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As filed with the Securities and Exchange Commission on September 10, 1999
Registration No. 33-
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM SB-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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NETWORD, INC.
(Name of Small Business Issuer in its Charter)
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Delaware 5140 552-2143430
<S> <C> <C>
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or organization) Classification Code Number) Identification No.)
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702 Russell Avenue, Third Floor
Gaithersburg, Maryland 20877
1-800-NETWORD
(Address and Telephone Number of Principal Executive Offices and
Principal Place of Business )
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Michael Wise
President and Chief Executive Officer
702 Russell Avenue, Third Floor
Gaithersburg, Maryland 20877
1-800-NETWORD
(Name, Address, and Telephone number of Agent for Service)
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Copies to:
Russell S. Berman, Esq.
Kronish Lieb Weiner & Hellman LLP
1114 Avenue of the Americas
New York, New York 10036-7798
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Approximate date of Proposed Sale to the Public: From time to time
after the effective date of this Registration Statement.
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 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. / /
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, other than securities offered only in connection with
dividend or interest reinvestment plans, check the following box. /X/
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CALCULATION OF REGISTRATION FEE
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Title of Securities Amount to be Proposed Maximum Offering Proposed Maximum Amount of
to be Registered Registered Price per Share Aggregate Offering Price Registration Fee
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Common Stock, $.01 par value 6,784,733 shares(1) $0.875(2) $5,936,641.38(2) $1,650.40
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(1) Includes 2,000,000 outstanding shares and 4,784,733 shares issuable upon
exercise of outstanding warrants. Pursuant to Rule 416, an indeterminate
number of additional shares are registered for issuance in the event that
antidilution provisions in the outstanding warrants become operative.
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(c) on the basis of the average of the last reported
bid and asked prices of the Common Stock in the over-the-counter-market, as
reported by the National Quotation Bureau, on September 7, 1999.
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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 or dates as the Securities and Exchange Commission,
acting pursuant to said Section 8(a), may determine.
Disclosure alternative used (check one): Alternative 1 Alternative 2 X
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PROSPECTUS
NETWORD, INC.
Common Stock
6,784,733 shares
This prospectus is being used in connection with the offer and sale, from
time to time, by certain of our stockholders of up to:
o 3,184,733 shares of our common stock issuable upon the exercise of
outstanding redeemable warrants which we issued in exchange for
interests in our predecessor
o 1,600,000 shares of our common stock issuable upon the exercise of
outstanding redeemable warrants which we sold outside of the United
States in an offering pursuant to Rule 903 of Regulation S under
the Securities Act
o 2,000,000 shares of our common stock which we sold in the
Regulation S offering
The selling stockholders may sell shares either directly to purchasers or
through brokers, dealers or agents. We will receive no proceeds from the sale of
shares by the selling stockholders, although we may receive up to $5,980,916.25
from the exercise of the outstanding warrants prior to or in connection with the
resale of the underlying shares. See "Selling Stockholders" and "Plan of
Distribution" on pages 14 and 19.
Shares of our common stock are traded in the over-the-counter-market,
through the NQB Pink Sheets under the symbol "NTWD." On September 7, 1999, the
average of the last reported bid and asked prices of our common stock in the
over-the-counter-market, as reported by the National Quotation Bureau, was
$0.875 per share.
Investment in our common stock involves substantial risks. See "Risk
Factors" beginning on page 3.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
The 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 or foreign jurisdiction where the offer or sale is not
permitted.
The date of this prospectus is September 10, 1999
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TABLE OF CONTENTS
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Page No.
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The Company ........................................................................................................2
Risk Factors .......................................................................................................3
We have a limited operating history and our business model is still developing, which makes it more
difficult for you to evaluate our company and its prospects. We do not know when or if we will
become profitable....................................................................................3
We may need to raise additional financing to support our business. .......................................3
Additional financing could result in the dilution of equity interests of
current stockholders. ...............................................................................3
The growth of our business is dependent, in part, upon the growth
and performance of the Internet. ...................................................................3
Internet users and commercial Web resource owners may not use Networds. ..................................4
We may not be able to adequately protect the benefits of our patent or our
other intellectual property rights. ................................................................4
We are already engaged in important patent litigation......................................................4
We are subject to substantial and vigorous competition. ..................................................4
We may be unable to achieve our operating and financial objectives if we cannot manage our anticipated
growth effectively. ...............................................................................5
We may not be able to keep up with rapid changes in technology as
necessary to maintain a proprietary technological advantage.........................................5
Malfunctions and errors could cause a disruption of the Netword System.....................................5
Regulatory and legal uncertainties relating to the Internet could have
significant costs to us or otherwise harm our business. ...........................................5
The risks posed by the Year 2000 problem could adversely affect our business...............................6
Shares of our common stock are subject to dilution upon the exercise of outstanding
warrants, options and convertible notes.............................................................6
The substantial number of shares that will be eligible for sale in the future may
adversely effect the market price of our common stock...............................................6
We do not foresee paying dividends on our shares. .........................................................6
There is a limited trading market for shares of our common stock and the price
for shares of our common stock is subject to fluctuation............................................6
Our directors may issue preferred stock without any vote or action of the stockholders.....................7
Trades in our common stock may become subject to the "penny stock"
regulations which could limit market liquidity of our common stock..................................7
This prospectus includes forward-looking statements which could differ
from actual future results..........................................................................7
Our Business and Property.......................................................................................... 8
Selling Stockholders................................................................................................14
Plan of Distribution................................................................................................19
Use of Proceeds.....................................................................................................20
Directors, Executive Officers and Significant Employees.............................................................21
Remuneration of Directors and Officers..............................................................................23
Security Ownership of Management and Certain Security Holders.......................................................25
Interest of Management and Others in Certain Transactions...........................................................27
Securities Being Offered............................................................................................28
Description of Securities...........................................................................................28
Significant Parties.................................................................................................31
Legal Proceedings ..................................................................................................32
Disclosure of Commission Position on Indemnification for Securities Acts Liabilities................................32
Legal Matters.......................................................................................................33
Experts.............................................................................................................33
Where You Can Find Additional Information...........................................................................33
Index to Financial Statements......................................................................................F-1
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THE COMPANY
Netword, Inc. owns and operates the Netword System, a patented Internet
utility which offers a simple, consumer-friendly way to reach any destination
on the Internet. The Netword System is a computerized technology that enables
Internet users and owners of Internet resources, such as Web pages, alphanumeric
pagers, files to transfer and e-mail addresses, to create simple and memorable
words, phrases, numbers or other sequences of characters, called "Networds,"
which are used as Internet keywords to identify and access these resources in
place of more complex Internet addresses known as universal resource locators or
URLs. Networds may include familiar product or service names or slogans without
the ".com" or other required URL prefixes or suffixes. Using Networds
facilitates direct access to specific Internet resources without a browser
search or the need to navigate through a complex structure of intermediate Web
resources. Unlike limited keyword systems within the infrastructure of a
proprietary network, such as America-On-Line's keyword system, or "bookmarks"
generated by Internet users on their own computers, Networds are universal and
may be used from any computer linked to the Internet.
Access to Internet resources through the Netword System is available to
all Internet users without charge. After logging on to the Internet, a user
merely enters an existing Netword, like "NYYankees" or "SesameStreet," in any
Netword-enabled browser or slot, and is instantly transferred to the Internet
address corresponding to the Netword. Networds can be created and edited online
to correspond not merely to the top level Internet domain names (ending in the
standard suffixes .com, .net, .edu or .gov and officially registered for the
Internet by Network Solutions, Inc. and others), but also to specific subdomains
within any Web site. As an example, the Web address www.cnn.com/food corresponds
to the Netword cnnfood. As the Internet is currently administered, creation of a
separate registered domain name for any Internet resource is time consuming and
difficult to manage. The available naming structure has a limited character set
and frequently results in URLs containing complex non-memorable sequences of
characters. By contrast, a user friendly Netword corresponding to any Internet
address can be created virtually instantaneously. What is more, once a Netword
is created, it can be edited or directed to a new Internet address in seconds.
If a Netword like "Jake's Current Special" were created, then, by virtue of the
Netword System's easy access and online editing capabilities, the eponymous Jake
could use that Netword each day (or each hour) to refer to a different address
within his Web site (for example, an address featuring a product or service that
was being offered at a discount for a limited time).
We like to say that URLs are a way for machines to communicate with
other machines, while Networds are a way for people to communicate with other
people. Indeed, Networds and the Netword System are meant to make it easier for
people to navigate the "Net." It is our policy to allow every Internet user to
create "FREE Networds" for non-commercial purposes and to make all FREE Networds
instantly available to all Internet users. Our business model is to promote the
convenience of FREE Networds as a means to multiply the number of consumers
employing the Netword System, achieve a critical mass of consumers representing
a vast potential market, and then to promote the availability of this market to
attract commercial Web resource owners willing to pay appropriate fees for the
rights to register Networds. Revenues from the Netword System are expected to be
derived principally from registration of specific Networds by commercial Web
resource owners, payments by these owners for hits on their sites, sales of
banner ads and other advertising on our Web site, and expanded service offerings
to users of FREE Networds.
While we introduced an early version of the current Netword System on
the Internet in May 1997, our operation of the Netword System is still in the
development stage, and we have not generated significant revenues to date.
Consistent with our business model, we are in the process of implementing a
marketing program to familiarize large audiences of Internet users with the
Netword System and encourage owners of commercial Web resources to register and
promote Networds to attract more visitors to their sites.
Our principal offices are located at 702 Russell Avenue, Third Floor,
Gaithersburg, Maryland 20877. Our telephone number is 1-800-NETWORD.
References herein to "we", "us" and "Netword" include Netword, Inc. and
our predecessors, unless the context otherwise requires.
The information on our Web site, www.netword.com , is not part of this
prospectus.
Netword is a registered trademark. This prospectus also contains trademarks
and trade names of other companies.
2
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RISK FACTORS
Investing in our common stock involves substantial risk. You should
carefully consider the risks described below and the other information in this
prospectus, including our financial statements and the related notes, before you
purchase any of our common stock. The risks and uncertainties described below
are not the only ones we face. Additional risks and uncertainties, including
those that we do not know about now or that we currently deem immaterial, may
also adversely affect our business. Shares of our common stock should not be
purchased by persons who cannot afford the loss of their entire investment.
We have a limited operating history and our business model is still developing,
which makes it more difficult for you to evaluate our company and its prospects.
We do not know when or if we will become profitable.
We have a limited operating history, limited revenues and are still in
the development stage of our business. Potential investors should be aware of
the difficulties, delays and expenses normally encountered by an enterprise in
its development stage, including, marketing costs, competition and unanticipated
costs and expenses, such as litigation. Many of these factors are unpredictable
and beyond our control. Our business model is still new and developing and there
are no assurances that it will materialize or prove successful. We are in the
process of implementing a marketing program to increase our user and customer
bases and plan to devote a substantial portion of our available resources
towards this effort. However, we cannot be sure that this effort will result in
the increased use and registration of Networds. Accordingly, the revenue and
income potential of our business is difficult to predict. In light of the
developing nature of our business and our marketing plans, we expect to continue
to sustain substantial operating expenses without generating significant
revenues for the foreseeable future. From December 2, 1996 through June 30,
1999, we incurred cumulative net losses of $3,536,469.
We may need to raise additional financing to support our business.
Since December 2, 1996, the date when our predecessor company, Netword
LLC, was formed, we have obtained financing through a series of private
offerings of our equity which have raised a total of $6,302,528. We believe that
the remaining available proceeds of these offerings (approximately $3,400,000)
will provide us with working capital sufficient to achieve our proposed short
term business objectives and to implement our marketing strategies. See "Our
Business and Property" - "Marketing Strategy" on page 10. However, our views as
to the adequacy of our working capital cannot give rise to an assumption that
our cost estimates are accurate or that such capital will be sufficient for our
needs. We have no continuing source of financing currently available, and there
is no assurance that we will receive any proceeds from the sale of shares
pursuant to the exercise of outstanding warrants described in this prospectus.
If we are unable to obtain additional financing on satisfactory terms when it is
required, we may be forced to curtail or cease our operations.
Additional financing could result in the dilution of equity interests of current
stockholders.
If we require additional financing we may raise it through equity
offerings, joint ventures or other collaborative relationships, loans and other
sources. If we choose to raise these additional funds by issuing equity
securities, the percentage ownership of the then current stockholders may be
reduced and the holders of the newly issued equity securities may have rights,
preferences or privileges which are senior to the rights of the then current
stockholders.
The growth of our business is dependent, in part, upon the growth and
performance of the Internet.
The increased use of the Internet for retrieving, sharing and
transferring information among businesses and consumers has only recently begun
to develop. Market acceptance of the Internet is subject to a high level of
uncertainty and is dependent on a number of factors, including:
o the growth in consumer access to and acceptance of new interactive
technologies; and
o the development of technologies that facilitate interactive
communication between organizations and their targeted audiences.
Additionally, issues relating to the commercial use of the Internet,
such as security, reliability, cost, ease of access and quality of service
remain unresolved.
3
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Our success will depend, in part, on the continued growth in and the
resolution of issues affecting Internet usage. If the Internet as either a
commercial or business medium fails to develop or develops more slowly than
expected, the market for the Netword System could be materially adversely
affected.
Furthermore, the recent growth in the use of the Internet has caused
frequent periods of performance degradation, requiring the upgrade of routers
and switches, telecommunications links and other components which form the
infrastructure of the Internet by organizations with links to the Internet. Any
perceived degradation in the performance of the Internet as a whole could
undermine the benefits of the Netword System. The potential utility of the
Netword System is ultimately limited by and reliant upon the speed and
reliability of networks operated by third parties.
Internet users and commercial Web resource owners may not use Networds.
Our ultimate success depends upon our ability to promote and achieve
widespread acceptance and use of Networds by Internet users and the registration
of Networds by commercial Web resource owners. Customer acceptance of the
Netword System will depend upon a number of factors, including its performance,
the extent of competitive products and activity, and our ability to expose
Internet users and commercial Web resource owners to it.
While we plan to devote a substantial portion of our available
resources to increase our user and customer base, we cannot be sure that these
efforts will result in a sufficient amount of increased use of Networds by
Internet users and registrations of Networds by commercial Web resource owners
to make our business a success. While our marketing strategy focuses primarily
on entering into teaming agreements with Web communities and publicizing the
Netword utility online and offline, we have not yet successfully implemented
this strategy. See "Our Business and Property" - "Marketing Strategy."
We may not be able to adequately protect the benefits of our patent or our other
intellectual property rights.
The potential success of the Netword System may depend on our ability
to maintain proprietary rights to our technology. To protect these rights, we
rely primarily upon our patent, and employee and third party confidentiality and
non-disclosure agreements. Although our patent provides protection against
third parties copying the Netword System, it may not preclude third parties from
creating systems similar to the Netword System. As discussed below, we are
currently engaged in patent litigation in which a final adverse decision could
materially limit the protective scope of our patent. There are no assurances
that the steps we have taken will deter unauthorized use of our proprietary
information or that we will be able to afford the high cost of enforcing our
intellectual property rights. We can give no assurances that non-disclosure and
other contractual arrangements to protect our proprietary rights will not be
breached or that we will have adequate remedies for any such breach. Further, we
cannot assure that trade secrets or technology similar to that covered by our
patent will not otherwise become known to or be independently developed by our
competitors.
We are already engaged in important patent litigation.
In March, 1998, Centraal Corporation (now known as RealNames
Corporation) announced a competitive system that includes a number of the
functionalities we believe are protected by our patent. Microsoft Corporation
and Netscape Communications Corporation have also announced keyword products
that may compete, in whole or in part, with the Netword System and may violate
our patent. In July, 1998, we filed a patent infringement suit against
RealNames. On January 8, 1999, RealNames' motion for summary judgment was
granted, dismissing our claims on the ground that RealNames' system did not
infringe our patent, without ruling on the validity of our patent. Our appeal of
this decision is currently pending. An adverse decision on the appeal could
materially limit the protective scope of our patent. See "Legal Proceedings" on
page 32.
We are subject to substantial and vigorous competition.
The market for our services is relatively new, intensely competitive,
quickly evolving and subject to rapid technological changes. Our competition may
be expected to continue and intensify. At present, Netscape's Communicator
versions 4.5 and higher, Microsoft's Internet Explorer 5.0, and RealNames
Corporation's system include Internet keyword capabilities, which compete in
varying degrees with the Netword System. There are also keyword systems within
the infrastructure of proprietary networks, such as America-On-Line's keyword
system , which enable users of the proprietary network to enter keywords to
access resources within the proprietary network.
4
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Our financial, marketing, research and development resources are
limited, but we need to continue to invest in the development of the Netword
System and the expansion and enhancement of our marketing and customer support
services in order to compete effectively. There are no assurances that we will
have sufficient resources to make the required investments. See "Our Business
and Property" -- "Competition" on page 12.
We may be unable to achieve our operating and financial objectives if we cannot
manage our anticipated growth effectively.
If use and commercial registration of Networds increases, there will be
additional demands on our technical, customer service, sales, marketing and
administrative resources. The strains imposed by these demands are magnified by
the developmental nature of our operations, and we cannot be sure we will
successfully manage our growth.
We may not be able to keep up with rapid changes in technology as necessary to
maintain the utility and competitiveness of the Netword System.
We believe that the technologies underlying the Netword System are
relatively well established and should not be subject to particularly rapid
change. Nevertheless, we are continuously upgrading the Netword System to
accommodate changes in other Internet technologies, and those technologies are
constantly evolving. Our future success depends on our ability to respond
quickly and successfully to technological advances by continuously updating and
developing the Netword System. There are no assurances that we will be able to
foresee and respond to such technological advances. Further, our competitors may
have developed or succeed in developing technologies, products or services
superior to ours.
Malfunctions and errors could cause a disruption of the Netword System.
The Netword System is subject to risks associated with systems errors
and malfunctions, viruses, hackers, human error, fire, natural disaster,
breaches of security, telecommunications failures, sabotage and similar events,
which could result in service interruptions or reduced capacity for Netword
users. Prolonged service interruptions could materially impair our reputation
and the usefulness of the Netword System, with potentially material adverse
impact on our business and prospects.
Regulatory and legal uncertainties relating to the Internet could have
significant costs to us or otherwise harm our business.
There are currently a number of legislative proposals being considered
which may have an impact on our business. Congress has recently passed
legislation regulating certain aspects of the Internet, including copyright
infringement, user privacy, taxation, access charges, liability for third-party
activities, transmission of sexually explicit material and jurisdiction. There
are also a number of legislative and regulatory proposals to regulate the
Internet that are being considered by federal, state, local and foreign
governmental organizations. Areas of potential regulation include libel,
pricing, quality of products and services and intellectual property ownership.
It is uncertain how courts will interpret laws governing the Internet or how
they will apply existing laws regulating property ownership, libel and personal
privacy issues to the Internet. Additionally, the growth and development of the
market for online commerce may prompt calls for more stringent consumer
protection laws, both in the United States and abroad, that may impose
additional burdens on companies conducting business online. Because of these
uncertainties, we can not be certain how new laws governing the Internet or
other existing laws will affect our business.
We may be exposed to liability for trademark infringement. The use of
Networds entails the potential risk of possible infringement of third party
rights. The law regarding liability for contributory trademark infringement or
facilitation of unfair competition on the Internet is still unsettled. Our
published terms and conditions and operating procedures include certain measures
to protect the rights of owners of registered trademarks. These measures
however, may not be enough to shield us from liability in the event of trademark
infringement, dilution or unfair competition by the creator of a Netword.
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The risks posed by the Year 2000 problem could adversely affect our business.
We depend on the availability of the Internet infrastructure to make
the Netword System available to Internet users. Disruptions in the Internet
infrastructure arising from Year 2000 problems could limit Internet users'
ability to use Networds to access Web resources.
In addition, we have no control over the ability of third parties with
which we transact business, including our suppliers and co-location provider, to
adequately address their Year 2000 issues. Although the third parties on whom we
rely have assured us that they are Year 2000 compliant, we have not made any
independent investigation and can not be sure that these parties have adequately
addressed Year 2000 issues.
Shares of our common stock are subject to dilution upon the exercise of
outstanding warrants, options and convertible notes.
To date, we have issued currently outstanding options, warrants and
convertible notes entitling the holders to acquire a total of 10,243,989 shares
of our common stock at prices from $0.16 to $1.50 per share and have agreed to
issue additional warrants covering 336,000 shares of our common stock to
NorthStar Capital Partners LLC upon the election of W. Edward Scheetz to our
board of directors. Issuance of shares upon exercise or conversion of all of
these securities could result in substantial dilution to stockholders. Assuming
the exercise or conversion of all of these securities as to all of the
underlying shares, the underlying shares would constitute approximately 37% of
our outstanding common stock. Stockholders do not have preemptive rights, and
their percentage ownership may be further diluted in the event we issue
additional shares in the future.
The substantial number of shares that will be eligible for sale in the future
may adversely effect the market price of our common stock.
Assuming the current exercise of all outstanding rights to acquire our
common stock (and the exercise of warrants as to all 336,000 underlying shares,
to be issued to NorthStar Capital Partners LLC in the event W. Edward Scheetz is
elected to our board of directors), there would be 28,285,913 shares of common
stock outstanding. 15,501,180 of these shares are or would be "restricted
securities" under the Securities Act that are not covered by this prospectus.
The market price of shares of our common stock could be adversely
affected by future sales of restricted shares by existing stockholders pursuant
to Rule 144 under the Securities Act, or future sales of up to 782,000
restricted shares by existing stockholders pursuant to a registration statement
which we have agreed to file on their behalf.
We cannot make any predictions as to the effect, if any, that market
sales of these or other shares or the availability of these or other shares for
future sale will have on the market price of our common stock prevailing from
time to time.
We do not foresee paying dividends on our shares.
We intend to retain any earnings to finance the expansion of our
business; thus, we do not anticipate paying any cash dividends on our common
stock in the foreseeable future. There can be no assurance that our operations
will result in sufficient revenues to enable us to operate at profitable levels
or to generate positive cash flow. Investors who anticipate the need for
immediate income from dividends should not purchase our shares.
There is a limited trading market for shares of our common stock and the price
for shares of our common stock is subject to fluctuation.
Shares of our common stock are currently traded in the
over-the-counter-market through quotation in the NQB Pink Sheets. Quotation of
our common stock began on July 29, 1999. Actual trading volume since that date
has been limited. We plan to seek quotation of our common stock on the National
Association of Securities Dealers Over the Counter Bulletin Board, but there can
be no assurance as to when, if ever, we will complete that process. There can be
no assurance that the
6
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market for our common stock will develop or will provide enough liquidity to
enable investors to dispose of any shares offered by this prospectus.
The marketplace will determine present and future prices for the common
stock and such prices may be influenced by many factors, including:
o the limited liquidity of the market for our common stock;
o our financial results;
o the offering of competitive services;
o investors' perceptions of us; and
o general economic, industry and market conditions.
The stock markets have experienced extreme price and volume
fluctuations that have particularly affected the market prices of equity
securities of many Internet-related technology companies and that have often
been unrelated or disproportionate to the operating performance of such
companies. The trading prices of a number of Internet technology companies'
stocks are or recently have been at or near historical highs. There can be no
assurance the trading prices of any Internet-related company, including ours,
will be sustained.
Our directors may issue preferred stock without any vote or action of the
stockholders.
Our board of directors has the authority to issue up to 10,000 shares
of preferred stock and to determine the price, rights, preferences, privileges
and restrictions, including voting rights, of those shares without any vote or
action by the stockholders. The rights of the holders of our common stock may be
adversely affected by the rights of the holders of any preferred stock that may
be issued in the future.
Trades in our common stock may become subject to the "penny stock" regulations
which could limit market liquidity of our common stock.
Trades in our common stock are not currently subject to the "penny
stock" regulations, but they may become subject to such regulations in the
future. The regulations require additional disclosure by brokers and dealers in
connection with trades and, if applicable, could further limit market liquidity
of our shares.
This prospectus includes forward-looking statements which could differ from
actual future results.
Some of the statements in this prospectus that are not historical facts
are "forward-looking statements". Forward-looking statements can be identified
by the use of words such as "estimates," "projects," "anticipates," "expects,"
"intends," "believes" or the negative thereof or other variations thereon or by
discussions of strategy that involve risks and uncertainties. We caution you
that all the forward-looking statements contained in this prospectus are only
estimates and predictions. Our actual results could differ materially from those
anticipated in the forward-looking statements due to risks, uncertainties or
actual events differing from the assumptions underlying these statements. Such
risks, uncertainties and assumptions include, but are not limited to, those
discussed in this prospectus.
7
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OUR BUSINESS AND PROPERTY
Overview
We own and operate the Netword System, a patented Internet utility
which offers a simple, consumer-friendly way to reach any destination on the
Internet. The Netword System is a computerized technology that enables Internet
users and owners of Internet resources, such as Web pages, alphanumeric pagers,
files to transfer and e-mail addresses, to create simple and memorable words,
phrases, numbers or other sequences of characters, called "Networds," which are
used as Internet keywords to identify and access these resources in place of
more complex Internet addresses known as universal resource locators or URLs.
Networds may include familiar product or service names or slogans without the
".com" or other required URL prefixes or suffixes. Using Networds facilitates
direct access to specific Internet resources without a browser search or the
need to navigate through a complex structure of intermediate Web resources.
Unlike limited keyword systems within the infrastructure of a proprietary
network, such as America-On-Line's keyword system, or "bookmarks" generated by
Internet users on their own computers, Networds are universal and may be used
from any computer linked to the Internet.
Access to Internet resources through the Netword System is available to
all Internet users without charge. After logging on to the Internet, a user
merely enters an existing Netword, like "NYYankees" or "SesameStreet," in any
Netword-enabled browser or slot and is instantly transferred to the Internet
address corresponding to the Netword. If the entry is not an existing Netword,
the Netword System offers the user a variety of default options which may
include the use of search engines to seek out URLs employing the entered term
and the opportunity to create a Netword for the desired site. A user may enter
Networds at the user's own Netword-enabled browser, our Web site at netword.com,
Netword slots at sites belonging to other entities operating under arrangements
with us, or a Netword-enabled slot on the user's home page. A user can enable a
browser or homepage to use Networds by installing our software agent, which is
available as a free one-minute download from our own Web site. As soon as the
download is completed, the user can access any Web site for which a Netword
exists (or for which the user creates a FREE Netword) merely by entering the
Netword in the user's own browser.
To date, our promotional and marketing strategy has focused on
establishing teaming agreements with Web communities, through which Internet
users are informed about Networds and provided with the ability to use and
create "FREE Networds." We believe that as more Internet users access Web
resources with Networds, commercial Web resource owners will register Networds
to attract users to their sites. See "Marketing Strategy" below.
Revenues from the Netword System are expected to be derived principally
from registration of specific Networds by commercial Web resource owners,
payments by these owners for hits on their sites, sales of banner ads and other
advertising on our Web site and expanded service offerings to users of FREE
Networds.
An early version of the Netword System was introduced on the Internet
in May, 1997 and we have continued to improve the system since then. Until
recently, however, we lacked the resources to market it extensively. We have
used the proceeds of recent financings to initiate a broader marketing effort
described in detail below. Nevertheless, we continue to be a development stage
business. Our ability to generate revenues sufficient to sustain the Netword
System and to achieve profitability will probably depend initially upon the
outcome of our expanded marketing efforts.
History
Netword Inc. is a Delaware corporation which was formed on February 18,
1999. Immediately following its formation, it acquired by merger all of the
assets and business of Netword LLC, a Delaware limited liability company which
owned and operated the Netword System. The sole purpose of the merger was to
reorganize Netword LLC as a corporation.
Netword LLC was formed in December, 1996 when it acquired the assets of
Birdshell Corporation, L.L.C. which comprised various computer programs and
systems that were key elements of the Netword System as it then existed.
Birdshell was formed in April, 1995, to develop and market the concept that
became the Netword System.
8
<PAGE>
Industry Background
The Internet's emergence as a global medium for communications and
commerce is a reality. According to reports published by International Data
Corporation ("IDC"), commerce conducted over the Web will exceed $1 trillion by
2003 and the number of users who make purchases over the Web will increase from
31,000,000 in 1998 to more than 183,000,000 in 2003. Forrester Research, Inc.
estimates that online advertising will reach $33 billion by 2004.
In the last several years, there has been an outpouring of new
enterprises that focus solely on distributing products and services over the
Internet. More recently, mainstream businesses have begun to implement Web-based
marketing programs to complement traditional business models and applications.
The Netword Opportunity And Solution
We expect the increased use of the Internet by businesses and
individuals to create a heightened demand for quick, easy and direct access to
Web resources. The proliferation of complex URLs is an obstacle to satisfaction
of this demand. The protocol currently governing the registration of Internet
domain names requires the inclusion of .com or another suffix in every URL that
identifies a top level Internet domain. Creating a separate top level domain
name for every resource is theoretically possible but does not currently appear
to be practicable because of time and structural constraints in the existing
protocols under which the Internet is administered and the systems through which
the Internet operates. Below the level of registered URLs, the density and
diversity of information available on many Web sites and the methods of indexing
and accessing this information within these sites lead to the denomination of
various levels and sublevels of identification, which can result in URLs
characterized by multiple words or characters or combinations of words or
characters separated by reverse slashes. As these URLs become increasingly
lengthy and complex, they become increasingly difficult to remember and, when
identified or remembered, are subject to greater risk of faulty entry. It seems
obvious that commercial Web resource owners can benefit from systems which
simplify the names by which their customers can identify and access those
resources. We believe the Netword System offers an efficient and affordable
solution. Using the Netword System, commercial Web resource owners can identify
each of their resources by selecting a corresponding Netword which may be a
familiar product or service name or slogan that is easy to remember. The entry
of the designated Netword will provide direct access to the resource.
Creating Networds
Creating Networds. A Netword for any URL may be created or edited at
our Web site at any time by following a simple on-line procedure. FREE Networds
may be created without charge. "Registered Networds" may be created by opening
an account with us and following a registration procedure described at our Web
site (www.netword.com). A FREE Netword may, however, be bumped or displaced by a
registered Netword. Networds can be created for both commercial and
non-commercial purposes.
The procedure for creating a Netword is as follows:
o The user enters the proposed word, phrase or number into our
database by following simple online instructions at our Web site.
o If the proposed word, phrase or number is not available, either
because of trademark restrictions or prior use for another URL, the
Netword System immediately reports the conflict and offers the user
the option to propose an alternative.
o The creation of the new Netword is confirmed to the user in its
browser and by e-mail and becomes instantly available to all other
users.
o The user who created a Netword can revisit our Web site to edit or
change the Netword online at any time.
Our terms and conditions are printed in full on our Web site and
explain, among other things, that Networds are registered on a priority basis to
countries, government agencies, established companies, public figures, and
registered holders
9
<PAGE>
of trademarks, service marks, and other similar intellectual property rights.
Subject to these priorities, Networds are registered to owners on a first-come,
first-served basis.
To support our policy of protecting registered trademarks and trade
names, before a Netword is created we conduct a rapid online search of the U.S.
Patent and Trademark Office files to determine if use of the proposed Netword
will conflict with a federally registered trademark or tradename. We do not
conduct any other independent investigation (such as an investigation of
registered corporate or other business names or state trademark or tradename
filings) to seek out potentially conflicting rights to the use of a proposed
Netword.
Registration of Networds
Registration of Networds. Owners of Web resources can register a
Netword for any of their sites for a fee of $30 per year or $5.00 per month.
Volume discounts are available. Branch Networds or subcategories of Networds
(for example, a name like cnnfood as opposed to www.cnn.com/food) can be
registered for $1 per Netword per month. Registrants agree to pay us $.01 per
Netword-generated hit on each Web site in excess of 10,000 hits per month.
Registered "Personal Networds" which are preceded by an asterisk are also
available to users for $1 per Netword per month. Networds can be registered by
commercial Web resource owners on a first-come first-served basis, subject to
our standard terms and conditions.
Revenues, Extent of Netword Use and Expenditures
As of July 31, 1999, sources of revenues were derived exclusively from
Netword registrations at rates of $1,000 to $2,000 per month.
As of July 31, 1999, approximately 240,000 Networds were available on
the Netword System. Specifically:
o Approximately 1,000 commercial Web resource owners, including
approximately 40 Fortune 1,000 companies, had registered
approximately 12,000 Networds.
o We had placed approximately 55,000 familiar Networds in our
database. These Networds provide links to 5,000 of the largest U.S.
businesses, 2,000 TV and radio stations, 700 mainstream
publications, 500 manufactured products, 150 government sites, 200
movie and TV programs and 125 sports teams. We receive no payment
for the creation or use of these Networds.
o Internet users had created more than 170,000 FREE Networds.
Over the two fiscal years ended December 31, 1998, we had spent
approximately $746,000 for research and development.
Marketing Strategy
Except for severable favorable articles written about us and the
Netword System, and publicity generated under a teaming agreement with
GeoCities, Inc. prior to GeoCities' acquisition by Yahoo! Inc. in June, 1999,
the Netword System has not been generally publicized. It is our policy to allow
every Internet user to create "FREE Networds" for non-commercial purposes and
to make all FREE Networds instantly available to all Internet users. Our
business model is to promote the convenience of FREE Networds as a means to
multiply the number of consumers employing the Netword System, achieve a
critical mass of consumers representing a vast potential market, and then to
promote the availability of this market to attract commercial Web resource
owners willing to pay appropriate fees for the rights to register Networds.
To implement this strategy, we have begun and intend to continue to
expose the Netword System to consumers through programs that:
o promote and give access to the Netword System on community sites
under teaming agreements with community sponsors;
o advertise the Netword System in more traditional forms of media;
and
10
<PAGE>
o establish alliances with other Internet service providers
(including the owners of search engines and telephone access
facilities), especially those whose facilities can be coupled with
and benefit from providing access to the Netword System.
Additionally, we have created and continue to expand our existing Logo
program. The Logo Program is an initiative to assist not-for-profit
organizations to promote their Networds by displaying on their Web sites the
Netword logo and slots which enable visitors to access our download agent. The
Netword facility installed at each non-profit organization's site includes slots
that permit the entry of Networds. Revenue sharing is not offered as part of
this program. Approximately 100 organizations are currently participating in
this program and have been important factors in driving traffic to our Web site.
From November, 1998 until June, 1999, we had an active teaming
agreement with GeoCities, Inc. pursuant to which GeoCities made available and
communicated to its homesteaders (members who create Web sites on the GeoCities
site) the Netword System and FREE Networds in exchange for certain fees and a
percentage of certain related revenues. This agreement was terminated following
Yahoo!, Inc.'s acquisition of GeoCities in June, 1999. The GeoCities
relationship resulted in more than 2,000,000 hits to our Web site by GeoCities
homesteaders, and they created more than 50,000 FREE Networds which are linked
to their personal GeoCities Web pages. More than 3,000 homesteaders placed our
logo and slot on the personal homepages at their GeoCities Web sites.
The Netword Directory
In July 1999, we introduced the Netword Directory, an on-line facility
at our Web site which organizes all Networds by subject categories. We intend to
offer advertising in this directory as a potential additional source of revenue.
Netword System Components
The Netword System currently runs on our own cluster of five PCs
installed at the McLean Virginia facility of Exodus Communications, Inc., a
tier-1 communications and co-location provider. We also maintain a back-up
cluster of PCs at our Maryland offices. Our current services agreement with
Exodus is for a one-year period, expiring August 23,2000, subject to successive
one year renewals. The cost of this services agreement is $4,830 per month. This
services agreement provides us with round the clock Internet access, manned
security and technical monitoring.
In June, 1999, we purchased additional equipment to facilitate
installation of additional network access points for Internet connections in
North America and Europe to provide additional redundancy and assure effective
administration of traffic.
Most of the non-proprietary components of the hardware and operations
software in the Netword System are generally available from conventional
commercial sources. The custom program software for the Netword System is
written by our senior software engineers and maintained in a version control
database, which is backed up and stored in a secure facility. Although we rely
for programing on our current senior software engineers, we believe we would be
able to find comparable substitute engineers if the need should arise.
We believe that the operation of the Netword System is subject to
minimal security risks. Our PC cluster is accessible only by layered passwords.
If a fire or other major disaster were to destroy our co-location provider's
facility, we believe that we could provide effective substitute service within
24 to 48 hours through the PC cluster at our offices and could return to 100%
capacity with an alternate co-location provider within one to two weeks. If one
of the five PCs in a cluster fails, any of the other four has capacity to serve
as an immediately effective substitute. We have established a firewall which
limits access to the Netword System and helps to insulate it from viruses.
11
<PAGE>
Patent and Other Intellectual Property
On June 9, 1998, we were issued patent No. 5764906 which describes the
Netword System as a Universal Electronic Resource Denotation, Request and
Delivery System that shares information and aliases among owners of Internet Web
sites and other resources and Internet users. A recent decision in pending
litigation relating to the infringement of the patent could materially limit its
protective scope. See "Legal Proceedings" on page 32.
We also own various copyrighted software with special purpose
components not found in any existing off-the-shelf software of which we are
aware.
"Netword" is registered as a trademark with the U.S. Patent and
Trademark Office. On April 30, 1996, we acquired the exclusive rights to the
common law and registered trademarks and trade names "Netword" and "Netword,
Inc." for aggregate payments of $40,600 over seven years.
Competition
The market for Internet services is relatively new, intensely
competitive, quickly evolving and subject to rapid technological changes. The
Netword System already faces significant competition which may be expected to
continue and intensify in the future. Our financial, marketing, research and
development resources are limited, but we need to continue to invest in the
development of the Netword System and the expansion and enhancement of our
marketing and customer support services in order to compete effectively. There
are no assurances that we will have sufficient resources to make the required
investments.
We believe our current competitors fit generally into the following
categories:
o keyword systems which operate through browsers, such as Netscape's
Communicator versions 4.5 and higher and Microsoft's Internet
Explorer 5.0, and RealNames Corporation's keyword system;
o keyword systems within a proprietary network, such as
America-On-Line's keyword system; and
o Internet search engines and directories, such as Yahoo, AltaVista
and Hotbot.
These systems are operated or backed by established companies, which have vastly
greater financial, marketing, research and development resources than ours.
Microsoft, AltaVista and Network Solutions have invested in or entered into
agreements with RealNames Corporation, and RealNames has substantially greater
financial resources than ours. Other established companies may decide to expand
their operations to offer a full range of Internet services which could
potentially include a service such as ours.
Despite this array of competition, we believe we can compete
effectively in our marketplace based upon our quick, efficient, easy-to use
product that is free to Internet users and reasonably priced to owners of
commercial Web resources. Other than RealNames' system, which has many of the
functionalities of the Netword System, we are not aware of any service currently
offered by our competitors which provides the range of functions made available
through the Netword System. In practice, our system is broadly aimed to allow
users to employ Networds across the entire Web. By contrast, we believe that the
RealNames' system is more narrowly focused on the use of keywords in the search
engines of RealNames' search partners. For a description of our patent and other
intellectual property rights which may affect competition, see "Our Business and
Property" - "Patent and Other Intellectual Property." See also "Legal
Proceedings" for a description of pending litigation involving RealNames which
may materially limit the protective scope of our patent rights.
Services currently offered by our principal competitors have certain
comparative limitations:
o America-On-Line's keyword system registers keywords which point
only to content on the America-On-Line network. This system does
not permit Internet users to create their own free America-On-Line
keywords, and owners of commercial content who desire to create
keywords for use within America-On-Line's network are subject to a
limited and expensive registration process.
12
<PAGE>
o Netscape's keyword system, which operates through its Communicator
versions 4.5 and higher, does not permit Internet users or owners
of commercial Web resources to register keywords. The keywords are
created by Netscape and point to NetCenter portal content and other
Web resources.
o Microsoft's Internet Explorer 5.0 browser does not permit Internet
users or owners of commercial Web resources to register keywords.
o The registration of a keyword on RealName's system can be a lengthy
process and costs significantly more than commercial registration
of a Netword. RealNames keyword system does not offer a facility
for Internet users to create free Internet keywords that can point
to any resource.
o Search engines provide multiple responses to a keyword entry and
many of the responses may be unrelated to a user's query.
Government Approvals and Regulation
We are not currently subject to direct federal, state or local
government regulation, other than regulations applicable to businesses
generally. There is only a small body of laws and regulations directly
applicable to access to or commerce on the Internet.
Due to the increasing popularity and use of the Internet, it is likely
a number of additional laws and regulations may be adopted at the federal, state
and local levels with respect to the Internet, covering issues such as
intellectual property rights, user privacy, taxation, access charges,
characteristics and quality of products and services, liability for third-party
activities, transmission of sexually explicit material and jurisdiction. The
adoption of any such laws or regulations might decrease the growth of the
Internet, which in turn could decrease the demand for Networds or increase the
cost of doing business or in some other manner harm our business. In addition,
applicability to the Internet of existing laws governing issues such as
intellectual property, taxation, obscenity and personal privacy is uncertain.
The vast majority of such laws were adopted prior to the advent of the Internet
and related technologies and, as a result, do not contemplate or address the
unique issues of the Internet and related technologies.
In particular, the use of Networds entails the potential risk of
possible infringement of third party rights. The law regarding liability for
contributory trademark infringement or facilitation of unfair competition on the
Internet is still unsettled. Our published terms and conditions and operating
procedures include certain measures to protect the rights of owners of
registered trademarks. These measures however, may not be adequate to shield us
from liability in the event of trademark infringement, dilution or unfair
competition by the creator of a Netword.
Employees
As of August 31, 1999, we had seven full time employees and six
consultants who provided services on an as-needed basis. We believe that our
success will depend in part on our continued ability to attract, hire and retain
qualified personnel. The competition for such personnel is intense and we may
not be able to readily identify, attract and retain such personnel in the
future. We believe that our relationship with our employees is satisfactory. As
of the date hereof, we believe that we have an appropriate mix of employee
skills for our current business needs. None of our employees is represented by a
labor union or retained under an employment contract. All of our employees are
bound by confidentiality agreements.
Description of Property
We do not own real property. Our principal offices located at 702
Russell Avenue, Third Floor, Gaithersburg, Maryland 20877 are leased until
September 2003 and cover approximately 2000 square feet of office space at a
monthly rent of approximately $3,300. We do not consider this leased location to
be material to our operations, and we believe that equally suitable alternative
locations are available.
13
<PAGE>
SELLING STOCKHOLDERS
The following table sets forth, as of September 10, 1999, certain
information regarding stockholders for whom we are registering for resale to the
public an aggregate of 6,784,733 shares of common stock, which include 2,000,000
shares presently outstanding and 4,784,733 shares issuable upon the exercise of
outstanding warrants held by such stockholders. Unless otherwise disclosed in
the footnotes to the table, no selling stockholder has held any position or
office or had any other material relationship with us during the past three
years.
<TABLE>
<CAPTION>
Number of
Shares Offered
Beneficially Owned by for Sale for the Beneficially Owned by
Name of Selling Stockholder Prior to This Account of Stockholder After This
Stockholder (1) Offering (2)(3) Stockholder (3) Offering (2)(4)
- -------------------------------------------------------------------------------------------------------------------------------
Number Percentage Number of Percentage
of Shares of Shares Shares of Shares
---------- ---------- --------- -----------
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Philip S. Abrams (5) 35,952 * 9,456 26,496 *
- -------------------------------------------------------------------------------------------------------------------------------
Laurie Adler 25,968 * 5,933 20,035 *
- -------------------------------------------------------------------------------------------------------------------------------
Alize Limited 1,007,500 5.7% 270,000 737,500 4.1%
- -------------------------------------------------------------------------------------------------------------------------------
Amaranth Resources
Limited 205,000 1.2% 180,000 25,000 *
- -------------------------------------------------------------------------------------------------------------------------------
Richard Anderson 5,191 * 1,365 3,826 *
- -------------------------------------------------------------------------------------------------------------------------------
Keith B. Ballurio 1,833 * 482 1,351 *
- -------------------------------------------------------------------------------------------------------------------------------
Wendy L. Beck 365 * 96 269 *
- -------------------------------------------------------------------------------------------------------------------------------
Vincent H. Bono 15,627 * 4,110 11,517 *
- -------------------------------------------------------------------------------------------------------------------------------
Shepard C. Bostin (6) 402,236 2.2% 6,625 395,611 2.2%
- -------------------------------------------------------------------------------------------------------------------------------
Cheltenham Capital
Enterprises Limited 610,000 3.4% 360,000 250,000 1.4%
- -------------------------------------------------------------------------------------------------------------------------------
John J. Curley 46,652 * 12,270 34,382 *
- -------------------------------------------------------------------------------------------------------------------------------
G. Mark Curry 180,000 1.0% 180,000 0 *
- -------------------------------------------------------------------------------------------------------------------------------
Amy Diamond 167 * 44 123 *
- -------------------------------------------------------------------------------------------------------------------------------
Matthew Edelstein (7) 106,748(16) * 24,390 82,358 *
- -------------------------------------------------------------------------------------------------------------------------------
Estate of Robert Simons 331,193 1.9% 87,108 244,085 1.4%
- -------------------------------------------------------------------------------------------------------------------------------
Falling Brook Investments
Ltd. 307,500 1.7% 270,000 37,500 *
- -------------------------------------------------------------------------------------------------------------------------------
Anitra Feit 90,890 * 20,767 70,123 *
- -------------------------------------------------------------------------------------------------------------------------------
Elliot Feit 90,887 * 20,766 70,121 *
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
Number of
Shares Offered
Beneficially Owned by for Sale for the Beneficially Owned by
Name of Selling Stockholder Prior to This Account of Stockholder After This
Stockholder (1) Offering (2)(3) Stockholder (3) Offering (2)(4)
- -------------------------------------------------------------------------------------------------------------------------------
Number Percentage Number of Percentage
of Shares of Shares Shares of Shares
---------- ---------- --------- -----------
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Jeffrey Feit 25,968 * 5,933 20,035 *
- -------------------------------------------------------------------------------------------------------------------------------
Neal Feit 25,968 * 5,933 20,035 *
- -------------------------------------------------------------------------------------------------------------------------------
Lynn Gettenberg 207,812 1.2% 47,482 160,330 *
- -------------------------------------------------------------------------------------------------------------------------------
John W. Gildea 117,454 * 26,836 90,618 *
- -------------------------------------------------------------------------------------------------------------------------------
Joel H. Golovensky 91,624 * 20,935 70,689 *
- -------------------------------------------------------------------------------------------------------------------------------
Mary Hamlin 7,771 * 2,044 5,727 *
- -------------------------------------------------------------------------------------------------------------------------------
Lucy Hansen 68,160 * 15,951 52,209 *
- -------------------------------------------------------------------------------------------------------------------------------
Ron and Joyce Heller 779,234 4.4% 178,043 601,191 3.4%
- -------------------------------------------------------------------------------------------------------------------------------
Hemery Nominees
Limited 205,000 1.2% 180,000 25,000 *
- -------------------------------------------------------------------------------------------------------------------------------
Murray Horowitz 127,389 * 29,106 98,283 *
- -------------------------------------------------------------------------------------------------------------------------------
Hurlow Partners Inc. 205,000 1.2% 180,000 25,000 *
- -------------------------------------------------------------------------------------------------------------------------------
International Project
Finance Ltd. 102,500 * 90,000 12,500 *
- -------------------------------------------------------------------------------------------------------------------------------
Jesurum (1994) Family
Limited Partnership, Robert
Jesurum and Toby Jesurum,
Trustees 630,212 3.5% 147,484 482,728 2.7%
- -------------------------------------------------------------------------------------------------------------------------------
Kenneth R. Johnsen 246,709 1.4% 56,369 190,340 1.1%
- -------------------------------------------------------------------------------------------------------------------------------
Gladys H. Karanfilian 166,986 * 39,078 127,908 *
- -------------------------------------------------------------------------------------------------------------------------------
James Karanfilian (8) 1,154,798(17) 6.4% 288,269 866,529 4.8%
- -------------------------------------------------------------------------------------------------------------------------------
Jordan Klineman 996,924 5.6% 227,782 769,142 4.3%
- -------------------------------------------------------------------------------------------------------------------------------
Justine Klineman 996,924 5.6% 227,782 769,142 4.3%
- -------------------------------------------------------------------------------------------------------------------------------
Kent M. Klineman (9) 2,581,802 13.3% 249,050 2,332,752 12.0%
- -------------------------------------------------------------------------------------------------------------------------------
Klondike Resources
Inc. 695,372 3.9% 158,882 536,490 3.0%
- -------------------------------------------------------------------------------------------------------------------------------
Lake & Co. 205,000 1.2% 180,000 25,000 *
- -------------------------------------------------------------------------------------------------------------------------------
Alan B. Miller 119,279 * 27,914 91,365 *
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
15
<PAGE>
<TABLE>
<CAPTION>
Number of
Shares Offered
Beneficially Owned by for Sale for the Beneficially Owned by
Name of Selling Stockholder Prior to This Account of Stockholder After This
Stockholder (1) Offering (2)(3) Stockholder (3) Offering (2)(4)
- -------------------------------------------------------------------------------------------------------------------------------
Number Percentage Number of Percentage
of Shares of Shares Shares of Shares
---------- ---------- --------- -----------
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Srinivas Nagaraj 20,235 * 5,322 14,913 *
- -------------------------------------------------------------------------------------------------------------------------------
David S. and Bette
Nagelberg (10) 779,234 4.4% 178,043 601,191 3.4%
- -------------------------------------------------------------------------------------------------------------------------------
Robert C. O'Mara 93,843 * 24,682 69,161 *
- -------------------------------------------------------------------------------------------------------------------------------
Omnitrade Investments
Limited 102,500 * 90,000 12,500 *
- -------------------------------------------------------------------------------------------------------------------------------
Palmerston Investments
Limited 805,000 4.5% 180,000 625,000 3.5%
- -------------------------------------------------------------------------------------------------------------------------------
Anthony and Emily
Pantaleoni (11) 239,940 1.4% 56,151 183,789 1.0%
- -------------------------------------------------------------------------------------------------------------------------------
Ppon Pictet & Cie 717,500 4.0% 630,000 87,500 *
- -------------------------------------------------------------------------------------------------------------------------------
Brian Puckett 6,195 * 1,629 4,566 *
- -------------------------------------------------------------------------------------------------------------------------------
Donald Puckett 167 * 44 123 *
- -------------------------------------------------------------------------------------------------------------------------------
Jerry H. Pyle 119,279 * 27,914 91,365 *
- -------------------------------------------------------------------------------------------------------------------------------
Joseph S. Reiss 519,520 2.9% 118,702 400,818 2.2%
- -------------------------------------------------------------------------------------------------------------------------------
Murray M. Rubin (12) 197,143 1.1% 29,673 167,470 *
- -------------------------------------------------------------------------------------------------------------------------------
Nadine V. Rubin 129,868 * 29,673 100,195 *
- -------------------------------------------------------------------------------------------------------------------------------
Shlomo Segev (13) 150,262 * 16,753 133,509 *
- -------------------------------------------------------------------------------------------------------------------------------
Davinder Sethi 49,648 * 13,058 36,590 *
- -------------------------------------------------------------------------------------------------------------------------------
David Smith 993 * 261 732 *
- -------------------------------------------------------------------------------------------------------------------------------
Smith Vincent & Co.
Ltd. 205,000 1.2% 180,000 25,000 *
- -------------------------------------------------------------------------------------------------------------------------------
Stilwell Holding LLC (14) 535,155 3.0% 122,275 412,880 2.3%
- -------------------------------------------------------------------------------------------------------------------------------
Storage One Inc. 512,500 2.9% 450,000 62,500 *
- -------------------------------------------------------------------------------------------------------------------------------
Ike Suri 17,893 * 4,706 13,187 *
- -------------------------------------------------------------------------------------------------------------------------------
Val D'Sol Holdings 280,000 * 180,000 100,000 *
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
16
<PAGE>
<TABLE>
<CAPTION>
Number of
Shares Offered
Beneficially Owned by for Sale for the Beneficially Owned by
Name of Selling Stockholder Prior to This Account of Stockholder After This
Stockholder (1) Offering (2)(3) Stockholder (3) Offering (2)(4)
- -------------------------------------------------------------------------------------------------------------------------------
Number Percentage Number of Percentage
of Shares of Shares Shares of Shares
---------- ---------- --------- -----------
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Dennis J. and Ann A
Wilkinson 108,352 * 28,498 79,854 *
- -------------------------------------------------------------------------------------------------------------------------------
Batya Wise (15) 1,849,288(18) 10.2% 422,534 1,426,754 7.9%
- -------------------------------------------------------------------------------------------------------------------------------
Daniel Wise 207,812 1.2% 47,482 160,330 *
- -------------------------------------------------------------------------------------------------------------------------------
Gidon Wise 333,756 1.9% 47,482 286,274 1.6%
- -------------------------------------------------------------------------------------------------------------------------------
Marshall M. Wise 117,454 * 26,836 90,618 *
- -------------------------------------------------------------------------------------------------------------------------------
Richard and Ragna Young 114,850 * 30,207 84,643 *
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Less than one percent. Based on 17,705,924 shares outstanding on
September 10, 1999.
(1) The names of additional Selling Stockholders may be provided later
pursuant to Section 424 (c) of the Securities Act.
(2) Under the rules of the Securities and Exchange Commission, a person is
deemed to be the beneficial owner of a security if such person has or
shares the power to vote or direct the voting of such security or the
power to dispose or direct the disposition of such security. A person is
also deemed to be a beneficial owner of any securities if that person has
the right to acquire beneficial ownership within 60 days. Accordingly,
more than one person may be deemed to be a beneficial owner of the same
securities. Unless otherwise indicated by footnote, the named individuals
have sole voting and investment power with respect to the securities
beneficially owned.
(3) Includes shares of common stock held as of the date of this prospectus
and those that are issuable upon the exercise of warrants issued in
connection with our merger with Netword LLC.
(4) Assumes the sale of all shares of common stock offered for sale for the
account of the selling stockholder including shares issuable upon the
exercise of outstanding warrants.
(5) Mr. Abrams served as Vice President, Marketing of Netword LLC from
December 1996 to March 3, 1997.
(6) Mr. Bostin is presently the Chief Operating Officer of Netword Inc. From
August 1997 to February 1999 he served as the Chief Operating Officer of
Netword LLC. From April 1997 to August 1997, he served as Director of
Marketing of Netword LLC.
(7) Mr. Edelstein founded Birdshell Corporation, L.L.C. in April 1995 and
served as President until its assets were acquired by Netword LLC in
December 1996.
(8) Mr. Karanfilian served as a Manager of Netword LLC from December 1996 to
February 1999 and thereafter as a director of Netword Inc. until April
1999. He served as Chairman of Birdshell until it was acquired by Netword
LLC in December 1996.
17
<PAGE>
(9) Mr. Klineman served as a Manager of Netword LLC from December 1996 to
February 1999 and thereafter as a director and officer of Netword Inc.
(10) Mr. and Mrs. Nagelberg hold our common stock and warrants to purchase
common stock as joint tenants.
(11) Mr. Pantaleoni served as counsel to Birdshell prior to its acquisition by
Netword LLC in December 1996.
(12) Mr. Rubin has been Treasurer and Chief Financial and Accounting Officer
of Netword Inc. since September 1999. He has provided accounting and tax
preparation services to us since December 1996.
(13) Mr. Segev served as a software engineer for Netword LLC from December
1996 to February 1998 and for Birdshell prior to December 1996.
(14) Prior to February 1999, the Managing Partner of Stilwell Holding LLC,
K.A. Taipale was a Member of the Board of Managers of Netword LLC.
(15) Ms. Wise is the wife of Michael Wise, the President and Chief Executive
Officer of Netword Inc. Mr. Wise disclaims beneficial ownership of shares
beneficially owned by his wife.
(16) Excludes (a) 85,473 shares of common stock currently outstanding and (b)
30,503 shares of common stock issuable upon exercise of outstanding
warrants held by James Karanfilian. An option to purchase such shares was
granted to Matthew Edelstein in September 1996 at Mr. Karanfilian's
original cost of $256,666 plus 10% annual interest until January 26,
2000.
(17) Includes (a) 85,473 shares of common stock currently outstanding and (b)
30,503 shares of common stock issuable upon exercise of outstanding
warrants held by James Karanfilian. An option to purchase such shares was
granted to Matthew Edelstein in September 1996 at Mr. Karanfilian's
original cost of $256,666 plus 10% annual interest until January 26,
2000.
(18) Includes (a) 89,630 shares of common stock held by Ms. Wise in a
custodial account in her name as custodian for her minor son, David Wise,
and (b) 26,546 shares issuable upon the exercise of warrants also held by
Ms. Wise as custodian for David Wise.
18
<PAGE>
PLAN OF DISTRIBUTION
Stockholders listed in the selling stockholder chart may from time to
time offer and sell 6,784,733 shares of our common stock directly to purchasers.
They may also from time to time offer all or any of the shares through brokers,
dealers or agents. The selling stockholders and/or the purchasers of the shares
may offer discounts, concessions or commissions to participating brokers,
dealers or agents.
The selling stockholders and any brokers, dealers or agents who
participate in the distribution of the shares may be deemed to be
"underwriters". Any profits on the sale of the shares by them and any discounts,
commissions or concessions which they receive may be deemed to be underwriting
discounts and commissions under the Securities Act. If the selling stockholders
are deemed to be underwriters they may be subject to certain statutory
liabilities under the Securities Act, including, but not limited to, Sections
11, 12 and 17 of the Securities Act and Rule 10b-5 under the Securities Exchange
Act.
The selling stockholders may sell the shares from time to time in one
or more transactions at:
o fixed prices;
o prevailing market prices at the time of sale;
o varying prices determined at the time of sale; or
o negotiated prices.
The shares may be sold by one or more of the following methods, without
limitation:
o a block trade in which the broker or dealer so engaged will attempt
to sell the shares as agent but may position and resell a portion
of the block as principal to facilitate the transaction;
o purchase by a broker or dealer as principal and resale by such
broker or dealer for its account pursuant to this prospectus;
o ordinary brokerage transactions and transactions in which a broker
solicits purchasers; o face-to-face transactions between sellers
and purchasers without a broker-dealer; and o the writing of
options.
In addition, subject to applicable state and foreign laws, the selling
stockholders may sell their shares outside the United States pursuant to Rules
903 and 904 of Regulation S, in private transactions or under Rule 144, rather
than pursuant to this prospectus.
To the best of our knowledge, there are currently no plans,
arrangements or understandings between any of the selling stockholders and any
broker, dealer, agent or underwriter regarding the sale of shares by the selling
stockholders. There is no assurance that any selling stockholder will sell any
or all of the shares offered by it pursuant to this prospectus or that any
selling stockholder will not transfer, devise or donate such shares by means not
described in this prospectus.
The selling stockholders and any other person participating in the
offering will be subject to applicable provisions of the Securities Exchange Act
and the rules and regulations thereunder, including Regulation M, which may
limit the timing of purchases and sales. These restrictions may affect the
marketability of the shares and the ability of any person to engage in
market-making activities with respect to the shares.
We have entered into an indemnification agreement with the selling
stockholders which provides that we and each selling stockholder will be
indemnified by the other against certain liabilities, including certain
liabilities under the Securities Act, or will be entitled to contribution in
connection therewith.
19
<PAGE>
We will pay substantially all of the expenses incidental to the
registration, offering and sale of our shares of common stock covered by this
prospectus, except expenses for commissions, fees and discounts of underwriters,
brokers, dealers and agents.
As used in this prospectus, reference to a selling stockholder includes
its pledgees who sell shares of our common stock received from the selling
stockholder after the date of this prospectus.
We will make copies of this prospectus available to the selling
stockholders. At or prior to the time of any sale of shares by a selling
stockholder pursuant to this prospectus, the selling stockholder must deliver a
copy of this prospectus to the purchaser.
USE OF PROCEEDS
We will receive no proceeds from the sale of shares by selling
stockholders.
We will receive $1.25 per share from any exercise of outstanding
warrants to purchase an aggregate of 4,784,733 shares which may be resold
pursuant to this prospectus. If all of these warrants were exercised, we would
receive gross proceeds of $5,980,916.25. There is no assurance that any of the
warrants will be exercised. Any proceeds received by us upon the exercise of the
warrants will be used for general corporate purposes, including working capital
and implementation of our marketing strategy.
20
<PAGE>
DIRECTORS, EXECUTIVE OFFICERS AND SIGNIFICANT EMPLOYEES
Our directors, officers and significant employees1 and certain
biographical information about them are as follows:
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
Michael L. Wise 56 President, Chief Executive Officer, Director
Kent M. Klineman 67 Secretary, Director
W. Edward Scheetz 41 Expected to become a director. *
Shepard C. Bostin 33 Chief Operating Officer, Vice President of Marketing
Murray M. Rubin 56 Chief Financial and Accounting Officer , Treasurer
Thomas Sweeting 36 Senior Software Engineer
Simon Janes 28 Senior Software Engineer
</TABLE>
* Subject to our obtaining directors and officers liability insurance,
Mr. Scheetz has agreed to join our board of directors.
Michael Wise joined Netword LLC in December 1996 as chairman of the
Board of Managers and became its President and Chief Executive Officer in August
1997. Additionally, he is Vice-Chairman of nStor Technologies, Inc. (AMEX: NSO),
a manufacturer of RAID subsystems and information storage solutions for PC-LAN
and Unix. Since 1988, Mr. Wise has been a director (Chairman of the Board from
1992-1997) and officer of nStor. He founded IMNET Systems, Inc. (NASDAQ: IMNT),
an imaging and information solutions systems provider, and served as a director
and officer of that company from 1986-1995. Mr. Wise has a Ph.D. in Theoretical
Physics from Brandeis University.
Kent M. Klineman joined Netword LLC in December 1996 and acts as our
in-house counsel. Since 1994, he has owned and operated Klineman Holding Corp.,
a New York venture capital firm. In 1999, he became the President and Chief
Executive Officer of Hudson Investment Corp. He is also a founder, director and
the secretary of EIS International, Inc. (NASDAQ: EISI), a manufacturer of
computerized telemarketing systems, and a director and a member of the executive
and audit committees of Concord Camera Corp. (NASDAQ:LENS). Mr. Klineman is a
graduate of Dartmouth College and Harvard Law School and holds a masters in
taxation from N.Y.U. Law School's graduate tax program.
W. Edward Scheetz is a founder and is currently Co-Chief Executive
Officer of NorthStar Capital Investment Corp. where he has overseen the
investment of more than $1 billion in real estate assets and operating
companies. Prior to joining NorthStar in July 1997, Mr. Scheetz was a partner of
Apollo Real Estate Advisors from 1993 to 1997 and a principal of Trammell Crow
Ventures from 1989 to 1993. Mr. Scheetz has an A.B. in economics from Princeton
University.
Shepard C. Bostin joined Netword LLC in March 1997 as director of
marketing and became its Chief Operating Officer in August 1997. Prior to
working for us, from March 1995 to March 1997, he was Vice President of Product
Marketing for SelectStar, Inc. From June 1994 to March 1995 he was an employee
of Intersolv, Inc. Mr. Bostin holds a B.S., with honors, in Information and
Decision Systems from Carnegie Mellon University.
- --------
1 "Significant employees" means such persons as production managers, sales
managers or research scientists, who are not executive officers, but who make
or are expected to make significant contributions to our business.
21
<PAGE>
Murray M. Rubin is a certified public accountant and has served as the
Executive Vice President and Chief Financial Officer of Klineman Holding Corp.
and various related companies controlled by Mr. Klineman since 1982. He is a
member of the American Institute of Certified Public Accountants and
Pennsylvania Institute of Certified Public Accountants. Mr. Rubin holds a B.S.
in Business Administration from The Pennsylvania State University and a
Certificate of International Studies from the University of Heidelberg.
Thomas Sweeting joined Netword LLC in March 1997. He oversees the
development of our customer account management and billing software, and our
download agent software. From March 1994 to February 1997 he was an employee of
Highland Technologies, Inc. From 1992 to February 1994 he was an employee of
Intrafed Inc. He received a B.S. in Computer Science from the University of
Maryland.
Simon Janes was employed as a systems administrator by Netword LLC from
January 1997 to August 1997. After an eight month leave to attend George Mason
University, he returned to us in April 1998 as a systems administrator and
software engineer. He manages the development of our query, registration and Web
servers and is responsible for our hardware installation, configuration and
maintenance. From May 1994 to December 1996, he was employed as a systems
administrator for Network and Communications Management. He is a recognized
expert in the Linux operating system and related software, and, in addition to
developing the EQL device driver for Linux, is among fewer than 100 Certified
Linux Administrators in the world.
Directors do not receive a salary for their services as directors or a
fee for attendance in person at meetings of the board of directors. Directors
are reimbursed for travel expenses and other out-of-pocket expenses incurred in
connection with their attendance at meetings.
Executive officers serve at the discretion of our board of directors.
Significant employees serve at the discretion of our executive officers and
board of directors. None of our officers or significant employees have entered
into employment agreements. Accordingly, such employees may leave, and we may
terminate, their employment at any time, with or without cause.
Limitations on liability and indemnification matters.
The Delaware General Corporation Law provides that a company may
indemnify its directors and officers against certain liabilities. Our
certificate of incorporation and bylaws provide for the indemnification of our
directors and officers to the fullest extent permitted by law. The effect of
such provisions is to indemnify our directors and officers against all costs,
expenses and liabilities incurred by them in connection with actions, suits or
proceedings in which they are involved because of their affiliation with us.
22
<PAGE>
REMUNERATION OF DIRECTORS AND OFFICERS
The following chart sets forth the remuneration of our directors and
officers for fiscal year 1998. Footnotes to the chart indicate certain
remuneration of our officers and directors for 1999.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
Name and Principal Position Fiscal Year Salary Other Compensation Options
- --------------------------- ----------- ------ ------------------ -------
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Michael L. Wise 1998 None (1) (1) (3)
President, Chief Executive
Officer, Director
- -------------------------------------------------------------------------------------------------------------------
Kent M. Klineman 1998 None (2) (3)
Secretary, Director
- -------------------------------------------------------------------------------------------------------------------
W. Edward Scheetz 1998 None None. (4)
Expected to become a director.*
- -------------------------------------------------------------------------------------------------------------------
Shepard C. Bostin 1998 $102,000 None. (3)
Chief Operating Officer, Vice
President of Marketing
- -------------------------------------------------------------------------------------------------------------------
Murray M. Rubin 1998 None None. (3)
Chief Financial and Accounting
Officer, Treasurer
- -------------------------------------------------------------------------------------------------------------------
Three highest paid officers and 1998 $102,000 None. (3)
directors as a group.
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
* Subject to our obtaining directors and officers liability insurance,
Mr. Scheetz has agreed to join our board of directors.
(1) From May 1, 1999 through August 31, 1999, we paid Mr. Wise a business
consulting fee of $8,000 per month. As of August 31, 1999, he began
receiving a salary at the same rate.
(2) As of May 1, 1999, we commenced payment to Mr. Klineman of a retainer for
legal services at the monthly rate of $4,000 (to be applied against
charges for Mr. Klineman's services at the rate of $250 per hour).
(3) Michael L. Wise was granted options to purchase (a)1,000 units of Netword,
LLC on September 30, 1997 and (b) 2,331.30 units of Netword, LLC on March
1, 1998. In connection with our merger with Netword LLC in February, 1999,
these options were canceled and Mr. Wise was granted new options to
purchase (a) 824,557 shares of our common stock at an exercise price of
$0.1666 per share and (b) 294,265 shares of our common stock at an
exercise price of $1.25 per share. Each option to purchase common stock at
$0.1666 per share will expire on February 17, 2002. Each option to
purchase common stock at $1.25 per share will expire on February 17, 2004.
Additionally, on March 15, 1999, Mr. Wise was granted options to purchase
825,000 shares of our common stock at an exercise price of $1.25 per
share. These options will expire on February 17, 2004. He received all of
these options in his capacity as a manager, director or officer.
Kent M. Klineman was granted options to purchase (a)1,000 units of
Netword, LLC on September 30, 1997 and (b) 1,804.20 units of Netword, LLC
on March 1, 1998. In connection with our merger with Netword LLC in
February, 1999, these options were canceled and Mr. Klineman was granted
new options to purchase (a) 694,090 shares of our common stock at an
exercise price of $0.1666 per share and (b) 247,705 shares of our common
stock at an exercise price of $1.25 per share. Each option to purchase
common stock at $0.1666 per share will expire on February 17, 2002. Each
option to purchase common stock at $1.25 per share will expire on February
17, 2004. Additionally, on March
23
<PAGE>
15, 1999, Mr. Klineman was granted options to purchase 550,000 shares of
our common stock at an exercise price of $1.25 per share. These options
will expire on February 17, 2004. He received all of these options in his
capacity as a manager or director.
Shepard C. Bostin was granted options to purchase (a) 520.76 units of
Netword, LLC on September 30, 1997 and (b) 590.57 units of Netword, LLC on
March 1, 1998. In connection with our merger with Netword LLC in February,
1999, these options were canceled and Mr. Bostin was granted new options
to purchase (a) 275,074 shares of our common stock at an exercise price of
$0.1666 per share and (b) 98,167 shares of our common stock at an exercise
price of $1.25 per share. Each option to purchase common stock at $0.1666
per share will expire on February 17, 2002. Each option to purchase common
stock at $1.25 per share will expire on February 17, 2004. He received all
of these options in his capacity as an employee.
Murray M. Rubin was granted options to purchase 30 units of Netword, LLC
on March 1, 1998. In connection with our merger with Netword LLC in
February, 1999, these options were canceled and Mr. Rubin was granted new
options to purchase (a) 7,425 shares of our common stock at an exercise
price of $0.1666 per share and (b) 2,650 shares of our common stock at an
exercise price of $1.25 per share. Each option to purchase common stock at
$0.1666 per share will expire on February 17, 2002. Each option to
purchase common stock at $1.25 per share will expire on February 17, 2004.
Additionally, on September 7, 1999, Mr. Rubin was granted options to
purchase 50,000 shares of our common stock at an exercise price of $1.50
per share. These options will expire on September 7, 2001. He received all
of these options in his capacity as a consultant or officer.
(4) We have agreed to issue immediately exercisable warrants, expiring on June
30, 2004, to purchase 336,000 shares of common stock at an exercise price
of $1.50 per share to NorthStar Capital Partners LLC upon Mr. Scheetz's
election to our board of directors. Mr. Scheetz holds a 50% interest in
NorthStar.
24
<PAGE>
SECURITY OWNERSHIP OF MANAGEMENT AND CERTAIN SECURITY HOLDERS
Voting Securities and Principal Holders Thereof .
The following table sets forth certain information as of September 10,
1999 with respect to shares of our common stock held of record by: (a) the three
highest paid persons who are officers, (b) all directors, (c) all directors and
officers as a group, and (d) each person who is not an officer or director who
is known by us to own more than 10% of our outstanding common stock.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Percentage of Percentage of
Name and Amount Owned common stock Amount Owned common stock
address of Before the owned after the after the owned after the
stockholder (1) Offering (2)(3) offering (2)(3) Offering (2)(3)(10) offering (2)(3) (10)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shepard C. 402,236 2.2% 395,611 2.2%
Bostin (4)
- -----------------------------------------------------------------------------------------------------------------------------------
Kent M.
Klineman (5) 2,581,802 13.3% 2,332,752 12.0%
- -----------------------------------------------------------------------------------------------------------------------------------
W. Edward
Scheetz (6) 1,056,000 5.8% 1,056,000 5.8%
- -----------------------------------------------------------------------------------------------------------------------------------
Michael Wise (7) 1,943,822 9.9% 1,943,822 9.9%
- -----------------------------------------------------------------------------------------------------------------------------------
Batya Wise (8) 1,849,288 10.2% 1,426,754 7.9%
- -----------------------------------------------------------------------------------------------------------------------------------
All officers and 6,181,003 27.4% 5,895,655 26.2%
directors as a
group (6)(9)
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) All addresses are in our care at our principal offices.
(2) As of September 10, 1999, there were 17,705,924 shares of common stock
outstanding. The amounts shown for each stockholder include shares
underlying currently exercisable options, warrants and convertible
securities held by the stockholder on that date.
(3) Except as otherwise indicated in a footnote to this chart, each person
named in the table has sole voting and dispositive power with respect to
the shares of common stock held by that person. Except as described in the
following sentence, the shares of common stock of each person named in the
table do not include shares held by that person's spouse or children. The
shares of common stock of Batya Wise include shares held by Ms. Wise as
custodian for David Wise.
(4) Shepard C. Bostin is an officer. His shares include 373,241 shares
underlying currently exercisable options and 6,625 shares underlying
currently exercisable warrants.
(5) Kent M. Klineman is both an officer and a director. His shares include
1,491,795 shares underlying currently exercisable options and 249,050
shares underlying currently exercisable warrants.
(6) W. Edward Scheetz is expected to become a director. His shares include
320,000 shares underlying currently exercisable warrants which are held by
NorthStar Capital Partners LLC, in which Mr. Scheetz has 50% of the voting
25
<PAGE>
power and economic interest, and 336,000 shares underlying warrants which
will be granted to NorthStar upon his election to our board of directors.
(7) Michael Wise is both an officer and a director. His shares consist of
1,943,822 shares underlying currently exercisable options.
(8) Batya Wise owns more than 10% of the outstanding common stock. Her shares
include 89,639 shares which she holds as custodian for her son David Wise,
and an aggregate of 422,534 shares underlying currently exercisable
warrants which she holds either individually or as custodian for David
Wise. She does not hold any options. Ms. Wise is the wife of Michael Wise,
who disclaims beneficial ownership of shares held by his wife.
(9) Includes 3,868,933 shares underlying currently exercisable options and
944,548 shares underlying currently exercisable warrants.
(10) Assumes exercise of outstanding warrants at $1.25 per share and resale of
all shares received upon such exercise.
Options, Warrants and Rights.
The following table sets forth certain information as of September 10,
1999 with respect to options, warrants and rights to purchase shares of common
stock which are held of record by: (a) the three highest paid persons who are
officers, (b) all directors, (c) all directors and officers as a group, and (d)
each person who is not an officer or director who is known by us to own more
than 10% of the outstanding common stock.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
Common stock Common stock
underlying underlying
Name of stockholder warrants (1)(2)(4) Exercise price options (1)(3)(4) Exercise price
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shepard C. Bostin 6,625 $1.25 275,074 $0.1666
98,167 $1.25
- -------------------------------------------------------------------------------------------------------------------------------
Kent M. Klineman 249,050 $1.25 694,090 $0.1666
797,705 $1.25
- -------------------------------------------------------------------------------------------------------------------------------
W. Edward Scheetz (5) 656,000 $1.50 None --
- -------------------------------------------------------------------------------------------------------------------------------
Michael Wise None 824,557 $0.1666
1,119,265 $1.25
- -------------------------------------------------------------------------------------------------------------------------------
Batya Wise (6) 422,534 $1.25 None --
- -------------------------------------------------------------------------------------------------------------------------------
All executive officers and 285,348 $1.25 1,801,146 $0.1666
directors as a group. (5)
659,200 $1.50 2,017,787 $1.25
50,000 $1.50
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) All of the options and warrants are currently exercisable. 656,000
warrants beneficially held by W. Edward Scheetz and 3,200 warrants
beneficially held by Murray M. Rubin, our Chief Financial and Accounting
Officer, are presently or upon issuance will be transferable subject to
the availability of an exemption under the securities laws. None of the
other warrants or options are transferable, except by will or the laws of
descent and distribution.
26
<PAGE>
(2) Warrants to purchase 320,000 shares of our common stock which are
beneficially held by W. Edward Scheetz and warrants to purchase 3,200
shares of our common stock which are beneficially held by Murray M. Rubin,
our Chief Financial and Accounting Officer, expire on June 30, 2004 and
are subject to our prior redemption under certain circumstances. Warrants
to purchase 336,000 shares of our common stock will be issued to NorthStar
Capital Partners LLC upon Mr. Scheetz's election to our board of directors
and will expire on June 30, 2004. All other warrants expire on February
17, 2002 and are subject to our prior redemption under certain
circumstances. See "Description of Securities" on page 28 for the terms
under which a redemption may occur.
(3) All options to purchase shares of common stock for $0.1666 per share
expire on February 17, 2002. All options to purchase shares of common
stock for $1.25 per share expire on February 17, 2004. Options to purchase
shares of common stock for $1.50 per share expire on September 7, 2001.
(4) Shares underlying warrants and options of each person named in the table
exclude shares underlying warrants or options held by the named person's
spouse or children, except that the shares underlying warrants held by
Batya Wise include shares underlying warrants which she holds as custodian
for David Wise.
(5) Mr. Scheetz is expected to become a director. All warrants are held by
NorthStar Capital Partners LLC, in which Mr. Scheetz has 50% of the voting
power and economic interest. The number of warrants includes warrants to
purchase 336,000 shares of our common stock which will be issued to
NorthStar Capital Partners LLC upon Mr. Scheetz's election to our board of
directors.
(6) Batya Wise is the wife of Michael Wise, who disclaims beneficial ownership
of all warrants and shares beneficially owned by his wife.
There are no other classes of common stock and no shares of preferred
stock outstanding. We have no parents or subsidiaries.
INTEREST OF MANAGEMENT AND OTHERS IN CERTAIN TRANSACTIONS
Certain of our officers and directors received options to purchase shares
of our common stock and are currently paid consulting fees. See "Remuneration of
Directors and Officers" on page 23.
27
<PAGE>
SECURITIES BEING OFFERED
Shares of our common stock are the only securities being offered
pursuant to this prospectus.
Each share of our common stock is identical in all respects and
entitles the holder thereof to the same rights and privileges enjoyed by other
holders of shares of common stock and subjects them to the same qualifications,
limitations and restrictions to which all such other holders are subject.
Holders of our common stock are entitled to one vote for each share
held of record on all matters submitted to a vote of the stockholders. Holders
of the common stock do not have cumulative voting rights. Accordingly, subject
to the voting rights that holders of preferred stock may then possess, holders
of a plurality of the shares of common stock present at a meeting at which a
quorum is present are able to elect all of the directors eligible for election
in a given year. The holders of a majority of the voting power of the issued and
outstanding capital stock constitutes a quorum.
The holders of common stock are entitled to dividends when declared by
our board of directors from legally available funds. The holders of common stock
are also entitled to share pro rata in any distribution to stockholders upon our
liquidation or dissolution. We do not anticipate declaring or paying any cash
dividends in the foreseeable future.
None of the shares of common stock:
o have preemptive voting rights;
o are redeemable;
o are liable for assessments or further calls;
o have conversion rights; or
o have sinking fund provisions.
All of the shares of common stock being offered hereby are being
offered for sale from time to time by certain of our stockholders as indicated
on the selling stockholder chart beginning on page 14, or any supplement
thereto.
DESCRIPTION OF SECURITIES
We are authorized to issue 40,000,000 shares of common stock, par value
$.01 per share, and 10,000 shares of preferred stock, par value $.01 per share.
If all of the warrant shares covered by this prospectus are issued, we will have
22,490,657 outstanding shares of common stock, including 1,600,000 shares
issuable upon exercise of all of the Regulation S warrants and 3,184,733 shares
issuable upon exercise of all of the merger warrants. In addition, we have
reserved 5,795,256 shares of our common stock for issuance upon the exercise of
other outstanding warrants (including those to be issued to NorthStar Capital
Partners LLC upon the election of W. Edward Scheetz's to our board of directors)
and options and the conversion of convertible notes. We have also reserved
2,944,137 shares of our common stock for issuance upon exercise of options that
may be granted in the future pursuant to our stock option plan. Assuming the
purchase of shares of common stock underlying all warrants, options and
convertible notes outstanding as of September 10, 1999 and the exercise of the
warrants to be issued to NorthStar Capital Partners LLC upon Mr. Scheetz's
election to our board of directors, 28,285,913 shares of common stock would be
issued and outstanding.
Common Stock
For a description of our common stock, see "Securities Being Offered"
directly preceding this section of the prospectus.
28
<PAGE>
Preferred Stock
We may issue 10,000 shares of preferred stock in one or more series.
Our board of directors may determine the terms of our preferred stock at the
time of its issuance without action by the stockholders. The terms of any
issuance of preferred stock may include:
o voting rights, including the right to vote as a series on
particular matters, which could be superior to those of the shares
of common stock;
o preferences over the shares of common stock as to dividends and
distributions in liquidation;
o conversion and redemption rights, including the right to convert
into shares of common stock; and
o sinking fund provisions.
None of the preferred stock is currently outstanding.
Stock Option Plan
On March 18, 1999, our board of directors and a majority of our
stockholders adopted a stock option plan. Under the stock option plan options to
acquire an aggregate of 7,500,000 shares of common stock may be granted to our
employees, officers, directors and consultants, as well as other persons, at the
discretion of our board of directors. The stock option plan authorizes our board
of directors to issue incentive stock options, as defined in Section 422A(b) of
the Internal Revenue Code, and stock options that do not conform to the
requirements of that code section which are referred to as non-incentive stock
options. Our board of directors has discretionary authority to determine the
types of stock options to be granted, the persons among those eligible to whom
options may be granted, the number of shares to be subject to such options and
the terms thereof. Officers, directors, consultants and other persons who are
not our employees may only be granted non-incentive stock options. The exercise
price of an incentive stock option will be equal to or greater than the fair
market value of the underlying shares of stock as of the date of the grant. The
exercise price of a non-incentive stock option will be determined by our board
of directors at the time the option is granted. The exercise price may be paid
in cash, certified or bank check or by promissory note on terms prescribed by
our board of directors.
Outstanding Options
In connection with our merger with Netword LLC, options to purchase
units of Netword LLC were canceled and each employee, manager and consultant of
Netword LLC who held an option to purchase one unit of Netword LLC was granted
new options under our stock option plan to purchase (a) 247.518331 shares of our
common stock at an exercise price of $0.1666 per share and (b) 88.333682 shares
of our common stock at an exercise price of $1.25 per share. As a result, we
granted new options to purchase a total of 2,284,374 shares of common stock at
an exercise price of $0.1666 per share (of which 43,315 have since been
terminated) and 815,239 shares of common stock at an exercise price of $1.25 per
share (of which 15,458 have since been terminated). Each option to purchase
common stock at $0.1666 per share will expire on February 17, 2002. Each option
to purchase common stock at $1.25 per share will expire on February 17, 2004. In
March and September, 1999, additional options to purchase an aggregate of
1,515,023 shares of our common stock at exercise prices ranging from $1.25 to
$1.50 per share were granted to certain of our directors, officers and
consultants. As of September 10, 1999, none of these options had been exercised.
Outstanding Warrants and Convertible Notes
Merger Warrants. In connection with our merger with Netword LLC, each
holder of units in Netword LLC received in exchange for each unit, (a)
247.518331 shares of our common stock and (b) warrants to purchase 88.333682
shares of our common stock at an exercise price of $1.25 per share. Accordingly,
on February 18, 1999, we issued warrants to acquire a total of 3,184,733 shares
of common stock. Each of those warrants is currently exercisable and expires on
February 17, 2004, subject to our earlier redemption. As of September 10, 1999,
none of these warrants had been exercised. The warrants issued
29
<PAGE>
in the merger are exercisable only by the original holder or a transferee who
received the warrant by will or the laws of descent and distribution.
The exercise price of these warrants and the number of warrant shares
issuable upon their exercise are subject to adjustment in certain circumstances.
These circumstances include a stock split of, stock dividend on, or a
subdivision, combination or recapitalization of, the common stock. The warrants
do not confer upon the holder any voting or any other rights of a stockholder.
We may redeem all or any of the merger warrants, at a price of $0.05
per underlying share, at any time after the first date on which the average of
the closing bid prices for our shares of common stock in any inter-dealer
quotation system on which the common stock has been the subject of both bid and
ask quotations shall have exceeded $2.50 per share on 10 consecutive trading
days. After the date fixed for redemption by written notice delivered to the
warrant holders, the right to exercise the redeemed portion of any warrant will
cease, and the holder will be entitled only to receive payment of the redemption
price for the redeemed portion of the warrant. Upon a holder's surrender of a
warrant, we will deliver to the holder a new warrant of like tenor and date with
respect to any unredeemed portion of the warrant.
Regulation S Warrants. In an offering pursuant to Rule 903 of
Regulation S under the Securities Act, on March 19, 1999, we sold warrants to
purchase 1,600,000 shares of our common stock at $1.25 per share. These warrants
are currently exercisable at $1.25 per share and will expire on February 8,
2000, subject to prior redemption as described below. As of September 10, 1999,
none of the warrants had been exercised.
The exercise price of these warrants and the number of shares issuable
upon their exercise are subject to adjustment in certain circumstances. These
circumstances include a stock split of, stock dividend on, or a subdivision,
combination or recapitalization of, our common stock. The warrants do not confer
upon the holder any voting or any other rights of a stockholder.
Regulation S warrants are exercisable only by the original holder or by
a transferee, provided, that we are satisfied that the transfer was made in any
of the following circumstances:
o The transfer was made to a non-U.S. person who purchased and
received the warrant outside the United States in compliance with
Rule 903 or Rule 904 of Regulation S under the Securities Act; or
o The transfer was made pursuant to an exemption from registration
under the Securities Act and we have received an opinion to that
effect from counsel acceptable to us.
We may redeem all or any of the Regulation S warrants, at a price of
$0.05 per underlying share, at any time after the first date on which the
average of the closing bid prices for our shares of common stock in any
inter-dealer quotation system on which the common stock has been the subject of
both bid and ask quotations shall have exceeded $2.00 per share on 10
consecutive trading days. After the date fixed for redemption by written notice
delivered to the warrant holders, the right to exercise the redeemed portion of
any warrant will cease, and the holder will be entitled only to receive payment
of the redemption price for the redeemed portion of the warrant. Upon a holder's
surrender of a warrant, we will deliver to the holder a new warrant of like
tenor and date with respect to any unredeemed portion of the warrant.
We have filed this registration statement to fulfill our obligation
under the terms of the Reg S offering.
Additional Warrants. We have also privately issued or agreed to issue
warrants to purchase an aggregate of 1,219,393 shares of common stock at
exercise prices ranging from $0.1666 to $1.50 per share. All of these warrants
are outstanding and exercisable on the date hereof, except that warrants to
purchase 336,000 shares at $1.50 per share which we have agreed to issue will be
exercisable upon their issuance.
Convertible Notes. We have issued convertible notes totaling $20,000,
due March 31, 2002, which are convertible into common stock at $1.00 per share.
30
<PAGE>
Transfer Agent and Registrar
Our transfer agent and registrar is Continental Stock Transfer & Trust
Company, located at Two Broadway, New York, New York 10004. Its telephone number
is (212) 509-4000.
Listing
Shares of our common stock are currently quoted in the NQB Pink Sheets
under the trading symbol "NTWD."
SIGNIFICANT PARTIES
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
Name Address Relationship to Netword, Inc.
- ---- ------- -----------------------------
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Shepard C. Bostin c/o Netword, Inc. Chief Operating Officer, Vice
702 Russell Avenue, Third Floor President of Marketing
Gaithersburg, MD 20877
- -------------------------------------------------------------------------------------------------------------------------------
Kent M. Klineman 1270 Avenue of the Americas Secretary, Director, beneficial owner
Suite 1800 of more than 5% of our common
New York, NY 10020 stock.
- -------------------------------------------------------------------------------------------------------------------------------
Murray M. Rubin c/o Netword, Inc. Chief Financial and Accounting
702 Russell Avenue, Third Floor Officer, Treasurer
Gaithersburg, MD 20877
- -------------------------------------------------------------------------------------------------------------------------------
W. Edward Scheetz c/o NorthStar Capital Investment Expected to become a director. Upon
Group his election to our board of directors,
527 Madison Avenue he will become a beneficial owner of
16th Floor more than 5% of our common stock.
New York, New York 10022
- -------------------------------------------------------------------------------------------------------------------------------
Michael Wise c/o Netword, Inc. President, Chief Executive Officer,
702 Russell Avenue, Third Floor Director, beneficial owner of more
Gaithersburg, MD 20877 than 5% of our common stock.
- -------------------------------------------------------------------------------------------------------------------------------
Batya Wise c/o Netword, Inc. Beneficial owner of more than 5% of
702 Russell Avenue, Third Floor our common stock.
Gaithersburg, MD 20877
- -------------------------------------------------------------------------------------------------------------------------------
Alize Limited P.O. Box 175 Beneficial owner of more than 5% of
Frances House our common stock.
Sir William Place
St. Peter Port
Guernsey, Channel Islands
GY1 4HQ
- -------------------------------------------------------------------------------------------------------------------------------
James Karanfilian 235 South Dwight Place Beneficial owner of more than 5% of
Englewood, NJ 07631 our common stock.
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
31
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
Name Address Relationship to Netword, Inc.
- ---- ------- -----------------------------
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Jordan Klineman 1270 Avenue of the Americas, Beneficial owner of more than 5% of
Suite 1800 our common stock.
New York, NY 10020
- ----------------------------------------------------------------------------------------------------------------------------
Justine Klineman 1270 Avenue of the Americas, Beneficial owner of more than 5% of
Suite 1800 our common stock.
New York, NY 10020
- ----------------------------------------------------------------------------------------------------------------------------
NorthStar Capital Partners LLC 527 Madison Avenue Upon the election of W. Edward
16th Floor Scheetz to our board of directors,
New York, New York 10022 NorthStar Capital Partners LLC will
become a beneficial owner of more
than 5% of our common stock.
- ----------------------------------------------------------------------------------------------------------------------------
Kronish Lieb Weiner & Hellman LLP 1114 Avenue of the Americas Counsel to Netword, Inc. in
New York, New York 10036 connection with this registration
statement.
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
LEGAL PROCEEDINGS
In July, 1998, we filed a patent infringement suit against Centraal
Corporation (now known as RealNames Corporation) in the U.S. District Court for
the Eastern District of Virginia, alleging that its RealName system includes a
number of the functionalities protected by our patent. We sought an injunction
and damages. After discovery, each party moved for summary judgement. On January
8, 1999, the court granted RealNames' motion for summary judgment, holding that
the RealName system did not infringe our patent, without ruling on the validity
of our patent. On February 11, 1999, we filed notice of appeal of the decision,
and on April 30, 1999, we filed our appellate brief with the United States Court
of Appeals for the Federal Circuit. We anticipate that the appeal will be argued
before the Court of Appeals prior to December 31, 1999. If the decision is
upheld on appeal, it could materially limit the protective scope of our patent.
In August 1997, eight of our former employees, including the former
chief executive officer, resigned and made claims against Netword LLC. Claims by
four of those former employees have since been settled. In June, 1998, one of
the former employees instituted an action against Netword LLC and its managers
in the Circuit Court of Arlington, Virginia seeking to recover $69,281 for,
among other things, the dilution of his interest in Netword LLC and the
repayment of the funded portion of his subscription to a loan made by members to
Netword LLC. We are defending that action, which is currently inactive. We do
not believe that our financial exposure with respect to the pending action or
claims of these former employees is material.
DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION FOR SECURITIES ACT
LIABILITIES
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to our directors, officers and controlling persons pursuant
to the foregoing provisions, or otherwise, we have been advised that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. If a claim for indemnification against such liabilities (other
than the payment by us of expenses incurred or paid by a director, officer or
controlling person in the successful defense of any action, suit or proceeding)
is asserted by any director, officer or controlling person in connection with
the securities being registered, we will, unless in the opinion of our counsel
the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by us is
against public policy as expressed in the Securities Act. We will be governed by
the final adjudication of such issue.
32
<PAGE>
LEGAL MATTERS
The legality of the securities offered hereby has been passed upon for
us by Kronish Lieb Weiner & Hellman LLP, 1114 Avenue of the Americas, New York,
New York 10036-7798. Kronish Lieb Weiner & Hellman LLP holds our $20,000
promissory note due March 31, 2002, convertible into shares of our common stock
at $1.00 per share.
EXPERTS
Our financial statements at December 31, 1998 and for the years ended
December 31, 1997 and 1998, appearing in this prospectus and the registration
statement, have been audited by Mahoney Cohen & Company, CPA, P.C. , independent
auditors, as indicated in their report with respect thereto, and are included
herein in reliance upon the authority of said firm as experts in accounting and
auditing in giving said report.
WHERE YOU CAN FIND ADDITIONAL INFORMATION
This prospectus is part of a registration statement on Form SB-1 under
the Securities Act that we filed with the Securities and Exchange Commission
with respect to the securities offered by this prospectus. This prospectus does
not contain all of the information set forth in the registration statement and
the exhibits and schedule filed with it. For further information about us and
the securities offered by this prospectus, reference is made to the registration
statement and the exhibits and schedule filed with it. 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 1024, 450 Fifth
Street, N.W., Washington, D.C. 20549, and at the Commission's regional offices
located at the 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
obtained from such offices upon the payment of the fees prescribed by the
Commission. Please call the Commission at 1-800-SEC-0330 for further information
about its public reference room. The Commission maintains a World Wide Web site
that contains reports, proxy and information statements and other information
regarding registrants, including us, that file electronically with the
Commission. The address of the site is http://www.sec.gov. Our registration
statement and the exhibits and schedules we filed electronically with the
Commission are available on this site.
33
<PAGE>
NETWORD, INC.
(Formerly Netword, LLC)
(A Development Stage Company)
Financial Statements
December 31, 1998
<PAGE>
NETWORD, INC.
(Formerly Netword, LLC)
(A Development Stage Company)
Index
Page
----
Independent Auditor's Report F-1
Balance Sheets as of December 31, 1998 and June 30, 1999
(Unaudited) F-2
Statements of Operations for the Years Ended December
31, 1998 and 1997; for the Six Months Ended June 30,
1999 and 1998 (Unaudited); and for the Period from
December 2, 1996 (Inception) to June 30, 1999
(Unaudited) F-3
Statements of Members' Deficit/Stockholders' Equity for
the Years Ended December 31, 1998 and 1997; for the Six
Months Ended June 30, 1999 (Unaudited); and for the
Period from December 2, 1996 (Inception) to June 30,
1999 (Unaudited) F-4
Statements of Cash Flows for the Years Ended December
31, 1998 and 1997; for the Six Months Ended June 30,
1999 and 1998 (Unaudited); and for the Period from
December 2, 1996 (Inception) to June 30, 1999
(Unaudited) F-6
Notes to Financial Statements F-8
<PAGE>
INDEPENDENT AUDITOR'S REPORT
The Board of Directors and Stockholders
Netword, Inc.
We have audited the accompanying balance sheet of Netword, Inc.
(formerly Netword, LLC) (A Development Stage Company) as of December 31, 1998,
and the related statements of operations, members' deficit/stockholders' equity
and cash flows for the years ended December 31, 1998 and 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 audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Netword, Inc.
(formerly Netword, LLC) as of December 31, 1998 and the results of its
operations and its cash flows for the years ended December 31, 1998 and 1997, in
conformity with generally accepted accounting principles.
Mahoney Cohen & Company, CPA, P.C.
August 9, 1999
F-1
<PAGE>
NETWORD, INC.
(Formerly Netword, LLC)
(A Development Stage Company)
Balance Sheets
ASSETS
December 31, June 30,
1998 1999
(Unaudited)
Current assets:
Cash $ 59,110 $2,507,119
Other current assets 877 -
-------- ----------
Total current assets 59,987 2,507,119
Property and equipment, net (Note 3) 92,331 96,513
Intangible assets:
Trademark, net 30,267 28,357
Intellectual property, net (Note 4) 25,000 25,000
Deferred offering costs (Note 11) - 50,000
-------- ----------
Total intangible assets 55,267 103,357
-------- ----------
$207,585 $2,706,989
======== ==========
LIABILITIES AND MEMBERS' DEFICIT/STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term liability
(Note 6) $ 4,800 $ 9,600
Accounts payable 493,330 370,834
Loans payable (Note 5) 33,027 53,324
-------- ----------
Total current liabilities 531,157 433,758
Long-term liability, net of current portion
(Note 6) 19,200 14,400
Commitments and contingencies (Note 10)
Members' deficit/stockholders' equity:
Common stock, $.01 par value;
Authorized - 40,000,000 shares
Issued and outstanding - 16,923,924 shares at
June 30, 1999 - 169,239
Additional paid-in capital - 5,637,360
Deficit accumulated in the development stage
(Note 8) (301,794) (3,536,469)
Less: Subscriptions receivable 40,978 11,299
-------- ----------
Total members' deficit/stockholders'
equity (342,772) 2,258,831
-------- ----------
$207,585 $2,706,989
======== ==========
See accompanying notes.
F-2
<PAGE>
NETWORD, INC.
(Formerly Netword, LLC)
(A Development Stage Company)
Statements of Operations
<TABLE>
<CAPTION>
Period from
December
2, 1996
Year Ended Six Months Ended (Inception)
December 31, June 30, to
----------------------------- ------------------------------- June 30,
1998 1997 1999 1998 1999
------------- ------------ ------------ ----------- -------------
(Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C>
Revenue:
Sales $ 27,650 $ 23,100 $ 6,638 $ 13,129 $ 57,388
General and administrative expenses 1,091,402 1,527,067 487,714 457,802 3,167,643
----------- ----------- ----------- ---------- -----------
Operating loss (1,063,752) (1,503,967) (481,076) (444,673) (3,110,255)
Other expense:
Loss on disposition of property
and equipment (43,639) - - - (43,639)
Loss on impairment of assets
(Note 4) - (382,575) - - (382,575)
----------- ----------- ----------- ---------- -----------
Total other expense (43,639) (382,575) - - (426,214)
----------- ----------- ----------- ---------- -----------
Net loss $(1,107,391) $(1,886,542) $ (481,076) $ (444,673) $(3,536,469)
=========== =========== =========== ========== ===========
Pro forma basic and diluted loss per
common share attributable to
common stockholders $ (.13) $ (.54) $ (.04) $ (.06)
=========== =========== =========== ==========
Pro forma weighted average number
of shares outstanding 8,443,359 3,507,964 13,520,609 7,975,871
=========== =========== =========== ==========
</TABLE>
See accompanying notes.
F-3
<PAGE>
NETWORD, INC.
(Formerly Netword, LLC)
(A Development Stage Company)
Statements of Members' Deficit/Shareholders' Equity
<TABLE>
<CAPTION>
Members'
Deficit/
Stockholders'
Equity Total
Number of Accumulated Members'
------------------- Common Stock Additional in the Deficit/
Class A Class C ---------------- Paid-In Development Subscriptions Stockholders'
Units Units Shares Amount Capital Stage Receivable Equity
------- ------- ------ ------ ---------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
December 2, 1996 (inception) - - - $ - $ - $ - $ - $ -
Cash contribution by
Netword Partners
in December 1996 (Note 1) 5,100.00 - - - - 250,000 - 250,000
Assets acquired from
Birdshell Corporation LLC
in exchange for equity units
(Note 1) 2,125.59 54.21 - - - 428,571 - 428,571
Net loss - - - - - (61,460) - (61,460)
--------- ----- ---- ---- ---- ----------- -------- -----------
Balance, December 31, 1996 7,225.59 54.21 - - - 617,111 - 617,111
Cash contributions by Netword
Partners from January
through April 1997 - - - - - 750,000 - 750,000
Class A Units issued in
May 1997 8,560.50 - - - - 428,027 - 428,027
Class A Units issued in
September 1997 4,806.94 - - - - 300,001 - 300,001
Subscriptions receivable - - - - - - (16,251) (16,251)
Net loss - - - - - (1,886,542) - (1,886,542)
--------- ----- ---- ---- ---- ----------- -------- -----------
Balance, December 31, 1997 20,593.03 54.21 - - - 208,597 (16,251) 192,346
Class A Units issued from
February through
December 1998 15,406.45 - - - - 597,000 - 597,000
Subscriptions receivable - - - - - - (24,727) (24,727)
Net loss - - - - - (1,107,391) - (1,107,391)
--------- ----- ---- ---- ---- ----------- -------- -----------
Balance, December 31, 1998
(carried forward) 35,999.48 54.21 - $ - $ - $ (301,794) $(40,978) $ (342,772)
--------- ----- ---- ---- ---- ----------- -------- -----------
</TABLE>
See accompanying notes.
F-4
<PAGE>
NETWORD, INC.
(Formerly Netword, LLC)
(A Development Stage Company)
Statements of Members' Deficit/Stockholders' Equity(Concluded)
<TABLE>
<CAPTION>
Members'
Deficit/
Stockholders'
Equity Total
Number of Accumulated Members'
------------------- Common Stock Additional in the Deficit/
Class A Class C ---------------- Paid-In Development Subscriptions Stockholders'
Units Units Shares Amount Capital Stage Receivable Equity
------- ------- ------ ------ ---------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1998
(brought forward) 35,999.48 54.21 - $ - $ - $ (301,794) $(40,978) $ (342,772)
Exchange of Class A and Class C
Units for common stock in
February 1999 (35,999.48) (54.21) 8,923,924 89,239 2,664,360 (2,753,599) - -
Conversion of accounts payable
to warrants in March 1999 - - - - 114,000 - - 114,000
Issuance of common stock in
March 1999 - - 6,000,000 60,000 940,000 - - 1,000,000
Issuance of common stock and
warrants in March 1999 - - 2,000,000 20,000 1,980,000 - - 2,000,000
Offering costs - - - - (75,000) - - (75,000)
Issuance of warrants for legal
services - - - - 14,000 - - 14,000
Subscriptions receivable - - - - - - 29,679 29,679
Net loss - - - - - (481,076) - (481,076)
--------- ----- ---------- -------- ---------- ----------- -------- ----------
Balance, June 30, 1999
(Unaudited) - - 16,923,924 $169,239 $5,637,360 $(3,536,469) $(11,299) $2,258,831
========= ===== ========== ======== ========== =========== ======== ==========
</TABLE>
See accompanying notes.
F-5
<PAGE>
NETWORD, INC.
(Formerly Netword, LLC)
(A Development Stage Company)
Statements of Cash Flows
<TABLE>
<CAPTION>
Period from
December 2, 1996
Year Ended Six Months Ended (Inception)
December 31, June 30, to
----------------------------- -------------------------- June 30,
1998 1997 1999 1998 1999
----------- ----------- ---------- --------- -----------
(Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C>
Net loss $(1,107,391) $(1,886,542) $ (481,076) $(444,673) $(3,536,469)
Adjustments to reconcile net loss to
cash used in operating activities:
Depreciation and amortization 99,951 98,549 29,820 51,910 233,189
Loss on disposition of property
and equipment 43,639 - - - 43,639
Loss on impairment of assets - 382,575 - - 382,575
Change in assets and liabilities:
Other current assets (877) - 877 - -
Deposits 4,214 - - - -
Accounts payable 390,697 94,904 (8,496) 134,972 484,834
----------- ----------- ---------- --------- -----------
Net cash used in
operating activities (569,767) (1,310,514) (458,875) (257,791) (2,392,232)
----------- ----------- ---------- --------- -----------
Cash flows from investing activities:
Proceeds from sale of property
and equipment 10,000 - - - 10,000
Acquisition of property and
equipment - (199,774) (32,092) - (352,789)
Acquisition of trademark - - - - (37,913)
----------- ----------- ---------- --------- -----------
Net cash provided by
(used in) investing
activities 10,000 (199,774) (32,092) - (380,702)
----------- ----------- ---------- --------- -----------
Cash flows from financing activities:
Proceeds from long-term debt - - - - 33,600
Principal payments of long-term
debt (4,800) (4,800) - - (9,600)
Proceeds from loans - 461,054 20,297 - 481,351
Deferred offering costs - - (50,000) - (50,000)
Contributions from members
and stockholders 572,273 1,033,750 2,968,679 212,394 4,824,702
----------- ----------- ---------- --------- -----------
Net cash provided by
financing activities 567,473 1,490,004 2,938,976 212,394 5,280,053
----------- ----------- ---------- --------- -----------
Net increase (decrease) in cash
(carried forward) $ 7,706 $ (20,284) $2,448,009 $ (45,397) $ 2,507,119
----------- ----------- ---------- --------- -----------
</TABLE>
See accompanying notes.
F-6
<PAGE>
NETWORD, INC.
(Formerly Netword, LLC)
(A Development Stage Company)
Statements of Cash Flows (Concluded)
<TABLE>
<CAPTION>
Period from
December 2, 1996
Year Ended Six Months Ended (Inception)
December 31, June 30, to
----------------------------- -------------------------- June 30,
1998 1997 1999 1998 1999
----------- ----------- ---------- --------- -----------
(Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C>
Net increase (decrease) in cash
(brought forward) $ 7,706 $ (20,284) $2,448,009 $ (45,397) $ 2,507,119
Cash, beginning of period 51,404 71,688 59,110 51,404 -
----------- ----------- ---------- --------- -----------
Cash, end of period $ 59,110 $ 51,404 $2,507,119 $ 6,007 $ 2,507,119
=========== =========== ========== ========= ===========
Supplemental Schedules of Non-Cash Investing and Financing Activities
Subscriptions receivable $ 24,727 $ 16,251 $ - $ 12,393 $ 11,299
=========== =========== ========== ========= ===========
Issuance of Class A Units and Class C
Units in exchange for:
Intellectual property $ - $ - $ - $ - $ 407,575
Net assets acquired - - - - 20,996
----------- ----------- ---------- --------- -----------
$ - $ - $ - $ - $ 428,571
=========== =========== ========== ========= ===========
Conversion of loans to Class A Units $ - $ 428,027 $ - $ - $ 428,027
=========== =========== ========== ========= ===========
Conversion of accounts payable to
warrants $ - $ - $ 114,000 $ - $ 114,000
=========== =========== ========== ========= ===========
Issuance of warrants for legal services $ - $ - $ 14,000 $ - $ 14,000
=========== =========== ========== ========= ===========
</TABLE>
See accompanying notes.
F-7
<PAGE>
NETWORD, INC.
(Formerly Netword, LLC)
(A Development Stage Company)
Notes to Financial Statements
(unaudited with respect to the six months ended June 30, 1999 and 1998
and for the period from December 2, 1996 (inception) to June 30, 1999)
Note 1 - The Company
Netword, LLC (the "Company") owns and operates an Internet utility
known as the Netword System which the Company believes offers a comprehensive
solution to problems created by a lack of consumer-friendly addresses for
Internet resources. The Company was formed as a limited liability company under
the laws of the State of Delaware, to acquire the business and assets of
Birdshell Corporation, L.L.C. ("Birdshell"). The Company has been in the
development stage since its organization on December 2, 1996.
The Company was organized by Netword Partners and acquired certain
assets and assumed certain liabilities of Birdshell as provided for in a Limited
Liability Company Agreement dated as of December 2, 1996 (the "Agreement").
Birdshell was formed in April 1995 to develop the Netword System. The Birdshell
acquisition was accounted for using the purchase method of accounting. The
acquired assets primarily consisted of proprietary rights to intellectual
property, including U.S. and foreign patent applications, trademarks and
Internet domain registrations, and certain other property and equipment having
an aggregate original estimated value of $960,000. The liabilities assumed
consisted of various computer and telephone leases, obligations under a
trademark purchase agreement and certain accrued expenses. In exchange for the
acquired assets, the Birdshell investors received membership interests in the
Company ("Units") consisting of 4,900 Class A Units, representing 49% of the
Company's equity, subject to reduction to 268.42 Class C Units if the Company
did not achieve various milestones at various dates. As a result of the
Company's failure to achieve these milestones, in July 1997, the 4,900 Class A
Units were converted into 268.42 Class C Units. In September 1997, the Company
proposed an amendment to the Agreement that was accepted by 214.21 of the Class
C Unit holders which resulted in the conversion of their Class C Units into
2,125.59 Class A Units, representing 29.42% of the Company's equity; the holders
of the remaining 54.21 Class C Units did not convert their Class C Units into
Class A Units. The reduction in the equity interests of the Birdshell investors
required a $532,213 reduction in the intellectual property and members' equity.
Pursuant to the Agreement, Netword Partners loaned the Company
$1,000,000 (the "Loan") and also received 5,100 Class B-2 Units. In 1997,
pursuant to the Agreement, the Loan was converted into 5,100 Class A Units and
the 5,100 Class B-2 Units were cancelled. The above transactions are reflected
in the statements of members' deficit/stockholders' equity as if the
transactions occurred in December 1996.
F-8
<PAGE>
NETWORD, INC.
(Formerly Netword, LLC)
(A Development Stage Company)
Notes to Financial Statements
(unaudited with respect to the six months ended June 30, 1999 and 1998
and for the period from December 2, 1996 (inception) to June 30, 1999)
Note 1 - The Company (Continued)
On February 18, 1999, the Company was merged into Netword, Inc., a
Delaware corporation (the "Merger"). The Merger was accounted for as a reverse
acquisition on the pooling of interest method and gave effect to the issuance by
Netword, Inc. to members of the Company of 8,923,924 shares of common stock and
3,184,733 warrants to purchase common stock at $1.25 per share, in exchange for
35,999.48 Class A Units and 54.21 Class C Units. Options on 2,284,374 shares of
common stock at $.167 per share and 815,239 shares of common stock at $1.25 per
share were issued by Netword, Inc. to replace outstanding options to purchase
units previously granted by the Company. In addition, options on 1,406,250
shares of common stock at $1.25 were issued by Netword, Inc. to certain Company
directors and one Company employee.
Note 2 - Summary of Significant Accounting Policies
Interim Financial Statements
The interim financial statements at June 30, 1999 and for the six
months ended June 30, 1999 and 1998 and for the period from December 2, 1996
(inception) to June 30, 1999 are unaudited; however, in the opinion of
management, all adjustments, consisting only of normal recurring accruals,
necessary for a fair presentation have been included. Results of interim periods
are not necessarily indicative of results to be expected for the entire year.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates.
Property and Equipment
Property and equipment is recorded at cost. Furniture and fixtures and
computer equipment are depreciated using an accelerated method over the
estimated useful lives of the related assets, ranging from three to five years.
Amortization of the computer software is computed using the straight-line method
over three years. Major additions and betterments are capitalized and repairs
and maintenance are charged to operations in the period incurred.
F-9
<PAGE>
NETWORD, INC.
(Formerly Netword, LLC)
(A Development Stage Company)
Notes to Financial Statements
(unaudited with respect to the six months ended June 30, 1999 and 1998
and for the period from December 2, 1996 (inception) to June 30, 1999)
Note 2 - Summary of Significant Accounting Policies (Continued)
Trademark
The trademark is stated at cost and is amortized using the
straight-line method over ten years. The trademark is reported net of
accumulated amortization of $7,965 at December 31, 1998.
Income Taxes
The Company is organized as a limited liability company and has elected
not to be a tax paying entity. The members are individually responsible for
their shares of the Company's income or loss for income tax reporting purposes.
Accordingly, there is no provision for federal and state income taxes.
Pro Forma Basic and Diluted Loss Per Share (Unaudited)
The Company has elected to disclose pro forma loss per share, as if it
had adopted Statement of Financial Accounting Standards No. 128, "Earnings Per
Share" ("SFAS 128") giving effect to the merger discussed in Note 1. Under SFAS
128, companies that are publicly held or have complex capital structures are
required to present basic and diluted earnings per share ("EPS") on the face of
the income statement. SFAS 128 replaces the presentation of primary EPS with a
presentation of basic EPS and, if applicable, diluted EPS. Basic EPS excludes
dilution and is computed by dividing income available to common shareholders by
the weighted average number of common shares outstanding for the period. Diluted
EPS reflects the potential dilution that could occur if securities or other
contracts to issue common stock were exercised or converted and the resulting
additional shares are dilutive because their inclusion decreases the amount of
EPS. The effects on pro forma loss per share of the Company's outstanding
options are antidultive and therefore not included in the calculation of the pro
forma weighted average number of common shares outstanding.
Fair Value of Financial Instruments
The Company applies provisions of Statement of Financial Accounting
Standards No. 107, "Disclosures about Fair Value of Financial Instruments"
("SFAS 107"). SFAS 107 requires all entities to disclose the fair value of
financial instruments, both assets and liabilities recognized and not recognized
on the balance sheet, for which it is practicable to estimate fair value. SFAS
F-10
<PAGE>
NETWORD, INC.
(Formerly Netword, LLC)
(A Development Stage Company)
Notes to Financial Statements
(unaudited with respect to the six months ended June 30, 1999 and 1998
and for the period from December 2, 1996 (inception) to June 30, 1999)
Note 2 - Summary of Significant Accounting Policies (Continued)
Fair Value of Financial Instruments (Continued)
107 defines fair value of a financial instrument as the amount at which the
instrument could be exchanged in a current transaction between willing parties.
At December 31, 1998, management believes the fair value of all financial
instruments approximated carrying value.
Stock-Based Compensation
The Company applies the provisions of Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation", ("SFAS No. 123")
which requires entities to recognize as expense over the vesting period the fair
value as of the date of grant of all stock awards. Alternatively, SFAS No. 123
allows entities to apply the provisions of Accounting Principles Board ("APB")
Opinion No. 25, "Accounting for Stock Issued to Employees", and related
interpretations, and to provide pro forma net income and pro forma net income
per share disclosures for employee stock option grants as if the
fair-value-based method defined in SFAS No. 123 had been applied. The Company
has elected to apply the provisions of APB Opinion No. 25, under which
compensation expense would be recorded on the date of grant only if the current
market price of the underlying stock exceeded the exercise price, and provide
the pro forma disclosure provisions of SFAS No. 123 in its annual financial
statements (see Note 7).
Impairment of Long-Lived Assets
In accordance with Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of," (SFAS No. 121"), long-lived assets are evaluated for possible
impairment through a review of undiscounted expected future cash flows. The
carrying value of a long-lived asset is considered impaired if the sum of the
undiscounted expected future cash flows is less than the carrying amount of that
asset. In that event, a loss is recognized based on the amount by which the
carrying value exceeds the fair market value of the long-lived assets.
Advertising and Marketing Expenses
Advertising expenses are charged to operations in the period in which
they are incurred. Advertising expenses for the years ended December 31, 1998
and 1997 were approximately $63,200 and $117,300, respectively.
F-11
<PAGE>
NETWORD, INC.
(Formerly Netword, LLC)
(A Development Stage Company)
Notes to Financial Statements
(unaudited with respect to the six months ended June 30, 1999 and 1998
and for the period from December 2, 1996 (inception) to June 30, 1999)
Note 2 - Summary of Significant Accounting Policies (Continued)
Research and Development
Research and development costs amounted to approximately $210,00 and
$536,000 for the years ended December 31, 1998 and 1997, respectively.
Note 3 - Property and Equipment
Property and equipment consists of:
December 31, June 30,
1998 1999
------------ -----------
(Unaudited)
Furniture and fixtures $ 29,556 $ 29,556
Computer equipment 95,352 127,445
Computer software 92,523 92,523
-------- --------
217,431 249,524
Less: Accumulated depreciation
and amortization 125,100 153,011
-------- --------
$ 92,331 $ 96,513
======== ========
Note 4 - Intellectual Property
In connection with the acquisition of the Birdshell assets, the Company
acquired proprietary rights to intellectual property relating to the Netword
System having an initial value of $939,788. Subsequently, in September 1997, as
discussed in Note 1, the holdings of the former Birdshell investors were reduced
from 49% to 29.42%, resulting in a reduction of the intellectual property and
members' equity by $532,213.
In connection with the adoption of Statement of Financial Accounting
Standards No. 121, "Accounting for the Impairment of Long-Lived Assets to be
Disposed Of", based upon an appraisal, the intellectual property was considered
to be impaired. Accordingly, a loss of $382,575 was recognized during the year
ended December 31, 1997.
F-12
<PAGE>
NETWORD, INC.
(Formerly Netword, LLC)
(A Development Stage Company)
Notes to Financial Statements
(unaudited with respect to the six months ended June 30, 1999 and 1998
and for the period from December 2, 1996 (inception) to June 30, 1999)
Note 5 - Loans Payable
In May 1997, the Company offered its members rights to subscribe to
their pro rata share of a $500,000 loan (the "97 loan"), together with five year
warrants to purchase 10,000 Class A Units at $50 per unit. The exercise price of
a warrant was payable in cash or by the forgiveness of all or a portion of the
97 loan. The 97 loan was fully subscribed; however, certain subscribers did not
fully fund their subscriptions to that loan and, accordingly, did not qualify
for conversion of their shares of the 97 loan into Class A Units. The members
who funded all installments of their subscriptions to the 97 loan subsequently
converted their interests in that loan into Class A Units. At December 31, 1998,
the Company had $33,027 of loans payable to subscribers to the 97 loan who did
not fully fund their subscriptions.
Note 6 - Long-Term Liability
In connection with the acquisition of the Birdshell assets, the Company
assumed a long-term liability related to the purchase of the Netword trademark.
This liability is payable in equal installments of $4,800 per year concluding on
April 30, 2003.
Note 7 - Options
The Company has granted options to purchase the Company's Class A Units
to managers and key employees responsible for the direction and management of
the Company and to non-employee consultants and independent contractors. At
December 31, 1998, there were 9,229.14 Class A Units reserved for issuance
pursuant to such options.
Pro forma information regarding net loss and net loss per share is
required by SFAS No. 123 and has been determined as if the Company had accounted
for its applicable options under the fair value method of the statement.
The fair value for these options was estimated at the date of grant
using a Black-Scholes option pricing model with the weighted-average assumptions
for 1998, including a risk free interest rate of 5%, a volatility factor of the
expected market price of the Company's common stock of .84 and a
weighted-average remaining contractual life of the option of 60 months.
F-13
<PAGE>
NETWORD, INC.
(Formerly Netword, LLC)
(A Development Stage Company)
Notes to Financial Statements
(unaudited with respect to the six months ended June 30, 1999 and 1998
and for the period from December 2, 1996 (inception) to June 30, 1999)
Note 7 - Options (Continued)
This model was developed for use in estimating the fair value of traded
options which have no vesting restrictions and are fully transferable. In
addition, option valuation models require the input of highly subjective
assumptions, including the expected stock price volatility. Because the
Company's options have characteristics significantly different from those of
traded options and because changes in the subjective input assumptions can
materially affect the fair value estimate, in management's opinion, the existing
models do not necessarily provide a reliable single measure of the fair value of
its employee options.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the option vesting period. The effects of
applying SFAS No. 123 for pro forma disclosures are not likely to be
representative of the effects on reported net income or losses for future years.
The Company's pro forma information follows:
Years Ended
December 31,
-----------------------------------
1998 1997
------------ ------------
Pro forma net loss $(1,161,528) $(1,893,184)
Pro forma net loss per share (.14) (.54)
A summary of applicable option activity and related information for the
years ended December 31, 1998 and 1997 is as follows:
1998 1997
----------------------- --------------------
Weighted- Weighted-
Average Average
Exercise Exercise
Options Price Options Price
-------- --------- -------- ---------
Outstanding, beginning of year 3,085.25 $62.41 - $ -
Granted 6,185.55 38.75 3,085.25 62.41
Exercised - - - -
Forfeited 41.66 62.41 - -
-------- ------ -------- ------
Outstanding, end of year 9,229.14 46.55 3,085.25 62.41
======== ========
Exercisable, end of year 4,221.82 $49.41 385.06 $62.41
======== ========
F-14
<PAGE>
NETWORD, INC.
(Formerly Netword, LLC)
(A Development Stage Company)
Notes to Financial Statements
(unaudited with respect to the six months ended June 30, 1999 and 1998
and for the period from December 2, 1996 (inception) to June 30, 1999)
Note 7 - Options (Continued)
The weighted-average fair value of options granted during 1998 and 1997
was $26.74 and $43.06, respectively. Exercise prices for options outstanding
as of December 31, 1998 ranged from $38.75 to $62.41. These options were
replaced by new options as a result of the merger as discussed in Note 1 and
expire at various times through February, 2004.
Note 8 - Equity Transactions
Pursuant to the Agreement, during 1997 the Loan was converted into
5,100 Class A Units and the Class B-2 Units were cancelled. $250,000 of the Loan
was funded in December 1996; the $750,000 balance was funded during the period
from January 1, 1997 through April 15, 1997.
In May 1997, the Company sold 8,560.50 Class A Units at $50,00 per Unit
resulting in proceeds of $428,027. In September 1997, the Company sold 4,806.94
Class A Units at $62.41 per Unit, resulting in proceeds of $300,001.
In February 1998, the Company offered its members rights to subscribe
to their pro rata share of a $600,000 offering, consisting of 15,483.87 Class A
Units at $38.75 per Unit. In addition, to protect option holders from dilution
resulting from the $600,000 offering, the Company also granted option holders
their pro rata share of 2,313.93 new options to purchase Class A Units at an
exercise price of $38.75. The members subscribed to 15,406.45 Class A Units for
total proceeds of $597,000.
Note 9 - Related Party Transaction
During the year ended December 31, 1997, the Company incurred $10,000
for consulting services to an entity owned by the Company's president.
F-15
<PAGE>
NETWORD, INC.
(Formerly Netword, LLC)
(A Development Stage Company)
Notes to Financial Statements
(unaudited with respect to the six months ended June 30, 1999 and 1998
and for the period from December 2, 1996 (inception) to June 30, 1999)
Note 10 - Commitments and Contingencies
Operating Lease
The Company leases an office under a non-cancellable operating lease
expiring in 2003. Future minimum lease payments are as follows:
Year Ending
December 31,
1999 $ 40,000
2000 40,000
2001 42,000
2002 43,000
2003 29,000
--------
$194,000
========
Total rent charged to operations for the years ended December 31, 1998
and 1997 was approximately $66,000 and $84,000, respectively.
Litigation
In August 1997, eight employees, including the former chief executive
officer, resigned and made claims against the Company. Claims by four of those
former employees have since been settled. One of the former employees instituted
an action against the Company and its managers in June 1998, in the Circuit
Court of Arlington, Virginia, seeking to recover approximately $70,000 for,
among other things, the dilution of his interest in the Company and the
repayment of the funded portion of his subscription to the 97 loan (see Note 5).
The Company is defending that action which is currently inactive. The Company
does not believe that its financial exposures with respect to the pending action
or unsettled claims of the other former employees is material.
F-16
<PAGE>
NETWORD, INC.
(Formerly Netword, LLC)
(A Development Stage Company)
Notes to Financial Statements
(unaudited with respect to the six months ended June 30, 1999 and 1998
and for the period from December 2, 1996 (inception) to June 30, 1999)
Note 11 - Subsequent Events
In February 1999, the Company settled fees of $655,000 for legal
services by payment of $200,000 and an agreement to deliver warrants to purchase
150,000 shares of Netword, Inc. common stock at $.1667 per share (subsequently
delivered by Netword, Inc.). The fair value for the warrants was estimated to be
$.76 per warrant at the date of the agreement, using the Black-Scholes option
pricing model.
On March 19, 1999, Netword, Inc. privately placed 6,000,000 shares of
common stock at $.1666 per share or a total of $1,000,000. On the same date, in
an offering to foreign investors, Netword, Inc. sold units consisting of
2,000,000 shares of common stock and warrants to purchase an additional
1,600,000 shares of common stock (at $1.25 per share) for total consideration of
$2,000,000. Offering costs for the two offerings aggregated $75,000.
On July 28, 1999 and August 5, 1999, Netword, Inc. privately placed
units consisting of 782,000 shares of common stock and warrants to purchase an
additional 625,600 shares of common stock (at $1.50 per share) for total
consideration of $977,500. Offering costs were approximately $50,000. In
connection with this placement, Netword, Inc. issued warrants to purchase an
additional 85,293 shares of common stock at $1.50 per share as a finder's fee.
F-17
<PAGE>
===============================================================================
NETWORD, INC.
Common Stock
6,784,733 shares
---------------------
PROSPECTUS
---------------------
September 10, 1999
===============================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 1. Indemnification of Directors and Officers.
Under our Certificate of Incorporation (the "Charter") and our Bylaws
(the "Bylaws"), our directors and officers are entitled to be indemnified by us
to the fullest extent permitted by Section 102(b)(7) of the Delaware General
Corporation Law (the "DGCL"). Additionally, under the Charter and the Bylaws,
our directors are not subject to personal liability for monetary damages
resulting from a breach of fiduciary -duty or failure to exercise any applicable
standard of care, except that our directors may be subject to personal liability
for monetary damages in circumstances involving:
o a breach of the duty of loyalty;
o acts or omissions not in good faith which involve intentional
misconduct or a knowing violation of law;
o unlawful payments of dividends, stock purchases or redemptions
under the DGCL; or
o transactions from which the director derives an improper personal
benefit.
ITEM 2. Other Expenses of Issuance and Distribution.
The following statement sets forth the estimated expenses payable in
connection with this Registration Statement, all of which will be paid by us:
Registration Fee......................................................$1,650.40
Legal Fees and Expenses..............................................$75,000.00
Accountant's Fees and Expenses.......................................$20,000.00
Printing Costs.......................................................$15,000.00
----------
Total...............................................................$111,650.40
Item 3. Undertakings.
(1) We hereby undertake to file, during any period in which
securities included in this Registration Statement may be sold, a
post-effective amendment to this Registration Statement to:
(a) include any prospectus required by Section 10(a)(3) of
the Securities Act;
(b) reflect in the prospectus any facts or events which,
individually or together,
II-1
<PAGE>
represent a fundamental change in the information in the Registration Statement,
and
(c) include any additional or changed material information on
the plan of distribution.
(2) We also undertake to treat each post-effective amendment as a new
registration statement of the securities offered, and the offering of the
securities at that time to be the initial bona fide offering, for the purposes
of determining liability under the Securities Act.
(3) We also undertake to file a post-effective amendment to remove from
registration any of the securities that remain unsold at the end of the
offering.
(4) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to our directors, officers and controlling
persons pursuant to the provisions described above, or otherwise, we have 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 our payment of expenses incurred or paid by any of our directors,
officers or controlling persons in the successful defense of any action, suit or
proceeding) is asserted by any of our directors, officers or controlling persons
in connection with the securities being registered, we will, unless in the
opinion of our counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question of whether our
indemnification is against public policy as expressed in the Securities Act and
will be governed by the final adjudication of such issue.
Item 4. Unregistered Securities Issued or Sold Within One Year.
All of the persons who acquired our securities in the transactions
described below (other than certain of them who are specifically named in this
Item) are named in the table under Selling Stockholders in Part I of this
Registration Statement.
(a) On February 18, 1999, Netword LLC merged into Netword, Inc. The
sole purpose of the merger was to reorganize Netword LLC as a corporation. Prior
to the merger, Netword, Inc. had no assets or business. Upon the merger, the
outstanding units of membership interest in Netword LLC were cancelled and the
holders of such units received, in exchange for each unit, (1) 247.518331 shares
of common stock of Netword, Inc. and (2) warrants to purchase 88.333682 shares
of common stock of Netword, Inc. at an exercise price of $1.25 per share. In
sum, in exchange for all of the interests in Netword LLC, Netword, Inc. issued a
total of 8,923,924 shares of its common stock and warrants to purchase up to an
aggregate of 3,184,733 additional shares of its common stock. The exchange ratio
was determined arbitrarily by the managers of Netword LLC and the Board of
Directors of Netword, Inc. The issuance of the shares and warrants in connection
with the merger was made exclusively to prior investors on a pro rata basis and
did not involve the receipt or payment of any new consideration; accordingly,
II-2
<PAGE>
to the extent the transaction may be deemed to constitute a sale within the
meaning of the Securities Act, it did not involve a public offering and was
therefore exempt from registration under the Securities Act pursuant to Section
4(2) of the Securities Act.
(b) As a result of the merger, options to purchase 9,229.14 units of
Netword LLC previously issued to a total of 14 employees (including former
employees) and managers of Netword LLC, all of whom were members of Netword LLC,
were cancelled, and each person who held such an option was granted a new option
under a newly adopted stock option plan of Netword, Inc. to purchase (1)
247.518331 shares of common stock of Netword, Inc. at an exercise price of
$0.1666 per share and (2) 88.333682 shares of common stock of Netword, Inc. at
an exercise price of $1.25 per share for each cancelled option to purchase one
unit of Netword LLC. In sum, Netword, Inc. granted to these persons options to
acquire a total of up to 2,284,374 shares of its common stock at an exercise
price of $0.1666 per share (of which options for 43,315 shares have since been
terminated) and up to 815,239 shares of its common stock at an exercise price of
$1.25 per share (of which options for 15,458 shares have since been terminated).
The ratio of new options to cancelled options was determined arbitrarily by the
Board of Directors of Netword, Inc., but the new options were granted only to
holders of cancelled options on a pro rata basis without payment or receipt of
any additional consideration. Further, on March 15, 1999, additional options to
purchase an aggregate of 1,406,250 shares of common stock of Netword, Inc. at an
exercise price of $1.25 per share were granted to two of our directors and one
employee. These options expire on February 17, 2004. In September, 1999,
additional options to purchase an aggregate of 108,773 shares of common stock of
Netword, Inc. at an exercise price of $1.50 per share were granted to one of our
officers and a consultant. To the extent the grant of the new options may be
deemed to constitute a sale within the meaning of the Securities Act, the grant
did not involve a public offering and was therefore exempt from registration
under the Securities Act pursuant to Section 4(2) of the Securities Act. To the
extent the persons to whom new options were granted were employees or
consultants, such exemption was available pursuant to Rule 701 under the
Securities Act.
The following option holders (each of whom was an employee or
consultant at the time he or she was granted options) are not named in Part I of
this Registration Statement: Amanda Howlett, Debbie Bostin, Erik Dove, Simon
Janes, Stephen Williams, Thomas Sweeting and R.B. Rattey.
(c) On March 19, 1999, Netword, Inc. sold 6,000,000 shares of its
common stock to 35 of its stockholders, 28 foreign investors and two other U.S.
investors at a price of $.01666 per share for total consideration of $1,000,000.
All stockholders of Netword, Inc. were offered the opportunity to subscribe for
shares in the offering on a pro rata basis. The sale price of the shares was
determined arbitrarily by the Board of Directors of Netword, Inc. The sale of
the shares was exempt from registration under the Securities Act pursuant to
Rule 504 under the Securities Act.
The investors in this offering who are not named in Part I of this
Registration Statement were: 679212 Albert Ltd., Christopher Morris, E. Ann
Curry, Geoff Whitlam, International Pursuit Corporation, Irwin Singer, Jayvee &
Co. Account 0002002, John McMahon, Joshua Rizack, Librion Group Inc., Marilia
Costa, Melbourne Investments Ltd., Patstar Inc., Peter C.
II-3
<PAGE>
Halsall, Pullen Family Holdings Inc. and Ross McMaster. Other than Mr. Rizack
and Librion Group, Inc., all of these investors have represented to us that they
are non-U.S. persons. Other than Mr. Rizack, who is a consultant to us, none of
the investors is related to us other than as a securityholder.
(d) Also on March 19, 1999, Netword, Inc. sold 2,000,000 units
comprising 2,000,000 shares of its common stock and warrants to purchase
1,600,000 shares of its common stock at an exercise price of $1.25 per share for
total consideration of $2,000,000. The sale price of the units ($1 per unit) was
arbitrarily determined by the Board of Directors. The units were sold to non-
U.S. persons (most of whom also purchased shares in the Rule 504 offering) in an
offshore transaction that was exempt from registration under the Securities Act
pursuant to Rule 903 of Regulation S under the Securities Act.
(e) On March 19, 1999, pursuant to an agreement negotiated by Netword
LLC, Netword, Inc. issued warrants to purchase 150,000 shares of its common
stock at an exercise price of $0.1666 per share to Fulbright & Jaworski LLP in
partial payment for legal services provided to Netword LLC. The issuance of the
warrants did not involve a public offering and was therefore exempt from
registration under the Securities Act pursuant to Section 4(2) of the Securities
Act.
(f) On April 1, 1999, in a negotiated transaction, Netword, Inc. issued
its $20,000 convertible note due March 31, 2001 to Kronish Lieb Weiner & Hellman
LLP in partial payment for legal services provided to Netword, Inc. and Netword
LLC. The note is convertible into common stock at $1.00 per share. The issuance
of the note did not involve a public offering and was therefore exempt from
registration under the Securities Act pursuant to Section 4(2) of the Securities
Act.
(g) On May 1, 1999, in a negotiated transaction, Netword, Inc. issued
warrants to purchase 22,500 shares of its common stock at an exercise price of
$0.1666 per share to Pryor, Cashman, Sherman & Flynn LLP in partial payment for
legal services provided to Netword, Inc. The issuance of the warrants did not
involve a public offering and was therefore exempt from registration under the
Securities Act pursuant to Section 4(2) of the Securities Act.
(h) In separate closings on July 28, 1999 and August 5, 1999, Netword,
Inc. privately sold a total of 782,000 units comprising 782,000 shares of its
common stock and warrants to purchase 625,600 shares of its common stock at an
exercise price of $1.50 per share for total consideration of $977,500. The sale
price of the units ($1.25 per unit) was arbitrarily determined by the Board of
Directors. The units were sold to a total of 14 persons, all of whom we believe
are accredited investors within the meaning of Rule 501 under the Securities
Act, and the sale was therefore exempt from registration under the Securities
Act pursuant to Rule 506 under the Securities Act. In connection with this
transaction, we issued warrants to acquire 85,293 shares of common stock at
$1.50 per share to David Segal as a finders fee. The issuance of warrants to
David Segal did not involve a public offering and was therefore exempt from
registration under the Securities Act pursuant to Section 4(2) of the Securities
Act.
The investors in this offering were: NorthStar Capital Partners LLC,
Barington Capitol
II-4
<PAGE>
Group, Charlie Humber, Martin Lamb, Gregory Peck, Meister Brother Investments
LP, G2 Investments, Andrew Davidoff, Double A. Ventures Ltd., Mr. E. Das,
Richard J. McCready, David G. King, Jr., Murray M. Rubin and Francisco J.
Gonzalez-Paez. Other than (i) NorthStar Capital Partners LLC, of which W. Edward
Scheetz, who has agreed to become a director subject to our obtaining directors
and officers liability insurance, is a 50% owner, and (ii) Mr. Rubin, who is our
Chief Financial and Accounting Officer and Treasurer, none of these investors is
related to us other than as a securityholder.
(i) In July, 1999, Netword, Inc. agreed to issue warrants to purchase
336,000 shares of its common stock at an exercise price of $1.50 per share to
NorthStar Capital Partners LLC, of which W. Edward Scheetz is a 50% partner,
upon Mr. Scheetz's election to the Board of Directors of Netword, Inc. Mr.
Scheetz has agreed to become a director subject to our obtaining directors and
officers liability insurance. To the extent the issuance of the warrants may be
deemed to constitute a sale within the meaning of the Securities Act, such sale
will be exempt from registration under the Securities Act pursuant to Section
4(2) of the Securities Act.
Item 5. Index to Exhibits.
Number Exhibit Page
- ------ ------- ----
2.1 Certificate of Incorporation of Netword, Inc.
2.2 Bylaws of Netword, Inc.
2.3 Certificate of Merger between Netword LLC and Netword,
Inc. dated February 18, 1999.
2.4 Agreement and Plan of Merger between Netword, LLC and
Netword, Inc. dated February 18, 1999.
3.1 Form of Warrant issued to members of Netword LLC in
connection with the merger of Netword, LLC and Netword,
Inc.
3.2 Form of Subscription Agreements executed in connection with
the Rule 504 sale of 6,000,000 shares of common stock
consummated on March 19, 1999.
3.3 Form of Subscription Agreement executed in connection
with the Regulation S sale of 2,000,000 units
consummated on March 19, 1999.
3.4 Form of Warrant issued to purchasers in the Regulation S
offering.
3.5 Warrant dated March 19, 1999 issued to Fulbright & Jaworski
LLP.
II-5
<PAGE>
3.6 Convertible note dated April 1, 1999 issued to Kronish Lieb
Weiner & Hellman LLP.
3.7 Warrant dated May 1, 1999 issued to Pryor, Cashman,
Sherman & Flynn LLP.
3.8 Form of Subscription Agreement executed in connection
with the Rule 506 sale of 782,000 units consummated on
July 28, 1999 and August 5, 1999.
3.9 Form of warrant issued to purchasers in the Rule 506
offering, to David Segal and to be issued to NorthStar
Capital Partners LLC upon the election of W. Edward
Scheetz to the board of directors of Netword, Inc.
3.10 Stock option plan of Netword, Inc.
3.11 Form of award letter for optionees.
6.1 Contract regarding assignment of trademarks and trade names
"Netword" and "Netword, Inc."
10.1 Consent of Mahoney Cohen & Company, CPA, P.C.
10.2 Consent of Kronish Lieb Weiner & Hellman LLP is contained
in their opinion filed as Exhibit 11.1
11.1 Opinion of Kronish Lieb Weiner & Hellman LLP.
12.1 Consent of W. Edward Scheetz to be filed by amendment to this
Registration Statement.
II-6
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form SB-1 and authorized this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of New York, State of New York, on September 10, 1999.
NETWORD, INC.
(Registrant)
By: /s/ Michael L. Wise
--------------------------------------------
Name: Michael L. Wise
Title: President and Chief Executive Officer
In accordance with the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities indicated on September 10, 1999.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ Michael L. Wise President and Chief Executive September 10, 1999
- ---------------------------- Officer, Director
Michael L. Wise
/s/ Murray M. Rubin Chief Financial and Accounting September 10, 1999
- ---------------------------- Officer, Treasurer
Murray M. Rubin
/s/ Kent M. Klineman
- ---------------------------- Secretary, Director September 10, 1999
Kent M. Klineman
</TABLE>
<PAGE>
Certificate of Incorporation
of
Netword, Inc.
FIRST: The name of the corporation is Netword, Inc.
(hereinafter referred to as the "Corporation").
SECOND: The address of the registered office of the
Corporation in the State of Delaware is 15 East North Street in the City of
Dover, County of Kent. The name of its registered agent at that address is
United Corporate Services, Inc.
THIRD: The purpose of the Corporation is to engage in any
lawful act or activity for which a corporation may be organized under the
General Corporation Law of Delaware as set forth in Title 8 of the Delaware Code
(the "DGCL").
FOURTH: The total number of shares of stock which the
Corporation shall have authority to issue is 40,010,000 shares, of which (i)
40,000,000 shares shall be classified as Common Stock, $.01 par value per share
("Common Stock"); and (ii) 10,000 shares shall be classified as Preferred Stock,
$.01 par value per share ("Preferred Stock").
The following is a statement of the designations, preferences
and relative participating or other special rights, and the limitations or
restrictions, if any, in respect of each class of capital stock of the
Corporation.
-1-
<PAGE>
A. COMMON STOCK.
1. General. The voting, dividend and liquidation rights of the
holders of Common Stock are subject to and qualified by the rights of the
holders of the Preferred Stock of any series as may be designated by the Board
of Directors of the Corporation (the "Board") upon any issuance of the Preferred
Stock of any series.
2. Voting. The holders of the Common Stock are entitled to one
vote for each share held at all meetings of stockholders. There shall be no
cumulative voting.
3. Dividends. Dividends may be declared and paid on the Common
Stock from funds lawfully available therefor as, when and if determined by the
Board and subject to any preferential or participating dividend rights of any
then outstanding Preferred Stock.
4. Liquidation. Upon the dissolution, liquidation or winding
up of the Corporation, whether voluntary or involuntary, holders of Common Stock
will be entitled to receive all assets of the Corporation available for
distribution to its stockholders, subject to any preferential or participating
rights of any then outstanding Preferred Stock.
B. PREFERRED STOCK.
The Preferred Stock may be issued in one or more series. The
number, designation and all of the powers,
-2-
<PAGE>
preferences and rights and the qualifications, limitations or restrictions of
the shares of any series of Preferred Stock may be fixed by the Board as
provided in Section 151 of the DGCL. Different series of Preferred Stock shall
not be construed to constitute different classes of shares for the purposes of
voting by classes unless expressly so provided.
FIFTH: The name and mailing address of the Sole
Incorporator is as follows:
Name Mailing Address
Michelle R. Noch c/o Kronish Lieb Weiner & Hellman LLP
1114 Avenue of the Americas
New York, New York 10036
SIXTH: The following persons shall be the initial directors of
the Corporation to serve until the first annual meeting or until their
respective successors shall be duly elected and qualified or until a director's
earlier resignation or removal:
Name Title
Michael Wise Chairman of the Board of Directors
James Karanfilian Director
Kent M. Klineman Secretary
SEVENTH: The Corporation shall to the fullest extent permitted
by Section 145 of the DGCL, as amended from time to time, indemnify all persons
whom it may indemnify pursuant
-3-
<PAGE>
thereto. Directors of the Corporation shall have no personal liability for
monetary damages for breach of a fiduciary duty, or failure to exercise any
applicable standard of care, of a director to the fullest extent permitted by
Section 102(b)(7) of the DGCL.
EIGHTH: 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 stockholder thereof or on
the application of any receiver or receivers appointed for this Corporation
under the provisions of section 291 of the DGCL or on the application of
trustees in dissolution or of any receiver or receivers appointed for this
Corporation under the provisions of Section 279 of the DGCL, order a meeting of
the creditors or class of creditors, and/or of the stockholders or 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 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 consequence of such compromise or arrangement, the
-4-
<PAGE>
said compromise or arrangement and the said reorganization shall, if sanctified
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.
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 law, and all rights and powers
conferred upon stockholders, directors and officers are subject to this
reservation.
TENTH: The Board is expressly authorized (by action taken by a
majority of the Board) to make, alter, amend or repeal the Bylaws of the
Corporation in a manner not inconsistent with the laws of the State of Delaware
or this Certificate of Incorporation, subject to the power of the stockholders
of the Corporation having voting power to alter, amend or repeal the Bylaws of
the Corporation.
-5-
<PAGE>
I, THE UNDERSIGNED, being the sole incorporator hereinbefore
named, for the purpose of forming a corporation pursuant to the DGCL, does make
this Certificate, hereby declaring and certifying, under penalties of perjury,
as provided in Section 103(b)(2) of the DGCL, that this is my act and deed and
the facts herein stated are true, and accordingly have hereunto set my hand this
2nd day of February, 1999.
/s/Michelle R. Noch
-------------------------
Michelle R. Noch
Sole Incorporator
<PAGE>
BYLAWS
OF
NETWORD, INC.
(hereinafter called the "Corporation")
ARTICLE I
OFFICES
-------
Section 1. Registered Office. The registered office of the
Corporation shall be in the City of Dover, County of Kent, State of Delaware.
Section 2. Other Offices. The Corporation may also have
offices at such other places both within and without the State of Delaware as
the Board of Directors may from time to time determine.
ARTICLE II
MEETING OF STOCKHOLDERS
-----------------------
Section 1. Place of Meetings. Meetings of the stockholders
for the election of directors or for any other purpose shall be held at such
time and 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 or in a duly executed waiver of notice thereof.
Section 2. Annual Meetings. The Annual Meetings of
Stockholders shall be held on such date and at such time as shall be designated
from time to time by the Board of Directors and stated in the notice of the
meeting, at which meetings the stockholders shall elect by a plurality vote a
Board of Directors, and transact such other business as may properly be brought
before the meeting. 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 sixty days before the date of the
meeting.
Section 3. Special Meetings. Unless otherwise prescribed by
law or by the Certificate of Incorporation, Special Meetings of Stockholders,
for any purpose or purposes, may be called by either (i) the Chairman, if there
be one, or (ii) the President, (iii) any Vice-President, if there be one (iv)
the Secretary, or (vi) any Assistant Secretary, if there be one, and shall be
called by any such officer at the request in writing of a majority of the Board
of Directors or at the request in writing of stockholders owning a majority of
the capital stock of the Corporation issued and outstanding and entitled to
vote. Such request shall state the purpose or purposes of the proposed meeting.
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
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<PAGE>
more than sixty days before the date of the meeting to each stockholder entitled
to vote at such meeting. Only business within the purpose or purposes described
in the notice (or waiver thereof) required by these bylaws may be conducted at a
special meeting of the stockholders.
Section 4. Quorum. Except as otherwise provided by law or by
the Certificate of Incorporation, the holders of a majority of the capital 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. 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 which might have been transacted at the meeting as
originally noticed. 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 of the adjourned meeting shall be given to each stockholder entitled to
vote at the meeting.
Section 5. Voting. Unless otherwise required by law, the
Certificate of Incorporation or these Bylaws, any question brought before any
meeting of stockholders shall be decided by the vote of the holders of a
majority of the stock represented and entitled to vote thereat. Each stockholder
represented at a meeting of stockholders shall be entitled to cast one vote for
each share of the capital stock entitled to vote thereat held by such
stockholder. Such votes may be cast in person or by proxy but no proxy shall be
voted on or after three years from its date, unless such proxy provides for a
longer period. The Board of Directors, in its discretion, or the officer of the
Corporation presiding at a meeting of stockholders, in his discretion, may
require that any votes cast at such meeting shall be cast by written ballot.
Section 6. Consent of Stockholders in Lieu of Meeting. Unless
otherwise provided in the Certificate of Incorporation, any action required or
permitted to be taken at any Annual or Special Meeting of Stockholders of the
Corporation, may be taken without a meeting, without prior notice and without a
vote, if a consent in writing, setting forth the action so taken, shall be
signed by the holders of outstanding stock having not less than the minimum
number of votes that would be necessary to authorize or take such action at a
meeting at which all shares entitled to vote thereon were present and voted.
Prompt notice of the taking
2
<PAGE>
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.
Section 7. List of Stockholders Entitled to Vote. The officer
of the Corporation 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, for any purpose germane to the meeting,
during ordinary business hours, for a period of at least ten days prior to the
meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or, if not so
specified, at the place where the meeting is to be held. The list shall also be
produced and kept at the time and place of the meeting during the whole time
thereof, and may be inspected by any stockholder of the Corporation who is
present.
Section 8. Stock Ledger. The stock ledger of the Corporation
shall be the only evidence as to who are the stock holders entitled to examine
the stock ledger, the list required by Section 7 of this Article II or the books
of the Corporation, or to vote in person or by proxy at any meeting of
stockholders.
ARTICLE III
DIRECTORS
---------
Section 1. Number and Election of Directors. The Board of
Directors shall initially be set at three and thereafter fixed from time to time
by the Board of Directors. Except as provided in Section 2 of this Article,
directors shall be elected by a plurality of the votes cast at Annual Meetings
of Stockholders, and each director so elected shall hold office until the next
Annual Meeting and until his successor is duly elected and qualified, or until
his earlier resignation or removal. Any director may resign at any time upon
notice to the Corporation. Directors need not be stockholders.
Section 2. Vacancies. 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 director of directors so chosen
shall hold office until the next annual election and until their successors are
duly elected and qualified, or until their earlier resignation or removal.
Section 3. Duties and Powers. The business of the Corporation
shall be managed by or under the direction of the Board of Directors which may
exercise all such powers of the Corporation and do all such lawful acts and
things as are not by
3
<PAGE>
statute or by the Certificate of Incorporation or by these Bylaws directed or
required to be exercised or done by the stockholders.
Section 4. Meetings. The Board of Directors of the Corporation
may hold meetings, both regular and special, either within or without the State
of Delaware. Regular meetings of the Board of Directors may be held without
notice at such time and at such place as may from time to time be determined by
the Board of Directors. Special meetings of the Board of Directors may be called
by the Chairman, the President, or any single director. Notice thereof stating
the place, date and hour of the meetings shall be given to each director either
by mail not less than forty-eight (48) hours before the date of the meeting, by
telephone or telegram on twenty-four (24) hours' notice, or on such shorter
notice as the person or persons calling such meeting may deem necessary or
appropriate in the circumstances.
Section 5. Quorum. Except as may be otherwise specifically
provided by law, the Certificate of Incorporation or these Bylaws, at all
meetings of the Board of Directors, a majority of the entire Board of Directors
shall constitute a quorum for the transaction of business and the act of a
majority of the directors present at any meeting at which there is a quorum
shall be the act of the Board of Directors. 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 6. Actions of Board. Unless otherwise provided 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 the members of the Board of Directors 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 of Directors or
committee.
Section 7. Meetings by Means of Conference Telephone. Unless
otherwise provided by the Certificate of Incorporation or these Bylaws, members
of the Board of Directors of the Corporation, or any committee designated by
the Board of Directors, may participate in a meeting of the Board of Directors
or such committee by means of a conference telephone or similar communications
equipment by means of which all persons participating in the meeting can hear
each other, and participation in a meeting pursuant to this Section 7 shall
constitute presence in person at such meeting.
Section 8. Committees. The Board of Directors may, by
resolution passed by a majority of the entire Board of Directors, designate one
or more committees, each committee to consist of one or more of the directors of
the Corporation. The Board of
4
<PAGE>
Directors may designate one or more directors as alternate members of any
committee, who may replace any absent or disqualified member at any meeting of
any such committee. In the absence or disqualification of a member of a
committee, and in the absence of a designation by the Board of Directors of an
alternate member to replace the absent or disqualified member, 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
absent or disqualified member. Any committee, to the extent allowed by law and
provided in the resolution establishing such committee, 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. Each committee shall
keep regular minutes and report to the Board of Directors when required.
Section 9. Compensation. The directors may be paid their
expenses, if any, of attendance at each meeting of the Board of Directors and
may be paid a fixed sum for 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
reimbursement of expenses for attending committee meetings.
Section 10. Interested Directors. No contract or transaction
between the Corporation and one or more of its directors or officers, or between
the Corporation and any other corporation, partnership, association, or other
organization in which one or more of its directors or officers are directors or
officers, or have a financial interest, shall be void or voidable solely for
this reason, or solely because the director or officer is present at or
participates in the meeting of the Board of Directors or committee thereof which
authorizes the contract or transaction, or solely because his or their votes are
counted for such purpose if (i) the material facts as to his or their
relationship or interest and as to the contract or transaction are disclosed or
are known to the Board of Directors or their committee, and the Board of
Directors or committee in good faith authorizes the contract or transaction by
the affirmative votes of a majority of the disinterested directors, even though
the disinterested directors be less than a quorum; or (ii) the material facts as
to his or their relationship or interest and as to the contract or transaction
are disclosed or are known to the stockholders entitled to vote thereon, and the
contract or transaction is specifically approved in good faith by vote of the
stockholders; or (iii) the contract or transaction is fair as to
5
<PAGE>
the Corporation as of the time it is authorized, approved or ratified, by the
Board of Directors, a committee thereof or the stockholders. Common or
interested directors may be counted in determining the presence of a quorum at a
meeting of the Board of Directors or of a committee which authorizes the
contract or transaction.
ARTICLE IV
OFFICERS
--------
Section 1. General. The officers of the Corporation shall be
chosen by the Board of Directors and shall be a Chief Executive Officer,
President, Chief Operating Officer, Chief Technology Officer, Secretary and a
Treasurer. The Board of Directors, in its discretion, may also choose a Chairman
of the Board of Directors (who must be a director) and one or more Executive
Vice-Presidents, Vice Presidents, Assistant Secretaries, Assistant Treasurers
and other officers. Any number of offices may be held by the same person, unless
otherwise prohibited by law, the Certificate of Incorporation or these Bylaws.
The officers of the Corporation need not be stockholders of the Corporation nor,
except in the case of the Chairman of the Board of Directors, need such officers
be directors of the Corporation.
Section 2. Election. The Board of Directors at its first
meeting held after each Annual Meeting of Stockholders shall elect the officers
of the Corporation 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 of Directors; and all officers of the Corporation shall hold
office until their successors are chosen and qualified, or until their earlier
resignation or removal. Any officer elected 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 salaries of all officers of the
Corporation shall be fixed by the Board of Directors.
Section 3. Voting Securities Owned by the Corporation. Powers
of attorney, proxies, waivers of notice of meeting, consents and other
instruments relating to securities owned by the Corporation may be executed in
the name of and on behalf of the Corporation by the President or any Vice
President and any such officer may, in the name of and on behalf of the
Corporation, take all such action as any such officer may deem advisable to vote
in person or by proxy at any meeting of security holders of any corporation in
which the Corporation may own securities and at any such meeting shall possess
and may exercise any and all rights and power incident to the ownership of such
securities and which, as the owner thereof, the Corporation might have exercised
and possessed if present. The Board of Directors may,
6
<PAGE>
by resolution, from time to time confer like powers upon any other person or
persons.
Section 4. Chairman of the Board of Directors. The Chairman of
the Board of Directors shall preside at all meetings of the stockholders and of
the Board of Directors. He shall possess the same power as the Chief Executive
Officer or President, if there be one, to sign all contracts, certificates and
other instruments of the Corporation which may be authorized by the Board of
Directors, except where by law the signature of the Chief Executive Officer or
President, if there be one, is required. During the absence or disability of
the Chief Executive Officer or President, if there be one, the Chairman of the
Board of Directors shall exercise all the powers and discharge all the duties of
the Chief Executive Officer or President. The Chairman of the Board of Directors
shall also perform such other duties and may exercise such other powers as from
time to time may be assigned to him by the Board of Directors.
Section 5. President and Chief Executive Officer. The
President and Chief Executive Officer shall be subject to the control of the
Board of Directors and shall have general supervision of the business of the
Corporation and shall see that all orders and resolutions of the Board of
Directors are carried into effect. He shall execute all bonds, mortgages,
contracts and other instruments of the Corporation requiring a seal, under the
seal of the Corporation, except where required or permitted by law to be
otherwise signed and executed and except that the other officers of the
Corporation may sign and execute documents when so authorized by these Bylaws,
the Board of Directors or the Chief Executive Officer or the President, if there
be one. In the absence or disability of the Chairman of the Board of Directors,
the Chief Executive Officer or the President, if there be one, shall preside at
all meetings of the stockholders and the Board of Directors. The Chief Executive
Officer or President, if there be one, shall also perform such other duties and
may exercise such other powers as from time to time may be assigned to him by
these Bylaws or by the Board of Directors.
Section 6. Chief Operating Officer, Vice-Presidents and
Executive Vice-Presidents. At the request of the Chief Executive Officer or
President, if there be one, or in his absence or in the event of his inability
or refusal to act, and if there be no Chairman of the Board of Directors, the
Chief Operating Officer, the Executive Vice-President or Executive
Vice-Presidents, if any, or the Vice-President or the Vice-Presidents, if any,
in the order designated by the Board of Directors, shall perform the duties of
the Chief Executive Officer or President, and when so acting, shall have all the
powers of and be subject to all the restrictions upon the Chief Executive
Officer or President. The Chief Operating Officer and
7
<PAGE>
each Executive Vice-President or Vice-President shall perform such other duties
and have such other powers as the Board of Directors from time to time may
prescribe. If there be no Chairman of the Board of Directors and no Chief
Operating Officer, Executive Vice-President or Vice-President, the Board of
Directors shall designate the officer of the Corporation who, in the absence of
the Chief Executive Officer or President, if there be one, or in the event of
the inability or refusal of the Chief Executive Officer or President to act,
shall perform the duties of the Chief Executive Officer or President, and when
so acting, shall have all the powers of and be subject to all the restrictions
upon the Chief Executive Officer or President.
Section 7. Secretary. The Secretary shall attend all meetings
of the Board of Directors and all meetings of stockholders and record all the
proceedings thereat in a book or books to be kept for that purpose; the
Secretary shall also perform like duties for the standing committees when
required. The Secretary shall give, or cause to be given, notice of all meetings
of the stockholders and special meetings of the Board of Directors, and shall
perform such other duties as may be prescribed by the Board of Directors or
Chief Executive Officer or President, if there be one, under whose supervision
he shall be. If the Secretary shall be unable or shall refuse to cause to be
given notice of all meetings of the stockholders and special meetings of the
Board of Directors, and if there be no Assistant Secretary, then either the
Board of Directors or the Chief Executive Officer or the President, if there be
one, may choose another officer to cause such notice to be given. The Secretary
shall have custody of the seal of the Corporation and the Secretary or any
Assistant Secretary, if there be one, shall have authority to affix the same to
any instrument requiring it and when so affixed, it may be attested by the
signature of the Secretary or by the signature of any such Assistant Secretary.
The Board of Directors may give general authority to any other officer to affix
the seal of the Corporation and to attest the affixing by his signature. The
Secretary shall see that all books, reports, statements, certificates and other
documents and records required by law to be kept or filed are properly kept or
filed, as the case may be.
Section 8. Treasurer. 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. The Treasurer 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 Chief Executive Officer or the President,
if there be one,
8
<PAGE>
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. If required by the Board of
Directors, the Treasurer shall give the Corporation a bond 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 9. Assistant Secretaries. Except as may be otherwise
provided in these Bylaws, Assistant Secretaries, if there be any, shall perform
such duties and have such powers as from time to time may be assigned to them by
the Board of Directors, the Chief Executive Officer or the President, if there
be one, any Vice-President, if there be one, or the Secretary, and in the
absence of the Secretary or in the event of his disability or refusal to act,
shall perform the duties of the Secretary, and when so acting, shall have all
the powers of and be subject to all the restrictions upon the Secretary.
Section 10. Assistant Treasurers. Assistant Treasurers, if
there be any, shall perform such duties and have such powers as from time to
time may be assigned to them by the Board of Directors, the Chief Executive
Officer or the President, if there be one, any Vice-President, if there be one,
or the Treasurer, and in the absence of the Treasurer or in the event of his
disability or refusal to act, shall perform the duties of the Treasurer, and
when so acting, shall have all the powers of and be subject to all the
restrictions upon the Treasurer. If required by the Board of Directors, an
Assistant Treasurer shall give the Corporation a bond 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 11. Other Officers. Such other officers as the Board
of Directors may choose shall perform such duties and have such powers as from
time to time may be assigned to them by the Board of Directors. The Board of
Directors may delegate to any other officer of the Corporation the power to
choose such other officers and to prescribe their respective duties and powers.
9
<PAGE>
ARTICLE V
STOCK
-----
Section 1. Form of Certificates. Every holder of stock in the
Corporation shall be entitled to have a certificate signed, in the name of the
Corporation (i) by the Chairman or vice-chairman of the Board of Directors, or
the President or vice president, and (ii) by the Treasurer or an Assistant
Treasurer, if there be one, or the Secretary or an Assistant Secretary, if there
be one, of the Corporation, certifying the number of shares owned by him in the
Corporation.
Section 2. Signatures. Any or all the signatures of the
appropriate officers of the Corporation on a certificate may be a facsimile.
Where a certificate is countersigned by (i) a transfer agent other than the
Corporation or its employee, or (ii) a registrar other than the Corporation or
its employee, such signatures 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.
Section 3. Lost Certificates. The Board of Directors may
direct a new certificate to be issued in place of any certificate theretofore
issued by the Corporation alleged to have been lost, stolen or destroyed, upon
the making of an affidavit of that fact by the person claiming the certificate
of stock to be lost, stolen or destroyed. When authorizing such issue of a new
certificate, 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 his legal representative, to advertise the same in
such manner as the Board of Directors 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.
Section 4. Transfers. Stock of the Corporation shall be
transferable in the manner prescribed by law and in these Bylaws. Transfers of
stock shall be made on the books of the Corporation only by the person named in
the certificate or by his attorney lawfully constituted in writing and upon the
surrender of the certificate therefor, which shall be canceled before a new
certificate shall be issued.
Section 5. Record Date. In order that the Corporation may
determine the stockholders entitled to notice of or to vote at any meeting of
stockholders or any adjournment thereof, or entitled to express consent to
corporate action in writing without a meeting, or entitled to receive payment of
any dividend
10
<PAGE>
or other distribution or allotment of any rights, or entitled to exercise any
rights in respect of any change, conversion or exchange of stock, or for the
purpose of any other lawful action, the Board of Directors may fix, in advance,
a record date, which shall be not less than ten nor more than sixty days before
the date of such meeting. 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.
Section 6. Beneficial Owners. 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 of the part of any other person,
whether or not it shall have express or other notice thereof, except as
otherwise provided by law.
ARTICLE VI
NOTICES
-------
Section 1. Notices. Whenever written notice is required by
law, the Certificate of Incorporation or these Bylaws, to be given to any
director, member of a committee or stockholder, such notice may be given by
mail, addressed to such director, member of a committee 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. Written notice may also be given
personally or by telegram, telex or cable.
Section 2. Waivers of Notice. Whenever any notice is required
by law, the Certificate of Incorporation or these Bylaws, to be given to any
director, member of a committee or stockholder, 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 VII
GENERAL PROVISIONS
------------------
Section 1. Dividends. Dividends upon the capital stock of the
Corporation, subject to the provisions of the Certificate of Incorporation, if
any, may be declared by the Board of Directors at any regular or special
meeting, and may be
11
<PAGE>
paid in cash, in property, or in shares of the capital stock. Before payment of
any dividend, there may be set aside out of any funds of the Corporation
lawfully available for dividends such sum or sums as the Board of Directors from
time to time, in its absolute discretion, deems 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 any proper purpose, and the
Board of Directors may modify or abolish any such reserve.
Section 2. Disbursements. All checks or demands for money and
notes of the Corporation shall be signed by such officer or officers or such
other person or persons as the Board of Directors may from time to time
designate.
Section 3. Fiscal Year. The fiscal year of the Corporation
shall be fixed by resolution of the Board of Directors.
Section 4. Corporate Seal. 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 or otherwise.
ARTICLE VIII
INDEMNIFICATION AND DIRECTORS' LIABILITY
----------------------------------------
Section 1. Indemnification of Directors and Officers.
The Corporation shall be required, to the fullest extent authorized by Section
145 of the Delaware General Corporation Law (the "DGCL"), as the same may be
amended and supplemented, to indemnify all persons whom it may indemnify
pursuant thereto.
Section 2. Limitation on Liability of Directors. The personal
liability of each of the directors of the Corporation shall be limited to the
fullest extent permitted by paragraph 7 of subsection (b) of Section 102 of the
DGCL, as the same may be amended and supplemented.
ARTICLE IX
AMENDMENTS
----------
Section 1. These Bylaws may be altered, amended or repealed,
in whole or in part, or new Bylaws may be adopted by the stockholders or by the
Board of Directors, provided, however, that notice of such alteration,
amendment, repeal or adoption of new Bylaws be contained in the notice of such
meeting of stockholders or Board of Directors, as the case may be. All such
amendments must be approved by either the holders of a majority of the
outstanding capital stock entitled to vote thereon or by a majority of the
entire Board of Directors then in office.
12
<PAGE>
Section 2. Entire Board of Directors. As used in this Article
IX and in these Bylaws generally, the term "entire Board of Directors" means the
total number of directors which the Corporation would have if there were no
vacancies.
13
<PAGE>
CERTIFICATE OF MERGER
OF
NETWORD LLC
(a Delaware limited liability company)
INTO
NETWORD, INC.
(a Delaware Corporation)
Pursuant to Section 264 of the
Delaware General Corporation Law ("DGCL")
The undersigned corporation, being the surviving constituent
entity, hereby certifies:
FIRST: The name of the surviving constituent entity
is Netword, Inc. Its state of incorporation is Delaware. The
name of the non-surviving constituent entity is Netword LLC. Its
state of formation is Delaware.
SECOND: An Agreement and Plan of Merger, dated as of
February 16, 1999, between Netword LLC and Netword, Inc. has been
approved, adopted, certified, executed and acknowledged by each
of the constituent entities in accordance with the requirements
of Section 264(c) of the DGCL.
THIRD: Netword, Inc. shall continue as the surviving
corporation.
FOURTH: The Certificate of Incorporation of Netword,
Inc. shall be the Certificate of Incorporation of the surviving
constituent entity without change or amendment, until further
<PAGE>
amended in accordance with the provisions thereof and applicable law.
FIFTH: The executed Agreement of Merger is on file at the
principal place of business of the surviving constituent entity. The address of
the principal place of business of the surviving constituent entity is: 702
Russell Avenue, Third Floor, Gaithersburg, Maryland 20877.
SIXTH: A copy of the Agreement of Merger will be furnished by
the surviving constituent entity, upon request and without cost, to any
stockholder of any constituent corporation or any member of any constituent
limited liability company.
<PAGE>
IN WITNESS WHEREOF, Netword, Inc. has caused this Certificate
of Merger to be executed in its name and on its behalf and affirms that the
statements made herein are true under the penalties of perjury, this 16th day of
February 1999.
NETWORD, INC.
(a Delaware corporation)
By:/s/ Michael Wise
-------------------------------------------
Michael Wise, President
<PAGE>
AGREEMENT OF MERGER
AGREEMENT OF MERGER (the "Agreement") dated February 16, 1999 by and
between NETWORD, INC., a Delaware corporation ("Surviving Corporation"), and
NETWORD LLC, a Delaware limited liability company ("Disappearing LLC").
This Agreement provides for the merger of Disappearing LLC with and into
Surviving Corporation (the "Merger").
Surviving Corporation was incorporated in the State of Delaware on February
2, 1999. Its total authorized capital stock is 40,010,000 shares of which
40,000,000 shares are classified as common stock, $.01 par value (the "Common
Stock") and 10,000 shares are classified as preferred stock, $.01 par value.
None of such authorized shares have been issued.
Disappearing LLC was formed pursuant to the laws of the state of Delaware
on November 15, 1996. A total of 36,053.69 Units representing membership
interests in Disappearing LLC are issued and outstanding, each of which was
entitled to vote on the Merger. Additionally, Disappearing LLC has issued and
outstanding options pursuant to which the holders have rights to purchase an
aggregate of 9,229.15 additional such Units of Disappearing LLC.
The Board of Directors of Surviving Corporation (the "Board") has
determined that the Merger is advisable and in the best interests of Surviving
Corporation, and members of Disappearing LLC holding a majority of the
outstanding Units of Disappearing LLC (the "Members") and a majority of the
managers of Disappearing LLC (the "Managers") have determined that the Merger is
advisable and in the best interests of Disappearing LLC.
It is, therefore, agreed as follows:
1. On the date on which a certificate of merger with respect to the Merger
is filed with the Secretary of State of Delaware (the "Effective Date"),
Disappearing LLC shall be merged into Surviving Corporation and the separate
existence of Disappearing LLC shall cease. Surviving Corporation shall be the
<PAGE>
surviving entity, under its present name, and shall continue to be governed by
the laws of the State of Delaware. The time of filing such certificate is herein
referred to as the "Effective Time."
2. The Certificate of Incorporation of Surviving Corporation in effect at
the Effective Time shall continue as the Certificate of Incorporation of the
surviving entity. The Bylaws of Surviving Corporation in effect at the Effective
Time shall continue as the Bylaws of the surviving entity. The officers and
directors of Surviving Corporation in office at the Effective Time shall
continue to hold their respective positions until their successors shall have
been duly elected and qualified or until their earlier resignation or removal.
3. (a) At the Effective Time, each outstanding Unit of Disappearing LLC
shall cease to be outstanding and shall be converted into, and the holder
thereof shall be entitled to receive, in exchange for such Unit, (i) 247 shares
of Common Stock of Surviving Corporation and (ii) warrants (each, a "Warrant")
substantially in the form of Exhibit A hereto to purchase 88 shares of Common
Stock of Surviving Corporation (the "Warrant Shares") at an exercise price of
$1.25 per share. The Warrants shall expire on the fifth anniversary of the
Effective Date, subject to prior redemption by Surviving Corporation upon the
occurrence of certain events.
(b) At the Effective Time, each outstanding option to purchase Units of
Disappearing LLC shall be canceled and cease to be outstanding. Promptly after
the Effective Time, Surviving Corporation shall grant new options to purchase
shares of Common Stock of Surviving Corporation to the holders of such canceled
options, in such quantities and ratios that each holder of a canceled option to
purchase one Unit shall receive new options to purchase (i) 247 shares of Common
Stock of Surviving Corporation at an exercise price of $0.1666 per share ("A
Options") and (ii) 88 shares of Common Stock of Surviving Corporation at an
exercise price of $1.25 per share ("B Options"). All such new options shall be
issued pursuant to an incentive plan of Surviving Corporation authorized by the
Board and approved by the stockholders of Surviving Corporation, shall be
non-assignable or transferable except by will or pursuant to the laws of descent
and distribution and shall be immediately exercisable. All A Options shall
expire on the third anniversary of the Effective Date, and all B Options shall
expire on the fifth anniversary of the Effective Date.
<PAGE>
4. (a) As soon as practicable after the Effective Time, each holder of a
certificate or certificates which prior thereto represented issued and
outstanding Units of Disappearing LLC shall be entitled to surrender such
certificate(s) to the Secretary of Surviving Corporation at the principal office
of Surviving Corporation, at 702 Russell Avenue, Third Floor, Gaithersburg,
Maryland 20877, and shall receive in exchange therefor one or more certificates
representing the number of shares of Surviving Corporation Common Stock and the
Warrants into which his or her Units shall have been converted by virtue of the
Merger. From and after the Effective Time, certificates evidencing Units of
Disappearing LLC shall evidence only the rights to receive shares of Common
Stock and Warrants in exchange therefor as provided in the preceding sentence,
and the registered holders of canceled Units shall be deemed to be holders of
shares of Common Stock and Warrants whether or not such certificates shall have
been surrendered.
All stock certificates for shares of Common Stock and Warrants shall bear a
legend stating, as the case may be, that the shares of Common Stock or the
Warrant and the related Warrant Shares evidenced thereby have not been
registered under the Securities Act of 1933, as amended, (the "Securities Act")
or under any state securities laws, and that such shares of Common Stock, the
Warrant and the Warrant Shares may not be transferred until (i) a registration
statement with respect thereto is effective under the Securities Act and
applicable state securities laws, or (ii) the Company receives an opinion of
counsel to the Company or other counsel reasonably satisfactory to the Company
that such securities may be transferred without such registration.
(b) As soon as practicable after the Effective Time, each person who
prior to the Effective Time held an option to purchase a Unit of Disappearing
LLC shall receive an award letter evidencing the grant of new options to such
person as provided in Section 3(b) hereof.
5. This Agreement and the Merger may be abandoned or terminated prior to
the filing of the certificate of merger with the Secretary of the State Delaware
by resolution duly adopted by the Board, the Members and the Manager.
<PAGE>
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the
date first written above.
NETWORD, INC.
By:/s/ Michael Wise
-----------------------
Michael Wise, President
NETWORD LLC
By:/s/ Michael Wise
-----------------------
Michael Wise, Manager
<PAGE>
Netword, Inc.
Secretary's Certificate
The undersigned, Kent Klineman, Secretary of Netword, Inc., a Delaware
corporation and one of the constituent entities mentioned in the foregoing
Agreement of Merger (the "Agreement"), certifies that (i) the Agreement has been
adopted by the unanimous written consent of the Board of Directors of Netword,
Inc. in accordance with Sections 264 and 251 of the Delaware General Corporation
Law ("DGCL") and (ii) pursuant to ss.251(f) of the DGCL, no stockholder approval
was required since no shares of Netword, Inc. were issued prior to adoption of
the Agreement by the Board of Directors.
Dated: February 16, 1999
/s/ Kent M. Klineman
---------------------------
Secretary of Netword, Inc.
<PAGE>
Netword LLC
Manager's Certificate
The undersigned, Michael Wise, Manager of Netword LLC, a Delaware limited
liability Company and one of the constituent entities mentioned in the foregoing
Agreement of Merger (the "Agreement"), certifies that the Agreement has been
adopted by the written consent of members of Netword LLC holding a majority of
the outstanding voting membership interests of Netword LLC and a majority of the
managers of Netword LLC, in accordance with the provisions of the limited
liability company agreement of Netword LLC and the Delaware Limited Liability
Company Act.
Dated: February 16, 1999
/s/ Michael Wise
---------------------------
Manager of Netword LLC
<PAGE>
EXHIBIT A
See Exhibit 3.1 to this Registration Statement.
<PAGE>
SERIES A-1 WARRANT NO.________________
_________________ SHARES
THIS WARRANT AND THE SHARES ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"),
OR THE RULES AND REGULATIONS PROMULGATED THEREUNDER, OR UNDER ANY STATE
SECURITIES LAW AND MAY NOT BE PLEDGED, SOLD, ASSIGNED, TRANSFERRED OR OTHERWISE
DISPOSED OF UNLESS (i) A REGISTRATION STATEMENT WITH RESPECT THERETO IS
EFFECTIVE UNDER THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS OR (ii)
THE COMPANY RECEIVES AN OPINION OF ITS COUNSEL OR OTHER COUNSEL REASONABLY
SATISFACTORY TO THE COMPANY THAT SUCH WARRANT OR SHARES MAY BE DISPOSED OF
WITHOUT AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND
APPLICABLE STATE SECURITIES LAWS.
WARRANT, dated as of February 18, 1999, issued by NETWORD,
INC., a Delaware corporation (the "Company") with principal offices at 702
Russell Avenue, Third Floor, Gaithersburg, Maryland 20877-2606, Attn: President,
to _________________ (the "Holder").
The Company hereby agrees as follows:
1. Grant. The Company hereby grants to the Holder, the right,
privilege and option to purchase from the Company__________________ shares (the
"Warrant Shares") of the Company's common stock, par value $.01 per share
("Common Stock"), subject to adjustment as provided in Section 6 hereof, at the
exercise price of $1.25 per share (the "Exercise Price"), all subject to the
terms and upon the conditions set forth herein.
2. Exercise of Warrant. This Warrant is exercisable commencing
on the date hereof until 5:00 p.m., N.Y. time, on February 17, 2004 (the
"Expiration Date"), subject to the right of the Company to redeem this Warrant
as described in Section 3 hereof. This Warrant shall expire and all rights of
the Holder will terminate upon the Expiration Date.
3. Method of Exercise and Redemption of Warrant. Subject to
the redemption of this Warrant by the Company as provided in this Section 3, the
Holder may exercise this Warrant at or prior to the close of business on the
Expiration Date. This Warrant may be exercised by the Holder or redeemed by the
Company as follows:
(a) Subject to compliance with the provisions of
Section 5 hereof, this Warrant may be exercised in whole at any time, or in part
from time to time, by delivery of this
<PAGE>
Warrant to the Company at its principal place of business, accompanied by a
check payable to the Company in payment of the Exercise Price for the number of
Warrant Shares as to which this Warrant is being exercised.
(b) Upon clearance of the check delivered pursuant to
Section 3(a) hereof, the Company shall make immediate delivery of the Warrant
Shares as to which this Warrant is being exercised, provided that if any law or
regulation requires the Company to take any action with respect to such Warrant
Shares before the issuance thereof, then the date of delivery of such shares
shall be extended for the period necessary to take such action. In case of the
purchase of less than all the shares purchasable under this Warrant, the Company
shall cancel this Warrant upon surrender hereof and shall execute and deliver to
the Holder a new Warrant of like tenor and date for the balance of the Warrant
Shares.
(c) In the event that a registration statement shall
become effective under the Securities Act of 1933, as amended (the "Securities
Act") covering the purchase and/or resale of the Warrant Shares, then the
Company may, at its option, redeem this Warrant as to all or any of the Warrant
Shares, at a price of $0.05 per Warrant Share (the "Redemption Price"), at any
time after the first date on which the average of the closing bid prices for the
shares of the Company's Common Stock in any inter-dealer quotation system on
which the Common Stock has been the subject of both bid and ask quotations shall
have exceeded $2.50 per share on any 10 consecutive trading days that commenced
on or after the effective date of such registration statement. From and after
the date fixed for redemption by notice given pursuant to Section 3(d) hereof
(the "Redemption Date"), the right to purchase Warrant Shares with respect to
the redeemed portion of this Warrant shall cease, and the Holder shall be
entitled to payment of the Redemption Price with respect to the portion of this
Warrant so redeemed (and to receive a new Warrant of like tenor and date with
respect to the unredeemed portion of this Warrant) upon surrender of this
Warrant to the Company.
(d) Notice of redemption of this Warrant shall be
given at least 30 days prior to the Redemption Date by mailing, by registered or
certified mail, return receipt requested, a copy of such notice to the Holder at
its address appearing on the books or transfer records of the Company or such
other address as may be designated by the Holder by notice to the Company.
Notwithstanding the giving of such notice, the Holder shall be entitled to
exercise this Warrant at any time prior to the Redemption Date.
4. Payment of Taxes. (a) The Company shall pay all documentary
stamp taxes attributable to the issuance of Warrant Shares upon the exercise of
this Warrant; provided, however, that the Company shall not be required to pay
any tax that may be payable in respect of any transfer involved in the issuance
and delivery of any Warrants, warrant certificates or certificates for Warrant
Shares purchased pursuant hereto in a name other than that of the Holder, and
the Company shall not be required to issue or deliver such Warrants, warrant
certificates or other certificates unless or until the person or persons
requesting the issuance thereof shall have paid to the Company the amount of
such tax or shall have established to the satisfaction of the Company that such
tax has been paid.
2
<PAGE>
(b) The Company's obligation to deliver Warrant Shares upon
the exercise of this Warrant or any portion thereof shall be subject to the
payment by the Holder of any applicable federal, state and local withholding
tax. The Company shall, to the extent permitted by law, have the right to deduct
from any payment of any kind otherwise due to the Holder any federal, state or
local taxes required to be withheld with respect to such payment.
5. Restriction on Transfer and Exercise of Warrant. The Holder
hereof, by the Holder's acceptance hereof, hereby represents and warrants to,
and agrees with, the Company that the Holder has been informed that neither this
Warrant nor the Warrant Shares have been registered for sale under any federal
or state securities laws and that this Warrant is being offered and sold to the
Holder and, upon the exercise of this Warrant, the Warrant Shares will be sold
to the Holder, pursuant to an exemption from registration under the Securities
Act; Holder is acquiring this Warrant and will acquire the Warrant Shares for
Holder's own account for investment only and not with a view to the resale or
distribution thereof; this Warrant is not assignable or transferable otherwise
than by will or the laws of descent and distribution, and this Warrant may be
exercised during the Holder's lifetime only by the Holder; any attempt to assign
or transfer this Warrant in contravention of this Section 5 shall be void ab
initio; the Warrant Shares may not be sold, transferred, assigned, hypothecated
or otherwise disposed of, in whole or in part, unless registered under the
Securities Act and applicable state securities laws or unless an exemption from
such registrations is available; and that prior to the exercise of this Warrant,
Holder shall provide to the Company in writing such information as the Company
may reasonably request to establish that the exercise of this Warrant by Holder
is exempt from registration under such securities laws.
6. Anti-Dilution Provisions. (a) In case the Company shall (i)
declare or pay a dividend on its outstanding shares of Common Stock in shares of
Common Stock or make a distribution to all holders of its outstanding shares of
Common Stock in shares of Common Stock, (ii) subdivide its outstanding shares of
Common Stock into a greater number of shares of Common Stock, (iii) combine its
outstanding shares of Common Stock into a smaller number of shares of Common
Stock or (iv) issue by reclassification of its outstanding shares of Common
Stock other securities of the Company (including any such reclassification in
connection with a consolidation, merger or other business combination in which
the Company is the surviving corporation), the number and kind of Warrant Shares
purchasable upon exercise of this Warrant shall be adjusted so that Holder upon
exercise hereof shall be entitled to receive the number and kind of Warrant
Shares or other securities of the Company that the Holder would have owned or
have been entitled to receive after the occurrence of any of the events
described above had this Warrant been exercised immediately prior to the
occurrence of such event or any record date with respect thereto. An adjustment
made pursuant to this Section 6(a) shall become effective on the date of the
dividend payment, distribution, subdivision, combination or reclassification
issuance retroactive to the record date with respect thereto, if any, for such
event. Adjustment by reason of this Section 6(a) shall be made successively
whenever such an event occurs.
(b) In case of any consolidation of the Company with, or merger of the
Company into, another person (whether or not the Company is the surviving
corporation), or in the case of any sale, transfer or lease to another person of
all or substantially all of the assets of the Company,
3
<PAGE>
the Company or such successor, as the case may be, shall deliver to Holder an
undertaking that Holder shall have the right thereafter upon payment of the
Exercise Price in effect immediately prior to such transaction to purchase upon
exercise of this Warrant the kind and amount of securities, cash and property
which Holder would have owned or have been entitled to receive after the
consummation of such consolidation, merger, sale, transfer or lease had this
Warrant been exercised immediately prior to such transaction, and if the
successor or purchaser is not a corporation, such person shall provide
appropriate tax indemnification with respect to such shares and other securities
and property so that, upon exercise of this Warrant, Holder thereof would have
the same benefits he otherwise would have had if such successor or purchaser
person were a corporation. The provisions of this Section 6(b) shall similarly
apply to successive consolidations, mergers, sales, transfers or leases.
7. Elimination of Fractional Shares. The Company shall not be
required to issue certificates representing fractional shares of Common Stock
upon the exercise of this Warrant, nor shall it be required to issue scrip or
pay cash in lieu of fractional shares, it being the intent of the parties that
all fractional shares shall be eliminated by the Company by rounding down to the
nearest whole number of shares of Common Stock.
8. Reservation of Securities. The Company shall at all times
reserve and keep available out of its authorized shares of Common Stock, solely
for the purpose of issuance upon the exercise of this Warrant, such number of
shares of Common Stock as shall be issuable upon the exercise thereof. The
Company covenants and agrees that, upon exercise of this Warrant for and payment
of the exercise price therefor, all Warrant Shares issuable upon such exercise
shall be duly authorized, validly issued, fully paid, nonassessable and not
subject to preemptive rights of any shareholder.
9. Notices to Warrant Holder. Nothing contained in this
Warrant shall be construed as conferring upon the Holder the right to vote or to
consent or to receive notice as a shareholder in respect of any meetings of
shareholders for the election of directors or any other matter, or as having any
rights whatsoever as a shareholder of the Company. If the Company shall propose
to engage in any transaction with respect to which adjustment of the Exercise
Price or the kind or amount of securities, property or other assets receivable
upon exercise of this Warrant would be required pursuant to Section 6, the
Company shall cause to be mailed to the Holder, at least 10 days prior to the
applicable date hereinafter specified, a notice describing such transaction and
stating (a) in the case of any dividend, distribution or grant of rights or
warrants to all holders of shares of Common Stock, the date on which a record is
to be taken for such purpose or, if a record is not to be so taken, the date as
of which the holders of Common Stock of record to be entitled thereto are to be
determined, (b) in the case of any other transaction described in Section 6 in
which all holders of Common Stock of record are entitled to participate, the
date on which such transaction is expected to become effective and the date as
of which it is expected that holders of Common Stock of record shall be entitled
to exchange their shares of Common Stock for securities, property or other
assets deliverable upon such transaction, and (c) in the case of any other
transaction, the date on which it is expected to occur or become effective.
Failure to give such notice or any defect therein shall not affect the validity
of any action taken or transaction consummated by the Company.
4
<PAGE>
10. Notices.
All notices, requests, consents and other communications
hereunder shall be effective only if given in writing and shall be deemed to
have been duly made or given when delivered, or three days after being mailed by
registered or certified mail, return receipt requested:
(a) If to the Holder, to the address of the Holder as
shown on the books of the Company or as otherwise designated
or provided for herein; or
(b) If to the Company, to the address set forth on
the first page of this Warrant or to such other address as the
Company may designate by notice to the Holder.
11. Amendment. This Warrant may not be amended or supplemented
except by an instrument in writing executed by the Company and the Holder.
12. Governing Law. This Warrant shall be deemed to be a
contract made under the laws of the State of New York and for all purposes shall
be construed in accordance with the laws of such State (without regard to the
conflicts of law principles thereof).
13. Jurisdiction. Any legal action or proceeding with respect
to the interpretation or enforcement of this Warrant may be brought exclusively
in the courts of the State of New York or of the United States of America for
the Southern District of New York, and, by acceptance of this Warrant, the
Holder accepts for itself and in respect of its property, generally and
unconditionally, the exclusive jurisdiction of the aforesaid courts with respect
to such matters. By acceptance of this Warrant, the Holder waives and agrees not
to assert, as a defense in any action, suit or proceeding for the interpretation
or enforcement of this Warrant, that the Holder is not subject thereto or that
such action, suit or proceeding may not be brought or is not maintainable in
said courts or that this Warrant may not be enforced in or by said courts or
that the Holder's property is exempt or immune from execution, that the suit,
action or proceeding is brought in an inconvenient forum, that the venue of the
suit, action or proceeding is improper or (provided that process shall be served
in any manner referred to in the following sentence) that service of process
upon the Holder is ineffective. Service of process in any such action, suit or
proceeding may be made upon the Company or the Holder in any manner permitted by
the laws of the State of New York or the federal laws of the United States or as
follows: (i) by personal service or (ii) by certified or registered mail to the
Holder or the Company, as applicable, at its address for notice pursuant to
Section 10. Service of process upon the Holder or the Company in any manner
referred to in the preceding sentence shall be deemed in every respect effective
service of process upon the Holder or the Company.
14. Benefits of This Warrant. Nothing in this Warrant shall be
construed to give to any person other than the Company and the Holder any legal
or equitable right, remedy or claim under this Warrant; and this Warrant shall
be for the sole and exclusive benefit of the Company and the Holder.
5
<PAGE>
15. Headings. The headings in this Warrant are intended solely
for convenience of reference and shall be given no effect in the construction or
interpretation of this Warrant.
IN WITNESS WHEREOF, the Company has caused this Warrant to be
duly executed as of the day and year first above written.
NETWORD, INC.
By:______________________________
Name: Shep Bostin
Title: Chief Operating Officer and
Vice President of Marketing
6
<PAGE>
Shareholder Designee
SUBSCRIPTION AGREEMENT
Netword, Inc.
702 Russell Avenue
Third Floor
Gaithersburg, Maryland 20877
Ladies and Gentlemen:
1. Subscription. (a) The undersigned (the "Subscriber") hereby
subscribes to purchase shares of common stock ("Common Stock"), par value $.01,
of Netword, Inc., a Delaware corporation (the "Company"), at the purchase price
of $0.1666 per share. The number of such shares subscribed for (the "Shares") is
set forth below Subscriber's signature on the signature page hereof. Subscriber
herewith delivers to the Company Subscriber's check or other payment (the
"Payment") for the Shares in the amount equal to the product of $0.1666
multiplied by the number of Shares.
(b) By checking the box indicated on the signature page
hereof, Subscriber elects to purchase Subscriber's allocable share (based upon
the percentage ownership by Subscriber of the outstanding shares of Common Stock
of the Company prior to the completion of the Offering referred to in the
Company's Confidential Private Offering Memorandum, dated February 15, 1999 (the
"Memorandum")) of any portion of 1,500,000 shares of Common Stock that is not
subscribed for by other Shareholder Designees (as defined in the Memorandum). If
Subscriber does check such box, the subscription made hereby will extend to an
additional number of shares of Common Stock (not exceeding 25% of the number of
Shares initially subscribed for hereby) of which Subscriber will be notified
prior to the Closing. Upon such notice, Subscriber will promptly remit the
additional payment required to purchase such additional shares of Common Stock.
2. Representations, Warranties and Covenants of the
Subscriber. The Subscriber hereby represents and warrants to the Company that:
2.1 The Subscriber is a stockholder of the Company.
2.2 The Subscriber has received and has fully read and
considered the Memorandum, including, without limitation, the material set forth
under "Risk Factors." The Subscriber confirms that, except as set forth in the
Memorandum, no representations or warranties have been made to the Subscriber by
the Company or its officers and directors, or any agent, employee or affiliate
of any of them, and that in entering into this transaction the Subscriber is not
relying upon information regarding the Company other than that contained in the
Memorandum.
<PAGE>
2.3 The Subscriber is aware that the purchase of the Shares is
a speculative investment involving a high degree of risk and that there is no
guarantee that the Subscriber will recover its investment in the Shares or
realize any gain from such investment.
2.4 The Subscriber (a) has sufficient liquid assets to pay the
full purchase price for the Shares, (b) has adequate means of providing for the
Subscriber's current and presently foreseeable future needs and possible
personal contingencies, (c) has no present need for liquidity of the
Subscriber's investment in the Shares, and (d) is able to bear the economic
risks of the investment in the Shares (i.e., the Subscriber can afford a
complete loss).
3. Miscellaneous
3.1 All notices or other communications given or made
hereunder shall be in writing and shall be delivered by hand or mailed by
registered or certified mail, return receipt requested, postage prepaid, if to
the Subscriber, at the address set forth below the Subscriber's signature on the
signature page hereof, and if to the Company at 702 Russell Avenue, Third Floor,
Gaithersburg, Maryland 20877, Attention: President, with a copy to Kronish Lieb
Weiner & Hellman LLP, 1114 Avenue of the Americas, New York, New York 10036,
Attention: Russell Berman, Esq.
3.2 This Subscription Agreement shall be governed by and
construed in accordance with the laws of the state of New York applicable to
contracts made and wholly performed in that state and without regard to the
principles of conflicts of laws.
3.3 This Subscription Agreement constitutes the entire
agreement between the parties hereto with respect to the subject matter hereof.
All understandings and agreements heretofore had between the parties with
respect to the subject matter hereof are merged in this Subscription Agreement,
which fully and completely expresses their agreement.
3.4 This Subscription Agreement may not be changed, modified,
extended, terminated or discharged orally, but only by an agreement in writing.
3.5 This Subscription Agreement is not transferable or
assignable by the Subscriber. The Subscriber agrees that the Shares acquired
pursuant hereto shall be transferred only in accordance with applicable federal
and state laws.
3.6 All references in this Subscription Agreement to the
"Subscriber" shall include all parties (other than the Company) who execute this
Subscription Agreement. If the Subscriber is a corporation, partnership, trust
or two or more individuals purchasing jointly, the Subscriber shall follow the
specific instructions for the Certificate of Corporate, Partnership, Trust and
Joint Purchases at page 5 hereof.
4. Lock-Up. Subscriber agrees not to offer, sell or contract
to sell, or otherwise dispose of, directly or indirectly, or announce an
offering of 44% of the Shares
2
<PAGE>
purchased pursuant to the subscription made hereby (the "Lock-up Shares") for a
period of 180 days following the day on which the Company accepts the
subscription, except with the prior written consent of the Board of Directors
(the "Board") of the Company; provided, however, that the Subscriber may (i)
distribute, transfer or otherwise dispose of the Lock-up Shares to any
affiliate, associate, employee or partner of the Subscriber or (ii) grant a bona
fide gift of the Lock-up Shares to any other person, without the consent of the
Board, but only if the person acquiring the Lock-up Shares, at the time of such
acquisition, enters into an agreement enforceable by the Company, pursuant to
which such person is bound by the restrictions set forth in this paragraph 4.
The certificates evidencing the Lock-up Shares will bear a legend to the
foregoing effect.
5. Acceptance of Subscription. Subscriber acknowledges that
the subscription made hereby is not binding upon the Company until the Company
accepts it. The Company has the right to accept or reject this subscription in
whole or in part in its sole and absolute discretion. If this subscription is
rejected in whole, the Company shall return the Payment to the Subscriber,
without interest, and the Company and Subscriber shall have no further
obligation to each other hereunder. In the event of a partial rejection of this
subscription, a proportionate amount of the Payment will be returned to the
Subscriber, without interest.
6. Counterparts. This Subscription 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.
7. Severability. If any provision of this Subscription
Agreement shall be declared void or unenforceable by any judicial or
administrative authority, the validity of any other provision and of the entire
Subscription Agreement shall not be affected thereby.
[SIGNATURE PAGE FOLLOWS]
3
<PAGE>
IN WITNESS WHEREOF, this Subscription Agreement has been
executed by the Subscriber and by the Company on the respective dates set forth
below.
<TABLE>
<CAPTION>
<S> <C> <C>
Print Name of Subscriber:____________________________
Date:____________________________
_______________________________________
Signature of Individual Subscriber
_______________________________________
Print Name of Subscriber, if an entity
By:____________________________________ ________________________________________
Signature of authorized signatory of Print name and title of signatory
Subscriber which is an entity for any Subscriber which is an entity
_______________________________________
Social Security No. (for individuals)
Tax Identification No. (for entities)
_______________________________________ $_______________________________________
Number of Shares Purchased Payment Amount for Shares Purchased
(Number of Shares multiplied by $0.1666)
Please check this box if You Elect to
Purchase Your Pro Rata Share of any
Unsubscribed Shareholder Allotment o
_______________________________________ ________________________________________
Telephone No./ Facsimile No. Street Address
________________________________________
City State Zip
Subscription Accepted by:
NETWORD, INC.
By:____________________________________ Date:___________________________________
</TABLE>
4
<PAGE>
SPECIAL SUBSCRIPTION INSTRUCTIONS FOR CORPORATE,
PARTNERSHIP, LIMITED LIABILITY COMPANY,
TRUST AND JOINT PURCHASERS
If the subscriber is a corporation, partnership, limited
liability company, trust, or other entity or joint purchaser, the following
additional instructions must be followed. INFORMATION ADDITIONAL TO THAT
REQUESTED BELOW MAY ALSO BE REQUIRED BY THE COMPANY IN SOME CASES.
I. Certificate. The subscriber must date and sign the
Certificate below, and, if requested by the Company, the subscriber may also be
required to provide an opinion of counsel to the same effect as this Certificate
or a copy of (a) the corporation's articles of incorporation, bylaws and
authorizing resolution, (b) the partnership agreement, (c) the limited liability
company's certificate of formation or articles of organization, as applicable,
and limited liability company agreement, operating agreement or similar
agreement governing the rights and obligations of the members of the limited
liability company, or (d) the trust agreement, as applicable.
II. Subscription Agreement
A. Corporations. An authorized officer of the
corporation must date, sign, and complete the Subscription Agreement with
information concerning the corporation. The officer should print the name of the
corporation above his signature, and print his name and office below his
signature.
B. Partnerships. An authorized partner must date,
sign, and complete the Subscription Agreement with information concerning the
partnership. The partner should print the name of the partnership above his
signature, and print his name and the words "general partner" below his
signature.
C. Limited Liability Companies. An authorized member
or manager must date, sign, and complete the Subscription Agreement with
information concerning the limited liability company. The member or manager
should print the name of the limited liability company above his signature, and
print his name and the word "member" or "manager" below his signature.
D. Trusts. In the case of a trust, the authorized
trustee should date, sign, and complete the Subscription Agreement with
information concerning the trust. The trustee should print the name of the trust
above his signature, and print his name and the word "trustee" below his
signature. In addition, an authorized trustee should also provide information
requested in the Subscription Agreement as it pertains to him as an individual.
E. Joint Ownership. In all cases, each individual
must date, sign, and complete the Subscription Agreement. Joint investors must
state if they are purchasing the Shares as joint tenants with the right of
survivorship, tenants in common, or community property, and each must execute
the Subscription Agreement Signature Page.
5
<PAGE>
CERTIFICATE FOR CORPORATE, PARTNERSHIP,
LIMITED LIABILITY COMPANY, TRUST, AND JOINT SUBSCRIBERS
If the subscriber is a corporation, partnership, limited
liability company, trust, joint purchaser, or other entity, an authorized
officer, partner, member, manager or trustee must complete, date, and sign this
Certificate.
CERTIFICATE
I hereby certify that:
a. The subscriber has been duly formed and is validly existing
and has full power and authority to invest in Netword, Inc.
b. The Subscription Agreement has been duly and validly
authorized, executed, and delivered by the subscriber and, upon
acceptance by Netword, Inc., will constitute the valid, binding, and
enforceable obligation of the subscriber.
Date:__________ ___________________________________________________
Name of corporation, partnership, limited liability
company, trust or joint purchasers (please print)
___________________________________________________
Signature and title of authorized officer, partner,
member, manager, trustee, or joint purchaser
6
<PAGE>
Foreign Investor
SUBSCRIPTION AGREEMENT
Netword, Inc.
702 Russell Avenue
Third Floor
Gaithersburg, Maryland 20877
Ladies and Gentlemen:
1. Subscription. The undersigned (the "Subscriber") hereby
subscribes to purchase shares of common stock, par value $.01, of Netword, Inc.,
a Delaware corporation (the "Company"), at the purchase price of $0.1666 per
share. The number of such shares subscribed for (the "Shares") is set forth
below the signature of such Subscriber on the signature pages hereof. Subscriber
herewith delivers to the Company Subscriber's check or other payment (the
"Payment") for the Shares in the amount equal to the product of $0.1666
multiplied by the number of Shares.
2. Representations, Warranties and Covenants of the
Subscriber. The Subscriber hereby represents and warrants to the Company that:
2.1 The Subscriber has received and has fully read and
considered the Company's Confidential Private Offering Memorandum, dated
February 15, 1999 (the "Memorandum"), including, without limitation, the
material set forth under "Risk Factors." The Subscriber confirms that, except as
set forth in the Memorandum, no representations or warranties have been made to
the Subscriber by the Company or its officers and directors, or any agent,
employee or affiliate of any of them, and that in entering into this transaction
the Subscriber is not relying upon information regarding the Company other than
that contained in the Memorandum.
2.2 The Subscriber is aware that the purchase of the Shares is
a speculative investment involving a high degree of risk and that there is no
guarantee that the Subscriber will recover its investment in the Shares or
realize any gain from such investment.
2.3 The Subscriber (a) has sufficient liquid assets to pay the
full purchase price for the Shares, (b) has adequate means of providing for the
Subscriber's current and presently foreseeable future needs and possible
personal contingencies, (c) has no present need for liquidity of the
Subscriber's investment in the Shares, and (d) is able to bear the economic
risks of the investment in the Shares (i.e., the Subscriber can afford a
complete loss).
2.4 The Subscriber is making the investment in the Shares for
the Subscriber's own account and not for the account of others.
<PAGE>
2.5 The Subscriber either personally has such knowledge and
experience in financial and business matters to be capable of evaluating the
merits and risks of the proposed investment in the Shares and to make an
informed investment decision with respect thereto, or, by virtue of consultation
with or advice from a person or company who is not a promoter of the Company and
who is a registered advisor or a registered dealer, is able to evaluate the
proposed investment in the Shares.
2.6 The Subscriber has had access to substantially the same
information concerning the Company that a prospectus filed under the Ontario
Securities Act would provide.
3. Miscellaneous
3.1 All notices or other communications given or made
hereunder shall be in writing and shall be delivered by hand or mailed by
registered or certified mail, return receipt requested, postage prepaid, if to
the Subscriber, at the address set forth below the Subscriber's signature on the
signature page hereof, and if to the Company at 702 Russell Avenue, Third Floor,
Gaithersburg, Maryland 20877, Attention: President, with a copy to Kronish Lieb
Weiner & Hellman LLP, 1114 Avenue of the Americas, New York, New York 10036,
Attention: Russell Berman, Esq.
3.2 This Subscription Agreement shall be governed by and
construed in accordance with the laws of the state of New York applicable to
contracts made and wholly performed in that state and without regard to the
principles of conflicts of laws.
3.3 This Subscription Agreement constitutes the entire
agreement between the parties hereto with respect to the subject matter hereof.
All understandings and agreements heretofore had between the parties with
respect to the subject matter hereof are merged in this Subscription Agreement,
which fully and completely expresses their agreement.
3.4 This Subscription Agreement may not be changed, modified,
extended, terminated or discharged orally, but only by an agreement in writing.
3.5 This Subscription Agreement is not transferable or
assignable by the Subscriber. The Subscriber agrees that the Shares acquired
pursuant hereto shall be transferred only in accordance with applicable federal
and state laws.
3.6 All references in this Subscription Agreement to the
"Subscriber" shall include all parties (other than the Company) who execute this
Subscription Agreement. If the Subscriber is a corporation, partnership, trust
or two or more individuals purchasing jointly, the Subscriber shall follow the
specific instructions for the Certificate of Corporate, Partnership, Trust and
Joint Purchases at page 5 hereof.
4. Lock-Up. Subscriber agrees not to offer, sell or contract
to sell, or otherwise dispose of, directly or indirectly, or announce an
offering of, 22% of the Shares purchased pursuant to the subscription made
hereby (the "Lock-up Shares") for a period of 180
2
<PAGE>
days following the day on which the Company accepts the subscription, except
with the prior written consent of the Board of Directors (the "Board") of the
Company; provided, however, that the Subscriber may (i) distribute, transfer or
otherwise dispose of the Lock-up Shares to any affiliate, associate, employee or
partner of the Subscriber or (ii) grant a bona fide gift of the Lock-up Shares
to any other person, without the consent of the Board, but only if the person
acquiring the Lock-up Shares, at the time of such acquisition, enters into an
agreement, enforceable by the Company, pursuant to which such person is bound by
the restrictions set forth in this paragraph 4. The certificates evidencing the
Lock-up Shares will bear a legend to the foregoing effect.
5. Acceptance of Subscription. Subscriber acknowledges that
the subscription made hereby is not binding upon the Company until the Company
accepts it. The Company has the right to accept or reject this subscription in
whole or in part in its sole and absolute discretion. If this subscription is
rejected in whole, the Company shall return the Payment to the Subscriber,
without interest, and the Company and Subscriber shall have no further
obligation to each other hereunder. In the event of a partial rejection of this
subscription, a proportionate amount of the Payment will be returned to the
Subscriber, without interest.
6. Counterparts. This Subscription 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.
7. Severability. If any provision of this Subscription
Agreement shall be declared void or unenforceable by any judicial or
administrative authority, the validity of any other provision and of the entire
Subscription Agreement shall not be affected thereby.
[SIGNATURE PAGES FOLLOW]
3
<PAGE>
IN WITNESS WHEREOF, this Subscription Agreement has been
executed by the Subscriber and by the Company on the respective dates set forth
below.
<TABLE>
<CAPTION>
<S> <C> <C>
Print Name of Subscriber:______________________________
Date:______________________________
_______________________________________
Signature of Individual Subscriber
_______________________________________
Print Name of Subscriber, if an entity
By:____________________________________ _____________________________________
Signature of authorized signatory of Print name and title of signatory
Subscriber which is an entity for any Subscriber which is an entity
_______________________________________
Social Security No. (for individuals)
Tax Identification No. (for entities)
_______________________________________ $____________________________________
Number of Shares Purchased Payment Amount for Shares (Number of
Shares multiplied by $0.1666)
_______________________________________ _____________________________________
Telephone No./ Facsimile No. Street Address
_____________________________________
City State Zip
_____________________________________
Country
Subscription Accepted by:
Netword, Inc.
By:____________________ Date:________________________________
</TABLE>
4
<PAGE>
SPECIAL SUBSCRIPTION INSTRUCTIONS FOR CORPORATE,
PARTNERSHIP, LIMITED LIABILITY COMPANY,
TRUST AND JOINT PURCHASERS
If the subscriber is a corporation, partnership, limited
liability company, trust, or other entity or joint purchaser, the following
additional instructions must be followed. INFORMATION ADDITIONAL TO THAT
REQUESTED BELOW MAY ALSO BE REQUIRED BY THE COMPANY IN SOME CASES.
I. Certificate. The subscriber must date and sign the
Certificate below, and, if requested by the Company, the subscriber may also be
required to provide an opinion of counsel to the same effect as this Certificate
or a copy of (a) the corporation's articles of incorporation, bylaws and
authorizing resolution, (b) the partnership agreement, (c) the limited liability
company's certificate of formation or articles of organization, as applicable,
and limited liability company agreement, operating agreement or similar
agreement governing the rights and obligations of the members of the limited
liability company, or (d) the trust agreement, as applicable.
II. Subscription Agreement
A. Corporations. An authorized officer of the
corporation must date, sign, and complete the Subscription Agreement with
information concerning the corporation. The officer should print the name of the
corporation above his signature, and print his name and office below his
signature.
B. Partnerships. An authorized partner must date,
sign, and complete the Subscription Agreement with information concerning the
partnership. The partner should print the name of the partnership above his
signature, and print his name and the words "general partner" below his
signature.
C. Limited Liability Companies. An authorized member
or manager must date, sign, and complete the Subscription Agreement with
information concerning the limited liability company. The member or manager
should print the name of the limited liability company above his signature, and
print his name and the word "member" or "manager" below his signature.
D. Trusts. In the case of a trust, the authorized
trustee should date, sign, and complete the Subscription Agreement with
information concerning the trust. The trustee should print the name of the trust
above his signature, and print his name and the word "trustee" below his
signature. In addition, an authorized trustee should also provide information
requested in the Subscription Agreement as it pertains to him as an individual.
E. Joint Ownership. In all cases, each individual
must date, sign, and complete the Subscription Agreement. Joint investors must
state if they are purchasing the Shares as joint tenants with the right of
survivorship, tenants in common, or community property, and each must execute
the Subscription Agreement Signature Page.
5
<PAGE>
CERTIFICATE FOR CORPORATE, PARTNERSHIP,
LIMITED LIABILITY COMPANY, TRUST, AND JOINT SUBSCRIBERS
If the subscriber is a corporation, partnership, limited
liability company, trust, joint purchaser, or other entity, an authorized
officer, partner, member, manager or trustee must complete, date, and sign this
Certificate.
CERTIFICATE
I hereby certify that:
a. The subscriber has been duly formed and is validly existing
and has full power and authority to invest in Netword, Inc.
b. The Subscription Agreement has been duly and validly
authorized, executed, and delivered by the subscriber and, upon
acceptance by Netword, Inc., will constitute the valid, binding, and
enforceable obligation of the subscriber.
Date:________ ___________________________________________________
Name of corporation, partnership, limited liability
company, trust or joint purchasers (please print)
___________________________________________________
Signature and title of authorized officer, partner,
member, manager, trustee, or joint purchaser
6
<PAGE>
Regulation S
SUBSCRIPTION AGREEMENT
Netword, Inc.
702 Russell Avenue
Third Floor
Gaithersburg, Maryland 20877
Ladies and Gentlemen:
1. Subscription. The undersigned ("Subscriber") hereby
subscribes to purchase Units at the purchase price of $1.00 per Unit. Each Unit
includes one share (a "Share") of common stock, par value $.01 ("Common Stock"),
of Netword, Inc., a Delaware corporation (the "Company") and a warrant (a
"Warrant") to purchase eight-tenths (.80) of one share of Common Stock at an
exercise price of $1.25 per share. The shares of Common Stock issuable upon
exercise of the Warrants are referred to herein as the "Warrant Shares."
The Warrants will be exercisable immediately upon issuance and
will expire on the earlier of the fifth anniversary of their issuance and 150
days after the Registration Statement (described below) becomes effective,
subject to redemption by the Company, as described below. The number of Units
subscribed for is set forth on the signature page hereof. Subscriber herewith
delivers to the Company, Subscriber's check payable to the Company in U.S.
dollars (the "Payment") for the Units subscribed for, in the amount equal to the
product of U.S.$1.00 multiplied by the number of such Units.
2. Representations, Warranties and Covenants of Subscriber.
Subscriber hereby represents, warrants and covenants to the Company that:
2.1 Subscriber has received and has fully read and considered
the Company's Confidential Offering Memorandum, dated February 17, 1999 (the
"Memorandum"), including, without limitation, the material set forth under "Risk
Factors." Subscriber confirms that, except as set forth in the Memorandum, no
representations or warranties have been made to Subscriber by the Company or its
officers and directors, or any agent, employee or affiliate of any of them, and
that in entering into this transaction Subscriber is not relying upon
information regarding the Company other than that contained in the Memorandum.
Capitalized terms not otherwise defined herein shall have the meanings assigned
to such terms in the Memorandum.
2.2 Subscriber is aware that the purchase of the Units is a
speculative investment involving a high degree of risk and that there is no
guarantee that Subscriber will recover its investment in the Units or realize
any gain from such investment.
2.3 Subscriber (a) has sufficient liquid assets to pay the
full purchase price for the Units, (b) has adequate means of providing for
Subscriber's current and presently foreseeable
<PAGE>
future needs and possible personal contingencies, (c) has no present need for
liquidity of Subscriber's investment in the Units, and (d) is able to bear the
economic risks of the investment in the Units (i.e., Subscriber can afford a
complete loss).
2.4 Subscriber is not a "U.S. Person" as defined by Rule 902
of Regulation S under the Securities Act of 1933, as amended (the "Securities
Act"), was not organized under the laws of any U.S. jurisdiction, and was not
formed for the purpose of investing in securities not registered under the
Securities Act.
2.5 At the time the buy order for this transaction was
originated, Subscriber was outside the United States.
2.6 No offer to purchase the Units was made to Subscriber in
the United States.
2.7 Subscriber is not acquiring the Units for the account or
benefit of a U.S. Person. Subscriber will not offer, distribute, resell or
transfer the Shares, Warrants or Warrant Shares in the United States, or to a
U.S. Person, or for the account or benefit of a U.S. Person, prior to the end of
a one year period expiring on the first anniversary of such acquisition (the
"Restricted Period"), unless such disposition is made pursuant to an (a)
effective registration under the Securities Act, or (b) exemption from such
registration, in each case in compliance with all applicable federal and state
securities laws. Subscriber agrees that during the Restricted Period, in the
absence of registration, offers and sales of the Shares, Warrants and Warrant
Shares to non-U.S. Persons may be made outside the United States only in
compliance with Rule 903 or Rule 904 of Regulation S and applicable foreign
securities laws.
2.8 Subscriber agrees not to enter into any short sales or
other hedging transactions such as option writing, equity swaps or other types
of derivative transactions, with respect to the Shares, Warrants or Warrant
Shares held by Subscriber.
2.9 Subscriber understands that the Units are being offered
and sold to it in reliance on specific provisions of United States federal
securities laws and foreign securities laws and that the Company is relying upon
the truth and accuracy of the representations, warranties, agreements,
acknowledgments and understandings of Subscriber set forth herein in order to
determine the applicability of such provisions.
2.10 Subscriber is not subscribing for the Units as a result
of, or subsequent to, any advertisement, article, notice or other communication
published in any newspaper, magazine or similar media or broadcast over
television or radio, or presented at any seminar or general meeting.
2.11 Subscriber is making the investment in the Shares for
Subscriber's own account and not for the account of others.
2
<PAGE>
2.12 Subscriber either personally has such knowledge and
experience in financial and business matters to be capable of evaluating the
merits and risks of the proposed investment in the Shares and to make an
informed investment decision with respect thereto, or, by virtue of consultation
with or advice from a person or company who is not a promoter of the Company and
who is a registered advisor or a registered dealer, is able to evaluate the
proposed investment in the Shares.
2.12 Subscriber has had access to substantially the same
information concerning the Company that a prospectus filed under the Ontario
Securities Act would provide.
2.13 The aggregate acquisition cost of the Units subscribed
for by Subscriber pursuant to this Subscription Agreement is equal to or greater
than $150,000.
2.14 Subscriber is making a purchase of the Units concurrent
with and subject to acceptance by the Company of his subscription for shares in
an offering of 6,000,000 shares of Common Stock at a price of $0.1666 per share,
made by the Company pursuant to a Confidential Private Placement Memorandum
dated February 14, 1999.
3. Registration Rights. (a) Subject to completion of the
Offering, the Company shall cause to be filed, on or prior to May 31, 1999, a
registration statement in accordance with the applicable provisions of the
Securities Act (the "Registration Statement"), to permit public resale in the
United States of all of the Shares and purchase and resale of the Warrant Shares
and other Common Stock included in the Offering or issuable upon exercise of
Warrants included in the Offering, provided, that Subscriber furnishes to the
Company the information required pursuant to paragraph (c) of this Section 3.
The Company shall use its reasonable best efforts to cause such Registration
Statement to become effective as promptly as practicable; however, the Company
makes no representation as to when, if ever, the Registration Statement will
become effective.
(b) The Company shall use its best efforts to keep the
Registration Statement continuously effective, supplemented and amended to the
extent necessary to ensure that it is available for resales of Shares and
Warrant Shares, and to ensure that it conforms with the requirements of the
Securities Act and the policies, rules and regulations of the Commission as
announced from time to time, for a period expiring on the earlier to occur of:
(i) the date when all Shares and Warrant Shares have been sold, and (ii) the
first anniversary of the Closing, provided, that the Company will have the
option of suspending the effectiveness of the Registration Statement for periods
of up to an aggregate of 60 days in any calendar year if the Board of Directors
of the Company determines that compliance with the disclosure obligations
necessary to maintain the effectiveness of the Registration Statement at such
time could reasonably be expected to have a material adverse effect on the
Company or a pending corporate transaction of the Company.
(c) Subscriber may not include any of its Shares or Warrant Shares
in the Registration Statement unless and until Subscriber furnishes to the
Company in writing, within 20 business days after receipt of a request therefor,
the information specified in item 507 of
3
<PAGE>
Regulation S-K under the Securities Act for use in connection with the
Registration Statement or prospectus or preliminary prospectus included therein.
Subscriber agrees to furnish promptly to the Company, for so long as the
Registration Statement is effective, all information required to be disclosed in
order to make the information previously furnished to the Company by Subscriber
not materially misleading.
(d) The Company and Subscriber, as applicable, further covenant
and agree as follows:
(i) Following the effective date of the Registration Statement,
the Company shall furnish Subscriber such number of prospectuses as Subscriber
shall reasonably request.
(ii) The Company shall pay all costs, fees and expenses in
connection with the preparation and filing of the Registration Statement,
including, without limitation, the Company's legal and accounting fees and
printing expenses. Subscriber shall pay its own legal expenses.
(iii) The Company will take all action that may be required in
qualifying or registering the Shares and Warrant Shares included in the
Registration Statement for offering and sale under the securities or blue sky
laws of up to 10 jurisdictions within the United States as are requested by the
holders of 50% or more of the Shares included in the Registration Statement,
provided, that the Company shall not be obligated to execute or file any general
consent to service of process or to qualify as a foreign corporation to do
business under the laws of any such jurisdiction.
(iv) The Company and Subscriber shall enter into reasonable,
customary and reciprocal agreements to indemnify and hold one another harmless
in connection with the Registration Statement.
4. Redemption of Warrant by the Company. The Company may redeem
each Warrant at a price of $0.05 per Warrant Share (the "Redemption Price"), at
its option, at any time after the first date on which the average closing bid
prices for the shares of the Company's Common Stock in any inter-dealer
quotation system on which the Common Stock has been the subject of both bid and
ask quotations shall have exceeded $2.00 per share on ten consecutive trading
days. From and after the date fixed for redemption by notice given pursuant to
the provisions of the Warrant, the right to purchase Warrant Shares with respect
to the redeemed portion of the Warrant shall cease, and the holder thereof shall
be entitled to payment of the Redemption Price with respect to the portion of
the Warrant so redeemed (and to receive a new Warrant with respect to the
unredeemed portion of the Warrant) upon surrender of the Warrant to the Company.
5. Legend. Subscriber hereby accepts and acknowledges that a
legend, in substantially the following form, will be placed on the Shares,
Warrants and Warrant Shares:
4
<PAGE>
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED (THE "SECURITIES ACT"), OR APPLICABLE STATE OR FOREIGN
SECURITIES LAWS. THESE SECURITIES MAY NOT BE TRANSFERRED OR RESOLD IN THE
UNITED STATES, OR TO A U.S. PERSON, OR TO OR FOR THE ACCOUNT OR BENEFIT OF
A U.S. PERSON (AS SUCH TERMS ARE DEFINED IN RULE 902 OF REGULATION S UNDER
THE SECURITIES ACT) FOR A PERIOD OF ONE YEAR EXPIRING ON FEBRUARY , 2000,
UNLESS REGISTERED UNDER THE SECURITIES ACT AND APPLICABLE STATE SECURITIES
LAWS OR UNLESS THE HOLDER PROVIDES THE COMPANY WITH AN OPINION FROM COUNSEL
ACCEPTABLE TO THE COMPANY STATING THAT AN EXEMPTION FROM REGISTRATION IS
AVAILABLE AT THE TIME OF SUCH TRANSFER. HEDGING TRANSACTIONS INVOLVING
THESE SECURITIES MAY NOT BE CONDUCTED UNLESS IN COMPLIANCE WITH THE
SECURITIES ACT.
6. Miscellaneous
6.1 All notices or other communications given or made hereunder
shall be in writing and shall be delivered by hand or mailed by registered or
certified mail, return receipt requested, postage prepaid, if to Subscriber, at
the address set forth below Subscriber's signature on the signature page hereof,
and if to the Company at 702 Russell Avenue, Third Floor, Gaithersburg, Maryland
20877, Attention: President, with a copy to Kronish Lieb Weiner & Hellman LLP,
1114 Avenue of the Americas, New York, New York 10036, Attention: Russell
Berman, Esq.
6.2 This Subscription Agreement shall be governed by and construed
in accordance with the laws of the state of New York applicable to contracts
made and wholly performed in that state and without regard to the principles of
conflicts of laws.
6.3 This Subscription Agreement constitutes the entire agreement
between the parties hereto with respect to the subject matter hereof. All
understandings and agreements heretofore had between the parties with respect to
the subject matter hereof are merged in this Subscription Agreement, which fully
and completely expresses their agreement.
6.4 This Subscription Agreement may not be changed, modified,
extended, terminated or discharged orally, but only by an agreement in writing.
6.5 This Subscription Agreement is not transferable or assignable
by Subscriber. Subscriber agrees that the securities acquired pursuant hereto
shall be transferred only in accordance with applicable federal, state and
foreign laws.
6.6 All references in this Subscription Agreement to "Subscriber"
shall include all parties (other than the Company) who execute this Subscription
Agreement. If Subscriber is a corporation, partnership, trust or two or more
individuals purchasing jointly, Subscriber shall follow the specific
instructions for the Certificate of Corporate, Partnership, Trust and Joint
Purchases at page 7 hereof.
5
<PAGE>
6.7 Acceptance of Subscription. Subscriber acknowledges that the
subscription made hereby is not binding upon the Company until the Company
accepts it. The Company has the right to accept or reject this subscription in
whole or in part in its sole and absolute discretion. If this subscription is
rejected in whole, the Company shall return the Payment to Subscriber, without
interest, and the Company and Subscriber shall have no further obligation to
each other hereunder. In the event of a partial rejection of this subscription,
a proportionate amount of the Payment will be returned to Subscriber, without
interest.
7. Counterparts. This Subscription 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.
8. Severability. If any provision of this Subscription Agreement
shall be declared void or unenforceable by any judicial or administrative
authority, the validity of any other provision and of the entire Subscription
Agreement shall not be affected thereby.
[SIGNATURE PAGES FOLLOW]
6
<PAGE>
IN WITNESS WHEREOF, this Subscription Agreement has been executed
by Subscriber and by the Company on the respective dates set forth below.
Print Name of Subscriber:
----------------------------------------
Date:
----------------------------------------
- ----------------------------------
Signature of Individual Subscriber
- ----------------------------------
Print Name of Subscriber, if an entity
By:
--------------------------------- ----------------------------------
Signature of authorized signatory of Print name and title of signatory
Subscriber which is an entity for any Subscriber which is an
entity
- ----------------------------------
Social Security No. (for individuals)
Tax Identification No. (for entities)
$
- ------------------------------- -------------------------------------
Number of Units Purchased Payment Amount for Units Purchased
(Number of Units multiplied by $1.00)
- ------------------------------- -------------------------------------
Telephone No./ Facsimile No. Street Address
-------------------------------------
City State Zip
-------------------------------------
Country
Subscription Accepted by:
NETWORD, INC.
By: Date:
--------------------------------- ----------------------------
7
<PAGE>
SPECIAL SUBSCRIPTION INSTRUCTIONS FOR CORPORATE,
PARTNERSHIP, LIMITED LIABILITY COMPANY,
TRUST AND JOINT PURCHASERS
If the subscriber is a corporation, partnership, limited liability
company, trust, or other entity or joint purchaser, the following additional
instructions must be followed. INFORMATION ADDITIONAL TO THAT REQUESTED BELOW
MAY ALSO BE REQUIRED BY THE COMPANY IN SOME CASES.
I. Certificate. The subscriber must date and sign the Certificate
below, and, if requested by the Company, the subscriber may also be required to
provide an opinion of counsel to the same effect as this Certificate or a copy
of (a) the corporation's articles of incorporation, bylaws and authorizing
resolution, (b) the partnership agreement, (c) the limited liability company's
certificate of formation or articles of organization, as applicable, and limited
liability company agreement, operating agreement or similar agreement governing
the rights and obligations of the members of the limited liability company, or
(d) the trust agreement, as applicable.
II. Subscription Agreement
A. Corporations. An authorized officer of the corporation
must date, sign, and complete the Subscription Agreement with information
concerning the corporation. The officer should print the name of the corporation
above his signature, and print his name and office below his signature.
B. Partnerships. An authorized partner must date, sign,
and complete the Subscription Agreement with information concerning the
partnership. The partner should print the name of the partnership above his
signature, and print his name and the words "general partner" below his
signature.
C. Limited Liability Companies. An authorized member or
manager must date, sign, and complete the Subscription Agreement with
information concerning the limited liability company. The member or manager
should print the name of the limited liability company above his signature, and
print his name and the word "member" or "manager" below his signature.
D. Trusts. In the case of a trust, the authorized trustee
should date, sign, and complete the Subscription Agreement with information
concerning the trust. The trustee should print the name of the trust above his
signature, and print his name and the word "trustee" below his signature. In
addition, an authorized trustee should also provide information requested in the
Subscription Agreement as it pertains to him as an individual.
F. Joint Ownership. In all cases, each individual must
date, sign, and complete the Subscription Agreement. Joint investors must state
if they are purchasing the Units as joint tenants with the right of
survivorship, tenants in common, or community property, and each must execute
the Subscription Agreement Signature Page.
8
<PAGE>
CERTIFICATE FOR CORPORATE, PARTNERSHIP,
LIMITED LIABILITY COMPANY, TRUST, AND JOINT SUBSCRIBERS
If the subscriber is a corporation, partnership, limited liability
company, trust, joint purchaser, or other entity, an authorized officer,
partner, member, manager or trustee must complete, date, and sign this
Certificate.
CERTIFICATE
I hereby certify that:
(a) The subscriber has been duly formed and is validly existing
and has full power and authority to invest in Netword, Inc.
(b) The Subscription Agreement has been duly and validly
authorized, executed, and delivered by the subscriber and, upon acceptance by
Netword, Inc., will constitute the valid, binding, and enforceable obligation of
the subscriber.
Date:
------------- ---------------------------------------------------
Name of corporation, partnership, limited liability
company, trust or joint purchasers (please print)
---------------------------------------------------
Signature and title of authorized officer, partner,
member, manager, trustee, or joint purchaser
9
<PAGE>
SERIES B WARRANT NO. ________
________ SHARES
THIS WARRANT AND THE SHARES ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), OR APPLICABLE STATE OR FOREIGN SECURITIES LAWS. THIS
WARRANT AND THE SHARES ISSUABLE UPON EXERCISE OF THIS WARRANT MAY NOT
BE TRANSFERRED OR RESOLD IN THE UNITED STATES, OR TO A U.S. PERSON, OR
TO OR FOR THE ACCOUNT OR BENEFIT OF A U.S. PERSON (AS SUCH TERMS ARE
DEFINED IN RULE 902 OF REGULATION S UNDER THE SECURITIES ACT) FOR A
PERIOD OF ONE YEAR EXPIRING ON MARCH 19, 2000, UNLESS THEY ARE
REGISTERED UNDER THE SECURITIES ACT AND APPLICABLE STATE SECURITIES
LAWS OR UNLESS THE HOLDER PROVIDES AN OPINION FROM COUNSEL ACCEPTABLE
TO THE COMPANY STATING THAT AN EXEMPTION FROM REGISTRATION IS AVAILABLE
AT THE TIME OF SUCH TRANSFER. HEDGING TRANSACTIONS INVOLVING THIS
WARRANT OR THE SHARES ISSUABLE UPON EXERCISE OF THIS WARRANT MAY NOT BE
CONDUCTED UNLESS IN COMPLIANCE WITH THE SECURITIES ACT.
WARRANT, dated as of March 19, 1999, issued by NETWORD, INC.,
a Delaware corporation (the "Company") with principal offices at 702 Russell
Avenue, Third Floor, Gaithersburg, Maryland 20877-2606, Attn: President,
to _____________________________________________________________ (the "Holder").
The Company hereby agrees as follows:
1. Grant. The Company hereby grants to the Holder, the right,
privilege and option to purchase from the Company __________ shares (the
"Warrant Shares") of common stock, par value $.01 per share ("Common Stock"),
subject to adjustment as provided in Section 6, at the exercise price of $1.25
per share (the "Exercise Price"), all subject to the terms and upon the
conditions set forth herein.
2. Exercise of Warrant. This Warrant is exercisable commencing
on the date hereof and will expire on the earlier of March 19, 2004 or 150 days
after the Registration Statement described in Section 3 of the Subscription
Agreement (defined in Section 11 hereof) becomes effective (the "Expiration
Date"), subject to the right of the Company to redeem this Warrant as described
in Section 3 hereof. This Warrant shall expire and all rights of the Holder will
terminate upon the Expiration Date.
3. Method of Exercise and Redemption of Warrant. Unless this
Warrant has been redeemed by the Company as provided in this Section 3, the
Holder may exercise this Warrant at or prior to the close of business on the
Expiration Date. This Warrant may be
<PAGE>
exercised by the Holder or redeemed by the Company as follows:
(a) This Warrant may be exercised in whole at any
time, or in part from time to time, by delivery of this Warrant to the Company
at its principal place of business, accompanied by a check payable to the
Company in payment of the Exercise Price for the number of Warrant Shares as to
which this Warrant is being exercised.
(b) Upon clearance of the check delivered pursuant to
Section 3(a), the Company shall make immediate delivery of the shares of Common
Stock as to which this Warrant is being exercised, provided that if any law or
regulation requires the Company to take any action with respect to such shares
of Common Stock before the issuance thereof, then the date of delivery of such
shares shall be extended for the period necessary to take such action. In case
of the purchase of less than all the shares purchasable under this Warrant, the
Company shall cancel this Warrant upon surrender hereof and shall execute and
deliver to the Holder a new Warrant of like tenor and date for the balance of
the Warrant Shares.
(c) The Company may redeem this Warrant as to all or
any of the Warrant Shares, at a price of $0.05 per Warrant Share (the
"Redemption Price"), at its option, at any time after the first date on which
the average of the closing bid prices for the shares of the Company's Common
Stock in any inter-dealer quotation system on which the Common Stock has been
the subject of both bid and ask quotations shall have exceeded $2.00 per share
on ten consecutive trading days. From and after the date fixed for redemption by
notice given pursuant to Section 3(d) (the "Redemption Date"), the right to
purchase Warrant Shares with respect to the redeemed portion of this Warrant
shall cease, and the Holder shall be entitled to payment of the Redemption Price
with respect to the portion of this Warrant so redeemed (and to receive a new
Warrant of like tenor and date with respect to the unredeemed portion of this
Warrant) upon surrender of this Warrant to the Company.
(d) Notice of redemption of this Warrant shall be
given at least 15 days prior to the Redemption Date by mailing, by registered or
certified mail, return receipt requested, a copy of such notice to the Holder at
its address appearing on the books or transfer records of the Company or such
other address as may be designated by the Holder by notice to the Company.
Notwithstanding the giving of such notice, the Holder shall be entitled to
exercise this Warrant at any time prior to the Redemption Date.
4. Payment of Taxes. (a) The Company shall pay all documentary
stamp taxes attributable to the issuance of shares of Common Stock upon the
exercise of this Warrant; provided, however, that the Company shall not be
required to pay any tax that may be payable in respect of any transfer involved
in the issuance and delivery of any Warrants, warrant certificates or
certificates for Warrant Shares purchased pursuant hereto in a name other than
that of the Holder, and the Company shall not be required to issue or deliver
such Warrants, warrant certificates or other certificates unless or until the
person or persons requesting the issuance thereof shall have paid to the Company
the amount of such tax or shall have established to the satisfaction of the
Company that such tax has been paid.
2
<PAGE>
(b) The Company's obligation to deliver Warrant Shares upon
the exercise of this Warrant or any portion thereof shall be subject to the
payment by the Holder of any applicable federal, state and local withholding
tax. The Company shall, to the extent permitted by law, have the right to deduct
from any payment of any kind otherwise due to the Holder any federal, state or
local taxes required to be withheld with respect to such payment.
5. Restriction on Transfer of Warrants. The Holder hereof, by the
Holder's acceptance hereof, hereby represents and warrants to, and agrees with,
the Company that the Holder has been informed that neither this Warrant, nor the
shares purchasable pursuant to this Warrant, have been registered for sale under
any federal, state or foreign securities laws and that this Warrant is being
offered and sold to the Holder and, upon the exercise of this Warrant, the
shares of Common Stock purchasable pursuant to this Warrant will be sold to the
Holder, pursuant to Regulation S under the Securities Act; this Warrant and the
Warrant Shares may not be transferred or resold in the United States, or to a
U.S. Person, or to or for the account or benefit of a U.S. Person (as such terms
are defined in Rule 902 of Regulation S under the Securities Act) for a period
of one year expiring on the first anniversary of the date hereof (the
"Restricted Period"), unless registered under the Securities Act and applicable
state securities laws or unless the Holder provides an opinion to the Company
from counsel acceptable to the Company stating that an exemption from
registration is available at the time of such transfer; hedging transactions
involving this Warrant or the Warrant Shares may not be conducted unless in
compliance with the Securities Act; during the Restricted Period, without
registration, transfers and resales of this Warrant and the Warrant Shares to
non-U.S. Persons may be made outside the United States only in compliance with
Rule 903 or Rule 904 of Regulation S; and that prior to the exercise of this
Warrant, Holder shall provide to the Company in writing such information as the
Company may reasonably request to establish that the exercise of this Warrant by
Holder is exempt from registration under such securities laws.
If a transfer of this Warrant is permitted pursuant to the
preceding paragraph of this Section 5, the Holder and any transferee shall
execute and deliver to the Company, a completed Assignment in the form attached
hereto as Exhibit A. Upon the Company's satisfaction that the requirements
necessary for transfer of this Warrant have been satisfied, receipt of the
completed and duly executed assignment, and surrender of this Warrant, the
Company shall, as promptly as practicable, deliver to the transferee a new
Warrant of like tenor and date for that portion of the Warrant Shares as to
which this Warrant is being transferred and shall deliver to the Holder a new
Warrant of like tenor and date as to the remaining portion of the Warrant
Shares, if any.
6. Anti-Dilution Provisions. (a) In case the Company shall (i)
declare or pay a dividend on its outstanding shares of Common Stock in shares of
Common Stock or make a distribution to all holders of its outstanding shares of
Common Stock in shares of Common Stock, (ii) subdivide its outstanding shares of
Common Stock into a greater number of shares of Common Stock, (iii) combine its
outstanding shares of Common Stock into a smaller number of shares of Common
Stock or (iv) issue by reclassification of its outstanding shares of Common
Stock other securities of the Company (including any such reclassification in
connection with a consolidation, merger or other business combination in which
the Company is the surviving
3
<PAGE>
corporation), the number and kind of Warrant Shares purchasable upon exercise of
this Warrant shall be adjusted so that Holder upon exercise hereof shall be
entitled to receive the number and kind of Warrant Shares or other securities of
the Company that the Holder would have owned or have been entitled to receive
after the occurrence of any of the events described above had this Warrant been
exercised immediately prior to the occurrence of such event or any record date
with respect thereto. An adjustment made pursuant to this Section 6(a) shall
become effective on the date of the dividend payment, distribution, subdivision,
combination or reclassification issuance retroactive to the record date with
respect thereto, if any, for such event. Adjustment by reason of this Section
6(a) shall be made successively whenever such an event occurs.
(b) In case of any consolidation of the Company with, or merger of the
Company into, another person (whether or not the Company is the surviving
corporation), or in the case of any sale, transfer or lease to another person of
all or substantially all of the assets of the Company, the Company or such
successor, as the case may be, shall deliver to Holder an undertaking that
Holder shall have the right thereafter upon payment of the Exercise Price in
effect immediately prior to such transaction to purchase upon exercise of this
Warrant the kind and amount of securities, cash and property which Holder would
have owned or have been entitled to receive after the consummation of such
consolidation, merger, sale, transfer or lease had this Warrant been exercised
immediately prior to such transaction, and if the successor or purchaser is not
a corporation, such person shall provide appropriate tax indemnification with
respect to such shares and other securities and property so that, upon exercise
of this Warrant, Holder thereof would have the same benefits he otherwise would
have had if such successor or purchaser person were a corporation. The
provisions of this Section 6(b) shall similarly apply to successive
consolidations, mergers, sales, transfers or leases.
7. Elimination of Fractional Interests. The Company shall not
be required to issue certificates representing fractions of Common Stock upon
the exercise of this Warrant, nor shall it be required to issue scrip or pay
cash in lieu of fractional interests, it being the intent of the parties that
all fractional interests shall be eliminated by the Company by rounding down to
the nearest whole number of shares of Common Stock.
8. Reservation of Securities. The Company shall at all times
reserve and keep available out of its authorized shares of Common Stock, solely
for the purpose of issuance upon the exercise of this Warrant, such number of
shares Common Stock as shall be issuable upon the exercise thereof. The Company
covenants and agrees that, upon exercise of this Warrant for and payment of the
exercise price therefor, all shares of Common Stock issuable upon such exercise
shall be duly authorized, validly issued, fully paid, non-assessable and not
subject to preemptive rights of any shareholder.
4
<PAGE>
9. Notices to Warrant Holders. Nothing contained in this
Warrant shall be construed as conferring upon the Holder the right to vote or to
consent or to receive notice as a shareholder in respect of any meetings of
shareholders for the election of directors or any other matter, or as having any
rights whatsoever as a shareholder of the Company. If the Company shall propose
to engage in any transaction with respect to which adjustment of the Exercise
Price or the kind or amount of securities, property or other assets receivable
upon exercise of this Warrant would be required pursuant to Section 6, the
Company shall cause to be mailed to the Holder, at least 10 days prior to the
applicable date hereinafter specified, a notice describing such transaction and
stating (a) in the case of any dividend, distribution or grant of rights or
warrants to all holders of shares of Common Stock, the date on which a record is
to be taken for such purpose or, if a record is not to be so taken, the date as
of which the holders of Common Stock of record to be entitled thereto are to be
determined, (b) in the case of any other transaction described in Section 6 in
which all holders of Common Stock of record are entitled to participate, the
date on which such transaction is expected to become effective and the date as
of which it is expected that holders of Common Stock of record shall be entitled
to exchange their shares of Common Stock for securities, property or other
assets deliverable upon such transaction, and (c) in the case of any other
transaction, the date on which it is expected to occur or become effective.
Failure to give such notice or any defect therein shall not affect the validity
of any action taken or transaction consummated by the Company.
10. No Rights in Common Stock. The Holder shall have none of
the rights as a shareholder with respect to any shares of Common Stock until
such shares of Common Stock shall be issued to Holder upon exercise of this
Warrant.
11. Registration Rights. The Company will cause the
registration of the Warrant Shares under the Securities Act as provided in
Section 3 of the Subscription Agreement (the "Subscription Agreement") entered
into by the initial Holder of this Warrant and the Company providing for such
Holder's purchase of this Warrant.
12. Notices. All notices, requests, consents and other
communications hereunder shall be effective only if given in writing and shall
be deemed to have been duly made or given when delivered, or three days after
being mailed by registered or certified mail, return receipt requested:
(a) If to the Holder, to the address of the Holder
as shown on the books of the Company or as otherwise
designated or provided for herein; or
(b) If to the Company, to the address set forth on
the first page of this Warrant or to such other address as the
Company may designate by notice to the Holder.
13. Amendment. This Warrant may not be amended or supplemented
except by an instrument in writing executed by the Company and the Holder.
15. Governing Law. This Warrant shall be deemed to be a
contract made
5
<PAGE>
under the laws of the State of New York and for all purposes shall be construed
in accordance with the laws of such State (without regard to the conflicts of
law principles thereof).
16. Jurisdiction. Any legal action or proceeding with respect
to this Warrant may be brought exclusively in the courts of the State of New
York or of the United States of America for the Southern District of New York,
and, by acceptance of this Warrant, Holder accepts for itself and in respect of
its property, generally and unconditionally, the exclusive jurisdiction of the
aforesaid courts. By acceptance of this Warrant, Holder waives and agrees not to
assert, as a defense in any action, suit or proceeding for the interpretation or
enforcement of this Warrant, that Holder is not subject thereto or that such
action, suit or proceeding may not be brought or is not maintainable in said
courts or that this Warrant may not be enforced in or by said courts or that
Holder's property is exempt or immune from execution, that the suit, action or
proceeding is brought in an inconvenient forum, that the venue of the suit,
action or proceeding is improper or (provided that process shall be served in
any manner referred to in the following sentence) that service of process upon
Holder is ineffective. Service of process in any such action, suit or proceeding
may be made upon the Company or Holder in any manner permitted by the laws of
the State of New York or the federal laws of the United States or as follows:
(i) by personal service or (ii) by certified or registered mail to Holder or the
Company, as applicable, at its address for notice pursuant to Section 12.
Service of process upon Holder or the Company in any manner referred to in the
preceding sentence shall be deemed in every respect effective service of process
upon Holder or the Company.
17. Benefits of This Warrant. Nothing in this Warrant shall be
construed to give to any person other than the Company and the Holder and its
assigns any legal or equitable right, remedy or claim under this Warrant; and
this Warrant shall be for the sole and exclusive benefit of the Company and the
Holder and its assigns.
18. Headings. The headings in this Warrant are intended
solely for convenience of reference and shall be given no effect in the
construction or interpretation of this Warrant.
IN WITNESS WHEREOF, the Company has caused this Warrant to be
duly executed as of the day and year first above written.
NETWORD, INC.
By:______________________________
Name:
Title:
6
<PAGE>
[FORM OF ASSIGNMENT]
(To be executed by the registered holder if such
holder desires to transfer this Warrant)
FOR VALUE RECEIVED ____________________________________ hereby
sells, assigns and transfers that certain Warrant dated March ____, 1999 as to
____________________________________________________________Warrant Shares, unto
________________________________________________________________________________
________________________________________________________________________________
(PLEASE PRINT NAME AND ADDRESS OF ASSIGNEE)
together with all right, title and interest therein, and does hereby irrevocably
constitute and appoint __________________________________ Attorney, to transfer
said Warrant as to _______________________________________ Warrant Shares on the
books of the Netword, Inc., with full power of substitution.
If said number of Warrant Shares shall not be all the Warrant
Shares evidenced by the Warrant, a new Warrant shall be issued in the name of
and delivered to the registered holder for such portion of the Warrant Shares
not so sold, assigned or transferred.
DATED: ____________________________
Signature:
___________________________________
(Signature must conform in all
respects to name of holder as
specified on the face of the
Warrant, in every particular,
without alteration or enlargement
or any change whatever.)
7
<PAGE>
SERIES A-2 WARRANT NO. 1
150,000 SHARES
THIS WARRANT AND THE SHARES ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"),
OR THE RULES AND REGULATIONS PROMULGATED THEREUNDER, OR UNDER ANY STATE
SECURITIES LAW AND MAY NOT BE PLEDGED, SOLD, ASSIGNED, TRANSFERRED OR OTHERWISE
DISPOSED OF UNLESS (i) A REGISTRATION STATEMENT WITH RESPECT THERETO IS
EFFECTIVE UNDER THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS OR (ii)
THE COMPANY RECEIVES AN OPINION OF ITS COUNSEL OR OTHER COUNSEL REASONABLY
SATISFACTORY TO THE COMPANY THAT SUCH WARRANT OR SHARES MAY BE DISPOSED OF
WITHOUT AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND
APPLICABLE STATE SECURITIES LAWS.
WARRANT, dated as of February 18, 1999, issued by NETWORD,
INC., a Delaware corporation (the "Company") with principal offices at 702
Russell Avenue, Third Floor, Gaithersburg, Maryland 20877-2606, Attn: President,
to Fulbright & Jaworski LLP (the "Holder").
The Company hereby agrees as follows:
1. Grant. The Company hereby grants to the Holder, the right,
privilege and option to purchase from the Company, One Hundred Fifty Thousand
(150,000) shares (the "Warrant Shares") of the Company's common stock, par value
$.01 per share ("Common Stock"), subject to adjustment as provided in Section 6
hereof, at the exercise price of $.1666 per share (the "Exercise Price"), all
subject to the terms and upon the conditions set forth herein.
2. Exercise of Warrant. This Warrant is exercisable commencing
on the date hereof until 5:00 p.m., N.Y. time, on February 17, 2002 (the
"Expiration Date"), subject to the right of the Company to redeem this Warrant
as described in Section 3 hereof. This Warrant shall expire and all rights of
the Holder will terminate upon the Expiration Date.
3. Method of Exercise and Redemption of Warrant. Subject to
the redemption of this Warrant by the Company as provided in this Section 3, the
Holder may exercise this Warrant at or prior to the close of business on the
Expiration Date. This Warrant may be exercised by the Holder or redeemed by the
Company as follows:
(a) Subject to compliance with the provisions of
Section 5 hereof, this Warrant may be exercised in whole at any time, or in part
from time to time, by delivery of this
<PAGE>
Warrant to the Company at its principal place of business, accompanied by a
check payable to the Company in payment of the Exercise Price for the number of
Warrant Shares as to which this Warrant is being exercised.
(b) Upon clearance of the check delivered pursuant
to Section 3(a) hereof, the Company shall make immediate delivery of the Warrant
Shares as to which this Warrant is being exercised, provided that if any law or
regulation requires the Company to take any action with respect to such Warrant
Shares before the issuance thereof, then the date of delivery of such shares
shall be extended for the period necessary to take such action. In case of the
purchase of less than all the shares purchasable under this Warrant, the Company
shall cancel this Warrant upon surrender hereof and shall execute and deliver to
the Holder a new Warrant of like tenor and date for the balance of the Warrant
Shares.
(c) In the event that a registration statement shall
become effective under the Securities Act of 1933, as amended (the "Securities
Act") covering the purchase and/or resale of the Warrant Shares, then the
Company may, at its option, redeem this Warrant as to all or any of the Warrant
Shares, at a price of $0.05 per Warrant Share (the "Redemption Price"), at any
time after the first date on which the average of the closing bid prices for the
shares of the Company's Common Stock in any inter-dealer quotation system on
which the Common Stock has been the subject of both bid and ask quotations shall
have exceeded $2.50 per share on any 10 consecutive trading days that commenced
on or after the effective date of such registration statement. From and after
the date fixed for redemption by notice given pursuant to Section 3(d) hereof
(the "Redemption Date"), the right to purchase Warrant Shares with respect to
the redeemed portion of this Warrant shall cease, and the Holder shall be
entitled to payment of the Redemption Price with respect to the portion of this
Warrant so redeemed (and to receive a new Warrant of like tenor and date with
respect to the unredeemed portion of this Warrant) upon surrender of this
Warrant to the Company.
(d) Notice of redemption of this Warrant shall be
given at least 30 days prior to the Redemption Date by mailing, by registered or
certified mail, return receipt requested, a copy of such notice to the Holder at
its address appearing on the books or transfer records of the Company or such
other address as may be designated by the Holder by notice to the Company.
Notwithstanding the giving of such notice, the Holder shall be entitled to
exercise this Warrant at any time prior to the Redemption Date.
4. Payment of Taxes. (a) The Company shall pay all documentary
stamp taxes attributable to the issuance of Warrant Shares upon the exercise of
this Warrant; provided, however, that the Company shall not be required to pay
any tax that may be payable in respect of any transfer involved in the issuance
and delivery of any Warrants, warrant certificates or certificates for Warrant
Shares purchased pursuant hereto in a name other than that of the Holder, and
the Company shall not be required to issue or deliver such Warrants, warrant
certificates or other certificates unless or until the person or persons
requesting the issuance thereof shall have paid to the Company the amount of
such tax or shall have established to the satisfaction of the Company that such
tax has been paid.
2
<PAGE>
(b) The Company's obligation to deliver Warrant Shares upon
the exercise of this Warrant or any portion thereof shall be subject to the
payment by the Holder of any applicable federal, state and local withholding
tax. The Company shall, to the extent permitted by law, have the right to deduct
from any payment of any kind otherwise due to the Holder any federal, state or
local taxes required to be withheld with respect to such payment.
5. Restriction on Transfer and Exercise of Warrant. The Holder hereof,
by the Holder's acceptance hereof, hereby represents and warrants to, and agrees
with, the Company that the Holder has been informed that neither this Warrant
nor the Warrant Shares have been registered for sale under any federal or state
securities laws and that this Warrant is being offered and sold to the Holder
and, upon the exercise of this Warrant, the Warrant Shares will be sold to the
Holder, pursuant to an exemption from registration under the Securities Act;
Holder is acquiring this Warrant and will acquire the Warrant Shares for
Holder's own account for investment only and not with a view to the resale or
distribution thereof; this Warrant is not assignable or transferable otherwise
than by will or the laws of descent and distribution, and this Warrant may be
exercised during the Holder's lifetime only by the Holder; any attempt to assign
or transfer this Warrant in contravention of this Section 5 shall be void ab
initio; the Warrant Shares may not be sold, transferred, assigned, hypothecated
or otherwise disposed of, in whole or in part, unless registered under the
Securities Act and applicable state securities laws or unless an exemption from
such registrations is available; and that prior to the exercise of this Warrant,
Holder shall provide to the Company in writing such information as the Company
may reasonably request to establish that the exercise of this Warrant by Holder
is exempt from registration under such securities laws.
6. Anti-Dilution Provisions. (a) In case the Company shall (i)
declare or pay a dividend on its outstanding shares of Common Stock in shares of
Common Stock or make a distribution to all holders of its outstanding shares of
Common Stock in shares of Common Stock, (ii) subdivide its outstanding shares of
Common Stock into a greater number of shares of Common Stock, (iii) combine its
outstanding shares of Common Stock into a smaller number of shares of Common
Stock or (iv) issue by reclassification of its outstanding shares of Common
Stock other securities of the Company (including any such reclassification in
connection with a consolidation, merger or other business combination in which
the Company is the surviving corporation), the number and kind of Warrant Shares
purchasable upon exercise of this Warrant shall be adjusted so that Holder upon
exercise hereof shall be entitled to receive the number and kind of Warrant
Shares or other securities of the Company that the Holder would have owned or
have been entitled to receive after the occurrence of any of the events
described above had this Warrant been exercised immediately prior to the
occurrence of such event or any record date with respect thereto. An adjustment
made pursuant to this Section 6(a) shall become effective on the date of the
dividend payment, distribution, subdivision, combination or reclassification
issuance retroactive to the record date with respect thereto, if any, for such
event. Adjustment by reason of this Section 6(a) shall be made successively
whenever such an event occurs.
(b) In case of any consolidation of the Company with, or merger of the
Company into, another person (whether or not the Company is the surviving
corporation), or in the case of any sale, transfer or lease to another person of
all or substantially all of the assets of the Company,
3
<PAGE>
the Company or such successor, as the case may be, shall deliver to Holder an
undertaking that Holder shall have the right thereafter upon payment of the
Exercise Price in effect immediately prior to such transaction to purchase upon
exercise of this Warrant the kind and amount of securities, cash and property
which Holder would have owned or have been entitled to receive after the
consummation of such consolidation, merger, sale, transfer or lease had this
Warrant been exercised immediately prior to such transaction, and if the
successor or purchaser is not a corporation, such person shall provide
appropriate tax indemnification with respect to such shares and other securities
and property so that, upon exercise of this Warrant, Holder thereof would have
the same benefits he otherwise would have had if such successor or purchaser
person were a corporation. The provisions of this Section 6(b) shall similarly
apply to successive consolidations, mergers, sales, transfers or leases.
7. Elimination of Fractional Shares. The Company shall not be
required to issue certificates representing fractional shares of Common Stock
upon the exercise of this Warrant, nor shall it be required to issue scrip or
pay cash in lieu of fractional shares, it being the intent of the parties that
all fractional shares shall be eliminated by the Company by rounding down to the
nearest whole number of shares of Common Stock.
8. Reservation of Securities. The Company shall at all times
reserve and keep available out of its authorized shares of Common Stock, solely
for the purpose of issuance upon the exercise of this Warrant, such number of
shares of Common Stock as shall be issuable upon the exercise thereof. The
Company covenants and agrees that, upon exercise of this Warrant for and payment
of the exercise price therefor, all Warrant Shares issuable upon such exercise
shall be duly authorized, validly issued, fully paid, nonassessable and not
subject to preemptive rights of any shareholder.
9. Notices to Warrant Holder. Nothing contained in this
Warrant shall be construed as conferring upon the Holder the right to vote or to
consent or to receive notice as a shareholder in respect of any meetings of
shareholders for the election of directors or any other matter, or as having any
rights whatsoever as a shareholder of the Company. If the Company shall propose
to engage in any transaction with respect to which adjustment of the Exercise
Price or the kind or amount of securities, property or other assets receivable
upon exercise of this Warrant would be required pursuant to Section 6, the
Company shall cause to be mailed to the Holder, at least 10 days prior to the
applicable date hereinafter specified, a notice describing such transaction and
stating (a) in the case of any dividend, distribution or grant of rights or
warrants to all holders of shares of Common Stock, the date on which a record is
to be taken for such purpose or, if a record is not to be so taken, the date as
of which the holders of Common Stock of record to be entitled thereto are to be
determined, (b) in the case of any other transaction described in Section 6 in
which all holders of Common Stock of record are entitled to participate, the
date on which such transaction is expected to become effective and the date as
of which it is expected that holders of Common Stock of record shall be entitled
to exchange their shares of Common Stock for securities, property or other
assets deliverable upon such transaction, and (c) in the case of any other
transaction, the date on which it is expected to occur or become effective.
Failure to give such notice or any defect therein shall not affect the validity
of any action taken or transaction consummated by the Company.
4
<PAGE>
10. Notices.
All notices, requests, consents and other communications
hereunder shall be effective only if given in writing and shall be deemed to
have been duly made or given when delivered, or three days after being mailed by
registered or certified mail, return receipt requested:
(a) If to the Holder, to the address of the Holder as
shown on the books of the Company or as otherwise designated
or provided for herein; or
(b) If to the Company, to the address set forth on
the first page of this Warrant or to such other address as the
Company may designate by notice to the Holder.
11. Amendment. This Warrant may not be amended or supplemented
except by an instrument in writing executed by the Company and the Holder.
12. Governing Law. This Warrant shall be deemed to be a
contract made under the laws of the State of New York and for all purposes shall
be construed in accordance with the laws of such State (without regard to the
conflicts of law principles thereof).
13. Jurisdiction. Any legal action or proceeding with respect
to the interpretation or enforcement of this Warrant may be brought exclusively
in the courts of the State of New York or of the United States of America for
the Southern District of New York, and, by acceptance of this Warrant, the
Holder accepts for itself and in respect of its property, generally and
unconditionally, the exclusive jurisdiction of the aforesaid courts with respect
to such matters. By acceptance of this Warrant, the Holder waives and agrees not
to assert, as a defense in any action, suit or proceeding for the interpretation
or enforcement of this Warrant, that the Holder is not subject thereto or that
such action, suit or proceeding may not be brought or is not maintainable in
said courts or that this Warrant may not be enforced in or by said courts or
that the Holder's property is exempt or immune from execution, that the suit,
action or proceeding is brought in an inconvenient forum, that the venue of the
suit, action or proceeding is improper or (provided that process shall be served
in any manner referred to in the following sentence) that service of process
upon the Holder is ineffective. Service of process in any such action, suit or
proceeding may be made upon the Company or the Holder in any manner permitted by
the laws of the State of New York or the federal laws of the United States or as
follows: (i) by personal service or (ii) by certified or registered mail to the
Holder or the Company, as applicable, at its address for notice pursuant to
Section 10. Service of process upon the Holder or the Company in any manner
referred to in the preceding sentence shall be deemed in every respect effective
service of process upon the Holder or the Company.
14. Benefits of This Warrant. Nothing in this Warrant shall be
construed to give to any person other than the Company and the Holder any legal
or equitable right, remedy or claim under this Warrant; and this Warrant shall
be for the sole and exclusive benefit of the Company and the Holder.
5
<PAGE>
15. Headings. The headings in this Warrant are intended solely
for convenience of reference and shall be given no effect in the construction or
interpretation of this Warrant.
IN WITNESS WHEREOF, the Company has caused this Warrant to be
duly executed as of the day and year first above written.
NETWORD, INC.
By: /s/ Shep Bostin
---------------------------------
Name: Shep Bostin
Title: Chief Operating Officer and
Vice President of Marketing
6
<PAGE>
- --------------------------------------------------------------------------------
This Note and the securities issuable on conversion hereof have not
been registered under the Securities Act of 1933, as amended (the
"Securities Act"), or state securities law and may not be transferred
or sold unless (i) registered under the Securities Act and applicable
state securities laws or (ii) an exemption from registration is
available at the time of such transfer or sale.
- --------------------------------------------------------------------------------
NETWORD, INC.
6% Convertible Note due March 31, 2002
$20,000.00 New York, New York
as of April 1, 1999
FOR VALUE RECEIVED, the undersigned, NETWORD, INC., a Delaware
corporation ("Company"), hereby promises to pay to the order of KRONISH LIEB
WEINER & HELLMAN LLP (the "Payee"), the principal sum of TWENTY THOUSAND
AND 00/100 DOLLARS ($20,000.00). The principal of this Note, to the extent not
earlier paid or converted as herein provided, shall be due and payable on March
31, 2002. Interest shall accrue on the unpaid balance of the principal of this
Note from time to time outstanding at the rate of six percent (6%) per year,
until the principal amount of this Note shall be fully paid, and to the extent
not earlier paid or converted as herein provided, shall be due and payable
concurrently with the payment of principal hereunder.
This Note incorporates the following additional terms:
1. This Note is issued by the Company to the Payee in partial
payment for legal services provided by the Payee to the Company.
2. Payments of principal of and interest on this Note shall be
made in lawful money of the United States of America to the Payee, at its
offices, located at 1114 Avenue of the Americas, New York, New York 10036,
Attention: Russell Berman,
<PAGE>
Esq., or at such other place as the Payee shall have designated to the Company
in writing.
3. The Payee by acceptance of this Note covenants and
represents to the Company that this Note and any securities issued on exercise
of the conversion privilege contained herein are being acquired by the Payee
without a view to distribution and that the Payee will at no time transfer,
assign or dispose of this Note or such securities except in compliance with the
requirements of the Securities Act of 1933, as amended, and applicable state
securities laws.
4. This Note may not be prepaid by the Company at any time
prior to maturity, unless the written consent of the Payee is obtained.
5. (a) Subject to and upon compliance with the
provisions of this Section 5 and Section 6, the Payee may, at its option,
convert the principal amount of this Note (or any portion thereof), together
with all accrued interest on the principal portion hereof being so converted,
into fully paid and nonassessable shares of the Company's Common Stock, par
value $.01 per share ("Common Stock"), at $1.00 per share (the "Conversion
Price").
(b) The Conversion Price shall be subject to
appropriate decrease or increase, as the case may be, if the Company shall at
any time after the date of issuance of this Note:
(i) declare with respect to any shares of
the Company's stock, any dividend or distribution payable in shares of Common
Stock or in securities directly or indirectly convertible into or exchangeable
for shares of Common Stock (but only upon the issuance of shares of Common Stock
following the conversion or exchange of such securities), or
(ii) subdivide or combine outstanding shares
of Common Stock.
(c) In case of any reclassification, change or
exchange of outstanding shares of Common Stock (except for a change as a result
of a subdivision or combination of such shares), or in case of any consolidation
of the Company with, or merger of the Company into, another corporation (except
for a merger or a consolidation in which the Company is the continuing
corporation and which does not result in any reclassification, change or
exchange of outstanding shares of Common Stock other
2
<PAGE>
than a change as a result of a subdivision or combination of such shares), or in
case of any transfer to another corporation of the assets of the Company as an
entirety or substantially as an entirety, or if the Company shall declare a
dividend or distribution (except in shares of Common Stock or in securities
directly or indirectly convertible into or exchangeable for shares of Common
Stock) upon the shares of Common Stock payable otherwise than in cash out of
earned surplus, this Note shall thereafter be convertible pursuant to this
Section 5 into the kind and amount of shares and other securities and property
that the Payee would have owned or would have been entitled to receive
immediately after such reclassification, change, exchange, consolidation,
merger, transfer, dividend or distribution, had this Note been converted
immediately prior to the effective date of such reclassification, change,
exchange, consolidation, merger or transfer or immediately prior to the date for
the determination of security holders of record entitled to receive such
dividend or distribution.
(d) At the option of the Payee, to avoid the issuance
of any fractional shares upon any conversion, adjustment therefor may be made in
cash in an amount equal to the same fraction of the Conversion Price in effect
on the date of such conversion.
(e) No adjustment will be made upon conversion of
this Note in respect of dividends or distributions previously paid or declared
(the date for the determination of security holders of record entitled to
receive such dividends or distributions having passed) on the shares of Common
Stock previously outstanding, except as otherwise provided in Section 5(b).
(f) Whenever the number of shares of Common Stock or
other securities or assets deliverable upon conversion of this Note shall be
adjusted as provided in this Section 5, the Company shall forthwith obtain and
file with its corporate records a certificate or letter from the firm of
independent public accountants then retained by the Company setting forth the
adjusted number of shares of Common Stock or other securities or assets
deliverable upon conversion of this Note, and a copy of such certificate or
letter shall be mailed to the holder hereof. Any such certificate or letter
shall be conclusive evidence as to the correctness of the adjustment or
adjustments referred to therein and shall be available at the principal office
of the Company for inspection by the holder of this Note on any day during
normal business hours.
3
<PAGE>
6. To exercise the conversion privilege at any time when such
privilege is exercisable in accordance with the terms of this Note (including,
without limitation, whether prior to or after the occurrence of any event
referred to in Section 8), the Payee shall surrender this Note, with the
attached form of Conversion Notice duly completed, to the Company at the
principal office of the Company or at such other place as the Company may
designate. As promptly as practicable after surrender of this Note as aforesaid
but in no event later than three business days thereafter, the Company shall
issue and deliver to the Payee a certificate or certificates for the number of
shares of Common Stock and/or other securities issuable or deliverable upon the
conversion of this Note or such designated portion hereof in accordance herewith
and cash in respect of any fraction of a share of Common Stock for which the
Payee has elected to receive cash. Such conversion shall be deemed to have been
effected at the time when such notice shall have been received by the Company
and this Note shall have been surrendered as aforesaid, and the person in whose
name any certificate for shares of Common Stock or other securities shall be
issuable upon such conversion shall be deemed to have become on such date the
holder of record of the shares or other securities represented thereby, subject
to the provisions of Section 8.
If less than all of the amount owing in respect of this Note
shall be converted or paid in cash upon any such conversion, the Company shall
execute and deliver to the Payee, at the expense of the Company, a new Note, in
the principal amount equal to the unconverted portion of this Note and in the
same form as this Note.
7. The Company covenants and agrees that it will at all times
reserve and keep available such number of its duly authorized and unissued
shares of Common Stock as shall from time to time be sufficient to effect the
conversion of this Note and the exercise or conversion of all other outstanding
securities exercisable or convertible with respect to shares of Common Stock and
that, if at any time the number of authorized but unissued shares of Common
Stock shall not be sufficient to effect the conversion of this Note and the
exercise or conversion of all other outstanding securities exercisable or
convertible with respect to shares of Common Stock at the Conversion Price then
in effect, the Company will take such corporate action as may, in the opinion of
its counsel, be necessary to increase its authorized but unissued shares of
Common Stock to such number as shall be sufficient for such purpose.
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<PAGE>
8. If, at any time prior to the payment of this Note (whether
upon stated maturity, acceleration or otherwise), any of the following events
shall occur:
(a) the Company shall declare any dividend or other
distribution upon the shares of Common Stock payable otherwise than in
cash out of earned surplus; or
(b) the Company shall offer to the holders of shares
of Common Stock any additional shares of the Company or options or
warrants therefor or securities convertible into shares of Common Stock
or any right to subscribe therefor; or
(c) a recapitalization, reclassification,
consolidation, merger, transfer of assets, dissolution, liquidation,
winding-up of the Company or other similar action of the Company
requiring approval by its stockholders shall be proposed,
then in any one or more of such events, the Company shall give to the Payee, in
accordance with Section 13, not less than 20 days prior notice of the date on
which:
(i) the books of the Company shall be closed or a
record taken for determination of the stockholders entitled to such
dividend, distribution or subscription rights, or
(ii) the books of the Company shall be closed or a
record taken for determination of the stockholders entitled to vote on
such proposed recapitalization, reclassification, consolidation,
merger, transfer of assets, dissolution, liquidation, winding-up or
other similar action.
Failure to give such notice or any defect therein shall not affect the validity
of any action taken.
9. (a) In the case of any Event of Default (as hereinafter
defined), the Payee may, by notice to the Company specifying such Event of
Default, declare the principal of and any accrued interest on this Note to be
immediately due and payable and thereupon, this Note including both principal
and interest, shall become immediately due and payable. This provision is
subject to the condition that if, at any time after this Note has been declared
due and payable and before any judgment or decree for the payment of the moneys
due shall have been obtained or entered, the Company shall pay all matured
installments of interest then due and all payments on account of
5
<PAGE>
principal then due (other than by reason of such declaration), then such
declaration and its consequences shall be rescinded and annulled, but no such
rescission or annulment shall extend to or affect any subsequent default or
impair or exhaust any right or power consequent thereon.
(b) Notice of any Event of Default shall be given by
the Company to the Payee within five business days after the Company shall
become aware of its existence.
(c) For purposes of this Note any one or more of the
following shall constitute an "Event of Default":
(i) Default in the payment of the principal
of this Note when the same shall mature or become due and
payable, either by the terms hereof or otherwise; or
(ii) Default in the payment of any interest
on this Note for more than 15 days after the same has become
due and payable; or
(iii) Any judgment, writ or warrant of
attachment or of any similar process in an amount in excess of
$100,000 is entered or filed against the Company or against
the property or assets of the Company and remains unpaid,
unvacated, unbonded and unstayed for a period of 60 days.
10. Nothing in this Note shall affect or impair the right,
which is absolute and unconditional, of the Payee to receive payment of or to
institute suit to enforce this Note at and after the maturity hereof (whether
stated maturity, acceleration, declaration pursuant to this Note or otherwise)
or the obligation of the Company, which is also absolute and unconditional, to
pay the principal of and interest on this Note to the Payee at the time and
place expressed herein.
11. In any case where the date of maturity of interest on, or
principal of, this Note shall be a Sunday or a legal holiday in the State of New
York or a day on which banking institutions doing business in the State of New
York are authorized by law to close, then payment of such interest may be made
on the next succeeding business day with the same force and effect as if made on
the nominal date of maturity (and no interest shall accrue for the period after
such nominal date).
6
<PAGE>
12. The agreements, undertakings, representations and
warranties contained in this Note shall remain operative and in full force and
effect and, subject to payment in full of all principal and interest due hereon,
and shall survive the surrender and/or delivery of this Note to the Company for
cancellation or otherwise in connection with the transfer hereof.
13. Except as herein otherwise expressly provided, all
notices, requests, demands, consents and other communications required or
permitted under this Note shall be in writing and shall be considered to have
been duly given when (i) delivered by hand, (ii) sent by telecopier (with
receipt confirmed), provided that a copy is mailed (on the same date) by
certified or registered mail, return receipt requested, postage prepaid, or
(iii) received by the addressee, if sent by Express Mail, Federal Express or
other reputable express delivery service (receipt requested), or by first class
certified or registered mail, return receipt requested, postage prepaid, in each
case to the appropriate addresses and telecopier numbers set forth below (or to
such other addresses and telecopier numbers as a person whose address is herein
specified may from time to time designate as to itself by notice similarly given
to the other such designees in accordance herewith). A notice of change of
address shall not be deemed given until received by the addressee. Notices shall
be addressed:
(1) if to the Payee:
Kronish Lieb Weiner & Hellman LLP
1114 Avenue of the Americas
New York, New York 10036-7798
Attn: Russell S. Berman, Esq.
Telecopier: 212-997-3525
(2) to the Company at:
Netword, Inc.
702 Russell Avenue
Third Floor
Gaithersburg, Maryland 20877
Attn: Michael Wise
Telecopier:
14. This Note shall be governed by and construed in accordance
with the laws of the State of New York (without regard to the conflict of laws
principles thereof).
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<PAGE>
15. All the covenants, stipulations, promises and agreements
contained in this Note by or on behalf of the Company shall bind its successors
and assigns, whether or not so expressed.
NETWORD, INC.
By:/s/Kent M. Klineman
----------------------
Name: Kent M. Klineman
Title: Secretary
8
<PAGE>
NOTICE OF CONVERSION
To be executed by the owner of the attached Note if such owner desires to
convert the attached Note:
The undersigned owner of the attached Note hereby
[ ] irrevocably exercises the option to convert such
Note or portions thereof below designated into
shares of Common Stock of Netword, Inc. ("Netword
Shares") in accordance with the terms of such
Note,
[ ] elects to receive payment in cash for any
fractional share issuable upon such conversion,
and directs that the Netword Shares issuable and deliverable upon such
conversion, together with any check in payment for any fractional share as to
which an election to receive cash is made above, be delivered to the
undersigned. If less than all of the amount owing in respect of this Note shall
be converted or paid in cash upon any such conversion, the Company shall execute
and deliver to the Payee, at the expense of the Company, a new Note, in the
principal amount equal to the unconverted portion of this Note and in the same
form as this Note.
KRONISH LIEB WEINER & HELLMAN LLP
Dated:
By:_____________________
Name:___________________
Title:__________________
Portion to be converted (if less than remaining principal balance):
$_____________________
9
<PAGE>
SERIES A-3 WARRANT NO. 1
22,500 SHARES
THIS WARRANT AND THE SHARES ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"),
OR STATE SECURITIES LAW AND MAY NOT BE TRANSFERRED OR SOLD UNLESS (I) REGISTERED
UNDER THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS OR (II) AN
EXEMPTION FROM REGISTRATION IS AVAILABLE AT THE TIME OF SUCH TRANSFER OR SALE.
WARRANT, dated as of May 1, 1999, issued by NETWORD, INC., a Delaware
corporation (the "Company") with principal offices at 702 Russell Avenue, Third
Floor, Gaithersburg, Maryland 20877-2606, Attn: President, to Pryor, Cashman,
Sherman & Flynn LLP (the "Holder").
The Company hereby agrees as follows:
1. Grant. The Company hereby grants to the Holder, the right, privilege and
option to purchase from the Company, Twenty-Two Thousand Five Hundred (22,500)
shares (the "Warrant Shares") of common stock, par value $.01 per share ("Common
Stock"), subject to adjustment as provided in Section 6, at the exercise price
of $.1666 per share (the "Exercise Price"), all subject to the terms and upon
the conditions set forth herein.
2. Exercise of Warrant. This Warrant is exercisable commencing on the date
hereof and will expire at 5:00 p.m., New York City time, on April 30, 2004 (the
"Expiration Date"), subject to the right of the Company to redeem this Warrant
as described in Section 3.
3. Method of Exercise and Redemption of Warrant. Unless this Warrant has
been redeemed by the Company as provided in this Section 3, the Holder may
exercise this Warrant at or prior to its expiration on the Expiration Date. This
Warrant may be exercised by the Holder or redeemed by the Company as follows:
(a) Subject to compliance with the provisions of Section 5 hereof,
this Warrant may be exercised in whole at any time, or in part from time to
time, by delivery of this Warrant to the Company at its principal place of
business, accompanied by a check payable to the Company in payment of the
Exercise Price for the number of Warrant Shares as to which this Warrant is
exercised.
(b) Upon clearance of the check delivered pursuant to Section 3(a),
the Company shall make immediate delivery of the shares of Common Stock as to
which this Warrant is exercised, provided that if any law or regulation requires
the Company to take any action with respect to such shares of Common Stock
before the issuance thereof, then the date of delivery of such shares shall be
extended for the period necessary to take such action. In case of
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<PAGE>
the exercise of this Warrant as to less than all of the Warrant Shares, the
Company shall cancel this Warrant upon surrender hereof and shall execute and
deliver to the Holder a new Warrant of like tenor and date for the balance of
the Warrant Shares.
(c) In the event that a registration statement shall become effective
under the Securities Act of 1933, as amended (the "Securities Act") covering the
purchase and/or resale of the Warrant Shares, then the Company may, at its
option, redeem this Warrant as to all or any of the Warrant Shares, at a price
of $0.05 per Warrant Share (the "Redemption Price"), at any time after the first
date on which the average of the closing bid prices for the shares of the
Company's Common Stock in any inter-dealer quotation system on which the Common
Stock has been the subject of both bid and ask quotations shall have exceeded
$2.50 per share on any 10 consecutive trading days that commenced on or after
the effective date of such registration statement. From and after the date fixed
for redemption by notice given pursuant to Section 3(d) (the "Redemption Date"),
the right to purchase Warrant Shares with respect to the redeemed portion of
this Warrant shall cease, and the Holder shall be entitled to payment of the
Redemption Price with respect to the portion of this Warrant so redeemed (and to
receive a new Warrant of like tenor and date with respect to the unredeemed
portion of this Warrant) upon surrender of this Warrant to the Company.
(d) Notice of redemption of this Warrant shall be given at least 30
days prior to the Redemption Date by mailing, by registered or certified mail,
return receipt requested, a copy of such notice to the Holder at its address
appearing on the books or transfer records of the Company or such other address
as may be designated by the Holder by notice to the Company. Notwithstanding the
giving of such notice, the Holder shall be entitled to exercise this Warrant at
any time prior to the Redemption Date.
4. Payment of Taxes. (a) The Company shall pay all documentary stamp taxes
attributable to the issuance of shares of Common Stock upon the exercise of this
Warrant; provided, however, that the Company shall not be required to pay any
tax that may be payable in respect of any transfer involved in the issuance and
delivery of any Warrants, warrant certificates or certificates for Warrant
Shares purchased pursuant hereto in a name other than that of the Holder, and
the Company shall not be required to issue or deliver such Warrants, warrant
certificates or other certificates unless or until the person or persons
requesting the issuance thereof shall have paid to the Company the amount of
such tax or shall have established to the satisfaction of the Company that such
tax has been paid.
(b) The Company's obligation to deliver Warrant Shares upon the
exercise of this Warrant or any portion thereof shall be subject to the payment
by the Holder of any applicable federal, state and local withholding tax. The
Company shall, to the extent permitted by law, have the right to deduct from any
payment of any kind otherwise due to the Holder any federal, state or local
taxes required to be withheld with respect to such payment.
5. Restriction on Transfer and Exercise of Warrant. The Holder hereof, by
the Holder's acceptance hereof, hereby represents and warrants to, and agrees
with, the Company that the Holder has been informed that neither this Warrant
nor the Warrant Shares have been
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<PAGE>
registered for sale under any federal or state securities laws and that this
Warrant is being offered and sold to the Holder and, upon the exercise of this
Warrant, the Warrant Shares will be sold to the Holder, pursuant to an exemption
from registration under the Securities Act; Holder is acquiring this Warrant and
will acquire the Warrant Shares for Holder's own account for investment only and
not with a view to the resale or distribution thereof; this Warrant is not
assignable or transferable otherwise than by will or the laws of descent and
distribution, and this Warrant may be exercised during the Holder's lifetime
only by the Holder; any attempt to assign or transfer this Warrant in
contravention of this Section 5 shall be void ab initio; the Warrant Shares may
not be sold, transferred, assigned, hypothecated or otherwise disposed of, in
whole or in part, unless registered under the Securities Act and applicable
state securities laws or unless an exemption from such registrations is
available; and that prior to the exercise of this Warrant, Holder shall provide
to the Company in writing such information as the Company may reasonably request
to establish that the exercise of this Warrant by Holder is exempt from
registration under such securities laws.
6. Anti-Dilution Provisions. (a) In the event the Company shall (i) declare
or pay a dividend on its outstanding shares of Common Stock in shares of Common
Stock or make a distribution to all holders of its outstanding shares of Common
Stock in shares of Common Stock, (ii) subdivide its outstanding shares of Common
Stock into a greater number of shares of Common Stock, (iii) combine its
outstanding shares of Common Stock into a smaller number of shares of Common
Stock or (iv) issue by reclassification of its outstanding shares of Common
Stock other securities of the Company (including any such reclassification in
connection with a consolidation, merger or other business combination in which
the Company is the surviving corporation), the number and kind of Warrant Shares
issuable upon exercise of this Warrant and/or the Exercise Price shall be
adjusted as the Company's Board of Directors determines to be equitable so that
the Holder upon exercise hereof shall be entitled to receive the number and kind
of Warrant Shares or other securities of the Company that the Holder would have
been entitled to receive after the occurrence of any of such events had this
Warrant been exercised immediately prior to the occurrence of such event or any
record date with respect thereto. An adjustment made pursuant to this Section
6(a) shall become effective on the date of the dividend payment, distribution,
subdivision, combination or reclassification, retroactive to any record date
with respect thereto. The provisions of this Section 6(a) shall similarly apply
to successive events on a cumulative basis.
(b) In case of any consolidation of the Company with, or merger of the
Company into, another person (whether or not the Company is the surviving
corporation), or in the case of any sale, transfer or lease to another person of
all or substantially all of the assets of the Company, the Company or such
successor, as the case may be, shall deliver to the Holder an undertaking that
the Holder shall have the right thereafter upon payment of the Exercise Price in
effect immediately prior to such transaction to purchase upon exercise of this
Warrant the kind and amount of securities, cash and property which the Holder
would have been entitled to receive after the consummation of such
consolidation, merger, sale, transfer or lease had this Warrant been exercised
immediately prior to such transaction, and if the successor or purchaser is not
a corporation, such person shall provide appropriate tax indemnification with
respect to such shares and other securities and property so that, upon exercise
of this Warrant, the Holder will
3
<PAGE>
have the same benefits the Holder otherwise would have had if such successor or
purchaser were a corporation. The provisions of this Section 6(b) shall
similarly apply to successive consolidations, mergers, sales, transfers or
leases.
7. Elimination of Fractional Interests. The Company shall not be required
to issue certificates representing fractions of Common Stock upon the exercise
of this Warrant, nor shall it be required to issue scrip or pay cash in lieu of
fractional interests, it being the intent of the parties that all fractional
interests shall be eliminated by the Company by rounding down to the nearest
whole number of shares of Common Stock.
8. Reservation of Securities. The Company shall at all times reserve and
keep available out of its authorized shares of Common Stock, solely for the
purpose of issuance upon the exercise of this Warrant, such number of shares of
Common Stock as shall be issuable upon the exercise hereof. The Company
covenants and agrees that, upon exercise of this Warrant for and payment of the
exercise price therefor, all shares of Common Stock issuable upon such exercise
shall be duly authorized, validly issued, fully paid, nonassessable and not
subject to preemptive rights of any stockholder.
9. Right to Notice. If the Company shall propose to engage in any
transaction with respect to which adjustment of the Exercise Price or the kind
or amount of securities, property or other assets receivable upon exercise of
this Warrant would be required pursuant to Section 6, the Company shall cause to
be mailed to the Holder, at least 10 days prior to the applicable date
hereinafter specified, a notice describing such transaction and stating (a) in
the case of any dividend, distribution or grant of rights or warrants to all
holders of shares of Common Stock, the date on which a record is to be taken for
such purpose or, if a record is not to be so taken, the date as of which the
holders of Common Stock of record to be entitled thereto are to be determined,
(b) in the case of any other transaction described in Section 6 in which all
holders of Common Stock of record are entitled to participate, the date on which
such transaction is expected to become effective and the date as of which it is
expected that holders of Common Stock of record shall be entitled to exchange
their shares of Common Stock for securities, property or other assets
deliverable upon such transaction, and (c) in the case of any other transaction,
the date on which it is expected to occur or become effective. Failure to give
such notice or any defect therein shall not affect the validity of any action
taken or transaction consummated by the Company.
10. No Rights as a Stockholder. Nothing contained in this Warrant shall be
construed as conferring upon the Holder the right to vote or to consent or to
receive notice as a stockholder in respect of any meetings of stockholders for
the election of directors or any other matter, or as having any rights
whatsoever as a stockholder of the Company.
11. Notices.
All notices, requests, consents and other communications hereunder shall be
effective only if given in writing and shall be deemed to have been duly made or
given when delivered, or three days after being mailed by registered or
certified mail, return receipt requested:
4
<PAGE>
(a) If to the Holder, to the address of the Holder as shown on the
books of the Company or as otherwise designated or provided for herein; or
(b) If to the Company, to the address set forth on the first page of
this Warrant or to such other address as the Company may designate by notice to
the Holder.
12. Amendment. This Warrant may not be amended or supplemented except by an
instrument in writing executed by the Company and the Holder.
13. Governing Law. This Warrant shall be deemed to be a contract made under
the laws of the State of New York and for all purposes shall be construed in
accordance with the laws of such State (without regard to the conflict of laws
principles thereof).
14. Jurisdiction. Any legal action or proceeding with respect to Warrant
may be brought exclusively in the courts of the State of New York or of the
United States of America for the Southern District of New York, and, by
acceptance of this Warrant, the Holder accepts for itself and in respect of its
property, generally and unconditionally, the exclusive jurisdiction of the
aforesaid courts. By acceptance of this Warrant, the Holder waives and agrees
not to assert, as a defense in any action, suit or proceeding for the
interpretation or enforcement of this Warrant, that the Holder is not subject to
the jurisdiction of such courts or that such action, suit or proceeding may not
be brought or is not maintainable in said courts or that this Warrant may not be
enforced in or by said courts or that the Holder's property is exempt or immune
from execution, that the suit, action or proceeding is brought in an
inconvenient forum, that the venue of the suit, action or proceeding is improper
or (provided that process shall be served in any manner referred to in the
following sentence) that service of process upon the Holder is ineffective.
Service of process in any such action, suit or proceeding may be made upon the
Company or the Holder in any manner permitted by the laws of the State of New
York or the federal laws of the United States or as follows: (i) by personal
service or (ii) by certified or registered mail to the Holder or the Company, as
applicable, at its address for notice pursuant to Section 11. Service of process
upon the Holder or the Company in any manner referred to in the preceding
sentence shall be deemed in every respect effective service of process upon the
Holder or the Company.
15. Benefits of This Warrant. Nothing in this Warrant shall be construed to
give to any person other than the Company and the Holder any legal or equitable
right, remedy or claim under this Warrant; and this Warrant shall be for the
exclusive benefit of the Company and the Holder.
16. Headings. The headings in this Warrant are intended solely for
convenience of reference and shall be given no effect in the construction or
interpretation of this Warrant.
5
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be duly executed
on its behalf.
NETWORD, INC.
By: /s/ Kent M. Klineman
--------------------
Name: Kent M. Klineman
Title: Secretary
6
<PAGE>
SUBSCRIPTION AGREEMENT
----------------------
Netword, Inc.
702 Russell Avenue
Third Floor
Gaithersburg, Maryland 20877
Ladies and Gentlemen:
1. Subscription. The undersigned ("Subscriber") hereby
subscribes to purchase Units at the purchase price of $1.25 per Unit. Each Unit
includes one share (a "Share") of common stock, par value $.01 ("Common Stock"),
of Netword, Inc., a Delaware corporation (the "Company"), and a warrant (a
"Warrant") to purchase eight-tenths (.80) of one share of Common Stock at an
exercise price of $1.50 per share. The shares of Common Stock issuable upon
exercise of the Warrants are referred to herein as the "Warrant Shares."
The Warrants will be exercisable immediately upon issuance and
will expire on June 30, 2004, subject to redemption by the Company, as described
below. The number of Units subscribed for is set forth on the signature page
hereof. Subscriber herewith delivers to the Company, Subscriber's check payable
to the Company in U.S. dollars (the "Payment") for the Units subscribed for, in
the amount equal to the product of U.S.$1.25 multiplied by the number of such
Units.
2. Representations, Warranties and Covenants of Subscriber.
Subscriber hereby represents, warrants and covenants to the Company that:
2.1 Subscriber has received and has fully read and considered
the Company's Amended and Restated Confidential Private Placement Memorandum,
dated July 14, 1999 (the "Memorandum"), including, without limitation, the
material set forth under "Risk Factors" and the sections of the Memorandum
describing the terms of the Offering. In evaluating the suitability of an
investment in the Company, Subscriber has not relied upon any representations or
other information (whether oral or written) received from the Company, its
officers, directors, agents, employees or representatives, except information
set forth in the Memorandum or obtained from the Company to verify such
information. Subscriber has been given the opportunity to ask questions and
receive answers concerning the terms and conditions of the Offering and to
obtain such additional information as Subscriber deemed necessary to verify the
accuracy of the information set forth in the Memorandum.
2.2 Subscriber is an "accredited investor" as that term is
defined in Rule 501(a) of Regulation D under the Securities Act of 1933, as
amended (the "Securities Act").
2.3 Subscriber is purchasing the Units for its own account for
the purpose of investment and not with a view to or for sale in connection with,
or for purposes of, any
1
<PAGE>
"distribution" thereof within the meaning of Section 2(11) of the Securities
Act, and no other person has or will have a direct or indirect beneficial
interest in the Units.
2.4 Subscriber understands that: (a) the offering and sale of
the Units is intended to be exempt from registration pursuant to Rule 506 of
Regulation D under the Securities Act, (b) the Shares, Warrants and Warrant
Shares may not be sold, transferred, assigned, hypothecated or otherwise
disposed of, except pursuant to an (1) effective registration under the
Securities Act and applicable state securities laws, or (2) exemption from such
registration, in each case in compliance with all applicable federal and state
securities laws, (c) except as set forth below in Section 4 and Exhibit A
hereto, the Company is under no obligation to register the Shares, Warrants or
Warrant Shares or to assist Subscriber in complying with any exemption from the
registration thereof, (d) the Shares, Warrants and Warrant Shares will bear a
legend to such effects and (e) the Company will make a notation on its transfer
books to such effect.
2.6 Subscriber is aware that the purchase of the Units is a
speculative investment involving a high degree of risk and that there is no
guarantee that Subscriber will recover its investment in the Units or realize
any gain from such investment.
2.7 Subscriber (a) has sufficient liquid assets to pay the
full purchase price for the Units, (b) has adequate means of providing for
Subscriber's current and presently foreseeable future needs and possible
personal contingencies, (c) has no present need for liquidity of Subscriber's
investment in the Units, and (d) is able to bear the economic risks of the
investment in the Units (i.e., Subscriber can afford a complete loss).
2.8 Subscriber is not subscribing for the Units as a result
of, or subsequent to, any advertisement, article, notice or other communication
published in any newspaper, magazine or similar media or broadcast over
television or radio, or presented at any seminar or general meeting.
2.9 Subscriber understands that the Company is relying upon
the truth and accuracy of the representations, warranties and agreements of
Subscriber set forth herein in making its determination that the offering and
sale of the Units is exempt from registration under the Securities Act and state
securities laws.
2.10 The funds provided for this investment are either
separate property of Subscriber, community property over which Subscriber has
the right of control or are otherwise funds as to which Subscriber has the sole
right of management.
3. Representations and Warranties of the Company. The Company
hereby represents and warrants to Subscriber that the Memorandum does not
include an untrue statement of a material fact or omit to state a material fact
necessary to make the statements therein not misleading.
2
<PAGE>
4. Registration Rights. The Company grants Subscriber the
registration rights (the "Registration Rights") set forth in Exhibit A attached
hereto. By executing this Subscription Agreement, Subscriber accepts and agrees
to the Registration Rights.
5. Redemption of Warrant by the Company. Upon 30 days notice
to Subscriber, the Company may redeem all or a portion of the Warrant Shares
covered by each Warrant, at a price of $0.05 per Warrant Share (the "Redemption
Price"), at its option, at any time if (i) more than 12 months have elapsed
after the Common Stock is first subject to both bid and ask quotations in the
NQB Pink Sheets (or another inter-dealer quotation system) and (ii) at any time
after such 12 month period the average of the closing average of bid and asked
prices for the Common Stock is at least $2.50 per share for 20 consecutive
trading days during which the average daily trading volume in the Common Stock
is at least 10,000 shares.
6. Legend. Subscriber hereby accepts and acknowledges that a
legend, in substantially the following form, will be placed on the Shares and
Warrants and any Warrant Shares:
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "SECURITIES ACT"), OR STATE SECURITIES LAW AND
MAY NOT BE TRANSFERRED OR SOLD UNLESS (I) REGISTERED UNDER THE
SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS OR (II) AN
EXEMPTION FROM REGISTRATION IS AVAILABLE AT THE TIME OF SUCH TRANSFER
OR SALE.
7. Miscellaneous
7.1 All notices or other communications given or made
hereunder shall be in writing and shall be delivered by hand or mailed by
registered or certified mail, return receipt requested, postage prepaid, if to
Subscriber, at the address set forth below Subscriber's signature on the
signature page hereof, and if to the Company at 702 Russell Avenue, Third Floor,
Gaithersburg, Maryland 20877, Attention: President, with a copy to Kronish Lieb
Weiner & Hellman LLP, 1114 Avenue of the Americas, New York, New York 10036,
Attention: Russell Berman, Esq.
7.2 This Subscription Agreement shall be governed by and
construed in accordance with the laws of the state of New York applicable to
contracts made and wholly performed in that state and without regard to the
principles of conflicts of laws.
7.3 This Subscription Agreement constitutes the entire
agreement between the parties with respect to the subject matter hereof.
7.4 This Subscription Agreement may not be changed, modified,
extended, terminated or discharged orally, but only by an agreement in writing.
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<PAGE>
7.5 This Subscription Agreement is not transferable or
assignable by Subscriber. Subscriber covenants and agrees that the securities
acquired pursuant hereto may be transferred only in accordance with applicable
federal and state laws, including the requirements of the Securities Act.
7.6 All references in this Subscription Agreement to the
"Subscriber" shall include all parties (other than the Company) who execute this
Subscription Agreement. If Subscriber is a corporation, partnership, trust or
two or more individuals purchasing jointly, Subscriber shall follow the specific
instructions for the Certificate of Corporate, Partnership, Trust and Joint
Purchases at page 7 hereof.
8. Acceptance of Subscription. Subscriber acknowledges that
the subscription made hereby is not binding upon the Company until the Company
accepts it. The Company has the right to accept or reject this subscription in
whole or in part in its sole and absolute discretion. If this subscription is
rejected in whole, the Company shall return the Payment to Subscriber, without
interest, and the Company and Subscriber shall have no further obligation to
each other by reason of this Subscription Agreement or the subscription made
hereby. In the event of a partial rejection of this subscription, a
proportionate amount of the Payment will be returned to Subscriber, without
interest.
9. Counterparts. This Subscription 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.
10. Severability. If any provision of this Subscription
Agreement shall be declared void or unenforceable by any judicial or
administrative authority, the validity of any other provision and of the entire
Subscription Agreement shall not be affected thereby.
11. Capitalized Terms. Capitalized terms not otherwise defined
herein shall have the meanings assigned to such terms in the Memorandum.
[SIGNATURE PAGE FOLLOWS]
4
<PAGE>
IN WITNESS WHEREOF, this Subscription Agreement has been
executed by Subscriber and by the Company on the respective dates set forth
below.
Print Name of Subscriber: _____________________________________
Date: _____________________________________
_______________________________________
Signature of Individual Subscriber
_______________________________________
Print Name of Subscriber, if an entity
By:____________________________________ _____________________________________
Signature of authorized signatory of Print name and title of signatory
Subscriber which is an entity for any Subscriber which is an entity
_______________________________________
Social Security No. (for individuals)
Tax Identification No. (for entities)
_______________________________________ $____________________________________
Number of Units Purchased Payment Amount for Units Purchased
(Number of Units multiplied by $1.25)
_______________________________________ _____________________________________
Telephone No./ Facsimile No. Street Address
_____________________________________
City State Zip
Subscription Accepted by:
NETWORD, INC. as of _____________, 1999
By:___________________
Name:
Title:
5
<PAGE>
SPECIAL SUBSCRIPTION INSTRUCTIONS FOR CORPORATE,
PARTNERSHIP, LIMITED LIABILITY COMPANY,
TRUST AND JOINT PURCHASERS
If Subscriber is a corporation, partnership, limited liability
company, trust, or other entity or joint purchaser, the following additional
instructions must be followed. INFORMATION ADDITIONAL TO THAT REQUESTED BELOW
MAY ALSO BE REQUIRED BY THE COMPANY IN SOME CASES.
1. Certificate. Subscriber must date and sign the Certificate
below, and, if requested by the Company, Subscriber may also be required to
provide an opinion of counsel to the same effect as this Certificate or a copy
of (a) the corporation's articles of incorporation, bylaws and authorizing
resolution, (b) the partnership agreement, (c) the limited liability company's
certificate of formation or articles of organization, as applicable, and limited
liability company agreement, operating agreement or similar agreement governing
the rights and obligations of the members of the limited liability company, or
(d) the trust agreement, as applicable.
2. Subscription Agreement.
(a) Corporations. An authorized officer of the corporation
must date, sign, and complete the Subscription Agreement with information
concerning the corporation. The officer should print the name of the corporation
above his signature, and print his name and office below his signature.
(b) Partnerships. An authorized partner must date, sign,
and complete the Subscription Agreement with information concerning the
partnership. The partner should print the name of the partnership above his
signature, and print his name and the words "general partner" below his
signature.
(c) Limited Liability Companies. An authorized member or
manager must date, sign, and complete the Subscription Agreement with
information concerning the limited liability company. The member or manager
should print the name of the limited liability company above his signature, and
print his name and the word "member" or "manager" below his signature.
(d) Trusts. In the case of a trust, the authorized trustee
should date, sign, and complete the Subscription Agreement with information
concerning the trust. The trustee should print the name of the trust above his
signature, and print his name and the word "trustee" below his signature. In
addition, an authorized trustee should also provide information requested in the
Subscription Agreement as it pertains to him as an individual.
(e) Joint Ownership. In all cases, each individual must
date, sign, and complete the Subscription Agreement. Joint investors must state
if they are purchasing the Shares as joint tenants with the right of
survivorship, tenants in common, or community property, and each must execute
the Subscription Agreement signature page.
6
<PAGE>
CERTIFICATE FOR CORPORATE, PARTNERSHIP,
LIMITED LIABILITY COMPANY, TRUST, AND JOINT SUBSCRIBERS
If Subscriber is a corporation, partnership, limited liability
company, trust, joint purchaser, or other entity, an authorized officer,
partner, member, manager or trustee must complete, date, and sign this
Certificate.
CERTIFICATE
I hereby certify that:
1. Subscriber has been duly formed and is validly existing and
has full power and authority to invest in Netword, Inc.
2. The Subscription Agreement has been duly and validly
authorized, executed, and delivered by Subscriber and, upon acceptance
by Netword, Inc., will constitute the valid, binding, and enforceable
obligation of Subscriber.
Date: _______________ ___________________________________________________
Name of corporation, partnership, limited liability
company, trust or joint purchasers (please print)
___________________________________________________
Signature and title of authorized officer, partner,
member, manager, trustee, or joint purchaser
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EXHIBIT A
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1. Registrable Securities. In connection with the purchase of Units in
the Offering, the Company grants to Subscriber ( "Subscriber" and collectively
with all other subscribers of Units in the Offering, the "Subscribers") the
following registration rights with respect to the: (a) Shares and Warrant Shares
and (b) any other securities issued or issuable with respect to any of such
Shares or Warrant Shares by way of a stock dividend or stock split or in
connection with a combination, exchange, reorganization, recapitalization or
reclassification of the Company's securities or pursuant to a merger,
consolidation or other similar business combination involving the Company (the
"Registrable Securities"). As to any particular Registrable Securities, such
securities shall cease to constitute Registrable Securities when (a) a
registration statement with respect to the sale of such securities shall have
been declared effective under the Securities Act and such securities shall have
been disposed of in accordance with a method of disposition contemplated by the
registration statement, (b) such securities shall have been sold in satisfaction
of all applicable conditions to the resale provisions of Rule 144 under the
Securities Act (or any successor provision thereto), (c) such securities shall
have been transferred, new certificates evidencing such securities without
legends restricting further transfer shall have been delivered by the Company,
and subsequent public distribution of such securities shall neither require
registration under the Securities Act nor qualification (or any similar filing)
under any state securities or "blue sky" law then in effect, or (d) such
securities shall have ceased to be outstanding.
2. Limitations on Right to Request Registration. Notwithstanding
anything to the contrary set forth below, the Subscribers may require the
Company to effect the registration of Registrable Securities only if Subscribers
(a) (i) have not previously elected to include 50% or more of the Registrable
Securities in an effective registration statement described in the next
sentence, (ii) all of the Registrable Securities which were requested to be
included in the effective registration statement were so included, and (iii) the
Subscribers had the opportunity to include all of the Registrable Securities in
the effective registration statement or (b) have not previously requested a
registration statement pursuant to Section 3.1 which has become effective and in
which all Registrable Securities requested to be included were so included. A
registration statement shall not be deemed an effective registration statement
for purposes of clause (a) of the preceding sentence, unless (i) the
registration statement satisfies the requirements described in Section 3.5 and
(ii) at a time when each Subscriber received notice of the opportunity to
include Registrable Securities in the registration statement such Subscriber had
notice that (x) Subscribers holding 50% or more of the Registrable Securities
were requesting inclusion of Registrable Securities in such registration
statement and (y) any Subscriber who did not request inclusion of all of its
Registrable Securities in such registration statement would have no further
right to request registration of its Registrable Securities pursuant to Section
3.1 and Section 4.1.
3. Demand Registration Rights.
3.1 Request for Demand Registration. Subject to Section 2, at any time
after the 180th day following the completion of the Offering, Subscribers
holding at least 25% of the Registrable Securities then held by all of the
Subscribers shall have the right to request in writing that the Company effect
the registration under the Securities Act of all or part of such Subscribers'
Registrable Securities; provided, that if the managing underwriters of the first
underwritten
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primary offering of equity securities of the Company so requests, Subscribers
shall not be entitled to make such a request until the earlier of the 181st day
following the effectiveness of the registration statement relating to such
offering or the first day when any affiliate or other 5% or greater stockholder
of the Company shall not be subject to limitations requested by such underwriter
on sales of securities equivalent to the Registrable Securities. The Company
will promptly give written notice of such requested registration to all other
Subscribers of Registrable Securities and thereupon the Company will use
commercially reasonable efforts to effect the registration under the Securities
Act of:
(a) the Registrable Securities which the Company has been so requested
to register by Subscribers;
(b) all other Registrable Securities which the Company has been
requested to register by the Subscribers thereof by written request
given to the Company within 30 days after the giving of such written
notice by the Company, all to the extent requisite to permit the
disposition of the Registrable Securities so to be registered; and
(c) such other securities of the Company which the Company, in its
discretion, may designate, whether such securities are to be sold by
the Company for its own account or are to be sold by other security
holders of the Company.
3.2. Priority in Demand Registrations. If the requested registration
pursuant to Section 3.1 involves an underwritten offering, and the managing
underwriter thereof shall advise the Company in writing that, in its opinion,
the number of securities requested to be included in such registration exceeds
the number which can be sold in (or during the time of) such offering or that
the inclusion would materially adversely affect the marketing of the securities
to be sold therein (such writing to state the basis of such opinion and the
approximate number of securities which may be included in such offering without
such effect), the Company will include in such registration, to the extent of
the number which the Company is advised can be sold in such offering, (a) first,
securities of the Company which are to be sold by the Company for its own
account, (b) second, Registrable Securities requested to be included in such
registration pursuant to Section 3.1 by the Subscribers (provided, however, that
if the Company is so advised that less than all such Registrable Securities can
be so sold in such offering, such Registrable Securities shall be included pro
rata in proportion to the respective holdings of such Registrable Securities by
the Subscribers, unless such Subscribers otherwise agree), and (c) third, other
securities of the Company to be sold by other security holders of the Company.
3.3. Duration of Registration Statement. Subject to Sections 3.4, 4.1
and 5, the Company shall use commercially reasonable efforts to keep any
registration statement requested under Section 3.1 continuously effective,
supplemented and amended to the extent necessary to ensure that it is available
for resales of Shares and Warrant Shares, and to ensure that it conforms with
the requirements of the Securities Act and the policies, rules and regulations
of the Commission as announced from time to time, for a period expiring on the
earlier to occur of: (a) the date when all Shares and Warrant Shares have been
sold, and (b) the first anniversary of the completion of the Offering.
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3.4 Delays in Registration. The Company may delay the filing of a
registration statement requested under Section 3.1 for up to 45 days if at the
time of a request under Section 3.1:
(a) the Company is a party to a transaction involving the purchase,
sale, conversion or issuance of securities of the Company and (i) such
transaction is subject to the trading restrictions of Regulation M promulgated
by the Commission under the Exchange Act, and (ii) in the Company's judgement,
the filing of a registration statement could result in a violation of such
restrictions;
(b) there is material undisclosed information concerning the Company
which has not been disclosed for business reasons; or
(c) the Company is about to commence an offering of securities of the
Company and the underwriter for the Company shall advise the Company in writing
(with a copy to the Subscribers) that, in its opinion, the offering contemplated
by the Company would be adversely affected by the sale of Registrable Securities
by the Subscribers.
3.5. Effective Registration Statement. A registration shall not be
deemed to have been effected pursuant to Section 3.1:
(a) unless a registration statement with respect thereto has become
effective; provided, however, that a registration which does not become
effective after the Company has filed a registration statement with respect
thereto solely by reason of the refusal to proceed of any of the Subscribers
shall be deemed to have been effected by the Company unless the Subscribers
shall have elected to pay, and have in fact paid in full within 30 days after
the Company has received notice of any Subscriber's refusal to proceed which
results in a termination of the registered offering, all expenses in connection
with such registration, (b) if after it has become effective, such registration
statement is interfered with by any stop order, injunction or other order or
requirement of the Commission or other governmental agency or court for any
reason which results in a termination of the registered offering, (c) if the
conditions to closing specified in the purchase agreement or underwriting
agreement entered into in connection with such registration are not satisfied or
waived, other than by reason of some act or omission by any of the Subscribers;
or (d) so long as the period in Section 3.3(a) has not expired, if a
registration statement is not available for use by the Subscribers whose
Registrable Securities are included in such registration statement for at least
270 calendar days during the one year period set forth in Section 3.3(b).
4. Incidental Registration Rights.
4.1 Incidental Registration Rights. If the Company at any time proposes
to register any of its equity securities under the Securities Act (other than by
a registration on the Registration Statement (defined in the Memorandum), Form
S-4, Form S-8 or any successor or similar form, or any registration form which
does not permit secondary sales, whether or not for sale for its own account, it
will each such time give prompt written notice to all Subscribers of its
intention to do so and of Subscribers' rights under this Section 4.1. Upon the
written request of Subscribers made within 15 days after the receipt of any such
notice (which request shall specify
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the Registrable Securities intended to be disposed of by Subscriber), the
Company will use commercially reasonable efforts to effect the registration
under the Securities Act of all Registrable Securities which the Company has
been so requested to register by Subscribers; provided, however, that if, at any
time after giving written notice of its intention to register any Registrable
Securities and prior to the effective date of the registration statement filed
in connection with such registration, the Company shall determine for any reason
not to register or to delay registration of the Registrable Securities, the
Company may, at its election, give written notice of such determination to
Subscribers and, thereupon, (a) in the case of a determination not to register,
shall be relieved of its obligation to register any Registrable Securities in
connection with such registration (but not from its obligation to pay the
registration expenses in connection therewith), and (b) in the case of a
determination to delay registering, shall be permitted to delay registering any
Registrable Securities, for the same period as the delay in registering the
other securities covered by the registration statement. Subscriber shall only be
entitled to participate in and shall only receive notice of incidental
registrations under this Section 4.1 until such time as the conditions of
Section 2 are satisfied.
4.2 Priority in Incidental Registrations. If a registration pursuant to
Section 4.1 involves an underwritten offering, and the managing underwriter
thereof shall advise the Company in writing that, in its opinion, the number of
securities requested to be included in such registration exceeds the number
which can be sold in (or during the time of) such offering or that the inclusion
would materially adversely affect the marketing of the securities to be sold
therein, the Company will include in such registration, to the extent of the
number which the Company is advised can be sold in such offering, (a) first,
securities of the Company which are to be sold by the Company for its own
account, (b) second, other securities of the Company to be sold by other
security holders of the Company, and (c) third, Registrable Securities requested
to be included in such registration pursuant to Section 4.1 by the Subscribers
(provided, however, that if the Company is so advised that less than all such
Registrable Securities can be so sold in such offering, such Registrable
Securities shall be included pro rata in proportion to the respective holdings
of such Registrable Securities by the Subscribers, unless such Subscribers
otherwise agree).
5. Suspension of Registration. The Company may suspend the
effectiveness of a registration statement, or, without suspending such
effectiveness, instruct the Subscribers that no sales of Registrable Securities
included in such registration statement may be made if, in the Company's
reasonable judgment, the Company would be required to disclose any actions taken
or proposed to be taken by the Company, which disclosure would have a material
adverse effect on the Company or on such actions (a "Suspension Period") by
providing the Subscribers with written notice of such Suspension Period and the
reasons therefor. The Company shall use its reasonable efforts to provide such
notice a reasonable number of days prior to the commencement of a Suspension
Period, provided that in any event the Company shall provide such notice no
later than the commencement of such Suspension Period. The Suspension Period
shall not exceed 90 days in any calendar year. In addition, the Company shall
not be required to keep any registration statement effective, or may without
suspending such effectiveness instruct the holders of Registrable Securities
included in such registration statement not to sell such Registrable Securities,
during any period during which the Company is instructed, directed, ordered or
otherwise requested by any governmental agency or self-regulatory organization
to stop or suspend such trading or sales ("Supplemental Suspension Period") and
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such Supplemental Suspension Period shall not be included in the calculation of
the Suspension Period referred to above. The Company shall give prompt written
notice to Subscribers of the termination of any Suspension Period or
Supplemental Suspension Period.
6. Underwriters. Subject to the approval by the Company, which shall
not be unreasonably withheld or delayed, the managing underwriter or
underwriters of any registration effected pursuant to Section 3.1 shall be
selected by Subscribers holding a majority of the Registrable Securities held by
Subscribers requesting registration in such registration statement. The
underwriter shall be deemed approved by the Company if the Company has not
objected to the selection of such underwriter within two weeks.
The managing underwriter or underwriters of any registration effected
pursuant to Section 4.1 shall be selected by the Company.
7. Subscriber may not include any of its Registrable Securities in a
registration statement unless and until Subscriber furnishes to the Company in
writing, within 20 business days after receipt of a request therefor, (a) the
information specified in item 507 of Regulation S-K under the Securities Act and
(b) any other information or documentation reasonably requested by the Company,
in each case, for use in connection with any such registration statement or
prospectus or preliminary prospectus included therein. Subscriber agrees to
furnish promptly to the Company, for so long as any registration statement which
includes any of Subscriber's Registrable Securities is effective, all
information required to be disclosed in order to make the information previously
furnished to the Company by Subscriber not materially misleading.
8. The Company and Subscriber, as applicable, further covenant and
agree as follows:
8.1 The Company will prepare and (as promptly thereafter as practicable
and in any event within 45 days after the end of the period within which
requests for registration pursuant to Section 3.1 may be given to the Company)
file with the Commission the requisite registration statement to effect
registration of the Registrable Securities and thereafter use commercially
reasonable efforts to cause such registration statement to become effective;
provided, however, that the Company may discontinue any registration of its
securities which are not Registrable Securities (and, under the circumstances
specified in Sections 3 and 4, its securities which are Registrable Securities)
at any time prior to the effective date of the registration statement relating
thereto.
8.2 The Company will prepare and file with the Commission such
amendments and supplements to any registration statement which includes
Subscriber's Registrable Securities and the prospectus used in connection
therewith as may be necessary to keep such registration statement effective and
to comply with the provisions of the Securities Act with respect to the
disposition of all Registrable Securities covered by such registration statement
for the time period specified in Section 3.3 and any additional period required
pursuant to Section 3.5.
8.3 Following the effective date of any registration statement which
includes any of Subscriber's Registrable Securities, the Company shall furnish
Subscriber such number of prospectuses as Subscriber shall reasonably request.
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8.4 The Company shall pay all costs, fees and expenses in connection
with the preparation and filing of any registration statement which includes any
of Subscriber's Registrable Securities, including, without limitation, the
Company's legal and accounting fees and printing expenses and legal expenses up
to a maximum of $5,000 of one counsel for the Subscribers, such counsel to be
selected by Subscribers holding a majority of the Registrable Securities held by
Subscribers requesting inclusion in the registration statement. Except as
provided in the preceding sentence, Subscriber shall pay its own legal expenses.
8.5 The Company will use commercially reasonable best efforts to
qualify or register the Registrable Securities included in any registration
statement for offering and sale under the securities or blue sky laws in all
jurisdictions within the United States as are requested by Subscribers of 50% or
more of the securities included in the registration statement or their
underwriters, as the case may be; provided, that the Company shall not be
obligated to execute or file any general consent to service of process or to
qualify as a foreign corporation to do business under the laws of any such
jurisdiction.
8.6 The Company and Subscriber shall enter into reasonable, customary
and reciprocal agreements to indemnify and hold one another harmless in
connection with any registration statement which includes any of Subscriber's
Registrable Securities; provided, that the indemnification by each Subscriber
shall be several and not joint, shall be limited to the information supplied by
such Subscriber in writing for inclusion in such registration statement and
shall provide for maximum Subscriber liability limited to the net proceeds
received by such Subscriber.
8.7 Subscriber shall enter into customary holdback agreements, if
required by any underwriter, in connection with any registration statement which
includes any of Subscriber's Registrable Securities; provided, that Subscriber
shall be accorded lock-up treatment no less favorable than affiliates or other
substantial stockholders of the Company.
8.8 If requested by the underwriters for any underwritten offering of
Subscriber's Registrable Securities, Subscriber shall become a party to the
underwriting agreement between the Company and the underwriters and shall make
such representations and warranties to and agreements with the Company and the
underwriters as are reasonably required by the Company and the underwriters, as
the case may be, and customarily contained in underwriting agreements of this
type, which shall be limited to: (a) representations and warranties relating
solely to the number of Registrable Securities held by such Subscriber, such
Subscriber's intended method of distribution and any other information required
to be included in such registration statement unique to such Subscriber; and (b)
indemnities, provided, that, any indemnification by each Subscriber shall be
several and not joint, shall be limited to the information supplied by such
Subscriber in writing for inclusion in such registration statement and shall
provide for maximum Subscriber liability limited to the net proceeds received by
such Subscriber.
8.9 The Company shall notify Subscriber at any time when a prospectus
relating to a registration statement covering Subscriber's Registrable
Securities is required to be delivered under the Securities Act, upon discovery
that, or upon 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 any material fact required to be
stated therein
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or necessary to make the statements therein not misleading in the light of the
circumstances under which they were made, and at the request of Subscriber
promptly prepare to furnish to Subscriber a reasonable number of copies of a
supplement to or an amendment of such prospectus as may be necessary so that, as
thereafter delivered to the purchasers of such securities, such prospectus shall
not include an untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements therein
not misleading in the light of the circumstances under which they were made.
8.10 The Company shall notify Subscribers promptly after the Company
shall receive notice or obtain knowledge thereof of the issuance of any stop
order by the Commission suspending the effectiveness of any registration
statement or amendment thereto or the initiation or threatening of any
proceeding for that purpose, and promptly use its best efforts to prevent the
issuance of any stop order or to obtain its withdrawal promptly if such stop
order should be issued.
8.11 Subscriber agrees that upon receipt of any notice from the Company
of the happening of any event of the kind described in Section 8.9 or of any
Suspension Period or Supplemental Suspension Period pursuant to Section 5,
Subscriber will forthwith discontinue disposition of Registrable Securities
pursuant to the registration statement relating to such Registrable Securities
until Subscriber's receipt, as the case may be, of the copies of the
supplemented or amended prospectus contemplated by Section 8.9 or notice of the
termination of such Suspension Period or Supplemental Suspension Period. If so
directed by the Company, Subscriber will deliver to the Company (at the
Company's expense) all copies, other than permanent file copies, then in the
Subscriber's possession of the prospectus relating to such Registrable
Securities current at the time of receipt of such notice of an event described
in Section 8.9.
8.12 These registration rights may only be amended with the approval of
the Company and Subscribers holding 75% of the Registrable Securities held by
Subscribers.
8.13 The benefits of these registration rights may be transferred by a
Subscriber to anyone to whom such Subscriber sells all or otherwise transfers or
a part of his Registrable Securities and the transferee shall become a
Subscriber; provided, that, the transferee agrees in writing to comply with the
obligations of a Subscriber with respect to these registration rights.
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SERIES C WARRANT NO. ________
________ SHARES
THIS WARRANT AND THE SHARES ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), OR STATE SECURITIES LAW AND MAY NOT BE TRANSFERRED
OR SOLD UNLESS (I) REGISTERED UNDER THE SECURITIES ACT AND APPLICABLE
STATE SECURITIES LAWS OR (II) AN EXEMPTION FROM REGISTRATION IS
AVAILABLE AT THE TIME OF SUCH TRANSFER OR SALE.
WARRANT, dated as of _______, 1999, issued by NETWORD, INC., a
Delaware corporation (the "Company") with principal offices at 702 Russell
Avenue, Third Floor, Gaithersburg, Maryland 20877-2606, Attn: President,
to _______________________________________ (the "Holder") or registered assigns.
The Company hereby agrees as follows:
1. Grant. The Company hereby grants to the Holder, the right,
privilege and option to purchase from the Company _________ shares (the "Warrant
Shares") of common stock, par value $.01 per share ("Common Stock"), subject to
adjustment as provided in Section 6, at the exercise price of $1.50 per share
(the "Exercise Price"), all subject to the terms and upon the conditions set
forth herein.
2. Exercise of Warrant. This Warrant is exercisable commencing
on the date hereof and will expire at 5:00 p.m., New York City time, on June 30,
2004 (the "Expiration Date"), subject to the right of the Company to redeem this
Warrant as described in Section 3.
3. Method of Exercise and Redemption of Warrant. Unless this
Warrant has been redeemed by the Company as provided in this Section 3, the
Holder may exercise this Warrant at or prior to its expiration on the Expiration
Date. This Warrant may be exercised by the Holder or redeemed by the Company as
follows:
(a) This Warrant may be exercised in whole at any
time, or in part from time to time, by delivery of this Warrant to the Company
at its principal place of business, accompanied by a check payable to the
Company in payment of the Exercise Price for the number of Warrant Shares as to
which this Warrant is exercised.
(b) At any time after the Common Stock is first
subject to trading on any national exchange or inter-dealer quotation system, in
addition to the method of payment provided in Section 3(a) hereof and in lieu of
any cash payment required thereunder, the Holder shall have the right at any
time and from time to time to exercise this Warrant by sending written notice to
the Company of such exercise pursuant to this Section 3(b) ("Notice"). Within
the period set forth in Section 3(c), the Company shall deliver to Holder a duly
issued certificate (or certificates in the denominations designated by Holder in
its Notice) representing the number of
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shares of Common Stock equal to the product of (x) the number of shares of
Common Stock as to which this Warrant is being exercised, multiplied by (y) a
fraction, the numerator of which is the Market Price of the Common Stock less
the Exercise Price therefor, and the denominator of which is such Market Price.
For the purposes hereof, the "Market Price" on any day shall mean the last
reported sale price on such day or, in case no such reported sale takes place on
such day, the average of the last reported sale prices for the last three
trading days, in either case as officially reported by the principal national
securities exchange (including the Nasdaq National Market) on which the Common
Stock is listed or admitting to trading, or, if the Common Stock is not listed
or admitted to trading on any such national securities exchange, the average
closing bid price as furnished by the National Association of Securities
Dealers, Inc. ("NASD") on the Nasdaq SmallCap Market, or if the Common Stock is
not quoted on the Nasdaq SmallCap Market, the average closing bid price as
furnished by the NASD Over the Counter Bulletin Board (the "Bulletin Board"), or
if the Common Stock is not quoted on the Bulletin Board, the average of the
closing average of bid and asked prices as furnished by the NQB Pink Sheets.
(c) Upon clearance of the check delivered pursuant to
Section 3(a) or receipt of the Notice pursuant to Section 3(b), the Company
shall make immediate delivery of the shares of Common Stock as to which this
Warrant is exercised, provided that if any law or regulation requires the
Company to take any action with respect to such shares of Common Stock before
the issuance thereof, then the date of delivery of such shares shall be extended
for the period necessary to take such action. In case of the exercise of this
Warrant as to less than all of the Warrant Shares, the Company shall cancel this
Warrant upon surrender hereof and shall execute and deliver to the Holder a new
Warrant of like tenor and date for the balance of the Warrant Shares.
(d) The Company may redeem this Warrant as to all or
any of the Warrant Shares, at a price of $0.05 per Warrant Share (the
"Redemption Price"), at its option, at any time if (i) more than 12 months have
elapsed after the Common Stock is first subject to both bid and ask quotations
in the NQB Pink Sheets (or another inter-dealer quotation system) and (ii) at
any time after such 12 month period the average of the closing average of bid
and asked prices for the Common Stock is at least $2.50 per share for 20
consecutive trading days during which the average daily trading volume in the
Common Stock is at least 10,000 shares. From and after the date fixed for
redemption by notice given pursuant to Section 3(e) (the "Redemption Date"), the
right to purchase Warrant Shares with respect to the redeemed portion of this
Warrant shall cease, and the Holder shall be entitled to payment of the
Redemption Price with respect to the portion of this Warrant so redeemed (and to
receive a new Warrant of like tenor and date with respect to the unredeemed
portion of this Warrant) upon surrender of this Warrant to the Company.
(e) Notice of redemption of this Warrant shall be
given at least 30 days prior to the Redemption Date by mailing, by registered or
certified mail, return receipt requested, a copy of such notice to the Holder at
its address appearing on the books or transfer records of the Company or such
other address as may be designated by the Holder by notice to the Company.
Notwithstanding the giving of such notice, the Holder shall be entitled to
exercise this Warrant at any time prior to the Redemption Date.
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4. Payment of Taxes. (a) The Company shall pay all documentary
stamp taxes attributable to the issuance of shares of Common Stock upon the
exercise of this Warrant; provided, however, that the Company shall not be
required to pay any tax that may be payable in respect of any transfer involved
in the issuance and delivery of any Warrants, warrant certificates or
certificates for Warrant Shares purchased pursuant hereto in a name other than
that of the Holder, and the Company shall not be required to issue or deliver
such Warrants, warrant certificates or other certificates unless or until the
person or persons requesting the issuance thereof shall have paid to the Company
the amount of such tax or shall have established to the satisfaction of the
Company that such tax has been paid.
(b) The Company's obligation to deliver Warrant Shares upon
the exercise of this Warrant or any portion thereof shall be subject to the
payment by the Holder of any applicable federal, state and local withholding
tax. The Company shall, to the extent permitted by law, have the right to deduct
from any payment of any kind otherwise due to the Holder any federal, state or
local taxes required to be withheld with respect to such payment. Subject to the
right of the Company's Board of Directors or any committee thereof to disapprove
any such election and require payment of the withholding tax in cash, at any
time after the Common Stock is first subject to both bid and ask quotations in
the NQB Pink Sheets (or another inter-dealer quotation system), the Holder shall
have the right to elect to pay the withholding tax with shares of Common Stock
to be received upon exercise of this Warrant or any portion thereof or which are
otherwise owned by the Holder. Upon the exercise of any portion of this Warrant,
any election to pay withholding taxes with stock shall be irrevocable once made
with respect to such portion. For purposes of this Section 4(b), shares of
Common Stock used to pay withholding tax shall be valued at the Market Price.
5. Restriction on Transfer of Warrants. The Holder hereof, by the
Holder's acceptance hereof, hereby represents and warrants to, and agrees with,
the Company that (a) the Holder has been informed that neither this Warrant nor
the Warrant Shares have been registered for sale under any federal or state
securities laws and that this Warrant is being offered and sold to the Holder
and, upon the exercise of this Warrant, the Warrant Shares will be sold to the
Holder, pursuant to an exemption from registration under the Securities Act, or
pursuant to a registration statement filed by the Company pursuant to
registration rights granted in connection with the issuance of this Warrant; (b)
the Holder is an "accredited investor" (as defined in Rule 501(a) of Regulation
D under the Securities Act) and is acquiring this Warrant and, if the exercise
of this Warrant is not registered under the Securities Act and applicable state
securities laws, will acquire the Warrant Shares for the Holder's own account
for investment only and not with a view to distribution; (c) this Warrant and
the Warrant Shares may not be transferred or sold, in whole or in part, unless
such transfer or sale is registered under the Securities Act and applicable
state securities laws or exempt from such registration; and (d) if the exercise
of this Warrant is not registered under the Securities Act and applicable state
securities laws, prior to the exercise of this Warrant, the Holder shall provide
to the Company in writing such information as the Company may reasonably request
to establish that the exercise of this Warrant by the Holder is exempt from
registration under the Securities Act and applicable state securities laws.
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If a transfer of this Warrant is permitted pursuant to the
preceding paragraph of this Section 5, the Holder shall execute and deliver to
the Company, a completed Assignment in the form attached hereto as Exhibit A.
Upon the Company's determination that the requirements for transfer of this
Warrant have been satisfied, receipt of the completed and duly executed
Assignment, and surrender of this Warrant, the Company shall, as promptly as
practicable, deliver to the transferee a new Warrant of like tenor and date for
that portion of the Warrant Shares as to which this Warrant is being transferred
and shall deliver to the Holder a new Warrant of like tenor and date for the
balance, if any, of the Warrant Shares.
6. Anti-Dilution Provisions. (a) In the event the Company
shall (i) declare or pay a dividend on its outstanding shares of Common Stock in
shares of Common Stock or make a distribution to all holders of its outstanding
shares of Common Stock in shares of Common Stock, (ii) subdivide its outstanding
shares of Common Stock into a greater number of shares of Common Stock, (iii)
combine its outstanding shares of Common Stock into a smaller number of shares
of Common Stock or (iv) issue by reclassification of its outstanding shares of
Common Stock other securities of the Company (including any such
reclassification in connection with a consolidation, merger or other business
combination in which the Company is the surviving corporation), the number and
kind of Warrant Shares issuable upon exercise of this Warrant and/or the
Exercise Price shall be adjusted as the Company's Board of Directors determines
to be equitable so that the Holder upon exercise hereof shall be entitled to
receive the number and kind of Warrant Shares or other securities of the Company
that the Holder would have been entitled to receive after the occurrence of any
of such events had this Warrant been exercised immediately prior to the
occurrence of such event or any record date with respect thereto. An adjustment
made pursuant to this Section 6(a) shall become effective on the date of the
dividend payment, distribution, subdivision, combination or reclassification,
retroactive to any record date with respect thereto. The provisions of this
Section 6(a) shall similarly apply to successive events on a cumulative basis.
(b) In case of any consolidation of the Company with, or merger of the
Company into, another person (whether or not the Company is the surviving
corporation), or in the case of any sale, transfer or lease to another person of
all or substantially all of the assets of the Company, the Company or such
successor, as the case may be, shall deliver to the Holder an undertaking that
the Holder shall have the right thereafter upon payment of the Exercise Price in
effect immediately prior to such transaction to purchase upon exercise of this
Warrant the kind and amount of securities, cash and property which the Holder
would have been entitled to receive after the consummation of such
consolidation, merger, sale, transfer or lease had this Warrant been exercised
immediately prior to such transaction, and if the successor or purchaser is not
a corporation, such person shall provide appropriate tax indemnification with
respect to such shares and other securities and property so that, upon exercise
of this Warrant, the Holder will have the same benefits the Holder otherwise
would have had if such successor or purchaser were a corporation. The provisions
of this Section 6(b) shall similarly apply to successive consolidations,
mergers, sales, transfers or leases.
7. Elimination of Fractional Interests. The Company shall not
be required to issue certificates representing fractions of Common Stock upon
the exercise of this Warrant, nor
4
<PAGE>
shall it be required to issue scrip or pay cash in lieu of fractional interests,
it being the intent of the parties that all fractional interests shall be
eliminated by the Company by rounding down to the nearest whole number of shares
of Common Stock.
8. Reservation of Securities. The Company shall at all times
reserve and keep available out of its authorized shares of Common Stock, solely
for the purpose of issuance upon the exercise of this Warrant, such number of
shares Common Stock as shall be issuable upon the exercise hereof. The Company
covenants and agrees that, upon exercise of this Warrant for and payment of the
exercise price therefor, all shares of Common Stock issuable upon such exercise
shall be duly authorized, validly issued, fully paid, nonassessable and not
subject to preemptive rights of any stockholder.
9. Right to Notice. If the Company shall propose to engage in
any transaction with respect to which adjustment of the Exercise Price or the
kind or amount of securities, property or other assets receivable upon exercise
of this Warrant would be required pursuant to Section 6, the Company shall cause
to be mailed to the Holder, at least 10 days prior to the applicable date
hereinafter specified, a notice describing such transaction and stating (a) in
the case of any dividend, distribution or grant of rights or warrants to all
holders of shares of Common Stock, the date on which a record is to be taken for
such purpose or, if a record is not to be so taken, the date as of which the
holders of Common Stock of record to be entitled thereto are to be determined,
(b) in the case of any other transaction described in Section 6 in which all
holders of Common Stock of record are entitled to participate, the date on which
such transaction is expected to become effective and the date as of which it is
expected that holders of Common Stock of record shall be entitled to exchange
their shares of Common Stock for securities, property or other assets
deliverable upon such transaction, and (c) in the case of any other transaction,
the date on which it is expected to occur or become effective. Failure to give
such notice or any defect therein shall not affect the validity of any action
taken or transaction consummated by the Company.
10. No Rights as a Stockholder. Nothing contained in this
Warrant shall be construed as conferring upon the Holder the right to vote or to
consent or to receive notice as a stockholder in respect of any meetings of
stockholders for the election of directors or any other matter, or as having any
rights whatsoever as a stockholder of the Company.
11. Notices. All notices, requests, consents and other
communications hereunder shall be effective only if given in writing and shall
be deemed to have been duly made or given when delivered, or three days after
being mailed by registered or certified mail, return receipt requested:
(a) If to the Holder, to the address of the
Holder as shown on the books of the Company or as otherwise
designated or provided for herein; or
(b) If to the Company, to the address set forth on
the first page of this Warrant or to such other address as the
Company may designate by notice to the Holder.
5
<PAGE>
12. Amendment. This Warrant may not be amended or supplemented
except by an instrument in writing executed by the Company and the Holder.
13. Governing Law. This Warrant shall be deemed to be a
contract made under the laws of the State of New York and for all purposes shall
be construed in accordance with the laws of such State (without regard to the
conflict of laws principles thereof).
14. Jurisdiction. Any legal action or proceeding with respect
to this Warrant may be brought exclusively in the courts of the State of New
York or of the United States of America for the Southern District of New York,
and, by acceptance of this Warrant, the Holder accepts for itself and in respect
of its property, generally and unconditionally, the exclusive jurisdiction of
the aforesaid courts. By acceptance of this Warrant, the Holder waives and
agrees not to assert as a defense in any action, suit or proceeding for the
interpretation or enforcement of this Warrant, that the Holder is not subject to
the jurisdiction of such courts or that such action, suit or proceeding may not
be brought or is not maintainable in said courts or that this Warrant may not be
enforced in or by said courts or that the Holder's property is exempt or immune
from execution, that the suit, action or proceeding is brought in an
inconvenient forum, that the venue of the suit, action or proceeding is improper
or (provided that process shall be served in any manner referred to in the
following sentence) that service of process upon the Holder is ineffective.
Service of process in any such action, suit or proceeding may be made upon the
Company or the Holder in any manner permitted by the laws of the State of New
York or the federal laws of the United States or as follows: (i) by personal
service or (ii) by certified or registered mail to the Holder or the Company, as
applicable, at its address for notice pursuant to Section 11. Service of process
upon the Holder or the Company in any manner referred to in the preceding
sentence shall be deemed in every respect effective service of process upon the
Holder or the Company.
15. Benefits of This Warrant. Nothing in this Warrant shall be
construed to give to any person other than the Company and the Holder and its
assigns any legal or equitable right, remedy or claim under this Warrant, and
this Warrant shall be for the exclusive benefit of the Company and the Holder
and its assigns.
16. Headings. The headings in this Warrant are intended
solely for convenience of reference and shall be given no effect in the
construction or interpretation of this Warrant.
6
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be
duly executed on its behalf.
NETWORD, INC.
By:______________________________
Name:
Title:
7
<PAGE>
EXHIBIT A
[FORM OF ASSIGNMENT]
(To be executed by the registered holder if the
holder desires to transfer the Warrant)
FOR VALUE RECEIVED ____________________________________ hereby
sells, assigns and transfers the within Series C Warrant No.____of NETWORD, INC.
(the "Company"), dated _________, 1999, to the extent of the rights evidenced by
said Warrant to purchase _______________________________________ Warrant Shares,
unto ___________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
(PLEASE PRINT NAME AND ADDRESS OF ASSIGNEE)
together with all right, title and interest therein, and does hereby irrevocably
constitute and appoint __________________________________ attorney, to transfer
said Warrant on the books of the Company, with full power of substitution.
If this assignment is made as to less than all of the Warrant
Shares evidenced by said Warrant, a new Warrant of like tenor and date shall be
issued in the name of and delivered to the registered holder for the balance of
the Warrant Shares evidenced by said Warrant.
DATED: ____________________________
Signature:
___________________________________
(Signature must conform in all
respects to name of holder as
specified on the face of the
Warrant, in every particular,
without alteration or enlargement
or any change whatever.)
8
<PAGE>
NETWORD, INC.
STOCK OPTION PLAN
1. Purposes.
This Stock Option Plan (the "Plan") is intended to attract and retain the
best available personnel with Netword, Inc. or any of its subsidiary
corporations (collectively, the "Company"), and to provide additional incentive
to such employees and others to exert their maximum efforts toward the success
of the Company. The above aims will be effectuated through the granting of
certain stock options. Options may be granted under the Plan which are intended
to qualify as Incentive Stock Options ("ISOs") under Section 422 of the Internal
Revenue Code of 1986 (the "Code") or which are not intended to qualify as
Incentive Stock Options ("Non-ISOs"). The term "subsidiary corporation" shall,
for purposes of the Plan, be defined in the same manner as such term is defined
in Section 424(f) of the Code and shall include a subsidiary of any subsidiary.
2. Administration of the Plan.
(a) The Plan shall be administered by the Board of Directors of the
Company (the "Board of Directors"), as the Board of Directors may be composed
from time to time, except as provided in subparagraph (b) of this Paragraph 2.
The determinations of the Board of Directors under the Plan, including without
limitation as to the matters referred to in this Paragraph 2, shall be
conclusive. Any determination by a majority of the members of the Board of
Directors at any meeting, or by written consent in lieu of a meeting, shall be
deemed to have been made by the whole Board of Directors. Within the limits of
the express provisions of the Plan, the Board of Directors shall have the
authority, in its discretion, to take the following actions under the Plan:
(i) to determine the individuals to whom, and the time or times at
which, ISOs to purchase the Company's shares of Common Stock, par value $.01 per
share ("Common Shares"), shall be granted, and the number of Common Shares to be
subject to each ISO,
(ii) to determine the individuals to whom, and the time or times at
which, Non-ISOs to purchase the Company's Common Shares, shall be granted, and
the number of Common Shares to be subject to each Non-ISO,
(iii) to determine the terms and provisions of the respective stock
option agreements or certificates granting ISOs and Non-ISOs (which need not be
identical),
(iv) to accelerate the exercisability of any ISO or Non-ISO;
(v) to interpret the Plan,
(vi) to prescribe, amend and rescind rules and regulations relating
to the Plan, and
(vii) to make all other determinations and take all other actions
necessary or advisable for the administration of the Plan. In making such
determinations, the Board of Directors may take into account the nature of the
services rendered by such individuals, their present and potential contributions
to the Company's success and such other factors as the Board of Directors, in
its discretion, shall deem relevant. An individual to whom an option has been
granted under the Plan is referred to herein as an "Optionee."
(b) Notwithstanding anything to the contrary contained herein, the Board
of Directors may at any time, or from time to time, appoint a committee (the
"Committee") of at least two members of the Board of Directors, and delegate to
Committee the authority of the Board of Directors to administer the Plan. Upon
such
<PAGE>
appointment and delegation, the Committee shall have all the powers, privileges
and duties of the Board of Directors, and shall be substituted for the Board of
Directors, in the administration of the Plan, except that the power to appoint
members of the Committee and to terminate, modify or amend the Plan shall be
retained by the Board of Directors. The Board of Directors may from time to time
appoint members of the Committee in substitution for or in addition to members
previously appointed, may fill vacancies in the Committee and may discharge the
Committee. A majority of the Committee shall constitute a quorum and all
determinations shall be made by a majority of its members. Any determination
reduced to writing and signed by a majority of the members shall be fully as
effective as if it had been made by a majority vote at a meeting duly called and
held. Members of the Committee shall not be eligible to participate in this
Plan.
3. Shares Subject to the Plan.
The total number of Common Shares which shall be subject to ISOs and
Non-ISOs granted under the Plan (collectively, "Options") shall be 7,500,000 in
the aggregate, subject to adjustment as provided in Paragraph 8. The Company
shall at all times while the Plan is in force reserve such number of Common
Shares as will be sufficient to satisfy the requirements of outstanding Options.
The Common Shares to be issued upon exercise of Options shall in whole or in
part be authorized and unissued or reacquired Common Shares. The unexercised
portion of any expired, terminated or canceled Option shall again be available
for the grant of Options under the Plan.
4. Eligibility.
(a) ISOs and Non-ISOs may be granted to employees of the Company. A
director or officer of the Company who is not also an employee of the Company,
consultants of the Company and other persons at the Board's discretion, shall be
eligible to receive Non-ISOs but shall not be eligible to receive ISOs.
(b) An ISO may be granted, consistent with the other terms of the Plan,
to an employee who owns (within the meaning of Sections 422(b)(6) and 424(d) of
the Code), more than ten (10%) percent of the total combined voting power or
value of all classes of stock of the Company or a subsidiary corporation (any
such person, a "Principal Shareholder") only if, at the time such ISO is
granted, the purchase price of the Common Shares subject to the ISO is an amount
which equals or exceeds one hundred ten percent (110%) of the fair market value
of such Common Shares, and such ISO by its terms is not exercisable more than
five (5) years after it is granted.
(c) Nothing contained in the Plan shall be construed to limit the right
of the Company to grant options otherwise than under the Plan for proper
corporate purposes.
(d) Nothing contained in the Plan shall be construed to limit the right
of the Board of Directors to grant an ISO and a Non-ISO concurrently under a
single stock option agreement so long as each Option is clearly identified as to
its status. Furthermore, if an Option has been granted under the Plan,
additional Options may be granted from time to time to the Optionee holding such
Options, and Options may be granted from time to time to one or more employees,
officers, or directors who have not previously been granted Options.
(e) To the extent that the grant of an Option results in the aggregate
fair market value (determined at the time of grant) of the Common Shares (or
other capital stock of the Company or any subsidiary) with respect to which
Incentive Stock Options are exercisable for the first time by an Optionee during
any calendar year (under all plans of the Company and subsidiary corporations)
to exceed $100,000, such Option shall be treated as an Non-ISO. The provisions
of this subparagraph (e) of Paragraph 4 shall be construed and applied in
accordance with Section 422(d) of the Code and the regulations, if any,
promulgated thereunder.
2
<PAGE>
5. Terms of Options.
The terms of each Option granted under the Plan shall be determined by the
Board of Directors consistent with the provisions of the Plan, including the
following:
(a) The purchase price of the Common Shares subject to each ISO shall
not be less than the fair market value (or in the case of the grant of an ISO to
a Principal Shareholder, not less than 110% of fair market value) of such Common
Shares at the time such Option is granted. Such fair market value shall be
determined by the Board of Directors and, if the Common Shares are listed on a
national securities exchange or traded on the over-the-counter market, the fair
market value shall be the mean of the highest and lowest trading prices or of
the high bid and low asked prices of the Common Shares on such exchange, or on
the over-the-counter market as reported by the NASDAQ system or the National
Quotation Bureau, Inc., as the case may be, on the day on which the ISO is
granted or, if there is no trading or bid or asked price on that day, the mean
of the highest and lowest trading or high bid and low asked prices on the most
recent day preceding the day on which the ISO is granted for which such prices
are available.
(b) The purchase price of the Common Shares subject to each Non-ISO
shall be fixed by the Board of Directors, in its discretion, at the time such
Option is granted.
(c) The dates on which each Option (or portion thereof) shall be
exercisable and the conditions precedent to such exercise, if any, shall be
fixed by the Board of Directors, in its discretion, at the time such Option is
granted.
(d) The expiration of each Option shall be fixed by the Board of
Directors, in its discretion, at the time such Option is granted; however,
unless otherwise determined by the Board of Directors, an Option shall be
exercisable for ten (10) years after the Grant Date unless the Optionee of an
ISO is a Principal Shareholder, in which case the said ISO shall be exercisable
for 5 years after the Grant Date. Each Option shall be subject to earlier
termination as expressly provided in Paragraph 6 hereof or as determined by the
Board of Directors, in its discretion, at the date such Option is granted.
(e) Options shall be exercised by the delivery by the Optionee thereof
to the Company at its principal office, or at such other address as may be
established by the Board of Directors, of written notice of the number of Common
Shares with respect to which the Option is being exercised accompanied by
payment in full of the purchase price of such Common Shares. Payment for such
Common Shares may be made (as determined by the Board of Directors) (i) in cash,
(ii) by certified check or bank cashier's check payable to the order of the
Company in the amount of such purchase price, (iii) by a promissory note issued
by the Optionee in favor of the Company in an amount equal to such purchase
price and payable on terms prescribed by the Board of Directors, which provides
for the payment of interest at a fair market rate, as determined by the Board of
Directors, (iv) by delivery of capital stock to the Company having a fair market
value (determined on the date of exercise in accordance with the provisions of
subparagraph (a) of this Paragraph 5) equal to said purchase price, (v) by any
combination of the methods of payment described in (i) through (iv) above, or
(vi) by such other methods as the Board of Directors may deem appropriate.
(f) An Optionee shall not have any of the rights of a shareholder with
respect to the Common Shares subject to his Option until such shares are issued
to him upon the exercise of his Option as provided herein.
(g) No Option shall be transferable, except by will or the laws of
descent and distribution, and any Option may be exercised during the lifetime of
the Optionee only by him. No Option granted under the Plan shall be subject to
execution, attachment or other process.
3
<PAGE>
6. Death or Termination of Employment.
(a) If the employment or other relationship of an Optionee with the
Company shall be terminated voluntarily by the employee and without the consent
of the Company or for "Cause" (as hereinafter defined), and immediately after
such termination such Optionee shall not then be employed by the Company, any
Options granted to such Optionee to the extent not theretofore exercised shall
expire forthwith. For purposes of the Plan, "Cause" shall mean "Cause" as
defined in any employment agreement ("Employment Agreement") between Optionee
and the Company, and, in the absence of an Employment Agreement or in the
absence of a definition of "Cause" in such Employment Agreement, "Cause" shall
mean (i) any continued failure by the Optionee to obey the reasonable
instructions of the President or any member of the Board of Directors, (ii)
continued neglect by the Optionee of his duties and obligations as an employee
of the Company, or a failure to perform such duties and obligations to the
reasonable satisfaction of the President or the Board of Directors, (iii)
willful misconduct of the Optionee or other actions in bad faith by the Optionee
which are to the detriment of the Company including without limitation
commission of a felony, embezzlement or misappropriation of funds and commission
of any act of fraud or (iv) a breach of any material provision of any Employment
Agreement not cured within 10 days after written notice thereof.
(b) If such employment or other relationship shall terminate other than
(i) by reason of death, (ii) voluntarily by the employee and without the consent
of the Company, or (iii) for Cause, and immediately after such termination such
Optionee shall not then be employed by the Company, any Options granted to such
Optionee may be exercised at any time within three months after such
termination, subject to the provisions of subparagraph (d) of this Paragraph 6.
For the purposes of the Plan, the retirement of an Optionee either pursuant to a
pension or retirement plan adopted by the Company or on the normal retirement
date prescribed from time to time by the Company, and the termination of
employment as a result of a disability (as defined in Section 22(e)(3) of the
Code) shall be deemed to be a termination of such Optionee's employment other
than voluntarily by the Optionee or for Cause.
(c) If an Optionee dies (i) while employed by, or engaged in such other
relationship with, the Company or (ii) within three months after the termination
of his employment or other relationship other than voluntarily by the Optionee
and without the consent of the Company or for Cause, any Options granted to such
Optionee may be exercised at any time within six months after such Optionee's
death, subject to the provisions of subparagraph (d) of this Paragraph 6.
(d) An Option may not be exercised pursuant to this Paragraph 6 except
to the extent that the Optionee was entitled to exercise the Option at the time
of termination of employment or such other relationship, or death, and in any
event may not be exercised after the expiration of ten (10) years from the date
the Option was granted, or five (5) years from the date an ISO was granted if
the Optionee was a Principal Shareholder at that date.
7. Leave of Absence.
For purposes of the Plan, an individual who is on military or sick leave or
other bona fide leave of absence (such as temporary employment by the United
States or any state government) shall be considered as remaining in the employ
of the Company for 90 days or such longer period as shall be determined by the
Board of Directors.
4
<PAGE>
8. Adjustment upon Changes in Capitalization.
(a) In the event that the outstanding Common Shares are hereafter
changed by reason of reorganization, merger, consolidation, recapitalization,
reclassification, stock split-up, combination or exchange of shares and the
like, or dividends payable in Common Shares, an appropriate adjustment shall be
made by the Board of Directors in the aggregate number of shares available under
the Plan and in the number of shares and price per share subject to outstanding
Options. If the Company shall be reorganized, consolidated, or merged with
another corporation, or if all or substantially all of the assets of the Company
shall be sold or exchanged, an Optionee shall at the time of issuance of the
stock under such a corporate event, be entitled to receive upon the exercise of
his Option the same number and kind of shares of stock or the same amount of
property, cash or securities as he would have been entitled to receive upon the
occurrence of any such corporate event as if he had been, immediately prior to
such event, the holder of the number of shares covered by his Option; provided,
however, that if any of such events occur, the Board of Directors shall have the
discretionary power to take any action necessary or appropriate to prevent ISOs
granted hereunder from being disqualified as Incentive Stock Options or to
accelerate their vesting date.
(b) Any adjustment under this Paragraph 8 in the number of Common Shares
subject to Options shall apply proportionately to only the unexercised portion
of any Option granted hereunder. If fractions of a share would result from any
such adjustment, the adjustment shall be revised to the next lower whole number
of shares.
9. Further Conditions of Exercise.
(a) Unless prior to the exercise of an Option the Common Shares issuable
upon such exercise are the subject of a registration statement filed with the
Securities and Exchange Commission pursuant to the Securities Act of 1933, as
amended (the "Securities Act"), and there is then in effect a prospectus filed
as part of such registration statement meeting the requirements of Section
10(a)(3) of the Securities Act, the notice of exercise with respect to such
Option shall be accompanied by a representation or agreement of the Optionee to
the Company to the effect that such shares are being acquired for investment
only and not with a view to the resale or distribution thereof, or such other
documentation as may be required by the Company, unless, in the opinion of
counsel to the Company, such representation, agreement or documentation is not
necessary to comply with the Securities Act.
(b) Anything in the Plan to the contrary notwithstanding, the Company
shall not be obligated to issue or sell any Common Shares until they have been
listed on each securities exchange on which the Common Shares may then be listed
and until and unless, in the opinion of counsel to the Company, the Company may
issue such shares pursuant to a qualification or an effective registration
statement, or an exemption from registration, under such state and federal laws,
rules or regulations as such counsel may deem applicable.
(c) The Board of Directors may impose any such additional terms and
conditions related to the exercise of an Option or upon the Common Shares
received upon such exercise which it deems appropriate, including rights of
first refusal and rights to purchase Common Shares from an Optionee if the
Optionee's employment or other relationship with the Company is terminated.
10. Termination, Modification and Amendment.
(a) The Plan (but not Options previously granted under the Plan) shall
terminate ten (10) years from the earlier of the date of its adoption by the
Board of Directors or the date on which the Plan is approved by the affirmative
vote of the holders of a majority of the outstanding shares of capital stock of
the Company entitled to vote thereon, and no Option shall be granted after
termination of the Plan.
(b) The Plan may from time to time be terminated, modified or amended
by the affirmative vote of the holders of a majority of the outstanding shares
of the capital stock of the Company entitled to vote thereon.
5
<PAGE>
(c) The Board of Directors of the Company may at any time terminate the
Plan or from time to time make such modifications or amendments of the Plan as
it may deem advisable; provided, however, that the Board of Directors shall not
(i) modify or amend the Plan in any way that would disqualify any ISO issued
pursuant to the Plan as an Incentive Stock Option or (ii) without approval by
the affirmative vote of the holders of a majority of the outstanding shares of
the capital stock of the Company entitled to vote thereon, increase (except as
provided by Paragraph 8) the maximum number of Common Shares as to which Options
may be granted under the Plan or change the class of persons eligible to receive
Options under the Plan.
(d) No termination, modification or amendment of the Plan may adversely
affect the rights conferred by any Options without the consent of the Optionee
thereof.
11. Effectiveness of the Plan.
The Plan shall become effective upon adoption by the Board of Directors of
the Company. The Plan shall be subject to approval by the affirmative vote of
the holders of a majority of the outstanding shares of the capital stock of the
Company entitled to vote thereon within one year following adoption of the Plan
by the Board of Directors, and all Options granted prior to such approval shall
be subject thereto. In the event such approval is withheld, the Plan and all
Options which may have been granted thereunder shall become null and void.
12. Not a Contract of Employment.
Nothing contained in the Plan or in any stock option agreement executed
pursuant hereto shall be deemed to confer upon any individual to whom an Option
is or may be granted hereunder any right to remain in the employ of, or retain
the relationship with, the Company.
6
<PAGE>
Netword, Inc.
702 Russell Avenue
Gaithersburg, MD 20877
Date
Name
Address
Dear Name:
You have been awarded options to purchase ______ shares of common stock,
par value $.01 per share, of Netword, Inc. (the "Company") pursuant to and in
accordance with the terms and provisions of the Company's Stock Option Plan,
annexed hereto as Exhibit A. The options are exercisable upon your receipt of
this letter and entitle you to purchase ______ shares at $0.1666 per share and
shares at $1.25 per share. The options to purchase ______ shares for $0.1666
will expire on February 17, 2002. The options to purchase ______ shares for
$1.25 will expire on February 17, 2004.
Netword, Inc.
By:__________________________
Name:
Title:
<PAGE>
EXHIBIT A
See Exhibit 3.10 to this Registration Statement.
<PAGE>
TRADEMARK AND TRADE NAME
PURCHASE AND SALE AGREEMENT
This Purchase and Sale Agreement is between Netword, Inc., a company
incorporated under the laws of the state of Nevada ("Assignor"), successor in
interest to Netword, Inc., a company organized under the laws of Delaware, and
The Birdshell Corporation, L.L.C., a limited liability company organized under
the laws of the state of Delaware ("Assignee"). Assignee and Assignor are
collectively referred to hereinafter as the "Parties".
WHEREAS:
Assignor is the owner of certain right, title and interest in and to
the common law trademarks and trade names NETWORD and NETWORD, INC. and United
States Trademark Application Serial Number 75/036,328 and good will associated
therewith (the "Rights") as of the date of this agreement; and
Assignee desires to acquire from Assignor all of Assignor's interest
in the Rights;
NOW, THEREFORE, in consideration of the foregoing and of the mutual
covenants and warranties contained herein, the Parties agree as follows:
1. Effective Date. The Effective Date of this Agreement shall be April 30, 1996.
2. Assignment. Assignor shall upon receipt of payment pursuant to section 3,
execute and deliver to Assignee an Assignment of the Rights, in the form
attached hereto as Appendix A, and hereby assigns all of Assignor's right, title
and interest in the Rights and any other rights in the term NETWORD, including
the right of priority and the right to sue and collect damages for infringement
or passing off the Rights from the Effective Date. The date of execution of such
Assignment shall be the Assignment date.
3. Initial Payment. Assignee shall, within ten (10) days of the execution of
this Agreement, pay to Assignor the sum of $7,000.
4. Continuing Payments. Assignee shall on each of the first through the seventh
annual anniversary of the Assignment Date, pay Assignor the sum of $4,800.
5. Name Change. Assignor shall and shall cause any subsidiary and affiliate to
change their respective corporate names, designations and e-mail addresses,
within three months after the Effective date, to ones that do not include the
word NETWORD or any words similar to or evocative thereof.
6. Grant Back. In the event that Assignee breaches the obligations under
paragraph 4 hereof, which breach is not cured within thirty days of notice of
such breach, as the exclusive remedy for such breach Assignor shall be entitled
to and Assignee shall immediately assign all of its right, title
<PAGE>
and interest in and to the Rights to Assignor. Upon the reassignment of Rights,
no monies paid under this Agreement shall be refunded. In the event that
Assignee refuses to assign as required herein, the Rights shall be deemed to
have been reassigned by operation of this Agreement and Assignor may file a copy
of the executed Agreement to record the reassignment on trademark registers
throughout the world.
7. Duty To Assist. Assignor agrees that it will, at Assignee's expense,
promptly execute and deliver all papers, make all rightful oaths, testify in any
legal proceedings, and perform all other rightful and lawful acts deemed
necessary or desirable by Assignee or its successors or assigns to perfect the
title to the Rights and any registration or renewals which may be applied for or
granted therefor or thereon.
8. Warranty and Representation of Assignor. Assignor represents and warrants
that, as of the Effective date and the Assignment date, (i) it has the right to
make Assignments of the Rights free of the claims of any other person or entity,
(ii) it has the full and unencumbered right to satisfy its obligations under
this Agreement and will not execute any agreement inconsistent herewith, and
(iii) all action on the part of Assignor, its directors and stockholders
necessary for the authorization, execution, delivery, and performance by
Assignor of this Agreement and the consummation of the transactions contemplated
herein has been or will be taken prior to the Effective Date of this Agreement.
9. Warranty and Representation of Assignee. Assignee represents and warrants
that (i) it has the full and unencumbered right to satisfy its obligations under
this Agreement and will not execute any agreement inconsistent herewith, and
(ii) all action on the part of the Assignee, its directors and stockholders
necessary for the authorization, execution, delivery, and performance by
Assignee of this Agreement and the consummation of the transactions contemplated
herein has been or will be taken prior to the Effective Date of this Agreement.
10. General Provisions.
a. Notice and Deliveries. All notice given in connection with this
Agreement shall be in writing and shall be sent to the addresses given below or
to such other addresses as the Parties may hereafter specify, in person, by
first class mail, or by telecopier or other similar facsimile transmission. Such
notices shall be deemed given (i) when delivered to a party, or (ii) three days
after mailing by prepaid first-class mail:
For the Assignor: For the Assignee:
Diana Guetzkow Samuel Bergman
Netword, Inc. General Manager
P.O. Box 888 The Birdshell Corporation, L.L.C.
Riverdale, MD 20738-0888 1600 Wilson Boulevard, Suite 705
Arlington, VA 22209
2
<PAGE>
with copies to: with copies to:
L. Lawton Rogers, III Mark Ungerman, Esq.
Rogers & Killeen Fulbright & Jaworski, L.L.P.
601 King Street, Suite 400 801 Pennsylvania Avenue, N.W.
Alexandria, VA 22314 Washington, D.C. 20004-2604
b. Counterparts. This Agreement may be signed in any number of
counterparts, each of which shall be an original, with the same effect as if the
signatures thereto and hereto were upon the same instrument.
c. Entire Agreement. This Agreement constitutes the entire
understanding agreement of the parties with respect to the specific subject
matter of this Agreement and supersedes all prior agreements or understandings,
written or oral, between the parties hereto with respect to the specific subject
matter of this Agreement. This Agreement may not be amended except by a written
instrument signed by the Parties.
d. Severability. If any of this Agreement is declared by a court of
competent jurisdiction to be invalid, void or unenforceable, the remaining
provisions of this Agreement nevertheless will continue in full force and effect
without being impaired or invalidated in any way.
e. Captions. The captions and headings used in this Agreement shall be
solely for convenience in reference, and shall in no way define, limit,
describe, or affect the scope or intent of any of the provisions of this
Agreement.
IN WITNESS WHEREOF, the parties hereto have set their hands on the dates below
indicated.
Assignor: Assignee:
Netword. Inc. The Birdshell Corporation, L.L.C.
By: /s/ Diane Guetzkow By: /s/ Samuel Bergman
----------------------------- ------------------------------
3
<PAGE>
ASSIGNMENT OF RIGHTS
WHEREAS, Netword, Inc. a corporation organized under the laws of Nevada
(hereinafter called "ASSIGNOR"), has adopted, used and has not abandoned the
trademark NETWORD, and is the owner of United States Trademark Application
Serial Number 75/086,328 (the "Rights").
AND WHEREAS, The Birdshell Corporation, L.L.C., a limited liability
company organized under the laws of Delaware (hereinafter called "ASSIGNEE"), is
desirous of acquiring the right, title and interest in and to the Rights.
NOW, THEREFORE, for good and valuable consideration, the receipt of
which is hereby acknowledged, ASSIGNOR by these presents does sell, assign and
transfer unto ASSIGNEE, its successors and assigns, all right, title, and
interest in and to the Rights, including the good will of the business
associated therewith, including all state, federal and common law rights,
including the right of priority, the right to sue for and receive damages for
past infringements or passing off, if any, and any other rights in the term
NETWORD. The parties further agree that ASSIGNEE shall hold all rights
transferred by this agreement for its own use and enjoyment, and for the use and
enjoyment of its successors, assigns or other legal representatives as fully and
entirely as the same would have been held and enjoyed by ASSIGNOR if this
assignment and sale had not been made, including the right to sue and collect
damages for past infringement or passing off.
ASSIGNOR hereby warrants and covenants that it has full and
unencumbered right to convey, sell and assign the entire interest herein
assigned, and that it has not executed, and will not execute, any agreement,
document or instrument inconsistent herewith.
ASSIGNOR further covenants that ASSIGNEE, its successors, legal
representatives or assigns will, upon written request, be provided promptly with
all pertinent facts and documents relating to said Rights as may be known and
accessible to ASSIGNOR, and ASSIGNOR will promptly execute and deliver to
ASSIGNEE or its legal representative any and all papers, instruments or
documents required to register, perfect title to and enforce the Rights deemed
necessary or desirable by said ASSIGNEE, its successors, legal representatives
or assigns and to carry out the purposes of this Assignment and sale.
IN WITNESS WHEREOF, the said ASSIGNOR has hereunto executed this
instrument this 1st day of May, 1996.
NETWORD, INC.
By: /s/ Diane Guetzkow
--------------------
Name:
Title:
<PAGE>
INDEPENDENT AUDITORS' CONSENT
We consent to the reference to our firm under the caption "Experts" and
to the use of our report dated August 9, 1999, in the Registration Statement
and related Prospectus of Netword, Inc. (formerly Netword LLC).
/s/ Mahoney Cohen & Company, CPA, P.C.
New York, New York
September 10, 1999
<PAGE>
September 10, 1999
Netword, Inc.
702 Russell Avenue
Third Floor
Gaithersburg, Maryland 20877
Ladies and Gentlemen:
We have acted as counsel to Netword, Inc., a Delaware
corporation, (the "Company") in connection with its Registration Statement on
Form SB-1 (the "Registration Statement") filed pursuant to the Securities Act of
1933, as amended (the "Securities Act"), relating to the offering from time to
time by certain holders of (i) 2,000,000 shares of the Company's common stock,
$.01 par value per share, ("Common Stock") issued by the Company on March 19,
1999 in an offering pursuant to Regulation S under the Securities Act (the
"2,000,000 Shares"), and (ii) 4,784,733 shares of Common Stock which are
issuable upon the exercise of outstanding warrants (the "Warrants") issued by
the Company in two separate transactions on February 18, 1999 and March 19, 1999
(the "4,784,733 Shares").
For purposes of the opinions expressed in this letter, we have
reviewed the Registration Statement and such other documents, corporate records,
and instruments as we have deemed appropriate. In such review, we have assumed
the genuineness of all signatures, the authenticity of all documents submitted
as originals and the conformity to the original documents of all documents
submitted to us as copies.
On the basis of such review, and having regard to such legal
consideration as we consider relevant, it is our opinion that (i) the 2,000,000
Shares are duly authorized and validly issued, fully paid and nonassessable, and
(ii) the 4,784,733 Shares are duly authorized and reserved for issuance and,
when issued and paid for upon the exercise of the Warrants in accordance with
the terms thereof, will be validly issued, fully paid and nonassessable.
We consent to the reference to us under the captions
"Significant Parties" and "Legal Matters" in the Prospectus included in the
Registration Statement and to the use of this opinion letter as an exhibit to
the Registration Statement.
Very truly yours,
/s/ Kronish Lieb Weiner & Hellman LLP
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Kronish Lieb Weiner & Hellman LLP
