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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
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[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarter ended March 31, 2000
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ______ to ______
Commission File No. 1-13760
THE NETWORK CONNECTION, INC.
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(Exact Name of Small Business Issuer as Specified in Its Charter)
Georgia 58-1712432
- ------------------------------- ----------------------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation of Organization) Identification Number)
222 North 44th Street
Phoenix, Arizona 85034
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(Address of Principal Executive Offices)
(602) 629-6200
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(Issuer's Telephone Number, Including Area Code)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12
months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days. Yes [X] No [ ]
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date.
Class Outstanding at May 8, 2000
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Common Stock, $.001 par value 12,801,970 shares
Transitional Small Business Disclosure Format Yes [ ] No [X]
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<PAGE>
THE NETWORK CONNECTION, INC.
INDEX
PART I. FINANCIAL INFORMATION Page
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Item 1. Consolidated Financial Statements
Condensed Consolidated Balance Sheets as of March 31, 2000
(unaudited) and June 30, 1999 (audited)............................ 3
Condensed Consolidated Statements of Operations for the Three
Months and Nine Months Ended March 31, 2000 and 1999 (unaudited)... 4
Condensed Consolidated Statements of Cash Flows for the Nine
Months Ended March 31, 2000 and 1999 (unaudited)................... 5
Notes to Condensed Consolidated Financial Statements............... 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations................................ 11
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.................................................. 17
Item 2. Changes in Securities.............................................. 17
Item 6. Exhibits and Reports on Form 8-K................................... 18
SIGNATURES.................................................................. 19
2
<PAGE>
THE NETWORK CONNECTION, INC.
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31, JUNE 30,
ASSETS 2000 1999
------------ ------------
(UNAUDITED)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 258,459 $ 2,751,506
Restricted cash 463,405 446,679
Short-term investments -- 302,589
Accounts receivable 21,087 75,792
Notes receivable from related parties 53,551 98,932
Inventories, net of allowance of $7,837,595 5,010,311 1,400,000
Prepaid expenses 202,361 169,429
Assets held for sale -- 800,000
Due from affiliate 48,986 --
Other current assets 257,973 173,999
------------ ------------
Total current assets 6,316,133 6,218,926
Note receivable from related party 78,000 75,000
Property and equipment, net of accumulated depreciation
of $1,087,670 and $683,029, respectively 1,235,920 1,338,580
Intangibles, net of accumulated amortization of $630,368
and $74,981, respectively 6,767,262 7,119,806
Other assets 37,650 150
------------ ------------
Total assets $ 14,434,965 $ 14,752,462
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 2,778,905 $ 1,663,411
Accrued liabilities 925,336 989,342
Deferred revenue 2,108,151 365,851
Accrued product warranties 291,796 --
Dividends payable 110,000 --
Notes payable 6,190 42,751
Notes payable to related parties -- 68,836
------------ ------------
Total current liabilities 6,220,378 3,130,191
Notes payable 1,080,000 3,467,045
Other liabilities 945,765 1,220,340
Due to affiliate -- 1,647,692
------------ ------------
Total liabilities 8,246,143 9,465,268
------------ ------------
Commitments and contingencies
Stockholders' equity:
Series B preferred stock par value $0.01 per share, 1,500
shares authorized issued and outstanding 15 15
Series C preferred stock par value $0.01 per share, 1,600 shares
authorized; zero and 800 issued and outstanding, respectively -- 8
Series D preferred stock par value $0.01 per share, 2,495,400
authorized, issued and outstanding 24,954 24,954
Common stock par value $0.001 per share, 40,000,000 shares
authorized; 12,800,046 and 6,339,076 issued and
outstanding, respectively 12,801 6,339
Additional paid-in capital 93,522,223 88,316,945
Accumulated other comprehensive income:
Loss on foreign currency translation (1,141) --
Net unrealized loss on investment securities -- (526)
Accumulated deficit (87,370,030) (83,060,541)
------------ ------------
Total stockholders' equity 6,188,822 5,287,194
------------ ------------
Total liabilities and stockholders' equity $ 14,434,965 $ 14,752,462
============ ============
</TABLE>
See accompanying notes to financial statements.
3
<PAGE>
THE NETWORK CONNECTION, INC.
Condensed Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
Three months ended March 31, Nine months ended March 31,
------------------------------ ------------------------------
2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenue:
Equipment sales $ 590 $ -- $ 5,597,909 $ 89,028
Service income -- -- 59,827 389,037
------------ ------------ ------------ ------------
590 -- 5,657,736 478,065
------------ ------------ ------------ ------------
Costs and expenses:
Cost of equipment sales 225,669 -- 3,680,584 283,714
Cost of service income 21,189 -- 36,292 736
General and administrative expenses 2,103,517 928,600 4,678,325 6,947,818
Non cash compensation expense 238,429 -- 545,311 --
Provision for doubtful accounts -- -- -- 28,647
Special charges -- -- -- (190,000)
Depreciation and amortization expense 332,511 60,521 972,528 443,620
------------ ------------ ------------ ------------
2,921,315 989,121 9,913,040 7,514,535
------------ ------------ ------------ ------------
Operating loss (2,920,725) (989,121) (4,255,304) (7,036,470)
Other:
Interest expense (11,331) (1,358) (150,839) (5,614)
Interest income 13,354 39,529 90,728 118,188
Other expense (15,911) -- (24,741) (567,317)
------------ ------------ ------------ ------------
Net loss (2,934,613) (950,950) (4,340,156) (7,491,213)
Cumulative dividend on preferred stock (30,000) -- (90,000) --
------------ ------------ ------------ ------------
Net loss attributable to common stockholders $ (2,964,613) $ (950,950) $ (4,430,156) $ (7,491,213)
============ ============ ============ ============
Basic and diluted net loss per common share $ (0.24) $ (0.90) $ (0.52) $ (7.10)
============ ============ ============ ============
Weighted average number of shares
outstanding, basic and diluted 12,432,543 1,055,475 8,476,461 1,055,475
============ ============ ============ ============
</TABLE>
See accompanying notes to financial statements.
4
<PAGE>
THE NETWORK CONNECTION, INC.
Condensed Statement of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
NINE NINE
MONTHS ENDED MONTHS ENDED
MARCH 31, MARCH 31,
2000 1999
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(4,340,156) $(7,491,213)
Adjustments to reconcile net loss to net cash:
Depreciation and amortization 972,528 443,620
Special charges -- (190,000)
Loss on sale of assets held for sale 37,893 --
Loss on disposal of equipment -- 1,006,523
Non cash compensation expense 545,311 --
Changes in net assets and liabilities, net of
effect of acquisition:
Increase (decrease) in accounts receivable 54,705 (717,550)
Payments due from affiliate (48,986) --
(Increase) decrease in inventories (3,610,311) 86,643
(Increase) decrease in prepaid expenses (32,932) 175,286
(Increase) decrease in other current assets (83,974) 293,919
(Increase) decrease in other assets (43,750) 66,695
Increase (decrease) in accounts payable 916,910 (877,794)
Decrease in accrued liabilities (196,208) (1,056,702)
Increase in deferred revenue 1,742,300 1,900,518
Increase (decrease) in accrued product warranties 291,698 (1,426,013)
----------- -----------
Net cash used in operating activities $(3,794,972) $(7,786,068)
----------- -----------
Cash flows from investing activities:
Purchases of investment securities (542) --
Sale of investment securities 303,131 --
Purchases of property and equipment (305,571) (31,346)
Proceeds from sale of equipment 3,590 13,216
Proceeds from sale of assets held for sale 762,107 --
Increase in restricted cash (16,726) (442,282)
----------- -----------
Net cash provided by (used in)
investing activities $ 745,989 $ (460,412)
----------- -----------
Cash flows from financing activities:
Payments on notes payable (785,364) --
Payments received on notes receivable 42,381 --
Borrowings under revolving credit facility 1,080,000 --
Payments from affilate 289,017 --
Re-purchase of outstanding warrants (296,036) --
Capital contribution -- 8,312,363
Employee stock option exercises 227,079 --
Payments on capital lease obligations -- (63,910)
----------- -----------
Net cash provided by financing activities $ 557,077 $ 8,248,453
----------- -----------
Effect of exchange rate on cash and cash equivalents (1,141) --
----------- -----------
Net increase (decrease) in cash and cash equivalents (2,493,047) 1,973
Cash and cash equivalents at beginning of period 2,751,506 111,418
----------- -----------
Cash and cash equivalents at end of period $ 258,459 $ 113,391
=========== ===========
</TABLE>
See accompanying notes to financial statements.
5
<PAGE>
THE NETWORK CONNECTION, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
PART I. FINANCIAL INFORMATION
BASIS OF PRESENTATION
(1) PRINCIPLES OF CONSOLIDATION
The condensed consolidated financial statements include the accounts of
The Network Connection, Inc. and its wholly-owned subsidiary TNCi UK Limited
(the "Company" or "TNCi"). All significant intercompany accounts have been
eliminated.
The accompanying condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles, pursuant
to the rules and regulations of the Securities and Exchange Commission. In the
opinion of management, the accompanying condensed consolidated financial
statements reflect all adjustments (consisting of normal recurring accruals)
which are necessary for a fair presentation of the results for the interim
periods presented. Certain information and footnote disclosures normally
included in financial statements have been condensed or omitted pursuant to such
rules and regulations. It is suggested that these condensed consolidated
financial statements be read in conjunction with the financial statements and
notes thereto for the eight-month transition period ended June 30, 1999,
included in the Company's Transition Report on Form 10-KSB.
The results of operations for the three months and nine months ended
March 31, 2000 are not necessarily indicative of the results to be expected for
the entire fiscal year. Certain reclassifications have been made to the amounts
in the June 30, 1999 balance sheet to conform with the March 31, 2000
presentation.
On May 18, 1999, Global Technologies, Ltd. ("Global") received from the
Company 1,055,745 shares of its Common Stock and 2,495,400 shares of its Series
D Convertible Preferred Stock in exchange for $4,250,000 in cash and
substantially all the assets and certain liabilities of Global's Interactive
Entertainment Division ("IED"), as defined in the Asset Purchase and Sale
Agreement dated April 30, 1999, as amended (the "Transaction"). The Transaction
has been accounted for as a reverse merger whereby, for accounting purposes,
Global is considered the accounting acquiror, and although the legal capital
structure carries forward, the Company is treated as the successor to the
historical operations of IED. Accordingly, the historical financial statements
of the Company, which previously have been reported to the Securities and
Exchange Commission ("SEC") on Forms 10-KSB, and 10-QSB, among others, as of and
for all periods through March 31, 1999, will be replaced with those of IED.
The financial statements as of and for the three months and nine months
ended March 31, 1999, reflect the historical results of Global's IED as
previously included in Global's consolidated financial statements. The
Transaction date for accounting purposes was May 1, 1999. As of March 31, 2000,
the Company is an 80% owned subsidiary of Global, whose ownership is represented
by 1,500 shares of the Company's Series B 8% Convertible Preferred Stock,
2,495,400 shares of the Company's Series D Convertible Preferred Stock and
approximately 6.8 million shares of the Company's Common Stock. The historical
financial statements of the Company up to the date of the Transaction as
previously reported will no longer be included in future filings of the Company.
6
<PAGE>
(2) 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. Additionally, such estimates and assumptions affect the reported
amounts of revenue and expenses during the reporting period. Actual results
could differ from those estimates.
(3) NOTES PAYABLE
Prior to the Transaction, the Company entered into a Secured Promissory
Note with Global in the principal amount of $750,000, bearing interest at a rate
of 9.5% per annum, and a related security agreement granting Global a security
interest in its assets (the "Promissory Note"). The Promissory Note was
convertible into shares of the Company's Series C 8% Convertible Preferred Stock
("Series C Stock") at the discretion of Global. The Note had an original
maturity of May 14, 1999, but had been extended until September 2001.
In July and August 1999, Global purchased all of the Series A and E
notes and the Series D notes of the Company, respectively, from the holders of
such notes (the "Series Notes"). Concurrent with such purchase by Global, the
Company executed several allonges to the Promissory Note which cancelled such
Series Notes and rolled the principal balance, plus accrued but unpaid interest,
penalties and redemption premiums on the Series Notes into the principal balance
of the Promissory Note. Subsequent to May 18, 1999, Global had also advanced
working capital to the Company in the form of intercompany advances. In August
1999, the Company executed an allonge to the Promissory Note which rolled the
intercompany advances into the principal balance of the Promissory Note and
granted Global the ability to convert the Promissory Note directly into shares
of the Company's Common Stock, without first converting to Series C Stock, as an
administrative convenience.
On August 24, 1999, the Board of Directors of Global approved the
conversion of the Promissory Note into shares of the Company's Common Stock.
Such conversion, to the extent it exceeded approximately one million shares of
the Company's Common Stock on August 24, 1999, was contingent upon receiving
shareholder approval to increase the authorized share capital of the Company.
This increase in authorized share capital was subsequently approved at the
September 17, 1999 Special Meeting of the Company's shareholders. Accordingly,
in December 1999, the Company issued to Global 4,802,377 shares of its Common
Stock based on the conversion date of August 24, 1999. Separately from the
Promissory Note, in December 1999, the Company issued 886,140 shares of its
Common Stock to Global upon conversion of the Series C Stock held by Global.
Also on August 24, 1999, the Global Board of Directors approved a $5
million secured revolving credit facility by and between Global and the Company
(the "Facility"). The Facility provides that the Company may borrow up to $5
million for working capital and general corporate purposes at the prime rate of
interest plus 3%. The Facility matures in September 2001. The Company paid an
origination fee of $50,000 to Global and will pay an unused line fee of 0.5% per
annum. The Facility is secured by all of the assets of the Company and is
convertible, at Global's option, into shares of the Company's Common Stock at a
price equal to the lesser of 66.7% of the trailing five-day average share price
of the preceding 20 days, $1.50 per share or any lesser amount at which Common
Stock has been issued to third parties. Pursuant to Nasdaq rules, Global may not
convert borrowings under the Facility into shares of Common Stock in excess of
19.99% of the number of shares of Common Stock outstanding on August 24, 1999
without shareholder approval. As of March 31, 2000, $1,080,000 was outstanding
under the Facility.
7
<PAGE>
In September 1999, the Company sold one of its two buildings in
Alpharetta, Georgia. The net proceeds from the sale, plus cash of approximately
$80,000 was used by the Company to repay a Note payable due April 19, 2001 in
the principal amount of $470,000. The sale of the second building occurred in
November 1999. The net proceeds of approximately $367,000 from the sale were
used to retire a Note payable due 2009 in the principal amount of $217,000.
In October 1999, a note payable in the principle amount of $400,000 due
September 5, 1999 was converted into 200,000 shares of the Company's Common
Stock.
(4) WARRANTS
In December 1999, the Company issued common stock purchase warrants to
purchase 25,000 shares of the Company's Common Stock at $6.50 per share to Emden
Consulting Corp. in exchange for advisory services. The exercise period of the
warrants expires in December 2004. Non-cash compensation expense of $110,941 was
recorded in the quarter ended December 31, 1999.
In December 1999, the Company issued common stock purchase warrants to
purchase 25,000 shares of the Company's Common Stock at $6.50 per share to
Waterton Group LLC in exchange for advisory services. The exercise period of the
warrants expires in December 2004. Non-cash compensation expense of $110,941 was
recorded in the quarter ended December 31, 1999.
In December 1999, the Company issued common stock purchase warrants to
purchase 100,000 shares of the Company's Common Stock at prices ranging from $6
to $10 per share to Continental Capital & Equity Corp. in exchange for public
relations and financial advisory services. The warrants vest over a period of
270 days and expire in February 2002. Non-cash compensation expense of $151,286
was recognized in the three months ended March 31, 2000 and additional non-cash
compensation expense may be recognized, under variable plan accounting, over the
remaining nine months of the agreement.
On March 13, 2000, the Company issued 236,080 shares of stock in
connection with the cashless exercise of common stock purchase warrants held by
the former holders of the Company's Series A and E notes. The warrants exercised
represented warrants to purchase 311,525 shares of the Company's Common Stock.
(5) OPTION GRANTS
In November 1999, the Compensation Committee of the Board of Directors
of the Company recommended option grants to purchase up to 500,000 shares of the
Company's Common Stock to Mr. Irwin L. Gross, Chairman and Chief Executive
Officer of the Company. Such recommendation was accepted and approved by the
Board of Directors. One quarter of these options vested immediately and one
quarter vest in equal annual installments over three years. The remainder vest
on the sixth anniversary of the date of grant, subject to acceleration to a
three-year vesting schedule in the event certain performance milestones are
achieved. Exercise price of the options is equal to the closing market price of
the Company's Common Stock on the day of grant, and the options expire in
October 2009.
On March 6, 2000, the Company granted options to purchase up to 800,000
shares of the Company's Common Stock to Mr. Robert Pringle, President and Chief
Operating Officer of the Company. One fifth of these options vest on June 6,
2000, with the remainder vesting in four equal annual installments beginning
March 6, 2001. Exercise price of the options is equal to the closing market
price of the Company's Common Stock on the day prior to grant, and the options
expire on March 6, 2010.
On March 6, 2000, the Company granted options to purchase up to 800,000
shares of the Company's Common Stock to Dr. Jay Rosan, an Executive Vice
President of the Company. One fifth of these options vest on June 6, 2000, with
the remainder vesting in four equal annual installments beginning March 6, 2001.
Exercise price of the options is equal to the closing market price of the
Company's Common Stock on the day prior to grant, and the options expire on
March 6, 2010.
8
<PAGE>
On March 6, 2000, the Company granted options to purchase up to 250,000
shares of the Company's Common Stock to Mr. Richard Genzer, Chief Technology
Officer of the Company. One fifth of these options vest on June 6, 2000, with
the remainder vesting in four equal annual installments beginning March 6, 2001.
Exercise price of the options is equal to the closing market price of the
Company's Common Stock on the day prior to grant, and the options expire on
March 6, 2010.
(6) SEGMENT INFORMATION
For the nine months ended March 31, 2000 and 1999, respectively, the
Company operated principally in one industry segment; development, manufacturing
and marketing of computer-based entertainment and data networks. Historically,
the Company's principal revenues have been derived from European customers.
For the nine months ended March 31, 2000 and 1999, respectively, one
customer accounted for approximately 97% and a separate customer accounted for
almost 100% of the Company's sales. Outstanding receivables from these customers
were $0 and $4,188,712 respectively, at March 31, 2000 and March 31, 1999.
(7) COMMITMENTS AND CONTINGENCIES
(a) LAWSUITS
SWISSAIR/MDL-1269, IN RE AIR CRASH NEAR PEGGY'S COVE, NOVA SCOTIA. This
multi-district litigation, which is being overseen by the United States District
Court for the Eastern District of Pennsylvania, relates to the crash of Swissair
Flight No. 111 on September 2, 1998. The Swissair MD-11 aircraft involved in the
crash was equipped with an entertainment network system that had been sold to
Swissair by Global Technologies, Ltd. ("Global" formerly known as Interactive
Flight Technologies, Inc.). Estates of the victims of the crash have filed
lawsuits throughout the United States against Swissair, Boeing, Dupont and
various other parties, including Global. TNCi has been named in some of the
lawsuits filed on a successor liability theory. TNCi denies all liability for
the crash. TNCi is being defended by the aviation insurer for Global.
FEDERAL EXPRESS CORPORATION V. THE NETWORK CONNECTION, INC., State
Court of Forsyth County, State of Georgia, Civil Action File No. 99-SC-0053.
This lawsuit was served on the Company on or about July 22, 1999 by Federal
Express Corporation and relates to charges incurred by prior management. The
suit alleged the Company owes Federal Express approximately $110,000 for past
services rendered. The Company has settled this matter for $75,000, with $25,000
having been paid on execution of the settlement agreement on March 3, 2000,
$10,000 having been paid on each of April 1, 2000 and May 1, 2000 and three
additional payments of $10,000 to be paid on each of June 1, 2000, July 1, 2000
and August 1, 2000.
BRYAN R. CARR V. THE NETWORK CONNECTION, INC. AND GLOBAL TECHNOLOGIES,
LTD., Superior Court of Georgia, Civil Action No. 99-CV-1307. Bryan R. Carr, the
Company's former Chief Operating and Financial Officer, and a former Director,
filed a claim on November 24, 1999 alleging a breach of his employment
agreement. Mr. Carr claims that he is entitled to the present value of his base
salary through October 31, 2001, a share of any "bonus pool," the value of his
stock options and accrued vacation time. The Company is currently defending the
claim.
A suit captioned LODGENET ENTERTAINMENT CORPORATION V. THE NETWORK
CONNECTION, INC. was filed April 5, 2000 in the Circuit Court for the Second
Judicial Circuit of the State of South Dakota. The action arises out of the
Company's hiring of Theodore P. Racz, a former LodgeNet Entertainment
Corporation ("LodgeNet") employee, as its Senior Vice President of the Hotels &
Hospitality division. LodgeNet is alleging tortious interference with contract
and tortious interference with business relationships. LodgeNet is seeking to
prohibit Mr. Racz from being employed by the Company, as well as seeking
damages, fees and costs.
The Company may be subject to other lawsuits and claims arising in the
ordinary course of its business. In the Company's opinion, as of March 31, 2000,
the effect of such matters are not expected to have a material adverse effect on
the Company's results of operations and financial position.
9
<PAGE>
(b) CARNIVAL AGREEMENT
In September 1998, the Company entered into a Turnkey Agreement (the
"Carnival Agreement") with Carnival Corporation ("Carnival") for the purchase,
installation and maintenance of its advanced cabin entertainment and management
system for the cruise industry ("CruiseView(TM)") on a minimum of one Carnival
Cruise Lines ship. During the four-year period commencing on the date of the
Carnival Agreement, Carnival has the right to designate an unspecified number of
additional ships for the installation of CruiseView(TM). The cost per cabin for
CruiseView(TM) purchase and installation on each ship is provided for in the
Carnival Agreement. In December 1998, Carnival ordered the installation of
CruiseView(TM) on one Carnival Cruise Lines "Fantasy" class ship which has been
in operational use since August 1999. In August 1999, Carnival ordered the
installation of CruiseView(TM) on one Carnival Cruise Lines "Destiny" class ship
which has been in operational use since October 1999. Under the terms of the
agreement, the Company receives payment for 50% of the sales price of the system
in installments through commencement of operation of the system. Recovery of the
remaining sales price of the system is to be achieved through the receipt of the
Company's 50% share of net profits, as defined in the Carnival Agreement,
generated by the system over future periods.
The terms of the Carnival Agreement provide that Carnival may return
the CruiseView(TM) system within the acceptance period, as defined in the
Carnival Agreement, or for breach of warranty. The acceptance period for the
Fantasy and Destiny class ships are twelve months and three months,
respectively, from completion of installation and testing, which occurred in
February 1999 and October 1999, respectively. The initial warranty period for
these systems is three years. As of March 31, 2000, the Company had recorded
deferred revenue of approximately $2.1 million related to the two Carnival
ships.
In the quarter ended March 31, 2000, the Company concluded that the
cost of building and installing CruiseView(TM) systems on the existing two
Carnival ships pursuant to the Carnival Agreement has exceeded the revenue that
can be earned in connection therewith. Accordingly, the Company has recorded an
expense of $208,146 in the period ended March 31, 2000 reflecting the excess of
cost over expected revenue. Carnival's continuing to exercise its option for
building and installing CruiseView(TM) on additional ships under the agreement
may prove unprofitable and therefore have a negative effect on the Company's
working capital. The Company is currently endeavoring to renegotiate the terms
of the agreement with Carnival. (See "Note 8 - Subsequent Event").
NOTE (8) SUBSEQUENT EVENT
Since the installation of the CruiseView(TM) system on two Carnival
cruise ships, and beginning in the quarter ended March 31, 2000, the Company has
experienced costs in excess of those recoverable under the Carnival Agreement.
Given these costs, and ongoing technical issues, the Company notified Carnival
of its desire to renegotiate the Carnival Agreement. During these discussions,
Carnival notified the Company in a letter dated April 24, 2000 that it sought to
terminate the Carnival Agreement and sought to assert certain remedies
thereunder. The Company and Carnival are in discussions seeking to resolve
issues under the Carnival Agreement regarding recovery of amounts paid to the
Company (recorded as deferred revenue), the Company's recovery of its inventory
costs, potential warranty/de-installation obligations and other matters.
Concurrently, the Company and Carnival are in discussions with respect
to a new agreement which would cover the installation of the Company's latest
CruiseView(TM) technology on the "Fantasy" class ship discussed above, and
contractual terms more favorable to the Company than the Carnival Agreement,
including a longer-term and multiple ship arrangement. The Company believes its
new technology improves the Company's ability to create multiple new content and
commerce-based revenue streams, and to establish a business relationship
providing appropriate returns to each partner. However, while the Company is
optimistic about the discussions, there is no assurance that the Company will be
successful in reaching a mutually satisfactory resolution of the Carnival
Agreement and in securing a new, more favorable long term contract with
Carnival.
10
<PAGE>
ITEM 2 -- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with, and is
qualified in its entirety by, the Condensed Consolidated Financial Statements
and the Notes thereto appearing elsewhere herein. Historical results are not
necessarily indicative of trends in operating results for any future period.
DESCRIPTION OF BUSINESS
The Network Connection, Inc. (the "Company") is engaged in the design,
manufacture, installation and maintenance of advanced, high-end,
high-performance computer servers and interactive, broad-band information and
entertainment systems, and procuring and providing the content available through
the systems. These all-digital systems deliver an on-demand, multimedia
experience via high-speed, high-performance Internet protocol networks. These
systems are designed to provide users access to information, entertainment and a
wide array of service options, such as shopping for goods and services, computer
games, access to the World Wide Web and on-line gambling where permitted by
applicable law. The service options available are customized for each
installation and generally vary depending on the environment in which each
system is installed. The Company's targeted markets for these products are
hotels and time-share properties, cruise ships, educational institutions and
corporate training, and passenger trains.
BASIS OF PRESENTATION
On May 18, 1999, Global Technologies, Ltd. ("Global") received from the
Company 1,055,745 shares of its Common Stock and 2,495,400 shares of its Series
D Convertible Preferred Stock in exchange for $4,250,000 in cash and
substantially all the assets and certain liabilities of Global's Interactive
Entertainment Division ("IED"), as defined in the Asset Purchase and Sale
Agreement dated April 30, 1999, as amended (the "Transaction"). The Transaction
has been accounted for as a reverse merger whereby, for accounting purposes,
Global is considered the accounting acquirer, and although the legal capital
structure carries forward, the Company is treated as the successor to the
historical operations of IED. Accordingly, the historical financial statements
of the Company, which previously have been reported to the Securities and
Exchange Commission ("SEC") on Forms 10-KSB, and 10-QSB, among others, as of and
for all periods through March 31, 1999, will be replaced with those of IED.
The financial statements as of and for the three months and nine months
ended March 31, 1999 reflect the historical results of Global's IED as
previously included in Global's consolidated financial statements. The
Transaction date for accounting purposes was May 1, 1999. As of March 31, 2000,
the Company is an 80% owned subsidiary of Global whose ownership is represented
by 1,500 shares of the Company's Series B 8% Convertible Preferred Stock,
2,495,400 shares of the Company's Series D Preferred Stock and approximately 6.8
million shares of the Company's Common Stock. The historical financial
statements of the Company up to the date of the Transaction as previously
reported will no longer be included in future filings of the Company.
RESULTS OF OPERATIONS
REVENUES
Revenue for the quarter ended March 31, 2000 was $590 and was generated
from the sale of server equipment. Revenue for the nine months ended March 31,
2000 was $5,657,736, an increase of $5,179,671 (or 1,083%) compared to revenue
of $478,065 for the corresponding period of the previous fiscal year. The
Company elected to defer revenue of approximately $2.1 million in connection
with the Carnival Agreement pending the outcome of current contract
negotiations. Equipment sales during the nine months ended March 31, 2000 are
comprised principally of approximately $5.4 million generated from the sale of
195 of the Company's Cheetah(R) video servers in connection with the Georgia
Metropolitan Regional Education Services Agency ("MRESA") Net 2000 project.
Service income of $59,827 for the nine months ended March 31, 2000 was generated
from system design services provided to ALSTOM Transport LTD ("Alstom"). The
Company provided these services to Alstom, but expects no further business from
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Alstom as they plan to create a subsidiary that would compete with the Company
in the passenger rail market. Equipment sales of $89,028 during the nine-month
period ended March 31, 1999 were generated from the sale of spare parts needed
for the entertainment networks installed previously on three Swissair aircraft.
Service income of $389,037 for the nine-month period ended March 31, 1999, was
principally generated from programming services provided to Swissair,
representing the Company's share of gaming profits generated by the Swissair
systems and revenue earned under the Swissair extended warranty contract. There
will be no further revenue under the Swissair agreement.
COST OF SALES
Cost of equipment sales for the three-month period ended March 31, 2000
was $225,669 and are comprised principally of the excess of costs over expected
revenue related to Carnival. Cost of service income for the current period was
$21,189 attributable to video content costs. Cost of equipment sales for the
nine months ended March 31, 2000 was $3,680,584, and are principally comprised
of material costs and estimated warranty costs for the 195 video servers for the
Georgia schools project as well as the excess of costs over expected revenue
related to Carnival. Cost of equipment sales of $283,714 for the corresponding
period ended March 31, 1999 was comprised of material, installation and
maintenance costs, as well as estimated warranty costs and costs of upgrades to
the entertainment networks installed in Swissair aircraft.
GENERAL AND ADMINISTRATIVE COSTS
General and administrative expenses for the quarter ended March 31,
2000 were $2,103,517 an increase of $1,174,917 (or 127%) compared to expenses of
$928,600 for the corresponding quarter of the previous fiscal year. General and
administrative expenses for the nine months ended March 31, 2000 were
$4,678,325, a decrease of $2,269,493 (or 33%) compared to expenses of $6,947,818
for the corresponding period of the previous fiscal year. Significant components
attributable to the increase in the current quarter include the addition of
TNCi's Philadelphia office, expenses incurred by the Company's UK subsidiary and
an increase in payroll and benefit costs generated by a 60% increase in
personnel in the current quarter over the prior quarter ended level. The
decrease in expenses during the nine-months ended March 31, 2000 compared to the
corresponding period of the previous fiscal year is principally attributed to a
$3.1 million severance payment recorded September 1998 for three former
executives of the former IED, offset partially by the increase in expenses in
the current period. Significant components of general and administrative
expenses include payroll costs and legal and professional fees.
NON-CASH COMPENSATION
Non-cash compensation expense of $238,429 in the three-month period
ended March 31, 2000 is related to the issuance of common stock purchase
warrants and common stock in exchange for services. Non-cash compensation
expense of $545,311 for the nine-month period ended March 31, 2000 is comprised
of an $85,000 expense for a former employee as part of a severance package as
well as $460,311 of expense related to the issuance of common stock purchase
warrants and common stock in exchange for services.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization expense for the quarter ended March 31,
2000 was $332,511, an increase of $271,990 (or 449%) compared to depreciation
and amortization expense of $60,521 for the corresponding period in the previous
fiscal year. Depreciation and amortization expense for the quarter ended March
31, 2000 was comprised of property, plant and equipment depreciation of $139,279
and intangible amortization of $193,232. Depreciation and amortization expense
for the corresponding period ended March 31, 1999 was comprised of property,
plant and equipment depreciation of $60,521. There was no intangible
amortization expense for the 1999 period. The increase in depreciation expense
in the current quarter can be attributed to fixed assets acquired during May
1999 as a result of the Transaction and an increase in fixed asset purchases in
the current period. Depreciation and amortization expense for the nine months
ended March 31, 2000 was $972,528, an increase of $528,908 (or 119%) compared to
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depreciation and amortization expense of $443,620 for the corresponding period
ended March 31, 1999. Depreciation and amortization expense for the nine months
ended March 31, 2000 was comprised of property, plant and equipment depreciation
of $404,641 and intangible amortization of $567,887. Depreciation and
amortization expense for the corresponding period ended March 31, 1999 is
comprised of property, plant and equipment depreciation of $443,620. There was
no intangible amortization for the 1999 period. The decrease in property, plant
and equipment depreciation in the current nine-month period is a result of
equipment write-offs of $1,006,532 during the quarter ended December 31, 1998,
substantially offset by the depreciation of assets acquired during May 1999 as a
result of the Transaction as well as the increase in fixed asset purchases in
the current period.
SPECIAL CHARGES
Special charges for the nine months ended March 31, 2000 were zero
compared to a credit of $190,000 during the corresponding period ended March 31,
1999. A recovery of $190,000 was recognized during the quarter ended September
30, 1998 as a result of a reduction in the number of entertainment networks
installed in Swissair aircraft requiring maintenance.
PROVISION FOR DOUBTFUL ACCOUNTS
There were no provisions for doubtful accounts for the three and nine
months ended March 31, 2000 compared to $28,647 for the corresponding periods of
the previous fiscal year. The provisions in the previous fiscal year resulted
from entertainment programming services provided to Swissair for which the
Company has not been paid.
INTEREST EXPENSE
Interest expense for the quarter ended March 31, 2000 was $11,331
compared to $1,358 for the corresponding period ended March 31, 1999. Interest
expense for the nine months ended March 31, 2000 was $150,839 compared to $5,614
for the corresponding period ended March 31, 1999. Interest expense for the
three-month period ended March 31, 2000 can be attributed to the cost of cash
borrowed against the revolving credit facility with Global. Interest expense for
the nine-month period ended March 31, 2000 can be attributed principally to
prior long-term debt obligations of the Company, whereas interest expense for
the corresponding period of the previous fiscal year was attributable to the
Company's capital leases for furniture which expired in September 1999.
INTEREST INCOME
Interest income was $13,354 and $90,728 for the three and nine months
ended March 31, 2000 compared to $39,529 and $118,188 for the three and nine
months ended March 31, 1999, respectively. Interest income for the three and
nine-month period ended March 31, 2000 was principally generated from short-term
investments of working capital, whereas interest income for the corresponding
period ended March 31, 1999 is principally attributable to Swissair extended
warranty billings.
OTHER EXPENSE
Other expense of $15,911 and $24,741 for the three and nine months
ended March 31, 2000, respectively, represent a loss on the buyout of a capital
lease for furniture, losses incurred on the sale of two buildings located in
Alpharetta, Georgia and a loss incurred on the buyout of a vehicle lease. Other
expense of $567,317 for the nine-month period ended March 31, 1999 resulted from
furniture and equipment write-offs of $1,006,532 in the quarter ended December
31, 1998, partially offset by the recovery of furniture and equipment written
off in fiscal 1997.
LIQUIDITY AND CAPITAL RESOURCES
Prior to June 30, 1999, the Company's primary source of funding had
been through contributed capital from Global. In August 1999, the Company
received an order for $5.3 million for the manufacture, delivery and
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installation of 195 of the Company's Cheetah(R) multimedia video servers in
connection with the Georgia MRESA Net 2000 project; and a service order under an
agreement with Carnival for installation of a second CruiseView(TM) system. In
addition, as of the date hereof, the Company had received orders for the
installation of its InnView(TM) system in two hotels in California and one hotel
in Arizona. The Company has received the full payment of $5.3 million in
connection with the Net 2000 project. The Company received payments from
Carnival for the two ships currently under contract, which has been recorded as
deferred revenue (the aggregate amount of which is $2.1 million as of March 31,
2000) (See Notes 7(b) and 8). Working capital will continue to decrease as the
Company continues to invest in inventory for orders under the agreement with
Carnival and the three hotel orders, invests in business development, and to the
extent it is successful in generating additional orders for sales of its systems
which are longer term by nature.
During the nine months ended March 31, 2000, the Company used
$3,794,972 of cash for operating activities, a decrease of $3,991,096 from the
$7,786,068 of cash used for the corresponding period of 1999. The cash utilized
in operations during the nine months ended March 31, 2000 resulted primarily
from the net loss, increases in inventory related to installations of
InnView(TM), as well as decreases in accrued liabilities, partially offset by
increases in deferred revenue related to the Carnival Agreement, increases in
accounts payable resulting from inventory purchases and accrued product
warranties related to the Carnival Agreement.
Cash flows provided by investing activities were $745,989 during the
nine months ended March 31, 2000. The increase in cash resulted primarily from
the sale of investment securities in the quarter ended December 31, 1999 and
proceeds from the sale of two buildings held for sale (one in the first quarter,
and one in the second quarter), offset by purchases of property and equipment in
first quarter and third quarter.
During the nine months ended March 31, 2000, cash provided by financing
activities of $557,077 resulted primarily from payments made by an affiliate and
from exercise of employee stock options, as well as payments made on notes
payable and in the re-purchase of outstanding warrants.
In October 1999, a note payable in the principle amount of $400,000 due
September 5, 1999 was converted into 200,000 shares of the Company's Common
Stock.
Prior to the Transaction, the Company entered into a secured promissory
note with Global in the principal amount of $750,000, bearing interest at a rate
of 9.5% per annum, and a related security agreement granting Global a security
interest in its assets (the "Promissory Note"). The Promissory Note is
convertible into shares of the Company's Series C 8% Convertible Preferred Stock
("Series C Stock") at the discretion of Global. The Note had an original
maturity of May 14, 1999 but has been extended until September 2001.
In July and August 1999, Global purchased all of the Series A and E
notes and the Series D notes, respectively, from the holders of such notes (the
"Series Notes"). Concurrent with such purchase by Global, the Company executed
the allonges to the Promissory Note which cancelled such Series Notes and rolled
the principal balance, plus accrued but unpaid interest, penalties and
redemption premiums on the Series Notes into the principal balance of the
Promissory Note. Subsequent to May 18, 1999, Global had also advanced working
capital to the Company in the form of intercompany advances. In August 1999, the
Company executed an allonge to the Promissory Note which rolled the intercompany
advances into the principal balance of the Promissory Note and granted Global
the ability to convert the Promissory Note directly into shares of the Company's
Common Stock as an administrative convenience.
On August 24, 1999, the Board of Directors of Global approved the
conversion of the Promissory Note into shares of the Company's Common Stock.
Such conversion, to the extent it exceeded approximately one million shares of
the Company's Common Stock on August 24, 1999, was contingent upon receiving
shareholder approval to increase the authorized share capital of the Company.
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This increase in authorized share capital was subsequently approved on September
17, 1999 at the September 17, 1999 Special Meeting of the Company's
shareholders. Accordingly, in December 1999 the Company issued to Global
4,802,377 shares of its Common Stock based on the conversion date of August 24,
1999. Separately from the Promissory Note, the Company issued 886,140 shares of
Common Stock to Global upon conversion of the Company's Series C 8% Convertible
Preferred Stock ("Series C Stock") held by Global.
On August 24, 1999, the Global Board of Directors approved a $5 million
secured revolving credit facility by and between Global and the Company (the
"Facility"). The Facility provides that the Company may borrow up to $5 million
for working capital and general corporate purposes at the prime rate of interest
plus 3%. The Facility matures in September 2001. The Company paid an origination
fee of $50,000 to Global and will pay an unused line fee of 0.5% per annum. The
Facility is secured by all of the assets of the Company and is convertible, at
Global's option, into shares of the Company's Common Stock at a price equal to
the lesser of 66.7% of the trailing five-day average share price of the
preceding 20 days, $1.50 per share, or any lesser amount at which Common Stock
has been issued to third parties. Pursuant to Nasdaq rules, Global may not
convert borrowings under the Facility into shares of Common Stock in excess of
19.99% of the number of shares of Common Stock outstanding on August 24, 1999,
without shareholder approval. As of March 31, 2000, $1,080,000 was outstanding
under the Facility. As of March 31, 2000, Global did not have sufficient cash
for the Company to borrow the full $5 million under the Facility. Should the
Company be unable to borrow funds under the Facility, it could result in a
material adverse effect on the operating results and financial condition of the
Company.
In September 1999, the Company sold one of its two buildings in
Alpharetta, Georgia. The net proceeds from the sale, plus cash of approximately
$80,000 was used by the Company to repay a Note payable due April 19, 2001 in
the principal amount of $470,000. The sale of the second building occurred in
November 1999. The net proceeds of approximately $367,000 from the sale were
used to retire a Note payable due 2009 in the principal amount of $217,000.
The terms of the Carnival Agreement provide that Carnival may return
the CruiseView(TM) system within the acceptance period, as defined in the
Carnival Agreement or for breach of warranty. The acceptance period for the
Fantasy and Destiny class ships are twelve months and three months,
respectively, from completion of installation and testing which occurred in
February 1999 and October 1999, respectively. The initial warranty period for
these systems is three years. As of March 31, 2000, the Company had recorded
deferred revenue of approximately $2.1 million related to the two Carnival
ships. (See Notes 7(b) and 8).
In the quarter ended March 31, 2000, the Company concluded that the
cost of building and installing CruiseView(TM) systems on the existing two
Carnival ships pursuant to the Carnival Agreement has exceeded the revenue that
can be earned in connection therewith. Accordingly, the Company has recorded an
expense of $208,146 in the period ended March 31, 2000 reflecting the excess of
cost over expected revenue. Carnival's continuing to exercise its option for
building and installing CruiseView(TM) on additional ships under the agreement
may prove unprofitable and therefore have a negative effect on the Company's
working capital. The Company is currently endeavoring to renegotiate the terms
of the agreement with Carnival.
Although the Company signed a letter of intent in January 2000 to
obtain net loan proceeds of $5.8 million, the Company and the prospective lender
have been unable to reach agreement on certain material terms of the proposed
transaction. Consequently, we do not anticipate pursuing this financing.
However, the Company continues to pursue additional financing.
The Company expects to use a significant amount of cash in the next 12
months. Cash will be used primarily to finance anticipated operating losses,
increases in inventories and accounts receivable, and to make capital
expenditures required for sales of our systems. However, the Company believes
that its current cash balances plus interest received on such balances, and the
$5 million credit facility with Global Technologies (of which approximately $2
million remains available as of May 10, 2000), and future financing will be
sufficient to meet the Company's currently anticipated cash requirements for at
least the next twelve months. As of March 31, 2000, Global did not have
sufficient cash for the Company to borrow the full $5 million under the
Facility. Should the Company be unable to borrow funds under the Facility, it
could result in a material adverse effect on the operating results and financial
condition of the Company.
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The Company is currently using its working capital to finance inventory
purchases and other expenses associated with the delivery and installation of
Company products, and general and administrative costs.
RECENTLY ISSUED ACCOUNTING PRONOUCEMENTS
In March 2000, the Financial Accounting Standards Board issued FASB
Interpretation No. 44, Accounting for Certain Transactions involving Stock
Compensation (an interpretation of APB Opinion No. 25). This interpretation
provides guidance regarding the application of APB Opinion 25 to Stock
Compensation involving employees. This interpretation is effective July 1, 2000
and is not expected to have a material effect on the Company's consolidated
financial statements.
INFLATION AND SEASONALITY
The Company does not believe that it is significantly impacted by
inflation. The Company's operations are not seasonal in nature, except to extent
fluctuations in quarterly operating results occur due to the cyclical nature of
government funding obtained in connection with education programs with which the
Company may become involved. The Company is not currently involved with any such
program and gives no assurance that it will be in the future.
YEAR 2000
Many currently installed computer systems and software products were
coded to accept only two digit year entries in the date code field.
Consequently, subsequent to December 31, 1999, many of these systems became
subject to failure or malfunction. Although we are not aware of any material
Year 2000 issues at this time, Year 2000 problems may occur or be made known to
us in the future. Year 2000 issues may possibly affect software solutions
developed by us or third-party software incorporated into our solutions. We
generally do not guarantee that the software licensed from third-parties by our
clients is Year 2000 compliant, but we sometimes do warrant that solutions
developed by us are Year 2000 compliant.
FORWARD-LOOKING INFORMATION
This Report contains certain forward-looking statements and information
within the meaning of Section 27A of the Securities Act of 1933 and Section 21E
of the Securities Exchange Act of 1934. The cautionary statements made in this
Report should be read as being applicable to all related forward-looking
statements wherever they appear in this Report. Forward-looking statements, by
their very nature, include risks and uncertainties. Accordingly, the Company's
actual results could differ materially from those discussed herein. A wide
variety of factors could cause or contribute to such differences and could
adversely impact revenues, profitability, cash flows and capital needs. Such
factors, many of which are beyond the control of the Company, include the
following: the Company's ability to successfully resolve contract issues with
Carnival Corporation; the Company's success in procuring and providing
compelling content for its systems; the Company's success in obtaining new
contracts; the volume and type of work orders that are received under such
contracts; the accuracy of the cost estimates for the projects; the Company's
ability to complete its projects on time and within budget; levels of, and
ability to, collect accounts receivable; availability of trained personnel and
utilization of the Company's capacity to complete work; competition and
competitive pressures on pricing; and economic conditions in the United States
and in other regions served by the Company.
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PART II. OTHER INFORMATION
ITEM 1 -- LEGAL PROCEEDINGS
Swissair/MDL-1269, IN RE AIR CRASH NEAR PEGGY'S COVE, NOVA SCOTIA. This
multi-district litigation, which is being overseen by the United States District
Court for the Eastern District of Pennsylvania, relates to the crash of Swissair
Flight No. 111 on September 2, 1998. The Swissair MD-11 aircraft involved in the
crash was equipped with an entertainment network system that had been sold to
Swissair by Global Technologies, Ltd. ("Global" formerly known as Interactive
Flight Technologies, Inc.). Estates of the victims of the crash have filed
lawsuits throughout the United States against Swissair, Boeing, Dupont and
various other parties, including Global. TNCi has been named in some of the
lawsuits filed on a successor liability theory. TNCi denies all liability for
the crash. TNCi is being defended by the aviation insurer for Global.
A suit captioned LODGENET ENTERTAINMENT CORPORATION V. THE NETWORK
CONNECTION, INC. was filed April 5, 2000 in the Circuit Court for the Second
Judicial Circuit of the State of South Dakota. The action arises out of the
Company's hiring of Theodore P. Racz, a former LodgeNet Entertainment
Corporation ("LodgeNet") employee, as its Senior Vice President of the Hotels &
Hospitality division. LodgeNet is alleging tortious interference with contract
and tortious interference with business relationships. LodgeNet is seeking to
prohibit Mr. Racz from being employed by the Company, as well as seeking
damages, fees and costs.
FEDERAL EXPRESS CORPORATION V. THE NETWORK CONNECTION, INC., State
Court of Forsyth County, State of Georgia, Civil Action File No. 99-SC-0053.
This lawsuit was served on the Company on or about July 22, 1999 by Federal
Express Corporation and relates to charges incurred by prior management. The
suit alleged the Company owes Federal Express approximately $110,000 for past
services rendered. The Company has settled this matter for $75,000, with $25,000
having been paid on execution of the settlement agreement on March 3, 2000,
$10,000 having been paid on each of April 1, 2000 and May 1, 2000 and three
additional payments of $10,000 to be paid on each of June 1, 2000, July 1, 2000
and August 1, 2000.
BRYAN R. CARR V. THE NETWORK CONNECTION, INC. AND GLOBAL TECHNOLOGIES,
LTD., Superior Court of Georgia, Civil Action No. 99-CV-1307. Bryan R. Carr, the
Company's former Chief Operating and Financial Officer and a former Director,
filed a claim on November 24, 1999 alleging a breach of his employment
agreement. Mr. Carr claims that he is entitled to the present value of his base
salary through October 31, 2001, a share of any "bonus pool," the value of his
stock options and accrued vacation time. The Company is currently defending the
claim.
The Company may be subject to other lawsuits and claims arising in the
ordinary course of its business. In the Company's opinion, as of March 31, 2000,
the effect of such matters will not have a material adverse effect on the
Company's results of operations and financial position.
ITEM 2 -- CHANGES IN SECURITIES
UNREGISTERED ISSUANCES
On March 13, 2000, the Company issued 236,080 shares of its common
stock in connection with the cashless exercise of common stock purchase warrants
held by the former holders of Series A and E notes. The warrants exercised
represented warrants to purchase 311,525 shares of the Company's Common Stock.
These shares were issued in a transaction exempt from the registration
provisions of the Securities Act pursuant to Section 4(2) thereof.
On March 6, 2000, the Company granted options to purchase up to 800,000
shares of the Company's Common Stock to Mr. Robert Pringle, President and Chief
Operating Officer of the Company. One fifth of these options vest on June 6,
2000, with the remainder vesting in four equal annual installments beginning
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March 6, 2001. Exercise price of the options is equal to the closing market
price of the Company's Common Stock on the day prior to grant, and the options
expire on March 6, 2010. These options were granted in a transaction exempt from
the registration provisions of the Securities Act pursuant to Section 4(2)
thereof.
On March 6, 2000, the Company granted options to purchase up to 800,000
shares of the Company's Common Stock to Dr. Jay Rosan, an Executive Vice
President of the Company. One fifth of these options vest on June 6, 2000, with
the remainder vesting in four equal annual installments beginning March 6, 2001.
Exercise price of the options is equal to the closing market price of the
Company's Common Stock on the day prior to grant, and the options expire on
March 6, 2010. These options were granted in a transaction exempt from the
registration provisions of the Securities Act pursuant to Section 4(2) thereof.
On March 6, 2000, the Company granted options to purchase up to 250,000
shares of the Company's Common Stock to Mr. Richard Genzer, Chief Technology
Officer of the Company. One fifth of these options vest on June 6, 2000, with
the remainder vesting in four equal annual installments beginning March 6, 2001.
Exercise price of the options is equal to the closing market price of the
Company's Common Stock on the day prior to grant, and the options expire on
March 6, 2010. These options were granted in a transaction exempt from the
registration provisions of the Securities Act pursuant to Section 4(2) thereof.
ITEM 6 -- EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS
EXHIBIT
NO. DESCRIPTION
- ------- -----------
3.1 Articles of Amendment to the Articles of Incorporation regarding Series
D Preferred Stock May 17, 1999. (1)
3.2 Amended and Restated Bylaws of Registrant. (2)
10.6 Employment Agreement between Robert Pringle and The Network Connection,
Inc., dated March 6, 2000.*
10.7 Employment Agreement between Jay Rosan and The Network Connection,
Inc.*, dated March 6, 2000.*
10.8 Employment Agreement between Richard Genzer and The Network Connection,
Inc.*, dated March 6, 2000.*
10.9 Option Agreement between Robert Pringle and The Network Connection,
Inc.*, dated March 6, 2000.*
10.10 Option Agreement between Jay Rosan and The Network Connection, Inc.*,
dated March 6, 2000.*
10.11 Option Agreement between Richard Genzer and The Network Connection,
Inc.*, dated March 6, 2000.*
10.12 Registration Rights Agreement between The Network Connection, Inc.* and
Robert Pringle, Jay Rosan, and Richard Genzer, dated March 6, 2000.*
10.13 Agreement between Brisbane Lodging LP DBA Radisson Hotel San Francisco
Airport at Sierra Point and The Network Connection.*
27 Financial Data Schedule.*
- ----------
* Filed herewith.
(1) Incorporated by reference, filed as an exhibit with the Company's Quarterly
Report on Form 10-QSB for the quarter ended December 31, 1999, filed with
the Securities and Exchange Commission on February 14, 2000.
(2) Incorporated by reference, filed as an exhibit with the Company's Current
Report on Form 8-K, filed with the Securities and Exchange Commission on
June 21, 1996.
(b) REPORTS ON FORM 8-K
The Company did not file any reports on Form 8-K during the
quarter ended March 31, 2000.
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SIGNATURES
In accordance with the requirements of the Securities Exchange Act of
1934, the Registrant has caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Dated: May 14, 2000 THE NETWORK CONNECTION, INC.
By: /s/ Irwin L. Gross
----------------------------
Irwin L. Gross
Chief Executive Officer
By: /s/ Morris C. Aaron
----------------------------
Morris C. Aaron
Executive Vice President &
Chief Financial Officer
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INDEX OF EXHIBITS
EXHIBIT
NO. DESCRIPTION
- ------- -----------
3.1 Articles of Amendment to the Articles of Incorporation regarding Series
D Preferred Stock May 17, 1999. (1)
3.2 Amended and Restated Bylaws of Registrant. (2)
10.6 Employment Agreement between Robert Pringle and The Network Connection,
Inc., dated March 6, 2000.*
10.7 Employment Agreement between Jay Rosan and The Network Connection,
Inc.*, dated March 6, 2000.*
10.8 Employment Agreement between Richard Genzer and The Network Connection,
Inc.*, dated March 6, 2000.*
10.9 Option Agreement between Robert Pringle and The Network Connection,
Inc.*, dated March 6, 2000.*
10.10 Option Agreement between Jay Rosan and The Network Connection, Inc.*,
dated March 6, 2000.*
10.11 Option Agreement between Richard Genzer and The Network Connection,
Inc.*, dated March 6, 2000.*
10.12 Registration Rights Agreement between The Network Connection, Inc.* and
Robert Pringle, Jay Rosan, and Richard Genzer, dated March 6, 2000.*
10.13 Agreement between Brisbane Lodging LP DBA Radisson Hotel San Francisco
Airport at Sierra Point and The Network Connection.*
27 Financial Data Schedule.*
- ----------
* Filed herewith.
(1) Incorporated by reference, filed as an exhibit with the Company's Quarterly
Report on Form 10-QSB for the quarter ended December 31, 1999, filed with
the Securities and Exchange Commission on February 14, 2000.
(2) Incorporated by reference, filed as an exhibit with the Company's Current
Report on Form 8-K, filed with the Securities and Exchange Commission on
June 21, 1996.
EMPLOYMENT AGREEMENT
THIS AGREEMENT IS EFFECTIVE AS OF MARCH 6, 2000, BETWEEN THE NETWORK
CONNECTION, INC. ("COMPANY") AND ROBERT PRINGLE ("EXECUTIVE").
WITNESSETH:
Company wishes to employ Executive and Executive wishes to enter into the
employ of Company on the terms and conditions contained in this Agreement.
NOW, THEREFORE, in consideration of the facts, mutual promises and
covenants contained herein and intending to be legally bound hereby, Company and
Executive agree as follows:
1. EMPLOYMENT. Company hereby employs Executive and Executive hereby
accepts employment by Company for the period and upon the terms and conditions
contained in this Agreement.
2. OFFICE AND DUTIES.
(a) The Executive is engaged hereunder as the Company's President and
Chief Operating Officer and agrees to perform the duties and services incident
to that position. The Executive will report to the Board of Directors of Company
on a regular basis. Within 30 days after six months of employment under this
Agreement have elapsed, the Board of Directors of Company shall convene a
meeting in order to consider promotion of Executive to the position of Chief
Executive Officer, based upon his performance to date.
(b) Throughout the term of this Agreement, Executive shall devote
substantially all of his working time, energy, skill and best efforts to the
performance of his duties hereunder in a manner which will faithfully and
diligently further the business and interests of Company. The foregoing shall
not be construed, however, as preventing the Executive from investing his assets
in such form or manner as will not require services on the part of the Executive
in the operations of the business in which such investment is made that would
interfere with his obligations hereunder, and provided such business is not in
competition with the company or, if in competition, such business has a class of
securities registered under the Securities Exchange Act of 1934 and the interest
of Executive therein is solely that of an investor owning not more than 3% of
any class of the outstanding equity securities of such business.
3. TERM. This Agreement shall be for a term of thirty-six (36) months,
commencing as of March 6, 2000, and ending on March 5, 2003, unless sooner
terminated as hereinafter provided. This Agreement shall terminate at the end of
the original term, provided, however, that the parties hereto shall, at least
sixty (60) days prior to the end of the term hereof, use their best efforts to
determine whether the Agreement will be renewed or renegotiated.
4. COMPENSATION.
(a) For all services to be rendered by Executive to Company pursuant
to this Agreement, Executive shall receive an annual base salary of Two Hundred
and Fifty Thousand Dollars ($250,000), payable in accordance with Company's
regular payroll practices in effect from time to time.
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(b) In addition to Executive's base salary, Company shall pay to
Executive a cash bonus for each year that Executive's employment continues under
this Agreement. The amount of this bonus shall be dependent and based upon the
achievement of certain corporate objectives that shall be determined mutually by
Executive and Company, and shall be in an amount of up to 50% of Executive's
annual base salary. It is anticipated that these corporate objectives will be
tied at least in part to fiscal year performance. The bonus shall be payable
within 60 days of the end of the fiscal year to which it relates. The first
bonus pursuant to this section would therefore be payable by August 31, 2000
(Company's fiscal year end is June 30), and shall be prorated to take into
account the period of time during fiscal year 2000 that Executive actually
worked with Company. Likewise, in the event that this Agreement is not renewed
at the end of its term and Executive is entitled to bonus under this section for
fiscal year 2003, such bonus shall be prorated in the same manner.
(c) Throughout the term of this Agreement and as long as they are kept
in force by Company, Executive shall be entitled to participate in and receive
the benefits of any profit sharing or retirement plans and any health, life,
accident or disability insurance plans or programs made available to other
similarly situated executives of Company. Specifically, Executive shall be
provided family medical and dental coverage at Company's expense. Executive
shall be entitled to four (4) weeks paid vacation during each year of the term
of this Agreement.
(d) Company will provide Executive with an automobile allowance of
$500 per month and Company will reimburse Executive for all reasonable expenses
incurred by Executive in connection with the performance of Executive's duties
hereunder, including mobile phone and club memberships, upon receipt of vouchers
therefor and in accordance with Company's regular reimbursement procedures and
practices in effect from time to time.
(e) The Company shall grant to Executive options to purchase up to an
aggregate of Eight Hundred Thousand (800,000) shares of the Company's common
stock, par value $0.001 per share, at an exercise price per share equal to the
last sale price of a share of such common stock as of the close of business on
the day prior to the execution and delivery of this Agreement, as reported by
Nasdaq, pursuant to a separate Stock Option Grant Agreement (the "Plan").
5. DISABILITY. If Executive becomes unable to perform his duties hereunder
due to partial or total disability or incapacity resulting from a mental or
physical illness, injury or any other cause ("Disability"), Company will
continue the payment of Executive's base salary at its then current rate for a
period of twelve (12) weeks following the date Executive is first unable to
perform his duties due to such disability or incapacity. Thereafter, Company
shall have no obligation for base salary or other compensation payments to
Executive during the continuance of such disability or incapacity, except as
provided in the Company's disability policy, if any.
6. DEATH. If Executive dies, all payments hereunder shall cease at the end
of the month in which Executive's death shall occur and Company shall have no
further obligations or liabilities hereunder to Executive's estate or legal
representative or otherwise.
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7. TERMINATION WITHOUT CAUSE, UPON TERMINATION OF COMPANY'S BUSINESS, AND
AFTER CHANGE IN CONTROL. If (i) Company shall terminate Executive without Cause
(as defined in Paragraph 8 below), (ii) Company shall discontinue the business
operation in which Executive is employed, or (iii) there is a Change in Control
(as hereinafter defined) and as a result of such Change in Control, the
Executive leaves the employ of Company for Good Reason (as hereinafter defined),
then, on the occurrence of any of such events, Company shall have no further
obligations or liabilities hereunder to Executive, except Company shall (A) pay
Executive an amount equal to one-half his annual base salary, to be paid in
accordance with the regular payroll practices of Company; (B) notwithstanding
anything to the contrary contained in the Plan, the vesting of the installment
of options that except for the termination of employment would have been the
next to vest, shall be accelerated to the date of termination and shall
thereafter be exercisable in accordance with the Plan; and (C) continue to
provide Executive with family medical and dental coverage for a period of six
months. In addition, in the event of termination of Executive pursuant to this
Paragraph, the restrictions of subparagraph 10(a) shall terminate.
(a) Change in Control. The term "Change in Control" shall mean a
change in control of a nature that would be required to be reported in response
to Item 6(e) of Schedule 14A of Regulation 14A issued under the Securities
Exchange Act of 1934, as amended (the "Exchange Act") as in effect as of the
date hereof, or if Item 6(e) is no longer in effect, any subsequent regulation
issued under the Exchange Act for a similar purpose, whether or not the Company
is subject to such reporting requirements; provided that, without limitation,
such a change in control shall be deemed to have occurred if:
(i) other than Irwin L. Gross or Global Technologies, Ltd., any
"person" is or becomes the "beneficial owner" (as defined in Rule 13d-3 under
the Exchange Act), directly or indirectly, of securities of the Company
representing 50% or more of the combined voting power of the Company's then
outstanding securities;
(ii) during any period of two consecutive years (not including
any period prior to the date of the Agreement), individuals who at the beginning
of such period constitute the Board of Directors, and any new director, whose
election by the Board or nomination or election by the Company's stockholders
was approved by a vote of at least two-thirds of the directors then still in
office who either were directors at the beginning of the period or whose
election or nomination for elections was previously approved, cease for any
reason to constitute a majority of the Board; or
(iii) the business of the Company is disposed of by the Company
pursuant to a liquidation, sale of assets of the Company, or otherwise.
(b) Good Reason. "Good Reason" shall mean the occurrence after a
Change in Control of any of the following events without the Executive's express
written consent:
(i) any change in the Executive's title, authorities,
responsibilities (including reporting responsibilities), which represent a
demotion from his status, title, position or responsibilities (including
reporting responsibilities) as in effect immediately prior to the Change in
Control; the assignment to him of any duty or work responsibilities which are
inconsistent with such status, title, position or work responsibilities; or any
removal of the Executive from or failure to appoint or reelect him to any of
such positions, except in connection with the termination of his employment for
Disability, retirement or Cause, as a result of the Executive's death or by him
other than for Good Reason;
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(ii) a reduction by the Company in the Executive's annual base
salary as in effect on the date hereof or as the same may be increased from time
to time; or
(iii) the failure of the Company to obtain a satisfactory
agreement from any successor or assign of the Company to assume and agree to
perform this Agreement.
8. TERMINATION FOR CAUSE. Company may discharge the Executive and thereby
terminate his employment hereunder for the following reasons (for "Cause"):
(a) habitual intoxication;
(b) habitual illegal drug use or drug addition;
(c) conviction of a felony, materially adversely affecting Company or
where such conviction significantly impairs the Executive's ability to perform
his duties hereunder;
(d) while acting in his capacity as Executive of Company, knowingly
engaging in any unlawful activity which could materially adversely affect the
Company;
(e) gross insubordination, gross negligence, or willful and knowing
violation of any expressed direction or regulation established by Company which
is materially injurious to the business or reputation of Company;
(f) misappropriation of corporate funds or other acts of dishonesty;
and
(g) the Executive's material breach of this Agreement in any other
respect, provided that the Company notifies the Executive in writing indicating
with reasonable detail the nature of the breach and the Executive fails to cure
the breach or render it non-material within 15 days after receipt of notice.
In the event that Company discharges the executive for Cause, Company shall
pay to Executive the portion, if any, of the Executive's base salary for the
period up to the date of termination which remains unpaid. The Company shall
have no further obligation or liability under this Agreement.
9. COMPANY PROPERTY. All advertising, sales, manufacturers' and other
materials or articles or information, including without limitation data
processing reports, customer sales analyses, invoices, price lists or
information, samples, budgets, business plans, strategic plans, financing
applications, reports, memoranda, correspondence, financial statements, and any
other materials or data of any kind furnished to Executive by Company or
developed by Executive on behalf of Company or at Company's direction or for
Company's use or otherwise in connection with Executive's employment hereunder,
are and shall remain the sole and confidential property of Company; if Company
requests the return of any such materials at any time during or at or after the
termination of Executive's employment, Executive shall immediately deliver the
same to Company.
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10. NONCOMPETITION, TRADE SECRETS, ETC.
(a) During the term of this Agreement and for a period of one year
after the termination of his employment with Company for any reason whatsoever,
Executive shall not directly or indirectly induce or attempt to influence any
executive of Company to terminate his or her employment with Company and shall
not engage in (as a principal, partner, director, officer, agent, executive,
consultant or otherwise) or be financially interested in any business operating
within the geographical area described in Exhibit "A", attached hereto, which is
involved in business activities which are the same as, similar to, or in
competition with business activities carried on by Company, or being
definitively planned by Company, at the time of the termination of Executive's
employment. However, nothing contained in this Paragraph 10 shall prevent
Executive from holding for investment no more than three percent of any class of
equity securities of a company whose securities are traded on a national
securities exchange or the Nasdaq System.
(b) During the term of this Agreement and at all times thereafter,
Executive shall not use for his personal benefit, or disclose, communicate or
divulge to, or use for the direct or indirect benefit of any person, firm,
association or company other than the Company, any material referred to in
Paragraph 9 above or any information regarding the business methods, business
policies, procedures, techniques, research or development projects or results,
trade secrets, or other knowledge or processes of or developed by the Company or
any names and addresses of customers or clients, any data on or relating to
past, present or prospective customers or clients, or any other confidential
information relating to or dealing with the business operations or activities of
Company, made known to Executive or learned or acquired by Executive while in
the employ of Company. The limitations of this paragraph shall not apply to any
information that has become previously disclosed to the public by the Company or
has become public knowledge other than by a breach of this Agreement.
(c) Any and all reports, plans, budgets, writings, inventions,
improvements, processes, procedures and/or techniques which Executive may make,
conceive, discover or develop, either solely or jointly with any other person or
persons, at any time during the term of this Agreement, whether during working
hours or at any other time and whether at the request or upon the suggestion of
the Company or otherwise, which relate to or are useful in connection with any
business now or hereafter carried on or contemplated by the Company, including
developments or expansions of its present fields of operations, shall be the
sole and exclusive property of Company. Executive shall make full disclosure to
Company of all such reports, plans, budgets, writings, inventions, improvements,
processes, procedures and techniques, and shall do everything reasonably
necessary or desirable to vest the absolute title thereto in Company. Executive
shall write and prepare all specifications and procedures regarding such
inventions, improvements, processes, procedures and techniques and otherwise aid
and assist Company so that Company can prepare and present applications for
copyright or Letters Patent therefor and can secure such copyright or Letters
Patent wherever possible, as well as reissues, renewals, and extensions thereof,
and can obtain the record title to such copyright or patents so that Company
shall be the sole and absolute owner thereof in all countries in which it may
desire to have copyright or patent protection. Executive shall not be entitled
to any additional or special compensation or reimbursement regarding any and all
such writings, inventions, improvements, processes, procedures and techniques.
(d) Executive acknowledges that the restrictions contained in the
foregoing subparagraphs (a), (b) and (c), in view of the nature of the business
in which Company is engaged, are reasonable and necessary in order to protect
the legitimate interests of Company, and that any violation thereof would result
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in irreparable injuries to Company, and Executive therefore acknowledges that,
in the event of his violation of any of these restrictions, Company shall be
entitled to obtain from any court of competent jurisdiction preliminary and
permanent injunctive relief as well as damages and an equitable accounting of
all earnings, profits and other benefits arising from such violation, which
rights shall be cumulative and in addition to any other rights or remedies to
which Company may be entitled.
(e) If the period of time or the area specified in subparagraph (a)
above should be adjudged unreasonable in any proceeding, then the period of time
shall be reduced by such amount of time or the area shall be reduced by the
elimination of such portion thereof or both so that such restrictions may be
enforced in such area and for such time as is adjudged to be reasonable. If
Executive violates any of the restrictions contained in such subparagraph (a),
the restrictive period shall not run in favor of Executive from the time of the
commencement of any such violation until such time as such violation shall be
cured by Executive to the satisfaction of Company.
11. PRIOR AGREEMENTS. Executive represents to Company (a) that there are no
restrictions, agreements or understandings whatsoever to which Executive is a
party which would prevent or make unlawful his execution of this Agreement or
his employment hereunder, (b) that his execution of this Agreement and his
employment hereunder shall not constitute a breach of any contract, agreement or
understanding, oral or written, to which he is a party or by which he is bound
and (c) that he is free and able to execute this Agreement and to enter into
employment by Company. In the event, however, that Executive is named a
defendant in any legal action or proceeding alleging a breach of the
non-compete, non-solicitation or confidentiality provisions of his employment
contract with Aetna US Healthcare in connection with his employment hereunder,
Company agrees to indemnify and hold Executive harmless against any claims,
damages, losses, judgments, expenses, costs or other liabilities (including,
without limitation, reasonable attorneys' fees) arising therefrom.
12. INDEMNIFICATION. Company maintains and shall continue to maintain
Directors and Officers Errors and Omission coverage with a minimum coverage of
at least Fifteen Million Dollars ($15,000,000). Any deductible and all other
costs and expenses which may be incurred by Executive as a result of his acting
in his capacity as an Officer of the Company shall be paid by Company.
13. MISCELLANEOUS.
(a) Indulgences, Etc. Neither the failure nor any delay on the part of
either party to exercise any right, remedy, power or privilege under this
Agreement shall operate as a waiver thereof, nor shall any single or partial
exercise of any right, remedy, power or privilege preclude any other or further
exercise of the same or of any other right, remedy, power or privilege, nor
shall any waiver of any right, remedy, power or privilege with respect to any
occurrence be construed as a waiver of such right, remedy, power or privilege
with respect to any other occurrence. No waiver shall be effective unless it is
in writing and is signed by the party asserted to have granted such waiver.
(b) Controlling Law. This Agreement and all questions relating to its
validity, interpretation, performance and enforcement (including, without
limitation, provisions concerning limitations of actions), shall be governed by
and construed in accordance with the laws of the State of Delaware,
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notwithstanding any conflict-of-laws doctrines of any jurisdiction to the
contrary, and without the aid of any canon, custom or rule of law requiring
construction against the draftsman.
(c) Notices. All notices, requests, demands and other communications
required or permitted under this Agreement shall be in writing and shall be
deemed to have been duly given, made and received only when delivered
(personally, by courier service such as FedEx or by other messenger) against
receipt or upon actual receipt of registered or certified mail, postage prepaid,
return receipt requested, addressed as set forth below:
(i) If to Company:
The Network Connection, Inc.
1811 Chestnut Street
Suite 120
Philadelphia, PA 19103
Attention: Chief Executive Officer
(ii) If to Executive:
Robert Pringle
--------------------------------------
--------------------------------------
--------------------------------------
In addition, notice by mail shall be by air mail if posted outside of the
continental United States. Either party may alter the address to which
communications or copies are to be sent by giving notice of such change of
address in conformity with the provisions of this subparagraph for the giving of
notice.
(d) Exhibits. All Exhibits attached hereto are hereby incorporated by
reference into, and made a part of, this Agreement.
(e) Binding Nature of Agreement; No Assignment. This Agreement shall
be binding upon and inure to the benefit of the parties hereto and their
respective heirs, personal representatives, successors and assigns, except that
no party may assign or transfer its rights nor delegate its obligations under
this Agreement without the prior written consent of the other party hereto.
(f) Execution in Counterparts. This Agreement may be executed in any
number of counterparts, each of which shall be deemed to be an original as
against any party whose signature appears thereon, and all of which shall
together constitute one and the same instrument. This Agreement shall become
binding when one or more counterparts hereof, individually or taken together,
shall bear the signatures of all of the parties reflected hereon as the
signatories.
(g) Provisions Separable. The provisions of this Agreement are
independent of and separable from each other, and no provision shall be affected
or rendered invalid or unenforceable by virtue of the fact that for any reason
any other or others of them may be invalid or unenforceable in whole or in part.
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(h) Entire Agreement. This Agreement contains the entire understanding
between the parties hereto with respect to the subject matter hereof, and
supersedes all prior and contemporaneous agreements and understandings,
inducements or conditions, express or implied, oral or written, except as herein
contained. The express terms hereof control and supersede any course of
performance and/or usage of the trade inconsistent with any of the terms hereof.
This Agreement may not be modified or amended other than by an agreement in
writing.
(i) Paragraph Headings. The Paragraph and subparagraph headings in
this Agreement have been inserted for convenience of reference only; they form
no part of this Agreement and shall not affect its interpretation.
(j) Gender, Etc. Words used herein, regardless of the number and
gender specifically used, shall be deemed and construed to include any other
number, singular or plural, and any other gender, masculine, feminine or neuter,
as the context indicates is appropriate.
(k) Number of Days. In computing the number of days for purposes of
this Agreement, all days shall be counted, including Saturdays, Sundays and
Holidays; provided, however, that if the final day of any time period falls on a
Saturday, Sunday or Holiday, then the final day shall be deemed to be the next
day which is not a Saturday, Sunday or Holiday. For purposes of this Agreement,
the term "Holiday" shall mean a day, other than a Saturday or Sunday, on which
national banks with branches in the Commonwealth of Pennsylvania are or may
elect to be closed.
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IN WITNESS WHEREOF, the parties have caused this Agreement to
be executed and delivered in Philadelphia, Pennsylvania, as of the date first
above written.
THE NETWORK CONNECTION, INC.
By: /s/ Irwin L. Gross
------------------------------------
Irwin L. Gross,
Chairman and Chief Executive Officer
EXECUTIVE:
/s/ Robert Pringle
----------------------------------------
Robert Pringle
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EXHIBIT "A"
Under Paragraph 11, Noncompetition, Trade Secrets, Etc., the
geographic area shall be as follows:
Worldwide
EMPLOYMENT AGREEMENT
THIS AGREEMENT IS EFFECTIVE AS OF MARCH 6, 2000, BETWEEN THE NETWORK
CONNECTION, INC. ("COMPANY") AND JAY ROSAN ("EXECUTIVE").
WITNESSETH:
Company wishes to employ Executive and Executive wishes to enter into the
employ of Company on the terms and conditions contained in this Agreement.
NOW, THEREFORE, in consideration of the facts, mutual promises and
covenants contained herein and intending to be legally bound hereby, Company and
Executive agree as follows:
1. EMPLOYMENT. Company hereby employs Executive and Executive hereby
accepts employment by Company for the period and upon the terms and conditions
contained in this Agreement.
2. OFFICE AND DUTIES.
(a) The Executive is engaged hereunder as the Company's Executive Vice
President and agrees to perform the duties and services incident to that
position. The Executive will report to the Board of Directors of Company on a
regular basis. During the course of his employment hereunder, Executive shall be
an invited guest to observe Board meetings. Within 30 days after six months of
employment under this Agreement have elapsed, the Board of Directors of Company
shall convene a meeting in order to consider the addition of Executive to the
Board, based upon his performance to date.
(b) Throughout the term of this Agreement, Executive shall devote
substantially all of his working time, energy, skill and best efforts to the
performance of his duties hereunder in a manner which will faithfully and
diligently further the business and interests of Company. The foregoing shall
not be construed, however, as preventing the Executive from investing his assets
in such form or manner as will not require services on the part of the Executive
in the operations of the business in which such investment is made that would
interfere with his obligations hereunder, and provided such business is not in
competition with the company or, if in competition, such business has a class of
securities registered under the Securities Exchange Act of 1934 and the interest
of Executive therein is solely that of an investor owning not more than 3% of
any class of the outstanding equity securities of such business.
3. TERM. This Agreement shall be for a term of thirty-six (36) months,
commencing as of March 6, 2000, and ending on March 6, 2003, unless sooner
terminated as hereinafter provided. This Agreement shall terminate at the end of
the original term, provided, however, that the parties hereto shall, at least
sixty (60) days prior to the end of the term hereof, use their best efforts to
determine whether the Agreement will be renewed or renegotiated.
<PAGE>
4. COMPENSATION.
(a) For all services to be rendered by Executive to Company pursuant
to this Agreement, Executive shall receive an annual base salary of Two Hundred
Thousand Dollars ($200,000), payable in accordance with Company's regular
payroll practices in effect from time to time.
(b) In addition to Executive's base salary, Company shall pay to
Executive a cash bonus for each year that Executive's employment continues under
this Agreement. The amount of this bonus shall be dependent and based upon the
achievement of certain corporate objectives that shall be determined mutually by
Executive and Company, and shall be in an amount of up to 50% of Executive's
annual base salary. It is anticipated that these corporate objectives will be
tied at least in part to fiscal year performance. The bonus shall be payable
within 60 days of the end of the fiscal year to which it relates. The first
bonus pursuant to this section would therefore be payable by August 31, 2000
(Company's fiscal year end is June 30), and shall be prorated to take into
account the period of time during fiscal year 2000 that Executive actually
worked with Company. Likewise, in the event that this Agreement is not renewed
at the end of its term and Executive is entitled to bonus under this section for
fiscal year 2003, such bonus shall be prorated in the same manner.
(c) Throughout the term of this Agreement and as long as they are kept
in force by Company, Executive shall be entitled to participate in and receive
the benefits of any profit sharing or retirement plans and any health, life,
accident or disability insurance plans or programs made available to other
similarly situated executives of Company. Specifically, Executive shall be
provided family medical and dental coverage at Company's expense. Executive
shall be entitled to four (4) weeks paid vacation during each year of the term
of this Agreement. Executive shall be entitled to an additional week of paid
vacation in order to keep his continuing medical education obligations current.
(d) Company will provide Executive with an automobile allowance of
$500 per month and Company will reimburse Executive for all reasonable expenses
incurred by Executive in connection with the performance of Executive's duties
hereunder, including mobile phone and club memberships, upon receipt of vouchers
therefor and in accordance with Company's regular reimbursement procedures and
practices in effect from time to time.
(e) The Company shall grant to Executive options to purchase up to an
aggregate of Eight Hundred Thousand (800,000) shares of the Company's common
stock, par value $0.001 per share, at an exercise price per share equal to the
last sale price of a share of such common stock as of the close of business on
the day prior to the execution and delivery of this Agreement, as reported by
Nasdaq, pursuant to a separate Stock Option Grant Agreement (the "Plan").
5. DISABILITY. If Executive becomes unable to perform his duties hereunder
due to partial or total disability or incapacity resulting from a mental or
physical illness, injury or any other cause ("Disability"), Company will
continue the payment of Executive's base salary at its then current rate for a
period of twelve (12) weeks following the date Executive is first unable to
perform his duties due to such disability or incapacity. Thereafter, Company
shall have no obligation for base salary or other compensation payments to
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Executive during the continuance of such disability or incapacity, except as
provided in the Company's disability policy, if any.
6. DEATH. If Executive dies, all payments hereunder shall cease at the end
of the month in which Executive's death shall occur and Company shall have no
further obligations or liabilities hereunder to Executive's estate or legal
representative or otherwise. Notwithstanding the immediately preceding sentence,
Company shall pay to Executive's estate or legal representatives any bonus
applicable for the fiscal year in which death occurs prorated to take into
account the period of time during such fiscal year that Executive actually
worked with Company.
7. TERMINATION WITHOUT CAUSE, UPON TERMINATION OF COMPANY'S BUSINESS, AND
AFTER CHANGE IN CONTROL. (1) If (i) Company shall terminate Executive without
Cause (as defined in Paragraph 8 below), (ii) Company shall discontinue the
business operation in which Executive is employed, or (iii) the Executive leaves
the employ of Company for Good Reason (as hereinafter defined), then, on the
occurrence of any of such events, Company shall have no further obligations or
liabilities hereunder to Executive, except Company shall (A) pay Executive an
amount equal to one-half his annual base salary, to be paid in accordance with
the regular payroll practices of Company; (B) notwithstanding anything to the
contrary contained in the Plan, the vesting of the installment of options that
except for the termination of employment would have been the next to vest, shall
be accelerated to the date of termination and shall thereafter be exercisable in
accordance with the Plan; and (C) continue to provide Executive with family
medical and dental coverage for a period of six months. In addition, in the
event of termination of Executive pursuant to this Paragraph, the restrictions
of subparagraph 10(a) shall terminate.
(2) "Good Reason" shall mean the occurrence of any of the following
events without the Executive's express written consent:
(i) any change in the Executive's title, authorities,
responsibilities (including reporting responsibilities), which represent a
demotion from his status, title, position or responsibilities (including
reporting responsibilities) as in effect immediately prior to the Change in
Control; the assignment to him of any duty or work responsibilities which are
inconsistent with such status, title, position or work responsibilities; or any
removal of the Executive from or failure to appoint or reelect him to any of
such positions, except in connection with the termination of his employment for
Disability, retirement or Cause, as a result of the Executive's death or by him
other than for Good Reason;
(ii) a reduction by the Company in the Executive's annual base
salary as in effect on the date hereof or as the same may be increased from time
to time; or
(iii) the failure of the Company to obtain a satisfactory
agreement from any successor or assign of the Company to assume and agree to
perform this Agreement.
(3) Notwithstanding anything to the contrary contained in this
Paragraph 7, Company shall pay to Executive any bonus applicable for the fiscal
year in which a termination pursuant to this Paragraph occurs prorated to take
into account the period of time during such fiscal year that Executive actually
worked with Company.
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8. TERMINATION FOR CAUSE. Company may discharge the Executive and thereby
terminate his employment hereunder for the following reasons (for "Cause"):
(a) habitual intoxication;
(b) habitual illegal drug use or drug addition;
(c) conviction of a felony, materially adversely affecting Company or
where such conviction significantly impairs the Executive's ability to perform
his duties hereunder;
(d) while acting in his capacity as Executive of Company, knowingly
engaging in any unlawful activity which could materially adversely affect the
Company;
(e) gross insubordination, gross negligence, or willful and knowing
violation of any expressed direction or regulation established by Company which
is materially injurious to the business or reputation of Company;
(f) misappropriation of corporate funds or other acts of dishonesty;
and
(g) the Executive's material breach of this Agreement in any other
respect, provided that the Company notifies the Executive in writing indicating
with reasonable detail the nature of the breach and the Executive fails to cure
the breach or render it non-material within 15 days after receipt of notice.
In the event that Company discharges the executive for Cause, Company shall
pay to Executive the portion, if any, of the Executive's base salary for the
period up to the date of termination which remains unpaid. The Company shall
have no further obligation or liability under this Agreement.
9. COMPANY PROPERTY. All advertising, sales, manufacturers' and other
materials or articles or information, including without limitation data
processing reports, customer sales analyses, invoices, price lists or
information, samples, budgets, business plans, strategic plans, financing
applications, reports, memoranda, correspondence, financial statements, and any
other materials or data of any kind furnished to Executive by Company or
developed by Executive on behalf of Company or at Company's direction or for
Company's use or otherwise in connection with Executive's employment hereunder,
are and shall remain the sole and confidential property of Company; if Company
requests the return of any such materials at any time during or at or after the
termination of Executive's employment, Executive shall immediately deliver the
same to Company.
10. NONCOMPETITION, TRADE SECRETS, ETC.
(a) During the term of this Agreement and for a period of one year
after the termination of his employment with Company for any reason whatsoever,
Executive shall not directly or indirectly induce or attempt to influence any
executive of Company to terminate his or her employment with Company and shall
not engage in (as a principal, partner, director, officer, agent, executive,
consultant or otherwise) or be financially interested in any business operating
within the geographical area described in Exhibit "A", attached hereto, which is
involved in a Competitive Business (as hereinafter defined). A "Competitive
Business" is any business that engages in the development, manufacture, sale
and/or installation of computer servers, or of information or entertainment
systems for use in the hotel, time-share, hospitality, commercial or residential
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<PAGE>
real estate, cruise line or other watercraft, passenger rail or other rail
transport, education, air line or other aircraft, or corporate training market,
and in the procurement and provision of content for such systems. However,
nothing contained in this Paragraph 10 shall prevent Executive from holding for
investment no more than three percent of any class of equity securities of a
company whose securities are traded on a national securities exchange or the
Nasdaq System.
(b) During the term of this Agreement and at all times thereafter,
Executive shall not use for his personal benefit, or disclose, communicate or
divulge to, or use for the direct or indirect benefit of any person, firm,
association or company other than the Company, any material referred to in
Paragraph 9 above or any information regarding the business methods, business
policies, procedures, techniques, research or development projects or results,
trade secrets, or other knowledge or processes of or developed by the Company or
any names and addresses of customers or clients, any data on or relating to
past, present or prospective customers or clients, or any other confidential
information relating to or dealing with the business operations or activities of
Company, made known to Executive or learned or acquired by Executive while in
the employ of Company. The limitations of this paragraph shall not apply to any
information that has become previously disclosed to the public by the Company or
has become public knowledge other than by a breach of this Agreement.
(c) Any and all reports, plans, budgets, writings, inventions,
improvements, processes, procedures and/or techniques which Executive may make,
conceive, discover or develop, either solely or jointly with any other person or
persons, at any time during the term of this Agreement, whether during working
hours or at any other time and whether at the request or upon the suggestion of
the Company or otherwise, which relate to or are useful in connection with any
business now or hereafter carried on or contemplated by the Company, including
developments or expansions of its present fields of operations, shall be the
sole and exclusive property of Company. Executive shall make full disclosure to
Company of all such reports, plans, budgets, writings, inventions, improvements,
processes, procedures and techniques, and shall do everything reasonably
necessary or desirable to vest the absolute title thereto in Company. Executive
shall write and prepare all specifications and procedures regarding such
inventions, improvements, processes, procedures and techniques and otherwise aid
and assist Company so that Company can prepare and present applications for
copyright or Letters Patent therefor and can secure such copyright or Letters
Patent wherever possible, as well as reissues, renewals, and extensions thereof,
and can obtain the record title to such copyright or patents so that Company
shall be the sole and absolute owner thereof in all countries in which it may
desire to have copyright or patent protection. Executive shall not be entitled
to any additional or special compensation or reimbursement regarding any and all
such writings, inventions, improvements, processes, procedures and techniques.
(d) Executive acknowledges that the restrictions contained in the
foregoing subparagraphs (a), (b) and (c), in view of the nature of the business
in which Company is engaged, are reasonable and necessary in order to protect
the legitimate interests of Company, and that any violation thereof would result
in irreparable injuries to Company, and Executive therefore acknowledges that,
in the event of his violation of any of these restrictions, Company shall be
entitled to obtain from any court of competent jurisdiction preliminary and
permanent injunctive relief as well as damages and an equitable accounting of
all earnings, profits and other benefits arising from such violation, which
rights shall be cumulative and in addition to any other rights or remedies to
which Company may be entitled.
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(e) If the period of time or the area specified in subparagraph (a)
above should be adjudged unreasonable in any proceeding, then the period of time
shall be reduced by such amount of time or the area shall be reduced by the
elimination of such portion thereof or both so that such restrictions may be
enforced in such area and for such time as is adjudged to be reasonable. If
Executive violates any of the restrictions contained in such subparagraph (a),
the restrictive period shall not run in favor of Executive from the time of the
commencement of any such violation until such time as such violation shall be
cured by Executive to the satisfaction of Company.
11. PRIOR AGREEMENTS. Executive represents to Company (a) that there are no
restrictions, agreements or understandings whatsoever to which Executive is a
party which would prevent or make unlawful his execution of this Agreement or
his employment hereunder, (b) that his execution of this Agreement and his
employment hereunder shall not constitute a breach of any contract, agreement or
understanding, oral or written, to which he is a party or by which he is bound
and (c) that he is free and able to execute this Agreement and to enter into
employment by Company. In the event, however, that Executive is named a
defendant in any legal action or proceeding alleging a breach of the
non-compete, non-solicitation or confidentiality provisions of his employment
contract with Aetna US Healthcare in connection with his employment hereunder,
Company agrees to indemnify and hold Executive harmless against any claims,
damages, losses, judgments, expenses, costs or other liabilities (including,
without limitation, reasonable attorneys' fees) arising therefrom.
12. INDEMNIFICATION. Company maintains and shall continue to maintain
Directors and Officers Errors and Omission coverage with a minimum coverage of
at least Fifteen Million Dollars ($15,000,000). Any deductible and all other
costs and expenses which may be incurred by Executive as a result of his acting
in his capacity as an Officer of the Company shall be paid by Company.
13. MISCELLANEOUS.
(a) Indulgences, Etc. Neither the failure nor any delay on the part of
either party to exercise any right, remedy, power or privilege under this
Agreement shall operate as a waiver thereof, nor shall any single or partial
exercise of any right, remedy, power or privilege preclude any other or further
exercise of the same or of any other right, remedy, power or privilege, nor
shall any waiver of any right, remedy, power or privilege with respect to any
occurrence be construed as a waiver of such right, remedy, power or privilege
with respect to any other occurrence. No waiver shall be effective unless it is
in writing and is signed by the party asserted to have granted such waiver.
(b) Controlling Law. This Agreement and all questions relating to its
validity, interpretation, performance and enforcement (including, without
limitation, provisions concerning limitations of actions), shall be governed by
and construed in accordance with the laws of the State of Delaware,
notwithstanding any conflict-of-laws doctrines of any jurisdiction to the
contrary, and without the aid of any canon, custom or rule of law requiring
construction against the draftsman.
(c) Notices. All notices, requests, demands and other communications
required or permitted under this Agreement shall be in writing and shall be
deemed to have been duly given, made and received only when delivered
(personally, by courier service such as FedEx or by other messenger) against
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receipt or upon actual receipt of registered or certified mail, postage prepaid,
return receipt requested, addressed as set forth below:
(i) If to Company:
The Network Connection, Inc.
1811 Chestnut Street
Suite 120
Philadelphia, PA 19103
Attention: Chief Executive Officer
(ii) If to Executive:
Jay Rosan
-------------------------------------
-------------------------------------
-------------------------------------
In addition, notice by mail shall be by air mail if posted outside of the
continental United States. Either party may alter the address to which
communications or copies are to be sent by giving notice of such change of
address in conformity with the provisions of this subparagraph for the giving of
notice.
(d) Exhibits. All Exhibits attached hereto are hereby incorporated by
reference into, and made a part of, this Agreement.
(e) Binding Nature of Agreement; No Assignment. This Agreement shall
be binding upon and inure to the benefit of the parties hereto and their
respective heirs, personal representatives, successors and assigns, except that
no party may assign or transfer its rights nor delegate its obligations under
this Agreement without the prior written consent of the other party hereto.
(f) Execution in Counterparts. This Agreement may be executed in any
number of counterparts, each of which shall be deemed to be an original as
against any party whose signature appears thereon, and all of which shall
together constitute one and the same instrument. This Agreement shall become
binding when one or more counterparts hereof, individually or taken together,
shall bear the signatures of all of the parties reflected hereon as the
signatories.
(g) Provisions Separable. The provisions of this Agreement are
independent of and separable from each other, and no provision shall be affected
or rendered invalid or unenforceable by virtue of the fact that for any reason
any other or others of them may be invalid or unenforceable in whole or in part.
(h) Entire Agreement. This Agreement contains the entire understanding
between the parties hereto with respect to the subject matter hereof, and
supersedes all prior and contemporaneous agreements and understandings,
inducements or conditions, express or implied, oral or written, except as herein
contained. The express terms hereof control and supersede any course of
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<PAGE>
performance and/or usage of the trade inconsistent with any of the terms hereof.
This Agreement may not be modified or amended other than by an agreement in
writing.
(i) Paragraph Headings. The Paragraph and subparagraph headings in
this Agreement have been inserted for convenience of reference only; they form
no part of this Agreement and shall not affect its interpretation.
(j) Gender, Etc. Words used herein, regardless of the number and
gender specifically used, shall be deemed and construed to include any other
number, singular or plural, and any other gender, masculine, feminine or neuter,
as the context indicates is appropriate.
(k) Number of Days. In computing the number of days for purposes of
this Agreement, all days shall be counted, including Saturdays, Sundays and
Holidays; provided, however, that if the final day of any time period falls on a
Saturday, Sunday or Holiday, then the final day shall be deemed to be the next
day which is not a Saturday, Sunday or Holiday. For purposes of this Agreement,
the term "Holiday" shall mean a day, other than a Saturday or Sunday, on which
national banks with branches in the Commonwealth of Pennsylvania are or may
elect to be closed.
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IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
and delivered in Philadelphia, Pennsylvania, as of the date first above written.
THE NETWORK CONNECTION, INC.
By: /s/ Irwin L. Gross
--------------------------------------
Irwin L. Gross,
Chairman and Chief Executive Officer
EXECUTIVE:
/s/ Jay Rosan
------------------------------------------
Jay Rosan
<PAGE>
EXHIBIT "A"
Under Paragraph 11, Noncompetition, Trade Secrets, Etc., the geographic
area shall be as follows:
Worldwide
EMPLOYMENT AGREEMENT
THIS AGREEMENT IS EFFECTIVE AS OF MARCH 6, 2000, BETWEEN THE NETWORK
CONNECTION, INC. ("COMPANY") AND RICHARD GENZER ("EXECUTIVE").
WITNESSETH:
Company wishes to employ Executive and Executive wishes to enter into the
employ of Company on the terms and conditions contained in this Agreement.
NOW, THEREFORE, in consideration of the facts, mutual promises and
covenants contained herein and intending to be legally bound hereby, Company and
Executive agree as follows:
1. EMPLOYMENT. Company hereby employs Executive and Executive hereby
accepts employment by Company for the period and upon the terms and conditions
contained in this Agreement.
2. OFFICE AND DUTIES.
(a) The Executive is engaged hereunder as the Company's Chief
Technology Officer and agrees to perform the duties and services incident to
that position. The Executive will report to the Board of Directors of Company on
a regular basis.
(b) Throughout the term of this Agreement, Executive shall devote
substantially all of his working time, energy, skill and best efforts to the
performance of his duties hereunder in a manner which will faithfully and
diligently further the business and interests of Company. The foregoing shall
not be construed, however, as preventing the Executive from investing his assets
in such form or manner as will not require services on the part of the Executive
in the operations of the business in which such investment is made that would
interfere with his obligations hereunder, and provided such business is not in
competition with the company or, if in competition, such business has a class of
securities registered under the Securities Exchange Act of 1934 and the interest
of Executive therein is solely that of an investor owning not more than 3% of
any class of the outstanding equity securities of such business.
3. TERM. This Agreement shall be for a term of thirty-six (36) months,
commencing as of March 6, 2000, and ending on March 5, 2003, unless sooner
terminated as hereinafter provided. This Agreement shall terminate at the end of
the original term, provided, however, that the parties hereto shall, at least
sixty (60) days prior to the end of the term hereof, use their best efforts to
determine whether the Agreement will be renewed or renegotiated.
4. COMPENSATION.
(a) For all services to be rendered by Executive to Company pursuant
to this Agreement, Executive shall receive an annual base salary of One Hundred
Ninety Thousand Dollars ($190,000), payable in accordance with Company's regular
payroll practices in effect from time to time.
<PAGE>
(b) In addition to Executive's base salary, Company shall pay to
Executive a cash bonus for each year that Executive's employment continues under
this Agreement. The amount of this bonus shall be dependent and based upon the
achievement of certain corporate objectives that shall be determined mutually by
Executive and Company, and shall be in an amount of up to 50% of Executive's
annual base salary. It is anticipated that these corporate objectives will be
tied at least in part to fiscal year performance. The bonus shall be payable
within 60 days of the end of the fiscal year to which it relates. The first
bonus pursuant to this section would therefore be payable by August 31, 2000
(Company's fiscal year end is June 30), and shall be prorated to take into
account the period of time during fiscal year 2000 that Executive actually
worked with Company. Likewise, in the event that this Agreement is not renewed
at the end of its term and Executive is entitled to bonus under this section for
fiscal year 2003, such bonus shall be prorated in the same manner.
(c) Throughout the term of this Agreement and as long as they are kept
in force by Company, Executive shall be entitled to participate in and receive
the benefits of any profit sharing or retirement plans and any health, life,
accident or disability insurance plans or programs made available to other
similarly situated executives of Company. Specifically, Executive shall be
provided family medical and dental coverage at Company's expense. Executive
shall be entitled to four (4) weeks paid vacation during each year of the term
of this Agreement.
(d) Company will provide Executive with an automobile allowance of
$500 per month and Company will reimburse Executive for all reasonable expenses
incurred by Executive in connection with the performance of Executive's duties
hereunder, including mobile phone and club memberships, upon receipt of vouchers
therefor and in accordance with Company's regular reimbursement procedures and
practices in effect from time to time.
(e) The Company shall grant to Executive options to purchase up to an
aggregate of Two Hundred Fifty Thousand (250,000) shares of the Company's common
stock, par value $0.001 per share, at an exercise price per share equal to the
last sale price of a share of such common stock as of the close of business on
the day prior to the execution and delivery of this Agreement, as reported by
Nasdaq, pursuant to a separate Stock Option Grant Agreement (the "Plan").
5. DISABILITY. If Executive becomes unable to perform his duties hereunder
due to partial or total disability or incapacity resulting from a mental or
physical illness, injury or any other cause ("Disability"), Company will
continue the payment of Executive's base salary at its then current rate for a
period of twelve (12) weeks following the date Executive is first unable to
perform his duties due to such disability or incapacity. Thereafter, Company
shall have no obligation for base salary or other compensation payments to
Executive during the continuance of such disability or incapacity, except as
provided in the Company's disability policy, if any.
6. DEATH. If Executive dies, all payments hereunder shall cease at the end
of the month in which Executive's death shall occur and Company shall have no
further obligations or liabilities hereunder to Executive's estate or legal
representative or otherwise.
7. TERMINATION WITHOUT CAUSE, UPON TERMINATION OF COMPANY'S BUSINESS, AND
AFTER CHANGE IN CONTROL. If (i) Company shall terminate Executive without Cause
(as defined in Paragraph 8 below), (ii) Company shall discontinue the business
operation in which Executive is employed, or (iii) there is a Change in Control
(as hereinafter defined) and as a result of such Change in Control, the
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<PAGE>
Executive leaves the employ of Company for Good Reason (as hereinafter defined),
then, on the occurrence of any of such events, Company shall have no further
obligations or liabilities hereunder to Executive, except Company shall (A) pay
Executive an amount equal to one-half his annual base salary, to be paid in
accordance with the regular payroll practices of Company; (B) notwithstanding
anything to the contrary contained in the Plan, the vesting of the installment
of options that except for the termination of employment would have been the
next to vest, shall be accelerated to the date of termination and shall
thereafter be exercisable in accordance with the Plan; and (C) continue to
provide Executive with family medical and dental coverage for a period of six
months. In addition, in the event of termination of Executive pursuant to this
Paragraph, the restrictions of subparagraph 10(a) shall terminate.
(a) Change in Control. The term "Change in Control" shall mean a
change in control of a nature that would be required to be reported in response
to Item 6(e) of Schedule 14A of Regulation 14A issued under the Securities
Exchange Act of 1934, as amended (the "Exchange Act") as in effect as of the
date hereof, or if Item 6(e) is no longer in effect, any subsequent regulation
issued under the Exchange Act for a similar purpose, whether or not the Company
is subject to such reporting requirements; provided that, without limitation,
such a change in control shall be deemed to have occurred if:
(i) other than Irwin L. Gross or Global Technologies, Ltd., any
"person" is or becomes the "beneficial owner" (as defined in Rule 13d-3 under
the Exchange Act), directly or indirectly, of securities of the Company
representing 50% or more of the combined voting power of the Company's then
outstanding securities;
(ii) during any period of two consecutive years (not including
any period prior to the date of the Agreement), individuals who at the beginning
of such period constitute the Board of Directors, and any new director, whose
election by the Board or nomination or election by the Company's stockholders
was approved by a vote of at least two-thirds of the directors then still in
office who either were directors at the beginning of the period or whose
election or nomination for elections was previously approved, cease for any
reason to constitute a majority of the Board; or
(iii) the business of the Company is disposed of by the Company
pursuant to a liquidation, sale of assets of the Company, or otherwise.
(b) Good Reason. "Good Reason" shall mean the occurrence after a
Change in Control of any of the following events without the Executive's express
written consent:
(i) any change in the Executive's title, authorities,
responsibilities (including reporting responsibilities), which represent a
demotion from his status, title, position or responsibilities (including
reporting responsibilities) as in effect immediately prior to the Change in
Control; the assignment to him of any duty or work responsibilities which are
inconsistent with such status, title, position or work responsibilities; or any
removal of the Executive from or failure to appoint or reelect him to any of
such positions, except in connection with the termination of his employment for
Disability, retirement or Cause, as a result of the Executive's death or by him
other than for Good Reason;
(ii) a reduction by the Company in the Executive's annual base
salary as in effect on the date hereof or as the same may be increased from time
to time; or
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<PAGE>
(iii) the failure of the Company to obtain a satisfactory
agreement from any successor or assign of the Company to assume and agree to
perform this Agreement.
8. TERMINATION FOR CAUSE. Company may discharge the Executive and thereby
terminate his employment hereunder for the following reasons (for "Cause"):
(a) habitual intoxication;
(b) habitual illegal drug use or drug addition;
(c) conviction of a felony, materially adversely affecting Company or
where such conviction significantly impairs the Executive's ability to perform
his duties hereunder;
(d) while acting in his capacity as Executive of Company, knowingly
engaging in any unlawful activity which could materially adversely affect the
Company;
(e) gross insubordination, gross negligence, or willful and knowing
violation of any expressed direction or regulation established by Company which
is materially injurious to the business or reputation of Company;
(f) misappropriation of corporate funds or other acts of dishonesty;
and
(g) the Executive's material breach of this Agreement in any other
respect, provided that the Company notifies the Executive in writing indicating
with reasonable detail the nature of the breach and the Executive fails to cure
the breach or render it non-material within 15 days after receipt of notice.
In the event that Company discharges the executive for Cause, Company shall
pay to Executive the portion, if any, of the Executive's base salary for the
period up to the date of termination which remains unpaid. The Company shall
have no further obligation or liability under this Agreement.
9. COMPANY PROPERTY. All advertising, sales, manufacturers' and other
materials or articles or information, including without limitation data
processing reports, customer sales analyses, invoices, price lists or
information, samples, budgets, business plans, strategic plans, financing
applications, reports, memoranda, correspondence, financial statements, and any
other materials or data of any kind furnished to Executive by Company or
developed by Executive on behalf of Company or at Company's direction or for
Company's use or otherwise in connection with Executive's employment hereunder,
are and shall remain the sole and confidential property of Company; if Company
requests the return of any such materials at any time during or at or after the
termination of Executive's employment, Executive shall immediately deliver the
same to Company.
10. NONCOMPETITION, TRADE SECRETS, ETC.
(a) During the term of this Agreement and for a period of one year
after the termination of his employment with Company for any reason whatsoever,
Executive shall not directly or indirectly induce or attempt to influence any
executive of Company to terminate his or her employment with Company and shall
not engage in (as a principal, partner, director, officer, agent, executive,
consultant or otherwise) or be financially interested in any business operating
within the geographical area described in Exhibit "A", attached hereto, which is
involved in business activities which are the same as, similar to, or in
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<PAGE>
competition with business activities carried on by Company, or being
definitively planned by Company, at the time of the termination of Executive's
employment. However, nothing contained in this Paragraph 10 shall prevent
Executive from holding for investment no more than three percent of any class of
equity securities of a company whose securities are traded on a national
securities exchange or the Nasdaq System.
(b) During the term of this Agreement and at all times thereafter,
Executive shall not use for his personal benefit, or disclose, communicate or
divulge to, or use for the direct or indirect benefit of any person, firm,
association or company other than the Company, any material referred to in
Paragraph 9 above or any information regarding the business methods, business
policies, procedures, techniques, research or development projects or results,
trade secrets, or other knowledge or processes of or developed by the Company or
any names and addresses of customers or clients, any data on or relating to
past, present or prospective customers or clients, or any other confidential
information relating to or dealing with the business operations or activities of
Company, made known to Executive or learned or acquired by Executive while in
the employ of Company. The limitations of this paragraph shall not apply to any
information that has become previously disclosed to the public by the Company or
has become public knowledge other than by a breach of this Agreement.
(c) Any and all reports, plans, budgets, writings, inventions,
improvements, processes, procedures and/or techniques which Executive may make,
conceive, discover or develop, either solely or jointly with any other person or
persons, at any time during the term of this Agreement, whether during working
hours or at any other time and whether at the request or upon the suggestion of
the Company or otherwise, which relate to or are useful in connection with any
business now or hereafter carried on or contemplated by the Company, including
developments or expansions of its present fields of operations, shall be the
sole and exclusive property of Company. Executive shall make full disclosure to
Company of all such reports, plans, budgets, writings, inventions, improvements,
processes, procedures and techniques, and shall do everything reasonably
necessary or desirable to vest the absolute title thereto in Company. Executive
shall write and prepare all specifications and procedures regarding such
inventions, improvements, processes, procedures and techniques and otherwise aid
and assist Company so that Company can prepare and present applications for
copyright or Letters Patent therefor and can secure such copyright or Letters
Patent wherever possible, as well as reissues, renewals, and extensions thereof,
and can obtain the record title to such copyright or patents so that Company
shall be the sole and absolute owner thereof in all countries in which it may
desire to have copyright or patent protection. Executive shall not be entitled
to any additional or special compensation or reimbursement regarding any and all
such writings, inventions, improvements, processes, procedures and techniques.
(d) Executive acknowledges that the restrictions contained in the
foregoing subparagraphs (a), (b) and (c), in view of the nature of the business
in which Company is engaged, are reasonable and necessary in order to protect
the legitimate interests of Company, and that any violation thereof would result
in irreparable injuries to Company, and Executive therefore acknowledges that,
in the event of his violation of any of these restrictions, Company shall be
entitled to obtain from any court of competent jurisdiction preliminary and
permanent injunctive relief as well as damages and an equitable accounting of
all earnings, profits and other benefits arising from such violation, which
rights shall be cumulative and in addition to any other rights or remedies to
which Company may be entitled.
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<PAGE>
(e) If the period of time or the area specified in subparagraph (a)
above should be adjudged unreasonable in any proceeding, then the period of time
shall be reduced by such amount of time or the area shall be reduced by the
elimination of such portion thereof or both so that such restrictions may be
enforced in such area and for such time as is adjudged to be reasonable. If
Executive violates any of the restrictions contained in such subparagraph (a),
the restrictive period shall not run in favor of Executive from the time of the
commencement of any such violation until such time as such violation shall be
cured by Executive to the satisfaction of Company.
11. PRIOR AGREEMENTS. Executive represents to Company (a) that there are no
restrictions, agreements or understandings whatsoever to which Executive is a
party which would prevent or make unlawful his execution of this Agreement or
his employment hereunder, (b) that his execution of this Agreement and his
employment hereunder shall not constitute a breach of any contract, agreement or
understanding, oral or written, to which he is a party or by which he is bound
and (c) that he is free and able to execute this Agreement and to enter into
employment by Company. In the event, however, that Executive is named a
defendant in any legal action or proceeding alleging a breach of the
non-compete, non-solicitation or confidentiality provisions of his employment
contract with Aetna US Healthcare in connection with his employment hereunder,
Company agrees to indemnify and hold Executive harmless against any claims,
damages, losses, judgments, expenses, costs or other liabilities (including,
without limitation, reasonable attorneys' fees) arising therefrom.
12. INDEMNIFICATION. Company maintains and shall continue to maintain
Directors and Officers Errors and Omission coverage with a minimum coverage of
at least Fifteen Million Dollars ($15,000,000). Any deductible and all other
costs and expenses which may be incurred by Executive as a result of his acting
in his capacity as an Officer of the Company shall be paid by Company.
13. MISCELLANEOUS.
(a) Indulgences, Etc. Neither the failure nor any delay on the part of
either party to exercise any right, remedy, power or privilege under this
Agreement shall operate as a waiver thereof, nor shall any single or partial
exercise of any right, remedy, power or privilege preclude any other or further
exercise of the same or of any other right, remedy, power or privilege, nor
shall any waiver of any right, remedy, power or privilege with respect to any
occurrence be construed as a waiver of such right, remedy, power or privilege
with respect to any other occurrence. No waiver shall be effective unless it is
in writing and is signed by the party asserted to have granted such waiver.
(b) Controlling Law. This Agreement and all questions relating to its
validity, interpretation, performance and enforcement (including, without
limitation, provisions concerning limitations of actions), shall be governed by
and construed in accordance with the laws of the State of Delaware,
notwithstanding any conflict-of-laws doctrines of any jurisdiction to the
contrary, and without the aid of any canon, custom or rule of law requiring
construction against the draftsman.
(c) Notices. All notices, requests, demands and other communications
required or permitted under this Agreement shall be in writing and shall be
deemed to have been duly given, made and received only when delivered
(personally, by courier service such as FedEx or by other messenger) against
6
<PAGE>
receipt or upon actual receipt of registered or certified mail, postage prepaid,
return receipt requested, addressed as set forth below:
(i) If to Company:
The Network Connection, Inc.
1811 Chestnut Street
Suite 120
Philadelphia, PA 19103
Attention: Chief Executive Officer
(ii) If to Executive:
Richard Genzer
-------------------------------------
-------------------------------------
-------------------------------------
In addition, notice by mail shall be by air mail if posted outside of the
continental United States. Either party may alter the address to which
communications or copies are to be sent by giving notice of such change of
address in conformity with the provisions of this subparagraph for the giving of
notice.
(d) Exhibits. All Exhibits attached hereto are hereby incorporated by
reference into, and made a part of, this Agreement.
(e) Binding Nature of Agreement; No Assignment. This Agreement shall
be binding upon and inure to the benefit of the parties hereto and their
respective heirs, personal representatives, successors and assigns, except that
no party may assign or transfer its rights nor delegate its obligations under
this Agreement without the prior written consent of the other party hereto.
(f) Execution in Counterparts. This Agreement may be executed in any
number of counterparts, each of which shall be deemed to be an original as
against any party whose signature appears thereon, and all of which shall
together constitute one and the same instrument. This Agreement shall become
binding when one or more counterparts hereof, individually or taken together,
shall bear the signatures of all of the parties reflected hereon as the
signatories.
(g) Provisions Separable. The provisions of this Agreement are
independent of and separable from each other, and no provision shall be affected
or rendered invalid or unenforceable by virtue of the fact that for any reason
any other or others of them may be invalid or unenforceable in whole or in part.
(h) Entire Agreement. This Agreement contains the entire understanding
between the parties hereto with respect to the subject matter hereof, and
supersedes all prior and contemporaneous agreements and understandings,
inducements or conditions, express or implied, oral or written, except as herein
contained. The express terms hereof control and supersede any course of
7
<PAGE>
performance and/or usage of the trade inconsistent with any of the terms hereof.
This Agreement may not be modified or amended other than by an agreement in
writing.
(i) Paragraph Headings. The Paragraph and subparagraph headings in
this Agreement have been inserted for convenience of reference only; they form
no part of this Agreement and shall not affect its interpretation.
(j) Gender, Etc. Words used herein, regardless of the number and
gender specifically used, shall be deemed and construed to include any other
number, singular or plural, and any other gender, masculine, feminine or neuter,
as the context indicates is appropriate.
(k) Number of Days. In computing the number of days for purposes of
this Agreement, all days shall be counted, including Saturdays, Sundays and
Holidays; provided, however, that if the final day of any time period falls on a
Saturday, Sunday or Holiday, then the final day shall be deemed to be the next
day which is not a Saturday, Sunday or Holiday. For purposes of this Agreement,
the term "Holiday" shall mean a day, other than a Saturday or Sunday, on which
national banks with branches in the Commonwealth of Pennsylvania are or may
elect to be closed.
8
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
and delivered in Philadelphia, Pennsylvania, as of the date first above written.
THE NETWORK CONNECTION, INC.
By: /s/ Irwin L. Gross
--------------------------------------
Irwin L. Gross,
Chairman and Chief Executive Officer
EXECUTIVE:
/s/ Richard Genzer
------------------------------------------
Richard Genzer
9
<PAGE>
EXHIBIT "A"
Under Paragraph 11, Noncompetition, Trade Secrets, Etc., the geographic
area shall be as follows:
Worldwide
STOCK OPTION GRANT AGREEMENT
The stock option represented by this STOCK OPTION GRANT AGREEMENT is
granted as of the 6th day of March 2000, by The Network Connection, Inc., a
Georgia corporation (the "Company"), to Robert Pringle ("Grantee").
BACKGROUND
A. Grantee is President and Chief Operating Officer of Company.
B. Pursuant to the terms of an employment agreement entered into between
the Company and Grantee of even date herewith (the "Employment Agreement"), and
in order to induce Grantee to enter into the Employment Agreement, incentivize
Grantee with respect to the future success of the Company and to encourage him
to perform at increasing levels of effectiveness and use his best efforts to
promote the growth and profitability of the Company, and in consideration of
services to be performed, Company desires to afford Grantee an opportunity to
purchase shares of its common stock, par value $0.001 per share ("Common
Stock"), as hereinafter provided.
C. Any capitalized terms used but not defined herein shall have the
meanings attributed thereto in the Employment Agreement.
NOW, THEREFORE, in consideration of the mutual covenants hereinafter set
forth and for other good and valuable consideration the receipt and adequacy of
which are hereby acknowledged, the parties hereto, intending to be legally
bound, agree as follows:
1. Grant of Option. In order to incentivize Grantee with respect to the
future success of the Company and to encourage him to perform at increasing
levels of effectiveness and use his best efforts to promote the growth and
profitability of the Company, the Company hereby irrevocably grants to Grantee
the right and option to purchase (the "Option") all or any part of an aggregate
of Eight Hundred Thousand (800,000) shares of Common Stock (the "Option Shares")
at a price per share equal to $9.00, which is the last sale price for shares of
Common Stock on the day prior to the day hereof as reported by Nasdaq (the
"Option Price"), during the Option Period (as defined below) and subject to the
conditions hereinafter set forth.
2. Option Period. The Option may be exercised in accordance with the
provisions of Paragraphs 4 and 5 hereof during the Option Period, which shall
begin on the date hereof and shall end on the Option Expiration Date defined in
Paragraph 3 hereof. All rights to exercise the Option shall terminate on the
Option Expiration Date.
3. Option Expiration Date. The Option Expiration Date shall be March 6,
2010.
4. Exercise of Option.
(a) The Option shall vest, and shall be exercisable as set forth in
the following table, provided that any portion of this Option which becomes
exercisable in any year, but is not exercised in such year, may be carried
<PAGE>
forward and exercised in any future year until the Option Expiration Date,
subject to earlier termination as provided in Paragraph 6 hereof:
From and after: Number of Shares Exercisable
--------------- ----------------------------
June 6, 2000 160,000
March 6, 2001 160,000
March 6, 2002 160,000
March 6, 2003 160,000
March 6, 2004 160,000
(b) Notwithstanding anything to the contrary contained herein, Grantee
may purchase all or any portion of the unexercised balance of this Option
immediately prior to, or upon, the effective date of a Change of Control (as
defined in the following sentence). A "Change of Control" of the Company shall
mean any transaction or series of related transactions that results in a change
in the control of the Company, including, without limitation:
(i) a merger or consolidation of the Company into or with any
other entity when the Company is not the surviving entity of such merger or
consolidation;
(ii) the acquisition, directly or indirectly, by any individual,
entity or "group" (as defined in Section 13(d) of the Securities and Exchange
Act of 1934, as amended) (other than the Company, any subsidiary thereof, any
employee benefit plan of the Company, or any entity holding shares or other
securities of the Company for or pursuant to the terms of such a plan) (an
"Acquirer"), of stock or options, or any combination thereof, entitling the
Acquirer to cast 50% or more of all votes (without consideration of the rights
of any class of stock to elect directors by a separate class vote) entitled to
be cast by all stockholders of the Company in an election of the Board of
Directors of the Company;
(iii) the acquisition, directly or indirectly, by an Acquirer of
a majority of the total equity interest of the Company;
(iv) the sale or other disposition of assets of the Company equal
to 33.33% or more of the value of the Company's assets at the time of such sale
or disposition, unless the stockholders of the Company, immediately prior to
such sale or disposition, hold at least a majority of the voting power of each
surviving, resulting or acquiring corporation which, immediately following the
transaction, holds any of such sold or disposed assets;
(v) the election to the Board of Directors of the Company of
individuals who would constitute a majority of the members of the Board elected
at any meeting of stockholders or by written consent (without consideration of
the rights of any class of stock to elect directors by a separate class vote),
where the election or the nomination for election by the Company's stockholders
of such directors was not approved by a vote of at least a majority of the
directors in office immediately prior to such election or nomination; or
2
<PAGE>
(vi) the formation of a joint venture or partnership with the
Company for the purpose of effecting a transfer of control of, or a material
interest in, the Company (such merger, consolidation, sale or other transaction
listed in subparagraphs (i) through (vi) being hereinafter referred to as a
"Transaction").
There shall be excluded from the foregoing any Transaction as a result of
which (A) the holders of Common Stock prior to the Transaction retain or acquire
securities constituting a majority of the outstanding voting common stock of the
acquiring or surviving corporation or other entity in substantially the same
proportions that they owned Common Stock in the Company prior to the
Transaction, and (B) no single person or entity owns more than half of the
outstanding voting common stock of the acquiring or surviving corporation or
other entity. For purposes of this Paragraph 4, voting common stock of the
acquiring or surviving corporation or other entity that is issuable upon
conversion of convertible securities or upon exercise of warrants or options
shall be considered outstanding, and all securities that vote in the election of
directors (other than solely as the result of a default in the making of any
dividend or other payment) shall be deemed to constitute that number of shares
of voting common stock which is equivalent to the number of such votes that may
be cast by the holders of such securities.
5. Manner of Exercise. Exercise of the Option, or any portion thereof,
shall be by written notice to the Company pursuant to Paragraph 12 hereof. The
notice shall be accompanied by payment in full in cash, stock of the Company, or
other property (including notes or other contractual obligations of Grantee to
make payment on a deferred basis, and/or through "cashless exercise
arrangements," to the extent permitted by applicable law), or a combination
thereof, in an amount equal to the product obtained by multiplying the number of
Option Shares with respect to which the Option is then being exercised by the
Option Price. Upon receipt of such notice and payment, the Company shall, as
soon as practicable thereafter, deliver a certificate or certificates
representing the Option Shares purchased. The certificate or certificates shall
be delivered to or upon the written order of the Grantee. Upon such exercise and
regardless of the fact that a certificate or certificates representing the
Option Shares purchased shall not yet have been issued, Grantee or his legal
representative, legatees or distributees, as the case may be, shall be deemed to
be a holder of any shares subject to this Option, provided that the written
notice and payment required by this Paragraph 5 have been delivered to Company.
The Option Shares that shall be purchased upon the exercise of the Option as
provided herein shall be fully paid and non-assessable.
6. Rights in Event of Death, Disability or Termination of Employment.
(a) DEATH. If Grantee's employment is terminated because of death
while employed by the Company, then the installment of Options that would have
been the next to vest at the time of such termination shall automatically vest
as of the date immediately prior to such termination (without any action on the
part of the Company or the Grantee). After such a termination, Grantee's estate
or legal representatives shall have through the Option Expiration Date to
exercise any vested but unexercised Options. Subject to the first sentence of
this paragraph (a), any Options that remain unvested at the time of termination
shall automatically terminate and be cancelled (without any action on the part
of the Company).
(b) DISABILITY. If Grantee is terminated from his employment with the
Company by reason of disability in accordance with the Employment Agreement,
then the installment of Options that would have been the next to vest at the
3
<PAGE>
time of such termination shall automatically vest as of the date immediately
prior to such termination (without any action on the part of the Company or the
Grantee). After such a termination, Grantee shall have through the Option
Expiration Date to exercise any vested but unexercised Options. Subject to the
first sentence of this paragraph (b), any Options that remain unvested at the
time of termination shall automatically terminate and be cancelled (without any
action on the part of the Company).
(c) CAUSE OR RESIGNATION. If Grantee is terminated from his employment
with the Company for Cause (as defined in the Employment Agreement) in
accordance with the Employment Agreement or voluntarily leaves the employ of the
Company other than for Good Reason (as defined in the Employment Agreement)
prior to expiration of the Employment Agreement, then all unvested Options shall
automatically terminate and be cancelled (without any action on the part of the
Company) on the effective date of termination. In addition, Grantee shall have
the opportunity on the date of such termination for Cause or Grantee's
voluntarily leaving the employ of the Company to exercise all vested but
unexercised Options. All vested Options not exercised on such date shall
thereafter automatically expire (without any action on the part of the Company).
(d) WITHOUT CAUSE. If Grantee is terminated from his employment
without Cause or terminates his employment with Company for Good Reason (as
defined in the Employment Agreement) in accordance with the Employment
Agreement, then the installment of Options that would have been the next to vest
at the time of such termination shall automatically vest as of the date
immediately prior to such termination (without any action on the part of the
Company or the Grantee). After such a termination, Grantee shall have through
the Option Expiration Date to exercise any vested but unexercised Options.
Subject to the first sentence of this subparagraph (d), any Options that remain
unvested at the time of termination shall automatically terminate and be
cancelled (without any action on the part of the Company).
7. Option Shares to be Purchased for Investment. Unless Company has
notified Grantee pursuant to Paragraph 12 hereof that a registration statement
covering the Option Shares has become effective under the Securities Act of
1933, as amended (the "Act"), it shall be a condition to the exercise of the
Option that the Option Shares acquired upon such exercise be acquired for
investment and not with a view to distribution. If requested by the Company upon
advice of its counsel that the same is necessary or desirable, the Grantee
shall, at the time of purchase of the Option Shares, deliver to the Company
Grantee's written representation that Grantee (a) is purchasing the Option
Shares for his own account for investment, and not with a view to public
distribution or with any present intention of reselling any of the Option Shares
(other than a distribution or resale which, in the opinion of counsel
satisfactory to the Company, may be made without violating the registration
provisions of the Act); (b) has been advised and understands that (i) the Option
Shares have not been registered under the Act and are subject to restrictions on
transfer and (ii) the Company is under no obligation to register the Option
Shares under the Act or to take any action which would make available to the
Grantee any exemption from such registration except as may be provided in the
Registration Rights Agreement of even date herewith between the Company and
certain shareholders, including the Grantee; and (c) has been advised and
understands that such Option Shares may not be transferred without compliance
with all applicable federal and state securities laws.
4
<PAGE>
8. Changes in Capital Structure. The number of Option Shares covered by this
Option and the Option Price shall automatically (without any action on the part
of the Company) be equitably adjusted in the event (the "Event") of (i) the
payment of any dividend payable in, or the making of any distribution of, Common
Stock to holders of record of Common Stock, which increases the outstanding
Common Stock; (ii) any stock split, combination of shares, recapitalization or
other similar change; (iii) the merger or consolidation of the Company into or
with any other entity; or (iv) the reorganization, dissolution, liquidation or
winding up of the Company. Grantee shall be entitled, upon the exercise of the
Option, to receive such new, additional or other shares of stock of any class,
or other property (including, without limitation, cash and/or securities of any
successor entity), as Grantee would have been entitled to receive as a matter of
law in connection with such Event had Grantee held the Option Shares on the
record date set for such Event. The Company shall have the authority to
reasonably determine the adjustments to be made under this Paragraph 8 and any
such reasonable determination shall be final, binding and conclusive.
9. Legal Requirements. If the listing, registration or qualification of the
Option Shares upon any securities exchange or under any federal or state law, or
the consent or approval of any governmental regulatory body is necessary as a
condition of or in connection with the purchase of the Option Shares, the
Company shall not be obligated to issue or deliver the certificates representing
the Option Shares as to which the Option has been exercised unless and until
such listing, registration, qualification, consent or approval shall have been
effected or obtained. This Option does not hereby impose on the Company a duty
to so list, register, qualify, or effect or obtain consent or approval. If
registration is considered unnecessary by the Company or its counsel, the
Company may cause a legend to be placed on the certificates for the Option
Shares being issued calling attention to the fact that they have been acquired
for investment and have not been registered, such legend to read as follows:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
ANY STATE SECURITIES LAWS, AND MAY NOT BE OFFERED FOR SALE,
SOLD OR OTHERWISE TRANSFERRED UNLESS THERE IS A REGISTRATION
STATEMENT IN EFFECT COVERING SUCH SECURITIES OR THERE IS
AVAILABLE AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF
THE SECURITIES ACT OF 1933, AS AMENDED, AND APPLICABLE STATE
SECURITIES LAWS."
10. No Obligation to Exercise Option. The Grantee shall be under no
obligation to exercise the Option.
11. Transfer. The Option is not transferable by Grantee other than by will
or by the laws of descent and distribution in the event of the Grantee's death,
in which event the Option may be exercised by the heirs or legal representatives
of the Grantee as provided herein. The Option may be exercised during the
lifetime of the Grantee only by the Grantee. Any attempt at assignment,
transfer, pledge or disposition of the Option contrary to the provisions hereof
5
<PAGE>
or the levy of any execution, attachment or similar process upon the Option
shall be null and void and without effect. Any exercise of the Option by a
person other than the Grantee shall be accompanied by appropriate proofs of the
right of such person to exercise the Option.
12. Notices. All notices required or permitted hereunder shall be in
writing and shall be deemed to be properly given when personally delivered to
the party entitled to receive the notice or when sent by certified or registered
mail, postage prepaid, properly addressed to the party entitled to receive such
notice at the address stated below; or when sent via facsimile transmission with
confirmation of transmission or via electronic mail, provided that in both of
the foregoing situations a copy of the notice so transmitted is sent to the
party entitled to receive such notice via first-class mail, postage prepaid at
the address stated below:
If to Company: The Network Connection, Inc.
1811 Chestnut Street, Suite 120
Philadelphia, PA 19103
Attention: Chairman and Chief Executive Officer
Facsimile: (215) 972-8183
E-mail: [email protected]
If to Grantee: Robert Pringle
--------------------------------------
--------------------------------------
--------------------------------------
Either party hereto may change such party's address, facsimile number or
e-mail address by sending notice thereof to the other party by any of the
methods set out above, provided that such change shall not be deemed effective
as against the party to whom it is sent until the notice containing such change
is actually received by such party.
13. Administration. This Option has been granted pursuant to the Employment
Agreement and is subject to the terms and provisions thereof. All questions of
interpretation and application of this Option shall be determined by the
Company, and such determination shall be final, binding and conclusive.
14. Not an Employment or Service Contract. Nothing in this Option shall be
construed as an agreement by the Company, express or implied, to employ Grantee
or contract for Grantee's services, to restrict the right of the Company to
discharge Grantee or cease contracting for Grantee's services or to modify,
extend or otherwise affect in any manner whatsoever, the terms of any employment
agreement or contract for services which may exist between the Grantee and the
Company.
15. Successors and Assigns. This Agreement shall be binding upon and inure
to the benefit of the parties hereto and their respective successors and
assigns.
16. Governing Law. This Agreement shall be governed by and construed under
the laws of the State of Delaware without regard to conflicts of laws
principles.
6
<PAGE>
17. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
18. Amendment. This Agreement may not be amended except by an instrument in
writing signed by the parties.
7
<PAGE>
IN WITNESS WHEREOF, the undersigned have hereunto set their hands as of the
date first above written.
THE NETWORK CONNECTION, INC.
By: /s/ Irwin L. Gross
------------------------------------
Irwin L. Gross
Chairman and Chief Executive Officer
/s/ Robert Pringle
------------------------------------
Robert Pringle
8
STOCK OPTION GRANT AGREEMENT
The stock option represented by this STOCK OPTION GRANT AGREEMENT is
granted as of the 6th day of March 2000, by The Network Connection, Inc., a
Georgia corporation (the "Company"), to Jay Rosan ("Grantee").
BACKGROUND
A. Grantee is Executive Vice President of Company.
B. Pursuant to the terms of an employment agreement entered into between
the Company and Grantee of even date herewith (the "Employment Agreement"), and
in order to induce Grantee to enter into the Employment Agreement, incentivize
Grantee with respect to the future success of the Company and to encourage him
to perform at increasing levels of effectiveness and use his best efforts to
promote the growth and profitability of the Company, and in consideration of
services to be performed, Company desires to afford Grantee an opportunity to
purchase shares of its common stock, par value $0.001 per share ("Common
Stock"), as hereinafter provided.
C. Any capitalized terms used but not defined herein shall have the
meanings attributed thereto in the Employment Agreement.
NOW, THEREFORE, in consideration of the mutual covenants hereinafter set
forth and for other good and valuable consideration the receipt and adequacy of
which are hereby acknowledged, the parties hereto, intending to be legally
bound, agree as follows:
1. Grant of Option. In order to incentivize Grantee with respect to the
future success of the Company and to encourage him to perform at increasing
levels of effectiveness and use his best efforts to promote the growth and
profitability of the Company, the Company hereby irrevocably grants to Grantee
the right and option to purchase (the "Option") all or any part of an aggregate
of Eight Hundred Thousand (800,000) shares of Common Stock (the "Option Shares")
at a price per share equal to $9.00, which is the last sale price for shares of
Common Stock on the day prior to the day hereof as reported by Nasdaq (the
"Option Price"), during the Option Period (as defined below) and subject to the
conditions hereinafter set forth.
2. Option Period. The Option may be exercised in accordance with the
provisions of Paragraphs 4 and 5 hereof during the Option Period, which shall
begin on the date hereof and shall end on the Option Expiration Date defined in
Paragraph 3 hereof. All rights to exercise the Option shall terminate on the
Option Expiration Date.
3. Option Expiration Date. The Option Expiration Date shall be March 6,
2010.
4. Exercise of Option.
(a) The Option shall vest, and shall be exercisable as set forth in
the following table, provided that any portion of this Option which becomes
exercisable in any year, but is not exercised in such year, may be carried
<PAGE>
forward and exercised in any future year until the Option Expiration Date,
subject to earlier termination as provided in Paragraph 6 hereof:
From and after: Number of Shares Exercisable
--------------- ----------------------------
June 6, 2000 160,000
March 6, 2001 160,000
March 6, 2002 160,000
March 6, 2003 160,000
March 6, 2004 160,000
(b) Notwithstanding anything to the contrary contained herein, Grantee
may purchase all or any portion of the unexercised balance of this Option
immediately prior to, or upon, the effective date of a Change of Control (as
defined in the following sentence). A "Change of Control" of the Company shall
mean any transaction or series of related transactions that results in a change
in the control of the Company, including, without limitation:
(i) a merger or consolidation of the Company into or with any
other entity when the Company is not the surviving entity of such merger or
consolidation;
(ii) the acquisition, directly or indirectly, by any individual,
entity or "group" (as defined in Section 13(d) of the Securities and Exchange
Act of 1934, as amended) (other than the Company, any subsidiary thereof, any
employee benefit plan of the Company, or any entity holding shares or other
securities of the Company for or pursuant to the terms of such a plan) (an
"Acquirer"), of stock or options, or any combination thereof, entitling the
Acquirer to cast 50% or more of all votes (without consideration of the rights
of any class of stock to elect directors by a separate class vote) entitled to
be cast by all stockholders of the Company in an election of the Board of
Directors of the Company;
(iii) the acquisition, directly or indirectly, by an Acquirer of
a majority of the total equity interest of the Company;
(iv) the sale or other disposition of assets of the Company equal
to 33.33% or more of the value of the Company's assets at the time of such sale
or disposition, unless the stockholders of the Company, immediately prior to
such sale or disposition, hold at least a majority of the voting power of each
surviving, resulting or acquiring corporation which, immediately following the
transaction, holds any of such sold or disposed assets;
(v) the election to the Board of Directors of the Company of
individuals who would constitute a majority of the members of the Board elected
at any meeting of stockholders or by written consent (without consideration of
the rights of any class of stock to elect directors by a separate class vote),
where the election or the nomination for election by the Company's stockholders
of such directors was not approved by a vote of at least a majority of the
directors in office immediately prior to such election or nomination; or
2
<PAGE>
(vi) the formation of a joint venture or partnership with the
Company for the purpose of effecting a transfer of control of, or a material
interest in, the Company (such merger, consolidation, sale or other transaction
listed in subparagraphs (i) through (vi) being hereinafter referred to as a
"Transaction").
There shall be excluded from the foregoing any Transaction as a result of
which (A) the holders of Common Stock prior to the Transaction retain or acquire
securities constituting a majority of the outstanding voting common stock of the
acquiring or surviving corporation or other entity in substantially the same
proportions that they owned Common Stock in the Company prior to the
Transaction, and (B) no single person or entity owns more than half of the
outstanding voting common stock of the acquiring or surviving corporation or
other entity. For purposes of this Paragraph 4, voting common stock of the
acquiring or surviving corporation or other entity that is issuable upon
conversion of convertible securities or upon exercise of warrants or options
shall be considered outstanding, and all securities that vote in the election of
directors (other than solely as the result of a default in the making of any
dividend or other payment) shall be deemed to constitute that number of shares
of voting common stock which is equivalent to the number of such votes that may
be cast by the holders of such securities.
5. Manner of Exercise. Exercise of the Option, or any portion thereof,
shall be by written notice to the Company pursuant to Paragraph 12 hereof. The
notice shall be accompanied by payment in full in cash, stock of the Company, or
other property (including notes or other contractual obligations of Grantee to
make payment on a deferred basis, and/or through "cashless exercise
arrangements," to the extent permitted by applicable law), or a combination
thereof, in an amount equal to the product obtained by multiplying the number of
Option Shares with respect to which the Option is then being exercised by the
Option Price. Upon receipt of such notice and payment, the Company shall, as
soon as practicable thereafter, deliver a certificate or certificates
representing the Option Shares purchased. The certificate or certificates shall
be delivered to or upon the written order of the Grantee. Upon such exercise and
regardless of the fact that a certificate or certificates representing the
Option Shares purchased shall not yet have been issued, Grantee or his legal
representative, legatees or distributees, as the case may be, shall be deemed to
be a holder of any shares subject to this Option, provided that the written
notice and payment required by this Paragraph 5 have been delivered to Company.
The Option Shares that shall be purchased upon the exercise of the Option as
provided herein shall be fully paid and non-assessable.
6. Rights in Event of Death, Disability or Termination of Employment.
(a) DEATH. If Grantee's employment is terminated because of death
while employed by the Company, then the installment of Options that would have
been the next to vest at the time of such termination shall automatically vest
as of the date immediately prior to such termination (without any action on the
part of the Company or the Grantee). After such a termination, Grantee's estate
or legal representatives shall have through the Option Expiration Date to
exercise any vested but unexercised Options. Subject to the first sentence of
this paragraph (a), any Options that remain unvested at the time of termination
shall automatically terminate and be cancelled (without any action on the part
of the Company).
(b) DISABILITY. If Grantee is terminated from his employment with the
Company by reason of disability in accordance with the Employment Agreement,
then the installment of Options that would have been the next to vest at the
3
<PAGE>
time of such termination shall automatically vest as of the date immediately
prior to such termination (without any action on the part of the Company or the
Grantee). After such a termination, Grantee shall have through the Option
Expiration Date to exercise any vested but unexercised Options. Subject to the
first sentence of this paragraph (b), any Options that remain unvested at the
time of termination shall automatically terminate and be cancelled (without any
action on the part of the Company).
(c) CAUSE OR RESIGNATION. If Grantee is terminated from his employment
with the Company for Cause (as defined in the Employment Agreement) in
accordance with the Employment Agreement or voluntarily leaves the employ of the
Company other than for Good Reason (as defined in the Employment Agreement)
prior to expiration of the Employment Agreement, then all unvested Options shall
automatically terminate and be cancelled (without any action on the part of the
Company) on the effective date of termination. In addition, Grantee shall have
the opportunity on the date of such termination for Cause or Grantee's
voluntarily leaving the employ of the Company to exercise all vested but
unexercised Options. All vested Options not exercised on such date shall
thereafter automatically expire (without any action on the part of the Company).
(d) WITHOUT CAUSE. If Grantee is terminated from his employment
without Cause or terminates his employment with Company for Good Reason (as
defined in the Employment Agreement) in accordance with the Employment
Agreement, then the installment of Options that would have been the next to vest
at the time of such termination shall automatically vest as of the date
immediately prior to such termination (without any action on the part of the
Company or the Grantee). After such a termination, Grantee shall have through
the Option Expiration Date to exercise any vested but unexercised Options.
Subject to the first sentence of this subparagraph (d), any Options that remain
unvested at the time of termination shall automatically terminate and be
cancelled (without any action on the part of the Company).
7. Option Shares to be Purchased for Investment. Unless Company has
notified Grantee pursuant to Paragraph 12 hereof that a registration statement
covering the Option Shares has become effective under the Securities Act of
1933, as amended (the "Act"), it shall be a condition to the exercise of the
Option that the Option Shares acquired upon such exercise be acquired for
investment and not with a view to distribution. If requested by the Company upon
advice of its counsel that the same is necessary or desirable, the Grantee
shall, at the time of purchase of the Option Shares, deliver to the Company
Grantee's written representation that Grantee (a) is purchasing the Option
Shares for his own account for investment, and not with a view to public
distribution or with any present intention of reselling any of the Option Shares
(other than a distribution or resale which, in the opinion of counsel
satisfactory to the Company, may be made without violating the registration
provisions of the Act); (b) has been advised and understands that (i) the Option
Shares have not been registered under the Act and are subject to restrictions on
transfer and (ii) the Company is under no obligation to register the Option
Shares under the Act or to take any action which would make available to the
Grantee any exemption from such registration except as may be provided in the
Registration Rights Agreement of even date herewith between the Company and
certain shareholders, including the Grantee; and (c) has been advised and
understands that such Option Shares may not be transferred without compliance
with all applicable federal and state securities laws.
4
<PAGE>
8. Changes in Capital Structure. The number of Option Shares covered by
this Option and the Option Price shall automatically (without any action on the
part of the Company) be equitably adjusted in the event (the "Event") of (i) the
payment of any dividend payable in, or the making of any distribution of, Common
Stock to holders of record of Common Stock, which increases the outstanding
Common Stock; (ii) any stock split, combination of shares, recapitalization or
other similar change; (iii) the merger or consolidation of the Company into or
with any other entity; or (iv) the reorganization, dissolution, liquidation or
winding up of the Company. Grantee shall be entitled, upon the exercise of the
Option, to receive such new, additional or other shares of stock of any class,
or other property (including, without limitation, cash and/or securities of any
successor entity), as Grantee would have been entitled to receive as a matter of
law in connection with such Event had Grantee held the Option Shares on the
record date set for such Event. The Company shall have the authority to
reasonably determine the adjustments to be made under this Paragraph 8 and any
such reasonable determination shall be final, binding and conclusive.
9.Legal Requirements. If the listing, registration or qualification of the
Option Shares upon any securities exchange or under any federal or state law, or
the consent or approval of any governmental regulatory body is necessary as a
condition of or in connection with the purchase of the Option Shares, the
Company shall not be obligated to issue or deliver the certificates representing
the Option Shares as to which the Option has been exercised unless and until
such listing, registration, qualification, consent or approval shall have been
effected or obtained. This Option does not hereby impose on the Company a duty
to so list, register, qualify, or effect or obtain consent or approval. If
registration is considered unnecessary by the Company or its counsel, the
Company may cause a legend to be placed on the certificates for the Option
Shares being issued calling attention to the fact that they have been acquired
for investment and have not been registered, such legend to read as follows:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
ANY STATE SECURITIES LAWS, AND MAY NOT BE OFFERED FOR SALE,
SOLD OR OTHERWISE TRANSFERRED UNLESS THERE IS A REGISTRATION
STATEMENT IN EFFECT COVERING SUCH SECURITIES OR THERE IS
AVAILABLE AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF
THE SECURITIES ACT OF 1933, AS AMENDED, AND APPLICABLE STATE
SECURITIES LAWS."
10. No Obligation to Exercise Option. The Grantee shall be under no
obligation to exercise the Option.
11. Transfer. The Option is not transferable by Grantee other than by will
or by the laws of descent and distribution in the event of the Grantee's death,
in which event the Option may be exercised by the heirs or legal representatives
of the Grantee as provided herein. The Option may be exercised during the
lifetime of the Grantee only by the Grantee. Any attempt at assignment,
transfer, pledge or disposition of the Option contrary to the provisions hereof
5
<PAGE>
or the levy of any execution, attachment or similar process upon the Option
shall be null and void and without effect. Any exercise of the Option by a
person other than the Grantee shall be accompanied by appropriate proofs of the
right of such person to exercise the Option.
12. Notices. All notices required or permitted hereunder shall be in
writing and shall be deemed to be properly given when personally delivered to
the party entitled to receive the notice or when sent by certified or registered
mail, postage prepaid, properly addressed to the party entitled to receive such
notice at the address stated below; or when sent via facsimile transmission with
confirmation of transmission or via electronic mail, provided that in both of
the foregoing situations a copy of the notice so transmitted is sent to the
party entitled to receive such notice via first-class mail, postage prepaid at
the address stated below:
If to Company: The Network Connection, Inc.
1811 Chestnut Street, Suite 120
Philadelphia, PA 19103
Attention: Chairman and Chief Executive Officer
Facsimile: (215) 972-8183
E-mail: [email protected]
If to Grantee: Jay Rosan
-------------------------------------
-------------------------------------
-------------------------------------
Either party hereto may change such party's address, facsimile number or
e-mail address by sending notice thereof to the other party by any of the
methods set out above, provided that such change shall not be deemed effective
as against the party to whom it is sent until the notice containing such change
is actually received by such party.
13. Administration. This Option has been granted pursuant to the Employment
Agreement and is subject to the terms and provisions thereof. All questions of
interpretation and application of this Option shall be determined by the
Company, and such determination shall be final, binding and conclusive.
14. Not an Employment or Service Contract. Nothing in this Option shall be
construed as an agreement by the Company, express or implied, to employ Grantee
or contract for Grantee's services, to restrict the right of the Company to
discharge Grantee or cease contracting for Grantee's services or to modify,
extend or otherwise affect in any manner whatsoever, the terms of any employment
agreement or contract for services which may exist between the Grantee and the
Company.
15. Successors and Assigns. This Agreement shall be binding upon and inure
to the benefit of the parties hereto and their respective successors and
assigns.
6
<PAGE>
16. Governing Law. This Agreement shall be governed by and construed under
the laws of the State of Delaware without regard to conflicts of laws
principles.
17. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
18. Amendment. This Agreement may not be amended except by an instrument in
writing signed by the parties.
7
<PAGE>
IN WITNESS WHEREOF, the undersigned have hereunto set their hands as of the
date first above written.
THE NETWORK CONNECTION, INC.
By: /s/ Irwin L. Gross
------------------------------------
Irwin L. Gross
Chairman and Chief Executive Officer
/s/ Jay Rosan
------------------------------------
Jay Rosan
8
STOCK OPTION GRANT AGREEMENT
The stock option represented by this STOCK OPTION GRANT AGREEMENT is
granted as of the 6th day of March 2000, by The Network Connection, Inc., a
Georgia corporation (the "Company"), to Richard Genzer ("Grantee").
BACKGROUND
A. Grantee is Chief Technology Officer of Company.
B. Pursuant to the terms of an employment agreement entered into between
the Company and Grantee of even date herewith (the "Employment Agreement"), and
in order to induce Grantee to enter into the Employment Agreement, incentivize
Grantee with respect to the future success of the Company and to encourage him
to perform at increasing levels of effectiveness and use his best efforts to
promote the growth and profitability of the Company, and in consideration of
services to be performed, Company desires to afford Grantee an opportunity to
purchase shares of its common stock, par value $0.001 per share ("Common
Stock"), as hereinafter provided.
C. Any capitalized terms used but not defined herein shall have the
meanings attributed thereto in the Employment Agreement.
NOW, THEREFORE, in consideration of the mutual covenants hereinafter set
forth and for other good and valuable consideration the receipt and adequacy of
which are hereby acknowledged, the parties hereto, intending to be legally
bound, agree as follows:
1. Grant of Option. In order to incentivize Grantee with respect to the
future success of the Company and to encourage him to perform at increasing
levels of effectiveness and use his best efforts to promote the growth and
profitability of the Company, the Company hereby irrevocably grants to Grantee
the right and option to purchase (the "Option") all or any part of an aggregate
of Two Hundred Fifty Thousand (250,000) shares of Common Stock (the "Option
Shares") at a price per share equal to $9.00, which is the last sale price for
shares of Common Stock on the day prior to the day hereof as reported by Nasdaq
(the "Option Price"), during the Option Period (as defined below) and subject to
the conditions hereinafter set forth.
2. Option Period. The Option may be exercised in accordance with the
provisions of Paragraphs 4 and 5 hereof during the Option Period, which shall
begin on the date hereof and shall end on the Option Expiration Date defined in
Paragraph 3 hereof. All rights to exercise the Option shall terminate on the
Option Expiration Date.
3. Option Expiration Date. The Option Expiration Date shall be March 6,
2010.
4. Exercise of Option.
(a) The Option shall vest, and shall be exercisable as set forth in
the following table, provided that any portion of this Option which becomes
exercisable in any year, but is not exercised in such year, may be carried
<PAGE>
forward and exercised in any future year until the Option Expiration Date,
subject to earlier termination as provided in Paragraph 6 hereof:
From and after: Number of Shares Exercisable
--------------- ----------------------------
June 6, 2000 50,000
March 6, 2001 50,000
March 6, 2002 50,000
March 6, 2003 50,000
March 6, 2004 50,000
(b) Notwithstanding anything to the contrary contained herein, Grantee
may purchase all or any portion of the unexercised balance of this Option
immediately prior to, or upon, the effective date of a Change of Control (as
defined in the following sentence). A "Change of Control" of the Company shall
mean any transaction or series of related transactions that results in a change
in the control of the Company, including, without limitation:
(i) a merger or consolidation of the Company into or with any
other entity when the Company is not the surviving entity of such merger or
consolidation;
(ii) the acquisition, directly or indirectly, by any individual,
entity or "group" (as defined in Section 13(d) of the Securities and Exchange
Act of 1934, as amended) (other than the Company, any subsidiary thereof, any
employee benefit plan of the Company, or any entity holding shares or other
securities of the Company for or pursuant to the terms of such a plan) (an
"Acquirer"), of stock or options, or any combination thereof, entitling the
Acquirer to cast 50% or more of all votes (without consideration of the rights
of any class of stock to elect directors by a separate class vote) entitled to
be cast by all stockholders of the Company in an election of the Board of
Directors of the Company;
(iii) the acquisition, directly or indirectly, by an Acquirer of
a majority of the total equity interest of the Company;
(iv) the sale or other disposition of assets of the Company equal
to 33.33% or more of the value of the Company's assets at the time of such sale
or disposition, unless the stockholders of the Company, immediately prior to
such sale or disposition, hold at least a majority of the voting power of each
surviving, resulting or acquiring corporation which, immediately following the
transaction, holds any of such sold or disposed assets;
(v) the election to the Board of Directors of the Company of
individuals who would constitute a majority of the members of the Board elected
at any meeting of stockholders or by written consent (without consideration of
the rights of any class of stock to elect directors by a separate class vote),
where the election or the nomination for election by the Company's stockholders
of such directors was not approved by a vote of at least a majority of the
directors in office immediately prior to such election or nomination; or
2
<PAGE>
(vi) the formation of a joint venture or partnership with the
Company for the purpose of effecting a transfer of control of, or a material
interest in, the Company (such merger, consolidation, sale or other transaction
listed in subparagraphs (i) through (vi) being hereinafter referred to as a
"Transaction").
There shall be excluded from the foregoing any Transaction as a result of
which (A) the holders of Common Stock prior to the Transaction retain or acquire
securities constituting a majority of the outstanding voting common stock of the
acquiring or surviving corporation or other entity in substantially the same
proportions that they owned Common Stock in the Company prior to the
Transaction, and (B) no single person or entity owns more than half of the
outstanding voting common stock of the acquiring or surviving corporation or
other entity. For purposes of this Paragraph 4, voting common stock of the
acquiring or surviving corporation or other entity that is issuable upon
conversion of convertible securities or upon exercise of warrants or options
shall be considered outstanding, and all securities that vote in the election of
directors (other than solely as the result of a default in the making of any
dividend or other payment) shall be deemed to constitute that number of shares
of voting common stock which is equivalent to the number of such votes that may
be cast by the holders of such securities.
5. Manner of Exercise. Exercise of the Option, or any portion thereof,
shall be by written notice to the Company pursuant to Paragraph 12 hereof. The
notice shall be accompanied by payment in full in cash, stock of the Company, or
other property (including notes or other contractual obligations of Grantee to
make payment on a deferred basis, and/or through "cashless exercise
arrangements," to the extent permitted by applicable law), or a combination
thereof, in an amount equal to the product obtained by multiplying the number of
Option Shares with respect to which the Option is then being exercised by the
Option Price. Upon receipt of such notice and payment, the Company shall, as
soon as practicable thereafter, deliver a certificate or certificates
representing the Option Shares purchased. The certificate or certificates shall
be delivered to or upon the written order of the Grantee. Upon such exercise and
regardless of the fact that a certificate or certificates representing the
Option Shares purchased shall not yet have been issued, Grantee or his legal
representative, legatees or distributees, as the case may be, shall be deemed to
be a holder of any shares subject to this Option, provided that the written
notice and payment required by this Paragraph 5 have been delivered to Company.
The Option Shares that shall be purchased upon the exercise of the Option as
provided herein shall be fully paid and non-assessable.
6. Rights in Event of Death, Disability or Termination of Employment.
(a) DEATH. If Grantee's employment is terminated because of death
while employed by the Company, then the installment of Options that would have
been the next to vest at the time of such termination shall automatically vest
as of the date immediately prior to such termination (without any action on the
part of the Company or the Grantee). After such a termination, Grantee's estate
or legal representatives shall have through the Option Expiration Date to
exercise any vested but unexercised Options. Subject to the first sentence of
this paragraph (a), any Options that remain unvested at the time of termination
shall automatically terminate and be cancelled (without any action on the part
of the Company).
(b) DISABILITY. If Grantee is terminated from his employment with the
Company by reason of disability in accordance with the Employment Agreement,
then the installment of Options that would have been the next to vest at the
3
<PAGE>
time of such termination shall automatically vest as of the date immediately
prior to such termination (without any action on the part of the Company or the
Grantee). After such a termination, Grantee shall have through the Option
Expiration Date to exercise any vested but unexercised Options. Subject to the
first sentence of this paragraph (b), any Options that remain unvested at the
time of termination shall automatically terminate and be cancelled (without any
action on the part of the Company).
(c) CAUSE OR RESIGNATION. If Grantee is terminated from his employment
with the Company for Cause (as defined in the Employment Agreement) in
accordance with the Employment Agreement or voluntarily leaves the employ of the
Company other than for Good Reason (as defined in the Employment Agreement)
prior to expiration of the Employment Agreement, then all unvested Options shall
automatically terminate and be cancelled (without any action on the part of the
Company) on the effective date of termination. In addition, Grantee shall have
the opportunity on the date of such termination for Cause or Grantee's
voluntarily leaving the employ of the Company to exercise all vested but
unexercised Options. All vested Options not exercised on such date shall
thereafter automatically expire (without any action on the part of the Company).
(d) WITHOUT CAUSE. If Grantee is terminated from his employment
without Cause or terminates his employment with Company for Good Reason (as
defined in the Employment Agreement) in accordance with the Employment
Agreement, then the installment of Options that would have been the next to vest
at the time of such termination shall automatically vest as of the date
immediately prior to such termination (without any action on the part of the
Company or the Grantee). After such a termination, Grantee shall have through
the Option Expiration Date to exercise any vested but unexercised Options.
Subject to the first sentence of this subparagraph (d), any Options that remain
unvested at the time of termination shall automatically terminate and be
cancelled (without any action on the part of the Company).
7. Option Shares to be Purchased for Investment. Unless Company has
notified Grantee pursuant to Paragraph 12 hereof that a registration statement
covering the Option Shares has become effective under the Securities Act of
1933, as amended (the "Act"), it shall be a condition to the exercise of the
Option that the Option Shares acquired upon such exercise be acquired for
investment and not with a view to distribution. If requested by the Company upon
advice of its counsel that the same is necessary or desirable, the Grantee
shall, at the time of purchase of the Option Shares, deliver to the Company
Grantee's written representation that Grantee (a) is purchasing the Option
Shares for his own account for investment, and not with a view to public
distribution or with any present intention of reselling any of the Option Shares
(other than a distribution or resale which, in the opinion of counsel
satisfactory to the Company, may be made without violating the registration
provisions of the Act); (b) has been advised and understands that (i) the Option
Shares have not been registered under the Act and are subject to restrictions on
transfer and (ii) the Company is under no obligation to register the Option
Shares under the Act or to take any action which would make available to the
Grantee any exemption from such registration except as may be provided in the
Registration Rights Agreement of even date herewith between the Company and
certain shareholders, including the Grantee; and (c) has been advised and
understands that such Option Shares may not be transferred without compliance
with all applicable federal and state securities laws.
4
<PAGE>
8. Changes in Capital Structure. The number of Option Shares covered by
this Option and the Option Price shall automatically (without any action on the
part of the Company) be equitably adjusted in the event (the "Event") of (i) the
payment of any dividend payable in, or the making of any distribution of, Common
Stock to holders of record of Common Stock, which increases the outstanding
Common Stock; (ii) any stock split, combination of shares, recapitalization or
other similar change; (iii) the merger or consolidation of the Company into or
with any other entity; or (iv) the reorganization, dissolution, liquidation or
winding up of the Company. Grantee shall be entitled, upon the exercise of the
Option, to receive such new, additional or other shares of stock of any class,
or other property (including, without limitation, cash and/or securities of any
successor entity), as Grantee would have been entitled to receive as a matter of
law in connection with such Event had Grantee held the Option Shares on the
record date set for such Event. The Company shall have the authority to
reasonably determine the adjustments to be made under this Paragraph 8 and any
such reasonable determination shall be final, binding and conclusive.
9. Legal Requirements. If the listing, registration or qualification of the
Option Shares upon any securities exchange or under any federal or state law, or
the consent or approval of any governmental regulatory body is necessary as a
condition of or in connection with the purchase of the Option Shares, the
Company shall not be obligated to issue or deliver the certificates representing
the Option Shares as to which the Option has been exercised unless and until
such listing, registration, qualification, consent or approval shall have been
effected or obtained. This Option does not hereby impose on the Company a duty
to so list, register, qualify, or effect or obtain consent or approval. If
registration is considered unnecessary by the Company or its counsel, the
Company may cause a legend to be placed on the certificates for the Option
Shares being issued calling attention to the fact that they have been acquired
for investment and have not been registered, such legend to read as follows:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
ANY STATE SECURITIES LAWS, AND MAY NOT BE OFFERED FOR SALE,
SOLD OR OTHERWISE TRANSFERRED UNLESS THERE IS A REGISTRATION
STATEMENT IN EFFECT COVERING SUCH SECURITIES OR THERE IS
AVAILABLE AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF
THE SECURITIES ACT OF 1933, AS AMENDED, AND APPLICABLE STATE
SECURITIES LAWS."
10. No Obligation to Exercise Option. The Grantee shall be under no
obligation to exercise the Option.
11. Transfer. The Option is not transferable by Grantee other than by will
or by the laws of descent and distribution in the event of the Grantee's death,
in which event the Option may be exercised by the heirs or legal representatives
of the Grantee as provided herein. The Option may be exercised during the
lifetime of the Grantee only by the Grantee. Any attempt at assignment,
transfer, pledge or disposition of the Option contrary to the provisions hereof
5
<PAGE>
or the levy of any execution, attachment or similar process upon the Option
shall be null and void and without effect. Any exercise of the Option by a
person other than the Grantee shall be accompanied by appropriate proofs of the
right of such person to exercise the Option.
12. Notices. All notices required or permitted hereunder shall be in
writing and shall be deemed to be properly given when personally delivered to
the party entitled to receive the notice or when sent by certified or registered
mail, postage prepaid, properly addressed to the party entitled to receive such
notice at the address stated below; or when sent via facsimile transmission with
confirmation of transmission or via electronic mail, provided that in both of
the foregoing situations a copy of the notice so transmitted is sent to the
party entitled to receive such notice via first-class mail, postage prepaid at
the address stated below:
If to Company: The Network Connection, Inc.
1811 Chestnut Street, Suite 120
Philadelphia, PA 19103
Attention: Chairman and Chief Executive Officer
Facsimile: (215) 972-8183
E-mail: [email protected]
If to Grantee: Richard Genzer
-----------------------------------
-----------------------------------
-----------------------------------
Either party hereto may change such party's address, facsimile number or
e-mail address by sending notice thereof to the other party by any of the
methods set out above, provided that such change shall not be deemed effective
as against the party to whom it is sent until the notice containing such change
is actually received by such party.
13. Administration. This Option has been granted pursuant to the Employment
Agreement and is subject to the terms and provisions thereof. All questions of
interpretation and application of this Option shall be determined by the
Company, and such determination shall be final, binding and conclusive.
14. Not an Employment or Service Contract. Nothing in this Option shall be
construed as an agreement by the Company, express or implied, to employ Grantee
or contract for Grantee's services, to restrict the right of the Company to
discharge Grantee or cease contracting for Grantee's services or to modify,
extend or otherwise affect in any manner whatsoever, the terms of any employment
agreement or contract for services which may exist between the Grantee and the
Company.
15. Successors and Assigns. This Agreement shall be binding upon and inure
to the benefit of the parties hereto and their respective successors and
assigns.
7
<PAGE>
16. Governing Law. This Agreement shall be governed by and construed under
the laws of the State of Delaware without regard to conflicts of laws
principles.
17. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
18. Amendment. This Agreement may not be amended except by an instrument in
writing signed by the parties.
8
<PAGE>
IN WITNESS WHEREOF, the undersigned have hereunto set their hands as of
the date first above written.
THE NETWORK CONNECTION, INC.
By: /s/ Irwin L. Gross
------------------------------------
Irwin L. Gross
Chairman and Chief Executive Officer
/s/ Richard Genzer
------------------------------------
Richard Genzer
9
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT dated as of March 6, 2000 among The Network
Connection, Inc., a Georgia corporation (referred to as "Company"), and Robert
Pringle, Jay Rosan and Richard Genzer (each referred to as a "Shareholder," and
collectively, as "Shareholders").
BACKGROUND
Shareholders have purchased shares of Company's Common Stock, $0.001 par
value per share ("Shares"), pursuant to exercise of options granted pursuant to
Employment Agreements with each of the Shareholders dated as of March 6, 2000
and Stock Option Grant Agreements with each of the Shareholders of even date
with the Employment Agreements, and Company's obligations in this Agreement are
a part of the consideration to Shareholders under the Employment Agreements.
NOW, THEREFORE, in consideration of the premises and intending to be
legally bound, the parties hereto agree as follows:
Section 1. Definitions.
The following terms shall have the following meanings:
"ACT" means the Securities Act of 1933, as amended, and any successor
statute, and the rules and regulations promulgated thereunder.
"BUSINESS DAY" means a day on which the New York Stock Exchange is open for
business.
"INDEMNIFIED PERSONS" shall have the meaning given in Section 8 hereof.
"MAXIMUM AMOUNT" shall have the meaning given in Section 5 hereof.
"MINIMUM AMOUNT" means at least 375,000 Registerable Shares, such number to
be equitably adjusted in the event of a stock split, stock dividend, combination
or reclassification of Shares.
"NASDAQ" means the Nasdaq SmallCap Market of The Nasdaq Stock Market, Inc.
"PIGGYBACK REGISTRATION" shall mean registration under the Act pursuant to
Section 2 hereof.
"PIGGYBACK REQUEST" means a written request to Company pursuant to Section
2 hereof for the registration of Registerable Shares pursuant to the Act.
"PRIORITY" shall have the meaning given in Section 5 hereof.
"REGISTRATION EXPENSES" shall have the meaning given in Section 4 hereof.
"REGISTERABLE SHARES" means the 1,850,000 Shares of the Shareholders
covered by this Agreement, such number to be equitably adjusted in the event of
a stock split, stock dividend, combination or reclassification of Shares.
"SELLING EXPENSES" shall have the meaning given in Section 4 hereof.
"SHAREHOLDER" and "SHAREHOLDERS" shall have the meaning given in the
heading of this Agreement.
"SHARES" means Common Stock, $0.001 par value, of Company.
"SEC" means the Securities and Exchange Commission.
1
<PAGE>
Section 2. Piggyback Registration. If at any time after the date hereof,
Company proposes to register Shares under the Act for sale to the public by
Company or any other person (except as provided in Section 6 hereof), Company
shall, not less than twenty (20) days prior to the proposed date of filing of a
registration statement under the Act, give written notice to Shareholders of its
intention to do so. A Piggyback Request from any Shareholder shall state the
number of Registerable Shares to be registered and the intended plan of
distribution thereof. If the Company receives a Piggyback Request from a
Shareholder within ten (10) days after Company's notice under this Subsection 2,
Company, subject to the conditions and limitations of Section 3 hereof, will use
commercially reasonable efforts to cause the Registerable Shares covered by the
Piggyback Request to be so registered under the Act in the proposed registration
statement if the proposed registration statement becomes effective, but Company
shall have no obligation to cause, or use any efforts to cause, any such
registration statement to become effective. Registerable Shares covered by a
Piggyback Request shall be sold pursuant to the same plan of distribution that
applies to the majority of the other Shares covered by such registration
statement, except to the extent that Company otherwise agrees in writing. The
rights to Piggyback Registration granted by this Section 2 may be exercised on
no more than three occasions.
Section 3. Registration Procedures.
(a) If Company is effecting piggyback registration under the
provisions of Section 2 of any Registerable Shares, Company will as promptly as
practicable:
(i) Comply with Rule 424 under the Act relating to filing of
prospectuses and furnish to each seller and to each underwriter such number of
conformed copies of the registration statement and the prospectus included
therein (including each preliminary prospectus) as such persons reasonably may
request in order to facilitate the public sale of the Registerable Shares
covered by such registration statement.
(ii) If the offering is to be underwritten, Company and each
seller of Registerable Shares shall enter into a written agreement with any
managing underwriter selected in the manner herein provided in such form and
containing such provisions as are satisfactory to Company and such seller of
Registerable Shares (such satisfaction not to be withheld unreasonably), and as
are customary in the securities business for such an arrangement between such
underwriter, such seller and corporations of Company's size and investment
stature.
(iii) Give Shareholders two days' advance notice of its
anticipated filing date of the registration statement and amendments thereto.
(b) Notwithstanding the foregoing, Company may delay filing a
registration statement otherwise required to be filed pursuant to this
Agreement, and may withhold efforts to cause a registration statement covering
Registerable Shares to become effective for a period of up to ninety (90) days,
if Company determines in good faith that such registration statement might (1)
interfere with or affect the negotiation or completion of any transaction that
is being contemplated by Company (whether or not a final decision has been made
to undertake such transaction) at the time the right to delay is exercised, or
(2) involve initial or continuing disclosure obligations that might not be in
the best interest of Company's shareholders. If, after a registration statement
becomes effective, Company notifies Shareholders that Company considers it
appropriate for the registration statement to be amended or supplemented,
Shareholders shall suspend any further sales of Registerable Shares until
Company advises them that the registration statement has been amended or
supplemented. Company may give such advice if there exists at any time material
non-public information relating to Company that, in the reasonable opinion of
Company's Board of Directors, would be prejudicial to Company or its
shareholders if disclosed at that time. Company agrees with Shareholders that it
will use commercially reasonable efforts to amend or supplement the registration
statement, as required to permit sales of the Registerable Shares covered
thereby to resume within ninety (90) days after it has given the notice referred
to in the preceding sentence.
(c) In connection with each registration hereunder, each Shareholder
will (i) furnish promptly to Company in writing such information with respect to
himself and the proposed distribution by him as reasonably shall be requested by
Company in order to assure compliance with federal and applicable state
securities laws, and (ii) comply with all applicable rules promulgated by the
SEC or any securities exchange (including the Nasdaq SmallCap Market).
2
<PAGE>
Section 4. Expenses. All expenses incurred by Company in complying with
Sections 2 hereof, including without limitation all registration and filing
fees, printing expense, fees and disbursements of counsel and independent public
accountants for Company, fees and expenses (including counsel fees) incurred in
connection with complying with state securities or "blue sky" laws (other than
those which by law must be paid by the selling security holders), fees of
securities exchanges or the National Association of Securities Dealers, Inc.,
fees of transfer agents and registrars, but excluding any Selling Expenses, are
called "Registration Expenses." All underwriting discounts, selling commissions
and transfer taxes applicable to the sale of outstanding shares and any legal
fees and expenses of counsel or other advisers and agents of Shareholder are
called "Selling Expenses." Company will pay all Registration Expenses. All
Selling Expenses shall be borne by Shareholder.
Section 5. Marketing Arrangements
(a) If (i) a Shareholder requests registration of Registerable Shares,
(ii) the offering proposed to be made is to be an underwritten public offering,
and (iii) the managing underwriter of such public offering furnishes a written
opinion that the total amount of securities to be included in such offering
would exceed the maximum amount of securities (the "Maximum Amount") (as
specified in such opinion) which can be marketed at a price reasonably related
to the then current market value of such securities (or the anticipated market
price, if no trading market then exists) and without materially and adversely
affecting such offering or the trading market for Shares, then Company,
Shareholders and other holders of Shares desiring to register their Shares by
such registration shall have a right to participate in such offering in the
following order of priority (a "Priority") until the number of Shares included
in the offering reaches the Maximum Amount, and no additional Shares will be
included in the registration statement.
First Priority shall be to Company for Shares to be sold for the
account of Company.
Second Priority shall be to holders of Company securities who have a
contractual right granted to such holders prior to the date hereof to have
Shares registered pursuant to a registration statement initiated on their
request or demand (regardless of whether or not such holder or holders have
initiated the registration statement with respect to which Shareholders seek to
exercise their piggyback rights hereunder).
Third Priority shall be to holders of Shares who have a contractual
right granted to such holders on or prior to the date hereof to have their
Shares registered pursuant to piggyback or incidental rights on terms comparable
to Section 2 hereof (in a registration statement that such holders do not have a
right to initiate), including Shareholders who have Piggyback Rights under this
Agreement.
Fourth Priority shall be to all other holders of Shares in any
sequence that may be agreed upon among the holders of such Shares and/or
Company.
To the extent that some but not all of the Shares owned by persons
within any of the Priorities listed above are not included within the Maximum
Amount, the Shares to be included in the registration statement shall be
allocated pro rata to holders in such Priority in proportion to the respective
numbers of Shares each such person in such Priority wishes to include in the
registration statement.
(b) Company represents and warrants that it has not granted any
registration rights or entered into any agreements obligating it to register any
of its securities under the Act that are inconsistent with the foregoing
priorities.
(c) In connection with any underwritten public offering of Company's
equity securities, Shareholders agree that they will agree in writing to any
restrictions on the sale of Registerable Shares owned by them that are requested
by the managing underwriter, for a period not to exceed one hundred and thirty
(130) days commencing ten (10) days prior to the anticipated commencing date of
the underwritten public offering; provided, however, that such restrictions
shall not relate to Registerable Shares being registered, nor shall such
restrictions be imposed unless restrictions at least as burdensome are imposed
on each executive officer (as defined under the Securities Exchange Act of 1934)
or director of Company.
Section 6. Exceptions to Company's Obligations. The right to Piggyback
Registration shall not apply, unless Company otherwise agrees in writing, to any
registration statement:
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(a) To be filed on a registration form which is unavailable for the
registration of Registerable Shares;
(b) Relating primarily to Shares to be offered pursuant to (i) an
employee benefit plan, or (ii) a dividend or interest reinvestment plan
(including such a plan that has an open enrollment or cash investment feature);
(c) Relating to Shares to be issued in the acquisition of another
business, through a merger, consolidation, exchange of securities or otherwise;
(d) Relating to Company securities to be issued for a consideration
other than solely cash;
(e) Relating to Company securities to be offered primarily to existing
security holders of Company, through a "rights offering" or otherwise;
(f) Relating primarily to Company securities to be issued on the
exercise of options, warrants and similar rights, or on the conversion or
exchange of other securities, issued by the Company or any other person;
provided, however that this exception to a Shareholder's Piggyback Registration
rights will apply only in the case of a third-party financing transaction and
then only to the extent that the exception or restriction is imposed by the
third-party;
(g) Relating primarily to debt securities of Company, including debt
securities that are convertible or exchangeable for equity securities of
Company; or
(h) That may become effective automatically upon filing with the SEC
pursuant to Rule 462 under the Act or otherwise.
Section 7. Termination of Registration Rights. Notwithstanding the
foregoing provisions, Company's obligation to register Registerable Shares under
this Agreement shall terminate as to any particular Registerable Shares (a) on
March 6, 2005, (b) when such Registerable Shares have been sold in an offering
registered under the Act or in a sale exempt from registration under the Act,
(c) when such Registerable Shares shall have been effectively registered under
the Act for a period of at least ninety (90) days, or (d) when a written
opinion, to the effect that such Registerable Shares may be sold without
registration under the Act and without restriction as to the quantity and manner
of such sales, shall have been received from counsel for Company which counsel
is reasonably acceptable to the owner of such Registerable Shares (which
satisfaction shall not be withheld unreasonably).
Section 8. Indemnification.
(a) In the event of any registration of Registerable Shares under the
Act pursuant to this Agreement, Company will, and hereby does, indemnify and
hold harmless, to the fullest extent permitted by law, Shareholders, each person
or entity that participates as an underwriter or qualified independent
underwriter/pricer ("independent underwriter"), if any, in the offering or sale
of such securities, each officer, director or partner of such underwriter or
independent underwriter, and each other person, if any, who controls any
Shareholder or any such underwriter within the meaning of the Act (collectively,
the "Indemnified Persons"), against any and all losses, claims, damages or
liabilities, joint or several, and expenses (including reasonable fees of
counsel and any amounts paid in any settlement effected with Company's consent,
which consent shall not be unreasonably withheld) to which such Indemnified
Persons may become subject under the Act, common law or otherwise, insofar as
such losses, claims, damages or liabilities (or actions or proceedings, whether
commenced or threatened, in respect thereof), or expenses arise out of or are
based upon (i) any untrue statement or alleged untrue statement of a material
fact contained in any registration statement under which Registerable Shares
were registered under the Act or the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading, (ii) any untrue statement or alleged untrue statement of a
material fact contained in any preliminary, final or summary prospectus,
together with the documents incorporated by reference therein (as amended or
supplemented if Company shall have filed with the SEC any amendment thereof or
supplement thereto), or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading, or (iii) any violation by Company of any federal or state
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rule or regulation applicable to Company and relating to action required of or
inaction by Company in connection with any such registration. Company will
reimburse Indemnified Persons for any reasonable legal or any other expenses
reasonably incurred by any of them in connection with investigating or defending
any such loss, claim, damage, liability, action or proceeding. Notwithstanding
the foregoing, Company shall not be liable to any Indemnified Person to the
extent that any such loss, claim, damage, liability (or action or proceeding,
whether commenced or threatened, in respect thereof) or expense arises out of or
is based upon (i) any untrue statement or alleged untrue statement or omission
or alleged omission made in reliance upon and in conformity with written
information furnished to Company by or on behalf of any such Indemnified Person,
for use in the preparation of the registration statement or (ii) the failure of
any such Indemnified Person to comply with any legal requirement applicable to
any such Indemnified Person to deliver a copy of a prospectus or any supplements
or amendments thereto after Company has made such documents available to such
persons, and it is established that delivery of such prospectus, supplement or
amendment would have cured the defect giving rise to such loss, claim, damage,
liability or expense. Such indemnity and reimbursement of expenses shall remain
in full force and effect following the transfer of Registerable Shares by any
Shareholder.
(b) Company, as a condition to including any Registerable Shares in
any registration statement filed in accordance with this Agreement, shall have
received an undertaking reasonably satisfactory to it from the prospective
seller of such Registerable Shares and any underwriter or independent
underwriter, to indemnify and hold harmless (in the same manner and to the same
extent as set forth in Subsection 8(a)) Company and its directors and officers
and each person controlling Company within the meaning of the Act and all other
prospective sellers and their respective directors, officers, general and
limited partners and controlling persons with respect to any statement or
alleged statement in or omission from such registration statement, any
preliminary, final or summary prospectus contained therein, or any amendment or
supplement thereto, if such statement or alleged statement or omission or
alleged omission was made in reliance upon and in conformity with written
information furnished to Company or its representatives by or on behalf of such
seller or underwriter for use in the preparation of such registration statement;
provided, however, that the aggregate amount which any Shareholder shall be
required to pay pursuant to such undertaking shall be limited to the amount of
the net proceeds received by such person upon the sale of the Registerable
Shares pursuant to the registration statement giving rise to such claim.
(c) Promptly after receipt by an indemnified party hereunder of
written notice of the commencement of any action or proceeding with respect to
which a claim for indemnification may be made pursuant to this Section 8, such
indemnified party will, if a claim in respect thereof is to be made against an
indemnifying party, give written notice to the latter of the commencement of
such action; provided, however, that the failure of any indemnified party to
give notice as provided herein shall not relieve the indemnifying party of its
obligations under this Section 8, except to the extent that the indemnifying
party is actually prejudiced by such failure to give notice. If any such claim
or action shall be brought against an indemnified party, and it shall notify the
indemnifying party thereof, the indemnifying party shall be entitled to
participate therein, and, to the extent that it wishes, jointly with any other
similarly notified indemnifying party, to assume the defense thereof with
counsel reasonably satisfactory to the indemnified party; and provided further
that the indemnifying party shall not be entitled to so participate or so assume
the defense if, in the indemnified party's reasonable judgment, a conflict of
interest between the indemnified party and the indemnifying party exists in
respect of such claim. After notice from the indemnifying party to such
indemnified party of its election to assume the defense of such claim or action,
the indemnifying party shall not be liable to the indemnified party under this
Section 8 for any legal or other expenses subsequently incurred by the
indemnified party in connection with the defense thereof unless the indemnifying
party has failed to assume the defense of such claim or to employ counsel
reasonably satisfactory to such indemnified party; and provided further, that
the indemnified party shall have the right to employ counsel to represent such
indemnified party if, in such indemnified party's reasonable judgment, a
conflict of interest between the indemnified party and the indemnifying party
exists in respect of such claim, and in that event the fees and expenses of such
separate counsel shall be paid by the indemnifying party; and provided further,
that if, in the reasonable judgment of the indemnified party, a conflict of
interest between such indemnified party and any other indemnified party exists
in respect of such claims, such indemnified parties shall be entitled to
additional counsel or counsels and the indemnifying party shall be obligated to
pay the fees and expenses of such additional counsel or counsels. No indemnified
party will consent to entry of any judgment or enter into any settlement which
does not include as an unconditional term thereof the giving by the claimants or
plaintiffs to such indemnified party of a release from all liability in respect
to such claim or litigation. No indemnifying party will be liable for any
settlement effected without its prior written consent.
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(d) If the indemnification provided for in this Section 8 is
unavailable or insufficient to hold harmless an indemnified party under
Subsections 8(a) and (b), then each indemnifying party shall contribute to the
amount paid or payable by such indemnified party as a result of the losses,
claims, damages or liabilities referred to in Subsections 8(a) and (b) in such
proportion as is appropriate to reflect the relative fault of the indemnifying
party on the one hand and the indemnified party on the other hand in connection
with statements or omissions which resulted in such losses, claims, damages or
liabilities, as well as any other relevant equitable considerations. The
relative fault shall be determined by reference to, among other things, whether
the untrue or alleged untrue statement of a material fact or the omission or
alleged omission to state a material fact relates to information supplied by the
indemnifying party or the indemnified party and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
untrue statement or omission. The parties hereto agree that it would not be just
and equitable if contributions pursuant to this Section 8 were to be determined
by pro rata allocation or by any other method of allocation which does not take
account of the equitable considerations referred to in the first sentence of
this Section 8. The amount paid by an indemnified party as a result of the
losses, claims, damages or liabilities referred to in the first sentence of this
Section 8 shall be deemed to include any legal or other expenses reasonably
incurred by such indemnified party in connection with investigating or defending
any action or claim (which shall be limited as provided in Subsection 8(c) if
the indemnifying party has assumed the defense of any such action in accordance
with the provisions thereof which is the subject of this Section 8). No person
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the Act) shall be entitled to contribution from any person who was not guilty of
such fraudulent misrepresentation. Notwithstanding anything in this Section 8 to
the contrary, no indemnifying party (other than Company) shall be required
pursuant to this Section 8 to contribute any amount in excess of the proceeds
received by such indemnifying party from the sale of Registerable Shares in the
offering to which the losses, claims, damages or liabilities of the indemnified
parties relate.
(e) The provisions of this Section 8 shall be in addition to any other
rights to indemnification or contribution which any indemnified party may have
pursuant to law or contract and shall remain in full force and effect following
the transfer of the Registerable Shares by any such party.
(f) Indemnification similar to that specified in the preceding
provisions of this Section 8 (with appropriate modifications) shall be given by
Company and Shareholders with respect to any required registration or other
qualification of securities under any state securities and blue sky laws.
Section 9. Compliance with Rule 144. At the request of any Shareholder, if
he proposes to sell Registerable Shares in compliance with Rule 144 under the
Act, or any similar Rule, Company shall (a) forthwith furnish to such holder a
written statement as to its compliance with the filing requirements of the SEC
as set forth in such Rule and (b) make such additional filings with the SEC as
will enable Shareholder to make sales of Registerable Shares pursuant to such
Rule.
Section 10. Miscellaneous.
(a) Binding and Benefit. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective heirs, personal
representatives, successors and assigns, except that no party may assign or
transfer its rights or obligations under this Agreement without the prior
written consent of the other parties hereto; provided, however, that the
obligation to register Registerable Shares shall be enforceable by direct or
remote transferees of Registerable Shares now owned by a Shareholder only if the
transfer results from the death of any person, a gift made without consideration
or the transfer of all or substantially all of the assets of an entity, by
merger, consolidation, asset sale or otherwise.
(b) Communications from Shareholders. If Shares are owned of record
jointly by two or more persons, Company may rely on any communication signed by
one such person. Company may ignore communications given by persons who purport
to own Registerable Shares beneficially unless such communications are confirmed
by a record owner, and it may ignore any communications from a record owner that
conflict with previously received communications from another person who is at
the relevant time also a record owner of the same Registerable Shares.
(c) Indulgences, Etc. Neither the failure nor any delay on the part of
either party to exercise any right, remedy, power or privilege under this
Agreement shall operate as a waiver thereof, nor shall any single or partial
exercise of any right, remedy, power or privilege preclude any other or further
exercise of the same or of any other right, remedy, power or privilege, nor
shall any waiver of any right, remedy, power or privilege with respect to any
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occurrence be construed as a waiver of such right, remedy, power or privilege
with respect to any other occurrence. No waiver shall be effective unless it is
in writing and is signed by the party asserted to have granted such waiver.
(d) Controlling Law. This Agreement and all questions relating to its
validity, interpretation, performance and enforcement (including, without
limitation, provisions concerning limitations of actions), shall be governed by
and construed in accordance with the laws of the State of Delaware,
notwithstanding any conflict-of-laws doctrines of any jurisdiction to the
contrary, and without the aid of any canon, custom or rule of law requiring
construction against the draftsman.
(e) Notices. All notices, requests, demands and other communications
required or permitted under this Agreement shall be in writing and shall be
deemed to have been duly given, made and received only when delivered
(personally, by courier service such as FedEx or by other messenger) against
receipt or upon actual receipt of registered or certified mail, postage prepaid,
return receipt requested, addressed as set forth below:
(i) If to Company:
The Network Connection, Inc.
1811 Chestnut Street
Suite 120
Philadelphia, PA 19103
Attention: Chairman and Chief Executive Officer
(ii) If to any Shareholder:
To the address of such Shareholder contained in the records of
the Company.
In addition, notice by mail shall be by air mail if posted outside of the
continental United States. Either party may alter the address to which
communications or copies are to be sent by giving notice of such change of
address in conformity with the provisions of this subparagraph for the giving of
notice.
(f) Execution in Counterparts This Agreement may be executed in any
number of counterparts, each of which shall be deemed to be an original as
against any party whose signature appears thereon, and all of which shall
together constitute one and the same instrument. This Agreement shall become
binding when one or more counterparts hereof, individually or taken together,
shall bear the signatures of all of the parties reflected hereon as the
signatories.
(g) Provisions Separable. The provisions of this Agreement are
independent of and separable from each other, and no provision shall be affected
or rendered invalid or unenforceable by virtue of the fact that for any reason
any other or others of them may be invalid or unenforceable in whole or in part.
(h) Entire Agreement. This Agreement contains the entire understanding
between the parties hereto with respect to the subject matter hereof, and
supersedes all prior and contemporaneous agreements and understandings,
inducements or conditions, express or implied, oral or written, except as herein
contained. The express terms hereof control and supersede any course of
performance and/or usage of the trade inconsistent with any of the terms hereof.
This Agreement may not be modified or amended other than by an agreement in
writing.
(i) Paragraph Headings. The Paragraph and subparagraph headings in
this Agreement have been inserted for convenience of reference only; they form
no part of this Agreement and shall not affect its interpretation.
(j) Gender, Etc. Words used herein, regardless of the number and
gender specifically used, shall be deemed and construed to include any other
number, singular or plural, and any other gender, masculine, feminine or neuter,
as the context indicates is appropriate.
(k) Number of Days. In computing the number of days for purposes of
this Agreement, all days shall be counted, including Saturdays, Sundays and
Holidays; provided, however, that if the final day of any time period falls on a
Saturday, Sunday or Holiday, then the final day shall be deemed to be the next
day which is not a Saturday, Sunday or Holiday. For purposes of this Agreement,
the term "Holiday" shall mean a day, other than a Saturday or Sunday, on which
national banks with branches in the Commonwealth of Pennsylvania are or may
elect to be closed. "Business Days" shall be all days that are not Saturdays,
Sundays or Holidays.
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IN WITNESS WHEREOF, the parties have executed this Agreement on the date
first above written.
THE NETWORK CONNECTION, INC.
By: /s/ Irwin L. Gross
-------------------------------------
Irwin L. Gross
Chairman and Chief Executive Officer
/s/ Robert Pringle
-------------------------------------
Robert Pringle
/s/ Jay Rosan
-------------------------------------
Jay Rosan
/s/ Richard Genzer
-------------------------------------
Richard Genzer
8
THE NETWORK CONNECTION, INC. (TNCI)
INTERACTIVE GUEST SYSTEM SERVICE AGREEMENT
Brisbane Lodging LP
DBA Radisson Hotel
San Francisco Airport at Sierra Point
THIS Interactive Guest System Service Agreement, hereafter referred to as
"Agreement," is entered into by and between The Network Connection, Inc. (TNCi),
a Georgia corporation with principal offices at 222 N. 44th Street, Phoenix, AZ
85034, and the Hotel entity set forth in Exhibit A of this agreement, and its
successors and assigns, hereafter referred to as the "Hotel."
WHEREAS, TNCi is engaged in the business of providing interactive guest
services, such as on-demand movies and music videos, concierge information and
reservations, guest messaging, guest surveys, in-room folio review and express
check out, interactive shopping, interactive games, and promotion of hotel
events, restaurants, and stores, as well as other interactive services that may
be negotiated, such as Internet access via both the in-room TV and laptop
connectivity, hereafter referred to as "Interactive Programming," to hotels and
to time share resort properties and their guests on a pay-per-view or
pay-per-use basis, by means of a TNCi interactive guest system, hereafter
referred to as the "System." This System is supplied, maintained, and supported
by TNCi.
WHEREAS, in exchange for these services, TNCi shall receive revenues from the
Hotel for guest use of the Interactive Programming content.
WHEREAS, an agreement has been negotiated with the Hotel for the free-to-guest
premium and broadcast television channels provided by TNCi to be distributed
over the Hotel's Master Antenna Cable Television (MATV) System. TNCi will ensure
that the remote control equipment it provides will allow the guests to access
the free-to-guest premium and broadcast television channels that are provided by
TNCi and are available at the Hotel over the MATV system.
WHEREAS, the Hotel operates a lodging facility, consisting of private rooms and
suites, identified in Exhibit A and;
WHEREAS, the Hotel is equipped with a combination of a Category 3 and Category 5
cable network for installation of the interactive guest system and;
WHEREAS, TNCi desires to provide interactive, on-demand guest services on an
exclusive basis to the premises over a Category 5 cable network for viewing and
use by the Hotel's guests under the terms and conditions set forth below, and
the Hotel desires to receive TNCi interactive programming content;
NOW, THEREFORE, in consideration of the foregoing recitals and the mutual
promises hereinafter set forth, and for other good and valuable considerations,
the receipt and sufficiency of which is hereby acknowledged, the parties,
intending to be legally bound hereby, mutually agree as follows;
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1. TNCI INTERACTIVE GUEST SYSTEM
As used herein, the term "System" shall refer to an interactive guest
information and entertainment system designed by TNCi, whereby guests in
separate rooms at the Hotel may independently access, on demand, interactive
programming content on television receiving sets (TVs). On these same TVs, via
remote control devices provided by TNCi, guests will be able to access the
free-to-guest premium and broadcast television programs that are available at
the Hotel over the MATV system, which will be covered under this agreement. As
used in this Agreement, the term "Rooms" shall mean separate, private rooms and
suites in the Hotel which are customarily available for overnight sleeping
accommodations; a suite shall be considered one (1) Room. The System hosts a
specified number of pre-recorded movie and music video selections, along with
other interactive content described below. The System includes all necessary
server, computer, switching, and remote control equipment to deliver and access
the interactive guest services and to access the free-to-guest television
channels provided by the MATV system. The TNCi System does not include necessary
power, wiring, connections, or cooling facilities, which are to be provided by
Hotel. TNCi will provide engineering and specifications for necessary signal
wiring and distribution at no cost to Hotel.
2. AGREEMENT TERM
TNCi will design, construct and provide to Hotel a System for operation in the
number of Rooms of the Hotel, with on-demand access to the interactive guest
services selected by the Hotel. The date of contract commencement is that date
when the TNCi Interactive Guest System is first fully installed and operational.
It is termed the "commencement of term date."
This Agreement shall continue for an initial term of ________ (_) years from the
commencement of term date, unless terminated sooner pursuant to the provisions
of Section 3 or Section 14 and will automatically renew and extend for a
successive three (3) year additional term, unless at least (90) days prior to
the end of any respective termination date, including any extensions, either
party gives written notice to the other of its desire not to renew this
agreement. TNCi shall inform Hotel via certified mail 90 days prior to
expiration date.
If either party shall fail to perform any material obligation under this
Agreement, or there shall have occurred and be continuing an event of default
under any other written agreement between Hotel and TNCi, such failure or
default shall constitute a default hereunder if not remedied within thirty (30)
days, and within ten (10) days in the case of payment default following written
notice of such default to the defaulting party, the non defaulting party may
terminate this agreement.
In the event that the Hotel is a defaulting party and fails to cure any default
within the applicable period, TNCi shall be entitled, in addition to any and all
other available legal and/or equitable remedies, including specific performance,
the same being expressly reserved by TNCi to a system removal charge of $50 per
installed guest room. The system removal charge shall be additional to all other
legal damages sustained. The non defaulting party shall be entitled to recover
from the other its attorneys' fees, costs and expenses, including collection
agency fees incurred in enforcing this agreement or for a collection of the
amounts due and payable hereunder. Notwithstanding any provision to the
contrary, in no event shall either party be liable to the other or any of its or
their prospective employees, licensees, contractors, or Agents for
consequential, punitive or exemplary damages.
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3. INSTALLATION OF TNCI INTERACTIVE GUEST SYSTEM
3.1 Hotel shall permit TNCi personnel to conduct a technical inspection and
survey of the combined Category 3 and Category 5 cable network presently
installed at the Hotel to determine its adequacy and compatibility for
delivering broadband multimedia content, including digital video streaming, with
the TNCI system.
3.2 If it is determined that the combined Category 3 and Category 5 cable
network is adequate for installation of the System, TNCi will install System
under the terms and conditions identified in Exhibit B of the Agreement.
In the event TNCi determines that the combined Category 3 and Category 5 cable
network is inadequate for delivering broadband multimedia content, including
digital video streaming, TNCi will notify the Hotel in writing of all
deficiencies and will upgrade the combined Category 3 and Category 5 cable
network at the Hotel at no cost to the Hotel. TNCi shall retain the right to
withdraw from this agreement after completion of technical inspection and survey
provided at no cost by TNCi and prior to the commencement of installation.
Technical inspection and survey will be conducted within 14 days of execution of
this agreement.
After completion of the initial installation any modifications to said System
shall be made only by TNCi, but at Hotel's expense if the modifications are the
result of any action, modification, expansion or remodeling undertaken by the
Hotel. The planned expansion of the Hotel shall be upgraded during construction
in accordance with this section and the terms of this agreement shall apply to
said expansion.
3.3 Hotel will make available to TNCi a secure air-conditioned, non-public area
for its head-end equipment. The room shall provide at least 10 by 6 feet, with a
20 amp dedicated electrical circuit. Hotel shall also provide an appropriate
area near the cashier's desk for the installation of TNCi monitoring unit and
printer.
TNCi will begin installation of TNCi System on the Hotel premises as soon as
practical after TNCi's receipt and signed acceptance of the signed Agreement
from the Hotel and the completed combined Category 3 and Category 5 cable
network inspection. TNCi will use its best efforts to complete installation of
the System within 90 days. Installation will be completed and systems
operational prior to the opening of the hotel, July 1, 2000.
TNCi, at its expense, shall repair, restore and replace all portions of the
premises after installation of its equipment and restore the premises to its
original condition to the extent practical, reasonable wear and tear excluded.
TNCi shall, in the exercise of its obligations for installation, not
unreasonably interfere with the Hotel's operation.
3.4 TNCi shall install all equipment necessary to provide interactive guest
programming in all guest rooms, unless otherwise stated in this agreement.
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3.5 During the installation period, and during any subsequent visits requiring
extended on site activity, the Hotel shall provide complementary guest rooms as
necessary for TNCi personnel subject to occupancy permits and availability.
4. TNCI INTERACTIVE PROGRAMMING
TNCi agrees to provide interactive programming content for viewing and use in
the Hotel's guest rooms. This interactive programming content, which is defined
more fully in Exhibit B, includes on-demand movies and music videos, concierge
information and reservations, guest messaging, guest surveys, in-room folio
review and express check out, interactive shopping, interactive games, and
promotion of hotel events, restaurants, and stores.
4.1 TNCi will provide Hotel with its proprietary digital movie delivery System,
through which guests may select any movie, on-demand, from a collection of movie
titles, available 24 hours per day and which shall start immediately after
purchase. The movies in all cases shall be appropriate for viewing in a
first-class hotel and be current release Hollywood features. The movie
programming should be classified G, PG, PG-13 or R by the Motion Picture
Association of America. At its discretion, TNCi may offer independent adult
features.
4.2 TNCi may delete any programming at any point in time for legal or other
reasonable purposes and elect to substitute other programming at equal quality
or content.
4.3 TNCi may elect to provide special promotional programming or multimedia
advertisements and entertainment sponsors that maximize guest enjoyment of the
System and revenue sharing between TNCi and the Hotel.
5. OPERATION OF TNCI INTERACTIVE GUEST SYSTEM
During the term of this Agreement and any extension thereof, Hotel acknowledges
and agrees that all interactive content presented to guests and all associated
graphical components of the System shall remain under the exclusive control of
TNCi. Hotel shall assure the availability of TNCi programming to all guest rooms
at all times with the exception of guest requested blocking of specific
programming.
5.1 Hotel shall at no cost to TNCi provide electrical power and cooling
necessary to operate the TNCi System.
5.2 Hotel shall be responsible for posting to the guest invoices the billing
charges as reported by the TNCi system.
5.3 In addition to interactive promotional features inherent in the operation of
the System, TNCi will supply to Hotel, at no cost to the Hotel, suitable
advertising and promotional materials about interactive programming and other
guest services available through the TNCi System, as may be reasonably
determined by TNCi. Hotel shall ensure that such material is placed and
displayed in rooms at all times after Hotel approval of the materials.
5.4 TNCi shall supply to Hotel 110% of all the television remote control units
needed to operate the System in each room in the Hotel. In the event more spares
are needed, the Hotel agrees to purchase additional spares for $25 per unit.
4
<PAGE>
6. MAINTENANCE AND SUPPORT OF TNCI INTERACTIVE GUEST SYSTEM
TNCi will maintain the System in a reasonably satisfactory operational condition
and, subject to Section 6.3 hereof, make all necessary repairs or replacements
to maintain the System, provided, however, that TNCi shall not be responsible
for the loss or interruption of signals or data beyond the control of TNCi.
Moreover, should poor quality or loss of signals or data result from a fault of
the Hotel, TNCi will advise Hotel and at Hotel's expense promptly repair this
fault.
6.1 Hotel shall assign a "key person" to the day to day operation of the System.
6.2 The key person shall, at no cost to TNCi, replace any failed remote control
units with spare units provided. If a technical problem arises beyond the
replacement of in-room remote control units, the key person shall contact TNCi
within 12 hours of discovery. If necessary, TNCi will dispatch a technician to
make appropriate repairs.
6.3 Any repairs to the System made necessary by willful or grossly negligent
acts, including vandalism, by the Hotel, any of its employees, contractors,
agents, or guests will be performed by TNCi, provided the Hotel reimburses TNCi
for these costs.
7. TRAINING
TNCi will provide training information and training manuals to Hotel and will
make available to Hotel, TNCi training personnel as negotiated between the
parties. Initial training will be at no cost to the Hotel.
8. INTERCTIVE GUEST SYSTEM FEES
8.1 Hotel shall charge and collect in trust from its guests the programming fees
established by TNCi for the privilege of viewing or using the interactive
programming provided by TNCi.
The usage of the System subject to charge and collection shall be based on the
transaction information collected by the TNCi System. All interactive
programming fees charged and collected by Hotel, shall be held, in trust, by the
Hotel, for the benefit of TNCi, and shall be made payable to TNCi under the
terms and conditions identified in Section 9 below. TNCi shall have the right to
change programming fees from time to time as determined by its sole discretion.
In such an event, TNCi shall inform Hotel 30 days in advance of a rate change,
unless a shorter time period is agreed to by both parties.
8.2 In addition to collecting the programming fees, Hotel shall also collect
from guests all Federal, State, and local taxes applicable to programming fees,
and Hotel shall directly remit the same to the applicable taxing authority as
required by law.
5
<PAGE>
9. ACCOUNTING PROCEDURES AND HOTEL COMPENSATION
9.1 As described herein, gross receipts applicable to the use of the System for
any period shall mean the programming fees, based on the transaction information
provided by System during such period, excluding any taxes collected by Hotel
pursuant to Section 8.2.
9.2 On a daily basis, Hotel shall enter disputed buys or adjustments into TNCi
monitoring unit. As soon as practical following the end of each calendar month,
TNCi will furnish Hotel with a statement of System funds held in trust by Hotel,
setting forth the gross receipts, net of itemized adjustments entered by Hotel
and approved by TNCi, as generated by System for the preceding calendar month.
Hotel shall use its best efforts to notify TNCi and resolve any discrepancies
within ten (10) working days of receipt of such a statement from TNCi.
Thereafter, TNCi will transmit to the Hotel a final statement of System funds
held in trust by the Hotel, setting forth the adjusted amount of gross receipts
and the commission payable to the Hotel in accordance with Section 9.3.
9.3 No later than 15 days after Hotel's receipt of the final statement from TNCi
or, if earlier, Hotel's first accounts payable cycle following receipt of such
statement, Hotel shall pay to TNCi the total gross receipts for the preceding
calendar month, as specified in the final statement, less an amount equal to
____% of the net movie receipts and 20% of the net internet access receipts, as
specified in the final statement, as Hotel commission.
9.4 The Hotel commission shall be deemed a fee earned by Hotel for its services
rendered, provided however that Hotel is in material compliance with all
provisions of this Agreement. If the Hotel is not in compliance, then Hotel will
not earn any Hotel commission or be entitled to retain any percentage of gross
receipts for that period. Payments not received by the due date shall bear
interest at the rate of 1.5 percent per month or the maximum rate allowed by
law.
9.5 To assist TNCi in evaluating the System performance, Hotel shall, on or
about the fifth day of each month, furnish TNCi with Hotel occupancy and other
related results for the previous month. Any Hotel data reported will be held in
strictest confidence.
9.6 The Books and records of the Hotel which are pertinent to the gross
pay-per-view and pay-per-use receipts for any month during the term of this
Agreement shall be open to inspection and audit by an authorized representative
of TNCi upon seven (7) days notice to Hotel. It is understood that TNCi's right
to audit the Books and records of the Hotel shall not extend beyond two (2)
years from an expiration of the calendar year to be audited.
10. OWNERSHIP AND ACCESS RIGHTS
10.1 Notwithstanding the fact that parts of the System may be affixed to the
Hotel premises, TNCi System equipment shall not become the property of the Hotel
and shall remain the exclusive property of TNCi. Hotel agrees that any
encumbrances upon Hotel's property shall exclude System equipment. The Hotel
further agrees to execute and deliver to TNCi such documents and instructions
and take other actions and permit TNCi to take such actions as TNCi may deem
necessary to give public notice of TNCi's ownership of the System and to protect
TNCi's ownership against third parties.
10.2 In granting TNCi the right of use and access to the locations specified in
Section 3.3 and to those areas of the premises necessary to inspect, install,
maintain, and operate the System pursuant to Section 3.4, Hotel intends only to
confer a license and does not confer perpetual access rights to the premises.
6
<PAGE>
10.3 Hotel agrees that the interactive programming provided by TNCi over the
System is subject to certain copyright agreements, as well as other
restrictions. Hotel therefore agrees to allow only guests to view or use the
interactive programming and not to allow any copying of programming, or viewing
or using of the programming outside of guest rooms. Hotel shall not allow any
taping or copying of any System programming or content under any circumstances
whatsoever.
10.4 Upon termination of this Agreement, TNCi shall use best efforts to remove
its equipment within 90 days after the effective termination date. No rental or
storage charges shall be made to TNCi during this period, however, a reasonable
rental and storage charge shall be charged if the equipment is not removed
within the 90 day period and TNCi has not been delayed by the Hotel in removing
its equipment. Failure of TNCi to remove its equipment does not constitute
forfeiture.
11. EXCLUSIVITY
Hotel hereby grants to TNCi during the term of this Agreement, including any
extension hereof, the exclusive right to supply in-room on-demand video
entertainment, Internet access via the in-room TV and interactive guest services
on the Hotel premises.
12. INDEMNIFICATION AND COMPLIANCE WITH APPLICABLE LAWS
12.1 TNCi shall secure and maintain, with Hotel's cooperation, if necessary,
such licenses, permits and approvals required by governmental authorities having
jurisdiction over the installation, operation and removal of the TNCi System, as
well as necessary distribution rights, patents, copyrights, licenses, releases,
waivers and other necessary consents of third parties with respect to the System
and its interactive content.
12.2 TNCi will hold the Hotel responsible and Hotel will indemnify TNCi for any
loss or damage to the property of TNCi located on the Hotel premises.
12.3 TNCi shall maintain, during the term of this agreement, at its own expense,
adequate comprehensive general liability insurance against any liability arising
out of injury or death of any person or damage to property in any way connected
with the installation, maintenance, operation, removal or replacement of the
TNCi System. If requested by Hotel, TNCi shall provide proof of Insurance
Coverage within 30 days after receipt of request.
12.4 The distribution of and guest access to TNCi interactive programming
content and the installation and maintenance of the System equipment shall
conform to proper safety standards and procedures and any regulations or
ordinances of any applicable government agency.
13. ASSIGNMENT
This Agreement binds and inures to the benefit of the parties, their successors
and assigns, except as limited herein.
7
<PAGE>
13.1 In the event that the person or entity executing this agreement as Hotel,
for purposes hereof deemed the Transferor, intends to sell or otherwise transfer
management or ownership of the premises, as the case may be, to another person
or entity, deemed the Transferee, then the Transferor, as soon as practicable,
but in no event, less than 30 days prior to the effective date of such transfer,
shall provide written notice of the same to TNCi. Such notice shall provide
information regarding the date of the proposed transfer and whether the
Transferee intends to assume all of the obligations of the Transferor under this
Agreement. If the Transferee, by execution prior to the transfer date of a
written assumption agreement satisfactory to TNCi, assumes all obligations of
the Transferor under this Agreement and Transferee meets TNCi's customary credit
standards, then Transferor shall have no further obligations hereunder except as
to previously accrued matters.
13.2 Notwithstanding the transfer of ownership or management of the Hotel
premises, Transferor shall be and remain liable for any and all amounts at
whatsoever time owing to TNCi for services provided hereunder, unless and until
the Agreement has been effectively assumed or terminated as herein provided. Any
Transferee who, with notice of the existence of this Agreement, has not executed
an assumption Agreement as provided herein, shall not be entitled to receive
TNCi interactive guest services or any Hotel commission. Therefore, provided
however, that in such event TNCi at TNCi's sole option may continue to provide
interactive guest services to the Hotel premises, which shall be deemed an offer
to provide such services to Transferee in accordance with all the terms and
conditions of this Agreement, which offer may be accepted by Transferee either
in writing or by its receipt and retention of any Hotel commission hereunder.
13.3 TNCi or its assignees may, without Hotel's consent, assign its interest in
this Agreement to any party without liability except as to previously accrued
matters.
13.4 Hotel shall provide TNCi with a copy of the fully executed transfer
documents evidencing assignment and acceptance of this Agreement. In the event
the Hotel terminates this Agreement within the first three years of the
contract, other than for cause, or if the Hotel is unable to assign this
Agreement to the new ownership entity, then prior to transfer of the ownership
of the Hotel, Hotel agrees to pay for the complete removal and return of TNCi's
equipment to TNCi, and repay TNCi the full $189,000 installation investment. If
the Hotel terminates this Agreement after year three of the contract, other than
for cause, or if the Hotel is unable to assign this Agreement to the new
ownership entity, then prior to transfer of the ownership of the Hotel, Hotel
agrees to pay for the complete removal and return of TNCi's equipment to TNCi
and to repay TNCi the installation investment on a pro-rated basis of 1/60 of
the total installation investment per month of the remaining months of the
contract.
14. FORCE MAJEURE
Neither party shall have any liability for the failure to perform or a delay in
performing any of its obligations hereunder, if such failure or delay is the
result of any legal restriction, labor dispute, strike, boycott, flood, fire,
public emergency, revolution, insurrection, riot, war, unavoidable mechanical
failure, interruption in the supply of electrical power or any other cause
beyond the control of that party.
8
<PAGE>
15. GENERAL PROVISIONS
15.1 All notices which are to be given under the terms of this Agreement shall
be given in writing and shall be deemed given, when deposited in the U.S. Mail
with postage prepaid, certified, or registered mail, return receipt requested,
addressed to the applicable party at the address set forth at the end of the
Agreement. Either party hereto may change the address for notices hereunder by
giving notice of such change to the other party in the manner provided above.
15.2 This Agreement is made in the state in which the TNCi headquarters are
located - Arizona. This agreement shall be governed in every respect by the laws
of the state, except that the parties' respective rights and obligations shall
be subject to specific provisions of Federal law or regulation including,
without limitation, the provisions of the Federal Communications Act and any
appropriate application of the Federal Communications Commission.
15.3 This Agreement shall not be modified, waived, or amended except by an
instrument in writing executed by the parties to this Agreement.
15.4 If any part or subpart of this Agreement is found or held to be invalid or
unenforceable, such unenforceability shall not affect the enforceability and
binding nature of any other part of this Agreement, unless such remaining
portion or portions are not reasonably adequate to accomplish the basic purpose
and intent of the parties. The parties hereto will negotiate in good faith to
replace any invalid or unenforceable provision with one or more valid provisions
that accomplish the original intent of the parties.
15.5 This Agreement, together with any exhibits or amendments or other
information which are expressly incorporated herein and made an integral part
hereof, is the complete understanding of the parties hereto, with respect to the
subject matter hereof, and no other representations or agreements shall be
binding upon the parties hereto, or shall be effective to interpret, change or
restrict the provisions hereof.
15.6 Each person or individual executing this Agreement in a representative
capacity, by his or her execution hereof represents and warrants that such
person or individual is fully authorized to do so on behalf of the respective
party hereto and, with respect to the Hotel, if executed by or on behalf of any
entity other than the owner of the premises, as the duly authorized agent for
such owner, and that no further action or consent on the part of the Party for
whom such signatory is acting is required for the effectiveness and
enforceability of this agreement against such party or such owner as the case
may be, following such execution.
15.7 This Agreement may be executed in multiple counterparts, all of which shall
constitute one and the same instrument. In making proof of this Agreement it
shall not be necessary to produce more than one fully executed counterpart.
Facsimile signatures shall be deemed as originals as between parties.
15.8 This Agreement shall be effective upon execution by all parties to the
Agreement or Commencement of installation services by TNCi, whichever shall
first occur.
15.9 Time shall be of Essence in the performance of this Agreement.
9
<PAGE>
15.10 TNCi will provide connections to Hotel's Property Management System
("PMS") for automatic posting of the pay-per-view or pay-per-use fees charged to
the guest and for other interactive guest services at the time of installation.
TNCi will provide its interface software at no cost to Hotel. Hotel is
responsible for purchase and maintenance of any additional hardware and software
that may be required by the PMS vendor to complete the interface.
15.11 Hotel may receive any or all of the following interactive guest services,
which consist of Express Check Out, Guest Folio Review, and Guest Survey,
provided the PMS system is capable of supporting these functions. The fee for
the provision of these interactive guest services is hereby waived. The costs or
fees associated with the development and implementation of other Hotel specific
promotions or guest services will be negotiated between the parties.
15.12 TNCi will install the System in both rooms of a suite, provided both TVs
are compatible with the System.
15.13 TNCi will provide Interactive, PC based Games operated by the remote
control to the Hotel. Hotel shall within ten (10) days of the end of each month
remit to TNCi an amount equal to ___% of all Rental Fees collected by the Hotel
("TNCi Revenue Share") for said Interactive Games for the prior month and retain
___% as an administrative fee ("Hotel Revenue Share").
15.14 TNCi shall provide promptly all maintenance, repairs and replacement of
materials and equipment necessary to ensure satisfactory operation of the
System, including satisfactory signal quality, throughout the term of the
Agreement. Technical personnel representing TNCi will respond within twelve (12)
hours throughout the Term in the event of a System failure involving 10% or more
of the Rooms or interactive programming selections served by the System. Upon
notice, and within a reasonable period of time from said notice, TNCi shall
repair all other failures. Such maintenance and technical assistance will be
provided free of charge except as occasioned by a breach by Hotel of Hotel's
obligations.
15.15 TNCi shall have the option, at any time during the initial term of this
Agreement or any extension thereof, to terminate this Agreement or any installed
interactive guest service and remove all or part of the System from the Hotel,
at no cost to the Hotel, if TNCi, in its sole discretion, determines that the
economic feasibility of the continuation of the Agreement or interactive guest
service is, for any reason, adversely different than that contemplated by TNCi
on the term commencement date. Notice must be given 90 days prior to removal of
system.
16. SPECIAL WARRANTIES AND COVENANTS OF HOTEL
Hotel agrees, confirms and covenants the following.
16.1 Interactive guest services will be available in all Rooms, including any
future additions, and not in the public rooms and public areas (including
lobbies, hallways, restaurants, bars, meeting rooms, etc.) of Hotel; and shall
not be exhibited other than in accordance with this Agreement or by any other
means of transmission of any kind whatsoever. However, if Free-to-guest
programming is provided by TNCi, exhibition thereof shall be permitted in
accordance with the separately negotiated contract.
10
<PAGE>
16.2 Equipment comprising part of the System shall not be removed from Hotel for
any purpose whatsoever other than by TNCi, except in the case of any emergency
where such removal is necessary to ensure safety of such equipment or guests,
and Hotel uses reasonable efforts to notify TNCi of such removal by telephone.
16.3 Hotel shall notify TNCi as soon as is reasonably possible, but not later
than 24 hours upon actual notice of any unauthorized use, access, theft, damage
or malfunction of or to the System or any other equipment of TNCi.
16.4 Hotel shall use reasonable efforts to ensure that only registered guests of
the Hotel and their invitees may view the interactive programming and content.
16.5 The servers, containing the interactive programming and content, will be
kept under lock and key and will not be accessible to hotel staff without TNCi's
prior consent. There shall be no unauthorized use, exhibition or viewing of any
program by any person other than on the System on the terms set forth herein.
Hotel shall not permit any person under its control to duplicate programs or
content or make alterations of any kind to the servers. Hotel shall promptly
report to TNCi any unauthorized use of the servers as soon as Hotel becomes
aware of such use.
16.6 Hotel warrants and represents that it is the owner of the Hotel; that it
has full legal power and authority to enter into this Agreement and to perform
all of its obligations hereunder; that this Agreement is within Hotel's
authority as operator of the Hotel; and that Hotel shall cause the staff and
employees of the Hotel to adhere to its obligations hereunder. If Hotel is a
corporation, Hotel further warrants and represents that all necessary corporate
action has been taken to authorize Hotel to enter into this Agreement and
perform its obligations hereunder.
16.7 Hotel shall indemnify and hold harmless TNCi against any and all claims,
damages, liabilities, costs and expenses, arising out of any intentional breach
by Hotel of any of the warranties and covenants made by Hotel in relation to
TNCi service(s).
16.8 Hotel warrants that it owns or controls the combined Category 3 and
Category 5 cable network within the hotel and that there are not restrictions
placed by other parties on the use of this network.
16.9 During the term of the Agreement, Hotel will not install or allow to be
installed any service which is not compatible with the transmissions or services
of the TNCi system. Hotel further agrees not to install any service which will
compete with the TNCi interactive guest system, including but not limited to the
installation of video tape players or recorders. The parties agree that on-site
slide or video presentations by Hotel describing the Hotel, its facilities and
environs shall not be deemed "competitive" for such purpose.
11
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement, by
their duly authorized signatories, on the day and year first above written.
THE NETWORK CONNECTION, INC. BRISBANE LODGING, LP
(Legal Name of Hotel Entity)
By By
--------------------------------- --------------------------------------
Ted Racz, Sr. Vice President Title
Its Authorized Representative
Address: Address:
222 N. 44th St.
Phoenix, AZ 85034
602-629-6218 Telephone:
Date: Date:
------------------------------- -----------------------------------
12
<PAGE>
EXHIBIT A
PROPERTY NAME
SERVICE AGREEMENT
HOTEL INFORMATION
- -----------------
Name:
Address:
City/State/Zip:
Telephone:
Site Contact:
Title of Contact:
Number of Rooms (Current):
Admin Locations:
OWNERSHIP ENTITY
- ----------------
Name:
Address:
City/State/Zip:
Telephone:
Site Contact:
Title of Contact:
13
<PAGE>
EXHIBIT B
TERMS AND CONDITIONS OF THE AGREEMENT
* TNCi will provide compensation in the amount of $_______ per room to the
Hotel as a television purchase credit payable 30 days after commencement of
TNCi services at the Hotel. This credit shall be subject to the properties
selection of television sets compatible with the TNCi system.
* TNCi shall additionally provide compensation in the amount of $200.00 per
room to the Hotel as a television purchase credit payable 30 days after
commencement of TNCi services in any future expansion at the Hotel. This
credit shall be subject to the properties selection of television sets
compatible with the TNCi system in any future expansions.
* At TNCi's cost, TNCi shall provide one (1) remote control unit for each
television set. Initial 10% sparing of remote control units also will be
provided. Any additional remote control units may be purchased from TNCi at
a price of $25.00 per remote.
* Hotel will be responsible for maintenance of all televisions.
* Hotel may retain an amount equal to ____% of all net movie receipts, 20% of
all net television based internet access fees and ____% of all interactive
game usage fees collected by the Hotel ("Hotel Revenue Share").
* Hotel may select the option to pay a flat rate to TNCi of $___ per occupied
room night for internet access services and retain ____% of all guest room
(television & laptop) and meeting room internet access fees by initialing
below. NA
NA Flat rate internet access option chosen
------
* In the event that Adjustments exceed 3% of monthly gross movie receipts,
the Hotel Revenue Share shall be reduced by the same amount as the
percentage of non-technical denials in excess of 3%. In the event that
Adjustments are below 3%, the Hotel Revenue Share shall be increased by
one-half of that amount.
* Hotel may select the option for TNCi to provide free-to-guest television
services to the Hotel for a fee of $_____ per room per month. This fee
subject to increase only in the exact amount of increase by content
providers, if any, for content provided for the term of the agreement.
X TNCi provided free to guest television option chosen
-----
* If selected, the free-to guest channel lineup shall consist of the
following off-air and satellite delivered channels:
ABC, NBC, CBS, FOX, UPN, WB, PBS, HBO, Discovery, CNN, CNN
Headline News, ESPN, ESPN2, TBS, TNT, USA, Weather Channel,
E! Entertainment and the History Channel
All channels are subject to availability.
14
<PAGE>
EXHIBIT C
HOTEL INFORMATION SHEET
PROPERTY DATA: GUEST PROFILE:
Number of Rooms _____ Business _____%
Average Daily Room Rate $_____ Convention _____%
Average Occupancy Per Year _____% Tourist _____%
Age of Property _____YRS Destination _____%
New Construction
TOTAL 100%
15
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEETS AND STATEMENTS OF OPERATIONS FOUND IN THE COMPANY'S 10-QSB FOR THE
YEAR-TO-DATE, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-START> JUL-01-1999
<PERIOD-END> MAR-31-2000
<CASH> 258,459
<SECURITIES> 0
<RECEIVABLES> 21,087
<ALLOWANCES> 0
<INVENTORY> 5,010,311
<CURRENT-ASSETS> 6,316,133
<PP&E> 2,323,590
<DEPRECIATION> 1,087,670
<TOTAL-ASSETS> 14,434,965
<CURRENT-LIABILITIES> 6,220,378
<BONDS> 0
0
24,969
<COMMON> 12,801
<OTHER-SE> 6,151,052
<TOTAL-LIABILITY-AND-EQUITY> 14,434,965
<SALES> 5,597,909
<TOTAL-REVENUES> 5,657,736
<CGS> 3,680,584
<TOTAL-COSTS> 3,716,876
<OTHER-EXPENSES> 6,232,456
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 150,839
<INCOME-PRETAX> (4,340,156)
<INCOME-TAX> 0
<INCOME-CONTINUING> (4,340,156)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,340,156)
<EPS-BASIC> (0.52)
<EPS-DILUTED> (0.52)
</TABLE>
