE. Borrower and each Subsidiary has met the
minimum funding requirements of ERISA with respect to any employee benefit plans
subject to ERISA. No event has occurred resulting from Borrower's failure to
comply with ERISA that is reasonably likely to result in Borrower's incurring
any liability that could have a Material Adverse Effect. Borrower is not an
"investment company" or a company "controlled" by an "investment company" within
the meaning of the Investment Company Act of 1940. Borrower is not engaged
principally, or as one of its important activities, in the business of extending
credit for the purpose of purchasing or carrying margin stock (within the
meaning of Regulations G, T and U of the Board of Governors of the Federal
Reserve System). Borrower has complied with all the provisions of the Federal
Fair Labor Standards Act. Borrower has not violated any statutes, laws,
ordinances or rules applicable to it, violation of which could have a Material
Adverse Effect.
5.11 Environmental Condition. None of Borrower's or any Subsidiary's
properties or assets has ever been used by Borrower or any Subsidiary or, to the
best of Borrower's knowledge, by previous owners or operators, in the disposal
of, or to produce, store, handle, treat, release, or transport, any hazardous
waste or hazardous substance other than in accordance with applicable law; to
the best of Borrower's knowledge, none of Borrower's properties or assets has
ever been designated or identified in any manner pursuant to any environmental
protection statute as a hazardous waste or hazardous substance disposal site, or
a candidate for closure pursuant to any environmental protection statute; no
lien arising under any environmental protection statute has attached to any
revenues or to any real or personal property owned by Borrower or any
Subsidiary; and neither Borrower nor any Subsidiary has received a summons,
citation, notice, or directive from the Environmental Protection Agency or any
other federal, state or other governmental agency concerning any action or
omission by Borrower or any Subsidiary resulting in the release, or other
disposition of hazardous waste or hazardous substances into the environment.
5.12 Taxes. Borrower and each Subsidiary has filed or caused to be filed
all tax returns
<PAGE> 12
required to be filed on a timely basis, and has paid, or has made adequate
provision for the payment of, all taxes reflected therein, except those being
contested in good faith by proper proceedings with adequate reserves under GAAP.
5.13 Subsidiaries. Borrower does not own any stock, partnership interest or
other equity securities of any Person, except for Permitted Investments.
5.14 Government Consents. Borrower and each Subsidiary has obtained all
consents, approvals and authorizations of, made all declarations or filings
with, and given all notices to, all governmental authorities that are necessary
for the continued operation of Borrower's business as currently conducted.
5.15 Full Disclosure. No representation, warranty or other statement made
by Borrower in any certificate or written statement furnished to Bank contains
any untrue statement of a material fact or omits to state a material fact
necessary in order to make the statements contained in such certificates or
statements not misleading.
6. AFFIRMATIVE COVENANTS
Borrower covenants and agrees that, until payment in full of all
outstanding Obligations, and for so long as Bank may have any commitment to make
a Credit Extension hereunder, Borrower shall do all of the following:
6.1 Good Standing. Borrower shall maintain its and each of its
Subsidiaries' corporate existence and good standing in its jurisdiction of
incorporation and maintain qualification in each jurisdiction in which the
failure to so qualify could have a Material Adverse Effect. Borrower shall
maintain, and shall cause each of its Subsidiaries to maintain, to the extent
consistent with prudent management of Borrower's business, in force all
licenses, approvals and agreements, the loss of which could have a Material
Adverse Effect.
6.2 Government Compliance. Borrower shall meet, and shall cause each
Subsidiary to meet, the minimum funding requirements of ERISA with respect to
any employee benefit plans subject to ERISA. Borrower shall comply, and shall
cause each Subsidiary to comply, with all statutes, laws, ordinances and
government rules and regulations to which it is subject, noncompliance with
which could have a Material Adverse Effect or a material adverse effect on the
Collateral or the priority of Bank's Lien on the Collateral.
6.3 Financial Statements, Reports, Certificates. Borrower shall deliver to
Bank: (a) as soon as available, but in any event within twenty-five (25) days
after the end of each month, a company prepared consolidated balance sheet and
income statement covering Borrower's consolidated operations during such period,
in a form and certified by an officer of Borrower reasonably acceptable to Bank;
(b) by February 28, 1998, audited consolidated financial statements of Borrower
for Borrower's fiscal year ending August 31, 1997 prepared in accordance with
GAAP, consistently applied, together with an unqualified opinion on such
financial statements of an independent certified public accounting firm
reasonably acceptable to Bank; (c) as soon as available, but in any event within
one hundred twenty (120) days after the end of Borrower's fiscal year ending
August 31, 1998 and each of Borrower's fiscal years thereafter, audited
consolidated financial statements of Borrower prepared in accordance with GAAP,
consistently applied, together with an unqualified opinion on such financial
statements of an independent certified public accounting firm reasonably
acceptable to Bank; (d) promptly upon receipt of notice thereof, a report of any
legal actions pending or threatened against Borrower or any Subsidiary that
could result in damages or costs to Borrower or any Subsidiary of One Hundred
Thousand Dollars ($100,000) or more; and (e) such budgets, sales projections,
operating plans or other financial information as Bank may reasonably request
from time to time.
<PAGE> 13
Unless there are no amounts borrowed or outstanding under the Committed
Revolving Line, within fifteen (15) days after the last day of each month,
Borrower shall deliver to Bank a Borrowing Base Certificate signed by a
Responsible Officer in substantially the form of Exhibit C hereto, together with
aged listings of accounts receivable.
Within twenty-five (25) days after the last day of each month, Borrower
shall deliver to Bank with the monthly financial statements a Compliance
Certificate signed by a Responsible Officer in substantially the form of Exhibit
D hereto.
Bank shall have a right from time to time hereafter to audit Borrower's
Accounts at Borrower's expense, provided that such audits will be conducted no
more often than every six (6) months unless an Event of Default has occurred and
is continuing.
6.4 Inventory; Returns. Borrower shall keep all Inventory in good and
marketable condition, free from all material defects. Returns and allowances, if
any, as between Borrower and its account debtors shall be on the same basis and
in accordance with the usual customary practices of Borrower, as they exist at
the time of the execution and delivery of this Agreement. Borrower shall
promptly notify Bank of all returns and recoveries and of all disputes and
claims, where the return, recovery, dispute or claim involves more than Fifty
Thousand Dollars ($50,000).
6.5 Taxes. Borrower shall make, and shall cause each Subsidiary to make,
due and timely payment or deposit of all material federal, state, and local
taxes, assessments, or contributions required of it by law, and will execute and
deliver to Bank, on demand, appropriate certificates attesting to the payment or
deposit thereof; and Borrower will make, and will cause each Subsidiary to make,
timely payment or deposit of all material tax payments and withholding taxes
required of it by applicable laws, including, but not limited to, those laws
concerning F.I.C.A., F.U.T.A., state disability, and local, state, and federal
income taxes, and will, upon request, furnish Bank with proof satisfactory to
Bank indicating that Borrower or a Subsidiary has made such payments or
deposits; provided that Borrower or a Subsidiary need not make any payment if
(i) the amount or validity of such payment is contested in good faith by
appropriate proceedings, (ii) Borrower or Subsidiary, as the case may be, has
established proper reserves (to the extent required by GAAP) and (iii) no lien
other than a Permitted Lien results.
6.6 Insurance.
(a) Borrower, at its expense, shall keep the Collateral insured
against loss or damage by fire, theft, explosion, sprinklers, and all other
hazards and risks, and in such amounts, as ordinarily insured against by other
owners in similar businesses conducted in the locations where Borrower's
business is conducted on the date hereof. Borrower shall also maintain insurance
relating to Borrower's ownership and use of the Collateral in amounts and of a
type that are customary to businesses similar to Borrower's.
(b) All such policies of insurance shall be in such form, with such
companies, and in such amounts as are reasonably satisfactory to Bank. All such
policies of property insurance shall contain a lender's loss payable
endorsement, in a form satisfactory to Bank, showing Bank as an additional loss
payee thereof and all liability insurance policies shall show the Bank as an
additional insured, and shall specify that the insurer must give at least twenty
(20) days notice to Bank before canceling its policy for any reason. At Bank's
request, Borrower shall deliver to Bank certified copies of such policies of
insurance and evidence of the payments of all premiums therefor. All proceeds
payable under any such policy shall, at the option of Bank, be payable to Bank
to be applied on account of the Obligations.
6.7 Principal Depository. Borrower shall maintain its principal depository
and operating accounts with Bank.
6.8 Liquidity. Borrower shall maintain, as of the last day of each
calendar month,
<PAGE> 14
Unrestricted Cash plus amounts available to be borrowed under the Committed
Revolving Line in an amount not less than Seven Hundred Thousand Dollars
($700,000.00).
6.9 Adjusted Quick Ratio. Borrower shall maintain, as of the last day of
each calendar month, a ratio of Quick Assets to Current Liabilities minus any
deferred maintenance revenue of at least 1.3 to 1.0.
6.10 Net Income/Loss. Borrower shall maintain, as of the last day of each
fiscal quarter of the Borrower, a maximum net loss of: (i) One Million Nine
Hundred Thousand Dollars ($1,900,000.00) for the fiscal quarter ending February
28, 1998; (ii) One Million Four Hundred Thousand Dollars ($1,400,000.00) for the
fiscal quarter ending May 31, 1998; (iii) Five Hundred Thousand Dollars
($500,000.00) for the fiscal quarter ending August 31, 1998; and (iv) Five
Hundred Thousand Dollars ($500,000.00) for the fiscal quarter ending November
30, 1998 and each fiscal quarter thereafter.
6.11 Tangible Net Worth. Borrower shall maintain, as of the last day of
each calendar month, a Tangible Net Worth of not less than Seven Hundred
Thousand Dollars ($700,000.00).
6.12 Further Assurances. At any time and from time to time Borrower shall
execute and deliver such further instruments and take such further action as may
reasonably be requested by Bank to effect the purposes of this Agreement.
7. NEGATIVE COVENANTS
Borrower covenants and agrees that, so long as any Credit Extension
hereunder shall be available and until payment in full of the outstanding
Obligations or for so long as Bank may have any commitment to make any Advances,
Borrower will not do any of the following:
7.1 Dispositions. Convey, sell, lease, transfer or otherwise dispose of
(collectively, a "Transfer"), or permit any of its Subsidiaries to Transfer, all
or any part of its business or property, other than Transfers: (i) of inventory
in the ordinary course of business, (ii) of non-exclusive licenses and similar
arrangements for the use of the property of Borrower or its Subsidiaries in the
ordinary course of business; (iii) that constitute payment of normal and usual
operating expenses in the ordinary course of business; or (iv) of worn-out or
obsolete Equipment.
7.2 Changes in Business, Ownership, or Management, Business Locations.
Engage in any business, or permit any of its Subsidiaries to engage in any
business, other than the businesses currently engaged in by Borrower and any
business substantially similar or related thereto (or incidental thereto), or
suffer a material change in Borrower's ownership or management. Borrower will
not, without at least thirty (30) days prior written notification to Bank,
relocate its chief executive office or add any new offices or business
locations.
7.3 Mergers or Acquisitions. Merge or consolidate, or permit any of its
Subsidiaries to merge or consolidate, with or into any other business
organization, or acquire, or permit any of its Subsidiaries to acquire, all or
substantially all of the capital stock or property of another Person.
7.4 Indebtedness. Create, incur, assume or be or remain liable with
respect to any Indebtedness, or permit any Subsidiary so to do, other than
Permitted Indebtedness.
7.5 Encumbrances. Create, incur, assume or suffer to exist any Lien with
respect to any of its property, or assign or otherwise convey any right to
receive income, including the sale of any Accounts, or permit any of its
Subsidiaries so to do, except for Permitted Liens.
7.6 Distributions. Pay any dividends or make any other distribution or
payment on account of or in redemption, retirement or purchase of any capital
stock.
<PAGE> 15
7.7 Investments. Directly or indirectly acquire or own, or make any
Investment in or to any Person, or permit any of its Subsidiaries so to do,
other than Permitted Investments.
7.8 Transactions with Affiliates. Directly or indirectly enter into or
permit to exist any material transaction with any Affiliate of Borrower except
for transactions that are in the ordinary course of Borrower's business, upon
fair and reasonable terms that are no less favorable to Borrower than would be
obtained in an arm's length transaction with a nonaffiliated Person.
7.9 Subordinated Debt. Make any payment in respect of any Subordinated
Debt, or permit any of its Subsidiaries to make any such payment, except in
compliance with the terms of such Subordinated Debt, or amend any provision
contained in any documentation relating to the Subordinated Debt without Bank's
prior written consent.
7.10 Inventory. Store the Inventory with a bailee, warehouseman, or similar
party unless Bank has received a pledge of any warehouse receipt covering such
Inventory. Except for Inventory sold in the ordinary course of business and
except for such other locations as Bank may approve in writing, Borrower shall
keep the Inventory only at the location set forth in Section 10 hereof and such
other locations of which Borrower gives Bank prior written notice and as to
which Borrower signs and files a financing statement where needed to perfect
Bank's security interest.
7.11 Compliance. Become an "investment company" or a company controlled by
an "investment company," within the meaning of the Investment Company Act of
1940, or become principally engaged in, or undertake as one of its important
activities, the business of extending credit for the purpose of purchasing or
carrying margin stock, or use the proceeds of any Advance for such purpose; fail
to meet the minimum funding requirements of ERISA; permit a Reportable Event or
Prohibited Transaction, as defined in ERISA, to occur; fail to comply with the
Federal Fair Labor Standards Act or violate any other law or regulation, which
violation could have a Material Adverse Effect or a material adverse effect on
the Collateral or the priority of Bank's Lien on the Collateral; or permit any
of its Subsidiaries to do any of the foregoing.
8. EVENTS OF DEFAULT
Any one or more of the following events shall constitute an Event of
Default by Borrower under this Agreement:
8.1 Payment Default. If Borrower fails to pay, when due, any of the
Obligations.
8.2 Covenant Default.
(a) If Borrower fails to perform any obligation under Sections 6.3,
6.6, 6.7, 6.8, 6.9, 6.10 or 6.11 or violates any of the covenants contained in
Article 7 of this Agreement; or
(b) If Borrower fails or neglects to perform, keep, or observe any
other material term, provision, condition, covenant, or agreement contained in
this Agreement, in any of the Loan Documents, or in any other present or future
agreement between Borrower and Bank and as to any default under such other term,
provision, condition, covenant or agreement that can be cured, has failed to
cure such default within ten (10) days after the occurrence thereof; provided,
however, that if the default cannot by its nature be cured within the ten (10)
day period or cannot after diligent attempts by Borrower be cured within such
ten (10) day period, and such default is likely to be cured within a reasonable
time, then Borrower shall have an additional reasonable period (which shall not
in any case exceed thirty (30) days) to attempt to cure such default, and within
such reasonable time period the failure to have cured such default shall not be
deemed an Event of Default (provided that no Advances will be required to be
made during such cure period);
<PAGE> 16
8.3 Material Adverse Change. If there (i) occurs a material adverse change
in the business, operations, or condition (financial or otherwise) of the
Borrower, or (ii) is a material impairment of the prospect of repayment of any
portion of the Obligations or (iii) is a material impairment of the value or
priority of Bank's security interests in the Collateral;
8.4 Attachment. If any material portion of Borrower's assets is attached,
seized, subjected to a writ or distress warrant, or is levied upon, or comes
into the possession of any trustee, receiver or person acting in a similar
capacity and such attachment, seizure, writ or distress warrant or levy has not
been removed, discharged or rescinded within ten (10) days, or if Borrower is
enjoined, restrained, or in any way prevented by court order from continuing to
conduct all or any material part of its business affairs, or if a judgment or
other claim becomes a lien or encumbrance upon any material portion of
Borrower's assets, or if a notice of lien, levy, or assessment is filed of
record with respect to any of Borrower's assets by the United States Government,
or any department, agency, or instrumentality thereof, or by any state, county,
municipal, or governmental agency, and the same is not paid within ten (10) days
after Borrower receives notice thereof, provided that none of the foregoing
shall constitute an Event of Default where such action or event is stayed or an
adequate bond has been posted pending a good faith contest by Borrower (provided
that no Credit Extensions will be required to be made during such cure period);
8.5 Insolvency. If Borrower becomes insolvent, or if an Insolvency
Proceeding is commenced by Borrower, or if an Insolvency Proceeding is commenced
against Borrower and is not dismissed or stayed within 30 days (provided that no
Advances will be made prior to the dismissal of such Insolvency Proceeding);
8.6 Other Agreements. If there is a default in any agreement to which
Borrower is a party with a third party or parties resulting in a right by such
third party or parties, whether or not exercised, to accelerate the maturity of
any Indebtedness in an amount in excess of One Hundred Thousand Dollars
($100,000) or that could have a Material Adverse Effect;
8.7 Subordinated Debt. If Borrower makes any payment on account of
Subordinated Debt, except to the extent such payment is allowed under any
subordination agreement entered into with Bank;
8.8 Judgments. If a judgment or judgments for the payment of money in an
amount, individually or in the aggregate, of at least Fifty Thousand Dollars
($50,000) shall be rendered against Borrower and shall remain unsatisfied and
unstayed for a period of ten (10) days (provided that no Credit Extensions will
be made prior to the satisfaction or stay of such judgment); or
8.9 Misrepresentations. If any material misrepresentation or material
misstatement exists now or hereafter in any warranty or representation set forth
herein or in any certificate or writing delivered to Bank by Borrower or any
Person acting on Borrower's behalf pursuant to this Agreement or to induce Bank
to enter into this Agreement or any other Loan Document.
9. BANK'S RIGHTS AND REMEDIES
9.1 Rights and Remedies. Upon the occurrence and during the continuance of
an Event of Default, Bank may, at its election, without notice of its election
and without demand, do any one or more of the following, all of which are
authorized by Borrower:
(a) Declare all Obligations, whether evidenced by this Agreement, by
any of the other Loan Documents, or otherwise, immediately due and payable
(provided that upon the occurrence of an Event of Default described in Section
8.5 all Obligations shall become immediately due and payable without any action
by Bank);
(b) ease advancing money or extending credit to or for the benefit of
Borrower
<PAGE> 17
under this Agreement or under any other agreement between Borrower and Bank;
(c) Settle or adjust disputes and claims directly with account
debtors for amounts, upon terms and in whatever order that Bank reasonably
considers advisable;
(d) Without notice to or demand upon Borrower, make such payments and
do such acts as Bank considers necessary or reasonable to protect its security
interest in the Collateral. Borrower agrees to assemble the Collateral if Bank
so requires, and to make the Collateral available to Bank as Bank may designate.
Borrower authorizes Bank to enter the premises where the Collateral is located,
to take and maintain possession of the Collateral, or any part of it, and to
pay, purchase, contest, or compromise any encumbrance, charge, or lien which in
Bank's determination appears to be prior or superior to its security interest
and to pay all expenses incurred in connection therewith. With respect to any of
Borrower's premises, Borrower hereby grants Bank a license to enter such
premises and to occupy the same, without charge;
(e) Without notice to Borrower set off and apply to the Obligations
any and all (i) balances and deposits of Borrower held by Bank, or (ii)
indebtedness at any time owing to or for the credit or the account of Borrower
held by Bank;
(f) Ship, reclaim, recover, store, finish, maintain, repair, prepare
for sale, advertise for sale, and sell (in the manner provided for herein) the
Collateral. Bank is hereby granted a non-exclusive, royalty-free license or
other right, solely pursuant to the provisions of this Section 9.1, to use,
without charge, Borrower's labels, patents, copyrights, mask works, rights of
use of any name, trade secrets, trade names, trademarks, service marks, and
advertising matter, or any property of a similar nature, as it pertains to the
Collateral, in completing production of, advertising for sale, and selling any
Collateral and, in connection with Bank's exercise of its rights under this
Section 9.1, Borrower's rights under all licenses and all franchise agreements
shall inure to Bank's benefit;
(g) Sell the Collateral at either a public or private sale, or both,
by way of one or more contracts or transactions, for cash or on terms, in such
manner and at such places (including Borrower's premises) as Bank determines is
commercially reasonable, and apply the proceeds thereof to the Obligations in
whatever manner or order it deems appropriate;
(h) Bank may credit bid and purchase at any public sale, or at any
private sale as permitted by law; and
(i) Any deficiency that exists after disposition of the Collateral as
provided above will be paid immediately by Borrower.
9.2 Power of Attorney. Effective only upon the occurrence and during the
continuance of an Event of Default, Borrower hereby irrevocably appoints Bank
(and any of Bank's designated officers, or employees) as Borrower's true and
lawful attorney to: (a) send requests for verification of Accounts or notify
account debtors of Bank's security interest in the Accounts; (b) endorse
Borrower's name on any checks or other forms of payment or security that may
come into Bank's possession; (c) sign Borrower's name on any invoice or bill of
lading relating to any Account, drafts against account debtors, schedules and
assignments of Accounts, verifications of Accounts, and notices to account
debtors; (d) make, settle, and adjust all claims under and decisions with
respect to Borrower's policies of insurance; and (e) settle and adjust disputes
and claims respecting the accounts directly with account debtors, for amounts
and upon terms which Bank determines to be reasonable; (f) to file, in its sole
discretion, one or more financing or continuation statements and amendments
thereto, relative to any of the Collateral without the signature of Borrower
where permitted by law; and (g) provided Bank may exercise such power of
attorney, to sign the name of Borrower on any of the documents described in
Section 4.2 regardless of whether an Event of Default has occurred. The
appointment of Bank as Borrower's attorney in fact, and each and every one of
Bank's rights and powers, being coupled with an interest, is irrevocable until
all of the Obligations have
<PAGE> 18
been fully repaid and performed and Bank's obligation to provide advances
hereunder is terminated.
9.3 Accounts Collection. Upon the occurrence and during the continuance of
an Event of Default, Bank may notify any Person owing funds to Borrower of
Bank's security interest in such funds and verify the amount of such Account.
Borrower shall collect all amounts owing to Borrower for Bank, receive in trust
all payments as Bank's trustee, and if requested or required by Bank,
immediately deliver such payments to Bank in their original form as received
from the account debtor, with proper endorsements for deposit.
9.4 Bank Expenses. If Borrower fails to pay any amounts or furnish any
required proof of payment due to third persons or entities, as required under
the terms of this Agreement, then Bank may do any or all of the following: (a)
make payment of the same or any part thereof; (b) set up such reserves under the
Committed Revolving Line as Bank deems necessary to protect Bank from the
exposure created by such failure; or (c) obtain and maintain insurance policies
of the type discussed in Section 6.6 of this Agreement, and take any action with
respect to such policies as Bank deems prudent. Any amounts so paid or deposited
by Bank shall constitute Bank Expenses, shall be immediately due and payable,
and shall bear interest at the then applicable rate hereinabove provided, and
shall be secured by the Collateral. Any payments made by Bank shall not
constitute an agreement by Bank to make similar payments in the future or a
waiver by Bank of any Event of Default under this Agreement.
9.5 Bank's Liability for Collateral. So long as Bank complies with
reasonable banking practices, Bank shall not in any way or manner be liable or
responsible for: (a) the safekeeping of the Collateral; (b) any loss or damage
thereto occurring or arising in any manner or fashion from any cause; (c) any
diminution in the value thereof; or (d) any act or default of any carrier,
warehouseman, bailee, forwarding agency, or other person whomsoever. All risk of
loss, damage or destruction of the Collateral shall be borne by Borrower.
9.6 Remedies Cumulative. Bank's rights and remedies under this Agreement,
the Loan Documents, and all other agreements shall be cumulative. Bank shall
have all other rights and remedies not expressly set forth herein as provided
under the Code, by law, or in equity. No exercise by Bank of one right or remedy
shall be deemed an election, and no waiver by Bank of any Event of Default on
Borrower's part shall be deemed a continuing waiver. No delay by Bank shall
constitute a waiver, election, or acquiescence by it. No waiver by Bank shall be
effective unless made in a written document signed on behalf of Bank and then
shall be effective only in the specific instance and for the specific purpose
for which it was given.
9.7 Demand; Protest. Borrower waives demand, protest, notice of protest,
notice of default or dishonor, notice of payment and nonpayment, notice of any
default, nonpayment at maturity, release, compromise, settlement, extension, or
renewal of accounts, documents, instruments, chattel paper, and guarantees at
any time held by Bank on which Borrower may in any way be liable.
10. NOTICES
Unless otherwise provided in this Agreement, all notices or demands by any
party relating to this Agreement or any other agreement entered into in
connection herewith shall be in writing and (except for financial statements and
other informational documents which may be sent by first-class mail, postage
prepaid) shall be personally delivered or sent by a recognized overnight
delivery service, by certified mail, postage prepaid, return receipt requested,
or by telefacsimile to Borrower or to Bank, as the case may be, at its addresses
set forth below:
If to Borrower:
Eprise Corporation, formerly known as NovaLink USA Corporation
1671 Worcester Road
Framingham, Massachusetts 01701
<PAGE> 19
Attn: Mr. Joseph Forgione
FAX: (508) 935-2960
with a copy to:
Hill & Barlow
One International Place
Boston, Massachusetts 02110
Attention: Dennis Townley, Esquire
FAX: (617) 428-3500
If to Bank:
Silicon Valley Bank
40 William Street
Wellesley, Massachusetts 02181
Attn: Mr. David E. Rodriguez, Assistant Vice President
FAX: (781) 431-9906
with a copy to:
Riemer & Braunstein
Three Center Plaza
Boston, Massachusetts 02108
Attn: David A. Ephraim, Esquire
FAX: (617) 723-6831
The parties hereto may change the address at which they are to receive
notices hereunder, by notice in writing in the foregoing manner given to the
other.
11. CHOICE OF LAW AND VENUE; JURY WAIVER
The laws of the Commonwealth of Massachusetts shall apply to this
Agreement. BORROWER ACCEPTS FOR ITSELF AND IN CONNECTION WITH ITS PROPERTIES,
UNCONDITIONALLY, THE NON-EXCLUSIVE JURISDICTION OF ANY STATE OR FEDERAL COURT OF
COMPETENT JURISDICTION IN THE COMMONWEALTH OF MASSACHUSETTS IN ANY ACTION, SUIT,
OR PROCEEDING OF ANY KIND, AGAINST IT WHICH ARISES OUT OF OR BY REASON OF THIS
AGREEMENT; PROVIDED, HOWEVER, THAT IF FOR ANY REASON BANK CANNOT AVAIL ITSELF OF
THE COURTS OF THE COMMONWEALTH OF MASSACHUSETTS, BORROWER ACCEPTS JURISDICTION
OF THE COURTS AND VENUE IN SANTA CLARA COUNTY, CALIFORNIA.
BORROWER AND BANK EACH HEREBY WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL
OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF ANY OF THE LOAN
DOCUMENTS OR ANY OF THE TRANSACTIONS CONTEMPLATED THEREIN, INCLUDING CONTRACT
CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW OR
STATUTORY CLAIMS. EACH PARTY RECOGNIZES AND AGREES THAT THE FOREGOING WAIVER
CONSTITUTES A MATERIAL INDUCEMENT FOR IT TO ENTER INTO THIS AGREEMENT. EACH
PARTY REPRESENTS AND WARRANTS THAT IT HAS REVIEWED THIS WAIVER WITH ITS LEGAL
COUNSEL AND THAT IT KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS
FOLLOWING CONSULTATION WITH LEGAL COUNSEL.
12. GENERAL PROVISIONS
12.1 Successors and Assigns. This Agreement shall bind and inure to the
benefit of the respective successors and permitted assigns of each of the
parties; provided, however, that neither this
<PAGE> 20
Agreement nor any rights hereunder may be assigned by Borrower without Bank's
prior written consent, which consent may be granted or withheld in Bank's sole
discretion. Bank shall have the right without the consent of or notice to
Borrower to sell, transfer, negotiate, or grant participation in all or any part
of, or any interest in, Bank's obligations, rights and benefits hereunder.
12.2 Indemnification. Borrower shall, indemnify, defend, protect and hold
harmless Bank and its officers, employees, and agents against: (a) all
obligations, demands, claims, and liabilities claimed or asserted by any other
party in connection with the transactions contemplated by the Loan Documents;
and (b) all losses or Bank Expenses in any way suffered, incurred, or paid by
Bank as a result of or in any way arising out of, following, or consequential to
transactions between Bank and Borrower whether under the Loan Documents, or
otherwise (including without limitation reasonable attorneys fees and expenses),
except for losses caused by Bank's gross negligence or willful misconduct.
12.3 Time of Essence. Time is of the essence for the performance of all
obligations set forth in this Agreement.
12.4 Severability of Provisions. Each provision of this Agreement shall be
severable from every other provision of this Agreement for the purpose of
determining the legal enforceability of any specific provision.
12.5 Amendments in Writing, Integration. This Agreement cannot be amended
or terminated except by a writing signed by Borrower and Bank. All prior
agreements, understandings, representations, warranties, and negotiations
between the parties hereto with respect to the subject matter of this Agreement,
if any, are merged into this Agreement and the Loan Documents.
12.6 Counterparts. This Agreement may be executed in any number of
counterparts and by different parties on separate counterparts, each of which,
when executed and delivered, shall be deemed to be an original, and all of
which, when taken together, shall constitute but one and the same Agreement.
12.7 Survival. All covenants, representations and warranties made in this
Agreement shall continue in full force and effect so long as any Obligations
remain outstanding. The obligations of Borrower to indemnify Bank with respect
to the expenses, damages, losses, costs and liabilities described in Section
12.2 shall survive until all applicable statute of limitations periods with
respect to actions that may be brought against Bank have run; provided that so
long as the obligations referred to in the first sentence of this Section 12.7
have been satisfied, and Bank has no commitment to make any Credit Extensions or
to make any other loans to Borrower, Bank shall release all security interests
granted hereunder and redeliver all Collateral held by it in accordance with
applicable law.
12.8 Confidentiality. In handling any confidential information Bank shall
exercise the same degree of care that it exercises with respect to its own
proprietary information of the same types to maintain the confidentiality of any
non-public information thereby received or received pursuant to this Agreement
except that disclosure of such information may be made (i) to the subsidiaries
or affiliates of Bank in connection with their present or prospective business
relations with Borrower, (ii) to prospective transferees or purchasers of any
interest in the Loans, provided that they have entered into a comparable
confidentiality agreement in favor of Borrower and have delivered a copy to
Borrower, (iii) as required by law, regulations, rule or order, subpoena,
judicial order or similar order, (iv) as may be required in connection with the
examination, audit or similar investigation of Bank, and (v) as Bank may deem
appropriate in connection with the exercise of any remedies hereunder.
Confidential information hereunder shall not include information that either:
(a) is in the public domain or in the knowledge or possession of Bank when
disclosed to Bank, or becomes part of the public domain after disclosure to Bank
through no fault of Bank; or (b) is disclosed to Bank by a third party, provided
Bank does not have actual knowledge that such third party is prohibited from
disclosing such information.
12.9 Countersignature. This Agreement shall become effective only when it
shall have been
<PAGE> 21
executed by Borrower and Bank (provided, however, in no event shall this
Agreement become effective until signed by an officer of Bank in California).
<PAGE> 22
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first above written.
EPRISE CORPORATION, formerly known
as NovaLink USA Corporation, and
formerly known as Inner Circle
Technologies, Inc.
By: /s/ J.A. Forgione
-----------------
Name: J.A. Forgione
-------------
Title: President
---------
By:_________________________________
Name:_______________________________
Title:______________________________
SILICON VALLEY BANK, d/b/a SILICON
VALLEY EAST
By: /s/ Dave Rodriguez
------------------
Name: Dave Rodriguez
--------------
Title: Assistant Vice President
------------------------
SILICON VALLEY BANK
By: /s/ Amy Young
-------------
Name: Amy B. Young
------------
Title: Vice President
--------------
(Signed in Santa Clara County,
California)
<PAGE> 23
EXHIBIT A
The Collateral shall consist of all right, title and interest of Borrower
in and to the following:
(a) All goods and equipment now owned or hereafter acquired, including,
without limitation, all machinery, fixtures, vehicles (including motor vehicles
and trailers), and any interest in any of the foregoing, and all attachments,
accessories, accessions, replacements, substitutions, additions, and
improvements to any of the foregoing, wherever located;
(b) All inventory, now owned or hereafter acquired, including, without
limitation, all merchandise, raw materials, parts, supplies, packing and
shipping materials, work in process and finished products including such
inventory as is temporarily out of Borrower's custody or possession or in
transit and including any returns upon any accounts or other proceeds, including
insurance proceeds, resulting from the sale or disposition of any of the
foregoing and any documents of title representing any of the above, and
Borrower's Books relating to any of the foregoing;
(c) All contract rights and general intangibles now owned or hereafter
acquired, including, without limitation, goodwill, leases, license agreements,
franchise agreements, blueprints, drawings, purchase orders, customer lists,
route lists, claims, literature, reports, catalogs, income tax refunds, payments
of insurance and rights to payment of any kind;
(d) All now existing and hereafter arising accounts, contract rights,
royalties, license rights and all other forms of obligations owing to Borrower
arising out of the sale or lease of goods, the licensing of technology or the
rendering of services by Borrower, whether or not earned by performance, and any
and all credit insurance, guaranties, and other security therefor, as well as
all merchandise returned to or reclaimed by Borrower and Borrower's Books
relating to any of the foregoing;
(e) All documents, cash, deposit accounts, securities, letters of credit,
certificates of deposit, instruments and chattel paper now owned or hereafter
acquired and Borrower's Books relating to the foregoing; and
(f) Any and all claims, rights and interests in any of the above and all
substitutions for, additions and accessions to and proceeds thereof.
Notwithstanding the foregoing, the Collateral shall not be deemed to include any
copyright rights, copyright applications, copyright registrations and like
protections in each work of authorship and derivative work thereof, whether
published or unpublished, now owned or hereafter acquired; any patents,
trademarks, service marks and applications therefor; any trade secret rights,
including any rights to unpatented inventions, know-how, operating manuals,
license rights and agreements and confidential information, now owned or
hereafter acquired; or any claims for damages by way of any past, present and
future infringement of any of the foregoing.
<PAGE> 24
EXHIBIT B
LOAN PAYMENT/ADVANCE TELEPHONE REQUEST FORM
DEADLINE FOR SAME DAY PROCESSING IS 3:00 P.M., P.S.T.
TO: CENTRAL CLIENT SERVICE DIVISION DATE: ___________
FAX#: (408) __________________________ TIME: ______
FROM: EPRISE CORPORATION
-------------------------------------------------------------------
BORROWER'S NAME
FROM:_________________________________________________________________
AUTHORIZED SIGNER'S NAME
______________________________________________________________________
AUTHORIZED SIGNATURE
PHONE:________________________________________________________________
FROM ACCOUNT #___________________ TO ACCOUNT #________________________
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
REQUESTED TRANSACTION TYPE REQUEST DOLLAR AMOUNT
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
<S> <C>
PRINCIPAL INCREASE (ADVANCE) $
- -------------------------------------------------------------------------------------------------------------------
PRINCIPAL PAYMENT (ONLY) $
- -------------------------------------------------------------------------------------------------------------------
INTEREST PAYMENT (ONLY) $
- -------------------------------------------------------------------------------------------------------------------
PRINCIPAL AND INTEREST (PAYMENT) $
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
OTHER INSTRUCTIONS:
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
All representations and warranties of Borrower stated in the Loan and
Security Agreement are true, correct and complete in all material respects as of
the date of the telephone request for and Advance confirmed by this Advance
Request; provided, however, that those representations and warranties expressly
referring to another date shall be true, correct and complete in all material
respects as of such date.
- --------------------------------------------------------------------------------
BANK USE ONLY:
TELEPHONE REQUEST:
The following person is authorized to request the loan payment transfer/loan
advance on the advance designated account and is known to me.
- --------------------------------------------------------------------------------
<PAGE> 25
- --------------------------------------------------------------------------------
_______________________________
Authorized Requester
- --------------------------------------------------------------------------------
_______________________________
- --------------------------------------------------------------------------------
Authorized Signature (Bank)
Phone #____________________________
- --------------------------------------------------------------------------------
<PAGE> 26
EXHIBIT C
BORROWING BASE CERTIFICATE
Borrower: Eprise Corporation Bank: Silicon Valley Bank
Commitment Amount: $800,000.00 Committed Revolving Line
<TABLE>
<CAPTION>
ACCOUNTS RECEIVABLE
<S> <C>
1. Accounts Receivable Book Value as of $___________
2. Additions (please explain on reverse) $___________
3. TOTAL ACCOUNTS RECEIVABLE $___________
ACCOUNTS RECEIVABLE DEDUCTIONS (without duplication)
4. Amounts over 90 days due $___________
5. Balance of 50% over 90 day accounts $___________
6. Concentration Limits $___________
7. Ineligible Foreign Accounts $___________
8. Governmental Accounts $___________
9. Contra Accounts $___________
10. Promotion or Demo Accounts $___________
11. Intercompany/Employee Accounts $___________
12. Other (please explain on reverse) $___________
13. TOTAL ACCOUNTS RECEIVABLE DEDUCTIONS $___________
14. Eligible Accounts (#3 minus #13) $___________
15. LOAN VALUE OF ACCOUNTS (75% of #14) $___________
BALANCES
16. Maximum Loan Amount $ 800,000.00
------------
17. Total Funds Available (Lesser of #16 or #15) $___________
18. Present balance owing on Line of Credit $___________
19. RESERVE POSITION (#17 minus #18) $___________
</TABLE>
The undersigned represents and warrants that the foregoing is true, complete and
correct, and that the information reflected in this Borrowing Base Certificate
complies with the representations and warranties set forth in the Loan and
Security Agreement between the undersigned and Silicon Valley Bank.
COMMENTS:
========================================
BANK USE ONLY
Received By: ________________________
Date: _______________________________
Reviewed By: ________________________
Compliance Status: Yes/No
========================================
EPRISE CORPORATION
By: _______________________
Authorized Signer
<PAGE> 27
EXHIBIT D
COMPLIANCE CERTIFICATE
TO: SILICON VALLEY BANK
FROM: EPRISE CORPORATION
The undersigned authorized officer of Eprise Corporation, formerly known as
NovaLink USA Corporation, hereby certifies that in accordance with the terms and
conditions of the Loan and Security Agreement between Borrower and Bank (the
"Agreement"), (i) Borrower is in complete compliance for the period ending
with all required covenants except as noted below and (ii) all representations
and warranties of Borrower stated in the Agreement are true and correct in all
material respects as of the date hereof. Attached herewith are the required
documents supporting the above certification. The Officer further certifies that
these are prepared in accordance with Generally Accepted Accounting Principles
(GAAP) and are consistently applied from one period to the next except as
explained in an accompanying letter or footnotes. The Officer expressly
acknowledges that no borrowings may be requested by the Borrower at any time or
date of determination that Borrower is not in compliance with any of the terms
of the Agreement, and that such compliance is determined not just at the date
this certificate is delivered.
Please indicate compliance status by circling Yes/No under
"Complies" column.
<TABLE>
<CAPTION>
Reporting Covenant Required Complies
<S> <C> <C>
Monthly financial statements and CC Monthly within 25 days Yes/No
Annual (CPA Audited) FY ending 8/31/97 by 2/28/98 Yes/No
FYE thereafter within 120 days Yes No
A/R Agings and BBC Monthly within 15 days Yes/No
</TABLE>
<TABLE>
<CAPTION>
Financial Covenant Required Actual Complies
<S> <C> <C> <C>
Maintain on a Monthly Basis:
Minimum Liquidity $700,000.00 _________ Yes/No
Minimum Adjusted Quick Ratio 1.30 to 1.0 _____:1.0 Yes/No
Minimum Tangible Net Worth $700,000.00 $________
Net Income/Loss ___________* _________
</TABLE>
*See Article 6 of Loan and Security Agreement
========================================
BANK USE ONLY
Received By: ________________________
Date: _______________________________
Reviewed By: ________________________
Compliance Status: Yes/No
========================================
Comments Regarding Exceptions:
Sincerely, Eprise Corporation, formerly known as
NovaLink USA Corporation
<PAGE> 28
_______________________ Date:_______________
Signature
_________________________________
Title
<PAGE> 29
DISBURSEMENT REQUEST AND AUTHORIZATION
Borrower: Eprise Corporation, formerly known as Bank: Silicon Valley Bank
NovaLink USA Corporation
LOAN TYPE. A. Revolving Line of Credit of a principal amount up to
$800,000.00
B. Equipment Line of Credit of a principal amount of
$400,000.00
PRIMARY PURPOSE OF LOAN. The primary purpose of this loan is for business.
SPECIFIC PURPOSE. The specific purpose of this loan is: A. Working Capital
B. Equipment Purchase
and Refinance
DISBURSEMENT INSTRUCTIONS. Borrower understands that no loan proceeds will be
disbursed until all of Bank's conditions for making the loan have been
satisfied. Please disburse the loan proceeds as follows:
Revolving Line
Amount paid to Borrower directly: $__________
Undisbursed Funds: $800,000.00
Principal: $800,000.00
Equipment Line
Amount paid to Borrower directly: $__________
Undisbursed Funds: $400,000.00
Principal: $400,000.00
AUTOMATIC PAYMENTS. Borrower hereby authorizes Bank automatically to deduct from
Borrower's account numbered _________ the amount of any loan payment. If the
funds in the account are insufficient to cover any payment, Bank shall not be
obligated to advance funds to cover the payment.
FINANCIAL CONDITION. BY SIGNING THIS AUTHORIZATION, BORROWER REPRESENTS AND
WARRANTS TO BANK THAT THE INFORMATION PROVIDED ABOVE IS TRUE AND CORRECT AND
THAT THERE HAS BEEN NO ADVERSE CHANGE IN BORROWER'S FINANCIAL CONDITION AS
DISCLOSED IN BORROWER'S MOST RECENT FINANCIAL STATEMENT TO BANK. THIS
AUTHORIZATION IS DATED AS OF _________,1998.
BORROWER: EPRISE CORPORATION
_________________________________
Authorized Officer
<PAGE> 30
AGREEMENT TO PROVIDE INSURANCE
Grantor: Eprise Corporation, formerly known as NovaLink USA Corporation
Bank: Silicon Valley Bank
INSURANCE REQUIREMENTS. Eprise Corporation, formerly known as NovaLink USA
Corporation ("Borrower"), understands that insurance coverage is required in
connection with the extending of a loan or the providing of other financial
accommodations to Borrower by Bank. These requirements are set forth in the Loan
Documents. The following minimum insurance coverages must be provided on the
following described collateral (the "Collateral"):
Collateral: All Inventory, Equipment and Fixtures.
Type: All risks, including fire, theft and liability.
Amount: Full insurable value.
Basis: Replacement value.
Endorsements: Loss payable clause to Bank with stipulation that
coverage will not be canceled or diminished without a
minimum of twenty (20) days' prior written notice to
Bank.
INSURANCE COMPANY. Borrower may obtain insurance from any insurance company
Borrower may choose that is reasonably acceptable to Bank. Borrower understands
that credit may not be denied solely because insurance was not purchased through
Bank.
FAILURE TO PROVIDE INSURANCE. Borrower agrees to deliver to Bank, on or
before closing, evidence of the required insurance as provided above, with an
effective date of _________, 19___, or earlier. Borrower acknowledges and agrees
that if Borrower fails to provide any required insurance or fails to continue
such insurance in force, Bank may do so at Borrower's expense as provided in the
Loan and Security Agreement. The cost of such insurance, at the option of Bank,
shall be payable on demand or shall be added to the indebtedness as provided in
the security document. BORROWER ACKNOWLEDGES THAT IF BANK SO PURCHASES ANY SUCH
INSURANCE, THE INSURANCE WILL PROVIDE LIMITED PROTECTION AGAINST PHYSICAL DAMAGE
TO THE COLLATERAL, UP TO THE BALANCE OF THE LOAN; HOWEVER, BORROWER'S EQUITY IN
THE COLLATERAL MAY NOT BE INSURED. IN ADDITION, THE INSURANCE MAY NOT PROVIDE
ANY PUBLIC LIABILITY OR PROPERTY DAMAGE INDEMNIFICATION AND MAY NOT MEET THE
REQUIREMENTS OF ANY FINANCIAL RESPONSIBILITY LAWS.
AUTHORIZATION. For purposes of insurance coverage on the Collateral,
Borrower authorizes Bank to provide to any person (including any insurance agent
or company) all information Bank deems appropriate, whether regarding the
Collateral, the loan or other financial accommodations, or both.
BORROWER ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS AGREEMENT TO
PROVIDE INSURANCE AND AGREES TO ITS TERMS. THIS AGREEMENT IS DATED , 1998.
BORROWER: EPRISE CORPORATION
x__________________________________
Authorized Officer
================================================================================
FOR BANK USE ONLY
INSURANCE VERIFICATION
DATE:
PHONE:
AGENT'S NAME:
INSURANCE COMPANY:
================================================================================
<PAGE> 31
================================================================================
POLICY NUMBER:
EFFECTIVE DATES:
COMMENTS:
================================================================================
<PAGE> 1
Ex - 10.17
NEGATIVE PLEDGE AGREEMENT
This Negative Pledge Agreement is made as of December 5, 1997, by and
between EPRISE CORPORATION, formerly known as NovaLink USA Corporation
("Borrower") and SILICON VALLEY BANK, a California-chartered bank, with its
principal place of business at 3003 Tasman Drive, Santa Clara, California 95054
and with a loan production office located at Wellesley Office Park, 40 William
Street, Suite 350, Wellesley, Massachusetts 02181, doing business under the name
"Silicon Valley East" ("Bank").
In connection with, among other documents, the Loan and Security Agreement (the
"Loan Documents") being concurrently executed herewith between Borrower and
Bank, Borrower agrees as follows:
1. Except for the granting of licenses by Borrower in the ordinary course
of business, Borrower shall not sell, transfer, assign, mortgage,
pledge, lease, grant a security interest in, or encumber any of
Borrower's Intellectual Property (as defined below):
2. It shall be an event of default under the Loan Documents between
Borrower and Bank if there is a breach of any term of this Negative
Pledge Agreement.
3. As used herein,
(a) "Intellectual Property" means:
(i) Any and all Copyright rights, Copyright applications,
copyright registrations and like protections in each work
or authorship and derivative work thereof, whether
published or unpublished and whether or not the same also
constitutes a trade secret, now or hereafter existing,
created, acquired or held;
(ii) Any and all trade secrets, and any and all intellectual
property rights in computer software and computer software
products now or hereafter existing, created, acquired or
held;
(iii) Any and all design rights which may be available to
Borrower now or hereafter existing, created, acquired or
held;
(iv) All Mask Works or similar rights available for the
protection of semiconductor chips;
(v) All Patents, Patent applications and like protections
including, without limitation, improvements, divisions,
continuations, renewals, reissues, extensions and
continuations-in-part of the
<PAGE> 2
same, including without limitation the Patents and Patent
applications;
(vi) Any Trademark and servicemark rights, whether registered
or not, applications to register and registrations of the
same and like protections, and the entire goodwill of the
business of Borrower connected with and symbolized by such
Trademarks, including without limitation;
(vii) Any and all claims for damages by way of past, present and
future infringements of any of the rights included above,
with the right, but not the obligation, to sue for and
collect such damages for said use or infringement of the
intellectual property rights identified above;
(viii) All licenses or other rights to use any of the Copyrights,
Patents, Trademarks, or Mask Works and all license fees
and royalties arising from such use to the extent
permitted by such license or rights; and
(ix) All amendments, extensions, renewals and extensions of any
of the Copyrights, Trademarks, Patents, or Mask Works; and
(x) All proceeds and products of the foregoing, including
without limitation all payments under insurance or any
indemnity or warranty payable in respect of any of the
foregoing;
(b) "Copyrights" means any and all copyright rights, copyright
applications, copyright registrations and like protections in
each work or authorship and derivative work thereof, whether
published or unpublished and whether or not the same also
constitutes a trade secret, now or hereafter existing, created,
acquired or held.
(c) "Mask Works" means all mask work or similar rights available for
the protection of semiconductor chips, now owned or hereafter
acquired;
(d) "Patents" means all patents, patent applications and like
protections including without limitation improvements, divisions,
continuations, renewals, reissues, extensions and
continuations-in-part of the same.
(e) "Trademarks" means any trademark and servicemark rights, whether
registered or not, applications to register and registrations of
the same and like protections, and the entire goodwill of the
business of Borrower connected with and symbolized by such
trademarks.
<PAGE> 3
4. Capitalized terms used but not otherwise defined herein shall have the same
meaning as in the Loan Documents.
5. The laws of the Commonwealth of Massachusetts shall apply to this
Agreement. BORROWER ACCEPTS FOR ITSELF AND IN CONNECTION WITH ITS
PROPERTIES, UNCONDITIONALLY, THE NON-EXCLUSIVE JURISDICTION OF ANY STATE OR
FEDERAL COURT OF COMPETENT JURISDICTION IN THE COMMONWEALTH OF
MASSACHUSETTS IN ANY ACTION, SUIT, OR PROCEEDING OF ANY KIND, AGAINST IT
WHICH ARISES OUT OF OR BY REASON OF THIS AGREEMENT; PROVIDED, HOWEVER, THAT
IF FOR ANY REASON BANK CANNOT AVAIL ITSELF OF THE COURTS OF THE
COMMONWEALTH OF MASSACHUSETTS, BORROWER ACCEPTS JURISDICTION OF THE COURTS
AND VENUE IN SANTA CLARA COUNTY, CALIFORNIA.
6. This Agreement shall become effective only when it shall have been executed
by Borrower and Bank (provided, however, in no event shall this Agreement
become effective until signed by an officer of Bank in California).
BORROWER:
EPRISE CORPORATION, formerly known as
NovaLink USA Corporation
By: /s/ J.A.Forgione
----------------
Name: Joseph A. Forgione
------------------
Title: President
---------
BANK:
SILICON VALLEY BANK d/b/a SILICON VALLEY
EAST
By: /s/ Dave Rodriguez
------------------
Name: Dave Rodriguez
--------------
Title: Assistant Vice President
------------------------
<PAGE> 4
SILICON VALLEY BANK
By: Michael Jordan
--------------
Name: Michael Jordan
--------------
Title: Loan Docs Officer
-----------------
(Signed in Santa Clara, California)
<PAGE> 1
Ex - 10.18
FIRST LOAN MODIFICATION AGREEMENT
This First Loan Modification Agreement is entered into as of March 26,
1999, by and between EPRISE CORPORATION, formerly known as NovaLink USA
Corporation, a Delaware corporation with its principal place of business at 1671
Worcester Road, Framingham, Massachusetts 01701 ("Borrower") and SILICON VALLEY
BANK, a California-chartered bank ("Bank"), with its principal place of business
at 3003 Tasman Drive, Santa Clara, CA 95054 and with a loan production office
located at Wellesley Office Park, 40 William Street, Suite 350, Wellesley, MA
02481, doing business under the name "Silicon Valley East".
1. DESCRIPTION OF EXISTING INDEBTEDNESS. Among other indebtedness which may be
owing by Borrower to Bank, Borrower is indebted to Bank pursuant to a loan
arrangement dated as of January 28, 1998, evidenced by, among other documents, a
certain Loan and Security Agreement dated as of January 28, 1998 (the "Loan
Agreement"). The Loan Agreement established in favor of the Borrower: (i) a
revolving line of credit in the maximum principal amount of Eight Hundred
Thousand Dollars ($800,000.00) (the "Committed Revolving Line"), and (ii) an
equipment line of credit in the maximum principal amount of Four Hundred
Thousand Dollars ($400,000.00) (the "1998 Committed Equipment Line").
Capitalized terms used but not otherwise defined herein shall have the same
meaning as in the Loan Agreement.
Hereinafter, all indebtedness owing by Borrower to Bank shall be referred to as
the "Indebtedness".
2. DESCRIPTION OF COLLATERAL. Repayment of the Indebtedness is secured by the
Collateral as described in the Loan Agreement (together with any other
collateral security granted to Bank, the "Security Documents").
Hereinafter, the Security Documents, together with all other documents
evidencing or securing the Indebtedness shall be referred to as the "Existing
Loan Documents".
3. DESCRIPTION OF CHANGE IN TERMS.
A. Modification(s) to Loan Agreement.
1. The Loan Agreement shall be amended by deleting the following
definition appearing in Section 1.1 thereof:
""Borrowing Base" means an amount equal to Seventy-Five
percent (75.0%) of Eligible Accounts, as determined by Bank
with reference to the most recent Borrowing Base Certificate
delivered by Borrower."
<PAGE> 2
and inserting in lieu thereof the following:
""Borrowing Base" means an amount equal to Eighty percent
(80.0%) of Eligible Accounts, as determined by Bank with
reference to the most recent Borrowing Base Certificate
delivered by Borrower."
2. The Loan Agreement shall be amended by deleting the following
definition appearing in Section 1.1 thereof:
""Committed Revolving Line" means a credit extension of up
to Eight Hundred Thousand Dollars ($800,000.00)."
and inserting in lieu thereof the following:
""Committed Revolving Line" means a credit extension of up
to One Million Dollars ($1,000,000.00)."
3. The Loan Agreement shall be amended by inserting immediately
after the definition of "Material Adverse Effect" appearing in
Section 1.1 thereof the following definition:
""Maturity Date" means, as applicable, (i) the Revolving
Maturity Date for Advances pursuant to Section 2.1.1; (ii)
the Equipment Maturity Date for Equipment Advances pursuant
to Section 2.1.2; and (iii) the 1999 Equipment Maturity Date
for Equipment Advances pursuant to Section 2.1.3."
4. The Loan Agreement shall be amended by deleting the following
definition appearing in Section 1.1 thereof:
""Equipment Advance" has the meaning set forth in Section
2.1.2."
and inserting in lieu thereof the following:
""Equipment Advance" or "Equipment Advances" shall mean any
advance made hereunder pursuant to Sections 2.1.2 and
2.1.3."
5. All references to "Committed Equipment Line" in the Loan
Agreement shall mean and refer to the "1998 Committed Equipment
Line".
<PAGE> 3
6. The Loan Agreement shall be amended by inserting immediately
after the definition of "Negotiable Collateral" appearing in
Section 1.1 thereof the following definitions:
""1999 Committed Equipment Line" means a credit extension of
up to Five Hundred Thousand Dollars ($500,000.00).
"1999 Equipment Availability End Date" has the meaning set
forth in Section 2.1.3.
"1999 Equipment Maturity Date" means that date which is
thirty-six (36) months after the 1999 Equipment Availability
End Date."
7. The Loan Agreement shall be amended by deleting the following
definition appearing in Section 1.1 thereof:
""Payment Date" means the first calendar day of each month
commencing on the first such date after the Closing Date and
ending on the Revolving Maturity Date."
and inserting in lieu thereof the following:
""Payment Date" means the first calendar day of each month
commencing on the first such date after the Closing Date and
ending on the Maturity Date."
8. The Loan Agreement shall be amended by deleting the following
definition appearing in Section 1.1 thereof:
""Quick Assets" means, as of any applicable date, the
consolidated cash and accounts receivable of Borrower."
and inserting in lieu thereof the following:
""Quick Assets" means, as of any applicable date, the
consolidated cash and accounts receivable (not greater than
ninety (90) days from invoice date) of Borrower."
9. The Loan Agreement shall be amended by deleting the following
definition appearing in Section 1.1 thereof:
""Revolving Maturity Date" means the date which is one day
prior to one year from the Closing Date."
<PAGE> 4
and inserting in lieu thereof the following:
""Revolving Maturity Date" means March ____, 2000."
10. Section 2.1.2 of the Loan Agreement shall be retitled as "1998
Equipment Advances".
11. All Equipment Advances currently amortizing under the 1998
Committed Equipment Line shall continue to be repaid as provided
in Section 2.1.2. The outstanding principal balance of all
Equipment Advances made pursuant to Section 2.1.2, as of March 4,
1999, is Two Hundred Twenty-Nine Thousand One Hundred Ten and
97/100 Dollars ($229,110.97).
12. The Loan Agreement shall be amended by inserting after Section
2.1.2 thereof the following new section entitled "1999 Equipment
Advances":
"2.1.3 1999 Equipment Advances.
(a) Subject to and upon the terms and conditions of this
Agreement, at any time through December _____, 1999 (the "1999
Equipment Availability End Date"), Bank agrees to make Equipment
Advances (each an "Equipment Advance" and collectively, the
"Equipment Advances") to Borrower under this Section 2.1.3 in an
aggregate outstanding amount not to exceed the 1999 Committed
Equipment Line. To evidence the Equipment Advances, Borrower
shall deliver to Bank, at the time of each Equipment Advance
request, an invoice for the equipment to be purchased. The
Equipment Advances made pursuant to this Section 2.1.3 shall be
used only to finance Equipment purchased after June 30, 1998 and
shall not exceed One Hundred Percent (100%) of the invoice amount
of such equipment approved from time to time by Bank, excluding
taxes, shipping, warranty charges, freight discounts and
installation expense. Software may only constitute up to Two
Hundred Thousand Dollars ($200,000.00) of aggregate Equipment
Advances under this Section 2.1.3.
(b) Interest shall accrue from the date of each Equipment
Advance made pursuant to this Section 2.1.3 at a per annum rate
equal to the aggregate of the Prime Rate, plus One and One Half
percent (1.50%), and shall be payable monthly on the Payment Date
of each month through the month in which the 1999 Equipment
Availability End Date falls. Any Equipment Advances
<PAGE> 5
made pursuant to this Section 2.1.3 that are outstanding on the
1999 Equipment Availability End Date will be payable in
thirty-six (36) equal monthly installments of principal, plus all
accrued interest, beginning on the Payment Date of each month
following the 1999 Equipment Availability End Date and ending on
the 1999 Equipment Maturity Date. Equipment Advances, once
repaid, may not be reborrowed.
(c) When Borrower desires to obtain an Equipment Advance,
Borrower shall notify Bank (which notice shall be irrevocable) by
facsimile transmission to be received no later than 3:00 p.m.
Eastern time one (1) Business Day before the day on which the
Equipment Advance is to be made. Such notice shall be
substantially in the form of Exhibit B. The notice shall be
signed by a Responsible Officer or its designee and include a
copy of the invoice for the Equipment to be financed."
13. The Loan Agreement shall be amended by deleting the following
text appearing as the first sentence of Section 2.7 thereof
entitled "Term":
"Except as otherwise set forth herein, this Agreement shall
become effective on the Closing Date and, subject to Section
12.7, shall continue in full force and effect for a term
ending on the later of the Revolving Maturity Date or the
Equipment Maturity Date."
and inserting in lieu thereof the following:
"Except as otherwise set forth herein, this Agreement shall
become effective on the Closing Date and, subject to Section
12.7, shall continue in full force and effect for a term
ending on the Maturity Date."
14. The Loan Agreement shall be amended by deleting the following
text appearing as the second paragraph of Section 6.3 thereof
entitled "Financial Statements, Reports, Certificates":
"Unless there are no amounts borrowed or outstanding under
the Committed Revolving Line, within fifteen (15) days after
the last day of each month, Borrower shall deliver to Bank a
Borrowing Base Certificate signed by a Responsible Officer
in substantially the form of Exhibit C hereto, together with
aged listings of accounts receivable."
<PAGE> 6
and inserting in lieu thereof the following:
"Within twenty-five (25) days after the last day of each
month with respect to which either (i) Obligations under the
Committed Revolving Line are outstanding, or (ii) Advances
were made, Borrower shall deliver to Bank a Borrowing Base
Certificate signed by a Responsible Officer in substantially
the form of Exhibit C hereto, together with aged listings of
accounts receivable."
15. The Loan Agreement shall be amended by deleting the following
text appearing as the fourth paragraph of Section 6.3 thereof
entitled "Financial Statements, Reports, Certificates":
"Bank shall have a right from time to time hereafter to
audit Borrower's Accounts at Borrower's expense, provided
that such audits will be conducted no more often than every
six (6) months unless an Event of Default has occurred and
is continuing."
and inserting in lieu thereof the following:
"Bank shall have a right from time to time hereafter to
audit Borrower's Accounts at Borrower's expense, provided
that such audits will be conducted: (a) no more often than
every six (6) months (or less frequently at the Bank's sole
discretion), and (b) only when (i) Obligations under the
Committed Revolving Line are outstanding or (ii) Advances
were made during the preceding six (6) month period.
Notwithstanding the foregoing, the Bank shall have the right
to audit Borrower's Accounts at Borrower's expense at any
time after the occurrence of an Event of Default."
16. The Loan Agreement shall be amended by deleting the following
text appearing as Sections 6.8, 6.9, 6.10, 6.11 and 6.12 thereof:
"6.8 Liquidity. Borrower shall maintain, as of the last day
of each calendar month, Unrestricted Cash plus amounts
available to be borrowed under the Committed Revolving Line
in an amount not less than Seven Hundred Thousand Dollars
($700,000.00).
6.9 Adjusted Quick Ratio. Borrower shall maintain, as of the
last day of each calendar month, a ratio of Quick
<PAGE> 7
Assets to Current Liabilities minus any deferred maintenance
revenue of at least 1.3 to 1.0.
6.10 Net Income/Loss. Borrower shall maintain, as of the
last day of each fiscal quarter of the Borrower, a maximum
net loss of: (i) One Million Nine Hundred Thousand Dollars
($1,900,000.00) for the fiscal quarter ending February 28,
1998; (ii) One Million Four Hundred Thousand Dollars
($1,400,000.00) for the fiscal quarter ending May 31, 1998;
(iii) Five Hundred Thousand Dollars ($500,000.00) for the
fiscal quarter ending August 31, 1998; and (iv) Five Hundred
Thousand Dollars ($500,000.00) for the fiscal quarter ending
November 30, 1998 and each fiscal quarter thereafter.
6.11 Tangible Net Worth. Borrower shall maintain, as of the
last day of each calendar month, a Tangible Net Worth of not
less than Seven Hundred Thousand Dollars ($700,000.00).
6.12 Further Assurances. At any time and from time to time
Borrower shall execute and deliver such further instruments
and take such further action as may reasonably be requested
by Bank to effect the purposes of this Agreement."
and inserting in lieu thereof the following:
"6.8 Adjusted Quick Ratio. Borrower shall maintain, as of
the last day of each calendar month, a ratio of Quick Assets
to Current Liabilities minus any deferred revenue of the
Borrower of at least 1.50 to 1.0.
6.9 Tangible Net Worth. Borrower shall maintain, as of the
last day of each calendar month, a Tangible Net Worth of not
less than: (i) Three Million Five Hundred Thousand Dollars
($3,500,000.00) for each month through the month ending
March 31, 1999, (ii) One Million Seven Hundred Fifty
Thousand Dollars ($1,750,000.00) for the months ending April
30, 1999, May 31, 1999, and June 30, 1999, (iii) One Million
Four Hundred Thousand Dollars ($1,400,000.00) for the months
ending July 31, 1999, August 31, 1999, and September 30,
1999, and (iv) One Million Dollars ($1,000,000.00) for each
month thereafter.
<PAGE> 8
6.10 Further Assurances. At any time and from time to time
Borrower shall execute and deliver such further instruments
and take such further action as may reasonably be requested
by Bank to effect the purposes of this Agreement."
17. The Loan Agreement shall be amended by deleting the following
text appearing as paragraph (a) of Section 8.2 entitled "Covenant
Default":
"(a) If Borrower fails to perform any obligation under
Sections 6.3, 6.6, 6.7, 6.8, 6.9, 6.10 or 6.11 or violates
any of the covenants contained in Article 7 of this
Agreement;"
and inserting in lieu thereof the following:
"(a) If Borrower fails to perform any obligation under
Sections 6.3, 6.6, 6.7, 6.8 or 6.9 or violates any of the
covenants contained in Article 7 of this Agreement;"
18. The Bank acknowledges that Borrower has changed its fiscal year
end to December 31.
19. The Borrower hereby ratifies, confirms and reaffirms, all and
singular, the terms and conditions of a certain Negative Pledge
Agreement dated as of December 5, 1997 between Borrower and Bank,
and acknowledges, confirms and agrees that said Negative Pledge
Agreement shall remain in full force and effect.
20. The Borrowing Base Certificate appearing as Exhibit C to the Loan
Agreement is hereby replaced with the Compliance Certificate
attached as Exhibit A hereto.
21. The Compliance Certificate appearing as Exhibit D to the Loan
Agreement is hereby replaced with the Compliance Certificate
attached as Exhibit B hereto.
4. FEE. Borrower shall pay to Bank a modification fee equal to Five Thousand
Five Hundred Dollars ($5,500.00), which fee shall be due on the date hereof and
shall be deemed fully earned as of the date hereof.
5. CONSISTENT CHANGES. The Existing Loan Documents are hereby amended wherever
necessary to reflect the changes described above.
<PAGE> 9
6. RATIFICATION OF LOAN DOCUMENTS. Borrower hereby ratifies, confirms, and
reaffirms all terms and conditions of all security or other collateral granted
to the Bank, and confirms that the indebtedness secured thereby includes,
without limitation, the Indebtedness.
7. NO DEFENSES OF BORROWER. Borrower agrees that, as of this date, it has no
defenses against the obligations to pay any amounts under the Indebtedness.
8. CONTINUING VALIDITY. Borrower understands and agrees that in modifying the
existing Indebtedness, Bank is relying upon Borrower's representations,
warranties, and agreements, as set forth in the Existing Loan Documents. Except
as expressly modified pursuant to this Loan Modification Agreement, the terms of
the Existing Loan Documents remain unchanged and in full force and effect.
Bank's agreement to modifications to the existing Indebtedness pursuant to this
Loan Modification Agreement in no way shall obligate Bank to make any future
modifications to the Indebtedness. Nothing in this Loan Modification Agreement
shall constitute a satisfaction of the Indebtedness. It is the intention of Bank
and Borrower to retain as liable parties all makers of Existing Loan Documents,
unless the party is expressly released by Bank in writing. No maker will be
released by virtue of this Loan Modification Agreement.
9. JURISDICTION/VENUE. Borrower accepts for itself and in connection with its
properties, unconditionally, the non-exclusive jurisdiction of any state or
federal court of competent jurisdiction in the Commonwealth of Massachusetts in
any action, suit, or proceeding of any kind against it which arises out of or by
reason of this Loan Modification Agreement; provided, however, that if for any
reason Bank cannot avail itself of the courts of the Commonwealth of
Massachusetts, then venue shall lie in Santa Clara County, California.
10. COUNTERSIGNATURE. This Loan Modification Agreement shall become effective
only when it shall have been executed by Borrower and Bank (provided, however,
in no event shall this Loan Modification Agreement become effective until signed
by an officer of Bank in California).
This Loan Modification Agreement is executed as a sealed instrument under
the laws of the Commonwealth of Massachusetts as of the date first written
above.
<PAGE> 10
BORROWER: BANK:
EPRISE CORPORATION SILICON VALLEY BANK, doing
business as SILICON VALLEY
EAST
By: /s/ Milton Alpern By: /s/ Dave Rodriguez
Name: Milton Alpern Name: Dave Rodriguez
Title: Chief Financial Officer Title: AVP
SILICON VALLEY BANK
By: /s/ Michael Jordan
Name: Michael Jordan
Title: AVP
(signed in Santa Clara
County, California)
TCP/
56120/51
369549.2
<PAGE> 11
EXHIBIT A
BORROWING BASE CERTIFICATE
Borrower: EPRISE CORPORATION Bank: Silicon Valley Bank
Commitment Amount: $1,000,000.00
ACCOUNTS RECEIVABLE
1) Accounts Receivable Book Value as of $
2) Additions (please explain on reverse) $
3) TOTAL ACCOUNTS RECEIVABLE $
ACCOUNTS RECEIVABLE DEDUCTIONS (without duplication)
4) Amounts over 90 days due $
5) Balance of 50% over 90 day accounts $
6) Concentration Limits $
7) Ineligible Foreign Accounts $
8) Governmental Accounts $
9) Contra Accounts $
10) Promotion or Demo Accounts $
11) Intercompany/Employee Accounts $
12) Other (please explain on reverse) $
13) TOTAL ACCOUNTS RECEIVABLE DEDUCTIONS $
14) Eligible Accounts (#3 minus #13) $
15) LOAN VALUE OF ACCOUNTS (80.0% of #14) $
BALANCES
16) Maximum Loan Amount $
17) Total Funds Available [Lesser of #16 or #15] $
18) Present balance owing on Line of Credit $
19) RESERVE POSITION (#17 minus #18) $
The undersigned represents and warrants that the foregoing is true, complete and
correct, and that the information reflected in this Borrowing Base Certificate
complies with the representations and warranties set forth in the Loan and
Security Agreement between the undersigned and Silicon Valley Bank.
COMMENTS:
___________________________
By: _______________________
Authorized Signer
<PAGE> 12
EXHIBIT B
COMPLIANCE CERTIFICATE
TO: SILICON VALLEY BANK
FROM: EPRISE CORPORATION
The undersigned authorized officer of EPRISE CORPORATION hereby certifies
that in accordance with the terms and conditions of the Loan and Security
Agreement between Borrower and Bank (the "Agreement"), (i) Borrower is in
complete compliance for the period ending with all required covenants
except as noted below and (ii) all representations and warranties of Borrower
stated in the Agreement are true and correct in all material respects as of the
date hereof. Attached herewith are the required documents supporting the above
certification. The Officer further certifies that these are prepared in
accordance with Generally Accepted Accounting Principles (GAAP) and are
<PAGE> 13
consistently applied from one period to the next except as explained in an
accompanying letter or footnotes. The Officer expressly acknowledges that no
borrowings may be requested by the Borrower at any time or date of determination
that Borrower is not in compliance with any of the terms of the Agreement, and
that such compliance is determined not just at the date this certificate is
delivered.
Please indicate compliance status by circling Yes/No under "Complies"
column.
<TABLE>
<CAPTION>
Reporting Covenant Required Complies
<S> <C> <C>
Monthly financial statements
& CC Monthly within 25 days Yes No
Annual (CPA Audited) FYE within 120 days Yes No
Monthly BBC & A/R Agings Monthly within 25 days (when borrowing) Yes No
</TABLE>
<TABLE>
<CAPTION>
Financial Covenant Required Actual Complies
<S> <C> <C> <C>
Maintain on a Monthly Basis:
Minimum Adjusted Quick Ratio 1.50:1.0 ____:1.0 Yes No
Minimum Tangible Net Worth $3,500,000 thru 3/31/99; $_______ Yes No
$1,750,000 thru 6/30/99;
$1,400,000 thru 9/30/99;
$1,000,000 thereafter
</TABLE>
Comments Regarding Exceptions:
Sincerely,
_______________________ Date:_______________
SIGNATURE
__________________________
TITLE
<PAGE> 1
Exhibit 16
January 14, 2000
Mr. Milton A. Alpern
Chief Financial Officer
Eprise Corporation
1671 Worcester Road
Framingham, MA 01701
Dear Milton:
We have read the information under the caption "Change in Accountants" on page
61 of the Eprise Corporation Form S-1 Registration Statement and are in
agreement with the statements therein.
Very truly yours,
Arthur Andersen LLP
Cc: SEC Office of the Chief Accountant
<PAGE> 1
Exhibit 21.1
List of Subsidiaries
Eprise Securities Corporation
<PAGE> 1
Exhibit 23.1
INDEPENDENT AUDITORS' CONSENT
To the Board of Directors and Stockholders
of Eprise Corporation
Framingham, Massachusetts
We consent to the use in this Registration Statement of Eprise Corporation on
Form S-1 of our report dated March 15, 1999 (March 26, 1999 as to Note 3),
appearing in the Prospectus, which is a part of this Registration Statement, and
to the references to us under the headings "Experts" and "Change in Accountants"
in such Prospectus.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
January 14, 2000
<PAGE> 1
Exhibit 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our report
dated December 18, 1997 (except with respect to the disclosure of the issuance
of Series A Redeemable Preferred Stock (Note 5) as to which the date is January
28, 1998) on the Company's financial statements as of and for the year ended
August 31, 1997 (and to all references to our Firm) included in or made a part
of this registration statement.
/s/ ARTHUR ANDERSEN LLP
Boston, Massachusetts
January 14, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET AS OF DECEMBER 31, 1998 AND THE RELATED STATEMENT OF OPERATION FOR THE
YEAR THEN ENDED AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 6,356,665
<SECURITIES> 0
<RECEIVABLES> 103,060
<ALLOWANCES> 82,000
<INVENTORY> 0
<CURRENT-ASSETS> 6,589,382
<PP&E> 794,951
<DEPRECIATION> (345,103)
<TOTAL-ASSETS> 7,075,284
<CURRENT-LIABILITIES> 760,683
<BONDS> 0
13,740,189
0
<COMMON> 5,706
<OTHER-SE> 7,577,392
<TOTAL-LIABILITY-AND-EQUITY> 7,075,284
<SALES> 345,000
<TOTAL-REVENUES> 807,321
<CGS> 0
<TOTAL-COSTS> 459,730
<OTHER-EXPENSES> 5,744,075
<LOSS-PROVISION> 3,200
<INTEREST-EXPENSE> 43,049
<INCOME-PRETAX> (5,260,508)
<INCOME-TAX> 0
<INCOME-CONTINUING> (5,396,484)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,275,428)
<EPS-BASIC> (0.94)
<EPS-DILUTED> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET AS OF DECEMBER 31, 1997 AND THE RELATED STATEMENT OF OPERATION FOR THE
FOUR MONTHS THEN ENDED AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 4-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> SEP-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 3,135,893
<SECURITIES> 0
<RECEIVABLES> 132,835
<ALLOWANCES> 83,000
<INVENTORY> 0
<CURRENT-ASSETS> 3,358,132
<PP&E> 445,418
<DEPRECIATION> (198,879)
<TOTAL-ASSETS> 3,646,690
<CURRENT-LIABILITIES> 969,194
<BONDS> 0
5,004,341
0
<COMMON> 5,513
<OTHER-SE> (2,321,332)
<TOTAL-LIABILITY-AND-EQUITY> (2,326,845)
<SALES> 65,000
<TOTAL-REVENUES> 302,541
<CGS> 0
<TOTAL-COSTS> 285,037
<OTHER-EXPENSES> 1,081,963
<LOSS-PROVISION> 4,600
<INTEREST-EXPENSE> 105,375
<INCOME-PRETAX> (1,163,705)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,064,459)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,165,688)
<EPS-BASIC> (0.21)
<EPS-DILUTED> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
STATEMENT OF OPERATION FOR THE YEAR ENDED AUGUST 31, 1997 AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENT.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> AUG-31-1997
<PERIOD-START> SEP-01-1996
<PERIOD-END> AUG-31-1997
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 0
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 0
<SALES> 33,000
<TOTAL-REVENUES> 1,420,223
<CGS> 0
<TOTAL-COSTS> 518,456
<OTHER-EXPENSES> 1,481,043
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 156,364
<INCOME-PRETAX> (733,408)
<INCOME-TAX> 0
<INCOME-CONTINUING> (579,276)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (733,408)
<EPS-BASIC> (0.14)
<EPS-DILUTED> 0
</TABLE>
