<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 21, 1999
REGISTRATION NO. 333-85079
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 1
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
CYTATION.COM INCORPORATED
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
NEW YORK 7373 16-0961436
(STATE OR OTHER JURISDICTION (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
KEVIN J. HIGH
PRESIDENT
CYTATION.COM INCORPORATED
809 AQUIDNECK AVENUE
NEWPORT, RHODE ISLAND 02842
(401) 845-8800
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
------------------------
COPIES TO:
<TABLE>
<S> <C>
ROBERT L. BIRNBAUM, ESQ. M. RIDGWAY BARKER, ESQ.
DAVID A. BROADWIN, ESQ. RANDI-JEAN G. HEDIN, ESQ.
FOLEY, HOAG & ELIOT LLP KELLEY DRYE & WARREN LLP
ONE POST OFFICE SQUARE TWO STAMFORD PLAZA
BOSTON, MASSACHUSETTS 02109 281 TRESSER BOULEVARD
(617) 832-1000 STAMFORD, CONNECTICUT 06901
(203) 351-8000
</TABLE>
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this registration statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
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CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
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PROPOSED PROPOSED
TITLE OF EACH CLASS OF AMOUNT TO BE MAXIMUM OFFERING MAXIMUM AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED(1) PRICE PER SHARE(2) OFFERING PRICE(2) REGISTRATION FEE
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<S> <C> <C> <C> <C>
Common Stock, par value $0.001... 8,558,140 $5.375 $46,000,000 $12,788.00
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Representative's Warrant......... 744,186 $.001 $745.00 $.21
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Common Stock issuable upon
exercise of Representative's
Warrant........................ 744,186 $6.45 $4,800,000 $1,334.00
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Totals........................... 50,800,745 14,124.21(3)
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</TABLE>
(1) Includes 1,116,280 shares which the underwriters have the option to purchase
solely to cover over-allotments, if any. See "Underwriting."
(2) Estimated solely for the purpose of computing the amount of the registration
fee pursuant to Rule 457(c) under the Securities Act of 1933.
(3) $1,312.09 was previously paid leaving a fee remaining to be paid herewith of
$12,812.12.
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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<PAGE> 2
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED.
UNDERWRITERS MAY NOT CONFIRM SALES OF THESE SECURITIES UNTIL THE REGISTRATION
STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS
PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN
OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT
PERMITTED.
SUBJECT TO COMPLETION, DATED OCTOBER 21, 1999
PROSPECTUS
[ ] SHARES
CYTATION.COM
COMMON STOCK
------------------------------
This is an offering of [ ] shares of common stock of
Cytation.com Incorporated.
Our common stock is quoted over the Over-the-Counter Electronic Bulletin
Board under the stock symbol "CYTA." We will apply to have the shares of common
stock approved for quotation on the Nasdaq National Market System under the
symbol "CLNK."
SEE "RISK FACTORS" BEGINNING ON PAGE FOR A DISCUSSION OF FACTORS THAT
YOU SHOULD CONSIDER BEFORE BUYING SHARES OF OUR COMMON STOCK.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS ACCURATE OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
PER SHARE TOTAL
--------- --------
<S> <C> <C>
Public Offering Price.................................. $ $
Underwriting discounts and commissions................. $ $
Proceeds, before expenses, to Cytation.com............. $ $
</TABLE>
The underwriters may, under certain circumstances, for 45 days after the
date of this prospectus purchase up to an additional [ ] shares of
common stock from us at the public offering price less the underwriting
discount.
------------------------------
The underwriters are severally underwriting the shares being offered. The
underwriters expect to deliver the shares against payment in New York, New York
on , 1999.
------------------------------
GERARD KLAUER MATTISON & CO., INC.
------------------------------
The date of this Prospectus is , 1999
<PAGE> 3
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. WE
HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION DIFFERENT FROM THAT
CONTAINED IN THIS PROSPECTUS. WE ARE OFFERING TO SELL, AND SEEKING OFFERS TO
BUY, SHARES OF COMMON STOCK ONLY IN JURISDICTIONS WHERE OFFERS AND SALES ARE
PERMITTED. THE INFORMATION CONTAINED IN THIS PROSPECTUS IS ACCURATE ONLY AS OF
THE DATE OF THIS PROSPECTUS, REGARDLESS OF THE TIME OF DELIVERY OF THIS
PROSPECTUS OR OF ANY SALE OF OUR COMMON STOCK. IN THIS PROSPECTUS, "CYTATION,"
"COLLEGELINK.COM," "WE," "US" AND "OUR" REFER TO CYTATION.COM INCORPORATED AND
ITS SUBSIDIARIES AND PREDECESSORS, AND REFERENCES TO "CYTATION.COM" REFER ONLY
TO CYTATION.COM INCORPORATED, IN EACH CASE UNLESS THE CONTEXT OTHERWISE
REQUIRES.
------------------------------
DEALER PROSPECTUS DELIVERY OBLIGATION
Until , all dealers that effect transactions in these
securities, whether or not participating in this offering, may be required to
deliver a prospectus. This is in addition to the dealers' obligation to deliver
a prospectus when acting as underwriters and with respect to their unsold
allotments or subscriptions.
------------------------------
We own or have rights to trademarks or trade names that we use in
conjunction with the sale of our products and services. CollegeLink(R) is a
registered trademark owned by us. Cytation(TM), Cytation.com(TM) and
CollegeLink.com(TM), are trademarks owned by us. Making College Count(R) is a
registered trademark owned by Student Success, Inc. This prospectus also refers
to trademarks and trade names of other companies.
2
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PROSPECTUS SUMMARY
This summary does not include all of the information that may be important
to you. You should read the following summary together with the more detailed
information, including our consolidated financial statements and related notes,
appearing elsewhere in this prospectus. Unless otherwise indicated, all
information in this prospectus assumes the underwriters will not exercise their
over-allotment option.
CYTATION.COM INCORPORATED
OUR COMPANY
We are a holding company. Our primary operating business is
CollegeLink.com. Together with The College Board(R) and PNC Bank, N.A., we
provide college bound students and their families a complete solution to the
challenges of the college admission process, from college selection to
submission of college, financial aid, and scholarship applications. We have
recently entered into a definitive agreement to acquire a related business,
Student Success, Inc. and a letter of intent to acquire another related
business, Online Network, L.L.C. d/b/a Online Scouting Network. Before acquiring
Student Success and Online Scouting, we were a provider of computer-based
college admissions services and proprietary online learning solutions.
CollegeLink.com. Through CollegeLink.com, and its relationships with more
than 900 colleges and universities, we are a leading provider of computer-based
college applications and admissions services to college bound students and their
families.
Student Success. Student Success is a leading provider of onsite high
school and college preparatory programs for students and their families under
its Making College Count(R) and Making High School Count(TM) trademarks. Through
this channel, we intend to continue to expand our presence and awareness of our
services with high school students. Student Success presented its seminars to
more than 225,000 students at more than 900 high schools and junior colleges
nationwide last year. These programs were sponsored by eight major consumer
products companies.
Online Scouting Network. Online Scouting Network is a leading recruiting
company that provides student athletes greater visibility to more than 3,000
college and university coaches. For the school year ended June 1999, more than
25,000 high school athletes from 600 high schools in 22 sports nationwide were
registered with Online Scouting Network.
OUR RELATIONSHIPS
We have entered into agreements and developed relationships with more than
900 colleges and universities that accept applications in their respective
formats through CollegeLink(R). A complete list of these colleges and
universities is set forth on the inside front and back cover of this prospectus.
We have an exclusive agreement with The College Board(R) to provide
electronic college applications through The College Board's ExPAN(R) guidance
software. The College Board(R) is a membership organization of colleges and
secondary schools and is the provider of the SAT(R) and the AP(R) Exams.
We have an exclusive agreement with PNC Bank, N.A., one of the largest
student loan providers in the United States, to provide financial products and
services to college bound students and their families through our
CollegeLink.com Internet hub.
OUR MARKET
There are about 14.8 million high school students in the United States.
According to the U.S. census bureau, this number will increase to 15.7 million
over the next 5 years. Each year about 3.2 million students enter colleges and
universities for the first time. Of these about 2.2 million apply as first time
freshman to undergraduate colleges and universities. The remaining students
apply to continuing education programs of various sorts.
Each year about 3.2 million applicants submit more than eight million
applications for undergraduate admission to nearly 3,400 U.S. colleges and
universities. Over 50% of these students apply for some form of financial aid.
According to the Department of Education, it is expected that the total number
of college
3
<PAGE> 5
bound students will continue to increase each year for the foreseeable future.
Based on industry statistics, we believe colleges spend about $3 billion
annually to recruit and enroll students.
We have developed an Internet hub with a college application, financial aid
and scholarship service to provide students and their families a comprehensive
solution to the challenges of the college selection and admission process. We
expect that nearly all applications will be submitted by computer within the
next several years because of increasing student computer literacy and the
significant financial and administrative benefits to colleges and universities
of receiving applications electronically. In addition, through the Making
College Count(R) and Making High School Count(TM) programs, we help prepare
students for success in college.
We continuously obtain demographic and other information which can be used
by students, their families, colleges and other service providers to assist in
the college admissions process and enhance the entire college experience. Due to
the volume of college bound students who visit our Internet hub, we are
developing an attractive e-commerce location for students and their families.
OUR STRATEGY
Our strategy is to build upon the thousands of relationships we have
developed with high school guidance counselors and college admissions
professionals through one-on-one marketing efforts. We plan to build our brand,
reach increasing numbers of high school and college students, and drive traffic
to our Internet hub. Our objectives are to:
Expand our market leadership position. We intend to leverage our
relationships with more than 3,000 high schools and more than 900 colleges and
universities to establish new affiliations, attract additional students to our
website, and create a premier Internet hub for college bound students.
Expand existing brand awareness. We intend to build upon our established
brands and our relationships with The College Board(R) and PNC Bank, N.A. to
establish CollegeLink.com as a leading Internet hub and e-commerce site.
Capitalize on our strong high school presence. Each year, The College
Board(R) distributes our CollegeLink(R) software with its ExPAN(R) guidance
software to about 2,000 high schools nationwide. Last school year, Making
College Count(R) presented at more than 900 high schools and junior colleges and
Online Scouting Network registered athletes from about 600 high schools. We
intend to grow our presence in the high school market through expansion of these
programs.
Develop strategic web partnerships. We have initiated a web partnership
program to co-brand our products and services on targeted high school and
college-related high traffic web sites and add content to our Internet hub.
Overcome resistance to online applications. We believe many college bound
students and their families perceive that colleges and universities prefer
applications that are submitted on the institution's specific format.
CollegeLink(R) software is the only program currently available that permits
students to enter general information only once and still deliver to each
institution an application in that institution's own format. We believe this
feature gives us a significant competitive advantage and we intend to promote it
to increase use of our services.
Market our products and services. We plan to continue to add high schools,
colleges and universities to our roster the way we have since 1991: on campus
direct sales calls by sales personnel, corporate sponsorships, direct mailings,
targeted periodical advertising, online and broadcast advertising, partnerships
and various promotional campaigns.
Our executive offices are located at 809 Aquidneck Avenue, Newport, Rhode
Island 02482 and our telephone number is (401) 845-8800. Our web site is located
at www.collegelink.com. Information contained on our web site is not part of
this prospectus.
4
<PAGE> 6
THE OFFERING
Common stock offered by Cytation.... -- shares
Common stock to be outstanding after
the offering(1)..................... -- shares
Use of proceeds..................... We intend to use our net proceeds for
the acquisitions of Student Success and
Online Scouting Network, general
corporate purposes, including working
capital, expansion of our sales and
marketing programs and in acquisitions
of and investments in complementary
businesses. See "Use of Proceeds."
Over-the-Counter Electronic Bulletin
Board Symbol........................ CYTA
Proposed Nasdaq National Market
symbol.............................. CLNK
- - - ---------------
(1) The number of shares of common stock to be outstanding after the offering
excludes (a) -- shares of the underwriters' over-allotment option, (b) --
shares of common stock reserved for issuance upon exercise of the
representative's warrant, (c) options outstanding at September 30, 1999 to
purchase 1,716,185 shares of common stock, and 925,000 shares reserved for
future grants under our option plans at September 30, 1999 (d) 890,000
shares of common stock issuable upon conversion of 890,000 shares of Series
A Convertible Preferred Stock outstanding at September 30, 1999, (e) 550,369
shares of common stock issuable upon conversion of 279,771 shares of Series
B Convertible Preferred Stock outstanding at September 30, 1999 (assuming
the maximum number of shares of common stock issuable upon such conversion),
(f) 1,000,000 shares of common stock issuable upon conversion of 1,000,000
shares of Series C Convertible Preferred Stock outstanding at September 30,
1999, and (g) warrants to purchase 755,803 shares of common stock
outstanding at September 30, 1999.
SUMMARY FINANCIAL DATA
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
The following table summarizes our financial data. The data presented in
this table is derived from the "Selected Financial Data" and the financial
statements and related notes which are included elsewhere in this prospectus.
You should read those sections for a further explanation of the financial data
summarized here. The pro forma financial data presented in the table gives
effect to the proposed issuance of common stock to the stockholders of Student
Success, Inc. and Online Scouting Network. The pro forma as adjusted financial
data also gives effect to this offering.
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-------------------------------------------------------
PRO FORMA PRO FORMA
1998 1999 ACQUISITIONS AS ADJUSTED
---------- ---------- ------------ -----------
<S> <C> <C> <C> <C>
INCOME STATEMENT
Revenues.................................. $ 1,243 $ 562 $ 1,840
Expenses.................................. 1,873 3,148 7,995
---------- ---------- ----------
Net Loss.................................. $ (630) $ (2,586) $ (6,155)
========== ========== ==========
Weighted Average Primary Shares........... 3,499,857 6,531,153 7,190,158
========== ========== ==========
Net Loss Per Share........................ $ (0.18) $ (0.40) $ (0.86)
========== ========== ==========
AT JUNE 30,
-------------------------------------------------------
PRO FORMA
1998 1999 1999 AS ADJUSTED
---------- ---------- ------------ -----------
BALANCE SHEET
Current Assets............................ $ 131 $ 1,557 $ 5,314
Total Assets.............................. 358 1,807 25,005
Shareholders' Equity (Deficit)............ (69) 1,377 21,729
</TABLE>
5
<PAGE> 7
RISK FACTORS
You should carefully consider the following risk factors in evaluating our
business before purchasing any of our common stock. If any of the following
events actually occurs, our business, financial condition or results of
operations would likely suffer. In this case, the market price of our common
stock could decline, and you could lose all or part of your investment in our
common stock.
RISKS RELATING TO OUR BUSINESS
OUR BUSINESS IS DIFFICULT TO EVALUATE BECAUSE WE HAVE A LIMITED OPERATING
HISTORY AS AN INTERNET COMPANY.
One of our predecessor entities established the CollegeLink business in
1991. While we previously sold CollegeLink(R) as a computer-based service, we
are converting this business to an Internet-based service. Accordingly, the
CollegeLink business in its current form has only a very limited operating
history on which you can base your evaluation of this business. As a result, you
will find it difficult to predict our future revenues or results. In addition,
you must consider our prospects in light of the risks and uncertainties
encountered by companies in an early stage of development in a new and rapidly
evolving market such as the market for Internet-based services.
WE HAVE NEVER BEEN PROFITABLE AND MAY NOT BE PROFITABLE IN THE FUTURE.
Each of our predecessors has incurred significant losses in every fiscal
period since inception. Since our recent mergers with each of these
corporations, we have continued to incur losses in the CollegeLink.com business
and our other businesses. We incurred a net loss of $630,332 in fiscal 1998 and
had a net loss of $2,586,425 in fiscal 1999. As of June 30, 1999, we had a pro
forma net loss of $6,154,936. We expect to continue to experience losses at
least for the foreseeable future, and we cannot be certain when we will become
profitable, if at all. Our failure to achieve and maintain profitability could
adversely affect the market price of our common stock.
WE FACE COMPETITION FROM COMPANIES OPERATING BUSINESSES SIMILAR TO OURS, AND OUR
FAILURE TO COMPETE SUCCESSFULLY WITH OUR CURRENT OR FUTURE COMPETITORS COULD
MATERIALLY ADVERSELY AFFECT OUR BUSINESS.
The market in which CollegeLink(R) operates is very competitive. We face
direct competition from a number of sources, the most significant of which are
Apply!, Embark.com (formerly CollegeEdge), CollegeNet, CollegeQuest and XAP.
Apply!, owned by The Princeton Review, provides a CD-based college application
product to students, primarily through a high school distribution scheme.
Embark.com, CollegeNet, CollegeQuest and XAP are Internet companies which allow
students to complete and submit college applications electronically. Our
CollegeLink(R) service also faces competition from traditional print media
companies such as The Princeton Review, Petersons, a subsidiary of Thorne
Publishing, and Kaplan Educational Centers, which provide offline information
and resources such as self help guides on college admission and selection, and
from software companies already providing packaged software to educational
institutions and professionals. Some of these companies have already moved to
provide these resources on the Internet. We also face competition from
educational not-for-profit and membership organizations such as ACT and our
partner, The College Board(R), which already provide significant online
information and other resources to students. Our partner, The College Board(R),
has recently announced plans to provide a broad range of college admissions,
test preparation and related services on the Internet.
Students Success faces competition from a variety of sources including
other providers of self-help and educational programs such as Kaplan, Barrons,
Princeton Review, Houghton Mifflin and Learning Forum. The market in which
Online Scouting Network operates is also competitive. We are aware of three
significant competitors in its market: Athletes Online, Allstater.com and The
Recruitzone. These companies provide online college athletic recruitment
information and services. While we believe that there are barriers to entry to
the markets in which we operate, we expect that additional competitors will
enter these markets with competing products in the future. Our current or future
competitors may have greater resources, including contacts in the educational
industry, than we currently have at our disposal. Our
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<PAGE> 8
competitors may be more able to react more quickly to changes in technology in
our industry and/or to expend greater time and funds than we can to develop and
promote their products or services. Increased competition could result in
pricing pressures, reduced margins or the failure of our products and services
to achieve or maintain market acceptance. If we cannot compete effectively with
current or future competitors, our business, operating results and financial
condition could be materially adversely affected.
STUDENTS MAY BE RELUCTANT TO SUBMIT COMPUTER-BASED APPLICATIONS AND ANY
DIFFICULTY CONVINCING STUDENTS TO USE OUR SERVICE COULD MATERIALLY ADVERSELY
AFFECT OUR BUSINESS AND OPERATING RESULTS.
College bound students may not feel comfortable using our products.
Students may feel that applications submitted electronically will not receive
the same treatment as traditional applications, they may feel insecure about
relying on an intermediary for submitting applications, or they may be unwilling
to pay the additional fees we charge for processing applications. Any of these
factors could inhibit development of a market for CollegeLink(R). If we have
difficulty developing a viable market for CollegeLink(R), our business and
operating results could be materially adversely affected.
COLLEGES AND UNIVERSITIES MAY BE UNWILLING TO DESIGNATE COLLEGELINK(R) AS A
PREFERRED OR EVEN AN ACCEPTABLE ONLINE FILING SERVICE.
Various colleges and universities may not wish to establish a special
relationship with any particular online application service or they may not be
willing to accept online filing from any service. The adoption of such a policy
by a significant number of these institutions could have a material adverse
effect on our results of operations and financial condition.
FAILURE TO ESTABLISH RELATIONSHIPS WITH FURTHER COLLEGES AND UNIVERSITIES OR TO
MAINTAIN OUR EXISTING RELATIONSHIPS MAY AFFECT OUR ABILITY TO COMPETE IN OUR
MARKET.
We believe our ability to successfully compete in the online college
application market is dependent upon our ability to enter into new relationships
with colleges not currently accepting CollegeLink(R) applications and to
maintain our existing relationships with a large number of colleges and
universities. If we are unable to continue to enter into new relationships with
colleges and universities not currently accepting CollegeLink(R) applications,
the growth of our business could be inhibited. Our failure to maintain our
existing relationships with colleges and universities for any reason could cause
us to lose existing and potential customers. A loss of customers or restrictions
on our ability to grow our business could have a material adverse effect on our
results of operations and financial condition.
OUR FAILURE TO MANAGE OUR EXPANDING OPERATIONS SUCCESSFULLY COULD ADVERSELY
AFFECT OUR BUSINESS.
If we are to be successful, we must expand our operations. We have
experienced significant growth in our revenues and employee base as a result of
acquisitions. This growth creates new and increased management and training
responsibilities for our employees. This growth also increases the demands on
our internal systems, procedures and controls, and on our managerial,
administrative, financial, marketing and other resources. We depend heavily upon
the managerial, operational and administrative skills of our officers to manage
this growth. Nonetheless, new responsibilities and demands may adversely affect
the overall quality of our work. Any failure on our part to improve our internal
systems, procedures and controls, to attract, train, motivate, supervise and
retain additional professional, managerial, administrative, financial, marketing
and other personnel, or otherwise to manage growth successfully could have a
material adverse effect on our business, financial condition and results of
operations.
WE MAY HAVE DIFFICULTY INTEGRATING THE BUSINESSES OF ECI, STUDENT SUCCESS AND
OTHER BUSINESSES WHICH WE EXPECT TO ACQUIRE.
On August 10, 1999, we acquired ECI, Inc. ECI became our wholly-owned
subsidiary. We continue to operate it as a subsidiary, now renamed
CollegeLink.com Incorporated. CollegeLink.com provides online college admission,
scholarship and financial aid application services. On October 20, 1999, we
signed a
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<PAGE> 9
definitive agreement to acquire Student Success, Inc. Student Success offers
onsite high school and college preparatory programs for students and their
families under its Making College Count(R) and Making High School Count(TM)
trademarks. On August 18, 1999, we signed a letter of intent to acquire Online
Network, L.L.C. d/b/a Online Scouting Network, an Internet-based company that
operates the Online Scouting Network and provides student-athlete recruiting
services at its web site, http://www.osn.com. Both of our pending acquisitions
are subject, among other things, to certain usual and customary closing
conditions. No assurance can be given to you that we will complete these
acquisitions.
We cannot assure you that we will be able to absorb and effectively manage
the acquisition of ECI and, assuming their completion, the acquisitions of
Student Success and Online Scouting. There can be no assurance that we will be
able to develop, market and sell our CollegeLink(R) products and services and
the products and services of Student Success and Online Scouting successfully.
The difficulty and management distraction inherent in integrating each acquired
business, the substantial charges expected to be incurred in connection with
each acquisition, including costs of integrating each business and transaction
expenses arising from each acquisition, the risks of entering markets in which
we have no or limited direct prior experience, the potential loss of key
employees of each acquired company and the risk that the benefits sought in each
acquisition will not be fully achieved, could have a material adverse effect on
our business, operating results and financial condition.
WE ARE DEPENDENT UPON CERTAIN KEY PERSONNEL WHOSE SERVICES COULD BE DIFFICULT TO
REPLACE.
Our future success depends to a significant degree on the skills,
experience and efforts of our key executive officers and key marketing and
management personnel such as our Chairman, Richard Fisher, our President, Kevin
High and our Senior Vice President and President of CollegeLink.com., Thomas
Burgess, all of whom currently devote their full time to our business and would
be difficult to replace if they left our employment. While we have employment
agreements with the foregoing individuals, such agreements do not guarantee
their continued employment with us. While we also have noncompetition agreements
with these individuals, there is no assurance that the noncompetition agreements
will be enforceable. The loss of the services of any of the foregoing
individuals could have a material adverse effect on our business, operating
results and financial condition. We maintain a key person life insurance policy
covering Mr. High for our benefit but do not have similar insurance coverage for
any other employee.
OUR INABILITY TO HIRE AND RETAIN SKILLED PERSONNEL COULD HARM OUR BUSINESS.
Qualified personnel are in great demand throughout the software and
Internet start-up industries. Our success depends in large part upon our ability
to attract, train, motivate and retain highly skilled sales and marketing
personnel, web designers, software engineers and other senior personnel. Our
inability to attract and retain the highly trained technical personnel that are
integral to our direct sales, product development, service and support teams may
limit the rate at which we can generate sales and develop new products and
services or product and service enhancements. This could have a material adverse
effect on our business, operating results and financial condition.
SEASONAL FACTORS MAY CAUSE OUR OPERATING RESULTS TO FLUCTUATE AND WE MAY NOT BE
ABLE TO GENERATE SUFFICIENT REVENUE IN CERTAIN PERIODS TO OFFSET EXPENSES IN
THOSE PERIODS.
Because our CollegeLink business derives from the college application
process which occurs in the fall, winter, and early spring, revenue from our
CollegeLink(R) products and services has historically been much lower during the
late spring and summer months, and we expect this trend to continue. This
seasonality of the CollegeLink business may cause our revenue and operating
results to fluctuate significantly in the future and to be difficult to predict.
In such an event, the price of our common stock could decline.
8
<PAGE> 10
IF OUR ONLINE SERVERS BECAME UNAVAILABLE, WE COULD LOSE CUSTOMERS.
We could lose existing or potential customers for our online CollegeLink(R)
business if they do not have ready access to our online servers, or if our
online servers and computer systems do not perform reliably and to our
customers' satisfaction. Network interruptions or other computer system
shortcomings, such as inadequate capacity, could reduce customer satisfaction
with our services or prevent customers from accessing our services and seriously
damage our reputation.
As the number of students and colleges and universities using
CollegeLink(R) online increases, we will need to expand and upgrade the
technology underlying our CollegeLink(R) services. We may be unable to predict
accurately changes in the volume of user traffic and therefore may be unable to
expand and upgrade our systems and infrastructure in time to avoid system
interruptions. System interruptions will affect the quality of our services we
provide to our existing customers and may cause us to lose customers. In
addition, we may need to divert significant resources to expand and upgrade our
existing systems and infrastructure to meet any increase in user demand. This
could have a material adverse effect on our business, results of operations and
financial condition.
Although we are planning to provide a redundant server capability in
another geographic area, all of our computer and communications equipment is
currently located in Newport, Rhode Island. This equipment is vulnerable to
interruption or damage from fire, flood, power loss, telecommunications failure
and earthquake. Some of the components of our computer and communication systems
do not have immediate automatic backup equipment. The failure of any of these
components could result in down time for our server and could seriously harm our
business. Our property damage and business interruption insurance may not
protect us from any loss that we may suffer.
Our computer and communications systems are also vulnerable to computer
viruses, physical or electronic break-in and other disruptions. These problems
could lead to interruptions, delays, loss of data or the ineffective operation
of our server. Any of these outcomes could seriously harm our business.
WE COULD LOSE REVENUE AND INCUR SIGNIFICANT COSTS IF OUR SYSTEMS OR MATERIAL
THIRD-PARTY SYSTEMS ARE NOT YEAR 2000 COMPLIANT.
Many currently installed computer systems and software products accept only
two digits to identify the year in any date. Thus, the year 2000 will appear as
"00," which a system or software might consider to be the year 1900 rather than
the year 2000. This error could result in system failures, delays or
miscalculations that disrupt our operations. The failure of our internal
systems, the systems of any companies we acquire, or any material third-party
systems, to be year 2000 compliant could result in significant liabilities and
could seriously harm our business.
We have conducted a review of our business systems, including our computer
systems. We have taken steps to remedy potential problems, but have not yet
developed a comprehensive year 2000 contingency plan. There can be no assurance
that we will identify all year 2000 problems in our computer systems before they
occur or that we will be able to remedy any problems that are discovered.
We have also queried many of our customers, vendors and resellers as to
their progress in identifying and addressing problems that their computer
systems may face in correctly interrelating and processing date information as
the year 2000 approaches and is reached. We have received responses from several
of these parties, but there can be no assurance that we will identify all such
year 2000 problems in the computer systems of our customers, vendors or
resellers before they occur or that we will be able to remedy any problems that
are discovered.
Our efforts to identify and address year 2000 problems, and the expenses we
may incur as a result of such problems, could have a material adverse effect on
our business, financial condition and results of operations. We expect that
costs to address the year 2000 issue, directly or indirectly, will total about
$15,000, the majority of which was spent in fiscal 1998 and 1999, with the
remainder being spent during fiscal 2000. To date, we have incurred expenses of
about $12,000 related to the assessment of and
9
<PAGE> 11
preliminary efforts in dealing with the year 2000 issue. We cannot assure you
that these costs will not be significantly higher.
In addition, the revenue stream and financial stability of existing
customers may be adversely impacted by year 2000 problems, which could cause
fluctuations in our revenue. If we fail to identify and remedy year 2000
problems, we could also be at a competitive disadvantage relative to companies
that have corrected such problems. It is also possible that concerns over year
2000 problems could cause potential customers for our products and services to
lose confidence in computer-based solutions to college applications needs. Any
of these outcomes could have significant adverse effects on our business,
financial condition and results of operations.
WE MAY BE UNABLE TO ADEQUATELY PROTECT OUR INTELLECTUAL PROPERTY RIGHTS AND
ASSERTING OUR INTELLECTUAL PROPERTY RIGHTS MAY SUBJECT US TO LITIGATION WHICH
COULD HARM OUR OPERATING RESULTS.
Our success depends to a significant degree upon the protection of our
proprietary technology and other intellectual property rights including our
rights in our CollegeLink(R) software. The unauthorized reproduction or other
misappropriation of our proprietary technology or use of our other intellectual
property rights could enable third parties to benefit from our technology and
other intellectual property rights without paying us for it. This could have a
material adverse effect on our business, operating results and financial
condition.
Although we have taken steps to protect our proprietary technology and
other intellectual property, they may be inadequate. We do not know whether we
will be able to defend our proprietary rights because the validity,
enforceability and scope of protection of proprietary rights in Internet-related
industries are uncertain and still evolving. Moreover, the laws of some foreign
countries are uncertain and may not protect intellectual property rights to the
same extent as the laws of the United States.
If we resort to legal proceedings to enforce our intellectual property
rights, the proceedings could be burdensome and expensive and could involve a
high degree of risk.
WE MAY FACE INTELLECTUAL PROPERTY INFRINGEMENT AND OTHER CLAIMS FROM THIRD
PARTIES IN CONNECTION WITH THE USE OF OUR TECHNOLOGY WHICH COULD REQUIRE US TO
INCUR SUBSTANTIAL COSTS AND DIVERT OUR RESOURCES FROM OUR BUSINESS.
Although we attempt to avoid infringing known proprietary rights of third
parties, we are subject to the risk of claims alleging infringement of third
party proprietary rights. If we were to discover that any of our products
violated third party proprietary rights, there can be no assurance that we would
be able to obtain licenses on commercially reasonable terms to continue offering
the product without substantial reengineering or that any effort to undertake
such reengineering would be successful. We do not conduct comprehensive patent
searches to determine whether the technology used in our products infringes
patents held by third parties. In addition, product development is inherently
uncertain in a rapidly evolving technological environment in which there may be
numerous patent applications pending, many of which are confidential when filed,
with regard to similar technologies.
Any claim of infringement could cause us to incur substantial costs
defending against the claim, even if the claim is invalid, and could distract
our management from our business for periods of time. Furthermore, a party
making such a claim could secure a judgment that requires us to pay substantial
damages. A judgment could also include an injunction or other court order that
could prevent us from selling our products. Any of these events could have a
material adverse effect on our business, operating results and financial
condition.
10
<PAGE> 12
RISKS RELATING TO OUR INDUSTRY
WE DEPEND ON THE CONTINUED GROWTH OF THE INTERNET AND ANY DECREASE IN CONSUMER
USE OF THE INTERNET OR THE GROWTH OF THE INTERNET COULD HARM OUR BUSINESS.
Our ability to generate revenues is substantially dependent upon continued
growth in the acceptance and use of the Internet and the infrastructure for
providing Internet access and carrying Internet traffic. We cannot be certain
that the necessary infrastructure or complementary products or services will be
developed or that the Internet will prove to be a viable commercial marketplace.
To the extent that the Internet continues to experience significant growth in
the level of use and the number of users, there can be no assurance that the
infrastructure will continue to be able to support the demands placed upon it by
such potential growth. In addition, delays in the development or adoption of new
standards or protocols required to handle increased levels of Internet activity,
increased governmental regulation or taxation of Internet commerce may restrict
the growth of the Internet. If the necessary infrastructure or complementary
products and services are not developed or if the Internet does not become a
viable commercial marketplace, it would have a material adverse effect on our
business, operating results and financial condition.
OUR BUSINESS MAY BE HARMED BY THE SECURITY RISKS RELATED TO INTERNET COMMERCE.
A significant barrier to submission of personal data in college
applications over the Internet is the secure transmission of confidential
information over public networks. Internet companies rely on encryption and
authentication technology to provide the security and authentication necessary
to effect secure transmission of confidential information. There can be no
assurance that advances in computer capabilities, new discoveries in the field
of cryptography or other developments will not result in a compromise or breach
of the algorithms used by companies to protect consumer transaction data. If any
such compromise of this security were to occur, it could have a material adverse
effect on our potential clients, business, prospects, financial condition and
results of operations. A party who is able to circumvent security measures could
misappropriate proprietary information or cause interruptions in operations. We
may be required to expend significant capital and other resources to protect
against such security breaches or to alleviate problems caused by such breaches.
Concerns over the security of transactions conducted on the Internet and
the privacy of users may also hinder the growth of online services generally. To
the extent that our activities or third-party contractors involve the storage
and transmission of proprietary information, such as credit card numbers, or
personal data information, security breaches could damage our reputation and
expose us to a risk of loss or litigation and possible liability. We cannot be
sure that our security measures will not prevent security breaches or that
failure to prevent such security breaches will not have a material adverse
effect on our business.
RISKS RELATING TO THIS OFFERING
OUR EXISTING PRINCIPAL SHAREHOLDERS WILL CONTINUE TO EXERCISE SIGNIFICANT
CONTROL OF CYTATION.
Of our outstanding 9,846,340 shares of common stock, our principal
shareholders, officers and directors beneficially own 3,784,492 shares or about
29 percent of our common stock prior to this offering and following this
offering will own about -- percent of our common stock. In addition, our
officers and directors have currently exercisable options to purchase 402,369
shares of our common stock. As a result, they may have the ability to control
and direct our affairs and business. Such concentration of ownership may also
have the effect of delaying, deferring or preventing a change in control in
Cytation.
11
<PAGE> 13
THERE HAS BEEN LITTLE PREVIOUS PUBLIC MARKET FOR OUR STOCK, AND IF SUCH A MARKET
DOES DEVELOP, OUR STOCK PRICE COULD POTENTIALLY BE VOLATILE.
Although our common stock is quoted on the Over-the-Counter Electronic
Bulletin Board, there has been little public market for the common stock, and
there can be no assurance that an active trading market will develop or be
sustained. At a future date, provided a public market for the stock does
develop, the market price of the shares of common stock is likely to be highly
volatile and may be significantly affected by factors such as fluctuations in
our operating results, announcements of technological innovations or new
products and/or services by us or our competitors, governmental regulatory
action, developments with respect to proprietary rights and general market
conditions.
WE WILL HAVE BROAD DISCRETION IN USING THE PROCEEDS OF THIS OFFERING.
We intend to use all of our proceeds from this offering for the acquisition
of Student Success, working capital and general corporate purposes, including
other potential acquisitions. Accordingly, we will have broad discretion in
using our proceeds. You will not have the opportunity to evaluate the economic,
financial or other information that we will use to determine how to use our
proceeds.
FUTURE SALES OF COMMON STOCK BY EXISTING SECURITY HOLDERS COULD DEPRESS THE
MARKET PRICE FOR THE COMMON STOCK.
Sales of substantial amounts of the common stock in the public market, or
the prospect of such sales, could depress the prevailing market price of the
common stock and our ability to raise equity capital in the future. Upon
completion of this offering, we will have outstanding -- shares of common stock,
warrants and options to purchase 2,471,988 shares and 2,440,369 shares issuable
upon conversion of our preferred stock (assuming the maximum number of shares to
be issued upon conversion). Of these shares, -- shares of common stock and
4,912,357 shares issuable upon exercise of warrants and options and conversion
of our preferred stock (assuming the maximum number of shares to be issued upon
conversion) will be restricted shares under the Securities Act of 1933, as
amended. The common stock in this offering will be immediately eligible for sale
in the public market without restriction on the date of the prospectus. Taking
into account the lock-up agreements and the restrictions of Rules 144, 144(k)
and 701 promulgated under the Securities Act, all of the restricted shares will
be available for sale in the public market beginning twelve months from the date
of this prospectus.
YOU WILL INCUR IMMEDIATE AND SUBSTANTIAL DILUTION OF YOUR INVESTMENT.
If you buy the common stock you will incur immediate and substantial
dilution of about $-- per share, or --% of your investment in the common stock
(at a public offering price of $-- per share), in that the net tangible book
value of the common stock after this offering will be about $-- per share of
common stock.
ISSUANCE OF PREFERRED STOCK MAY ADVERSELY AFFECT HOLDERS OF COMMON STOCK OR
DELAY OR PREVENT CORPORATE TAKE-OVER.
Our certificate of incorporation provides that we may issue preferred stock
from time to time in one or more series. Our Board of Directors is authorized to
determine the rights, preferences, privileges and restrictions granted to and
imposed upon any wholly unissued series of preferred stock and the designation
of any such shares, without any vote or action by our shareholders. The Board of
Directors may authorize and issue preferred stock with voting power or other
rights that could adversely affect the voting power or other rights of the
holders of common stock. In addition, the issuance of preferred stock could have
the effect of delaying, deferring or preventing a change in control, because the
terms of preferred stock that might be issued could potentially prohibit the
consummation of any merger, reorganization, sale of substantially all of its
assets, liquidation or other extraordinary corporate transaction without the
approval of the holders of the outstanding shares of the preferred stock.
12
<PAGE> 14
OUR CHARTER, BY-LAWS AND NEW YORK LAW MAY DETER TAKE-OVERS.
Our certificate of incorporation, by-laws and New York law contain
provisions that could have anti-takeover effects and that could discourage,
delay or prevent a change in control of Cytation or an acquisition of Cytation
at a price that many stockholders may find attractive. These provisions may also
discourage proxy contests and make it more difficult for stockholders of
Cytation to take some corporate actions, including the election of directors.
The existence of these provisions could limit the price that investors might be
willing to pay in the future for shares of our common stock.
FORWARD-LOOKING STATEMENTS
Statements in this prospectus that are not purely historical, such as
statements regarding our expectations, beliefs, intentions, plans and strategies
regarding the future, are forward-looking statements. These statements are only
predictions, and they involve risks, uncertainties and assumptions that could
cause our actual results to differ materially from the results we express in the
forward-looking statements, including those risks and uncertainties discussed
under "Risk Factors." This section includes important factors that could cause
or contribute to these differences. We cannot guarantee the results expressed in
any forward-looking statement. We have based all forward-looking statements on
information available to us on the date of this prospectus and we have no
obligation to update any forward-looking statement.
13
<PAGE> 15
USE OF PROCEEDS
We estimate that the net proceeds from the sale of the -- shares of common
stock we are offering, after deducting the estimated underwriting discount and
estimated offering expenses payable by us and assuming a public offering price
of $-- per share, will be about $-- million, or about $-- million if the
underwriters exercise their over-allotment option in full.
We intend to use the net proceeds from the offering for the acquisitions of
Student Success and Online Scouting Network, general corporate purposes,
including working capital, expansion of our sales and marketing programs and in
acquisitions of and investments in complementary businesses. Accordingly, we
will have broad discretion in the application of the net proceeds. We have
recently signed a definitive agreement to acquire Student Success, Inc. and a
letter of intent to acquire Online Scouting Network. Pending the foregoing uses,
we intend to invest the net proceeds from the offering in investment-grade,
interest-bearing instruments. While the net proceeds are so invested, the
interest earned by us on such proceeds will be limited by available market
rates. We intend to invest and use such proceeds so as not to be considered an
"investment company" under the Investment Company Act of 1940, as amended.
PRICE RANGE OF COMMON STOCK
Our common stock has been publicly traded on the Over-the-Counter
Electronic Bulletin Board under the symbol CYTA since March 18, 1999. The
following table sets forth, for the periods indicated, the high and low closing
sales prices per share for the common stock as quoted on the Over-the-Counter
Electronic Bulletin Board.
<TABLE>
<CAPTION>
PRICE RANGE OF
COMMON STOCK
----------------
HIGH LOW
------ ------
<S> <C> <C>
FISCAL 1999:
Third Quarter ending March 31, 1999 (commencing March 18,
1999)..................................................... $7.500 $5.375
Fourth Quarter ending June 30, 1999......................... $9.906 $6.125
FISCAL 2000:
First Quarter ending September 30, 1999..................... $6.875 $4.188
Second Quarter ending December 31, 1999 (through October 15,
1999)..................................................... $6.750 $5.000
</TABLE>
On October 15, 1999, the closing price of our common stock as quoted on the
Over-the-Counter Electronic Bulletin Board was $6.5625. On that date, we had
about 1,400 holders of record of the common stock. This number does not include
stockholders for whom shares were held in a "nominee" or "street" name.
DIVIDEND POLICY
We have never declared or paid any dividends on our common stock. We
currently intend to retain any future earnings to finance operations and
expansion of our business and therefore do not anticipate paying any cash
dividends in the foreseeable future. The payment of future dividends, if any,
will depend, among other things, on our results of operations, cash flows and
financial condition and on such other factors as our Board of Directors may, in
its discretion, consider relevant.
14
<PAGE> 16
CAPITALIZATION
The following table sets forth our capitalization as of September 30, 1999,
on an actual basis, on a pro forma basis as if the acquisitions of Student
Success, Inc. and Online Scouting Network had occurred as of September 30, 1999,
and as adjusted to reflect the completion of the foregoing acquisitions and the
sale by us of -- shares of common stock in this offering (at an offering price
of $ -- per share and after deducting estimated underwriting discounts and
commissions and offering expenses payable by us) and the application of the
estimated net proceeds from this offering. You should read the following in
conjunction with the more detailed financial statements and related notes
included elsewhere in this prospectus.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1999
---------------------------------------------
PRO FORMA PRO FORMA AS
ACTUAL ACQUISITIONS(1) ADJUSTED
---------- --------------- ------------
<S> <C> <C> <C>
SHAREHOLDERS' EQUITY:
Series A Convertible Preferred Stock, $4.00 stated
value, par value $0.01 per share; 2,500,000 shares
authorized, and 890,000 shares issued and
outstanding....................................... $3,560,000
Series B Convertible Preferred Stock, $7.625 stated
value, par value $0.01 per share; 300,000 shares
authorized, and 279,771 shares issued and
outstanding....................................... $2,133,254
Series C Convertible Preferred Stock $4.00 stated
value, par value $0.01 per share; 1,000,000 shares
authorized, and 1,000,000 shares issued and
outstanding....................................... $4,000,000
Common Stock, par value $0.001 per share;
100,000,000 shares authorized and 9,846,340 shares
issued and outstanding, actual; shares issued
and outstanding, pro forma; shares issued and
outstanding, pro forma as adjusted(2)............. 9,846,340
Additional paid-in capital.......................... $2,459,718
Retained earnings (accumulated deficit).............
Total shareholders' equity................
Total capitalization......................
</TABLE>
- - - ---------------
(1) This amount takes into account the -- and 225,000 shares of common stock
proposed to be issued to the stockholders of Student Success, Inc. and
Online Scouting Network, respectively, in connection with the acquisition of
these companies.
(2) Does not give effect to an aggregate of up to -- shares of common stock as
follows: (a) -- shares issuable upon exercise of the underwriters'
over-allotment option; (b) -- shares of common stock reserved for issuance
upon exercise of the representative's warrant, (c) 1,716,185 shares of
common stock reserved for issuance upon the exercise of options outstanding,
and 925,000 shares of common stock reserved for future grants under our
option plans, (d) 755,803 shares of common stock reserved for issuance upon
exercise of outstanding warrants, (e) 890,000 shares of common stock
issuable upon conversion of 890,000 shares of Series A Convertible Preferred
Stock outstanding, (f) 550,369 shares of common stock issuable upon
conversion of 279,771 shares of Series B Convertible Preferred Stock
outstanding (assuming the maximum number of shares of common stock issuable
upon such conversion), and (g) 1,000,000 shares of common stock issuable
upon conversion of 1,000,000 shares of Series C Convertible Preferred Stock
outstanding. See "Underwriting," "Certain Relationships and Related
Transactions" and "Management -- Benefit Plans." In September 1999, no
options to purchase shares of our common stock were exercised.
15
<PAGE> 17
DILUTION
The pro forma net tangible book value of our common stock as of September
30, 1999 was approximately $ --, or $ -- per share of common stock. Pro forma
net tangible book value per share represents the amount of our total tangible
assets less total liabilities, divided by -- shares of common stock outstanding
as of September 30, 1999 after giving effect to the proposed issuance of common
stock to the stockholders of Student Success, Inc. and Online Scouting Network
in connection with our acquisition of those companies.
Pro forma net tangible book value dilution per share represents the
difference between the amount per share paid by new investors who purchase
shares of common stock in this offering and the pro forma net tangible book
value per share of common stock immediately after completion of this offering.
After giving effect to the sale of -- shares of common stock in this offering at
an offering price of $ -- per share, after deduction of estimated underwriting
discounts and commissions and offering expenses, the pro forma net tangible book
value of the Company at September 30, 1999 would have been $ -- or $ -- per
share.
This represents an immediate increase in pro forma net tangible book value
of $ -- per share to existing shareholders, and an immediate dilution in net pro
forma tangible book value of $ -- per share to new investors in this offering,
as illustrated in the following table:
<TABLE>
<S> <C> <C>
Assumed offering price per share(1)............................... $ --
Net tangible book value per share at September 30, 1999... $ --
Increase per share attributable to new investors.......... $ --
----
Pro forma net tangible book value per share after this
offering(2)..................................................... $ --
----
Dilution per share to new investors(3)............................ $ --
====
</TABLE>
- - - ---------------
(1) Before deduction of estimated underwriting discounts and commissions and
offering expenses to be paid by us.
(2) Does not give effect to an aggregate of up to -- shares of common stock as
follows: (a) -- shares issuable upon exercise of the underwriters'
over-allotment option; (b) -- shares of common stock reserved for issuance
upon exercise of the representative's warrant, (c) 1,716,185 shares of
common stock reserved for issuance upon the exercise of options outstanding,
and 925,000 shares of common stock reserved for future grants under our
option plans at September 30, 1999, (d) 755,803 shares of common stock
reserved for issuance upon exercise of outstanding warrants, (e) 890,000
shares of common stock issuable upon conversion of 890,000 shares of Series
A Convertible Preferred Stock outstanding at September 30, 1999, (f) 550,369
shares of common stock issuable upon conversion of 279,771 shares of Series
B Convertible Preferred Stock outstanding at September 30, 1999 (assuming
the maximum number of shares of common stock issuable upon such conversion),
and (g) 1,000,000 shares of common stock issuable upon conversion of
1,000,000 shares of Series C Convertible Preferred Stock outstanding at
September 30, 1999. See "Underwriting," "Certain Relationships and Related
Transactions" and "Management -- Benefit Plans."
(3) Represents dilution of about --% to purchasers of the shares of common stock
in this offering.
16
<PAGE> 18
The following table summarizes as of September 30, 1999, on a pro forma
basis to reflect the same adjustments described above, the number of shares of
common stock sold by us, the total consideration paid and the average price per
share paid by (i) the existing holders of common stock and (ii) the new
investors in the offering, assuming the sale of -- shares of common stock by us
at an offering price of $ -- per share. The calculations are based upon total
consideration given by new and existing shareholders, before any deduction of
estimated underwriting discounts and commissions and offering expenses.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
-------------------- ---------------------- AVERAGE PRICE
NUMBER PERCENTAGE AMOUNT PERCENTAGE PER SHARE
------ ---------- -------- ---------- -------------
<S> <C> <C> <C> <C> <C>
Existing shareholders............... % $ % $
New Investors....................... % $ $
------ -------- ----------
Total(1).................. 100.0% $ $ 100.0%
====== ===== ======== ==========
</TABLE>
- - - ---------------
(1) The foregoing table does not give effect to the items described in footnotes
(1) and (2) to the previous dilution table.
17
<PAGE> 19
SELECTED FINANCIAL DATA
The following selected financial data for the six months ended June 30,
1996 and as of June 30, 1997, 1998 and 1999 and for each of the three years in
the period ended June 30, 1999 are derived from our financial statements
included in this prospectus, which have been audited by Radin, Glass & Co., LLP,
independent accountants. You should read the following information in
conjunction with our financial statements and related notes and the
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" section appearing elsewhere in this prospectus. The pro forma net
loss per common share data gives effect to the conversion of all series of
preferred stock outstanding as of June 30, 1999 into common stock. The
historical results are not necessarily indicative of results to be expected for
future periods.
<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION
(JANUARY 29, YEAR ENDED JUNE 30,
1996) TO JUNE 30, ---------------------------------------
1996 1997 1998 1999
----------------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net Revenue:
Development of proprietary
technology........................ $ -- $ -- $ 500,000 $ --
Online training service revenues..... -- -- -- 162,884
Web site hosting..................... 6,921 82,971 210,700 235,522
Other revenues....................... 36,744 376,754 533,183 163,515
---------- ---------- ---------- -----------
43,665 459,725 1,243,883 561,921
---------- ---------- ---------- -----------
OPERATING EXPENSES:
Payroll, payroll taxes and related
benefits.......................... 37,177 589,356 1,018,786 1,173,439
Investor relations................... -- -- -- 376,824
Depreciation and amortization........ -- 66,949 93,554 131,545
Advertising.......................... 6,678 127,155 13,268 49,428
Other general and administrative
expenses.......................... 61,772 558,978 741,028 1,375,057
---------- ---------- ---------- -----------
Total Costs and Expenses............. 105,627 1,342,438 1,866,636 3,106,293
Loss From Operations................... (61,962) (882,713) (622,753) (2,544,372)
Interest Expense....................... -- 5,786 7,579 42,053
---------- ---------- ---------- -----------
Net Loss............................... $ (61,962) $ (888,499) $ (630,332) $(2,586,425)
========== ========== ========== ===========
Net Loss Per Common Share.............. $ (0.06) $ (0.29) $ (0.18) $ (0.40)
========== ========== ========== ===========
Weighted Average Primary Number of
Shares Outstanding................... 1,076,452 3,033,036 3,499,857 6,531,153
========== ========== ========== ===========
Pro Forma Net Loss Per Common Share.... -- -- -- (0.86)
Pro Forma Weighted Average Shares
Outstanding.......................... -- -- -- 7,190,158
</TABLE>
<TABLE>
<CAPTION>
AT JUNE 30,
--------------------------------------------------------
1996 1997 1998 1999
------------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working Capital (Deficit)................. $ (78,273) $ (168,485) $ (286,580) $ 1,126,168
Total Assets.............................. 44,057 373,576 358,189 1,806,996
Long-Term Liabilities..................... 15,914 13,086 9,580 --
Shareholders' Equity (Deficit)............ (24,607) 78,089 (69,321) 1,376,652
</TABLE>
18
<PAGE> 20
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion and analysis of our financial
condition and results of operations in conjunction with "Selected Financial
Data" and Cytation's financial statements and related notes appearing elsewhere
in this prospectus.
CORPORATE BACKGROUND
On February 2, 1999, the Board of Directors of an inactive public company
voted to change the name of that company to Cytation.com Incorporated. On
February 8, 1999, the Board of Cytation.com Incorporated voted to effect a
one-for-two reverse stock split which became effective on February 25, 1999. On
March 5, 1999, Cytation Corporation, a Rhode Island corporation (formerly known
as Web Services International, Inc.) and the provider of a browser-based online
training system, was merged into Cytation.com Incorporated. In the merger, each
share of Cytation Corporation was converted into 5.765 shares of common stock of
Cytation.com Incorporated. A total of 7,081,028 shares of Cytation.com
Incorporated were issued as a result of this merger.
Although Cytation.com Incorporated is the surviving entity from the merger
of March 5, 1999, in accordance with applicable SEC accounting requirements, we
are the successor to Cytation Corporation which was the disappearing entity in
the March 5, 1999 merger.
On August 10, 1999, Cytation.com Incorporated acquired ECI, Inc., a
Massachusetts corporation and provider of online college application services.
ECI was merged into Cytation.com Incorporated's wholly owned subsidiary,
CollegeLink.com Incorporated. CollegeLink.com Incorporated remains a wholly
owned subsidiary of Cytation.com Incorporated.
RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
PRO FORMA
YEAR ENDED JUNE 30, ACQUISITIONS
--------------------------------------- (UNAUDITED)
YEAR ENDED
1997 1998 1999 JUNE 30, 1999
----------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
Net revenue:
Development of proprietary technology..... $ -- $ 500,000 $ -- $ --
Online training service revenues.......... -- -- 162,884 --
Website hosting........................... 82,971 210,700 235,522 --
Other revenues............................ 376,754 533,183 163,515 --
Revenues related to acquisitions.......... -- -- -- 1,839,840
----------- ----------- ----------- -----------
459,725 $ 1,243,883 $ 561,921 $ 1,839,840
----------- ----------- ----------- -----------
Operating expenses:
Payroll, payroll taxes and related
benefits............................... $ 589,356 $ 1,018,786 $ 1,173,439 $ 1,967,153
Investor relations........................ -- -- 376,824 1,000,290
Depreciation and amortization............. 66,949 93,554 131,545 241,153
Advertising............................... 127,155 13,268 49,428 121,801
Other general and administrative
expenses............................... 558,978 741,028 1,375,057 2,450,123
Amortization of goodwill.................. -- -- -- 1,919,454
----------- ----------- ----------- -----------
Total operating expenses.................. $(1,342,438) $(1,866,636) $(3,106,293) $(7,699,974)
----------- ----------- ----------- -----------
Interest Expense............................ 5,786 7,579 42,053 294,803
Net income (loss)........................... $ 888,499 $ (630,332) $(2,586,425) $(6,154,936)
=========== =========== =========== ===========
</TABLE>
FISCAL YEAR ENDED JUNE 30, 1999 COMPARED TO FISCAL YEAR ENDED JUNE 30, 1998
Net Revenue. Net revenue shows the significance of the shift in our
business focus over the past year. In the first part of 1998 and in prior years
our principal business was the development and sales of
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other services related to the hosting of web content, which accounted for
approximately $743,883 of our revenue. During the latter half of fiscal year
1998, we began development of an online training management system. The $500,000
of revenue for development of proprietary technology was the result of a joint
venture with EER Systems Inc., a Washington, D.C. systems integrator ("EER").
This joint venture ultimately resulted in EER acquiring in excess of 10% of our
shares. While we maintain web hosting services for certain clients, we no longer
provide website development services. A significant portion of our fiscal year
1999 revenue was derived from the online training services.
We expect future revenue will derive from the operations of CollegeLink.com
and the continued development of the CollegeLink(R) Internet-based college
admission service and Internet hub.
Operating Expenses. Operating expenditures for the year ended June 30,
1999 were 68% greater than the previous year. This increase is attributable to
the fact that we changed our principal business during the year. In addition, a
significant amount of increased cost was related to software development of our
online training management system. Another reason for the increase in operating
expenses was the merger completed on March 5, 1999 with Cytation Corporation. A
major portion of the increase in operating expenses resulted from increased
legal, professional and investor relations services required to complete the
merger. Operating expenses are expected to increase substantially in the future
as we increase our marketing effort, and as sales increase, as we believe will
occur.
FISCAL YEAR ENDED JUNE 30, 1998 COMPARED TO FISCAL YEAR ENDED JUNE 30, 1997
In April 1997 we sold the assets related to our Internet service provider
("ISP") business. Final consideration from that sale was received in November
1998. In fiscal 1998, we discontinued our website development business. During
the quarter ended June 30, 1999, we did not receive any revenue from website
development or operations as an ISP, nor did we have any expenses associated
with those former components of our business. No future operations as an ISP or
website developer are contemplated. In the fiscal year ended June 30, 1997, 37%
of revenue was derived from subscriber access (internet dial up service), 24% of
revenue was derived from website origination and a development, 18% of revenue
was derived from website hosting and 21% of revenue was derived from other
services.
PRO FORMA ACQUISITIONS
Revenues Related to Acquisitions. Pro forma net revenue of the combined
companies for the fiscal year ended June 30, 1999 was $1,839,840. Of this amount
$561,921, $104,073, $98,178, and $1,075,668 were attributable to Cytation, ECI,
Student Success and Online Scouting, respectively. ECI's revenues were derived
from its online college applications business. Student Success' revenues were
derived from its online college applications business. Students Success'
revenues were derived from its Making College Count(R) and Making High School
Count(TM) programs. OSN's revenues were derived from registration fees of high
school student athletes. The Company expects that its future revenues will be
derived from these businesses.
Operating Expenses. Operating expenses of the combined companies were
$7,699,974. Of the $1,919,454 attributable to amortization of goodwill,
$916,862, $747,632, and $254,959 were attributable to the acquisitions of ECI,
Student Success and OSN, respectively. Payroll expenses for ECI, Student Success
and OSN were $400,248, $384,205 and $9,261, respectively. Other general and
administrative expenses for ECI, Student Success and OSN were $574,768, $220,377
and $532,672, respectively.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, we have funded operations primarily through cash from
operations and equity and debt investment.
Preferred Stock. We received $3,100,000 through a private placement of
preferred stock to The Provident Life and Accident Insurance Company and one
other accredited investor. The Purchase Agreement with The Provident Life and
Accident Insurance Company was signed April 2, 1999, and the
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<PAGE> 22
transaction closed shortly thereafter. After the end of the fiscal year, we
received $460,000 through the private placement of additional shares of
preferred stock to five accredited investors. We also received $4,000,000
through the private placement of preferred shares to PNC Investment Corp. on
September 30, 1999.
Common Stock. We received $195,000 in January 1999 from the sale of shares
of common stock.
Debt Financing. We issued a note payable to EER for $300,000 in July 1998.
We received $300,000 from EER and a total of $70,000 from various individuals in
debt instrument financing during the quarter ended March 31, 1999. These debt
financings were repaid with the proceeds of the sale of preferred stock to The
Provident Life and Accident Insurance Company described above. We had two
short-term debt instruments representing a total of $50,000 outstanding at July
30, 1998. We repaid these debt instruments in the year ended June 30, 1999.
Sufficiency of Cash Flows. We believe that current cash balances and any
cash generated from operations will be sufficient to meet our cash needs for
working capital and capital expenditures for at least the next twelve months. A
portion of our cash may be used to acquire or invest in complementary businesses
or products or to obtain the right to use complementary technologies. From time
to time, in the ordinary course of business, we evaluate potential acquisitions
of such businesses, products or technologies.
Net cash used in operating activities was $2,110,144 for the fiscal year
ended June 30, 1999 and $277,177 for the fiscal year ended June 30, 1998. Net
cash used in investing activities was $9,534 and $78,551 for the fiscal year
ended June 30, 1999 and June 30, 1998, respectively. Financing activities
provided $3,434,416 for the year ending June 30, 1999 compared to $399,662 for
the year ending June 30, 1998. As of June 30, 1999, we had working capital of
$1,371,100 compared to $46,362 as of June 30, 1998.
RECENT ACCOUNTING PRONOUNCEMENTS
In March, 1998, the American Institute of Certified Public Accountants
("AICPA") issued Statement of Position 98-1, "Accounting for the Cost of
Computer Software Developed or Obtained for Internal Use." This statement is
effective for financial statements for years beginning after December 15, 1998.
This statement provides guidance with respect to accounting for computer
software developed or obtained for internal use, including the requirement to
capitalize specified costs and the amortization of such costs. We adopted this
standard and its adoption had no material effect on our results of operations,
financial position or cash flows.
In April 1998, the AICPA issued Statement of Position 98-5, "Reporting on
the Costs of Start-Up Activities." This statement, which is effective for fiscal
years beginning after December 15, 1998, provides guidance on the financial
reporting of start-up costs and organization costs. It requires costs of
start-up activities and organization costs to be expensed as incurred. The
adoption of this standard had no effect on our results of operations, financial
position or cash flows.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivatives and Hedging
Activities," which establishes accounting and reporting standards for derivative
instruments, including derivative instruments embedded in other contracts, and
for hedging activities. This statement is effective for all fiscal quarters of
fiscal years beginning after June 15, 2000. We do not expect the adoption of
this statement to have an impact on its results of operations, financial
position or cash flows.
Year 2000 Compliance. The Year 2000 issue is the result of computer
programs being written using two digits rather than four to define the
applicable year. Any of our computer programs that have date-sensitive software
may recognize a date using "00" as the year 1900 rather than the year 2000. This
could result in a system failure or miscalculations causing disruptions of
operations, including, among other things, a temporary inability to process
transactions, send invoices, or engage in similar normal business activities. We
have recognized the Year 2000 problem and have taken steps to mitigate the
situation. Our in-house information technology system consists primarily of
hardware and software purchased from
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<PAGE> 23
outside parties, and software developed in-house using third party development
languages and platforms. We have completed vendor-provided upgrades of
vendor-developed software. Although the upgrades are claimed by the vendors to
be Year 2000 compliant, we are testing the hardware and software for Year 2000
compliance and will install vendor-provided software patches if necessary. We
are also testing the internally developed software which is included in the
services sold to customers.
We expect that costs to address the Year 2000 issue, directly or
indirectly, will total approximately $15,000, the majority of which was spent in
fiscal 1998 and 1999, with the remainder being spent during fiscal 2000. Costs
include salary and related expenses, hardware and software costs, and
miscellaneous expenses. To date, we have incurred expenses of approximately
$12,000 related to the assessment of and preliminary efforts in dealing with the
Year 2000 issue.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
We considered the provisions of Financial Reporting Release No. 48
"Disclosures of Accounting Policies for Derivative Financial Instruments and
Derivative Commodity Instruments, and Disclosures of Quantitative and
Qualitative Information about Market Risk Inherent in Derivative Commodity
Instruments." We have no holdings of derivative financial or commodity
instruments.
We are exposed to financial market risks, including changes in interest
rates. To reduce these risks somewhat, we invest excess cash in money market
accounts. We do not use any financial instruments for speculative or trading
purposes.
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<PAGE> 24
BUSINESS
OUR COMPANY
We are a holding company. Our primary operating business is
CollegeLink.com. Together with The College Board(R) and PNC Bank, N.A., we
provide college bound students and their families a complete solution to the
challenges of the college admission process, from college selection to
submission of college, financial aid, and scholarship applications. We have
recently entered into a definitive agreement to acquire Student Success, Inc and
a letter of intent to acquire Online Network, L.L.C. d/b/a Online Scouting
Network. Before acquiring Student Success and Online Scouting Network, we were a
provider of computer based college admissions services and proprietary online
learning solutions.
CollegeLink.com. Through CollegeLink.com, and its relationships with more
than 900 colleges and universities that accept applications in their respective
formats through CollegeLink, we are a leading provider of computer based college
applications and admissions services to college bound students and their
families.
Student Success. Student Success is a leading provider of onsite high
school and college preparatory programs for students and their families under
its Making College Count(R) and Making High School Count trademarks. Through
this channel, we intend to continue to expand our presence and awareness of our
services with high school students who are most likely to use CollegeLink.
Student Success presented its seminars to more than 225,000 students at more
than 900 high schools and junior colleges nationwide last year. These programs
were sponsored by eight major consumer products companies.
Online Scouting. Online Scouting Network is a leading recruiting company
that provides student athletes greater visibility to more than 3,000 college and
university coaches. For the school year ended June 1999, more than 25,000 high
school athletes from 600 high schools in 22 sports nationwide were registered
with Online Scouting Network.
We have an exclusive agreement with The College Board(R) to provide
electronic college applications through The College Board's ExPAN(R) guidance
software. The College Board(R) is a membership organization of colleges and
secondary schools and provider of the SAT(R) and the AP(R) Exams. We are the
only third party electronic application provider on The College Board's website.
We understand that The College Board(R) receives about 18 million monthly hits
on its website.
We have an exclusive agreement with PNC Bank, N.A., one of the largest
student loan providers in the United States, to provide financial products and
services to college bound students and their families through our
CollegeLink.com Internet hub.
We continuously obtain demographic and other information which can be used
by students, their families, colleges and other providers of services to assist
in the college admission process and enhance the entire college experience.
Because of the demographic makeup and the volume of the college bound students
who visit CollegeLink.com, we have also developed an attractive e-commerce
location for students and their families.
COLLEGELINK.COM
We are developing an Internet hub designed to offer college bound students
and their families a range of services and products to assist throughout the
college admission process.
CollegeLink(R). CollegeLink.com are developing proprietary software that
permits high school students to complete and submit college applications on
line. CollegeLink(R) guides a student with access to a personal computer through
the entire application process. It permits the student to answer questions,
print and review drafts and ultimately to submit the application electronically
or in hard copy, depending upon the college's preference. Students enter
information only once when using CollegeLink(R)'s application service, then
select the colleges and universities to which they wish to apply, complete
college specific essays and then transmit all their applications electronically.
Each college receives an application that
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replicates its own form or electronic format. CollegeLink(R) is the only program
that permits students to enter general information only once and still deliver
to each college an application in its own format. We believe that students and
their families prefer our service to filling out multiple forms or mailing a
generic application because they perceive colleges favor applications submitted
on their own formats. CollegeLink(R) also contains hyperlinks to websites for
college admissions tests and scholarship and financial aid searches. We expect
significant growth in the use of CollegeLink(R) as we expand our traditional and
online marketing programs and as the Internet becomes more available and
accepted by high schools, colleges and their students.
Student Success. On October 20, 1999, we entered into a definitive
agreement to acquire Student Success. Student Success is the leading provider of
onsite high school and college preparatory programs for students and their
families under its Making College Count(R) and Making High School Count(TM)
trademarks. Student Success offers schools and students value added educational
and organizational tools. Student programs include live presentations held in
schools during the school day, as well as direct mail follow-up, websites, email
newsletters, and various other printed materials. Student Success presented its
seminars to more than 225,000 students at more than 900 high schools and junior
colleges nationwide last school year. Products for sale include books, books on
tape, and academic planners.
We expect Student Success to enhance our market position by providing
direct contact with hundreds of thousands of college bound students utilizing
trained speakers who deliver a focused presentation. We believe Student Success
has opened a significant marketing channel to cross-sell the full range of our
CollegeLink(R) and Online Scouting products and services. Through this channel,
we intend to expand awareness of our services with high school students. We
believe these programs offer service providers an attractive and effective way
to reach the teen market segment.
Online Scouting. On August 18, 1999, we entered into a letter of intent to
acquire Online Scouting. Online Scouting Network is a leading Internet
recruiting company that operates the Online Scouting Network ("OSN") and
provides student athletes greater visibility to more than 3,000 college and
university coaches. For the school year ended June 1999, more than 25,000 high
school athletes from 600 high schools in 22 sports nationwide were registered
with OSN. OSN provides significant exposure to student athletes and enhances the
recruiting process for college athletic directors and coaches through its
website. OSN has been designed to increase the exposure of about 5 million U.S.
high school athletes to the colleges and to reduce the time and expense colleges
incur in identifying prospective student athletes.
We believe this acquisition will enhance our market position by attracting
additional college bound students to our services. We also believe that there
will be substantial efficiencies for our marketing efforts and expansion of the
services we provide to college bound students.
INDUSTRY BACKGROUND
There are about 14.8 million high school students in the United States.
According to the U.S. census bureau, this number will increase to 15.7 million
over the next five years. Each year, about 3.2 million students enter colleges
and universities for the first time. Of these about 2.2 million apply as first
time freshman to undergraduate colleges and universities. The remaining students
apply to continuing education programs of various sorts. Each year about 2.2
million students submit nearly seven million applications for undergraduate
admission to nearly 3,400 U.S. colleges and universities. Over 50% of these
students apply for some form of financial aid. According to the Department of
Education, it is expected that the total number of college bound students will
continue to increase each year for the foreseeable future. Based on industry
statistics, we believe colleges spend approximately $3.0 billion annually to
recruit and enroll students.
MARKETING STRATEGY
Our strategy is to build upon the thousands of relationships we have
developed with high school guidance counselors and college admissions
professionals through one-on-one marketing efforts. We plan to
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build our brand, reach increasing numbers of high school and college students,
and drive traffic to our Internet hub. Our objectives are to:
- Expand Our Market Leadership Position. We intend to leverage our
relationships with more than 3,000 high schools and more than 900
colleges and universities to establish new affiliations, attract
additional students to our website and create a premier Internet hub for
college bound students. We believe the number of colleges and
universities accepting our applications is central to students who will
want to apply to many colleges and will appreciate the ability to apply
to all of them from one source. We believe our ability to submit
applications on college specific forms, together with our existing
relationships, will establish us as the standard for the industry and
drive traffic across our Internet hub.
- Expand Existing Brand Awareness. We intend to build upon our established
brands and our relationships with The College Board(R) and PNC Bank, N.A.
to establish CollegeLink.com as a leading Internet hub and e-commerce
site. We plan to use our market position and existing relationships with
these service providers to reach increasing numbers of college bound
students.
- Capitalize on Our Strong High School Presence. Each year, The College
Board(R) distributes our CollegeLink(R) software with its
ExPAN(R)guidance software to about 2,000 high schools nationwide. Last
school year, Making College Count(R) presented at more than 900 high
schools and junior colleges and OSN registered athletes from about 600
high schools. We believe our established presence in the high school
market gives us early access to college bound students and will continue
to solidify our brand in the online education market. We intend to grow
our presence in the high school market through expansion of these
programs. In addition, we intend to grow our presence in the high school
market through online direct marketing and other multimedia.
- Develop strategic web partnerships. We have initiated a web partnership
program to co-brand our products and services on targeted high school and
college related high traffic web sites and add content to our Internet
hub. In addition to our relationships with The College Board(R) and PNC
Bank, N.A., we have relationships with Student Advantage, to create
content and commerce opportunities, and Family Education Network, to
create an online family-based education resource, and we are negotiating
other web partnerships.
- Overcome resistance to online applications. We believe many college
bound students and their families perceive that colleges and universities
prefer applications that are submitted on the institution's specific
format. CollegeLink(R) software is the only program currently available
that permits students to enter general information only once and still
deliver to each institution an application in that institution's own
format. We believe this feature gives us a significant competitive
advantage, and we intend to promote it to increase use of our services.
We believe that we have addressed equal consideration issues by providing
student applications in each college's own format.
- Market our products and services. We plan to continue to add high
schools, colleges and universities to our roster the way we have since
1991: on campus direct sales calls by sales personnel, corporate
sponsorship direct mailings, targeted periodical advertising, online and
broadcast advertising, partnerships and various promotional campaigns. We
have also established a telemarketing sales force to provide sales
support to existing and inquiring colleges and universities. Upon
completion of the OSN and Student Success acquisitions, we will have a
national direct sales force calling on high schools.
COMPETITIVE ENVIRONMENT
The markets we serve are large and fragmented. We do not believe that any
competitor has achieved dominance in any of the markets we serve. These markets
are highly competitive, constantly evolving, and
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subject to the effects of changing technology. We believe the principal
competitive factors in the markets we serve include:
- establishing relationships with colleges and universities
- establishing a significant presence in high schools and colleges
- developing brand awareness
- developing strategic web partnerships to expand service offerings
- overcoming resistance to online applications
- building an effective direct sales force
College Link(R) faces direct competition from a number of companies
including: -- Apply!, Embark.com (formerly CollegeEdge), CollegeNet and XAP. We
also face competition from traditional service providers such as guidance
counselors, self-help guides available in print as well as CD-ROM, for profit
service providers such as Kaplan Educational Centers, and not-for-profit
organizations such as our partner, The College Board(R) which has announced
plans to provide a broad range of college admissions, test preparation and
related services on the Internet.
Student Success faces competition from a variety of sources including other
providers of self-help and educational enhancement programs such as Kaplan,
Barrons, Princeton Review, Houghton Mifflin and Learning Forum. OSN faces direct
competition from a variety of companies including: Athletes Online,
Allstater.com and The RecruitZone.
We believe CollegeLink.com's relationships with our partners, together with
our strategy of building on our existing leadership position, growing our
brands, and reaching into the high school population, provide a substantial
competitive advantage over our current competition.
TECHNOLOGY AND INTELLECTUAL PROPERTY
Our technology has been designed with built-in redundancies and a
template-driven automated publishing engine to allow partners to reliably and
cost-effectively integrate our content into their websites. Our technology
solution enables us to easily and rapidly add new partners by employing a
distributed, scalable architecture adapted specifically for our Internet-based
content services, and has been designed to support partners across multiple
platforms. Our automated publishing engine dynamically builds a page to conform
to the display format and look and feel and navigation features specific to that
partner. This feature helps our partners build and maintain their brands by
creating the impression to end users that they have not left the partner's site.
We manage access to the content and process user queries from our own web server
until ultimate delivery of our services to a partner, serving as a
cost-effective, single source supplier of our services.
Our success and competitiveness are dependent to a significant degree on
the development and protection of our proprietary technology. We rely primarily
on a combination of copyright, trademarks, licenses, trade secret laws and
restrictions on disclosure to protect our intellectual property and trade
secrets. We also enter into confidentiality agreements with our employees and
consultants, and generally control access to and distribution of our
documentation and other proprietary information. Despite these precautions, it
may be possible for a third party to copy or otherwise attain and use our
intellectual property or trade secrets without authorization. In addition, we
rely in part on "shrinkwrap" and "clickwrap" licenses that are not signed by the
end user and, therefore, may be unenforceable under the laws of certain
jurisdictions.
We pursue the registration of certain of our trademarks in the United
States, although we have not secured registration of all of our marks. We have
registered a United States trademark for CollegeLink(R) and have applications
pending for a United States trademark for Cytation(TM) and Cytation.com(TM).
Student Success has registered a United States trademark for Making College
Count(R). We also own several
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unregistered copyrights in the CollegeLink(R) software. Student Success owns
several registered copyrights in its Making College Count(R) books and related
program materials. We do not have any patent rights.
We license our CollegeLink(R) software pursuant to a non-exclusive license
agreement which imposes restrictions on our customers" ability to use the
software and related services. We also seek to protect our software,
documentation and other written materials under trade secrets and copyright
laws.
We believe that we own all rights in our intellectual property, and have
not received any notices from any third party claiming ownership in our
intellectual property. We also have not received any notice that our products or
services infringe the intellectual property rights of any other person.
RECENT DEVELOPMENTS
We have recently entered into a definitive agreement to acquire Student
Success and a letter of intent to acquire OSN. Both of our pending acquisitions
are subject, among other things, to certain usual and customary closing
conditions. We will acquire Student Success by merging it into our wholly-owned
subsidiary, CollegeLink.Com, Incorporated. The aggregate purchase price for the
outstanding capital stock of Student Success is $8,000,000. We have agreed to
pay the purchase price by way of a cash payment of $3,500,000 and the balance of
the purchase price in shares of our common stock valued at the offering price of
the common shares in this offering. We will also assume all of the outstanding
options to purchase common stock of Student Success. In connection with the
acquisition, CollegeLink.com, will enter into one-year employment agreements
with Patrick S. O'Brien and Bradford J. Baker, two shareholders of Student
Success. The employment agreements will contain non-competition covenants
preventing Messrs. O'Brien and Baker from competing with our business for a
period of three years following termination of employment. In addition to the
salaries set forth in their respective employment agreements, Messrs. O'Brien
and Baker will each receive options to purchase 200,000 shares of our common
stock at an exercise price equal to the price per share of the stock included in
this offering, subject to certain vesting requirements.
On September 30, 1999, we sold 1,000,000 shares of Series C Convertible
Preferred Stock to PNC Investment Corp. for a purchase price of $4,000,000. PNC
Investment Corp. is a subsidiary of PNC Bank, N.A. On September 29, 1999, we
also entered into a Marketing Services and Administrative Agreement with PNC
Bank, N.A.
LEGAL PROCEEDINGS
We are not a party to any lawsuit or proceeding which, in the opinion of
management, is likely to have a material adverse effect on our business.
EMPLOYEES
As of September 30, 1999, we employed 38 persons full-time. None of our
employees is represented by a union and we have never experienced a work
stoppage. Our management considers its relations with our employees to be good.
FACILITIES
Our headquarters are located in Newport, Rhode Island, where we occupy
3,200 square feet of space pursuant to a lease which expires in September 2001.
We also conduct operations in Clinton, Massachusetts, where we occupy 4,000
square feet of space as a tenant at will. On September 22, 1999, we signed a
lease for 11,500 square feet in Newport, Rhode Island, which will house all of
our operations, including CollegeLink.com. We believe that these existing
facilities are adequate to meet our current and foreseeable requirements or that
suitable additional or substitute space will be available on commercially
reasonable terms. We plan to vacate our Clinton, Massachusetts site and to
consolidate our operations in Newport, Rhode Island by November 1, 1999.
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MANAGEMENT
DIRECTORS AND OFFICERS
Our directors and officers are as follows:
<TABLE>
<CAPTION>
NAME AGE* POSITION
- - - ---- ---- --------
<S> <C> <C>
Richard A. Fisher......................... 53 Chairman of the Board and General Counsel
Kevin J. High............................. 34 President and Director
Edward F. Hayes........................... 52 Chief Financial Officer
Thomas J. Burgess......................... 34 Senior Vice President and President,
CollegeLink.com Incorporated
Anne Marie Gleason........................ 43 Vice President and Vice President, College
Relations, CollegeLink.com Incorporated
William Fink.............................. 42 Vice President -- Network Operations
Jai N. Gupta, Ph.D........................ 52 Director
Michael W. Bryant......................... 54 Director
Mark Rogers............................... 39 Director
Gerald A. Paxton.......................... 56 Senior Advisor
</TABLE>
- - - ---------------
* As of October 19, 1999.
Our management consists of the following personnel:
RICHARD A. FISHER, CHAIRMAN AND GENERAL COUNSEL. Mr. Fisher has been
chairman of our board of directors and our general counsel since February 1999.
Mr. Fisher was a co-founder of our predecessor, where he served as chairman of
the board and general counsel from August 1996 to February 1999. From January
1996 to August 1996, Mr. Fisher provided legal and other consulting services to
a number of start up and early stage companies. From July 1987 through September
1994, Mr. Fisher was chairman, chief executive officer and general counsel of,
and from October 1994 to December 1995, a consultant to, Quadrax Corporation,
which he co-founded to engage in the manufacture and sale of advanced composite
materials. Mr. Fisher also has been a tax and corporate partner in the Boston,
Massachusetts law firm of Foley, Hoag and Eliot, which is our legal counsel, and
Assistant to the Chief Counsel of the Internal Revenue Service in Washington,
DC. Mr. Fisher holds a BA in Economics from Northwestern University (1968) and a
Juris Doctor from the University of Virginia School of Law (1971).
KEVIN J. HIGH, PRESIDENT AND DIRECTOR. Mr. High has been one of our
directors and our president since February 1999. Mr. High was a co-founder of
our predecessor, where he served as vice president from April 1996 to December
1996 and from December 1996 to February 1999 as chief executive officer. From
April 1991 to April 1996, Mr. High served as branch manager of the Middletown,
Rhode Island office of the Corporate Securities Group, Inc., a national
brokerage firm with about 800 securities brokers in about 80 offices throughout
the United States. Mr. High served as a vice president of Shearson Lehman
Brothers, a national brokerage firm, from August 1989 to April 1991.
EDWARD F. HAYES, CHIEF FINANCIAL OFFICER. Mr. Hayes has served as our
chief financial officer since April 1999. Prior to joining us, from May 1996 to
February 1999, he served as chief financial officer and engineering group
manager for Northeast Engineers & Consultants, Inc., a civil engineering firm.
From October 1987 to May 1996, Mr. Hayes was president and co-founder of
Advantage Business Computers, Inc., which provided computer programming and
consulting services, network installation, and training for commercial and
individual clients. He also served twenty-two years in the United States Navy in
fiscal and inventory management and submarine and industrial support positions.
Mr. Hayes has taught for Pennsylvania State University, Chapman College, New
Hampshire College, Salve Regina University, and the US Naval War College in
multiple business and mathematics disciplines. Mr. Hayes holds a BA in
Mathematics from Holy Cross College (1968), an MS in Computer Systems Management
from George
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<PAGE> 30
Washington University (1974), an MBA from Rensselaer Polytechnic Institute
(1975), and an MA in National Defense Studies from the US Naval War College
(1985).
THOMAS J. BURGESS, SENIOR VICE PRESIDENT AND PRESIDENT, COLLEGELINK.COM
INCORPORATED. Mr. Burgess has served as president of our wholly owned
subsidiary, CollegeLink.com Incorporated since August 1999. From January 1999
through August 1999, Mr. Burgess was president of ECI, Inc., CollegeLink.com's
predecessor. From February 1998 through January 1999, he served as CEO of 9th
Square, Inc., an Internet e-commerce and advertising software company. From
January 1995 to June 1997, Mr. Burgess served as Chief Executive Officer of
echoMEDIA, Inc., an Internet advertising technology business which, in December
of 1997, merged with Softbank Interactive Marketing. He also served as a
consultant to echoMEDIA from July 1997 to February 1998. Mr. Burgess has a BA
from Providence College (1987).
ANNE MARIE GLEASON, VICE PRESIDENT AND VICE PRESIDENT, COLLEGE RELATIONS,
COLLEGELINK.COM INCORPORATED. Ms. Gleason has served as our vice president,
college relations since June 1999. Ms. Gleason served as vice president of
marketing of our predecessor from November 1997 to June 1999. From April 1988 to
November 1997, Ms. Gleason was Area Manager -- New England for a supplier of
technical adhesive machinery. Ms. Gleason has also held senior sales and
marketing positions with Augat, Inc. and Anaconda Industries. Ms. Gleason holds
a BS in Business Management from Providence College (1977).
WILLIAM FINK, VICE PRESIDENT -- NETWORK OPERATIONS. Mr. Fink has served as
our vice president of network operations since February 1999. From November 1998
to February, 1999, Mr. Fink served as a consultant for the United States Navy
Information Technology Department. Mr. Fink is a co-founder of our predecessor
and served as its chief technical officer from April 1996 through June 1998. Mr.
Fink was in the United States Navy between 1976 and 1996. During his last five
years in the Navy, Mr. Fink was the sole network administrator responsible for
the system design, installations, administration and technical support of a
multi-location, 250 user, wide area/local area Novell Network. Mr. Fink holds an
AS in General Studies from City University, Seattle, Washington (1992). Mr. Fink
is a college instructor of PC networking (PCLAN), advanced MS-DOS, MS Windows
and Windows 95 operating system platforms. Mr. Fink also teaches "Connecting
Businesses to the Internet" for International Learning Tree International, Inc.
JAI N. GUPTA, PH.D., DIRECTOR. Dr. Gupta has been one of our directors
since February 1999 and served as a director of our predecessor from June 1998
to February 1999. Dr. Gupta is the founder and president of EER Systems Inc., a
Washington, D.C. based aerospace firm which is a principal shareholder of the
Company. EER Systems, founded in 1979, offers a broad range of systems design,
development and integration capabilities, specializing in aerospace flight,
information and training systems. Dr. Gupta holds a BS in Electrical Engineering
from the Indian Institute of Technology, New Delhi, India; an MS in Electrical
Engineering from the Queen's University, Ontario, Canada (1970); a Ph.D. degree
in Electrical Engineering from Purdue University (1974); and a Masters of
Science in Administration degree from George Washington University (1978).
MICHAEL W. BRYANT, DIRECTOR. Mr. Bryant has been one of our directors
since February 1999 and served as a director of our predecessor from June 1998
to February 1999. Mr. Bryant is the Director of Corporate Affairs for EER
Systems Inc. He has more than twenty-five years of experience in personnel and
training systems. Mr. Bryant also leads the EER consulting team supporting the
White House and Department of Defense Advanced Distributive Learning Initiative.
Prior to joining EER Systems in 1986, he served in personnel and training policy
positions in the Office of the Secretary of Defense. He also served as a
director of the Defense Training and Performance Data Center and is the founder
and chairman of the Defense Manpower Roundtable, a seminar group of current and
former senior administration and "think-tank" officials from the personnel
policy arena. Mr. Bryant holds a BS in Mathematics from Siena College (1965) and
an MBA in Operations Research from Tulane University (1972).
MARK ROGERS, DIRECTOR. Mr. Rogers has been one of our directors since
February 1999 and served as a director of our predecessor from April 1998 to
February 1999. Since 1989, Mr. Rogers has been a principal in NFT Ventures,
including acting as interim CEO and CFO as well as managing the venture
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<PAGE> 31
capital fund. Mr. Rogers serves as an advisor to several computer software
companies in California, Utah and Texas and is a director of several other
high-tech companies. Mr. Rogers holds a BBA from Pace University (1981).
GERALD A. PAXTON, SENIOR ADVISOR. Mr. Paxton has served as our senior
advisor since August 1999. Mr Paxton was the founder of our predecessor and
served as its chief executive officer from 1991 until our acquisition of ECI,
Inc. in August 1999. Prior to founding ECI, Mr. Paxton spent twenty years in
various sales and marketing capacities at Digital Equipment Corp. ("DEC"), where
he progressed to become vice president of United States sales operations. He
also served as vice president of industry marketing for DEC with worldwide
responsibility for manufacturing, healthcare and education industries. Mr.
Paxton holds a BS in Engineering from the Case Institute of Technology (1965)
and is a graduate of the Management Development Program at Harvard Business
School (1980).
Our executive officers are appointed by and serve at the discretion of the
Board of Directors. There are no family relationships among any of our executive
officers or directors.
BOARD COMMITTEES
We established an audit committee and a compensation committee in May 1999.
The audit committee consists of Dr. Gupta and Mr. Rogers. The audit committee
reviews our internal accounting procedures and consults with and reviews the
services provided by our independent accountants. The compensation committee
consists of Mr. Bryant and Mr. Rogers. The compensation committee reviews and
recommends to the board of directors the compensation and benefits of all our
officers and directors, including stock compensation and loans, and establishes
and reviews general policies relating to the compensation and benefits of our
employees.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Prior to establishing the compensation committee, the board of directors as
a whole performed the functions delegated to the compensation committee. No
member of the board of directors or the compensation committee serves as a
member of the board of directors or compensation committee of any entity that
has one or more executive officers serving as a member of our board of directors
or compensation committee.
DIRECTOR COMPENSATION
Outside directors who are not principals or shareholders which own more
than 10% of our common stock receive an annual option to purchase 10,000 shares
of our common stock. The price is determined as the closing bid price of the
stock on the date of our annual meeting. As of June 30, 1999, we had 20,000 of
such options outstanding. These outstanding options have an exercise price of
$6.00 per share. Further, each director entitled to a grant of options receives
compensation of $1,000 for each meeting attended. All directors receive
reimbursement for out-of-pocket expenses incurred in attending meetings of the
board.
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
Our by-laws provide for indemnification of our directors to the fullest
extent permitted by law. Our by-laws also permit us, through action of our Board
of Directors, to indemnify our officers or employees to the fullest extent
permitted by law. New York law provides further that the indemnification
permitted under New York law shall not be deemed exclusive of any other rights
to which the directors and officers may be entitled under our by-laws, any
agreement, a vote of shareholders or otherwise.
At present, there is no pending litigation or proceeding involving any
director, officer, employee or agent as to which indemnification will be
required or permitted under our certificate of incorporation, by-laws, or an
indemnification agreement. We are not aware of any threatened litigation or
proceeding that may result in a claim for such indemnification.
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<PAGE> 32
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to our directors, officers and controlling persons
pursuant to the foregoing provisions, or otherwise, we have been advised that in
the opinion of the SEC such indemnification is against public policy as
expressed in the Securities Act of 1933 and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than the
payment by us of expenses incurred or paid by any of our directors, officers or
controlling persons in the successful defense of any action, suit or proceeding)
is asserted by such director, officer or controlling person in connection with
the securities being registered, we will, unless in the opinion of our counsel
the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by us is
against public policy as expressed in the Securities Act of 1933 and will be
governed by the final adjudication of such issue.
EXECUTIVE COMPENSATION
The following table sets forth the total compensation paid or accrued for
our chief executive officer and our four other most highly compensated executive
officers who were employed by us at June 30, 1999, excluding officers paid less
than $100,000 annually (collectively, the "Named Executive Officers").
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
------------------------------------------------------------
FISCAL YEAR OTHER ANNUAL SECURITIES ALL OTHER
ENDED SALARY COMPENSATION UNDERLYING OPTIONS COMPENSATION
--------- -------- ------------ ------------------ ------------
<S> <C> <C> <C> <C> <C>
Richard A. Fisher......... June 30, 1999 $105,093 -- 414,412 --
Chairman June 30, 1998 60,622 -- -- --
June 30, 1997 27,404 -- -- --
Kevin J. High............. June 30, 1999 $126,040 -- 414,412 --
President June 30, 1998 90,865 -- -- --
June 30, 1997 54,928 -- -- --
</TABLE>
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth grants of stock options to each of the Named
Executive Officers during the fiscal year ended June 30, 1999. No stock
appreciation rights were granted during the fiscal year ended June 30, 1999.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
INDIVIDUAL GRANTS VALUE AT ASSUMED
----------------------------------------------------------- ANNUAL
NUMBER OF PERCENT OF RATES OF STOCK PRICE
SECURITIES TOTAL OPTIONS EXERCISE APPRECIATION FOR
UNDERLYING GRANTED TO OR BASE OPTION TERM (2)
OPTIONS EMPLOYEES IN PRICE EXPIRATION ---------------------
NAME GRANTED FISCAL YEAR(1) PER SHARE DATE 5%($) 10%($)
- - - ---- ---------- -------------- --------- ----------------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Richard A. Fisher..... 14,412 1.24 2.50 June 30, 2008 22,659 57,423
400,000 34.30 4.00 February 11, 2004 442,051 976,816
Kevin J. High......... 14,412 1.24 2.50 June 30, 2008 22,659 57,423
400,000 34.30 4.00 February 11, 2004 442,051 976,816
</TABLE>
- - - ---------------
(1) Based on an aggregate of 1,161,185 shares subject to options granted to
employees during fiscal 1999.
(2) These amounts represent hypothetical gains that could be achieved for the
option if exercised at the end of the option term. These gains are based on
assumed rates of stock appreciation of 5% and 10% compounded annually from
the date the option was granted to its expiration date and are not presented
to forecast possible future appreciation, if any, in the price of our common
stock. The gains shown are net of the option exercise price, but do not
include deductions for taxes or other expenses associated with the exercise
of the option or the sale of the underlying shares. The actual gains, if
any, on the exercise of the option will depend on the future performance of
our common stock, the optionee's continued employment through the vesting
period applicable to the option and the date on which the option is
exercised.
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<PAGE> 33
OPTION EXERCISES AND FISCAL YEAR-END VALUES
The following table sets forth certain information regarding stock options
exercised by Named Executive Officers in the fiscal year ended June 30, 1999,
and exercisable and unexercisable stock options held as of June 30, 1999 by each
of the Named Executive Officers. The value of unexercised in-the-money options
has been calculated by determining the difference between the exercise price per
share payable upon exercise of such options and the closing market price on June
30, 1999.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
SHARES OPTIONS AT YEAR-END AT FISCAL YEAR-END
ACQUIRED VALUE --------------------------- ---------------------------
ON EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Richard A. Fisher.......... -- -- 136,936 277,476 219,366 449,770
Kevin J. High.............. -- -- 136,936 277,476 219,366 449,770
</TABLE>
EMPLOYMENT AGREEMENTS
We have entered into employment agreements with our chairman and president.
Each agreement provides for three years of employment commencing February 11,
1999 at an annual salary of $175,000. The salary levels have been increased
(with effect from January 1, 1999) to $200,000 based on our obtaining in excess
of $7,000,000 of new equity capital since commencement of these employment
agreements. Pursuant to these agreements, each of the officers has received
options to purchase up to 400,000 shares of common stock at an exercise price of
$4.00 per share. These options vest in equal monthly installments over 24 months
commencing on the date of grant. In addition, Messrs. Fisher and High on
September 1, 1999, were each granted options to purchase 100,000 shares of
common stock at $5 per share. These options vest in full on September 1, 2001.
If either employee is terminated by us without cause or terminates their
employment agreement for good reason, such employee will receive from us their
then applicable base salary and continuation of benefits until the later of the
expiration of the term of their employment agreement or two years after the date
of termination. In addition, all outstanding options held by such employee shall
become immediately exercisable in full.
The employment agreements also provide that we will provide life insurance
policies and a monthly automobile allowance for these employees.
BENEFIT PLANS
We maintain a 401(k) plan, qualified under Section 401(k) of the Internal
Revenue Code of 1986, as amended. All of our employees who are at least 21 years
of age are eligible to make salary reduction contributions pursuant to the
401(k) plan. A participant may contribute a maximum of 15% of his or her pre-tax
salary, commissions and bonuses through payroll deductions (up to the
statutorily prescribed annual limit of $10,000 in 1998) to the 401(k) plan.
1996 Stock Plan.
Our predecessor adopted our 1996 stock plan on December 16, 1996. The 1996
plan authorizes the grant of incentive stock options in accordance with section
422 of the Internal Revenue Code of 1996 and non-qualified options. We have
reserved a total of 250,000 shares of common stock for issuance under the 1996
plan. No incentive stock option may be granted under the 1996 plan after
December 16, 2006. In certain situations, including changes in our capital
structure due to a stock dividend, stock split, recapitalization,
reorganization, merger, consolidation, combination or the like, the board of
directors may, in order to prevent changes in the existing rights of
optionholders, adjust the number and class of shares available for option grants
under the 1996 plan or revise the terms of outstanding options under the 1996
plan. However, the board shall not make any adjustment that would disqualify an
incentive stock option or that would change the minimum number of shares
issuable upon exercise of an option.
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<PAGE> 34
Our officers and other key employees are eligible to receive incentive
stock options under the 1996 plan. They, together with other persons who are not
employees of our company but who may provide services to us, are also eligible
to receive non-qualified options. Options may be granted in combination with or
in place of awards granted under any other employee plan maintained by us. The
aggregate fair market value of common stock with respect to which incentive
stock options are exercisable for the first time by any employee during any
calendar year may not exceed $100,000.
The term of any incentive stock option granted under the 1996 plan may not
exceed ten years or, in case of an optionee holding 10% of our shares, five
years from the date of the grant. The 1996 plan imposes certain restrictions on
exercisability of options in the event of termination of the optionees'
employment with our company.
Our board of directors administers the 1996 plan. The board of directors
has the authority at any time to suspend, terminate or amend the 1996 plan, to
grant options under the 1996 plan, to determine the terms of each option, to
designate options as incentive stock options or non-qualified options, to
prescribe, amend and rescind rules and regulations relating to the 1996 plan,
and to make all such other determinations in connection with the administration
of the 1996 plan. All actions taken and determinations made by the board of
directors will be final and binding upon us, the optionees and all other
interested persons.
The terms and conditions of option agreements may vary. Under the 1996 plan
the exercise price of incentive stock options may not be less than 100%, or, in
case of an optionee who owns stock possessing more than 10% of the total
combined voting power of our capital stock, 110%, of the fair market value of
our common stock on the date the option is granted.
As of the date of this prospectus, options to acquire 241,185 shares of
common stock have been granted under the 1996 plan. The Board of Directors does
not intend to issue any further options under the 1996 plan.
1999 Stock Option Plan.
We adopted our 1999 stock option plan on October 1999 subject to
stockholder approval. Only our officers and key employees may participate in the
1999 plan. The 1999 plan authorizes the grant of incentive stock options and
non-qualified stock options. We have reserved a total of 1,550,000 shares of
common stock for issuance upon exercise of outstanding options under the 1999
executive plan, subject to adjustment in the event of any stock dividend, stock
split, recapitalization, reorganization, or certain defined changes of control.
The number of shares with respect to which options may be granted to any
participant under the 1999 plan may not exceed 750,000 shares in any calendar
year.
Our board of directors administers the 1999 plan. The board has the
authority to adopt, amend and repeal the administrative rules, guidelines and
practices relating to the 1999 plan and to interpret its provisions. The board
may delegate authority under the 1999 plan to one or more committees of the
board and, subject to certain limitations, to one or more of our executive
officers. Subject to certain limitations contained in the 1999 plan, the board
of directors, the compensation committee or any other committee or any executive
officer to whom the board delegates authority, as the case may be, selects the
recipients of options and determines the number of shares of common stock
covered by options, the dates upon which such options become exercisable, the
exercise price and duration of options, and all other terms and conditions of
option grants.
Options under the 1999 plan may be granted at an exercise price which may
be less than, equal to or greater than the fair market value of our common stock
on the date of the grant. The exercise price of options may be paid in cash, by
check, by a "cashless exercise" through a broker, by surrender to us of common
shares, or by any combination of the foregoing permitted forms of payment. Under
present law, incentive stock options and options intended to qualify as
performance-based compensation under Section 162(m) of the Internal Revenue Code
of 1986 may not be granted with an exercise price less than the fair market
value of the common stock on the date of the grant (or less than 110% of the
fair market
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<PAGE> 35
value in the case of incentive stock options granted to optionees holding more
than 10% of the combined voting power of our capital stock).
In the event of certain defined change in control events, all outstanding
options under the 1999 plan shall accelerate and become immediately exercisable
for a period of fifteen days (or such period as the board may prescribe)
immediately prior to the scheduled consummation of the change of control. Upon
consummation of the change of control, the 1999 plan and all outstanding and
unexercised options shall terminate as of the effective date of the change in
control unless the 1999 plan is continued after the change in control and such
options are assumed by the surviving entity.
No incentive stock option may be granted under the 1999 plan after August
31, 2009, but the vesting and effectiveness of options previously granted may
extend beyond that date. Our board of directors may at any time amend, suspend
or terminate the 1999 plan.
As of the date of this prospectus, options to acquire 625,000 shares of our
common stock have been granted under the 1999 plan.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
We have in the past borrowed money from certain of our officers. Such loans
have since been repaid in full. In no case did the amount borrowed exceed
$60,000.
During fiscal 1998, we entered into a joint venture agreement with EER to
develop an online training service. During fiscal 1999, we have also borrowed a
total of $600,000 from EER, one of our shareholders. One of our current
directors, Dr. Jai Gupta, is the president of EER. These loans have since been
repaid in full.
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<PAGE> 36
PRINCIPAL SHAREHOLDERS
The following table sets forth the beneficial ownership of our outstanding
common stock on October 18, 1999 by
- each of our directors and executive officers,
- all of our directors and executive officers as a group,
- each shareholder who was known by us to be the beneficial owner of more
than five percent (5%) of our outstanding shares.
Unless otherwise noted below, the address of each person listed on the
table is c/o Cytation.com Incorporated, 809 Aquidneck Avenue, Newport, Rhode
Island 02842.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP BENEFICIAL OWNERSHIP
PRIOR TO THE OFFERING AFTER THE OFFERING
-------------------------------- -----------------------------
NAME OF BENEFICIAL OWNER NUMBER OF SHARES(1) PERCENTAGE NUMBER OF SHARES PERCENTAGE
- - - ------------------------ ------------------- ---------- ---------------- ----------
<S> <C> <C> <C> <C>
Kevin J. High(2)......................... 1,419,600 10.78 1,419,600
Richard A. Fisher(3)..................... 982,513 7.46 982,513
William Fink(4).......................... 721,636 5.48 721,636
Ann Marie Gleason(5)..................... 319,958 2.43 319,958
Mark Rogers(6)........................... 161,420 1.23 161,420
Thomas J. Burgess(7)..................... 92,889 * 92,889
Jai N. Gupta(8).......................... 43,238 * 43,238
Michael Bryant(9)........................ 43,238 * 43,238
EER Systems(10).......................... 1,500,345 11.39 1,500,345
All Directors and Officers as a Group.... 3,784,492 28.73 3,784,492
</TABLE>
- - - ---------------
* Less than 1%.
(1) Beneficial ownership is determined in accordance with the rules of the SEC.
The following are deemed to be beneficially owned and outstanding for
purposes of calculating the number of shares and the percentage
beneficially owned by that person or entity:
- 402,369 shares of common stock issuable by us pursuant to options which
may be exercised within 60 days after October 18, 1999 and not subject to
repurchase by us; and
- 755,803 shares of common stock issuable by us pursuant to warrants which
may be exercised within 60 days after October 18, 1999.
However, these shares are not deemed to be beneficially owned and
outstanding for purposes of computing the percentage beneficially owned by
any other person or entity.
Except as otherwise indicated, each stockholder named in the table has sole
voting and investment power with respect to the shares set forth opposite
such stockholder's name. For purposes of calculating the percentage
beneficially owned, the number of shares deemed outstanding before the
offering includes: (a) 9,846,340 shares of common stock outstanding as of
October 18, 1999; (b) 2,169,771 shares of common stock issuable upon the
conversion of preferred stock (assuming the maximum number of shares to be
issued upon conversion); and (c) the presently exercisable options and
presently exercisable warrants held by that person.
(2) Includes 1,249,330 shares of common stock and 170,270 shares of common
stock issuable pursuant to options. Excludes 244,142 shares of common stock
issuable pursuant to options.
(3) Includes 812,243 shares of common stock held by Karen B. Fisher, the wife
of Richard A. Fisher, and 170,270 shares of common stock issuable pursuant
to options granted to Richard A. Fisher. Excludes 244,142 shares of common
stock issuable pursuant to options granted to Richard A. Fisher.
(4) Includes 721,636 shares of common stock.
(5) Includes 319,938 shares of common stock.
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<PAGE> 37
(6) Includes 161,420 shares of common stock. Excludes 10,000 shares of common
stock issuable pursuant to options.
(7) Includes 92,889 shares of common stock. Excludes 400,000 shares of common
stock issuable pursuant to options. Excludes 27,760 shares of common stock
issuable upon conversion of Series B Preferred Stock.
(8) Includes 43,238 shares of common stock.
(9) Includes 43,238 shares of common stock. Excludes 10,000 shares of common
stock issuable pursuant to options.
(10) The address for EER is 10289 Aerospace Road, Seabrook, Maryland 20706.
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<PAGE> 38
DESCRIPTION OF CAPITAL STOCK
As of the date hereof, our authorized share capital consists of 100,000,000
shares of common stock, par value $0.001 per share (the "Common Shares"), of
which 9,846,340 Common Shares are issued and outstanding, and 10,000,000 shares
of preferred stock, $.01 par value, of which (a) 2,500,000 shares have been
designated Series A (the "Series A Shares") of which 890,000 Series A Shares are
issued and outstanding, (b) 300,000 shares have been designated Series B (the
"Series B Shares") of which 279,771 Series B Shares are issued and outstanding
and (c) 1,000,000 shares have been designated Series C (the "Series C Shares")
of which 1,000,000 Series C Shares are issued and outstanding, and (d) 6,200,000
shares are undesignated and available for issuance. The following is a summary
of the principal attributes of our share capital.
COMMON SHARES
The rights, privileges, restrictions and conditions attached to the Common
Shares are as follows:
Voting
Holders of Common Shares shall be entitled to receive notice of and to
attend and vote at all meetings of our shareholders, except meetings of holders
of another class of shares. Each Common Share shall entitle the holder thereof
to one vote.
Dividends
Subject to the preferences accorded to holders of Series A Shares, Series C
Shares and any other of our shares ranking senior to the Common Shares from time
to time with respect to the payment of dividends, holders of Common Shares shall
be entitled to receive, if, as and when declared by the Board of Directors, such
dividends as may be declared thereon by the Board of Directors from time to
time.
Liquidation, Dissolution or Winding-Up
In the event of our voluntary or involuntary liquidation, dissolution or
winding-up, or any other distribution of our assets among our shareholders for
the purpose of winding-up our affairs (such event referred to herein as a
"Distribution"), holders of Common Shares shall be entitled, subject to the
preferences accorded to holders of the Series A Shares, Series C Shares and any
other of our shares ranking senior to the Common Shares from time to time with
respect to payment on a Distribution, to receive amount equal to that
distributed to the holders of Series A Shares and Series C Shares per share of
common stock held, if sufficient assets are available, and to share equally, pro
rata, in our remaining property.
The Common Shares have no preemptive, redemption, conversion or
subscription rights.
UNDESIGNATED PREFERRED STOCK
Our Board of Directors is authorized, subject to any limitations prescribed
by New York law, to provide for the issuance of preferred stock in one or more
series. The Board of Directors is also authorized, subject to the limitations
prescribed by New York law, to establish the number of shares to be included in
each series and to fix the voting powers, preferences, qualifications and
special or relative rights or privileges of each series. The Board of Directors
is authorized to issue preferred stock with voting, conversion and other rights
and preferences that could adversely affect the voting power or other rights of
the holders of Common Shares
As indicated above, 890,000 Series A Shares, 279,771 Series B Shares, and
1,000,000 Series C Shares have been issued. The issuance of additional preferred
stock or of rights to purchase preferred stock could have the effect of making
it more difficult for a third party to acquire, or of discouraging a third party
from attempting to acquire, a majority of our outstanding voting stock.
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<PAGE> 39
SERIES A SHARES
Voting
Each Series A Share shall entitle the holder thereof to one vote for each
Common Share into which such Series A Share is then convertible.
Liquidation
In the event of a Distribution, holders of Series A Shares shall be
entitled, in priority to holders of Common Shares and the other holders of
Preferred Stock to receive a liquidation payment of $4.00, plus any accrued and
unpaid distributions declared thereon per Series A Share held. After such
distribution, holders of Common Shares shall receive the identical amount per
share, if available, and any remaining assets shall be distributed ratably among
holders of Common Shares and Preferred Shares.
Dividends
The holders of the Series A Shares shall be entitled to receive, out of
funds at the time legally available for payment of dividends in the State of New
York, a cumulative dividend at the rate of six percent (6%) per share per annum,
payable quarterly in equal installments on the first days of each successive
quarter each year, if, as and when determined by the Board of Directors, before
any dividend shall be set apart or paid on any other capital stock for such
year.
Conversion
Each Series A Share is convertible, at the option of the holder thereof,
into one Common Share. The conversion ratio will be automatically adjusted to
account for any stock dividend, stock split, combination of shares,
reclassification or other similar event with respect to the Common Shares. In
addition, we may require mandatory conversion of all, but not less than all, of
the Series A Shares on or after the first anniversary of the initial purchase
and sale of the Series A Shares provided that: (a) the average closing bid price
of the Common Shares on the Over-the-Counter Bulletin Board or the Nasdaq Stock
Exchange, as applicable, for the 20 consecutive trading days immediately
preceding the date of the required conversion has exceeded $6.00 per share, or
(b) we are reorganized in a transaction involving the exchange of our Common
Shares for shares of a publicly traded U.S. corporation.
SERIES B SHARES
Voting
Except as otherwise required by law or as set forth in our Articles of
Incorporation, the holders of Series B Shares shall not be entitled to vote on
any matter or to notice of any meeting of the stockholders.
Liquidation
The holders of Series B Shares shall not be entitled to any preferential
payment or distribution in the event of any Distribution, but shall share
ratably on an as-converted basis assuming automatic conversion in any
distribution of our assets to all the holders of Common Stock and the other
holders of Preferred Stock.
Dividends
The holders of Series B Shares shall not be entitled to receive any
dividends.
Conversion
On August 10, 2000 all outstanding Series B Shares shall automatically be
converted into such number of Common Shares as is determined by dividing $15.00
(as adjusted to account for any stock dividend, stock split, combination of
shares, reclassification or other similar event with respect to the
38
<PAGE> 40
Series B Shares) by the greater of $7.625 and the average of the closing bid
price per share for the 20 consecutive trading days immediately prior to August
10, 2000 and multiplying the result by the number of outstanding Series B
Shares. Prior to August 10, 2000, each Series B Share is convertible at the
option of the holder thereof into such number of Common Share as is determined
by dividing $15.00 by the average of the closing bid price per share for the 10
consecutive trading days immediately prior to the date of conversion, provided,
however, that no Series B Share shall be convertible on any day on which such
average would not exceed $15.00 (as adjusted to account for any stock dividend,
stock split, combination of shares, reclassification or other similar event with
respect to the Common Shares).
]SERIES C SHARES
Voting
Except as required by applicable law, the holders of Series C Shares shall
not be entitled to vote on any matter, provided, however, that if there are at
least 500,000 shares of Series C Preferred Stock outstanding (such number being
subject to proportional adjustment for any subdivisions, splits or reverse
splits of the Series C Shares), the holders of Series C Shares voting as a
separate class shall be entitled to elect one director to the Board of Directors
or appoint one observer to the Board of Directors.
Liquidation
In the event of a Distribution, holders of Series C Shares shall be
entitled, subject to the prior rights of the Series A Shares but in priority to
holders of Common Shares and Series B Shares, to receive a liquidation payment
of $4.00, plus any accrued and unpaid distributions whether or not earned or
declared thereon, without interest, per Series C Share held. After such
distribution, holders of Common Shares shall receive the identical amount, if
available, and any remaining assets shall be distributed ratably among the
holders of Common Shares and Preferred Shares.
Dividends
The holders of the Series C Shares shall be entitled to receive, out of
funds at the time legally available for payment of dividends in the State of New
York, a cumulative dividend at the rate of six percent (6%) of the stated value
of such shares per share per annum. Such dividends shall be payable quarterly in
arrears on the last day of March, June, September and December, if, as and when
determined by the Board of Directors.
Conversion
Each Series C Share is convertible, at the option of the holder thereof,
into one Common Share. The conversion ratio will be automatically adjusted to
account for any stock dividend, stock split, combination of shares,
reclassification or other similar event with respect to the Common Shares. In
addition, we may require mandatory conversion of all, but not less than all, of
the Series C Shares on or after the first anniversary of the initial purchase
and sale of the Series C Shares provided that: (a) the average closing bid price
of the Common Shares on the Over-the-Counter Bulletin Board or the Nasdaq Stock
Exchange, as applicable, for the 20 consecutive trading days immediately
preceding the date of the required conversion has exceeded $6.00 per share, and
(b) we elected to mandatorily convert all other series of preferred stock. In no
event, however, shall PNC Bank Corp. or any subsidiary thereof (collectively,
"PNC") be required or allowed to convert any Series C Shares if doing so would
cause PNC to hold five percent (5%) or more of our issued and outstanding Common
Shares and any of our shares of voting preferred stock, unless PNC has provided
us with a written opinion of counsel that this greater percentage of beneficial
ownership is permitted by all applicable laws and regulations.
WARRANTS
We have outstanding warrants to purchase an aggregate of 755,803 shares of
common stock at a weighted average exercise price of $2.18 per share. The
warrants are currently exercisable in whole or in
39
<PAGE> 41
part, at any time or from time to time until December 31, 2004. The warrants
contain certain protections against dilution resulting from stock splits, stock
dividends and similar events.
REGISTRATION RIGHTS
We sold 890,000 Series A Shares to The Provident Life and Accident
Insurance Company ("Provident") and six individual accredited investors
commencing on April 2, 1999, pursuant to a Series A Convertible Preferred Stock
Purchase Agreement (the "Series A Agreement"). The Series A Agreement provided
that we would include all of the Common Shares into which the Series A Shares
purchased thereunder are convertible in the first registration statement it
filed under the Securities Act of 1933, and that we would bear all expenses of
such registration, other than underwriting discounts and commissions. We believe
that Provident and each of the other investors in the Series A Shares will agree
not to, directly or indirectly, sell or otherwise dispose of their shares for a
period of 180 days after the date of this prospectus and to delay the filing of
a registration statement for the resale of Common Shares issuable upon
conversion of their Series A Shares.
In connection with the issuance and sale of Series A Shares as described
above, we issued to Brennan Dyer & Company, LLC ("Brennan Dyer") 432,375 Common
Shares as consideration for advisory services pursuant to an agreement between
us and Brennan Dyer, dated November 16, 1998. In connection with this issuance,
we agreed to include these shares in a registration statement filed for sale of
Common Shares by us. We believe that Brennan Dyer will agree not to, directly or
indirectly, sell or otherwise dispose of its shares for a period of 180 days
after the date of this prospectus and to delay the filing of a registration
statement for the resale of its Common Shares.
In connection with the merger of ECI into us, holders of the common stock
of ECI received a total of 550,809 Common Shares (the "ECI Common Shares") and
234,771 shares of our Series B Preferred Shares (the "ECI Preferred Shares").
Pursuant to a Registration Rights Agreement executed on August 10, 1999 in
connection with the ECI merger, we agreed to register at our expense the ECI
Common Shares and the Common Shares issuable upon conversion of the ECI
Preferred Shares on a registration statement on Form S-3 and to keep such
registration statement effective until August 10, 2000, subject to the condition
that any registration of such shares may be delayed, if in our reasonable
judgment, such delay is desirable to permit the consummation by it of a
financing including a public offering by it. Each holder of the ECI Common
Shares and ECI Preferred Shares also agreed, in such Registration Rights
Agreement, to sign any lock-up agreement with respect to all its ECI Common
Shares which an underwriter for a public offering of our stock may require such
holder and our senior management to sign.
In connection with the ECI merger, we, ECI and USA Group Noel-Levitz, Inc.
("USA Group") entered into a letter agreement in settlement of certain claims
USA Group may have made (the "Letter Agreement"). Pursuant to the Letter
Agreement, we issued to USA Group 108,196 Common Shares (the "USA Group Common
Shares") and 45,000 Preferred Shares (the "USA Group Preferred Shares"). In
connection with the Letter Agreement, the Company and USA Group entered into a
Registration Rights Agreement, dated as of August 10, 1999. Pursuant to this
Agreement, if we propose to register any of our securities under the Securities
Act for our own account on a form that would also permit the registration of the
USA Group Common Shares or of the Common Shares issuable upon conversion of the
USA Group Preferred Shares, USA Group is entitled to notice of such registration
and to have the USA Group Common Shares and the Common Shares issuable upon
conversion of the USA Group Preferred Shares included in such registration,
subject to the right of the underwriters (in the event of a registration
pursuant to an underwritten offering of common stock) to limit the number of
shares included in such registration.
On September 30, 1999, we sold 1,000,000 shares of Series C Convertible
Preferred Stock to PNC Investment Corp. pursuant to a Stock Purchase Agreement
(the "Series C Agreement"). The Series C Agreement provides that we shall
include all of the Common Shares into which the Series C Shares are
40
<PAGE> 42
convertible in a registration statement on Form S-3 promptly after we become
eligible to file such a registration statement with the SEC.
ANTI-TAKEOVER EFFECTS OF CERTAIN PROVISIONS OF NEW YORK LAW AND OUR CERTIFICATE
OF INCORPORATION AND BY-LAWS
A number of provisions of New York law, our certificate of incorporation
and our by-laws could make more difficult any attempt to acquire us by means of
a tender offer, a proxy contest or otherwise and the removal of incumbent
officers and directors. These provisions are intended to discourage certain
types of coercive takeover and inadequate takeover bid, even though such a
transaction may offer our shareholders the opportunity to sell their stock at a
price above the prevailing market price. This also encourages persons seeking to
acquire control of us to negotiate with us first.
We are subject to the "business combination" provisions of Section 912 of
the New York Business Corporation Law ("BCL") and expect to continue to be so
subject if and for so long as we have a class of securities registered under
Section 12 of the Securities Exchange Act of 1934. Section 912 provides, with
some exceptions (which include, among others, transactions with shareholders who
became interested prior to the effective date of an amendment to our certificate
of incorporation providing that we would be subject to Section 912 if such
corporation did not then have a class of stock registered pursuant to Section 12
of the Exchange Act), that a New York corporation may not engage in a "business
combination" (e.g. merger, consolidation, recapitalization or disposition of
stock) with any "interested shareholder" for a period of five years from the
date that such person became an interested shareholder unless:
1. the transaction resulting in a person becoming an interested
shareholder was approved by the board of directors of the corporation prior
to that person becoming an interested shareholder; or
2. the business combination is approved by the holders of a majority
of the outstanding voting stock not beneficially owned by such interested
shareholders; or
3. the business combination is approved by disinterested shareholders
at a meeting called no earlier than five years after the interested
shareholder's stock acquisition date; or
4. the business combination meets certain valuation requirements for
the stock of the New York corporation.
An "interested shareholder" is defined as any person that (a) is the
beneficial owner of 20% or more of the outstanding voting stock of a New York
corporation or (b) is an affiliate or associate of the corporation that at any
time during the prior five years was the beneficial owner, directly or
indirectly, of 20% or more of the than outstanding voting stock.
A "business combination" includes mergers, asset sales and other
transactions resulting in financial benefit to the interested shareholder.
Subject to certain exceptions, an "interested shareholder" is a person who,
together with affiliates and associates, owns, or within five years did own, 20%
or more of the corporations outstanding voting stock. This statute could
prohibit or delay the accomplishment of mergers or other takeover or change in
control attempts with respect to us and, accordingly, may discourage attempts to
acquire us. These provisions are likely to impose greater restrictions on an
unaffiliated shareholder than on the existing shareholders who will continue to
own a majority of our outstanding common stock after this offering.
The "stock acquisition," with respect to any person and any New York
corporation, means the date that such person first becomes an interested
shareholder of such corporation.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the common stock is American Stock
Transfer and Trust Company. Its address is 1825 Lawrence Street #44, Denver,
Colorado 80202 and its telephone number at this location is (303) 234-5300.
41
<PAGE> 43
UNDERWRITING
Subject to the terms and conditions set forth in the underwriting agreement
among us and the underwriters named below, each of the underwriters has
severally agreed to purchase from us, and we have agreed to sell to the
underwriters, the number of shares of common stock set forth below opposite each
underwriter's name, at the initial public offering price per share less the
underwriting discounts and commissions set forth on the cover page of this
prospectus.
<TABLE>
<CAPTION>
NUMBER
UNDERWRITERS OF SHARES
- - - ------------ ---------
<S> <C>
Gerard Klauer Mattison & Co., Inc...........................
Total.............................................
</TABLE>
The underwriting agreement sets forth that the obligations of the several
underwriters to pay for and accept delivery of the shares and provides that the
several underwriters will purchase all of the shares, if any of the shares are
purchased.
The representative has advised us that the underwriters initially propose
to offer the shares of common stock directly to the public at the initial public
offering price per share set forth on the cover page of this prospectus and to
certain dealers at such price less a concession not in excess of $ per
share. The underwriters may allow, and these dealers may reallow, a concession
not in excess of $ per share to other dealers. After this offering, the
public offering price, concession and re-allowance may be changed.
We have granted to the underwriters an option, exercisable during the
45-day period after the date of this prospectus, to purchase up to an aggregate
of * additional shares of common stock at the initial public offering price per
share less the underwriting discounts and commissions set forth on the cover
page of this prospectus. The underwriters may exercise this option only to cover
over-allotments, if any, made in connection with the sale of the shares of
common stock offered hereby. To the extent that the underwriters exercise this
option, each underwriter will be obligated, subject to certain conditions, to
purchase the number of additional shares of common stock proportionate to the
underwriters' initial commitment reflected in the preceding table.
We and the underwriters have agreed to indemnify each other against, or to
contribute to losses arising out of, untrue statements of omissions of material
facts contained in this prospectus and the registration statement of which it is
a part in connection with this offering. We and the underwriters are each aware
that, in the opinion of the SEC, such indemnification is against public policy
as expressed in the Securities Act of 1933 and is therefore unenforceable.
The representative, on behalf of the underwriters, may engage in
over-allotment, stabilizing transactions, syndicate covering transactions and
penalty bids in accordance with Regulation M under the Securities Exchange Act
of 1934. Over-allotment involves syndicate sales in excess of the offering size,
which creates a syndicate short position. Stabilizing transactions permit bids
to purchase shares so long as the stabilizing bids do not exceed a specified
maximum. Syndicate covering transactions involve purchases of shares in the open
market after the distribution has been completed in order to cover syndicate
short positions. Penalty bids permit the representative, on behalf of the
underwriters, to reclaim a selling concession from a syndicate member when the
shares originally sold by the syndicate member are purchased in a syndicate
covering transaction to cover syndicate short positions. Such over-allotment,
stabilizing transactions, syndicate covering transactions and penalty bids may
cause the price of the common stock to be higher than it would otherwise be in
the absence of such transactions. These transactions may be effected on the
Nasdaq National Market or otherwise and, if commenced, may be discontinued at
any time.
We have agreed not to and we believe that each of our directors, officers,
employees, stockholders, option holders and warrant holders will agree not to,
directly or indirectly, offer for sale, contract to sell, sell, grant any other
person the right to acquire or otherwise dispose of (or enter into any
transaction or
42
<PAGE> 44
arrangement which is designed to, or could be expected to, result in the
disposition at any time in the future of) any shares of common stock for a
period of 180 days after the date of this prospectus, without the consent of the
representative. We believe that each of our directors, officers, employees,
stockholders, option holders and warrant holders will agree not to exercise any
registration rights relating to any shares of common stock for a period of 180
days after the date of this prospectus, without the consent of the
representative. We have agreed not to file with the SEC a registration statement
relating to any securities, for a period of 180 days after the date of this
prospectus, without the consent of the representative.
Application will be made for quotation of the common stock on the Nasdaq
National Market System under the symbol "CLNK."
In connection with this offering, we have agreed to sell the
representative's warrants to the representative for a nominal price. The
representative's warrants entitle the representative to purchase shares in an
amount equal to 10% of the total number of shares sold in this offering
(excluding shares subject to the underwriters' over-allotment option). The
shares issuable upon exercise of the representative's warrants will be in all
respects identical to the shares offered to you. The representative's warrants
will be limited to a term of five years from the date of this prospectus and
will be exercisable for a four-year period commencing 12 months after the date
of this prospectus, at a per share exercise price equal to 120% of the initial
public offering price per share set forth on the cover page of this prospectus.
The representative's warrants may not be sold, assigned, transferred, pledged or
hypothecated except to the underwriters' officers and employees. Pursuant to the
terms of the underwriting agreement, we have agreed to register the securities
underlying the representative's warrants in this offering. For the term of the
representative's warrants, the holders thereof are given the opportunity to
profit from a rise in the market price of the common stock, which may result in
a dilution of the interest of other shareholders. As a result, we may find it
more difficult to raise additional equity capital if it should be needed for our
business while the representative's warrants are outstanding. The holders of the
representative's warrants might be expected to exercise them at a time when we
would, in all likelihood, be able to obtain additional equity capital on terms
more favorable to us than those provided by the representative's warrants. Any
profit realized on the sale of the shares issuable upon the exercise of the
representative's warrants may be deemed additional underwriting compensation. We
have also retained the representative to act as our financial advisor.
The preceding description includes a summary of the principal terms of the
underwriting agreement and the representative's warrant agreement and does not
purport to be complete. The underwriting agreement and the representative's
warrant agreement are filed as exhibits to the registration statement of which
this prospectus forms a part and should be referenced for the complete contents
of these documents. Each statement is qualified in all respects by reference to
these documents.
LEGAL MATTERS
The validity of the shares offered hereby will be passed upon for us by
Foley, Hoag & Eliot LLP, Boston, Massachusetts. Legal matters will be passed
upon for the underwriters by Kelley Drye & Warren LLP, Stamford, Connecticut.
43
<PAGE> 45
EXPERTS
Radin Glass & Co., LLP, independent accountants, have audited our
consolidated financial statements at June 30, 1998 and 1999 and for each of the
three years in the period ended June 30, 1999, as set forth in their report. We
have included financial statements in this prospectus and elsewhere in the
registration statement in reliance on the report of Radin, Glass & Co., LLP
given on their authority as experts in accounting and auditing.
Radin Glass & Co., LLP, independent accountants, have audited the financial
statements of Online Network, L.L.C., T/A Online Scouting Network at September
30, 1998 and 1997, and for each of the two years in the period ended September
30, 1998, as set forth in their report. We have included financial statements in
this prospectus and elsewhere in the registration statement in reliance on the
report of Radin, Glass & Co., LLP given on their authority as experts in
accounting and auditing.
Paolilli & Jarek, LLC, independent accountants, have audited the financial
statements of ECI, Inc. at December 31, 1998, 1997 and 1996, and for each of the
three years in the period ended December 31, 1998, as set forth in their report.
We have included financial statements in this prospectus and elsewhere in the
registration statement in reliance on the report of Paolilli & Jarek, LLC, given
on their authority as experts in accounting and auditing.
Schenck & Associates SC, independent accountants, have audited the
financial statements of Student Success (a Division of Graphic Management
Corporation) at December 31, 1998 and 1997, and for each of the three years in
the period ended December 31, 1998, as set forth in their report. We have
included financial statements in this prospectus and elsewhere in the
registration statement in reliance on the report of Schenck & Associates SC,
given on their authority as experts in accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
We have filed a registration statement on Form S-1 with the SEC for our
common stock offered hereby. This prospectus does not contain all of the
information set forth in the registration statement. You should refer to the
registration statement and its exhibits for additional information. Whenever we
make reference in this prospectus to any of our contracts, agreements or other
documents, the references are not necessarily complete and you should refer to
the exhibits attached to the registration statement for the copies of the actual
contract, agreement or other document.
You can read our SEC filings, including the registration statement, over
the Internet at the SEC's Web site at http://www.sec.gov. You may also read and
copy any document we file with the SEC at its public reference facilities at
Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549;
Suite 1400, 500 West Madison Street, Chicago, Illinois 60661 and 7 World Trade
Center, Thirteenth Floor, New York, New York 10048. You may also obtain copies
of the documents at prescribed rates by writing to the Public Reference Section
of the SEC at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington,
D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further information on the
operation of the public reference facilities.
We are subject to the reporting requirements of Section 15(d) of the
Securities Exchange Act of 1934. We are current in the filing of all required
reports with the SEC.
44
<PAGE> 46
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
CYTATION.COM INCORPORATED
Report of Independent Auditor............................... F-2
Balance Sheets as of June 30, 1999.......................... F-3
Statements of Operations for the years ended June 30, 1999,
1998 and 1997............................................. F-4
Statement of Changes in Shareholders' Equity (Deficit)...... F-5
Statements of Cash Flows for the years ended June 30, 1999,
1998 and 1997............................................. F-6
Notes to Financial Statements............................... F-7
CYTATION.COM INCORPORATED AND SUBSIDIARIES PRO FORMA
Pro Forma Balance Sheet as of June 30, 1999 (Unaudited)..... F-15
Pro Forma Statement of Operations for the year ended June
30, 1999 (Unaudited)...................................... F-16
Notes to the Pro-Forma Financial Statements................. F-17
ECI, INC
Report of Independent Auditor............................... F-19
Balance Sheets as of December 31, 1998 and 1997............. F-20
Statements of Operations for the years ended December 31,
1998, 1997 and 1996....................................... F-21
Statement of Changes in Stockholders' Deficit............... F-22
Statements of Cash Flows for the years ended December 31,
1998, 1997 and 1996....................................... F-23
Notes to Financial Statements............................... F-24
Unaudited Balance Sheet as of June 30, 1999 and Balance
Sheet as of December 31, 1998............................. F-29
Unaudited Statement of Operations for the six months ended
June 30, 1999............................................. F-30
Unaudited Statement of Cash Flows for the six months ended
June 30, 1999............................................. F-31
Notes to Unaudited Financial Statements..................... F-32
ONLINE SCOUTING NETWORK, L.L.C.
Report of Independent Auditor............................... F-33
Balance Sheets as of September 30, 1998 and 1997............ F-34
Statements of Operations for the years ended September 30,
1998 and 1997............................................. F-35
Statements of Cash Flows for the years ended September 30,
1998 and 1997............................................. F-36
Notes to Financial Statements............................... F-37
Unaudited Balance Sheet as of June 30, 1999................. F-41
Unaudited Statement of Operations for the nine months ended
June 30, 1999............................................. F-42
Unaudited Statement of Cash Flows for the nine months ended
June 30, 1999............................................. F-43
Notes to Unaudited Financial Statements..................... F-44
STUDENT SUCCESS (A DIVISION OF GRAPHIC MANAGEMENT
CORPORATION)
Report of Independent Auditor............................... F-45
Balance Sheets as of December 31, 1998 and 1997............. F-46
Statement of Income and Changes in Division Equity for the
years ended December 31, 1998 and 1997.................... F-47
Statements of Cash Flows for the years ended December 31,
1998 and 1997............................................. F-48
Notes to Financial Statements............................... F-49
</TABLE>
F-1
<PAGE> 47
INDEPENDENT AUDITOR'S REPORT
Shareholders and Directors
Cytation.com Incorporated
Newport, Rhode Island 02842
We have audited the accompanying balance sheets of Cytation.com
Incorporated as of June 30, 1999 and 1998, and the related statements of
operations, shareholders' equity (deficit) and cash flows for each of the three
years ended June 30, 1999, 1998 and 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform our audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatements. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Cytation.com Incorporated as
of June 30, 1999 and 1998, and the results of its operations and its cash flows
for each of the three years ended June 30, 1999, 1998 and 1997 in conformity
with generally accepted accounting principles.
Radin, Glass & Co., LLP
Certified Public Accountants
New York, New York
September 3, 1999
F-2
<PAGE> 48
CYTATION.COM INCORPORATED
BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30,
--------------------------
1999 1998
----------- -----------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $ 1,371,100 $ 46,362
Accounts receivable, net of allowance for doubtful
accounts of $10,000 and $4,200......................... 100,163 72,113
Prepaid expenses and other assets......................... 85,249 12,878
----------- -----------
TOTAL CURRENT ASSETS.............................. 1,556,512 131,353
FURNITURE AND EQUIPMENT, net of accumulated depreciation.... 250,484 190,353
SOFTWARE DEVELOPMENT, net of accumulated amortization of $0
and $36,287, respectively................................. -- 36,283
----------- -----------
$ 1,806,996 $ 358,189
=========== ===========
LIABILITIES AND SHAREHOLDERS' DEFICIT
CURRENT LIABILITIES:
Accounts payable.......................................... $ 278,372 $ 35,988
Accrued payroll........................................... 84,725 216,709
Accrued expenses.......................................... 32,247 48,567
Unearned revenue.......................................... 35,000 57,126
Note payable shareholder.................................. -- 45,000
Shareholder advance payable............................... -- 13,071
Current portion of capital lease obligation............... -- 1,469
----------- -----------
TOTAL CURRENT LIABILITIES......................... 430,344 417,930
CAPITAL LEASE OBLIGATION.................................... -- 9,580
COMMITMENTS AND CONTINGENCIES............................... -- --
SHAREHOLDERS' DEFICIT:
Preferred stock, $1,000 stated value, $.001 par value,
authorized 1,000 shares, issued and outstanding 543
shares................................................. -- 542,500
Preferred stock, $0.01 par value, authorized 7,500,000.... -- --
Series A Convertible Preferred Stock, $4.00 stated value,
$.01 par value, authorized 2,500,000 shares, issued and
outstanding 775,000 shares............................. 3,100,000 --
Common stock, $.001 par value, authorized 100,000,000 and
5,765,000 shares, issued and outstanding 9,152,211 and
3,482,556 shares....................................... 9,152 604
Additional paid-in capital................................ 2,459,718 993,368
Accumulated deficit....................................... (4,192,218) (1,605,793)
----------- -----------
TOTAL SHAREHOLDERS' EQUITY (DEFICIT).............. 1,376,652 (69,321)
----------- -----------
$ 1,806,996 $ 358,189
=========== ===========
</TABLE>
See notes to financial statements
F-3
<PAGE> 49
CYTATION.COM INCORPORATED
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
---------------------------------------
1999 1998 1997
----------- ---------- ----------
<S> <C> <C> <C>
NET REVENUES:
Development of proprietary technology............... $ -- $ 500,000 $ --
Online training service revenues.................... 162,884 -- --
Web site hosting.................................... 235,522 210,700 82,971
Other revenues...................................... 163,515 533,183 376,754
----------- ---------- ----------
561,921 1,243,883 459,725
----------- ---------- ----------
EXPENSES:
Payroll, payroll taxes and related benefits......... 1,173,439 1,018,786 589,356
Investor relations.................................. 376,824 -- --
Depreciation and amortization....................... 131,545 93,554 66,949
Advertising......................................... 49,428 13,268 127,155
Other general and administrative expenses........... 1,375,057 741,028 558,978
----------- ---------- ----------
3,106,293 1,866,636 1,342,438
LOSS FROM OPERATIONS.................................. (2,544,372) (622,753) (882,713)
INTEREST EXPENSE...................................... 42,053 7,579 5,786
----------- ---------- ----------
NET LOSS.............................................. $(2,586,425) $ (630,332) $ (888,499)
=========== ========== ==========
NET LOSS PER SHARE.................................... $ (0.40) $ (0.18) $ (0.29)
=========== ========== ==========
WEIGHTED AVERAGE NUMBER OF SHARES USED IN
COMPUTATION......................................... 6,531,153 3,499,857 3,033,036
=========== ========== ==========
</TABLE>
See notes to financial statements
F-4
<PAGE> 50
CYTATION.COM INCORPORATED
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
TOTAL
PREFERRED STOCK COMMON STOCK ADDITIONAL SHAREHOLDERS'
-------------------- ------------------ PAID-IN EQUITY
SHARES AMOUNT SHARES AMOUNT CAPITAL (DEFICIT) (DEFICIT)
------- ---------- --------- ------ ---------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance -- June 30, 1996...... -- $ -- 2,338,866 $2,338 $ 39,974 $ (61,962) $ (19,650)
Issuance of shares with
debt...................... -- -- 36,994 37 2,082 -- 2,119
Issuance of shares for
compensation.............. -- -- 9,512 10 12,365 -- 12,375
Issuance of shares to
founder................... -- -- 422,684 423 (350) (25,000) (24,927)
Issuance of warrants for
compensation.............. -- -- -- -- 14,931 -- 14,931
Sale of common shares, less
expenses.................. -- -- 674,499 674 874,253 -- 874,927
Preferred issued............ 105 105 -- -- 99,950 -- 100,055
Net loss for the period..... -- -- -- -- -- (888,499) (888,499)
------- ---------- --------- ------ ---------- ----------- -----------
Balance -- June 30, 1997...... 105 105,000 3,482,556 3,483 938,310 (975,461) 71,332
Preferred issued............ 438 437,500 -- -- -- -- 437,500
Issuance of options for
services.................. -- -- -- -- 52,180 -- 52,180
Net loss for the period..... -- -- -- -- -- (630,332) (630,332)
------- ---------- --------- ------ ---------- ----------- -----------
Balance -- June 30, 1998...... 543 542,500 3,482,556 3,483 990,490 (1,605,793) (69,320)
Preferred conversion........ (543) (542,500) 453,976 454 542,046 -- --
Issuance of shares for
assets.................... -- -- 1,345,350 1,345 145,954 -- 147,299
Issuance of shares for
compensation.............. -- -- 1,372,070 1,372 1,008 -- 2,380
Issuance of shares for
services.................. -- -- 559,438 559 376,391 -- 376,950
Sale of common shares, less
expenses.................. -- -- 374,725 375 194,625 -- 195,000
Effect of merger
transaction............... -- -- 1,204,096 1,204 1,029 -- 2,233
Issuance of shares with
debt...................... -- -- 360,000 360 250,660 -- 251,020
Preferred issued-Series A... 775,000 3,100,000 -- -- -- -- 3,100,000
Dividends................... -- -- -- -- (42,485) -- (42,485)
Net loss for the period..... -- -- -- -- -- (2,586,425) (2,586,425)
------- ---------- --------- ------ ---------- ----------- -----------
Balance -- June 30, 1999...... 775,000 $3,100,000 9,152,211 $9,152 $2,459,718 $(4,192,218) $ 1,376,652
======= ========== ========= ====== ========== =========== ===========
</TABLE>
See notes to financial statements
F-5
<PAGE> 51
CYTATION.COM INCORPORATED
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-------------------------------------
1999 1998 1997
----------- --------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.................................................. $(2,586,425) $(630,332) $(888,499)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation and amortization........................... 131,545 93,554 66,949
Write off of accounts receivables....................... 89,800 -- --
Net loss on equipment disposal.......................... 1,231 8,061 3,033
Issuance of shares, options and warrants as compensation
and services.......................................... 384,308 52,180 27,106
Increase (decrease) to cash attributable to changes in
assets and liabilities:
Accounts receivable..................................... (117,850) (34,121) (37,992)
Due from sale of "dial-up" access service............... -- 69,810 (69,810)
Prepaid expenses and other assets....................... (72,372) (6,190) 13,518
Increase in other assets................................ -- -- (3,000)
Accounts payable........................................ 242,384 (15,874) 49,863
Accrued expenses........................................ (16,320) 23,615 24,952
Accrued payroll......................................... (131,984) 131,941 84,768
Unearned revenues....................................... (22,126) 30,180 26,946
----------- --------- ---------
NET CASH USED IN OPERATING ACTIVITIES................... (2,097,809) (277,176) (702,166)
----------- --------- ---------
CASH FLOW FROM INVESTING ACTIVITIES:
Purchase of furniture and equipment....................... (26,520) (80,216) (216,795)
Proceeds from equipment disposals......................... 9,600 1,665 29,155
Proceeds from rent deposit................................ 5,050 -- --
Capitalization of software development costs.............. -- (72,570)
----------- --------- ---------
NET CASH USED IN INVESTING ACTIVITIES................. (11,870) (78,551) (260,210)
----------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of preferred shares................ 3,100,000 437,500 --
Proceeds/payments from issuance of debt................... 66,021 -- 114,306
Proceeds from issuance of common shares................... 195,000 -- 874,500
Issuance of shares to founder............................. -- -- (25,000)
Issuance of common stock with debt........................ 185,000 -- --
Payments of dividends..................................... (42,485) -- --
Note payable to shareholder............................... (45,000) -- --
Shareholder advances payable.............................. (13,071) (34,973) --
Principal payments on capital lease obligations........... (11,049) (2,865) (2,141)
----------- --------- ---------
NET CASH PROVIDED BY FINANCING ACTIVITIES............. 3,434,416 399,662 961,665
----------- --------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........ 1,324,737 43,935 (711)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............ 46,362 2,428 3,139
----------- --------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD.................. $ 1,371,100 $ 46,362 $ 2,428
=========== ========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest................................................ $ 32,979 $ 7,579 $ 5,786
=========== ========= =========
Taxes................................................... $ 996 $ -- $ --
=========== ========= =========
Noncash
Issuance of stock for debt.............................. $ 66,021 $ -- $ --
=========== ========= =========
Issuance of common stock for assets..................... $ 2,299 $ -- $ --
=========== ========= =========
Preferred stock conversion to common stock.............. $ 542,500 $ -- $ --
=========== ========= =========
Stock issued for services............................... $ 384,308 $ -- $ --
=========== ========= =========
Stock issued for assets................................. $ 147,299 $ -- $ --
=========== ========= =========
</TABLE>
See notes to financial statements
F-6
<PAGE> 52
CYTATION.COM INCORPORATED
NOTES TO FINANCIAL STATEMENTS
1. BUSINESS
Cytation.com Incorporated, a New York corporation ("Cytation.com"), is the
surviving corporation in a merger with Cytation Corporation, a Rhode Island
corporation which was previously known as Web Services International, Inc.
(Cytation Corporation, together with Web Services International, Inc. (Cytation
Corporation, together with Web Services International, Inc. are herein
collectively referred to as "WSI"). The merger occurred on March 5, 1999 (Note
7). Cytation.com was previously known as Stylex Homes, Inc. ("Stylex"). Although
Stylex was incorporated in 1969, it did not conduct any business after 1992.
Cytation.com is a reporting company under the Securities Exchange Act of
1934.
WSI was incorporated under the laws of the State of Rhode Island in January
1996 to market and host various forms of content on the World Wide Web and to
provide dial-up access to the Internet. Through the end of 1997, the WSI
marketed the design, origination and hosting of Web sites and Web content to
small and medium size businesses. WSI also provided various consulting services
to customers in connection with the development and sale of Web content. In
December 1997, WSI entered into a joint venture and related contract for the
development of online training systems. At the time, WSI discontinued its Web
content sale and development business (except for work in process and Web
hosting) and focused its operations, which generated some revenue for the
balance of the fiscal year ended June 30, 1999. As a result of the acquisition
of ECI, Inc. in August 1999, Cytation.com, through its CollegeLink.com
Incorporated subsidiary, is also engaged in providing online college application
and related services to high school students and their parents (Note 12).
Cytation.com, together with WSI, is hereinafter referred to as the
"Company". All references to share issuances are after the recapitalization
transaction in which each share of WSI was converted into 5.765 shares of
Cytation.com (Note 7).
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. Basis of Presentation -- The preparation of financial statements in
accordance with generally accepted accounting principles requires management to
make significant estimates and assumptions that affect the reported amounts of
assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reported period. Actual results
could differ from those estimates.
b. Furniture and Equipment -- Furniture and equipment are stated at cost
and depreciated using the straight-line method over the estimated useful lives
of the assets ranging from three to seven years for equipment, auto and
furniture.
Leasehold improvements are amortized over the term of the lease or the
estimated life of the improvement, whichever is shorter. Whenever assets are
sold or retired, their cost and related accumulated depreciation are removed
from the appropriate accounts. Any gains and losses on dispositions are recorded
in current operations.
c. Software Development Costs -- The Company capitalizes software
development costs in accordance with SFAS 86. The Company did not capitalize any
software development costs during the years ended June 30, 1999 and 1998,
respectively. Software development costs were fully amortized at June 30, 1999.
d. Fair Value of Financial Instruments -- The carrying amounts reported in
the balance sheet for cash, trade receivables, accounts payable and accrued
expenses approximate fair value based on the short-term maturity of these
instruments.
F-7
<PAGE> 53
CYTATION.COM INCORPORATED
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
e. Income Taxes -- The Company utilizes the liability method of accounting
for income taxes as set forth in SFAS 109, "Accounting for Income Taxes." Under
the liability method, deferred taxes are determined based on the difference
between the financial statement and tax bases of assets and liabilities using
enacted tax rates in effect in the years in which the differences are expected
to reverse.
f. Revenue Recognition -- Revenues from Web services are recognized as
such services are performed. Revenues from Web site hosting are recognized on a
monthly basis. No revenue from Web design services was recorded for the year
ended June 30, 1999.
g. Employee Stock Options and Shares Issued for Services -- The Company
accounts for employee stock transactions in accordance with APB Opinion No. 25,
"Accounting for Stock Issued to Employees." The Company has adopted the proforma
disclosure requirements of SFAS 123, "Accounting for Stock-Based Compensation."
Accordingly, any excess of fair market value of stock issued to employees over
exercise prices has been recorded as compensation expense and additional paid in
capital.
Shares issued for services of non-employees are recorded at estimated fair
value.
h. Loss Per Share -- The Company has adopted SFAS 128, "Earnings per
Share." Earnings per common share are computed by dividing income available to
common shareholders by the weighted average number of common shares outstanding
during the period. The earnings per common share, assuming dilution, computation
gives effect to all dilutive potential common shares during the period. The
computation assumes that the outstanding stock options and warrants were
exercised and that the proceeds were used to purchase common shares of the
Company. Earnings per share computation for each of the three years ended June
30, 1999, 1998 and 1997 have been restated to reflect this new standard.
i. Accounting for Long-Lived Assets -- The Company reviews long-lived
assets, certain identifiable assets and any goodwill related to those assets for
impairment whenever circumstances and situations change such that there is an
indication that the carrying amounts may not be recoverable. At June 30, 1999
and 1998 respectively, the Company believes that there has been no impairment of
long-lived assets.
j. Advertising Costs -- Advertising costs are expensed as incurred except
for direct response advertising, the costs of which are deferred and amortized
over the period the related sales are recorded. There was no deferral or
amortization for direct response advertising costs for each of the three years
ended June 30, 1999, 1998 and 1997, respectively.
3. CASH AND CASH EQUIVALENTS
The Company classifies as cash and cash equivalents highly liquid
investments with maturities of less than ninety days at June 30, 1999. The
Company did not have cash equivalents at June 30, 1998.
4. JOINT VENTURE AGREEMENT
In December 1997, the Company entered into a joint venture agreement with
EER Systems Inc. ("EER"), a supplier of systems design, development and
integration capabilities specializing in flight, information and training
systems. Cytation Corporation ("Cytation Delaware") a Delaware corporation was
incorporated pursuant to the joint venture agreement. Simultaneously, the
Company entered into a development agreement with Cytation Delaware, receiving
$500,000 to develop certain software.
In July 1998, EER loaned the Company $300,000. This loan was repaid in
1999. In addition, the Company issued to EER 175,000 common shares in settlement
of a potential claim by EER that it was entitled to convert the loan into a
significantly greater number of common shares.
In July 1998 the Company purchased the assets of Cytation Delaware, of
which it was a fifty percent owner, in exchange for equity. (Note 7).
F-8
<PAGE> 54
CYTATION.COM INCORPORATED
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
5. FURNITURE AND EQUIPMENT
Furniture and equipment consist of the following at June 30:
<TABLE>
<CAPTION>
ESTIMATED
USEFUL LIVES 1999 1998
------------ -------- --------
<S> <C> <C> <C>
Computer and office equipment...................... 3 $340,798 $177,072
Furniture and fixtures............................. 7 68,542 68,542
Leasehold improvements............................. 5 42,566 42,566
Auto under capital lease obligation................ 5 -- 18,055
-------- --------
451,906 306,235
Less accumulated depreciation...................... 201,422 115,682
-------- --------
$250,484 $190,553
======== ========
</TABLE>
6. SHORT-TERM BORROWINGS
The Company issued a note payable of $300,000 in July 1998 to a related
party. The Company repaid the note in May 1999.
The Company received $370,000 from the issuance of six-month 12% debentures
in January and February 1999. This debt financing was repaid with the proceeds
of the sale of preferred stock in April 1999 (Note 7). The Company also issued
185,000 shares of its common stock in connection with the repayment of the
debentures.
The Company had two short-term debt instruments outstanding at June 30,
1998 payable to shareholders totaling approximately $58,000. Both debt
instruments were non-interest bearing and were repaid during the year ended June
30, 1999.
7. EQUITY AND OTHER FINANCING
a. During the years ended June 30, 1997 and 1996, the Company issued
$18,750 and $50,000 of debt with 36,994 and 49,325 shares, respectively. The
amounts allocated to the shares have been recorded as debt discount and were
amortized.
b. In February 1997, the Company completed a sale of 691,800 of its common
shares at $1.30 per share. A portion of these shares was sold over the Internet.
c. During the year ended June 30, 1997, the Company issued $105,000 of
debt units consisting of promissory notes and stock purchase warrants ("Units").
The promissory notes were automatically converted to shares of Series A 10%
convertible preferred notes, $.001 par value with a stated value of $1,000
("CPS"). Each share of CPS is subject to mandatory and automatic conversion into
the Company's common shares upon the effective date of an initial public
offering of the Company's common shares or September 1, 1998, whichever occurs
first. In addition each preferred shareholder received one stock purchase
warrant for each share of common stock received upon conversion of the CPS. Each
warrant entitled the holder to purchase one share of common stock at a purchase
price per share of $1.30 per share.
d. During July through November 1997, the Company issued approximately
$438,000 of "Units". The promissory notes were automatically convertible into
CPS. Each share of CPS was automatically converted into the Company's common
shares on September 1, 1998. In addition, each preferred shareholder received
one stock purchase warrant for each share of common stock received upon
conversion of the CPS. Each warrant entitled the holder to purchase one share of
common stock at a purchase price per share of $1.30 per share.
F-9
<PAGE> 55
CYTATION.COM INCORPORATED
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
e. In October 1997, the Company amended its Articles of Incorporation to
change the aggregate number of shares the Company has authority to issue from
1,000,000 to 1,001,000, consisting of 1,000,000 shares of common stock, $.001
par value per share, and 1,000 shares of preferred stock. Thereafter, the board
of directors of the Company authorized the issuance of the CPS, which was issued
to the holders of the Units in cancellation of their promissory notes. In the
year ended June 30, 1999, the Company cancelled the authorization of one
thousand shares of $0.001 par value, preferred stock.
f. In July 1998, the Company issued approximately 1,325,000 of its common
stock to acquire the assets of Cytation Delaware (Note 4). The assets have been
recorded at $2,299 which approximates the fair market value of the shares at the
time of the transaction.
g. In July 1998, the Company issued a warrant for services to purchase
5,000 shares of the Company's common stock at an exercise price of $.01 per
share, which approximates fair value at time of issuance.
h. In December 1998, when management believed the fair market value of the
shares was $0.002 per share, management reduced the exercise price of previously
outstanding stock options to $0.002 and all employees exercised such shares for
compensation. Such compensation was recorded at $0.002 per share for 1,372,000
shares.
i. In December 1998, the Company issued approximately 29,000 warrants,
expiring in August 2001, exercisable at $0.52, in connection with a sale of
stock in prior years.
j. In January 1999, the Company received $195,000 from the issuance in a
private placement of approximately 375,000 shares of its common stock.
k. On March 5, 1999 Cytation.com was acquired by Cytation Corporation
through a "reverse merger" transaction, whereby each outstanding share of
Cytation Corporation (formerly Web Services) was converted into 5.765 shares of
Cytation.com Incorporated. The merger has been accounted for as a
"Recapitalization" as if Cytation.com Incorporated issued additional shares for
the $233 of assets of Stylex Homes, Inc. The number of common share information
has been adjusted to reflect the effects of the merger agreement.
l. In April 1999, the Company received $3,100,000 in exchange for 775,000
6% cumulative preferred stock designated as "Series A Convertible Preferred
Stock" ("Preferred A") from two investors. "Preferred A" has a stated value of
$4.00 per share, a par value of $.01 per share and dividends payable quarterly.
Any holder of Preferred A may at any time convert stock into the common Stock of
the Company at a ratio of one share of common Stock for each share of Preferred
A. The Company may require conversion on or after the first anniversary of the
initial purchase if the closing bid price for its common shares exceeds $6.00
for twenty consecutive trading days.
In the event of any voluntary or involuntary liquidation, dissolution, or
winding up of the affairs of the Company, the holders of the issued and
outstanding Preferred A are entitled to receive $4.00 for each share of
Preferred A, before any distribution of the assets of the Company shall be made
to the holders of any other capital stock.
m. In March 1999, the Company amended its Articles of Incorporation to
change the aggregate number of shares the Company has authority to issue to
110,000,000 shares, consisting of 100,000,000 shares of common stock, par value
$.001 per share and 10,000,000 shares of preferred stock, par value $.01 per
share.
n. During the year the Company agreed to issue 504,000 shares to unrelated
parties for financial services, which shares were recorded at fair market value
at the time of the agreement of $0.002 per share.
F-10
<PAGE> 56
CYTATION.COM INCORPORATED
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
In April and May 1999, the Company issued 55,000 shares to unrelated parties for
financial services, which shares were recorded at fair market values from $6.50
per share to $7.50 per share.
o. In June 1999, the Company issued 20,000 shares of its common stock for
the purchase of computer equipment valued at $145,000.
p. In May 1999, the Company agreed to issue to its outside directors, who
are not principals of shareholders which own more than 10% of the Company,
options to purchase 10,000 shares of the Company's common stock annually, the
first grant to be effective May 7, 1999 and the second and all subsequent grants
to be effective on the day of the Company's annual meeting. As of June 30, 1999
the Company had 20,000 options, exercisable at $6.00 per option, outstanding.
q. For disclosure purposes in accordance with SFAS No. 123, the fair value
of each stock option grant is estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted-average
assumptions used for stock options granted during the years ended June 30, 1999,
1998 and 1997, respectively: annual dividends of $0.00, expected volatility of
65% at June 30, 1999 and 20.0% at June 30, 1998 and 1997, risk-free interest
rate of 5.7% and expected life of five years for all grants. The
weighted-average fair value of the stock options granted during the year ended
June 30, 1999 was $1.48, and $0.77 for both years ended June 30, 1998 and 1997,
respectively.
If the Company recognized compensation cost for the employee stock option
plan in accordance with SFAS No. 123, the Company's pro forma net loss and loss
per share would have been approximately, $2,913,000, $672,000 and $902,000,
$0.45, $0.19 and $0.30, in years ended June 30 1999, 1998 and 1997,
respectively.
The following table summarizes the changes in options outstanding and the
related price ranges for shares of the Company's common stock:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
SHARES EXERCISE PRICE
---------- --------------
<S> <C> <C>
Outstanding at June 30, 1996............................... -- --
Granted.................................................. 639,915 .43
Exercised................................................ -- --
Expired or cancelled..................................... -- --
---------- ----
Outstanding at June 30, 1997............................... 639,915 .43
Granted.................................................. 861,868 .43
Exercised................................................ -- --
Expired or cancelled..................................... (57,650) .43
---------- ----
Outstanding at June 30, 1998............................... 1,444,133 .43
Granted.................................................. 1,441,186 4.32
Exercised................................................ (1,444,133) .01
Expired or cancelled..................................... -- --
---------- ----
Outstanding at June 30, 1999............................... 1,441,186 4.32
========== ====
</TABLE>
Exercise prices for options outstanding at June 30, 1999 range from $2.00
to $7.00 and the weighted average remaining contractual life is approximately
five years. The number of options exercisable and weighted average exercise
price for options exercisable at June 30, 1999 was 69,430 and $2.83.
F-11
<PAGE> 57
CYTATION.COM INCORPORATED
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
8. COMMITMENTS AND CONTINGENCIES
a. In December 1996, the Company issued to a founder of the Company,
422,684 shares of stock and a note for $45,000 for the receipt of certain
assets. The assets received have been recorded at fair value; the excess of the
note issued over the assets received has been recorded as a distribution. The
note was repaid in April 1999.
b. Rent expense under all operating leases was approximately $42,000,
$43,000, and for each of the years ended June 30, 1999, 1998 and 1997,
respectively. The future minimum rental payments to be made under noncancellable
operating leases as of June 30, 1999 are as follows:
<TABLE>
<S> <C>
1999-2000.......................................... $40,560
2000-2001.......................................... 12,510
2001-2002.......................................... 690
2002-2004.......................................... --
</TABLE>
The Company entered into a month to month basis lease agreement commencing
May 1, 1999, for two additional offices at its Aquidneck Avenue location, at a
rate of $450 per month.
c. The Company entered into an agreement on April 19, 1999 with a
California corporation ("the Consultant") in an effort to expand the investor
base and the number of market professionals who are aware of the Company's
activities. The Company paid the Consultant $7,500 per month for three months.
d. Effective February 1999, the Company entered into three-year employment
agreements with two officers who are principal stockholders of the Company.
e. The Company has an agreement with an agency for marketing and public
relations services commencing April 1, 1999 with no expiration date. Either
party may terminate agreement by notifying the other party within sixty days
prior to the date of termination. The Company has agreed to pay the agency a
monthly rate of $7,000 to compensate the agency for services in the following
areas: strategic counseling, in-house research, advertising and public
relations.
9. CERTAIN OPERATIONS
In April 1997, the Company sold its business of providing "dial-up" access
service to Internet users. The sales price was $30,000 plus fixed and contingent
future revenues based on the number of the Company's former "dial-up" customers
who continue to utilize the service. The Company also received radio-advertising
credits provided by the buyer. In May 1998, the Company began receiving the
contingent monthly revenue payments and received the final payment in November
1998.
In July 1998 the Company ceased its business of Web site development.
Revenue from Web site development earned in year ended June 30, 1999 was
approximately $53,000 and was derived from contracts billed in the year ended
June 30, 1998.
10. OPERATIONS
The Company adopted SFAS No, 131, "Disclosure about Segments of an
Enterprise and Related Information". SFAS establishes annual and interim
reporting standards for an enterprise's operating segments and related
disclosures about its products, services, geographic areas and major customers.
Under SFAS No. 131, the Company's operations are treated as one operating
segment as it only reports profit
F-12
<PAGE> 58
CYTATION.COM INCORPORATED
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
and loss information on an aggregate basis to the chief operating decision maker
of the Company. Information about the Company's product sales and major
customers are as follows at June 30,:
<TABLE>
<CAPTION>
1999 1998 1997
-------- ---------- --------
<S> <C> <C> <C>
PRODUCT SALES
Development of proprietary technology........... $ -- $ 500,000 $ --
Online training service revenues................ 162,884 -- --
Web site hosting................................ 235,521 210,700 82,971
Web site design and origination................. 52,718 416,574 109,883
Subscriber access............................... 95,923 53,853 172,882
Other........................................... 14,875 62,756 93,989
-------- ---------- --------
Total Sales..................................... $561,921 $1,243,883 $459,725
======== ========== ========
</TABLE>
No customer accounted for more than ten percent of the revenues, other than
for online training services: (Note 4), of the Company in each of the three
years ended June 30, 1999, 1998 and 1997, respectively.
11. INCOME TAXES
The Company accounts for income taxes under SFAS 109, "Accounting for
Income Taxes" which requires the recognition of deferred tax assets and
liabilities for both the expected impact of differences between the financial
statements and tax basis of assets and liabilities, and for the expected future
tax benefit to be derived from tax loss and tax credit carryforwards. At June
30, 1999, the Company had net operating loss carryforward of approximately
$3,800,000, expiring in 2013 and 2014. SFAS 109 additionally requires the
establishment of a valuation allowance to reflect the likelihood of realization
of deferred tax assets. At June 30, 1999 and 1998, a valuation allowance was
provided against the tax asset.
The components of the net deferred tax asset consist of the following:
<TABLE>
<CAPTION>
1999 1998
---------- --------
<S> <C> <C>
Net operating loss carryforward............................. $1,330,000 $420,000
Temporary differences....................................... 4,000 1,000
Valuation allowance......................................... (1,334,000) (421,000)
---------- --------
$ -- $ --
========== ========
</TABLE>
The provision for income taxes differs from the amount computed applying
the statutory federal income tax rate to income before income taxes as follows
at June 30,:
<TABLE>
<CAPTION>
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
Income tax benefit computed at statutory rate... $(905,000) $(221,000) $(311,000)
Tax benefit not recognized...................... 905,000 221,000 311,000
--------- --------- ---------
Provision for income taxes...................... $ -- $ -- $
========= ========= =========
</TABLE>
12. SUBSEQUENT EVENTS
On August 10, 1999, the Company acquired ECI, Inc. through a merger
transaction. ECI is a provider of computer-based college applications and
admissions services.
The acquisition was structured as a merger of ECI with and into Cytation's
wholly-owned subsidiary CollegeLink.com Incorporated ("CollegeLink"). As
consideration for the merger, the Company issued 550,809 of its common shares,
234,771 of its Series B Stock and paid $489 in cash. CollegeLink also
F-13
<PAGE> 59
CYTATION.COM INCORPORATED
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
assumed approximately $778,000 of ECI liabilities in connection with the merger
and settled a claim against ECI in exchange for 108,196 shares of the Company's
common stock and 45,000 shares of the Company's Series B stock. The Company
reserved 550,369 shares of its common stock for the conversion of the above
Series B stock.
The Company adopted a 401K plan commencing in July 1999.
The Company entered into a five-year lease agreement expiring November 30,
2004. Rental expense for the entire five-year period totals approximately
$641,000.
The Company entered into agreements for directors and officers liability
insurance.
F-14
<PAGE> 60
PRO FORMA FINANCIAL INFORMATION (UNAUDITED)
CYTATION.COM INCORPORATED AND
SUBSIDIARIES PRO FORMA BALANCE SHEET
(UNAUDITED)
THE FOLLOWING PRO FORMA BALANCE SHEET OF CYTATION, ECI, OSN AND SSI AT
JUNE 30, 1999 IS BASED UPON HISTORICAL FINANCIAL DATA OF CYTATION, ECI, OSN AND
SSI
GIVING EFFECT TO THE PROPOSED TRANSACTION.
<TABLE>
<CAPTION>
CYTATION
CYTATION ECI OSN SSI PRO FORMA
JUNE 30, JUNE 30, JUNE 30, JUNE 30, JUNE 30,
1999 1999 1999 1999 DEBIT CREDIT 1999
----------- ----------- ----------- -------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents.... $ 1,371,100 $ 2,258 $ 2,410 $40,859 $4,000,000(7) $ 489(5A) $ 4,966,138
450,000(6D)
Accounts receivable.......... 100,163 -- -- 88,237 188,400
Prepaid expenses and other
assets..................... 85,249 111,760 9,341 6,208 53,500(5C) 159,058
----------- ----------- ----------- -------- -----------
TOTAL CURRENT ASSETS... 1,556,512 114,018 11,751 135,304 5,313,597
GOODWILL....................... -- -- -- -- 9,118,621(5A) 19,194,535
50,000(5B)
2,499,592(6A)
50,000(6B)
7,426,322(8A)
50,000(8B)
FURNITURE AND EQUIPMENT, net... 250,484 56,876 65,439 27,632 400,431
SOFTWARE DEVELOPMENT, net...... -- -- 54,428 -- 54,428
OTHER ASSETS................... 41,695 41,695
----------- ----------- ----------- -------- -----------
$ 1,806,996 $ 170,895 $ 131,618 $204,631 $25,004,685
=========== =========== =========== ======== ===========
LIABILITIES AND SHAREHOLDERS' DEFICIT
CURRENT LIABILITIES:
Accounts payable and accrued
liabilities................ $ 395,344 $ 1,035,499 $ 814,514 $125,136 $ 53,500(5C) $ 50,000(5B) $ 784,378
1,232,615(5E) 50,000(6B)
450,000(6D) 50,000(8B)
Unearned revenue............. 35,000 -- 87,748 75,000 197,748
Loan and notes payable....... -- 1,002,578 67,250 -- 1,069,828
----------- ----------- ----------- -------- -----------
TOTAL CURRENT
LIABILITIES.......... 430,344 2,038,077 969,512 200,136 2,051,954
LONG-TERM DEBT................. -- 912,188 311,698 -- 1,223,886
COMMITMENTS AND
CONTINGENCIES................ -- -- -- -- --
SHAREHOLDERS' DEFICIT:
Preferred shares............. 3,100,000 -- -- -- 3,500,000(5A) 12,625,000
675,000(5E)
1,350,000(6A)
4,000,000(7)
Common shares................ 9,152 1,255 -- -- 1,225(5A) 2,839(5A) 8,012,579
558(5E)
8,000,000(8A)
Additional paid-in capital... 2,459,718 995,542 -- -- 995,542(5A) 2,835,893(5A) 5,283,485
569,183(8A) 557,057(5E)
Accumulated equity
(deficit).................. (4,192,218) (3,776,167) (1,149,592) 4,495 3,776,167(5A) (4,192,218)
1,149,592(6A)
(4,495)(8A)
----------- ----------- ----------- -------- -----------
1,376,652 (2,779,370) (1,149,592) 4,495 21,728,846
----------- ----------- ----------- -------- -----------
$ 1,806,996 $ 170,895 $ 131,618 $204,631 $25,004,685
=========== =========== =========== ======== ===========
</TABLE>
See "Cytation.com Incorporated and Subsidiaries' Notes to Pro Forma
Financial Statements assuming the purchase of ECI, OSN and SSI on June 30,
1999."
F-15
<PAGE> 61
CYTATION.COM INCORPORATED AND SUBSIDIARIES
PRO FORMA STATEMENT OF OPERATIONS
(UNAUDITED)
THE FOLLOWING PRO FORMA STATEMENT OF OPERATIONS FOR THE YEAR ENDED
JUNE 30, 1999 OF CYTATION, ECI, OSN AND SSI IS BASED ON HISTORICAL FINANCIAL
DATA OF CYTATION, ECI, OSN AND SSI GIVING EFFECT TO THE PROPOSED TRANSACTION
<TABLE>
<CAPTION>
CYTATION ECI OSN SSI CYTATION
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
JUNE 30, 1999 JUNE 30, 1999 JUNE 30, 1999 JUNE 30,1999 ADJUSTMENTS JUNE 30, 1999
------------- ------------- ------------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
NET REVENUES....................... $ 561,921 $ 104,073 $ 98,178 $1,075,668 $ 1,839,840
EXPENSES:
Payroll, payroll taxes and
related benefits............... 1,173,439 400,248 9,261 384,205 1,967,153
Investor relations............... 376,824 5,398 -- 618,068 1,000,290
Depreciation and amortization.... 131,545 30,842 73,541 5,225 241,153
Advertising...................... 49,428 50,236 20,809 1,328 121,801
Other general and administrative
and interest expenses.......... 1,417,109 574,768 532,672 220,377 2,744,926
Amortization of goodwill......... -- -- -- 916,862(5D) 1,919,454
254,959(6C)
747,632(8C)
----------- ---------- --------- ---------- -----------
1,061,492 636,283 1,229,203 7,994,776
----------- ---------- --------- ---------- -----------
NET LOSS........................... $(2,586,425) $ (957,419) $(538,105) $ (153,535) $(6,154,936)
=========== ========== ========= ========== ===========
NET LOSS PER SHARE................. $ (0.86)
===========
WEIGHTED AVERAGE NUMBER OF SHARES
USED IN COMPUTATION.............. 7,190,158
===========
</TABLE>
See "Cytation.com Incorporated and Subsidiaries' Notes to Pro Forma
Financial Statements assuming the purchase of ECI, OSN and SSI on July 1, 1998."
F-16
<PAGE> 62
CYTATION.COM INCORPORATED AND SUBSIDIARIES
NOTES TO PRO FORMA FINANCIAL STATEMENTS ASSUMING
THE PURCHASE OF ECI, INC., ONLINE SCOUTING NETWORK, L.L.C.,
AND STUDENT SUCCESS, INC.
(UNAUDITED)
1. BUSINESS TRANSACTIONS
The pro forma financial statements include three separate business
acquisition transactions, two of which have not been consummated, as follows:
a. The issuance of 550,809 shares of Cytation.com Incorporated
("Cytation") Common Stock and 234,771 shares of its Series B Stock pursuant
to the merger of ECI, Inc. ("ECI") with and into Cytation's wholly-owned
subsidiary CollegeLink.com Incorporated ("CollegeLink"). As consideration
for the acquisition, each of the issued and outstanding shares of the
capital stock of ECI will be exchanged for 1.2453 shares of Cytation Common
Stock and .5308 shares of Cytation's Series B Convertible Preferred Stock
("Series B"). In addition ECI shareholders received cash from Cytation for
any fraction of a share remaining after the conversion which totaled
$488.56.
b. The proposed issuance of 1,800,000 shares of Cytation Preferred
Stock pursuant to the merger of Online Network, L.L.C., T/A Online Scouting
Network ("OSN") with and into CollegeLink.
c. The proposed issuance of $4,500,000 shares of Cytation, the number
of shares to be based on the offering price in this prospectus, plus
$3,500,000 in cash, for the acquisition of Student Success, Inc.
2. ACCOUNTING POLICY
All acquisitions are being accounted using the purchase method.
a. The shares issued for the acquisition of ECI are recorded at the
average fair market value on August 10, 1999, the date in which the merger
transaction was consummated. The total dollar basis of the Common Stock and
Series B recorded in the pro forma financial statements at June 30, 1999
was $2,838,732 and $3,500,000.
b. The shares to be issued for the acquisition of OSN are recorded at
the estimated average fair market value at the date at which the merger
transaction is to be consummated. The total dollar basis of the Preferred
Stock recorded in the pro forma financial statements at June 30, 1999 was
$1,350,000.
c. The acquisition cost of SSI is the shares to be issued recorded at
$4,500,000 plus $3,500,000 of cash.
3. GOODWILL
The financial statements of Cytation will include the operations of ECI,
OSN and SSI from the date of each actual acquisition. Based upon preliminary
evaluations, all of the excess of each purchase price over each previously
recorded amounts of ECI, OSN and SSI have been allocated to goodwill and will be
amortized over ten years. Such amortization has been included in the pro forma
financial statements.
4. SETTLEMENT OF CLAIMS
a. Cytation also assumed approximately $778,000 of ECI's liabilities in
connection with the merger and settled a claim against ECI in exchange for
108,196 shares of Cytation Common Stock and 45,000 shares of Series B. The
shares have been recorded in the pro forma financial statements at their average
fair market value as of August 10, 1999.
F-17
<PAGE> 63
CYTATION.COM INCORPORATED AND SUBSIDIARIES
NOTES TO PRO FORMA FINANCIAL STATEMENTS ASSUMING -- (CONTINUED)
b. Cytation paid $450,000 in cash to settle claims against OSN.
5. ADJUSTMENTS TO PRO FORMA-ECI
Adjustments to the pro forma financial statements are as follows:
A. Issuance of shares of Cytation to former ECI shareholders recorded
as indicated in 2 above.
B. Estimated expenses of the transaction.
C. The elimination of intercompany receivables and payables.
D. Amortization of goodwill as indicated in Note 3 above.
E. Issuance of shares for settlement of claim against ECI as
indicated in Note 4 above.
6. ADJUSTMENTS TO PRO FORMA-OSN
Adjustments to the pro forma financial statements are as follows:
A. Issuance of shares of Cytation to former OSN members recorded as
indicated in 2 above.
B. Estimated expenses of the transaction.
C. Amortization of goodwill as indicated in Note 3 above.
D. Issuance of shares for settlement of claims against OSN as
indicated in Note 4 above.
7. SUBSEQUENT EVENT
The Company sold Preferred Stock in September 1999 valued at $4,000,000.
8. ADJUSTMENTS TO PRO FORMA-SSI
Adjustments to the pro forma financial statements are as follows:
A. Issuance of Cytation shares to former SSI shareholders as
indicated in Note 2 above and payment of $3,500,000.
B. Estimated expenses of the transaction.
C. Amortization of goodwill as indicated in Note 3 above.
9. FINANCIAL STATEMENT INFORMATION
These financial statements should be read in conjunction with the
historical financial statements and notes thereto of Cytation, ECI, OSN and SSI
included elsewhere herein.
The financial position and results may not be indicative of future
activities of Cytation, ECI, OSN and SSI, or the results if the acquisitions had
been made at the dates indicated.
Loss per share is based upon the average shares outstanding for Cytation
during the period and the equivalent shares of Cytation issued for the ECI and
SSI shares outstanding.
The financial statements of ECI, OSN and SSI have each been restated to a
June 30 year-end.
F-18
<PAGE> 64
INDEPENDENT AUDITORS' REPORT
Board of Directors
ECI, Inc.
Clinton, Massachusetts
We have audited the accompanying balance sheets of ECI, INC., as of
December 31, 1998, 1997 and 1996, and the related statements of operations,
changes in stockholders' deficit, and cash flows for the years then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of ECI, Inc. as of December 31,
1998, 1997 and 1996, and the results of its operations, changes in stockholders'
deficit, and its cash flows for the years then ended in conformity with
generally accepted accounting principles.
As discussed in Note 14, the company has incurred recurring losses and
accumulated deficit of $3,352,932. Liabilities exceed assets by $2,557,135.
These conditions indicate that unless the Company obtains substantial additional
financing resources, the Company may not be able to continue operations. The
accompanying financial statements do not include any adjustments to the
financial statements that might be necessary should the Company be unable to
continue as a going concern.
Paolilli & Jarek, LLC
Certified Public Accountants
Chelmsford, MA
August 10, 1999
F-19
<PAGE> 65
ECI, INC.
BALANCE SHEETS
AS OF DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $ 3,439 $ 6,311
Deferred charges.......................................... 101,750 0
----------- -----------
TOTAL CURRENT ASSETS.............................. 105,189 6,311
FIXED ASSETS, NET........................................... 54,384 49,314
OTHER ASSETS................................................ 2,313 2,313
----------- -----------
$ 161,886 $ 57,938
=========== ===========
LIABILITIES AND STOCKHOLDERS' (DEFICIT)
CURRENT LIABILITIES:
Capital Lease Obligation -- current maturities............ $ 63,320 $ 34,540
Note payable -- Credit Line............................... 125,000 0
Notes payable -- Investors................................ 477,000 95,000
Notes payable -- Officer.................................. 479,500 410,000
Accounts payable.......................................... 337,208 259,181
Accrued interest.......................................... 126,033 13,142
Accrued expenses.......................................... 167,946 75,000
----------- -----------
TOTAL CURRENT LIABILITIES......................... 1,776,007 886,863
----------- -----------
LONG-TERM DEBT:
Notes payable............................................. 742,878 742,878
Accrued interest.......................................... 167,054 92,959
Capital lease obligation -- net of current portion........ 33,082 31,844
----------- -----------
943,014 867,681
----------- -----------
STOCKHOLDERS' (DEFICIT):
Common stock, $.01 par value; 200,000 authorized 125,483
shares issued and outstanding.......................... 1,255 1,255
Additional paid in capital................................ 794,542 794,542
Accumulated deficit....................................... (3,352,932) (2,492,403)
----------- -----------
(2,557,135) (1,696,606)
----------- -----------
$ 161,886 $ 57,938
=========== ===========
</TABLE>
See notes to financial statements
F-20
<PAGE> 66
ECI, INC.
STATEMENTS OF OPERATIONS
FOR YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
REVENUES................................................ $ 101,949 $ 115,270 $ 88,488
--------- --------- ---------
COSTS AND EXPENSES:
Payroll and related costs............................. 449,210 440,854 408,038
Software development.................................. 51,812 56,000 7,206
Promotional materials................................. 49,686 21,659 105,124
Depreciation and amortization......................... 30,842 23,221 13,136
Other costs........................................... 187,281 387,315 323,305
--------- --------- ---------
Total costs and expenses...................... 768,831 929,049 856,809
--------- --------- ---------
(LOSS) FROM OPERATIONS.................................. (666,882) (813,779) (768,321)
INTEREST EXPENSE........................................ 193,647 101,835 25,247
--------- --------- ---------
NET LOSS................................................ $(860,529) $(915,614) $(793,568)
========= ========= =========
</TABLE>
See notes to financial statements
F-21
<PAGE> 67
ECI, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT
FOR YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
COMMON STOCK
------------------- ADDITIONAL TOTAL
NUMBER OF PAR PAID-IN ACCUMULATED STOCKHOLDERS'
SHARES VALUE CAPITAL DEFICIT DEFICIT
--------- ------ ---------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1995....... 125,483 $1,255 $819,638 $ (783,221) $ 37,672
Shareholder distributions........ (25,096) (25,096)
Net Loss......................... (793,568) (793,568)
------- ------ -------- ----------- -----------
Balance, December 31, 1996....... 125,483 1,255 794,542 (1,576,789) (780,992)
Net Loss......................... (915,614) (915,614)
------- ------ -------- ----------- -----------
Balance, December 31, 1997....... 125,483 1,255 794,542 (2,492,403) (1,696,606)
Net Loss......................... (860,529) (860,529)
------- ------ -------- ----------- -----------
Balance, December 31, 1998....... 125,483 $1,255 $794,542 $(3,352,932) $(2,557,135)
======= ====== ======== =========== ===========
</TABLE>
See notes to financial statements
F-22
<PAGE> 68
ECI, INC.
STATEMENTS OF CASH FLOWS
FOR YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATIONS:
Cash received from customers.......................... $ 101,949 $ 96,820 $ 88,488
Cash paid to suppliers and employees.................. (668,766) (634,936) (782,697)
Interest received..................................... -- -- 2,609
Interest paid......................................... (6,661) (17,956) (3,025)
--------- --------- ---------
(573,478) (556,072) (694,625)
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Payment received on contingent installment
agreement.......................................... -- -- 14,800
Acquisition of property and equipment................. (1,583) (2,642) (3,570)
--------- --------- ---------
(1,583) (2,642) 11,230
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Sale of computer equipment............................ -- 18,450 --
Proceeds of debt financing............................ 576,500 547,878 700,000
Payments on capital lease obligation.................. (4,311) (4,573) (8,175)
Distributions to shareholders......................... -- -- (25,096)
--------- --------- ---------
572,189 561,755 666,729
--------- --------- ---------
NET INCREASE (DECREASE) IN CASH......................... (2,872) 3,041 (16,666)
CASH AND CASH EQUIVALENTS -- BEGINNING,................. 6,311 3,270 19,936
--------- --------- ---------
CASH AND CASH EQUIVALENTS -- ENDING,.................... $ 3,439 $ 6,311 $ 3,270
========= ========= =========
Fixed assets acquired using financing lease............. $ 34,329 $ 15,808 $ 63,324
========= ========= =========
RECONCILIATION OF NET LOSS TO CASH FLOWS FROM
OPERATIONS:
NET LOSS:............................................... $(860,529) $(915,614) $(793,568)
--------- --------- ---------
Adjustments to reconcile Net Loss to Cash Flows from
Operations:
Gain on sale of computer equipment.................... -- (18,450) --
Depreciation and amortization......................... 30,842 23,221 13,136
--------- --------- ---------
30,842 4,771 13,136
--------- --------- ---------
(INCREASE) DECREASE IN ASSETS:
Accounts receivable................................ -- -- 2,609
Deferred charges................................... (101,750) 1,058 (1,058)
Other assets....................................... -- -- (2,313)
--------- --------- ---------
101,750 1,058 (762)
--------- --------- ---------
INCREASE (DECREASE) IN LIABILITIES:
Accounts payable................................... 78,027 222,762 36,419
Accrued interest................................... 186,986 83,879 --
Accrued expenses................................... 92,946 47,072 50,150
--------- --------- ---------
357,956 353,713 86,569
--------- --------- ---------
CASH FLOWS FROM OPERATIONS.............................. $(573,478) $(556,072) $(694,625)
========= ========= =========
</TABLE>
See notes to financial statements
F-23
<PAGE> 69
ECI, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS
ECI, Inc. (the "Company") was founded in 1991. The Company's primary
product is CollegeLink, a software system which enables students to apply to
their college choices, and enables the college to receive that application
information electronically. In October 1993, the Company sold essentially all of
its assets to Enrollment Technologies, Inc.
In May 1996, the Company bought the business back through an arrangement
wherein Enrollment Technologies, Inc. retained an interest for future
considerations as part of the purchase agreement. Since reacquiring the
business, the Company has encountered difficulty in achieving user acceptance of
its products. On August 10, 1999, Cytation.com Incorporated acquired the
Company. Substantially all the outstanding share of ECI, Inc. were exchanged for
preferred and common shares of Cytation.com Incorporated.
Prior to being acquired by Cytation.com Incorporated, all notes payable to
investors and an officer were exchanged for common shares of ECI, Inc. Also, all
outstanding stock purchase warrants and vested stock options were exchanged for
common shares of ECI, Inc. at a price of $.01 per share.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cash and Cash Equivalents
The Company considers all highly liquid investments with a maturity of
three months or less to be cash equivalents.
Income Taxes
The Company, with the consent of its shareholders, has elected under the
Internal Revenue Code to be an S corporation. In lieu of corporation income
taxes, the shareholders of an S corporation are taxed on their proportionate
share of the Company's taxable income. Therefore, no provision or liability for
federal income taxes has been included in these financial statements.
Depreciation
Depreciation is provided for on a straight-line basis using the estimated
useful lives of the related assets. The Company's fixed assets are comprised of
office and computer equipment with estimated useful lives of three years (See
Note 2).
Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Advertising Costs
The Company expenses advertising costs as incurred. Expenses for
advertising production costs are expensed at the beginning of each year's
college application season which generally begins in the fall months.
F-24
<PAGE> 70
ECI, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Revenue Recognition
Service revenues are recognized when the students' college application is
processed. The Company requires payment at the time the application is
processed.
Software Costs
The Company defers charging software development costs to expense during
the college application season when the software is utilized. During 1998, the
Company incurred $152,750 for software used during the 1998-1999 college
application season. $51,000 was charged to expense during 1998, and $101,750 of
software development costs will be charged to expense during the latter half of
the college application season (January-April 1999).
NOTE 2. FIXED ASSETS
The Company's fixed assets consisted of:
<TABLE>
<CAPTION>
1998 1997
-------- -------
<S> <C> <C>
Capitalized leases of office and computer equipment......... $117,686 $81,774
Computer equipment.......................................... 3,570 3,570
-------- -------
121,256 85,344
Less accumulated depreciation............................... 66,872 36,030
-------- -------
Fixed assets, net........................................... $ 54,384 $49,314
======== =======
</TABLE>
NOTE 3. CAPITAL LEASE OBLIGATIONS
The Company is leasing office and computer equipment with lease terms
through June 2003. The capital lease obligations have been recorded in the
accompanying financial statements at the present value of future minimum lease
payments, discounted at annual interest rates ranging from 10.25% to 67.6%. The
capital leases are secured by the related office and computer equipment, with
original costs totaling $117,686, and net book values of $53,690, $47,430, and
$51,011 at December 31, 1998, 1997 and 1996, respectively.
Future minimum lease payments under this capital lease, as of December 31,
1998, are as follows:
<TABLE>
<CAPTION>
FOR THE YEAR ENDING DECEMBER 31,
- - - --------------------------------
<S> <C>
1999................................................. $ 62,788
2000................................................. 15,898
2001................................................. 9,498
2002................................................. 9,498
2003................................................. 4,479
--------
102,161
Less amount representing interest........................... (5,759)
--------
Present value of minimum lease payments..................... $ 96,402
========
</TABLE>
NOTE 4. NOTE PAYABLE -- CREDIT LINE
This $125,000 note from Fleet National Bank accrues interest, and is
payable monthly, at the Bank's Floating Prime Rate of Interest, which was 7.75%
at December 31, 1998. This note matured on July 2,
F-25
<PAGE> 71
ECI, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
1999, and is collateralized by the personal guarantee and assets of Theodore G.
Johnson, a director of the Company.
NOTE 5. NOTES PAYABLE -- INVESTORS
These investor notes accrued interest at a 12% annual rate. As discussed in
Note 1, these notes were exchanged for common stock of the Company. These notes
included $215,000 in debt obligations due Theodore G. Johnson, a director of the
Company.
NOTE 6. NOTES PAYABLE -- OFFICER
These 17 notes from Gerald A. Paxton, totaling $479,500, accrue interest at
a 12% annual rate.
NOTE 7. NOTES PAYABLE
On May 16, 1996, the Company entered into a line of credit financing
arrangement provided by USA Group. The credit facility is comprised of two notes
totaling $742,878 as follows:
CREDIT NOTE I
This note bears interest at the Base Rate of NBD Bank, N.A., Indianapolis,
Indiana, plus 100 Basis Point. Principal and accrued interest is payable monthly
over a fifteen-year amortization period beginning January 1, 2001. At December
31, 1998, this note accrued interest at an annual rate of 8.75%
CREDIT NOTE II
This note bears interest at the Base Rate of NBD Bank, N.A., Indianapolis,
Indiana, plus 200 Basis Points. Accrued interest is payable monthly during the
term of this note and the balance. Both principal and accrued interest is due on
December 31, 2000. At December 31, 1998, this note accrued interest at an annual
rate of 9.75%.
These notes are secured by intellectual properties acquired from Enrollment
Technologies, Inc. on May 16, 1996.
Maturities of principal amounts due on these notes are as follows:
<TABLE>
<CAPTION>
FOR THE YEAR ENDING DECEMBER 31,
--------------------------------
<S> <C>
1999........................................................ $ 0
2000........................................................ 142,878
2001........................................................ 40,000
2002........................................................ 40,000
2003........................................................ 40,000
Thereafter.................................................. 480,000
--------
$742,878
</TABLE>
NOTE 8. LEASE COMMITMENT
The Company leases an office suite at 55 Green Street, Clinton,
Massachusetts. The lease currently provides for monthly rentals of $2,313, and
may be terminated with 30 days notice. Rent expense for the years ended December
31, 1998, 1997 and 1996, was $27,800, $27,800, and $20,085, respectively.
F-26
<PAGE> 72
ECI, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 9. STOCK OPTION PLAN
The Company established the 1992 Stock Plan (the "Plan") which provides for
the granting of incentive and non-qualified stock options to employees and other
individuals performing services for the Company. The Board of Directors (the
"Board") is responsible for the administration of the Plan. The Board determines
the term of each option, option price,number of shares for which each option is
granted, whether restrictions will be imposed on the shares subject to options,
and the rate at which each option is exercisable. The exercise price for
incentive stock options granted may not be less than 100% of the fair market
value per share of the underlying common stock on the date granted (110% for
options granted to holders of more than 10% of the voting stock of the Company).
The Board shall determine the exercise price for non-qualified options.
The terms of non-qualified stock options granted under the Plan generally
cannot exceed ten years. The term of incentive stock options granted cannot
exceed ten years (five years for options granted to holders of more than 10% of
the voting stock of the Company).
The Plan allows for issuance of up to 35,000 shares of common stock. At
December 31, 1998, 4,778 shares were available for future grant.
A summary of the option activity under the Plan is as follows:
<TABLE>
<CAPTION>
NUMBER OF
SHARES
---------
<S> <C>
Outstanding at December 31, 1995............................ 0
Granted during 1996......................................... 3,910
Granted during 1997......................................... 15,250
Lapsed during 1997.......................................... (660)
------
Outstanding at December 31, 1997............................ 18,500
Granted during 1998......................................... 11,022
------
Outstanding at December 31, 1998............................ 29,522
======
</TABLE>
Statement of Financial Accounting Standards (SFAS) No. 123, "Accounting for
Stock-based Compensation", requires the disclosure of pro forma information on
the fair value of options to purchase stock, and the impact on earnings of any
compensatory value associated with the difference in option grant prices and the
fair value of the optioned stock shares. Management believes that it is
virtually impossible to reasonably estimate the fair values of outstanding
options to purchase common shares at December 31, 1998, and therefore has not
disclosed information about such values, which would otherwise be required by
SFAS No. 123.
NOTE 10. STOCK PURCHASE WARRANTS
The Company granted stock purchase warrants to investors who provided debt
financing described in Note 5. In aggregate, warrants for the purchase of 63,278
shares of the Company's $.01 par value common stock were granted. 611 warrants
were granted for a share price of $20.45. 36,200 warrants were granted for a
share price defined as "50% of the per share price paid by a major investor at
the next equity finance". The remaining 26,467 warrants were granted for a share
price equal to "100% of the per share price paid by a major investor at the next
equity financing".
NOTE 11. LICENSE AGREEMENT
The Company entered into a license agreement effective May 16, 1996, for an
exclusive, royalty bearing, nontransferable license for certain software,
know-how, and trademarks for CollegeLink and
F-27
<PAGE> 73
ECI, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
IntroApp intellectual properties. The initial license term expires on December
31, 2000, and the license agreement automatically renews for successive one-year
terms thereafter.
A license fee is payable as follows:
a. For years ending through December 31, 2000, the license fee shall
be equal to the lessor of (i) 9% of the net revenues earned by the Company,
or (ii) the Company's net income for the year.
b. For the years ending December 31, 2001 and thereafter, the license
fee shall be the lessor of the Company's net income, or the applicable
percentage of net revenues as shown in the following table:
<TABLE>
<CAPTION>
YEAR ENDING APPLICABLE
DECEMBER 31, PERCENTAGE
------------ ----------
<S> <C>
2001.............................................. 12%
2002.............................................. 11%
2003.............................................. 10%
2004.............................................. 9%
2005 and thereafter............................... 8%
</TABLE>
NOTE 12. RETIREMENT PLAN
On July 12, 1996, the Company established a profit sharing plan and trust
in accordance with Section 401(K) of the Internal Revenue Code. Company matching
and non-matching contributions are determined annually by the Company's Board of
Directors. The Company has not elected to make any matching or non-matching
contributions to the plan.
NOTE 13. RELATED PARTY TRANSACTIONS
As discussed in Notes 5 and 6, the Company has debt obligations from two
related parties. Interest charges on those debt instruments totaled $74,261 and
$26,980 for the years ended December 31, 1998 and 1997, respectively.
NOTE 14. GOING CONCERN
The Company has incurred recurring operating losses since inception and has
an accumulated deficit at December 31, 1998 of $3,352,932. Liabilities exceed
assets by $2,557,135. These conditions indicate that unless the Company obtains
substantial additional financing resources, the Company may not be able to
continue operations. The accompanying financial statements do not include any
adjustments to the financial statements that might be necessary should the
Company be unable to continue as a going concern.
F-28
<PAGE> 74
ECI, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1999 1998
----------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash...................................................... $ 2,258 $ 3,439
Advances.................................................. 108,547 --
----------- -----------
TOTAL CURRENT ASSETS.............................. 110,805 3,439
PROPERTY AND EQUIPMENT, net of accumulated depreciation of
$82,293 and $66,872, respectively......................... 56,876 54,384
SOFTWARE DEVELOPMENT net of accumulated amortization of $0
and $51,000, respectively................................. -- 101,750
OTHER ASSETS................................................ 3,213 2,313
----------- -----------
$ 170,895 $ 161,886
=========== ===========
LIABILITIES AND SHAREHOLDERS' (DEFICIT)
CURRENT LIABILITIES:
Accounts payable.......................................... $ 312,531 $ 337,208
Accrued expenses.......................................... 610,103 167,946
Accrued interest-officer.................................. 94,220 126,033
Leases payable............................................ 33,644 63,320
Notes payable investors................................... 465,286 477,000
Notes payable officer..................................... 482,292 479,500
Long-term debt-current portion............................ 40,000 125,000
----------- -----------
TOTAL CURRENT LIABILITIES......................... 2,038,076 1,776,007
LONG-TERM DEBT, net of current maturities................... 912,188 943,014
SHAREHOLDERS' (DEFICIT):
Common stock, $.01 par value; 200,000 authorized, 125,483
shares issued and outstanding.......................... 1,255 1,255
Additional paid-in capital................................ 995,542 794,542
Accumulated (deficit)..................................... (3,776,167) (3,352,932)
----------- -----------
(2,779,370) (2,557,135)
----------- -----------
$ 170,895 $ 161,886
=========== ===========
</TABLE>
See notes to financial statements.
F-29
<PAGE> 75
ECI, INC.
STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
<S> <C>
REVENUES.................................................... $ 38,302
---------
EXPENSES:
Payroll, payroll taxes and related benefits............... 224,605
Depreciation and amortization............................. 15,421
Other general and administrative expenses................. 239,016
---------
479,041
---------
LOSS FROM OPERATIONS........................................ (440,739)
INTEREST EXPENSE............................................ 107,500
---------
NET LOSS.................................................... $(548,239)
=========
</TABLE>
See notes to financial statements.
F-30
<PAGE> 76
ECI, INC.
STATEMENT OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 1999
(UNAUDITED)
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.................................................. $(548,239)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation and amortization.......................... 117,171
Increase (decrease) to cash attributable to changes in
assets and liabilities:
Prepaid expenses and other assets...................... (109,447)
Accounts payable....................................... (87,435)
Accrued expenses....................................... 535,348
---------
NET CASH USED IN OPERATING ACTIVITIES.................. (92,602)
---------
CASH FLOW FROM INVESTING ACTIVITIES:
Purchase of furniture and equipment....................... (17,913)
---------
NET CASH USED IN INVESTING ACTIVITIES.................. (17,913)
---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Receipts/payments of long-term debt....................... (82,744)
Receipts/payments of notes payable........................ (8,922)
Increase in additional paid-in capital.................... 201,000
---------
NET CASH PROVIDED BY FINANCING ACTIVITIES.............. 109,334
---------
NET DECREASE IN CASH AND CASH EQUIVALENTS................... (1,181)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............ 3,439
---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD.................. $ 2,258
=========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest............................................... $ --
=========
</TABLE>
See notes to financial statements.
F-31
<PAGE> 77
ECI, INC
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1999
(UNAUDITED)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying financial statements include the accounts of ECI, Inc.
("the Company"). Such statements have been prepared by the Company, without
audit, pursuant to the Rules and Regulations of the SEC and reflect all
adjustments (which include only normal recurring adjustments) which are
necessary to present a fair statement of the results for the interim period
reported. Certain footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
omitted pursuant to such rules and regulations, although the Company believes
that the disclosures are adequate to make the information presented not
misleading. It is suggested that these financial statements be read in
conjunction with the Company's audited financial statements and notes thereto
for the years ended December 31, 1998, 1997 and 1996.
NOTE 2. BUSINESS
On August 10, 1999, Cytation.com Incorporated ("Cytation") acquired the
Company. Substantially all the outstanding shares of the Company were exchanged
for preferred and common shares of Cytation.
Prior to being acquired by Cytation, all notes payable to investors and an
officer were exchanged for common shares of the Company. Also, all outstanding
stock purchase warrants and vested stock options were exchanged for common
shares of the Company at a price of $0.01 per share.
F-32
<PAGE> 78
INDEPENDENT AUDITOR'S REPORT
Managing Members
Online Network, L.L.C.
T/A Online Scouting Network
We have audited the accompanying balance sheets of Online Network, L.L.C.
T/A Online Scouting Network (the "Company") as of September 30, 1998 and 1997,
and the related statements of operations and cash flows for each of the two
years ended September 30, 1998 and 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform our audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatements. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of the Company as of September
30, 1998 and 1997, and the results of its operations and its cash flows for each
of the two years ended September 30, 1998 and 1997 in conformity with generally
accepted accounting principles.
Radin, Glass & Co., LLP
Certified Public Accountants
New York, New York
October 1, 1999
F-33
<PAGE> 79
ONLINE NETWORK, L.L.C.
BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30,
----------------------
1998 1997
--------- ---------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash...................................................... $ 520 $ 49,276
Accounts receivable....................................... -- 26,025
Prepaid expenses.......................................... -- 29,787
Other assets.............................................. 1,725 8,564
--------- ---------
TOTAL CURRENT ASSETS.............................. 2,245 113,652
PROPERTY AND EQUIPMENT, net of accumulated depreciation..... 94,997 134,409
SOFTWARE DEVELOPMENT, net of accumulated amortization of
$56,754 and $30,532, respectively......................... 74,048 100,270
OTHER ASSETS................................................ 7,920 8,326
--------- ---------
$ 179,210 $ 356,657
========= =========
LIABILITIES AND MEMBERS' (DEFICIT)
CURRENT LIABILITIES:
Accounts payable.......................................... $ 262,313 $ 239,693
Accrued expenses.......................................... 81,406 53,220
Payroll and payroll taxes payable......................... 323,234 140,070
Due to managing members................................... 9,171 5,000
Deferred revenue.......................................... 87,748 102,654
Long-term debt-current portion............................ 111,058 53,967
--------- ---------
TOTAL CURRENT LIABILITIES......................... 874,930 594,604
LONG-TERM DEBT, net of current maturities................... 252,190 269,366
COMMITMENTS AND CONTINGENCIES............................... -- --
MEMBERS' DEFICIT............................................ (947,910) (507,313)
--------- ---------
TOTAL MEMBERS' EQUITY (DEFICIT)................... (947,910) (507,313)
--------- ---------
$ 179,210 $ 356,657
========= =========
</TABLE>
See notes to financial statements
F-34
<PAGE> 80
ONLINE NETWORK, L.L.C.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
------------------------
1998 1997
---------- ----------
<S> <C> <C>
REVENUES.................................................... $ 325,134 $ 132,610
GENERAL AND ADMINISTRATIVE EXPENSES......................... 720,671 907,577
--------- ---------
LOSS FROM OPERATIONS........................................ (395,537) (774,967)
INTEREST EXPENSE............................................ 45,060 24,056
--------- ---------
NET LOSS.................................................... (440,597) (799,023)
MEMBERS' (DEFICIT) -- beginning of the year................. (507,313) 291,710
--------- ---------
MEMBERS' (DEFICIT) -- end of year........................... $(947,910) $(507,313)
========= =========
</TABLE>
See notes to financial statements.
F-35
<PAGE> 81
ONLINE NETWORK, L.L.C.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
------------------------
1998 1997
---------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.................................................. $(440,597) $(799,023)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation and amortization.......................... 65,634 64,871
Write off of organization expenses..................... -- 31,710
Increase (decrease) to cash attributable to changes in
assets and liabilities:
Accounts receivable.................................... 26,025 (26,025)
Prepaid expenses....................................... 29,787 (29,787)
Other assets........................................... 7,246 10,939
Accounts payable....................................... 22,618 111,566
Accrued expenses....................................... 28,187 40,469
Accrued payroll and payroll taxes payable.............. 183,164 120,412
Deferred revenues...................................... (14,906) 102,654
--------- ---------
NET CASH USED IN OPERATING ACTIVITIES................ (92,842) (372,214)
--------- ---------
CASH FLOW FROM INVESTING ACTIVITIES:
Purchase of software development.......................... -- (41,606)
Purchase of equipment..................................... -- (3,876)
--------- ---------
NET CASH USED IN INVESTING ACTIVITIES................ -- (45,482)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Due to managing members................................... 4,171 5,000
Members' contributions.................................... -- 90,000
Receipts/payments of debt................................. 39,915 253,250
--------- ---------
NET CASH PROVIDED BY FINANCING ACTIVITIES............ 44,086 348,250
--------- ---------
NET DECREASE IN CASH........................................ (48,756) (69,446)
CASH AT BEGINNING OF PERIOD................................. 49,276 118,722
--------- ---------
CASH AT END OF PERIOD....................................... $ 520 $ 49,276
========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid during the period for:
Interest............................................... $ 9,343 $ 10,760
========= =========
</TABLE>
See notes to financial statements.
F-36
<PAGE> 82
ONLINE NETWORK, L.L.C.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1998 AND 1997
1. BUSINESS
Online Network, L.L.C. T/A Online Scouting Network (the "Company") was
organized in November 1995 under the laws of Delaware. It was organized to
create the Online Scouting Network, a nationwide online database of high school
student-athletes for use by colleges and universities as an athletic recruiting
tool.
In August 1999, the Company reorganized as a "C" corporation in
contemplation of a private placement of its securities. Since then, the Company
has abandoned the private placement and has presently agreed to be acquired by
another company subject to the execution of definitive agreements.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. Basis of Presentation -- The preparation of financial statements in
accordance with generally accepted accounting principles requires management to
make significant estimates and assumptions that affect the reported amounts of
assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reported period. Actual results
could differ from those estimates.
b. Property and Equipment -- Property and equipment are stated at cost and
depreciated using the straight-line method over the estimated useful lives of
the assets ranging from three to seven years for equipment, software and
furniture.
c. Software Development Costs -- The Company capitalizes software
development costs in accordance with SFAS 86. The Company capitalized
approximately $42,000 in the year ended September 30, 1997. The Company did not
capitalize any software development costs during the year ended September 30,
1998.
Amortization included in the accompanying financial statements for years
ended September 30, 1998 and 1997 was approximately $26,000 and $25,000
respectively.
d. Value of Financial Instruments -- The carrying amounts reported in the
balance sheet for cash, trade receivables, accounts payable and accrued expenses
approximate fair value based on the short-term maturity of these instruments.
e. Income Taxes -- The results of limited liability company operation are
included on the income tax return of each member. Accordingly, no provision for
income taxes is included in these financial statements.
f. Revenue Recognition -- Revenues consist of yearly contracts which are
being recognized on a straight-line basis over the twelve month period of the
contract.
g. Accounting for Long-Lived Assets -- The Company reviews long-lived
assets, certain identifiable assets and any goodwill related to those assets for
impairment whenever circumstances and situations change such that there is an
indication that the carrying amounts may not be recoverable. At September 30,
1998 and 1997 respectively, the Company believes that there has been no
impairment of long-lived assets.
h. Advertising Costs -- Advertising costs are expensed as incurred.
Advertising expense amounted to approximately $36,000 and $75,000 for the years
ended September 30, 1998 and 1997, respectively.
i. Costs of Start-Up Activities -- The Company has adopted Statement of
Position 98-5, "Reporting on the Costs of Start-Up Activities". This statement
requires costs of start-up activities and organization
F-37
<PAGE> 83
ONLINE NETWORK, L.L.C.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
costs to be expensed as incurred. The Company, since inception, has incurred
start-up costs totaling approximately $38,000. In January 1996 through September
1996 the Company amortized start-up costs using the straight-line method over a
five-year life. In the year ended September 30, 1997, the Company expensed the
remaining balance of approximately $32,000.
3. PROPERTY AND EQUIPMENT
Property and equipment consist of the following at September 30:
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Computer and office equipment............................... $162,069 $162,069
Software.................................................... 29,911 29,911
Furniture and fixtures...................................... 7,111 7,111
-------- --------
199,091 199,091
Accumulated depreciation.................................... 104,094 64,682
-------- --------
$ 94,997 $134,409
======== ========
</TABLE>
4. LONG-TERM DEBT
Long-term debt consists of the following at September 30:
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Loan payable to bank due in April 1999, payable monthly at
$2,417 plus interest at prime plus 1%, personally
guaranteed by three managing members and collateralized by
all assets of the Company. The loan was called and a
lawsuit filed against the Company in August 1998. The
Company paid the remaining balance in August 1999......... $29,000 $48,333
Note to a vendor, payable in January 2000, interest accrues
semiannually at prime plus 4% and 10% warrant coverage. As
of August 31, 1999, the cash due, including accrued
interest is $43,519 along with warrants on common shares
of the Company's stock of value $19,392................... 38,250 --
Notes payable to members, payable in 48 monthly installments
of $408 including interest at 10% per annum, commencing in
March 2003. Unpaid principal and accrued interest is due
February 2007. Interest is accrued annually on the unpaid
principal balance and may be capitalized as part of the
principal as the date of repayment commences at the option
of the Company............................................ 70,000 60,000
Note payable to a member. Original terms of the note
required monthly installments of $2,125 including interest
at 10%, commencing in April 1997. Unpaid principal and any
accrued interest are due in March 2002. Per verbal
agreement with investor, no payments are being made
because of capital constraints on the Company. Interest is
accrued annually on the unpaid balance.................... 100,000 100,000
Note payable to an individual. Interest is accrued annually
on the unpaid principal balance........................... 50,000 50,000
Note payable to a managing member. Interest is accrued
annually on the unpaid principal balance.................. 45,998 35,000
</TABLE>
F-38
<PAGE> 84
ONLINE NETWORK, L.L.C.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Notes payable to managing members, payable in 48 monthly
installments of $613 including interest at 10%, commencing
in March 2003. Unpaid principal and any accrued interest
are due in February 2007. Interest is accrued annually on
the unpaid principal balance.............................. 30,000 30,000
-------- --------
Total..................................................... 363,248 323,333
Less current maturities................................... 111,058 53,967
-------- --------
Long-term debt, net of current maturities................. $252,190 $269,366
======== ========
</TABLE>
The maturities of long-term debt for the five years after September 30,
1998 are approximately as follows: 1999 -- $111,000; 2000 -- $21,000;
2001 -- $23,000; 2002 -- $12,000; 2003 -- $49,000, and thereafter $147,000.
4. COMMITMENTS AND CONTINGENCIES
a. Rent expense under all operating leases was approximately $15,000 and
$18,000 for the years ended September 30, 1998 and 1997, respectively. The
Company leased office space for $1,463 per month for year ended September 30,
1997 and for the first seven months of the year ended September 30, 1998. The
Company has a verbal agreement to continue to lease this office space on a month
to month basis at $1,500 per month.
b. The Company leases various equipment under a three-year lease expiring
in December 1999. Monthly payments under the current leases for the years ended
September 30, 1998 and 1997 were approximately $1,100, respectively.
c. The Company is a defendant in a lawsuit with a bank for defaulting on
the payments under the terms of a promissory note and a credit card account with
the bank. The suit asks for payment in full of the note and credit card account
plus interest, damages, attorneys' fees and costs of the suit. The three
principal members of the Company guaranteed this note. The total amount of the
claim including damages, attorney fees and costs of the suit are not readily
determinable. The principal balance on the note, accrued interest and the credit
card balance are recorded in the financial statements. The remaining balance of
the note was paid by the Company in August 1999.
d. Three of the managing member had agreements with the Company to provide
managerial services to the Company for a three-year period expiring in December
1998. Compensation for these services was $48,000 to each member annually.
e. A managing member, under an agreement dated November 1995, has the
right to acquire an additional 3.6232% interest in ownership of the Company.
This will dilute the percentages owned by the other members. Each percentage
acquired will require the payment of $21,000 to the Company.
f. No member or manager of the Company is liable for any obligation of the
Company or any other member or manager, unless personally guaranteed by the
member or manager through a separate document.
5. OPERATIONS
The Company adopted SFAS No 131, "Disclosure about Segments of an
Enterprise and Related Information." SFAS establishes annual and interim
reporting standards for an enterprise's operating segments and related
disclosures about its products, services, geographic areas and major customers.
Under
F-39
<PAGE> 85
ONLINE NETWORK, L.L.C.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
SFAS No. 131, the Company's operations are treated as one operating segment
because it only reports profit and loss information to the chief operating
decision maker of the Company on an aggregate basis. Information about the
Company's sales and major customers are as follows at September 30:
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
SALES
Group high school sales................................... $303,781 $ 82,861
Individual sales.......................................... 19,096 40,394
Other..................................................... 2,257 9,355
-------- --------
Total Sales....................................... $325,134 $132,610
======== ========
</TABLE>
No customer accounted for more than ten percent of the revenues of the
Company in each of the two years ended September 30, 1998 and 1997,
respectively.
6. SUBSEQUENT EVENTS
The Company is in the process of negotiating a merger transaction with
Cytation.com Incorporated which is expected to be completed during the calendar
year 1999.
F-40
<PAGE> 86
ONLINE NETWORK, L.L.C.
BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30, SEPTEMBER 30,
1999 1998
----------- -------------
(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash...................................................... $ 2,410 $ 520
Accounts receivable....................................... -- --
Prepaid expenses.......................................... -- --
Other assets.............................................. 1,725 1,725
----------- ---------
TOTAL CURRENT ASSETS.............................. 4,135 2,245
PROPERTY AND EQUIPMENT...................................... 65,439 94,997
SOFTWARE DEVELOPMENT........................................ 54,428 74,048
OTHER ASSETS................................................ 7,616 7,920
----------- ---------
$ 131,618 $ 179,210
=========== =========
LIABILITIES AND MEMBERS' (DEFICIT)
CURRENT LIABILITIES:
Accounts payable.......................................... $ 291,548 $ 262,313
Accrued expenses.......................................... 82,906 81,406
Payroll and payroll taxes payable......................... 430,889 323,234
Due to managing members................................... 9,171 9,171
Deferred revenue.......................................... 87,748 87,748
Long-term debt-current portion............................ 131,361 111,058
----------- ---------
TOTAL CURRENT LIABILITIES......................... 1,033,623 874,930
LONG-TERM DEBT, net of current maturities................... 247,587 252,190
COMMITMENTS AND CONTINGENCIES............................... --
MEMBERS' (DEFICIT).......................................... (1,149,592) (947,910)
----------- ---------
TOTAL MEMBERS' (DEFICIT).......................... (1,149,592) (947,910)
----------- ---------
$ 131,618 $ 179,210
=========== =========
</TABLE>
See notes to financial statements.
F-41
<PAGE> 87
ONLINE NETWORK, L.L.C.
STATEMENT OF OPERATIONS
NINE MONTHS ENDED JUNE 30, 1999
(UNAUDITED)
<TABLE>
<S> <C>
REVENUES.................................................... $ 71,319
GENERAL AND ADMINISTRATIVE EXPENSES......................... 244,688
---------
LOSS FROM OPERATIONS........................................ (173,369)
INTEREST EXPENSE............................................ 28,313
---------
NET LOSS.................................................... $(201,682)
=========
</TABLE>
See notes to financial statements.
F-42
<PAGE> 88
ONLINE NETWORK, L.L.C.
STATEMENT OF CASH FLOWS
NINE MONTHS ENDED JUNE 30, 1999
(UNAUDITED)
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.................................................. $(201,682)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation and amortization.......................... 49,482
Increase (decrease) to cash attributable to changes in
assets and liabilities:
Accounts payable....................................... 29,235
Accrued expenses....................................... 1,500
Accrued payroll and payroll taxes payable.............. 107,655
---------
NET CASH USED IN OPERATING ACTIVITIES................ (13,810)
---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Receipts/payments of debt................................. 15,700
---------
NET CASH PROVIDED BY FINANCING ACTIVITIES............ 15,700
---------
NET INCREASE IN CASH........................................ 1,890
CASH AT BEGINNING OF PERIOD................................. 520
---------
CASH AT END OF PERIOD....................................... $ 2,410
=========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest............................................... $ --
=========
</TABLE>
See notes to financial statements.
F-43
<PAGE> 89
ONLINE NETWORK, L.L.C.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1999
(UNAUDITED)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying financial statements include the accounts of Online
Network, L.L.C. ("the Company"). Such statements have been prepared by the
Company, without audit, pursuant to the Rules and Regulations of the SEC and
reflect all adjustments (which include only normal recurring adjustments) which
are necessary to present a fair statement of the results for the interim period
reported. Certain footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
omitted pursuant to such rules and regulations, although the Company believes
that the disclosures are adequate to make the information presented not
misleading. It is suggested that these financial statements be read in
conjunction with the Company's audited financial statements and notes thereto
for the years ended September 30, 1998 and 1997.
NOTE 2. BUSINESS
In August 1999, the Company reorganized as a "C" corporation in
comtemplation of a private placement of its securities. Since then, the Company
has abandoned the private placement and has presently agreed to be acquired by
Cytation.com Incorporated subject to the execution of a definitive agreement.
F-44
<PAGE> 90
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
Student Success, Inc.
Cincinnati, Ohio
We have audited the accompanying balance sheets of Student Success (a
Division of Graphic Management Corporation) as of December 31, 1998 and 1997,
and the related statements of income and changes in division equity and cash
flows for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Student Success (a Division
of Graphic Management Corporation) as of December 31, 1998 and 1997, and the
results of its operations and cash flows for the years then ended in conformity
with generally accepted accounting principles.
Schenck & Associates SC
Green Bay, Wisconsin
October 11, 1999
F-45
<PAGE> 91
STUDENT SUCCESS
A DIVISION OF GRAPHIC MANAGEMENT CORPORATION
BALANCE SHEETS
DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash...................................................... $ 208,343 $ 96,319
Accounts receivable....................................... 102,981 5,024
Prepaid expenses.......................................... 18,372 20,280
--------- ---------
TOTAL CURRENT ASSETS.............................. 329,696 121,623
PROPERTY AND EQUIPMENT
Leasehold improvement..................................... 2,678 --
Office and computer equipment............................. 12,152 --
--------- ---------
14,830 --
--------- ---------
Less accumulated depreciation............................. 247 --
--------- ---------
14,583 --
INTANGIBLE, net of accumulated amortization 1998 $8,638;
1997 $5,308............................................... 41,362 44,695
--------- ---------
$ 385,641 $ 166,318
========= =========
LIABILITIES AND DIVISION EQUITY
CURRENT LIABILITIES:
Accounts payable.......................................... $ 27,611 $ --
Deferred revenue.......................................... 200,000 50,000
--------- ---------
TOTAL CURRENT LIABILITIES......................... 227,611 50,000
DIVISION EQUITY
Long-term working capital advanced by parent
corporation............................................ 569,183 367,137
Accumulated losses from operations........................ (411,153) (250,819)
--------- ---------
158,030 116,318
--------- ---------
$ 385,641 $ 166,318
========= =========
</TABLE>
See notes to financial statements.
F-46
<PAGE> 92
STUDENT SUCCESS
A DIVISION OF GRAPHIC MANAGEMENT CORPORATION
STATEMENTS OF INCOME AND CHANGES IN DIVISION EQUITY
YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
Revenue..................................................... $ 345,019 $ 76,982
Operating expenses.......................................... 505,353 300,358
--------- ---------
Net loss............................................... (160,334) (223,376)
Long-term working capital advanced by parent company........ 202,046 291,944
Division equity, beginning.................................. 116,318 47,750
--------- ---------
Division equity, ending..................................... $ 158,030 $ 116,318
========= =========
</TABLE>
See notes to financial statements.
F-47
<PAGE> 93
STUDENT SUCCESS
A DIVISION OF GRAPHIC MANAGEMENT CORPORATION
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss.................................................. $(160,334) $(223,376)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:
Amortization........................................... 3,333 3,055
Depreciation........................................... 247 --
Deferred revenues...................................... 150,000 50,000
Changes in operating assets and liabilities:
Accounts receivable.................................. (97,957) (5,024)
Prepaid expenses..................................... 1,908 (20,280)
Accounts payable..................................... 27,611 --
--------- ---------
Net cash used in operating activities................ (75,192) (195,625)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment........................ (14,830) --
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Long-term working capital advanced by parent company...... 202,046 291,944
--------- ---------
Increase in cash.................................. 112,024 96,319
Cash:
Beginning................................................. 96,319 --
--------- ---------
Ending.................................................... $ 208,343 $ 96,319
========= =========
</TABLE>
See notes to financial statements.
F-48
<PAGE> 94
STUDENT SUCCESS
A DIVISION OF GRAPHIC MANAGEMENT CORPORATION
NOTES TO FINANCIAL STATEMENTS
NOTE 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
Nature of Business
Student Success (d/b/a Making College Count) is a national training and
advisory organization that teaches college-bound students how to succeed in
college and prepare themselves throughout their academic career to maximize
their opportunities upon graduation. A primary source of funding is generated
through corporate sponsorship.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from these estimates.
A summary of the Division's significant accounting policies follows:
Reporting Entity
This entity is a Division of Graphic Management Corporation (GMC). These
financial statements include only the accounts of the Division referred to as
Student Success.
Revenue Recognition
The major source of revenue comes from corporate sponsorships. Under annual
contracts, the sponsors agree to compensate the Division for promotion to
program participants through distributed literature and other means of exposure.
Deferred revenue liability represents amount billed or received for which
programs have yet to be presented.
Property and equipment:
Property and equipment is stated at cost. Depreciation is computed
principally by straight-line methods over the estimated useful lives of the
assets.
Intangible:
Intangible asset consists of rights to the "Making College Count Program."
These rights were acquired in 1996 for $50,000 and are being amortized over 15
years using the straight-line method.
Income taxes:
GMC has elected to be taxed under the provisions of Subchapter S of the
Internal Revenue Code. Accordingly, as a Division of GMC, the financial
statements do not include a provision for income taxes because the Division does
not incur federal or state income taxes. Instead, its earnings and losses are
included in the stockholders' personal income tax returns and are taxed based on
their personal tax strategies.
F-49
<PAGE> 95
STUDENT SUCCESS
A DIVISION OF GRAPHIC MANAGEMENT CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 2. PROFIT-SHARING PLAN
GMC maintains a qualified 401(k) retirement savings plan that covers
substantially all employees including employees of the Division. The Plan allows
the Division's employees to make voluntary contributions to the Plan. The
Division's contribution to the Plan includes a match of 25% of the first 5% of
employees' elective deferrals, and may include a discretionary contribution as
determined by the Board of Directors. Division contributions to the Plan for
1998 and 1997 were $1,411 and $5,082, respectively.
NOTE 3. TRANSACTIONS WITH PARENT CORPORATION
Certain operating expenses are allocated to the Division from GMC in the
ordinary course of business. Additionally, certain expenses have been absorbed
by GMC which would be ordinary expenses of the Division if it was operating
independently. Such expenses include, but may not be limited to, rent,
utilities, clerical support and certain operating overhead expenses.
NOTE 4. SPONSORSHIP CONTRACTS
As of December 31, 1998, the Division had secured commitments for
approximately $1,250,000 of sponsorship revenue representing eight contracts.
Terms of the promotional agreements limit the number of sponsorship contracts to
eight during the contract period ending August 31, 1999. Through December 31,
1998, no revenues had been recognized under these contracts, as program
presentation commenced in 1999.
NOTE 5. CONCENTRATION OF CREDIT RISK
The Division maintains a bank account at one financial institution. At
December 31, 1998, the Division had approximately $103,000 in its account in
excess of federally insured limits.
NOTE 6. SUBSEQUENT EVENTS
Effective January 1, 1999, the assets of the Division were sold to a newly
created S corporation.
F-50
<PAGE> 96
---------------------------
TABLE OF CONTENTS
---------------------------
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................... 3
Risk Factors.......................... 6
Forward Looking Statements............ 13
Use of Proceeds....................... 14
Price Range of Common Stock........... 14
Dividend Policy....................... 14
Capitalization........................ 15
Dilution.............................. 16
Selected Financial Data............... 18
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 19
Business.............................. 23
Management............................ 28
Certain Relationships and Related
Transactions........................ 34
Principal Shareholders................ 35
Description of Capital Stock.......... 37
Underwriting.......................... 42
Legal Matters......................... 43
Experts............................... 44
Where You Can Find More Information... 44
Index to Financial Statements......... F-1
</TABLE>
[ ] SHARES
CYTATION.COM
COMMON STOCK
--------------------
PROSPECTUS
--------------------
GERARD KLAUER MATTISON & CO., INC.
<PAGE> 97
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the various expenses in connection with the
issuance and distribution of the securities being registered, other than the
underwriting discount. All amounts shown are estimates except the Securities and
Exchange Commission registration fee, the National Association of Securities
Dealers, Inc. filing fee and the Nasdaq National Market listing fee.
<TABLE>
<CAPTION>
PAYABLE
BY THE
COMPANY
----------
<S> <C>
Securities and Exchange Commission registration fee......... $12,812.12
National Association of Securities Dealers, Inc. filing
fee....................................................... 5,580.08
Nasdaq National Market listing fee*.........................
Printing and engraving expenses*............................
Transfer agent fees*........................................
Accounting fees and expenses*...............................
Legal fees and expenses*....................................
Blue Sky fees and expenses (including related legal
fees)*....................................................
Miscellaneous............................................... 25,000.00
----------
Total............................................. $
==========
</TABLE>
- - - ---------------
* To be filed by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The New York Business Corporation Law ("BCL") provides that if a derivative
action is brought against a director or officer of a corporation, the
corporation may indemnify him or her against amounts paid in settlement and
reasonable expenses, including attorneys' fees incurred by him or her, in
connection with the defense or settlement of such action, if such director or
officer acted in good faith for a purpose which he or she reasonably believed to
be in the best interests of the corporation, except that no indemnification
shall be made without court approval in respect of a threatened action, or a
pending action settled or otherwise disposed of, or in respect of any matter as
to which such director or officer has been found liable to the corporation. In a
nonderivative action or threatened action, the BCL provides that a corporation
may indemnify a director or officer against judgments, fines, amounts paid in
settlement and reasonable expenses, including attorneys' fees incurred by him or
her in defending such action, if such director or officer acted in good faith
for a purpose which he or she reasonably believed to be in the best interests of
the corporation.
Under the BCL, a director or officer who is successful, either in a
derivative or nonderivative action, is entitled to indemnification as outlined
above. Under any other circumstances, such director or officer may be
indemnified only if certain conditions specified in the BCL are met. The
indemnification provisions of the BCL are not exclusive of any other rights to
which a director or officer seeking indemnification may be entitled pursuant to
the provisions of the certificate of incorporation or the by-laws of a
corporation or, when authorized by such certificate of incorporation or by-laws,
pursuant to a shareholders' resolution, a directors' resolution or an agreement
providing for such indemnification.
The above is a general summary of certain provisions of the BCL and is
subject, in all cases, to the specific and detailed provisions of Sections
721-725 of the BCL.
Our certificate of incorporation and by-laws provide that any person who
was or is a party or is threatened to be a party to or is involved in any
action, suit, or proceeding, whether civil, criminal,
II-1
<PAGE> 98
administrative or investigative, because that person is or was a director or
officer, or is or was serving at our request as a director, officer, employee or
agent of another corporation or of a partnership, joint venture, trust or other
enterprise, will be indemnified against expenses, including attorney's fees, and
held harmless by us to the fullest extent permitted by the BCL as the same
exists or may hereinafter be amended. The indemnification rights conferred by us
are not exclusive of any other right to which persons seeking indemnification
may be entitled under any statute, our certificate of incorporation or by-laws,
any agreement, vote of stockholders or disinterested directors or otherwise. In
addition, we are authorized to purchase and maintain insurance on behalf of our
directors and officers.
Section 726 of the BCL also contains provisions authorizing a corporation
to obtain insurance on behalf of any director and officer against liabilities,
whether or not the corporation would have the power to indemnify against such
liabilities. We maintain insurance coverage under which our directors and
officers are insured, subject to the limits of the policy, against certain
losses, as defined in the policy, arising from claims made against such
directors and officers by reason of any wrongful acts as defined in the policy,
in their respective capacities as directors or officers.
Reference is also made to section of the Underwriting Agreement, which
provides for the indemnification of our officers, directors and controlling
persons against certain liabilities. The indemnification provision in our
certificate of incorporation, by-laws and the indemnification agreements entered
into between us and each of our directors and executive officers may be
sufficiently broad to permit indemnification of our directors and executive
officers for liabilities arising under the Securities Act of 1933.
We have obtained liability and errors and omissions insurance for our
officers and directors.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
The following information is furnished with regard to all securities sold
by the Company within the past three years which were not registered under the
Securities Act.
(A) ISSUANCES OF COMMON STOCK.
In July 1998, we issued approximately 1,325,000 shares of our common stock
to acquire the assets of Cytation Delaware. The assets have been recorded at
$2,299, which approximates the fair market value of the shares at the time of
the transaction.
In July 1998, we issued a warrant for services to purchase 5,000 shares of
our common stock at an exercise price of $.01 per share, which approximates fair
value at time of issuance.
In July 1998, when our management believed the fair market value of our
common stock was $0.002 per share, management reduced the exercise price of
previously outstanding employee stock options to $0.002 and all employees
exercised such shares. The exercise price was paid by us and treated as
compensation. Such compensation was recorded at $0.002 per share for 1,372,000
shares.
In December 1998, we issued approximately 29,000 warrants, expiring in
August 2001, exercisable at $0.52, in connection with a sale of stock in prior
years.
In January 1999, we received $195,000 from the issuance in a private
placement of approximately 65,000 shares of the common stock of Cytation
Corporation, a Rhode Island corporation ("Cytation RI"). On March 5, 1999,
Cytation RI was merged into us (the "Stylex Merger"). Pursuant to the Stylex
Merger, each share of common stock of Cytation RI was automatically changed and
converted into 5.765 shares of our common stock. Also pursuant to the Stylex
Merger, each option to purchase one share of Common Stock of Cytation RI was
automatically converted and changed into an option to purchase 5.765 shares of
our common stock and each warrant to purchase one share of Common Stock of
Cytation RI was automatically converted and changed into an option to purchase
5.765 shares of our common stock.
During fiscal 1999 we agreed to issue 504,000 shares to unrelated parties
for financial services, which shares were recorded at fair market value at the
time of the agreement of $0.002 per share. In April and
II-2
<PAGE> 99
May 1999, we issued 55,000 shares to unrelated parties for financial services,
which shares were recorded at fair market values from $6.50 per share to $7.50
per share.
In June 1999, we issued 20,000 shares of our common stock for the purchase
of computer equipment expected to be utilized to develop an expanded application
for our online training software. This equipment was valued at $145,000.
In August 1999, we issued 25,000 shares of common stock to unrelated
parties for financial services, which were recorded at their fair market value
of $7.625.
(B) ISSUANCES OF PREFERRED STOCK.
During July through November 1997, we issued approximately $438,000 of debt
units consisting of promissory notes and stock purchase warrants ("Units"). The
promissory notes were automatically convertible into shares of Series A 10%
convertible preferred stock, $.001 par value with a stated value of $1,000
("CPS"). Each share of CPS was automatically converted into shares of our common
stock on September 1, 1998. In addition, each preferred shareholder received one
stock purchase warrant for each share of common stock received upon conversion
of the CPS. Each warrant entitled the holder to purchase one share of common
stock at a purchase price per share of $1.30 per share.
In October 1997, we amended our certificate of incorporation to change the
aggregate number of shares we have authority to issue from 1,000,000 to
1,001,000, consisting of 1,000,000 shares of common stock, $.001 par value per
share, and 1,000 shares of preferred stock. Thereafter, our board of directors
authorized the issuance of the CPS, which was issued to the holders of the Units
in cancellation of their promissory notes. In year ended June 30, 1999, we
cancelled the authorization of the 1000 shares of .001 par value preferred
stock.
On April 2, 1999, we issued and sold 775,000 shares of Series A Convertible
Preferred Stock for aggregate consideration of $3,100,000.
On September 30, 1999, we issued and sold 1,000,000 shares of Series C
Convertible Preferred Stock to PNC Investment Corp. for an aggregate
consideration of $4,000,000.
(C) ISSUANCES OF COMMON STOCK AND PREFERRED STOCK IN CONNECTION WITH THE
ECI MERGER.
On August 10, 1999, ECI, Inc. merged (the "ECI Merger") into
CollegeLink.com, Incorporated, a Delaware corporation and our wholly-owned
subsidiary. Pursuant to the ECI Merger, each share of Common Stock of ECI was
automatically changed and converted into 550,809 shares of our common stock and
234,771 shares of our Series B Convertible Preferred Stock.
In connection with the ECI Merger, we, ECI and USA Group Noel-Levitz, Inc.
("USA Group") entered into a letter agreement in settlement of certain claims
made by USA Group. Pursuant to this Letter Agreement, we issued and sold to USA
Group 108,196 shares of our common stock and 45,000 shares of our Series B
Convertible Preferred Stock.
In connection with the ECI Merger, we also issued 9,836 shares of common
stock to Wolf Rock Corporation.
(D) GRANTS OF OUR STOCK OPTIONS.
From December, 1998 through September, 1999, we granted options to purchase
an aggregate of 1,716,185 shares of our common stock, exercisable at a weighted
average exercise price of $4.59 per share.
The issuances described in this Item 15 were made in reliance upon the
exemption from registration set forth in Section 4(2) of the Securities Act
relating to sales by an issuer not involving any public offering. None of the
foregoing transactions involved a distribution or public offering. No
underwriters were engaged in connection with the foregoing issuances of
securities, and no underwriting discounts or commissions were paid.
II-3
<PAGE> 100
ITEM 16. EXHIBITS AND FINANCIAL SCHEDULES.
(a) EXHIBITS
<TABLE>
<C> <S>
*1.1 Underwriting Agreement
*1.2 Representative's Warrant Agreement
2.1 Articles of Merger between the Company and Cytation
Corporation, dated February 11, 1999(1)
2.2 Plan of Merger of the Company and Cytation Corporation dated
February 11, 1999(1)
**2.3 Articles of Merger between CollegeLink.com Incorporated and
ECI, Inc., dated August 10, 1999
**2.4 Certificate of Merger of CollegeLink.com Incorporated and
ECI, Inc., dated August 10, 1999
**2.5 Agreement and Plan of Merger of the Company and ECI, Inc.,
dated August 10, 1999
3.1 Certificate of Incorporation of the Company(2)
3.2 Designation of Rights and Preferences for the Company's
Series A Convertible Preferred Stock(3)
**3.3 Certificate of Amendment of Certificate of Incorporation of
Cytation.Com Incorporated(1)
3.4 Certificate of Amendment of Certificate of Incorporation of
Cytation.Com Incorporated
3.5 By-laws of the Company(2)
4.1 Please see Exhibits 3.1 through 3.5 for provisions of the
Certificate of Incorporation and By-laws of the Company
defining the rights of holders of the common stock of the
Company
*5.1 Opinion of Foley, Hoag & Eliot LLP
10.1 Series A Convertible Stock Purchase Agreement, dated April
2, 1999, between the Company and Provident Life and Accident
Insurance Company(3)
**10.2 Escrow Agreement by and among the Company, Gerald A. Paxton,
Thomas J. Burgess and Eastern Bank and Trust Company dated
as of August 10, 1999
**10.3 Registration Agreement by and among the Company, Gerald A.
Paxton, Thomas J. Burgess and ECI, Inc. dated as of August
10, 1999
**10.4 Consulting Agreement by and among the Company, Gerald A.
Paxton and CollegeLink.com Incorporated dated as of August
10, 1999
**10.5 Letter Agreement by and among the Company, ECI, Inc. and USA
Group Noel-Levitz, Inc. dated as of July 28, 1999
**10.6 Registration Rights Agreement by and among the Company and
USA Group Noel-Levitz, Inc. dated as of July 28, 1999
**10.7 Lease by and between Victoria S. Tarsagian and Web Services
International, Inc. dated as of July 29, 1996
10.8 1996 Stock Plan
10.9 1999 Stock Option Plan
10.10 Stock Purchase Agreement, dated September 30, 1999, between
the Company and PNC Investment Corp.
10.11 Marketing Services and Administrative Agreement, dated
September 30, 1999, between the Company and PNC Investment
Corp.
10.12 Employment Agreement, dated February 11, 1999, between the
Company and Richard Fisher
10.13 Employment Agreement, dated February 11, 1999, between the
Company and Kevin High
10.14 Agreement, dated June 30, 1999, between the Company and the
College Entrance Examination Board
*10.15 Form of Lock-Up Agreement
10.16 Lease dated September 22, 1999 between the Company and
Midview, LLC
*10.17 Agreement and Plan of Merger dated October 20, 1999 by and
among Cytation.com Incorporated, CollegeLink.com, Inc.,
Student Success, Inc., Bradford J. Baker, Patrick S. O'Brien
and the Patrick S. O'Brien Stock Trust
*10.18 Form of Noncompetition and Employment Agreement dated
October 20, 1999 among CollegeLink.com Incorporated,
Cytation.com Incorporated and the Executive
**21.1 List of Subsidiaries of the Company
*23.1 Consent of Foley, Hoag & Eliot LLP (included in Exhibit 5.1)
</TABLE>
II-4
<PAGE> 101
<TABLE>
<C> <S>
23.2 Consents of Radin, Glass & Co., LLP
23.3 Consent of Paolilli & Jarek, LLC
23.4 Consent of Schenck & Associates SC
24.1 Power of Attorney (contained on the signature page of this Registration Statement)
27.1 Financial Data Schedule
</TABLE>
- - - ---------------
* To be filed by amendment.
** Previously filed.
(1) Incorporated by reference from the Registrant's Form 8-K, Current Report,
filed March 18, 1999, and later amended on April 2, 1999.
(2) Incorporated by reference from the Registrant's Annual Report on Form 10KSB
(S.E.C. File No. 0-5388) filed December 31, 1998.
(3) Incorporated by reference from the Registrant's Form 8-K, Current Report,
filed April 27, 1999.
(b) FINANCIAL STATEMENT SCHEDULES
All schedules are omitted because they are not applicable or the required
information is shown in the Company's Consolidated Financial Statements or Notes
thereto.
ITEM 17. UNDERTAKINGS.
The undersigned registrant hereby undertakes to provide to the underwriters
at the closing specified in the underwriting agreements, certificates in such
denominations and registered in such names as required by the underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act, the
information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act,
each post-effective amendment that contains a form of prospectus shall be deemed
to be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
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<PAGE> 102
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE TOWN OF NEWPORT, RHODE ISLAND, ON
THE 21ST DAY OF OCTOBER, 1999.
CYTATION.COM INCORPORATED
BY: /s/ KEVIN J. HIGH
------------------------------------
KEVIN J. HIGH, PRESIDENT
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that each individual whose signature appears
below hereby constitutes and appoints Richard A. Fisher, Edward F. Hayes and
David A. Broadwin, and each of them, his true and lawful attorneys-in-fact and
agents with full power of substitution, for him and in his name, place and
stead, in any and all capacities, to sign any and all pre- or post-effective
amendments to this Registration Statement, any subsequent registration statement
for the same offering which may be filed under Rule 462(b) under the Securities
Act ("a Rule 462(b) Registration Statement") and any and all pre- or
post-effective amendments thereto, and to file the same, with all exhibits
thereto, and all documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorneys-in-fact and agents, and each
of them, full power and authority to do and perform each and every act and thing
which they, or any of them, may deem necessary or advisable to be done in
connection with this Registration Statement or any Rule 462(b) Registration
Statement, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents or any of them, or any substitute or substitutes for any or all of them,
may lawfully do or cause to be done by virtue hereof.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- - - --------- ----- ----
<S> <C> <C>
* Chairman of the Board and October 20, 1999
- - - --------------------------------------------------- General Counsel
Richard A. Fisher
* President and Director October 20, 1999
- - - --------------------------------------------------- (Principal Executive
Kevin J. High Officer)
* Chief Financial Officer October 20, 1999
- - - --------------------------------------------------- (Principal Financial and
Edward F. Hayes Accounting Officer)
* Director October 20, 1999
- - - ---------------------------------------------------
Jai N. Gupta, Ph.D.
</TABLE>
II-6
<PAGE> 103
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- - - --------- ----- ----
<S> <C> <C>
* Director October 20, 1999
- - - ---------------------------------------------------
Michael W. Bryant
* Director October 20, 1999
- - - ---------------------------------------------------
Mark Rogers
*By: /s/ EDWARD F. HAYES October 20, 1999
------------------------------------------------
Attorney-in-fact
</TABLE>
II-7
<PAGE> 104
INDEX OF EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
- - - ------- -----------
<C> <S>
*1.1 Underwriting Agreement
*1.2 Representative's Warrant Agreement
2.1 Articles of Merger between the Company and Cytation
Corporation, dated February 11, 1999(1)
2.2 Plan of Merger of the Company and Cytation Corporation dated
February 11, 1999(1)
**2.3 Articles of Merger between CollegeLink.com Incorporated and
ECI, Inc., dated August 10, 1999
**2.4 Certificate of Merger of CollegeLink.com Incorporated and
ECI, Inc., dated August 10, 1999
**2.5 Agreement and Plan of Merger of the Company and ECI, Inc.,
dated August 10, 1999
3.1 Certificate of Incorporation of the Company(2)
3.2 Designation of Rights and Preferences for the Company's
Series A Convertible Preferred Stock(3)
**3.3 Certificate of Amendment of Certificate of Incorporation of
Cytation.Com Incorporated
3.4 Certificate of Amendment of Certificate of Incorporation of
Cytation.Com Incorporated
3.5 By-laws of the Company(2)
4.1 Please see Exhibits 3.1 through 3.5 for provisions of the
Certificate of Incorporation and By-laws of the Company
defining the rights of holders of the common stock of the
company
*5.1 Opinion of Foley, Hoag & Eliot LLP
10.1 Series A Convertible Stock Purchase Agreement, dated April
2, 1999, between the Company and Provident Life and Accident
Insurance Company(3)
**10.2 Escrow Agreement by and among the Company, Gerald A. Paxton,
Thomas J. Burgess and Eastern Bank and Trust Company dated
as of August 10, 1999
**10.3 Registration Agreement by and among the Company, Gerald A.
Paxton, Thomas J. Burgess and ECI, Inc. dated as of August
10, 1999
**10.4 Consulting Agreement by and among the Company, Gerald A.
Paxton and CollegeLink.com Incorporated dated as of August
10, 1999(1)
**10.5 Letter Agreement by and among the Company, ECI, Inc. and USA
Group Noel-Levitz, Inc. dated as of July 28, 1999
**10.6 Registration Rights Agreement by and among the Company and
USA Group Noel-Levitz, Inc. dated as of July 28, 1999
**10.7 Lease by and between Victoria S. Tarsagian and Web Services
International, Inc. dated as of July 29, 1996
10.8 1996 Stock Plan
10.9 1999 Stock Option Plan
10.10 Stock Purchase Agreement, dated September 30, 1999, between
the Company and PNC Investment Corp.
10.11 Marketing Services and Administrative Agreement, dated
September 30, 1999, between the Company and PNC Investment
Corp.
10.12 Employment Agreement, dated February 11, 1999, between the
Company and Richard Fisher
10.13 Employment Agreement, dated February 11, 1999, between the
Company and Kevin High
10.14 Agreement, dated June 30, 1999, between the Company and the
College Entrance Examination Board
*10.15 Form of Lock-Up Agreement
10.16 Lease dated September 22, 1999 between the Company and
Midview, LLC
*10.17 Agreement and Plan of merger dated October 20, 1999 by and
among Cytation.com Incorporated, Collegelink.com, Inc.,
Student Success, Inc., Bradford J. Baker, Patrick S. O'Brien
and the Patrick S. O'Brien Stock Trust
*10.18 Form of Noncompetition and Employment Agreement dated
October 20, 1999 among CollegeLink.com Incorporated,
Cytation.com Incorporated and the Executive
**21.1 List of Subsidiaries of the Company
*23.1 Consent of Foley, Hoag & Eliot LLP (included in Exhibit 5.1)
</TABLE>
<PAGE> 105
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
- - - ------- -----------
<C> <S>
23.2 Consents of Radin, Glass & Co., LLP
23.3 Consent of Paolilli & Jarek, LLC
23.4 Consent of Schenck & Associates SC
24.1 Power of Attorney (contained on the signature page of this
Registration Statement)
27.1 Financial Data Schedule
</TABLE>
- - - ---------------
* To be filed by amendment.
** Previously filed.
(1) Incorporated by reference from the Registrant's Form 8-K, Current Report,
filed March 18, 1999, and later amended on April 2, 1999.
(2) Incorporated by reference from the Registrant's Annual Report on Form 10KSB
(S.E.C. File No. 0-5388) filed December 31, 1998.
(3) Incorporated by reference from the Registrant's Form 8-K, Current Report,
filed April 27, 1999.
<PAGE> 1
Exhibit 3.4
CERTIFICATE OF AMENDMENT
OF THE CERTIFICATE OF INCORPORATION
OF
CYTATION.COM INCORPORATED
FOLEY, HOAG & ELIOT
ONE POST OFFICE SQUARE
BOSTON, MA 02109
<PAGE> 2
CERTIFICATE OF AMENDMENT
OF
CYTATION.COM INCORPORATED
Pursuant to Section 805 of the New York Business Corporation Law, the
undersigned officer of Cytation.com Incorporated, a New York corporation (the
"Corporation"), does hereby submit for filing with the Department of State of
the State of New York this Certificate of Amendment:
FIRST: The name of the Corporation is Cytation.com Incorporated. The
Corporation was named Stylex Homes, Inc. at the time that it was formed.
SECOND: The Certificate of Incorporation of the Corporation was filed with
the Department of State of the State of New York on April 2, 1969.
THIRD: The Corporation hereby creates, from the 10,000,000 shares of
Preferred Stock, $0.01 par value per share ("Preferred Stock"), of the
Corporation authorized to be issued pursuant to Section 4 of the Certificate of
Incorporation of the Corporation, as amended (the "Certificate of
Incorporation"), a series of Preferred Stock and hereby fixes the designations,
powers, preferences, limitations and relative rights of the shares of such
series as follows:
1. DESIGNATION, INITIAL NUMBER AND DATE OF ISSUE.
The class of shares of preferred stock hereby classified shall be
designated the "Series C Preferred Stock" (the "Series C Preferred Stock"). The
initial number of authorized shares of the Series C Preferred Stock shall be One
Million (1,000,000). The Stated Value of the Series C Preferred Stock shall be
$4.00 per share, and the Par Value of the Series C Preferred Stock shall be $.01
per share. The date that a share of Series C Preferred Stock is issued is
referred to herein as its "Date of Issue."
2. DISTRIBUTIONS.
The holders of the Series C Preferred Stock shall be entitled to receive,
when and as declared by the Board of Directors of the Company, out of funds at
the time legally available for payment of dividends in the State of New York, a
cumulative dividend at an annual rate, based on a year of 360 days consisting of
12 thirty-day months, equal to 6% applied to the amount of the Stated Value per
share of Series C Preferred Stock. Such dividends shall be payable in respect of
each share of Series C Preferred Stock quarterly, in arrears, on the last day of
March, June, September and December in each year (each a "Dividend Payment
Date"), commencing on the first such date to occur which is at least thirty days
after its Date of Issue. The dividend payable on the first Dividend Payment Date
shall be calculated and based on the period from the Date of Issue through such
Dividend Payment Date. Each period commencing on the later of the Date of Issue
of a share of the Series C Preferred Stock or the first day after the last
preceding Dividend Payment Date and ending on the next Dividend Payment Date or,
in the case of a final dividend, the effective date of a liquidating
<PAGE> 3
distribution or conversion of such shares of Series C Preferred Stock into
Common Stock is referred to herein as a "Dividend Period." If the date fixed for
payment of a final liquidating distribution on any shares of Series C Preferred
Stock or the date on which any shares of Series C Preferred Stock are converted
into Common Stock does not coincide with a Dividend Payment Date, then subject
to the provisions hereof relating to such liquidating distribution or
conversion, the final Dividend Period applicable to such shares shall be the
period from the last Dividend Payment Date prior to the date such liquidating
distribution or conversion occurs through the effective date of such liquidating
distribution or conversion.
3. CONVERSION.
Subject to the limitation set forth in PARAGRAPH 3(K) below, the Series C
Preferred Stock shall be convertible into such number of fully paid, validly
issued and nonassessable shares of Common Stock, free and clear of any liens,
claims or encumbrances as hereinafter provided and, when so converted, shall be
canceled and retired and shall not be reissued as such:
(A) Any holder of the Series C Preferred Stock may at any time or from
time to time convert such stock into the Common Stock of the Company. In order
to convert the Series C Preferred Stock into Common Stock, the holder thereof on
any business day must present and surrender to the Company at its offices
located at 809 Aquidneck Avenue, Middletown, RI 02842 the certificate or
certificates of the Series C Preferred Stock to be converted into Common Stock,
duly endorsed to the Company or in blank, together with a notice of conversion,
which shall state therein the number of shares to be converted and the name or
names in which such holder wishes the certificate or certificates for Common
Stock to be issued ("CONVERSION NOTICE").
(B) Each holder of Series C Preferred Stock shall have the right to
convert such Series C Preferred Stock on and subject to the following terms and
conditions:
(i) The Series C Preferred Stock shall be converted into Common Stock
at the conversion ratio, determined as hereinafter provided, in effect at the
time of conversion. Unless such conversion ratio shall be adjusted as
hereinafter provided, the conversion ratio shall be one (1) share of Common
Stock for each share of Series C Preferred Stock ("CONVERSION RATIO").
(ii) The conversion of the Series C Preferred Stock shall be deemed to
have occurred on the date the holder thereof provides and surrenders, as the
case may be, to the Company, pursuant to paragraph 3(A) hereof, a Conversion
Notice and the certificate or certificates representing the Series C Preferred
Stock to be converted into Common Stock, duly endorsed to the Company or in
blank. The person or persons entitled to receive the Common Stock issuable upon
such conversion shall be treated for all purposes as the record holder or
holders of such Common Stock at such time. As promptly as practicable on or
after the date of any conversion, but in no event later than 10 business days
following the receipt by the Company of the Conversion Notice, the Company shall
issue and deliver by hand against a signed receipt therefor or by United States
registered mail, return receipt requested, or by overnight delivery service, to
the address designated by the holder in the Conversion Notice, a stock
certificate or stock certificates of the Company representing the number of
shares of Common Stock to which such holder is entitled, together with check or
cash in lieu of any fraction of a share and in payment of all accrued and unpaid
dividends,
-2-
<PAGE> 4
to the person or persons entitled to receive same. In case of the conversion of
only a part of the shares of any holder of Series C Preferred Stock, the Company
shall also issue and deliver to such holder a new certificate of Series C
Preferred Stock representing the number of shares of such Series C Preferred
Stock not converted by such holder.
(C) (i) Subject to the limitation set forth in PARAGRAPH 3(K) below,
the Company may require mandatory conversion of all, but not less than all, of
the Series C Preferred Stock on or after the first anniversary of the initial
purchase and sale of the Series C Preferred Stock (the "MANDATORY CONVERSION
DATE"), provided that (x) after the first anniversary of the initial purchase
and sale of the Series C Preferred Stock the average closing bid price of the
Company's Common Stock on the Over-the-Counter Bulletin Board or the Nasdaq
Stock Exchange, as applicable, for the 20 consecutive trading days immediately
preceding the Mandatory Conversion Date has exceeded $6.00 per share; and (y)
the Company elected to mandatory convert all other series of Preferred Stock.
(ii) Conversion of the Series C Preferred Stock into Common Stock
pursuant to this paragraph 3(C) shall be deemed to have occurred on the
Mandatory Conversion Date whether or not the holder of such stock delivers to
the Company its certificate or certificates for the Series C Preferred Stock.
Anything in this Section 3(C) to the contrary notwithstanding, the Company may
not require the conversion of any shares of Series C Preferred Stock unless,
concurrently with such mandatory conversion, the Company shall also require the
mandatory conversion of the same Pro Rata Proportion (as hereinafter defined) of
shares of the Series A Preferred Stock of the Company. For the purposes of the
preceding sentence "Pro Rata Proportion" shall mean a fraction the numerator of
which shall be the number of shares of Series C Preferred Stock or Series A
Preferred Stock, as the case may be, subject to mandatory conversion and the
denominator of which shall be all outstanding shares of Series C Preferred Stock
or Series A Preferred Stock, as the case may be.
(D) The Conversion Ratio shall be subject to adjustment as follows:
(i) If the Company subdivides (e.g., stock dividend) or splits
up the issued and outstanding shares of Common Stock into a greater number of
shares of the Common Stock, the Conversion Ratio in effect at the opening of
business on the business day immediately preceding the date fixed for the
determination of the stockholders whose shares of Common Stock shall be
subdivided or split up (the "SPLIT RECORD DATE") shall be proportionately
increased, and in case issued and outstanding shares of Common Stock shall be
combined into a smaller number of shares of Common Stock, the Conversion Ratio
in effect at the opening of business on the business day immediately preceding
the date fixed for the determination of the stockholders whose shares of Common
Stock shall be combined (the "COMBINATION RECORD DATE") shall be proportionately
decreased, such increase or decrease, as the case may be, becoming effective
immediately after the opening of business on the business day immediately after
the Split Record Date or the Combination Record Date, as the case may be.
(ii) In case of any capital reorganization, any reclassification
of the stock of the Company (other than as a result of a stock dividend or
subdivision, split up or combination of shares), or the merger of the Company
with or into another person or entity (other than a merger in which the Company
is the continuing corporation and which does not result in any change in the
Common Stock) or of the sale, exchange, lease, transfer or other disposition of
all or substantially
-3-
<PAGE> 5
all of the properties and assets of the Company as an entirety or the
participation by the Company in a share exchange as the corporation the stock of
which is to be acquired, the Series C Preferred Stock shall (effective on the
opening of business on the date after the effective date of such reorganization,
reclassification, merger, sale or exchange, lease, transfer or other disposition
or share exchange) be convertible into the kind and number of shares of stock or
other securities or property of the Company or of the surviving corporation
resulting from such merger or to which such properties and assets shall have
been sold, exchanged, leased, transferred or otherwise disposed or which was the
corporation whose securities were exchanged for those of the Company to which
the holder of the number of shares of Common Stock deliverable (at the close of
business on the date immediately preceding the effective date of such
reorganization, reclassification, merger, sale, exchange, lease, transfer or
other disposition or share exchange) upon conversion of Series C Preferred Stock
would have been entitled upon such reorganization, reclassification, merger,
sale, exchange, lease, transfer or other disposition or share exchange. The
provisions of this subparagraph 3(B)(ii) shall similarly apply to successive
reorganizations, reclassifications, mergers, sales, exchanges, leases, transfers
or other dispositions or other share exchanges.
(iii) If the Company shall issue to the holders of its Common
Stock rights or warrants to subscribe for or purchase shares of its Common Stock
at a price less than 90% of the Current Market Price (as defined below in this
paragraph) of the Company's Common Stock at the record date fixed for the
determination of the holders of Common Stock entitled to such rights or
warrants, the conversion rate in effect immediately prior to said record date
shall be increased, effective at the opening of business on the next following
full business day, to an amount determined by multiplying such conversion rate
by a fraction the numerator of which is the number of shares of Common Stock of
the Company outstanding immediately prior to said record date plus the number of
additional shares of its Common Stock offered for subscription or purchase and
the denominator of which is said number of shares outstanding immediately prior
to said record date plus the number of shares of Common Stock of the Company
which the aggregate subscription or purchase price of the total number of shares
so offered would purchase at the Current Market Price of the Company's Common
Stock at said record date. The term "Current Market Price" at said record date
shall mean the average of the daily last reported sale prices per share of the
Company's Common Stock on the principal stock exchange on which the Common Stock
is then listed during the 20 consecutive full business days commencing with the
30th full business day before said record date, provided that if there was no
reported sale on any such day or days there shall be substituted the average of
the closing bid and asked quotations on that exchange on that day, and provided
further that if the Common Stock was not listed on any stock exchange on any
such day or days there shall be substituted the average of the lowest bid and
the highest asked quotations in the over-the-counter market on that day.
(iv) Whenever the Conversion Ratio shall be adjusted as provided
herein, the Company shall prepare and send to the holders of the Series C
Preferred Stock a statement, signed by the chief financial officer of the
Company, showing in detail the facts requiring such adjustment and the
Conversion Ratio that shall be in effect after such adjustment.
(v) In the event the Company shall propose to take any action of
the types described in PARAGRAPH 3(D) hereof, the Company shall give notice to
the holder of Series C Preferred Stock, which notice shall specify the record
date, if any, with respect to any such action
-4-
<PAGE> 6
and the date on which such action is to take place. Such notice shall be given
on or prior to the earlier of 30 days prior to the record date or the date which
such action shall be taken. Such notice shall also set forth such facts with
respect thereto as shall be reasonably necessary to indicate the effect of such
action (to the extent such effect may be known at the date of such notice) on
the Conversion Ratio and the number, kind or class of shares or other securities
or property which shall be deliverable or purchasable upon the occurrence of
such action or deliverable upon conversion of the Series C Preferred Stock.
Failure to give notice in accordance with this PARAGRAPH 3(D)(v) shall not
render such action ultra vires, illegal or invalid.
(E) No adjustment of the Conversion Ratio shall be made in any of the
following cases:
(i) the grant or exercise of stock options hereafter granted, or
under any employee stock option plan now or hereafter authorized, to the extent
that the aggregate of the number of shares which may be purchased under such
options and the number of shares issued under such employee stock option plan is
less than or equal to ten percent (10%) of the number of shares of Common Stock
outstanding on January 1 of the year of the grant or exercise;
(ii) the issuance of shares of Common Stock in connection with
the acquisition by the Company or by any subsidiary of the Company of 80% or
more of the assets of another corporation, and shares issued in connection with
the acquisition by the Company or by any subsidiary of the Company of 80% or
more of the voting shares of another corporation (including shares issued in
connection with such acquisition of voting shares of such other corporation
subsequent to the acquisition of an aggregate of 80% of such voting shares),
shares issued in a merger of the Company or a subsidiary of the Company with
another corporation in which the Company or the Company's subsidiary is the
surviving corporation, and shares issued upon the conversion of other securities
issued in connection with any such acquisition or in any such merger;
(iii) the issuance of shares of Common Stock pursuant to all
stock options, warrants and convertible securities outstanding on the date of
the filing of this Certificate of Amendment to the Certificate of Incorporation
of the Company ("CERTIFICATE").
(iv) sales of Common Stock of the Company for cash in an
underwritten public offering.
(F) Whenever the Conversion Ratio is adjusted as herein provided, the
Company shall prepare a certificate signed by the Treasurer of the Company
setting forth the adjusted conversion ratio and showing in reasonable detail the
facts upon which such adjustment is based. As promptly as practicable, the
Company shall cause a copy of such certificate to be mailed to each holder of
record of issued and outstanding Series C Preferred Stock at the address of such
holder appearing on the Company's books.
(G) The Company shall pay all taxes that may be payable in respect of
the issue or delivery of Common Stock on conversion of Series C Preferred Stock
pursuant hereto, but shall not pay any tax which may be payable with respect to
income or gains of the holder of any Series C Preferred Stock or Common Stock or
any tax which may be payable in respect of any transfer involved in the issue
and delivery of the Common Stock in a name other than that in which the
-5-
<PAGE> 7
Series C Preferred Stock so converted was registered, and no such issue or
delivery shall be made unless and until the person requesting such issue has
paid to the Company the amount of any such tax, or has established, to the
satisfaction of the Company, that such tax has been paid.
(H) (i) Upon conversion of any shares of Series C Preferred Stock
pursuant to paragraphs 3(A) and (B) hereof, the holders of such shares of Series
C Preferred Stock so converted shall not be entitled to receive any dividends
declared with respect to such shares of Series C Preferred Stock unless such
dividends shall have been declared by the Board of Directors and the record date
for such dividends shall have been on or before the date such shares shall have
been converted. No payment or adjustment shall be made on account of dividends
declared and payable to holders of Common Stock of record on a date prior to the
date of the conversion of shares of Series C Preferred Stock pursuant to
paragraphs 3(A) and 3(B) hereof.
(ii) Upon the mandatory conversion of any shares of Series C
Preferred Stock pursuant to paragraph 3(C) hereof, the holders of such shares of
Series C Preferred Stock so converted shall be entitled to receive a dollar
amount equal to all accrued dividends and unpaid distributions prior to the
Mandatory Conversion Date, whether or not declared thereon.
(I) No fractional shares or scrip representing fractional shares
shall be issued upon the conversion of any shares of Series C Preferred Stock.
If more than one share of Series C Preferred Stock shall be surrendered for
conversion at one time by the same holder, the number of full shares issuable
upon conversion thereof shall be computed on the basis of the aggregate number
of such shares so surrendered. If the conversion of any share of Series C
Preferred Stock results in a fraction, an amount equal to such fraction
multiplied by the current market value of the Common Stock on the day of
conversion shall be paid to such holder in cash by the Company. For purposes of
this paragraph 3(I), "current market value of Common Stock" shall mean the value
of the Common Stock as reflected in the last trade of the Common Stock on the
date of conversion.
(A) The Company shall at all times reserve and keep available, free
from preemptive rights, out of its authorized Common Stock, for the purpose of
effecting the conversion of the issued and outstanding Series C Preferred Stock,
the full number of shares of Common Stock then deliverable in the event and upon
the conversion of all of the Series C Preferred Stock then issued and
outstanding.
(K) In no event shall PNC Bank Corp. or any indirect or direct
subsidiary thereof (collectively, "PNC") be entitled to convert any shares of
Series C Preferred Stock nor shall the Company be entitled to require conversion
of any shares of Series C Preferred Stock in excess of that number of shares of
Series C Preferred Stock upon the conversion of which the sum of (1) the number
of shares of Common Stock beneficially owned (as such term is defined for the
purposes of Rule 13(d) promulgated under the Securities Exchange Act of 1934, as
amended) by PNC and (2) the number of shares of Common Stock issuable upon the
conversion of the number of shares of Series C Preferred Stock with respect to
which the determination in this provision is made, would result in the
beneficial ownership by PNC of five percent (5%) or more of the issued and
outstanding shares of Common Stock and any series of voting preferred stock of
the Company unless PNC has provided to the Company a written opinion of counsel
that a greater percentage of
-6-
<PAGE> 8
beneficial ownership of such capital stock is permissible pursuant to then
applicable laws or regulations.
(L) In no event shall PNC be entitled to sell or otherwise transfer shares
of Series C Preferred Stock and Common Stock to a person unaffiliated with PNC
or Company if immediately after the transfer (1) the number of shares of Common
Stock and any series of voting preferred stock of the Company and (2) the number
of shares of Common Stock issuable upon the conversion of the shares of Series C
Preferred Stock would result in the beneficial ownership by the acquiring person
of five percent (5%) or more of the issued and outstanding shares of Common
Stock and any series of voting preferred stock of the Company unless (1)
pursuant to a widely dispersed public offering, (2) immediately prior to the
transfer the acquiring person would hold, upon exercise of the conversion rights
of any Series C Preferred Stock it held immediately prior to the transfer, more
than 50 percent of the issued and outstanding Common Stock and any series of
voting preferred stock of the Company or (3) the Company has stated in writing
that it has no objection to such transfer.
4. LIQUIDATION OR DISSOLUTION.
In the event of any voluntary or involuntary liquidation, dissolution, or
winding up of the affairs of the Company, the holders of the issued and
outstanding Series C Preferred Stock shall be entitled to receive for each share
of Series C Preferred Stock, before any distribution of the assets of the
Company shall be made to the holders of any other class of capital stock, except
for holders of the Series A Convertible Preferred Stock which shall have the
rights and preferences set forth in the Designation of Rights and Preferences of
the Series A Preferred Shares as previously adopted by the Company's Board of
Directors and on file with the New York Secretary of State on the date hereof, a
dollar amount equal to the Stated Value thereof plus all accrued and unpaid
distributions whether or not earned or declared thereon, without interest. After
payments in full have been made to all holders of any series of the issued and
outstanding preferred stock of the Company, or funds necessary for such payment
shall have been set aside in trust for the account of the holders of any series
of the issued and outstanding preferred stock of the Company, so as to be and
continue to be available therefor, then, before any further distribution of the
assets of the Company shall be made, a dollar amount equal to that already
distributed to the holders of any series of the issued and outstanding preferred
stock of the Company shall be distributed pro-rata to the holders of the other
issued and outstanding classes of capital stock of the Company, subject to the
rights of any other class of capital stock set forth in the Certificate of
Incorporation, as amended, of the Company. After such payment shall have been
made in full to the holders of such other issued and outstanding capital stock,
or funds necessary for such payment shall have been set aside in trust for the
account of the holders of such other issued and outstanding capital stock so as
to be and continue to be available therefor, the holders of the issued and
outstanding Series C Preferred Stock shall be entitled to participate with the
holders of all other classes of issued and outstanding capital stock in the
final distribution of the remaining assets of the Company, and, subject to any
rights of any other class of capital stock set forth in the Certificate of
Incorporation, as amended, of the Company, the remaining assets of the Company
shall be divided and distributed ratably among the holders of both the Series C
Preferred Stock and the other capital stock then issued and outstanding
according to the proportion by which their respective record ownership of shares
of Common Stock Equivalents (as defined below in this paragraph) bears to the
total number of shares of Common Stock Equivalents then issued and outstanding.
"Common Stock Equivalents" shall mean all shares of Common Stock that
-7-
<PAGE> 9
are outstanding plus all shares of Common Stock issuable upon conversion of
Series A Convertible Preferred Stock, Series B Convertible Preferred Stock or
the Series C Preferred Stock or any other series of convertible preferred stock
of the Company. If, upon such liquidation, dissolution, or winding up, the
assets of the Company distributable, as aforesaid, among the holders of any
series of preferred stock of the Company shall be insufficient to permit the
payment to them of said amount, the entire assets shall be distributed ratably
among the holders of any series of issued and outstanding preferred stock of the
Company. A consolidation or merger of the Company, a share exchange, a sale,
lease, exchange or transfer of all or substantially all of its assets as an
entirety, or any purchase or redemption of stock of the Company of any class,
shall not be regarded as a "liquidation, dissolution, or winding up of the
affairs of the Company" within the meaning of this paragraph 4.
5. VOTING RIGHTS AND BOARD REPRESENTATION.
(A) Except as otherwise required by applicable law, the Series C Preferred
Stock shall not be entitled to vote on any matter.
(B) So long as there are at least 500,000 shares of Series C Preferred Stock
outstanding (which number shall be subject to proportional adjustment to
reflect any subdivisions, splits or reverse stock splits of the Series C
Preferred Stock) the holders of the Series C Preferred Stock voting
separately as a class shall be entitled, as such holders voting separately
as a class may determine, to elect one director to the Board of Directors
or to appoint one observer to the Board of Directors.
6. CHANGES IN TERMS OF SERIES C PREFERRED STOCK.
The terms of the Series C Preferred Stock may not be amended, altered or
repealed, and no class of capital stock or securities convertible into capital
stock shall be authorized, including by way of a merger, which has superior
rights to the Series C Preferred Stock as to distributions or liquidation,
without the consent of the holders of at least two-thirds of the outstanding
shares of Series C Preferred Stock. This Section 6 shall in no way limit the
Company's abilities to issue securities which are pari passu with the Series C
Preferred Stock.
7. NO IMPLIED LIMITATIONS.
Except as otherwise provided by express provisions of this Certificate,
nothing herein shall limit, by inference or otherwise, the discretionary right
of the Board of Directors to classify and reclassify and issue any shares of
Series C Preferred Stock and to fix or alter all terms thereof to the full
extent provided in the Certificate of Incorporation, as amended, of the Company.
8. GENERAL PROVISIONS.
In addition to the above provisions with respect to the Series C Preferred
Stock, such Series C Preferred Stock shall be subject to, and entitled to the
benefits of, the provisions set forth in the Company's Certificate of
Incorporation, as amended, of the Company with respect to preferred stock
generally but not with respect any series of preferred stock in particular.
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<PAGE> 10
9. NOTICES.
All notices required or permitted to be given by the Company with respect
to the Series C Preferred Stock shall be in writing, and if delivered by first
class United States mail, postage prepaid, or by overnight delivery service, to
the holders of the Series C Preferred Stock at their last addresses as they
shall appear upon the books of the Company, shall be conclusively presumed to
have been duly given, whether or not the stockholder actually receives such
notice; provided, however, that failure to duly give such notice by mail, or any
defect in such notice, to the holders of any stock designated for redemption,
shall not affect the validity of the proceedings for the redemption of any other
shares of Series C Preferred Stock.
FOURTH: This Certificate of Amendment was duly adopted by the Board of
Directors of the Corporation by means of a written consent of all of the
directors dated as of September 30, 1999.
EXECUTED this 1st day of October, 1999.
/s/ Kevin J. High
-------------------------------------
Kevin J. High, President
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<PAGE> 1
Exhibit 10.8
WEB SERVICES INTERNATIONAL, INC.
1996 STOCK PLAN
EFFECTIVE DECEMBER 16, 1996
<PAGE> 2
WEB SERVICES INTERNATIONAL, INC.
1996 STOCK PLAN
1. Purpose
WEB SERVICES INTERNATIONAL, INC. (the "Company") desires to attract and
retain the best available talent and encourage the highest level of performance
by employees and other persons who perform services for the Company in order to
serve the best interests of the Company and stockholders. By affording eligible
persons the opportunity to acquire proprietary interests in the Company and by
providing them incentives to put forth maximum efforts for the success of the
Company's business, the WEB SERVICES INTERNATIONAL, INC. 1996 STOCK PLAN (the
"1996 Plan") is expected to contribute to the attainment of those objectives.
2. Scope and Duration
Awards under the 1996 Plan may be granted in the form of incentive stock
options ("incentive stock options") as provided in Section 422 of the Internal
Revenue Code of 1986, as amended (die "Code") and in the form of non-qualified
stock options ("non-qualified options")(unless otherwise indicated, references
in the 1996 Plan to "options" include incentive stock options and non-qualified
options). The maximum aggregate number of shares of the Company's common stock,
par value $.001 ("Common Stock") as to which awards may be granted from time to
time under the 1996 Plan is 250,000, all of which may be granted as incentive
stock options. The shares available may be in whole or in part, as the Board of
Directors of the Company (the "Board of Directors") shall from time to time
determine, authorized but unissued shares or issued shares reacquired by the
Company. Shares covered by expired or terminated options will be available for
subsequent awards under the 1996 Plan. No incentive stock option shall be
granted more than 10 years after December 16, 1996.
3. Administration
The 1996 Plan shall be administered by the Board of Directors, which shall
have plenary authority in its discretion, subject to and not inconsistent with
the express provisions of the 1996 Plan to grant options, to determine the
purchase price of the shares of Common Stock covered by each option, the term of
each option, the persons to whom, and the time or times at which options shall
be granted , and the number of shares to be covered by each option; to designate
options as incentive stock options or non-qualified options; to prescribe, amend
and rescind rules and regulations relating to the 1996 Plan; to determine the
terms and provisions of the option agreements (which need not be identical)
entered into in connection with awards under the 1996 Plan; and to make all
other determinations deemed necessary or advisable for the administration of the
1996 Plan.
The Board of Directors may employ attorneys, consultants, accountants or
other persons and the Board of Directors, the Company and its officers and
directors shall be entitled to rely upon the advice, opinions or valuations of
any such persons. All actions taken and all interpretations and determinations
made by the Board of Directors in good faith shall be final and binding upon all
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<PAGE> 3
persons who have received awards, the Company and all other interested persons.
No member or agent of the Board of Directors shall be personally liable for any
action, determination or interpretation taken or made in good faith with respect
to the 1996 Plan or awards made thereunder, and all members and agents of the
Board of Directors shall be fully indemnified and protected by the Company in
respect of any such action, determination or interpretation.
4. Eligibility; Factors to be Considered in Granting Awards
(a) The Board of Directors may grant awards to officers and other key
employees of the Company and its subsidiaries', and except in the case of
incentive stock options, any other non employees who may provide services to the
Company or its subsidiaries (all such persons being hereinafter referred to as
"employees"). In determining the employees to whom awards shall be granted and
the number of shares or units to be covered by each award, the Board of
Directors shall take into account the nature of the employees' duties, their
present and potential contributions to the success of the Company and such other
factors as it shall deem relevant in connection with accomplishing the purposes
of the 1996 Plan.
(b) Awards may be granted singly, in combination or in tandem and may be
made in combination or in tandem with, in replacement of, or as alternatives to,
awards or grants under any other employee plan maintained by the Company, its
present and future subsidiaries. An employee who has been granted an award or
awards under the 1996 Plan may be granted an additional award or awards, subject
to such limitations as may be imposed by the Code on the grant of incentive
stock options. No award of incentive stock options shall result in the aggregate
fair market value of Common Stock with respect to which incentive stock options
are exercisable for the first time by any employee during any calendar year
(determined at the time the incentive stock option is granted) exceeding
$100,000. The Board of Directors, in its sole discretion, may grant to an
employee who has been granted an award under the 1996 Plan or any other employee
plan maintained by the Company or its subsidiaries, or any predecessors or
successors thereto, in exchange for the surrender and cancellation of such
award, a new award in the same or a different form and containing such terms,
including without limitation a price which is different (either higher or lower)
than any price provided in the award so surrendered and cancelled, as the Board
of Directors may deem appropriate.
5. Option Price
The purchase price of the Common Stock covered by each option shall be
determined by the Board of Directors, but in the case of an incentive stock
option shall not be less than 100% of the fair market value (110% in the case of
a 10% shareholder of the Company) of the Common Stock on the date the option is
granted, which shall be deemed to equal the average closing bid and closing
asked prices of the Common Stock as reported on the over-the-counter bulletin
board ("OTCBB") for the date on which the option is granted (the "Mean Value"),
or if there are no sales on such date, on the next preceding day on which there
were sales. If the Common Stock has not traded on the OTCBB as of the date of
the option grant, then the fair market value shall be deemed to be the price per
share at which the Company last offered Common Stock to investors. The Board of
Directors shall determine the date on which an option is granted, provided that
such date is consistent with the Code and any applicable rules or regulations
thereunder. In the absence of such determination, the
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<PAGE> 4
date on which the Board of Directors adopts a resolution granting an option
shall be considered the date on which such option is granted, provided the
employee to whom the option is granted is promptly notified of the grant and an
option agreement is duly executed as of the date of the resolution. The purchase
price shall be subject to adjustment as provided in paragraph 11.
6. Terms of Options
The term of each incentive stock-option granted under the 1996 Plan shall
not be more than 10 years (5 years in the case of a 10% shareholder of the
Company) from the date of grant, as the Board of Directors shall determine,
subject to earlier termination as provided in paragraphs 9 and 10. The term of
each non-qualified stock option granted under the 1996 Plan shall be such period
of time as the Board of Directors shall determine, subject to earlier
termination as provided in paragraphs 9 and 10.
7. Exercise of Options; Loans
(a) Subject to the provisions of the 1996 Plan, an option granted under the
1996 Plan shall become vested as determined by the Board of Directors. The Board
of Directors may, in its discretion, determine as a condition of any option,
that all or a stated percentage of the options shall become exercisable, in
installments or otherwise, only after completion of a specified service
requirement. The Board of Directors may also, in its discretion, accelerate the
exercisability of any option at any time.
(b) An option may be exercised at any time or from time to time (subject,
in the case of an incentive stock option, to such restrictions as may be imposed
by the Code), as to any or all full shares as to which the option has become
exercisable.
(c) The purchase price of the shares as to which an option is exercised
shall be paid in full at the time of exercise; payment may be made in cash,
which may be paid by check, or other instrument acceptable to the Company, or,
with the consent of the Board of Directors, in shares of the Common Stock,
valued at the Mean Value on the date of exercise, or if there were no sales on
such date, on the next preceding day on which there were sales or (if permitted
by the Board of Directors and subject to such terms and conditions as it may
determine) by surrender of outstanding awards under the 1996 Plan or any other
stock option or incentive compensation plan of the Company. In addition, any
amount necessary to satisfy applicable federal, state or local tax requirements
shall be paid promptly upon notification of the amount due. The Board of
Directors may permit such amount to be paid in shares of Common Stock previously
owned by the employee, or a portion of the shares of Common Stock that otherwise
Would be distributed to such employee upon exercise of the option, or a
combination of cash and shares of such Common Stock.
(d) Except as provided in paragraphs 9 and 10, no option may be exercised
at any time unless the holder thereof is then an employee of or performing
services for the Company or one of its subsidiaries, if any. For this purpose,
"subsidiary" shall include, as under Treasury Regulations Section 1.421-7(h)(3)
and (4), Example (3), any corporation that is a subsidiary of the Company during
the entire portion of the requisite period of employment during which it is the
employer of
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<PAGE> 5
the holder.
(e) Subject to any terms and conditions that the Board of- Directors may
determine in respect of the exercise of options involving the surrender of
outstanding awards, upon, but not until, the exercise of an option or portion
thereof in accordance with the 1996 Plan, the option agreement and such rules
and regulations as may be established by the Board of Directors, the holder
thereof shall have the rights of a stockholder with respect to the shares issued
as a result of such exercise.
8. Non-Transferability of Options
Options granted under the 1996 Plan shall not be transferable otherwise
than by will or the laws of descent and distribution, or pursuant to a qualified
domestic relations order as defined by Section 414(p) of the Code. Options may
be exercised during the lifetime of the employee only by the employee or by the
employee's guardian or legal representative (unless such exercise would
disqualify an option as an incentive stock option).
9. Termination of Employment
Unless otherwise determined by the Board of Directors, and subject to such
restrictions as may be imposed by the Code in the case of any incentive stock
options, in the event that the employment of an employee to whom an option has
been granted under the 1996 Plan shall be terminated (except as set forth in
paragraph 10), such option may, subject to the provisions of the 1996 Plan, be
exercised (to the extent that the employee was entitled to do so at the
termination of his employment) at any time within three months after such
termination, or, in the case of an employee whose termination results from
retirement from active employment at or after age 55, within one year after such
termination, but in no case later than the date on which the option terminates;
provided, however, that any option held by an employee whose employment is
terminated for cause shall forthwith terminate, to the extent not theretofore
exercised.
Awards granted under the 1996 Plan shall not be affected by any change of
duties or position so long as the holder continues to be an employee of the
Company or any of its subsidiaries. Any option, or any rules and regulations
relating to the 1996 Plan, may contain such provisions as the Board of Directors
shall approve with reference to the determination of the date employment
terminates and the effect of leaves of absence. Any such rules and regulations
with reference to any option agreement shall be consistent with the provisions
of the Code and any applicable rules and regulations thereunder. Nothing in the
1996 Plan or in any award granted pursuant to the 1996 Plan shall confer upon
any employee any right to continue in the employ of the Company or any of its
subsidiaries or interfere in any way with the right of the Company or any such
subsidiary to terminate such employment at any time.
Notwithstanding anything else in the 1996 Plan to the contrary, if the
corporation employing an individual to whom an option has been granted under the
1996 Plan ceases to be a subsidiary of the Company, then the Board of Directors
may . provide that service with such employer or its direct or indirect or
subsidiaries in any capacity shall be considered employment with the Company for
purposes of the 1996 Plan.
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<PAGE> 6
10. Death or Total Disability of Employee
If an employee to whom an option has been granted under the 1996 Plan shall
die or suffer a "total disability" while employed by the Company or its
subsidiaries or within three months (or, in the case of an employee whose
termination results from retirement from active employment at or after age 55,
within one year) after the termination of such employment (other than
termination for cause), such option may be exercised, to the extent that the
employee was entitled to do so at the termination of employment (including by
reason of death or total disability), as set forth herein by the employee, the
legal guardian of the employee (unless such exercise would disqualify an option
as an incentive stock option), a legatee or legatees of the employee under the
employee's last will, or by the employee's personal representatives or
distributees, whichever is applicable, at any time within one year after the
date of the employee's death or total disability, but in no case later than the
date on which the option terminates. For purposes hereof, "total disability" is
defined as the permanent inability of an employee, as a result of accident or
sickness, to perform any and every duty pertaining to such employee's occupation
or employment for which the employee is suited by reason of the employee's
previous training, education and experience.
11. Adjustment upon Changes in Capitalization, etc.
Notwithstanding any other provision of the 1996 Plan, the Board of
Directors may at any time make or provide for such adjustments to the 1996 Plan,
to the number and class of shares available thereunder or to any outstanding
options as it shall deem appropriate to prevent dilution or enlargement of
rights, including adjustments in the event of distributions to holders of Common
Stock other than a normal cash dividend, changes in the outstanding Common Stock
by reason of stock splits, stock dividends, split-ups, recapitalizations,
mergers, consolidations, combinations or exchanges of shares, separations,
reorganizations, liquidations and the like. In the event of any offer to holders
of Common Stock generally relating to the acquisition of their shares, the Board
of Directors may make such adjustment as it deems equitable in respect of
outstanding options, including in the Board of Directors's discretion revision
of outstanding options so that they may be exercisable for or payable in the
consideration payable in the acquisition transaction. Any such determination by
the Board of Directors shall be conclusive. No adjustment shall be made in
respect of an incentive stock option if such adjustment would disqualify such
option as an incentive stock option under Section 422 of the Code and the
Treasury Regulations thereunder. No adjustment shall be made in the minimum
number of shares with respect to which an option may be exercised at any time.
Any fractional shares resulting from such adjustments to options shall be
eliminated.
12. Effective Date
The 1996 Plan shall be effective as of December 16, 1996, provided that the
adoption of the 1996 Plan shall have been subsequently approved by the
stockholders of the Company. The Board of Directors thereafter may, in its
discretion, grant awards under the 1996 Plan, the grant, exercise or payment of
which shall be expressly subject to the conditions that, to the extent required
at the time of grant, exercise or payment, any requisite approval or consent of
any governmental authority of any kind having jurisdiction over awards granted
under the 1996 Plan shall be obtained.
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<PAGE> 7
13. Termination and Amendment
The Board of Directors of the Company may suspend, terminate, modify or
amend the 1996 Plan. No suspension, termination, modification or amendment of
the 1996 Plan may, without the consent of the employee to whom an award shall
theretofore have been granted, adversely affect the rights of such employee
under such award.
14. Written Agreements
Each award of options shall be evidenced by a written agreement, executed
by the employee and the Company, which shall contain such restrictions, terms
and conditions as the Board of Directors may require.
15. Effect on Other Stock Plans
The adoption of the 1996 Plan shall have no effect on awards made or to be
made pursuant to other stock plans covering employees of the Company or its
subsidiaries, or any predecessors or successors thereto.
IN WITNESS WHEREOF, the Company has caused its duly authorized officer to
execute this Plan as of the 16th day of December, 1996.
WEB SERVICES INTERNATIONAL, INC.
By: /s/ Richard A. Fisher
_____________________________________
its Chairman
6
<PAGE> 1
Exhibit 10.9
CYTATION.COM INCORPORATED
1999 STOCK OPTION PLAN
1. NAME AND PURPOSE. This Plan shall be known as the Cytation.com
Incorporated 1999 Stock Option Plan (the "Plan"). The purpose of the
Plan is to advance the interests and increase the value of Cytation.com
Incorporated (the "Company") by providing material incentive for the continued
services of key and valuable employees. Awards under the Plan shall be granted
in the form of incentive stock options within the meaning of Section 422 of the
Internal Revenue Code of 1986, as amended ("ISOs") or non-qualified stock
options.
2. DEFINITIONS. For purposes of this Plan, the following terms shall
have the meanings set forth below:
"ACCELERATION EVENT" means (i) a Change in Control, (ii) a change in
the composition of the Board during any period of two consecutive years such
that individuals who at the beginning of the period were members of the Board
cease for any reason to constitute at least a majority thereof, unless the
election or nomination for election by the Company's stockholders was approved
by a vote of at least two-thirds of the directors then still in office who were
directors at the beginning of the period, or (iii) a complete liquidation of the
Company.
"ADMINISTRATOR" means the Board, or the Compensation Committee of the
Board or such other person(s) to whom the Board has delegated the responsibility
of administering the Plan.
"BOARD" means the Board of Directors of the Company.
"CAUSE" means, (i) in the case of any Optionee whose employment with
the Company is governed by an employment agreement, the meaning given to such
term in such employment agreement, and (ii) for all other Optionees, as
determined in good faith by the Administrator, (1) gross negligence in the
performance of any of material duties and responsibilities; (2) willful
dishonesty, fraud or material misconduct with respect to the business or affairs
of the Company, (3) the conviction of a felony crime; (4) chronic absenteeism,
or (5) chronic alcohol abuse or illegal drug abuse.
"CHANGE IN CONTROL" means (i) a consolidation or merger of the Company
with or into any other corporation, or any other entity or person, other than a
wholly-owned subsidiary of the Company, excluding any transaction in which the
stockholders of the Company immediately prior to the transaction will maintain
voting control or own at least 50% (in each case, in substantially the same
proportion as before such event) of the resulting entity after the transaction;
(ii) any corporate reorganization, including an exchange offer, in which the
Company shall not be the continuing or surviving entity resulting from such
reorganization, excluding any transaction in which the stockholders of the
Company immediately prior to the transaction will maintain voting control or own
at least 50% (in each case, in substantially the
<PAGE> 2
same proportion as before such event) of the resulting entity after the
transaction; or (iii) the sale of a substantial portion of the Company's assets,
which shall be deemed to occur on the date that any one person, or more than one
person acting as a group, acquires (or has acquired during the 12 month period
ending on the date of the most recent acquisition by such person or persons)
assets from the Company that have a total fair market value equal to more than
75% of the total fair market value of all the assets of the Company.
"COMMON SHARES" means shares of the Company's common stock, $.001 par
value, reserved for issuance under the Plan.
"EFFECTIVE DATE" means September 1, 1999.
"FAIR MARKET VALUE" means, for any given day, the closing bid for the
Common Shares on such day.
"OPTIONEE" means an eligible employee or other person who performs
services for the Company that is granted an option pursuant to the Plan.
3. ADMINISTRATION. The Plan shall be administered by the Administrator.
The Administrator may establish, subject to the provisions of the Plan, such
rules and regulations as it deems necessary for the proper administration of the
Plan, and make such determinations and take such action in connection therewith
or in relation to the Plan as it deems necessary or advisable, consistent with
the Plan.
4. ELIGIBILITY. Officers and key employees of the Company and its
affiliates shall be eligible to participate in the Plan as determined by the
Administrator.
5. SHARES SUBJECT TO THE PLAN.
(a) The Common Shares to be issued and delivered by the Company upon
exercise of options granted under the Plan may be either authorized but unissued
shares or treasury shares.
(b) The aggregate number of Common Shares of the Company which may be
issued under the Plan shall not exceed 3,000,000 shares, all or any portion of
which may be ISOs; subject, however, to the adjustment provided in Section 9 in
the event of certain changes in the Company's capital structure. No option may
be granted under this Plan which could cause such maximum limit to be exceeded.
(c) Common Shares covered by an option which is no longer exercisable
with respect to such shares shall again be available for issuance under this
Plan.
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<PAGE> 3
6. GRANT OF OPTIONS. The Administrator may from time to time, in its
discretion and subject to the provisions of the Plan, grant options to eligible
employees or other persons who perform services for the Company, provided
however, that any grant of an ISO prior to the approval of the Plan by the
Company's stockholders shall be conditioned on and subject to stockholder
approval of the Plan. Each option shall be embodied in an option agreement
signed by the Optionee and the Company providing that the option shall be
subject to the provisions of this Plan and containing such other provisions as
the Administrator may prescribe not inconsistent with the Plan. The option
agreement shall specify whether the option is a non-qualified option or an ISO.
No ISO may be granted subsequent to August 31, 2009. Subject to adjustment as
provided in Section 9, in any fiscal year of the Company, the aggregate number
of Common Shares as to which options may be granted to any one participant shall
not exceed 750,000 shares.
7. TERMS AND CONDITIONS OF OPTION. All options granted under the Plan
shall contain such terms and conditions as the Administrator may from time to
time determine, subject to the foregoing and following limitations and
requirements:
(a) OPTION PRICE: The price of Common Shares covered by any option
granted under the Plan shall be determined by the Administrator provided,
however, that in the case of an ISO the option price shall not be less than 100%
of the Fair Market Value of the Common Shares on the date of grant.
(b) PERIOD WITHIN WHICH OPTION MAY BE EXERCISED: The period of each
option shall be fixed by the Administrator, but no option may be exercised after
the expiration of ten years from the date the option is granted. The
Administrator may, in its discretion, determine as a condition of any option,
that all or a stated percentage of the Common Shares covered by such option
shall become exercisable, in installments or otherwise, only after the
completion of a specified service requirement by the Optionee or the achievement
of certain performance criteria. In addition, the Administrator may impose such
other restrictions and conditions on the exercisability of options as the
Administrator, in its discretion, may approve. Notwithstanding the foregoing,
and except as otherwise provided in Section 9(iv) hereof, all options shall
become immediately exercisable in full upon an Acceleration Event.
(c) 10% STOCKHOLDER: Notwithstanding any other provision of this Plan,
the price per Common Share covered by an ISO granted to an Optionee who, at the
time such option is granted, owns shares possessing more than 10% of the total
combined voting power of all classes of shares of the Company or its
subsidiaries shall be at least 110% of the Fair Market Value of the Common
Shares subject to the option. In addition, any such option may not be exercised
after the expiration of five years from the date the ISO is granted.
(d) GRANT LIMITATION: The aggregate Fair Market Value of Common Shares
with respect to which ISOs are exercisable for the first time by any Optionee
during any calendar year (determined at the time the option is granted) shall
not exceed $100,000.
(e) TERMINATION OF OPTION BY REASON OF TERMINATION OF EMPLOYMENT:
Unless the Administrator in its discretion determines otherwise, if an
Optionee's employment (or
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<PAGE> 4
contractual relationship, which shall hereafter be referred to as employment)
with the Company terminates for any reason, including death or disability
(within the meaning of Section 22(e)(3) of the Internal Revenue Code), any
portion of options granted under this Plan to such Optionee which are not
exercisable by reason of Section 7(b) hereof shall terminate immediately. Any
remaining portion of such options shall terminate if not exercised within the
period provided for in the option agreement.
Notwithstanding the foregoing, if an Optionee's employment is
terminated for Cause, all outstanding options held by such Optionee, whether
vested or unvested, shall terminate immediately.
(f) NON-TRANSFERABILITY: Each option and all rights thereunder shall be
exercisable during the Optionee's lifetime only by him and shall be
non-assignable and non-transferable by the Optionee except, in the event of the
Optionee's death, by his will or by the laws of descent and distribution. In the
event the death of an Optionee occurs, the representative or representatives of
the estate, or the person or persons who acquired (by bequest or inheritance)
the rights to exercise the options may exercise such options in whole or in part
prior to the expiration of the applicable exercise period, as specified in
Section 7(e) above.
(g) COMPLIANCE WITH SECURITIES LAWS: Options granted and shares issued
by the Company upon exercise of options shall be granted and issued only in full
compliance with all applicable securities laws, including laws, rules and
regulations of the Securities and Exchange Commission and applicable state Blue
Sky Laws. With respect thereto, the Administrator may impose such conditions on
transfer, restrictions and limitations as it may deem necessary and appropriate
to assure compliance with such applicable securities laws.
(h) MODIFICATION OR CANCELLATION OF OPTION: The Administrator shall
have the authority to effect, at any time and from time to time, with the
consent of the affected Optionee or Optionees, the modification of the terms of
any option agreement (subject to the limitations hereof), including, but not
limited to, the acceleration of any vesting or exercisability requirements upon
the occurrence of a change in control or otherwise.
(i) DISPOSITION OF SHARES: No option granted under this Plan shall
qualify as an ISO within the meaning of Section 422 of the Internal Revenue Code
of 1986, as amended, if the Common Shares acquired pursuant to the exercise of
the option are transferred, other than by will or by the laws of descent and
distribution, within two years of the date such option was granted or within one
year after the transfer of Common Shares to the Optionee pursuant to such
exercise.
8. METHOD OF EXERCISE. An option granted under this Plan may be
exercised by written notice to the Administrator, signed by the Optionee, or by
such other person as is entitled to exercise such option. The notice of exercise
shall state the number of Common Shares in respect of which the option is being
exercised, and shall either be accompanied by the payment of the full option
price for such Common Shares, or shall fix a date (not more than ten business
days from the date of such notice) for the payment of the full option price of
the Common Shares being purchased. The purchase price may be paid (i) in cash,
(ii) subject to the approval of the
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<PAGE> 5
Administrator, the delivery to the Company of Common Shares already owned by the
Optionee (which shall be valued for this purpose at the Fair Market Value on the
day immediately preceding the date of transfer to the Company), or (iii) any
combination of the above. A certificate or certificates for the Common Shares of
the Company purchased through the exercise of an option shall be issued in
regular course after the exercise of the option and payment therefore. During
the option period no person entitled to exercise any option granted under this
Plan shall have any of the rights or privileges of a stockholder with respect to
any Common Shares issuable upon exercise of such option until certificates
representing such Common Shares shall have been issued and delivered.
9. CHANGES IN THE COMPANY'S CAPITAL STRUCTURE.
(a) The existence of outstanding options shall not affect in any way
the right or ability of the Company or its stockholders to make or authorize any
or all adjustments, recapitalizations, reorganizations or other changes in the
Company's capital structure or its business, or any merger or consolidation of
the Company, or any issue of bonds, debentures, preferred or prior preference
stock ahead of or affecting the Common Shares or the rights hereof, or the
dissolution or liquidation of the Company, or any sale or transfer of all or any
part of its assets or business or substantially all of the outstanding stock of
the Company, or any other corporate act or proceeding, whether of a similar
character or otherwise.
(b) If the Company shall effect a subdivision, consolidation or
reclassification of shares or other capital readjustment or recapitalization,
the payment of a stock dividend, or other increase or reduction in the number of
voting shares outstanding, without receiving compensation therefor in money,
services or property, then the number, class, and per share price of Common
Shares shall be appropriately adjusted in such a manner as to entitle an
Optionee to receive upon exercise of an option, for the same aggregate cash
consideration, the same total number and class of shares as he would have
received as a result of the event requiring the adjustment.
(c) Except as hereinbefore expressly provided, the issue by the Company
of shares of stock of any class, for cash or property, or for labor or services,
either upon direct sale or upon the exercise of rights or warrants to subscribe
therefor, or upon conversion of shares or obligations of the Company convertible
into such shares or other securities, shall not affect, and no adjustment by
reason thereof shall be made with respect to, the number or price of Common
Shares then subject to outstanding options.
(d) In the event of a Change in Control, except as otherwise provided
below, all options outstanding under the Plan shall accelerate and become
immediately exercisable for a period of fifteen days, or such longer or shorter
period as the Board may prescribe, (the "notice period") immediately prior to
the scheduled consummation of such Change in Control, provided, however, that
any such acceleration and any exercise of options during the notice period shall
be (i) conditioned upon the consummation of the Change in Control and (ii)
effective only immediately before the consummation of such Change in Control.
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Upon consummation of any such event, the Plan and all outstanding but
unexercised options shall terminate. Notwithstanding the foregoing, to the
extent provision is made in writing in connection with such Change in Control
for the continuation of the Plan and the assumption of options under the Plan
theretofore granted, or for the substitution for such options of new options
covering the stock of a successor company, or a parent or subsidiary thereof,
with appropriate adjustments as to the number and kinds of shares or units and
exercise prices, then the Plan and options theretofore granted shall continue in
the manner and under the terms so provided, and the acceleration and termination
provisions set forth in the first two sentences of this Section 9(d) shall be of
no effect. The Company shall send written notice of a Change in Control to all
individuals who hold options not later than the time at which the Company gives
notice thereof to its stockholders.
10. AMENDMENT OR TERMINATION. The Administrator may terminate this Plan
at any time, and may amend the Plan at any time or from time to time; provided,
however, that any amendment that would increase the aggregate number of shares
that may be issued under the Plan, materially increase the benefits accruing to
employees under the Plan, or materially modify the requirements as to
eligibility for participation in the Plan shall be subject to the approval of
the Company's stockholders to the extent required by Internal Revenue Code
Section 422, other applicable laws or any other governing rules or regulations
except that such increase or modification that may result from adjustments
authorized by Section 9 does not require such approval. If the Plan is
terminated, any unexercised option shall continue to be exercisable in
accordance with its terms, except as provided in Section 9 above.
11. COMPANY RESPONSIBILITY. All expenses of this Plan, including the
cost of maintaining records, shall be borne by the Company. The Company shall
have no responsibility or liability (other than under applicable Securities
Acts) for any act or thing done or left undone with respect to the price, time,
quantity, or other conditions and circumstances of the purchase of the Common
Shares under the terms of the Plan, so long as the Company acts in good faith.
12. TAX WITHHOLDING. Any grant of an option hereunder shall provide as
determined by the Administrator for appropriate arrangements for the
satisfaction by the Company and the Optionee of all federal, state, local or
other income excise or employment taxes or tax withholding requirements
applicable to the exercise of the option or the later disposition of the Common
Shares thereby acquired and all such additional taxes or amounts as determined
by the Administrator in its discretion, including, without limitation, the right
of the Company or any subsidiary thereof to receive transfers of Common Shares
or other property from the Optionee or to deduct or withhold in the form of
Common Shares from any transfer to an Optionee, in such amount or amounts deemed
required or appropriate by the Administrator in its sole and absolute
discretion.
13. IMPLIED CONSENT. Every Optionee, by the acceptance of an option
under this Plan shall be deemed to have consented to be bound, on his own behalf
and on behalf of his heirs, assigns, and legal representatives, by all of the
terms and conditions of this Plan.
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14. NO EFFECT ON EMPLOYMENT STATUS. The fact that an employee or any
other person has been granted an option under this Plan shall not limit or
otherwise qualify the right of the Company to terminate his employment at any
time.
15. DELAWARE LAW TO GOVERN. This Plan shall be construed and
administered in accordance with and governed by the laws of the State of
Delaware.
IN WITNESS WHEREOF, the Company has caused this 1999 Stock Option Plan
to be executed by its duly authorized officer as of this ___ day of
_______________, 1999.
CYTATION.COM INCORPORATED
By:__________________________
Title: ________________________
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Exhibit 10.10
CYTATION.COM INCORPORATED
STOCK PURCHASE AGREEMENT
This Stock Purchase Agreement is made as of this 30th day of September,
1999 (this "AGREEMENT"), by and between CYTATION.COM INCORPORATED, a New York
corporation (the "COMPANY"), and PNC INVESTMENT CORP., a Delaware corporation
(the "INVESTOR").
The Parties Hereby Agree as Follows:
1. PURCHASE AND SALE.
1.1 SALE AND ISSUANCE OF SERIES C NON-VOTING CONVERTIBLE PREFERRED STOCK.
Subject to the terms and conditions of this Agreement, the Investor agrees
to purchase at the Closing, and the Company agrees to sell and issue to the
Investor at the Closing, against cash payment, one million (1,000,000) shares of
Series C Non-Voting Convertible Preferred Stock (the "Series C Preferred
Shares") of the Company each at a purchase price of $4.00 per share. The
Designation of Rights and Preferences of the Series C Preferred Shares, which
will be adopted by the Company's Board of Directors and filed with the New York
Secretary of State, pursuant to Section 8.3 hereof, is attached hereto as
Exhibit 1.
1.2 CLOSING.
The purchase and sale of the Preferred Shares being purchased by the
Investor shall take place on September 30, 1999, or at such other time and at
such place as the Company and the Investor mutually agree upon (the consummation
of such purchase and sale at such time and place is designated the "Closing").
At the Closing, the Company shall deliver to the Investor certificates
representing the number of Series C Preferred Shares which the Investor is
purchasing against delivery to the Company by the Investor of cash or a
certified bank cashier's or other check reasonably acceptable to the Company, or
by wire transfer to the Company's account, in the amount of four million United
States Dollars ($4,000,000)
1.3 USE OF PROCEEDS.
The Company agrees to use the proceeds from the sale of the Preferred
Shares for working capital purposes, for the repayment of outstanding
obligations and for the reduction of trade debt.
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company hereby represents and warrants to the Investor that, except as
disclosed by the Company to the Investor in a letter of even date herewith:
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2.1 INCORPORATION.
The Company and its two subsidiaries, Collegelink.com Incorporated and
Citation Corporation (the "Subsidiaries") is each a corporation, duly organized,
validly existing and in good standing under the laws of the state or place of
its incorporation. The Company and the Subsidiaries each has the full power and
authority to own and operate its properties and to carry on its business as now
conducted and as proposed to be conducted. The Company does not have any direct
or indirect subsidiaries other than the Subsidiaries. [
2.2 CAPITALIZATION.
The authorized capital of the Company consists of one hundred million
(100,000,000) shares of Common Stock, $.001 par value per share ("Common
Stock"), of which at Closing not more than nine million eight hundred forty-six
thousand three hundred fourty (9,846,340) shares will be issued and outstanding,
and ten million (10,000,000) shares of preferred stock, of which (i) two million
five hundred thousand (2,500,000) shares have been designated Series A Preferred
Shares, of which eight hundred ninety thousand (890,000) are issued and
outstanding as of the date hereof; (ii) three hundred thousand (300,000) shares
have been designated as Series B Preferred Stock, of which two hundred seventy
nine thousand seven hundred seventy one (279,771) are issued and outstanding as
of the date hereof and (iii) one million (1,000,000) shares have been designated
as Series C Preferred Shares, of which none are issued and outstanding as of the
date hereof. Immediately prior to the Closing, one million two hundred fifty
thousand (1,250,000) shares of Common Stock will be reserved for issuance upon
the conversion of the Series C Preferred Shares. Schedule 2.2 sets forth a
complete list of all issuances of capital stock made by the Company other than
those resulting from the reverse merger of the Company effective as of March 5,
1999.
2.3 AUTHORIZATION.
All corporate action on the part of the Company, its officers, directors
and shareholders necessary for the authorization, execution, delivery and
performance of all obligations of the Company under this Agreement and for the
authorization, issuance and delivery of the Preferred Shares being sold
hereunder has been or shall be taken prior to the Closing, and this Agreement,
when executed and delivered, shall constitute a valid and legally binding
obligation of the Company enforceable against the Company in accordance with its
terms, except as such enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium, liquidation or similar laws relating to,
or affecting generally the enforcement of creditors' rights and remedies or by
other equitable principles of general application. Issuance of the Preferred
Shares is not, and issuance of the Common Stock issuable upon conversion of the
Preferred Shares will not, be subject to preemptive rights or other preferential
rights of any present or future stockholders in the Company.
2.4 VALIDITY OF SECURITIES.
The Preferred Shares to be purchased and sold pursuant to this Agreement,
when issued, sold and delivered in accordance with its terms for the
consideration expressed herein, shall be
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duly and validly issued fully paid and nonassessable. The Common Stock issuable
upon conversion of the Preferred Shares has been duly and validly reserved and
upon issuance will be duly and validly issued, fully paid and nonassessable.
2.5 GOVERNMENTAL CONSENTS.
All consents, approvals, orders, authorizations or registration,
qualification, designation and declaration or filing with any federal or state
governmental authority on the part of the Company required in connection with
the consummation of the transactions contemplated herein shall have been
obtained prior to, and be effective as of, the Closing or will be timely filed
thereafter.
2.6 COMPLIANCE WITH OTHER INSTRUMENTS.
Neither the Company nor either of its Subsidiaries is in violation of any
provisions of its respective Articles of Incorporation or Bylaws, any material
mortgage, indenture, lease, agreement or other instrument to which the Company
or either of its Subsidiaries is a party, or of any provision of any federal or
state judgment, writ, decree, order, statute, rule or governmental regulation
applicable to the Company or its Subsidiaries or by or which any property or
assets of the Company or its Subsidiaries is bound or affected. The execution,
delivery and performance of this Agreement will not result in any such violation
or be in conflict with or constitute a default under any such provision.
2.7 SEC DOCUMENTS.
The Common Stock of the Company is registered pursuant to Section 12(g) of
the Securities Exchange Act of 1934, as amended (the "Exchange Act') and the
Company is in full compliance with and has filed all reports, schedules, forms,
statements and other documents required to be filed by it with the Securities
and Exchange Commission ("SEC") pursuant to the reporting requirements of the
Exchange Act, including material filed pursuant to Section 13(a) or 15(d), (all
of the foregoing including all filings, exhibits, financial statements,
schedules and documents incorporated by reference therein being referred to
herein as the "SEC Documents"). As of their respective dates, the SEC Documents
complied in all material respects with the requirements of the Exchange Act and
the rules and regulations of the SEC promulgated thereunder and other federal,
state and local laws, rules and regulations applicable to such SEC Documents and
none of the SEC Documents contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading. The SEC Documents contain all material
information concerning the Company, and no event or circumstance has occurred
which would require the Company to disclose such event or circumstance in order
to make the statements in the SEC Documents not misleading on the date hereof or
on the Closing Date but which has not been so disclosed.
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<PAGE> 4
2.8 LITIGATION.
There are no actions, proceedings, investigations or claims pending against
the Company or either of its Subsidiaries, or to the knowledge of the Company
threatened, which question the validity of this Agreement or which might result,
either individually or in the aggregate, in any material adverse change in the
financial condition, assets, operations, business or prospects of the Company,
nor, to the knowledge of the Company, has there occurred any event or does there
exist any condition which might properly be the basis therefor.
2.9 PATENTS.
The Company and its Subsidiaries own or have a valid right to use the
patents, patent rights, licenses, trade secrets, trademarks, trademark rights,
trade names or trade name rights or franchises, copyrights, inventions, and
intellectual property rights being used to conduct the businesses of the Company
and its Subsidiaries as now operated and as now proposed to be operated; and the
conduct of such businesses as now operated and as now proposed to be operated
does not and will not conflict with valid patents, patent rights, licenses,
trade secrets, trademarks, trademark rights, trade names or trade name rights or
franchises, copyrights, inventions, and intellectual property rights of others.
Neither the Company nor either of its Subsidiaries (i) has any obligation to
compensate any person or entity for the use of any such patents or rights or
(ii) has granted to any person or entity any license or other rights to use in
any manner any of the patents or rights of the Company or its Subsidiaries,
whether requiring the payment of royalties or not.
2.10 FINANCIAL STATEMENTS.
The Company has previously furnished true and complete copies of the
following financial statements for the Company:
(a) Statements of financial condition as of June 30, 1999 and June
30, 1998, and the related statements of operations and statements of changes in
financial position for the years then ended, all certified by Radin Glass & Co.,
LLP., independent accountants, and (b) unaudited statements of financial
condition as of August 31, 1999, and unaudited statements of operations for the
two-month period then ended. All such financial statements have been prepared in
conformity with generally accepted accounting principles applied on a basis
consistent with prior periods (except for the omission of notes to the unaudited
financial statements), fairly present, in all material respects, the
consolidated financial condition of the Company as of dates thereof, and the
consolidated results of operations of the Company for the periods indicated,
and, in the case of unaudited statements, subject to normal and recurring
year-end adjustments. Specifically, without limitation, such financial
statements reflect, as of their respective dates, all material accrued
liabilities and adequate reserves for all material un-accrued liabilities and
for all reasonably anticipated material losses of the Company. The books of
account of the Company fully and fairly reflect all of the transactions of such
companies and are complete and accurate. The Company is not subject to any
undisclosed material liability not (i) reflected in its August 31, 1999
unaudited financial statements referred to above or in the
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notes to the August 31, 1999 financial statements or (ii) incurred in the
ordinary course of business since August 31, 1999. For purposes of this
Agreement, all financial statements of the Company shall be deemed to include
any notes to such financial statements.
2.11 ABSENCE OF CERTAIN CHANGES.
Since June 30, 1999, whether or not in the ordinary course of business,
there has not occurred or arisen (a) any material adverse change in the
financial condition, operations, business or prospects of the Company, or (b)
any event, condition or state of facts of any character which materially or
adversely affects, or may materially or adversely affect, the financial
condition, operations, business or prospects of the Company.
2.12 TAX RETURNS AND REPORTS.
All federal income tax and state franchise tax returns and tax reports
required to be filed by the Company and its Subsidiaries have been filed with
the appropriate governmental agencies in all jurisdictions in which such returns
or reports are required to be filed. All such returns and reports constitute
complete and accurate representations, in all material respects, of the tax
liabilities of the Company. All federal income tax and state franchise and other
taxes (including interest and penalties) due from the Company have been fully
paid or adequately provided for on the books and financial statements of the
Company. None of the federal income tax returns of the Company have been audited
by the Internal Revenue Service. The Company knows of no additional assessments
or adjustments pending or threatened for any period, nor of any basis for any
such assessment or adjustment. The Company, its Subsidiaries and its affiliates
have not entered into any agreements with federal and state taxing authorities
extending the statute of limitations with respect to the assessment of federal
and state taxes for any period.
2.13 PROPERTIES.
The Company or its Subsidiaries have good and marketable title to the real
and personal properties and assets and valid leasehold interests in the leased
properties as and to the extent carried on the Company's books, including those
reflected on the unaudited statements of financial condition as of August 31,
1999 referred to in paragraph 2.10 above, except properties and assets disposed
of in the ordinary course of business since August 31, 1999, and none of such
properties or assets is subject to any mortgage, pledge, charge, lien, security
interest, encumbrance or joint ownership interest, except liens for taxes,
assessments, or governmental charges or levies if the same shall not at the time
be delinquent or thereafter can be paid without penalty, or are being contested
in good faith and by appropriate proceedings.
The use of any property of the Company or its Subsidiaries for the purpose
for which it was acquired is not now, and, based upon the laws, regulations and
ordinances in effect on the date of Closing, in the future will not be,
curtailed to a material degree by any violations prior to the Closing by the
Company or its Subsidiaries of any law, regulation or ordinance (including,
without limitation, laws, regulations or ordinances relating to zoning,
environmental protection, city planning or similar matters). The Company and its
Subsidiaries each enjoy peaceful and
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undisturbed possession under all leases under which they are operating, and all
said leases are valid and subsisting and in full force and effect.
2.14 AGREEMENTS.
Neither the Company nor its Subsidiaries have breached or received oral
or written notice of any claim or threatened claim that the Company or its
Subsidiaries have breached any of the terms or conditions of any agreement,
contract, lease, commitment or understanding , whether oral or written, the
breach or breaches of which singly or in the aggregate could materially or
adversely affect the assets, financial condition, operations, business or
prospects of the Company. To the best knowledge of the Company no party is in
breach of its obligations under any agreement, contract, lease, commitment or
understanding with the Company or any of its Subsidiaries.
2.15 PENSION BENEFIT PLAN.
Except for a 401(k) plan established by the Company in July 1999 (the
"Plan"), the Company does not have or make contributions to any pension, defined
benefit or defined contribution plans which are subject to the Federal Employee
Retirement Income Security Act of 1974, as amended ("ERISA"). The Plan is
intended to be "qualified" within the meaning of section 401(a) of the Code is
so qualified and a current favorable determination to that effect has been
issued by the IRS. Neither Company nor any member of the its "controlled group"
as defined under section 414 of the Internal Revenue Code ("Code"), nor the
Plan, nor any trust created thereunder, nor any trustee or administrator thereof
has engaged in a transaction in connection with which the Company, the Plan, any
such trust, or any trustee or administrator thereof, could, directly or
indirectly, be subject to a civil penalty assessed pursuant to section 409 or
502(i) of ERISA, a tax imposed pursuant to section 4975 or 4976 of the Code, or
any other liability.
2.16 REGISTRATION RIGHTS.
Except as set forth in EXHIBIT 2.16 hereto, no person or entity has
demand or other rights to cause the Company to file any registration statement
under the Securities Act of 1933, as amended (the "Act"), relating to any
securities of the Company or any right to participate in any such registration
statement.
2.17 BROKERS.
The Company has taken no action which would give rise to any claim by
any person for brokerage commissions, finder's fees or similar payments by the
Investor relating to this Agreement or the transactions contemplated hereby.
2.18 PERMITS; COMPLIANCE.
Each of the Company and its Subsidiaries is in possession of all
franchises, grants, authorizations, licenses, permits, easements, variances,
exemptions, consents, certificates,
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approvals and orders necessary to own, lease and operate its properties and to
carry on its business as it is now being conducted (collectively, the "Company
Permits"), except for those Company Permits that if not possessed by the Company
or its Subsidiaries would not have a material adverse effect on the financial
condition, assets, operations, business or prospects of the Company. There is no
action or proceeding pending or, to the knowledge of the Company, threatened
regarding suspension or cancellation of any of the Company Permits, except with
respect to such Company Permits the failure of which to possess, or the
cancellation or suspension of which, would not, individually or in the
aggregate, have a material adverse effect on the financial condition, assets,
operations, business or prospects of the Company or its Subsidiaries. Neither
the Company nor its Subsidiaries is in conflict with, or in default or violation
of, any of the Company Permits, except where such conflict, default or violation
would not have a material adverse effect on the financial condition, assets,
operations, business or prospects of the Company. Since June 30, 1999, neither
the Company nor its Subsidiaries has received any notification with respect to
possible conflicts, defaults or violations of applicable laws.
2.19 INSURANCE.
The Company and its Subsidiaries are each insured by insurers of
recognized financial responsibility against such losses and risks and in such
amounts as management of the Company believes to be prudent and customary in the
businesses in which the Company and its Subsidiaries are engaged.
2.20 DISCLOSURE.
Neither this Agreement, the financial statements referred in paragraph
2.10, nor any other agreement, document, certificate or written statement
furnished to the Investor or its special counsel by or on behalf of the Company
in connection with the transactions contemplated hereby contains any untrue
statement of a material fact or omits to state a material fact necessary in
order to make the statements contained herein or therein not misleading. To the
best knowledge of the Company's executive officers, after reasonable inquiry,
there is no fact within the knowledge of any of the executive officers of the
Company which has not been disclosed herein or in writing by them to the
Investor and which materially adversely affects, or in the future in their
opinion may, insofar as they can now foresee, materially adversely affect the
business, properties, assets or condition, financial or other, of the Company.
Without limiting the foregoing, the Company has no knowledge or belief that
there exists, or there is pending or planned, any patent, invention, device,
application or principle or any statute, rule, law, regulation, standard or code
which would materially adversely affect the condition, financial or other, or
the operations of the Company.
2.21 YEAR 2000 COMPLIANCE
All of the computer systems of the Company and its Subsidiaries, and
all of the computer software developed in connection with the products and
services of the Company and its Subsidiaries offered to third parties, are Year
2000 Compliant. For the purposes of this subsection 2.21 "Year 2000 Compliant"
shall mean the ability of the software and other
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processing capabilities of the Company to correctly interpret and manipulate all
data, in whatever form, including printed form, screen displays, financing
records, calculations and loan-related data, so as to avoid errors in processing
that may otherwise occur because of the inability of the software or other
processing capabilities to recognize accurately the year 2000 or subsequent
dates.
3. REPRESENTATIONS AND WARRANTIES OF THE INVESTOR.
The Investor represents and warrants to the Company as follows:
3.1 AUTHORIZATION.
When executed and delivered by the Investor, this Agreement will constitute
the valid and legally binding obligation of the Investor enforceable against the
Investor in accordance with its terms, except as such enforceability may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium,
liquidation or similar laws relating to, or affecting generally the enforcement
of creditors' rights and remedies or by other equitable principles of general
application.
3.2 ACCREDITED INVESTOR.
The Investor is an "accredited investor" as that term is defined in Rule
501 promulgated under the Act.
4. SECURITIES ACT OF 1933.
4.1 INVESTMENT REPRESENTATION.
(a) This Agreement is made with the Investor in reliance upon its
representations to the Company, which by its acceptance hereof the Investor
hereby confirms, that the Preferred Shares to be received will be acquired for
investment for an indefinite period for its own account and not with a view to
the sale or distribution of any part thereof, and that it has no present
intention of selling or otherwise distributing the same, but subject,
nevertheless, to any requirement of law that the disposition of its property
shall at all times be within its control. By executing this Agreement, the
Investor further represents that it does not have any contract, undertaking,
agreement or arrangement with any person to sell or transfer to such person any
of the Preferred Shares or any Common Stock acquired on conversion of the
Preferred Shares (all of such securities are hereinafter collectively referred
to as the "SECURITIES").
(b) The Investor understands that the Securities are not registered
under the Act on the ground that the sale provided for in this Agreement and the
issuance of securities is exempt pursuant to Section 4(2) of the Act and Rule
506 of Regulation D thereunder, and that the Company's reliance on such
exemption is predicated on its representations set forth herein.
(c) The Investor agrees that in no event will it make a disposition
of any of the Securities, unless the Securities shall have been registered under
the Act, unless and until (i) it
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shall have notified the Company with a statement of the circumstances
surrounding the proposed disposition and (ii) it shall have furnished the
Company with an opinion of counsel reasonably satisfactory to the Company to the
effect that (A) such disposition will not require registration of such
securities under the Act, and (B) that appropriate action necessary for
compliance with the Act has been taken.
(d) The Investor represents that it is able to fend for itself in the
transactions contemplated by this Agreement, has such knowledge and experience
in financial and business matters as to be capable of evaluating the merits and
risks of its investment, has the ability to bear the economic risks of its
investment and has been furnished with and has had access to such information as
would be made available in the form of a registration statement together with
such additional information as is necessary to verify the accuracy of the
information supplied and to have all questions which have been asked by the
Investor answered by the Company.
(e) The Investor understands that if a registration statement
covering the Securities under the Act is not in effect when it desires to sell
any of the Securities, it may be required to hold such Securities for an
indeterminate period. The Investor also acknowledges that it understands that
any sale of the Securities which might be made by it in reliance upon Rule 144
under the Act may be made only in limited amounts in accordance with the terms
and conditions of that Rule.
4.2 LEGENDS.
All certificates for the Securities shall bear substantially the following
legend:
"THE SHARES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, AND HAVE BEEN ACQUIRED BY THE
ISSUEE FOR INVESTMENT PURPOSES. SAID SHARES MAY NOT BE SOLD OR TRANSFERRED
UNLESS (A) THEY HAVE BEEN REGISTERED UNDER SAID ACT, OR (B) THE TRANSFER
AGENT (OR THE COMPANY IF THEN ACTING AS ITS TRANSFER AGENT) IS PRESENTED
WITH EITHER A WRITTEN OPINION SATISFACTORY TO COUNSEL FOR THE COMPANY OR A
"NO-ACTION" OR INTERPRETIVE LETTER FROM THE STAFF OF THE SECURITIES AND
EXCHANGE COMMISSION TO THE EFFECT THAT SUCH REGISTRATION IS NOT REQUIRED
UNDER THE CIRCUMSTANCES OF SUCH SALE OR TRANSFER."
5. CONDITIONS TO INVESTOR'S OBLIGATIONS AT CLOSING.
The obligations of the Investor under paragraphs 1.1 and 1.2 of this
Agreement are subject to the fulfillment at or before the Closing of each of the
following conditions:
5.1 REPRESENTATIONS AND WARRANTIES.
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The representations and warranties contained in paragraph 2 hereof shall be
true on and as of the Closing.
5.2 PERFORMANCE.
The Company shall have performed and complied with all agreements and
conditions contained herein required to be performed or complied with by it on
or before the Closing.
5.3 RESERVATION OF SHARES.
The Company shall have reserved one million two hundred fifty thousand
(1,250,000) shares of its Common Stock for issuance upon the conversion of the
Series C Preferred Shares.
5.4 STATE SECURITIES LAWS.
The Company will have complied with all requirements under all applicable
state securities laws with respect to the offer and sale of the Preferred Shares
and the Common Stock to be issued upon the conversion thereto.
5.5 COMPLIANCE CERTIFICATE.
There shall have been delivered to the Investor a certificate signed by the
Company's president certifying that the conditions specified in paragraphs 5.1,
5.2, 5.3, 5.4, and 5.8 have been fulfilled.
5.6 OPINION OF COUNSEL.
There shall have been delivered to the Investor an opinion, attached as
Exhibit 2, of Mark T. Thatcher, counsel for the Company, to the effect that (i)
the Company is a corporation duly organized, validly existing and in good
standing under the laws of the State of New York, (ii) this Agreement has been
duly authorized, executed, and delivered by the Company and constitutes a valid
and enforceable obligation of the Company in accordance with its terms and,
after investigation deemed reasonable by such counsel under the circumstances,
such counsel has no knowledge of any breach by the Company of its
representations, warranties and covenants under this Agreement, (iii) the Series
C Preferred Shares have been duly authorized, issued and delivered and are
validly outstanding, (iv) upon issuance and sale of all of the Series C
Preferred Shares purchased hereby, the Company shall have outstanding an
aggregate of not more than nine million eight hundred forty-six thousand three
hundred forty (9,846,340) shares of Common Stock and two million five hundred
thousand (2,500,000) shares of Series A Preferred Shares, two hundred seventy
nine thousand seven hundred seventy one (279,771) shares of Series B Preferred
Stock and one million (1,000,000) shares of Series C Preferred Shares, (v)
immediately prior to the Closing, the Company shall have reserved not more than
one million (1,000,000) shares of Common Stock for issuance upon conversion of
the Series C Preferred Shares, (vi) no approval or authorization of any other
public body is necessary for the issuance and sale by the Company of the Series
C Preferred Shares, and (vii) based in part upon the representations of the
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<PAGE> 11
Investor, the offer, sale, and delivery of the Series C Preferred Shares under
the circumstances contemplated by this Agreement constitutes an exempt
transaction under the Act.
5.7 PROCEEDINGS AND DOCUMENTS.
All corporate and other proceedings in connection with the transactions
contemplated at the Closing hereby and all documents and instruments incident to
such transactions will be reasonably satisfactory in substance and form to the
Investor and its counsel, and the Investor and its counsel will have received
all such counterpart originals or certified or other copies of such documents as
they may reasonably request.
5.8 ADOPTED DESIGNATION OF RIGHTS AND PREFERENCES.
An adopted Designation of Rights and Preferences in substantially the form
attached hereto as Exhibit 1shall have been adopted by the Board of Directors of
the Company and been filed with the New York Secretary of State.
6. CONDITIONS OF THE COMPANY'S OBLIGATIONS AT CLOSING.
The obligations of the Company under paragraphs 1.1 and 1.2 of this
Agreement are subject to the fulfillment at or before the Closing of each of the
following conditions:
6.1 WARRANTIES TRUE ON THE CLOSING DATE.
The representations and warranties of the Investor contained in paragraphs
3 and 4 hereof shall be true on and as of the Closing with the same effect as
though said representations and warranties had been made on and as of the
Closing.
7. REGISTRATION RIGHTS.
7.1 SHARES INCLUDED IN REGISTRATION STATEMENT.
The Company covenants and agrees to file a "shelf" registration statement
with respect to all shares of Common Stock held by or issuable to the Investor.
Such registration statement shall be filed promptly after the Company becomes
eligible to file a registration statement on Form S-3 for a secondary offering.
7.2 OBLIGATIONS OF THE COMPANY.
In connection with the Registration Statement, the Company shall:
(a) Use its best efforts to cause such Registration Statement to
become and remain effective until all Registrable Shares have been sold or any
Registrable Shares that have not been sold are eligible for resale under Rule
144 during a single three-month period.
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<PAGE> 12
(b) Prepare and file with the SEC such amendments and supplements to
the Registration Statement and the prospectus used in connection therewith as
may be necessary to permit the disposition of all of the Registrable Shares.
(c) Furnish to the Investor such number of copies of a prospectus,
including a preliminary prospectus, in conformity with the requirements of the
Act, and such other documents as it may reasonably request in order to
facilitate the disposition of the Registrable Shares owned by it.
(d) Use its best efforts to register and qualify the Registrable
Shares under such other securities or Blue Sky laws of such jurisdictions as
shall be reasonably appropriate for the distribution of the securities covered
by the Registration Statement, provided that the Company shall not be required
in connection therewith or as a condition thereto to qualify to do business or
to file a general consent to service of process in any such states or
jurisdictions, and further provided that (anything herein to the contrary
notwithstanding with respect to the bearing of expenses) if any jurisdiction in
which the securities shall be qualified shall require that expenses incurred in
connection with the qualification therein of the securities be borne by selling
shareholders, then such expenses shall be payable by selling shareholders pro
rata, to the extent required by such jurisdiction.
(e) Use reasonable efforts to assist the Investor in the marketing of
Common Stock in connection with the registration contemplated herein.
(f) Promptly notify the Investor in writing (i) at any time of the
happening of any event as a result of which the prospectus included in the
registration statement provided for herein, as then in effect, includes an
untrue statement of a material fact or omits to state any material fact required
to be stated therein or necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading, and (ii) of any
request by the SEC or any other regulatory body or other body having
jurisdiction for any amendment or supplement to the registration statement or
other document relating to such registration, and in either such case, at the
request of the Investor prepare and furnish to such Investor a reasonable number
of copies of a supplement to or an amendment of such prospect as may be
necessary so that, as thereafter delivered to the purchasers of such Registrable
Shares, such prospectus shall not include an untrue statement of a material fact
or omit to state a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they were
made, not misleading.
7.3 FURNISH INFORMATION.
It shall be a condition precedent to the obligations of the Company to take
any action pursuant to this paragraph 7 that the Investor shall furnish to the
Company such information regarding it, the Registrable Shares held by it, and
the intended method of disposition thereof as the Company shall reasonably
request and as shall be required in connection with the action to be taken by
the Company.
7.4 EXPENSES.
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<PAGE> 13
All expenses incurred in connection with the Registration Statement,
including without limitation all registration and qualification fees, printing
and accounting fees, fees and disbursements of counsel for the Company, but
excluding underwriting discounts and commissions shall be borne by the Company.
The Investor shall bear the fees and costs of its own counsel (if different from
counsel for the Company).
7.5 INDEMNIFICATION.
In the event any of the Registrable Shares are included in the Registration
Statement under this paragraph 7:
(a) To the extent permitted by law, the Company will indemnify and
hold harmless the Investor and every controlling person thereof against any
losses, claims, damages or liabilities, joint or several, to which they may
become subject under the Act or otherwise, insofar as such losses, claims,
damages or liabilities or actions in respect thereof arise out of or are based
upon any untrue or alleged untrue statement of any material fact contained in
such registration statement, including any preliminary prospectus or final
prospectus contained therein or any amendments or supplements thereto, or arise
out of or are based upon the omission or alleged omission to state therein a
material fact required to be stated therein, or allegedly necessary to make the
statements therein not misleading; and will reimburse the Investor, such
underwriter or controlling person for any legal or other expenses reasonably
incurred by them in connection with investigating or defending any such loss,
claim, damage, liability or action; provided, however, that the indemnity
agreement contained in this subparagraph 7.5(a) shall not apply to amounts paid
in settlement of any such loss, claim, damage, liability, or action if such
settlement is effected without the consent of the Company nor shall the Company
be liable in any such case for any such loss, claim, damage, liability, or
action to the extent that it arises out of or is based upon an untrue statement
or alleged untrue statement or omission or alleged omission made in connection
with such registration statement, preliminary prospectus, final prospectus, or
amendments or supplements thereto, in reliance upon and in conformity with
written information furnished expressly for use in connection with such
registration by the Investor, any underwriter of Registrable Shares or
controlling person thereof.
(b) To the extent permitted by law, the Investor will indemnify and
hold harmless the Company and every controlling person thereof, each of their
directors, each of their officers who have signed such registration statement,
each person, if any, who controls the Company within the meaning of the Act, and
any underwriter of such Registrable Shares for the Company (within the meaning
of the Act) against any losses, claims, damages, or liabilities to which the
Company or any such director, officer, controlling person, or underwriter may
become subject, under the Act or otherwise, insofar as such losses, claims,
damages, or liabilities (or actions in respect thereto) arise out of or are
based upon any untrue or alleged untrue statement of any material fact contained
in such registration statement, including any preliminary prospectus or final
prospectus contained therein or any amendments or supplements thereto, or arise
out of or are based upon the omission or alleged omission to state therein a
material fact required to be stated therein or allegedly necessary to make the
statements therein not misleading, in each case to the extent, but only to the
extent, that such untrue statement or alleged untrue statement or
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<PAGE> 14
omission or alleged omission was made in such registration statement,
preliminary prospectus, or amendments or supplements thereto, in reliance upon
and in conformity with written information furnished by the Investor expressly
for use in connection with such registration; and the Investor will reimburse
any legal or other expenses reasonably incurred by the Company or any such
director, officer, controlling person or underwriter of such Registrable Shares
in connection with investigating or defending any such loss, claim, damage,
liability or action if it is judicially determined that there were material
misstatements or omissions in connection with the information presented by the
Investor for use in connection with such registration.
(c) Promptly after receipt by an indemnified party under this
subparagraph 7.5 of notice of the commencement of any action, such indemnified
party will, if a claim in respect thereof is to be made against any indemnifying
party under this subparagraph 7.5, notify the indemnifying party in writing of
the commencement thereof and the indemnifying party shall have the right to
participate in and to assume the defense thereof with counsel mutually
satisfactory to the parties. The failure to notify an indemnifying party
promptly of the commencement of any such action, if prejudicial to the ability
to defend such action, shall relieve such indemnifying party under this
subparagraph 7.5 with respect to such claim, but the omission so to notify the
indemnifying party will not relieve such party of any liability which such party
may have to any indemnified party otherwise other than under this subparagraph
7.5 or with respect to any other claim under this subparagraph 7.5 as to which
proper notice is given.
(d) If recovery is not available under the foregoing indemnification
provisions of this paragraph, for any reason other than as specified therein,
the parties entitled to indemnification by the terms thereof shall be entitled
to contribution to liabilities and expenses, except to the extent that
contribution is not permitted under Section 11(f) of the Act. In determining the
amount of contribution to which the respective parties are entitled, there shall
be considered the relative benefits received by each party from the offering of
the securities (taking into account the portion of the proceeds of the offering
realized by each), the parties' relative knowledge and access to information
concerning the matter with respect to which the claim was asserted, the
opportunity to correct and prevent any statement of omission, and any other
equitable considerations appropriate under the circumstances; provided that in
no event will any Investor be required to contribute an amount in excess of the
original cost to that Investor of its Shares included in that offering. The
Company and the Investor agree that it would not be equitable if the amount of
such contribution were determined by pro rata or per capita allocation.
7.6 REPORTS UNDER THE EXCHANGE ACT.
With a view to making available to the Investor the benefits of Rule 144
promulgated under the Act, the Company agrees to use its best efforts (i) to
file with the SEC in a timely manner all reports and other documents required to
be filed by an issuer of securities registered under the Act or the Exchange
Act, (ii) to maintain in effect the registration of its Common Stock under
Section 12 of the Exchange Act and (iii) so long as any Investor owns any of the
Shares, to furnish in writing upon such Investor's request the following
information: (A) the Company's name, address and telephone number, (B) the
Company's Internal Revenue Service identification number, (C) the Company's SEC
file number, (D) the number of shares of Common Stock outstanding as shown by
the most recent report or statement published by the Company, (E) the
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<PAGE> 15
average weekly volume of trading in such shares reported on all national
securities exchanges during the four calendar weeks preceding the date of
receipt of request by the Investor, (F) whether the Company has filed all
reports required to be filed by Section 13 or 15(d) of the Exchange Act and (G)
any and all communications by the Company with its shareholders. With respect to
a rule or regulation of the SEC (other than Rule 144) which may at any time
permit an Investor to sell Common Stock to the public without registration, the
Company agrees to take such action as is reasonable to enable utilization of
such rule.
7.7 DEFINITIONS.
(a) A person shall be deemed an "Investor" if such person then holds
any Preferred Shares or Common Stock received upon conversion of the Preferred
Shares.
(b) "Registrable Shares" shall mean and include any shares of Common
Stock issuable or issued upon conversion of the Preferred Shares issued pursuant
to this Agreement.
8. COVENANTS.
8.1 FINANCIAL STATEMENTS.
The Company promptly shall deliver to each holder of Preferred Shares
audited annual and unaudited quarterly financial statements.
8.2 RESERVATION OF SHARES.
The Company shall reserve sufficient additional shares of Common Stock for
issuance upon conversion of all Preferred Shares then outstanding.
8.3 ADOPTION OF CERTIFICATE OF DETERMINATION OF PREFERENCES.
The Company shall adopt and file a Designation of Rights and Preferences
attached hereto as Exhibit 1 with respect to the Series C Preferred Shares, and
the Investor hereby authorizes, approves and consents to all actions taken or to
be taken by the Company in connection with the adoption and filing of such
Designation of Rights and Preferences.
8.4 ISSUANCE OR SALE OF STOCK IN MATERIAL SUBSIDIARIES.
The Company shall not without the Investor's consent cause to be issued or
sold more than 10% of the stock of any material subsidiary.
8.8 BOARD REPRESENTATION
Until the date which is three years from the date of this Agreement and so
provided that (i) PNC Bank Corp. or any direct and indirect subsidiary thereof
(collectively, "PNC") owns an
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<PAGE> 16
aggregate of at least 500,000 shares of Common Stock and Series C Preferred
Shares (which number shall be subject to adjustment to reflect any subdivisions,
splits or reverse stock splits of the Common Stock and Series C Preferred
Shares); and (ii) the holders of Series C Preferred Shares do not, pursuant to
Section 5(B) of the Designation of Rights and Preferences attached hereto as
Exhibit 1, have a representative on the Board of Directors or observer at the
Board of Directors, PNC shall, at each meeting of the shareholders of the
Company at which members of the Board of Directors are to be elected, have the
right, but not the obligation, to nominate as part of the Board of Directors'
slate of nominees one individual to serve as a director of the Company. If PNC
does not exercise such right or if such individual is not elected to serve on
the Board of Directors following such nomination PNC shall have the right but
not the obligation to one observer at each meeting of the Board of Directors
9. MISCELLANEOUS
9.1 AGREEMENT IS ENTIRE CONTRACT.
Except as specifically referenced herein, this Agreement constitutes the
entire contract between the parties hereto concerning the subject matter hereof
and no party shall be liable or bound to the other in any manner by any
warranties, representations or covenants except as specifically set forth
herein. Any previous agreement among the parties related to the transactions
described herein is superseded hereby. The terms and conditions of this
Agreement shall inure to the benefit of and be binding upon the respective
successors and assigns of the parties hereto. Nothing in this Agreement, express
or implied, is intended to confer upon any party, other than the parties hereto,
and their respective successors and assigns, any rights, remedies, obligations,
or liabilities under or by reason of this Agreement, except as expressly
provided herein.
9.2 GOVERNING LAW.
This Agreement shall be governed by and construed under the laws of the
State of New York.
9.3 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.
9.4 TITLE AND SUBTITLES.
The titles of the paragraphs and subparagraphs of this Agreement are for
convenience and are not to be considered in construing this Agreement.
9.5 NOTICES.
Any notice required or permitted hereunder shall be given in writing and
shall be deemed effectively given upon personal delivery, registered or
certified mail, telefax or nationally recognized express courier and addressed
to a party at its address hereinafter shown below or at
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such other address as such party may designate by 10 days advance written notice
to the other party.
To the Company:
CYTATION.COM INCORPORATED
809 Aquidneck Avenue
Middletown, RI 02842
Telefax: 401 845-8816
Attention: Richard Fisher
To the Investor:
PNC INVESTMENT CORP.
249 5th Avenue, 20th Floor
Pittsburg, PA 15222
Telefax: 412 762-6612
Attention: Martin Hurbi
Copy to:
General Counsel for Consumer Banking
PNC INVESTMENT CORP
249 5TH Avenue, 21st Floor
Fax: 412 762-4334
9.6 SURVIVAL OF WARRANTIES.
The warranties and representations of the Company contained in or made
pursuant to this Agreement shall survive the execution and delivery of this
Agreement and the Closing hereunder.
9.7 AMENDMENT OF AGREEMENT.
Except as expressly provided herein, any provision of this Agreement may be
amended or waived on behalf of all Investors by a written instrument signed by
the Company and by Investors holding at least a majority of the aggregate of the
shares of Common Stock issuable and issued upon conversion of the Series C
Preferred Shares.
[SIGNATURES BEGIN ON FOLLOWING PAGE]
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<PAGE> 18
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the
day and year first written above.
CYTATION.COM INCORPORATED
/s/ Kevin J. High
By: _________________________
Authorized Signature
Kevin J. High
President
PNC INVESTMENT CORP.
/s/ Robert L. Haunschild
By:__________________________
Authorized Signature
Robert L. Haunschild
Chairman
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Schedule 2.2
- - - --------------------------------------------------------------------------------
Cytation.com Incorporated Common Stock Issue History
(Does not include shares reserved, but not yet issued)
- - - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Amount Total
Date Issued to Issued Outstanding
- - - ---------------------------------------------------------------------------------------
<S> <C> <C> <C>
3/5/1999 Shares outstanding at effective date
of merger 8,284,836
5/7/1999 IB Channel 40,000 8,324,836
5/7/1999 Genesis Communications
(Lafferman) 15,000 8,339,836
5/7/1999 EER Systems 175,000 8,514,836
5/7/1999 Brennan/Dyer/Davis 432,375 8,947,211
5/7/1999 Outreach Technologies 20,000 8,967,211
5/7/1999 Bridge Lenders 185,000 9,152,211
8/10/1999 Former ECI Shareholders 550,809 9,703,020
8/10/1999 USA Group Noel-Levitz 108,196 9,611,216
8/10/1999 Wolf Rock Corporation 9,836 9,821,052
8/20/1999 Piedmont Consulting 5,000 9,526,052
8/20/1999 Veritas Group 20,000 9,846,052
8/20/1999 Employer 401K Match 288 9,846,340
- - - ---------------------------------------------------------------------------------------
</TABLE>
- - - --------------------------------------------------------------------------------
Cytation.com Incorporated Series A Preferred Stock Issue History
- - - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Amount Total
Date Issued to Issued Outstanding
- - - ---------------------------------------------------------------------------------------
<S> <C> <C> <C>
3/5/1999 Shares outstanding at effective date
of merger --
4/2/1999 Provident Life and Accident
Insurance Company 750,000 750,000
5/11/1999 1st Trust & Co., for Andrew F.
Nicoletta IRA 25,000 775,000
9/1/1999 Augsback & Co. Investment Group 90,000 865,000
9/7/1999 Augsback & Co. Investment Group 25,000 890,000
- - - ---------------------------------------------------------------------------------------
</TABLE>
- - - --------------------------------------------------------------------------------
Cytation.com Incorporated Series B Preferred Stock History
- - - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Amount Total
Date Issued to Issued Outstanding
- - - ---------------------------------------------------------------------------------------
<S> <C> <C> <C>
3/5/1999 Shares outstanding at effective date
of merger --
8/10/1999 Former ECI Shareholders 234,771 234,771
8/10/1999 USA Group Noel-Levitz 45,000 279,771
- - - ---------------------------------------------------------------------------------------
</TABLE>
<PAGE> 20
EXHIBIT 1
DESIGNATION OF RIGHTS AND PREFERENCES OF SERIES C
NON-VOTING CONVERTIBLE PREFERRED STOCK
OF
CYTATION.COM INCORPORATED
1. Designation, Initial Number and Date of Issue.
The class of shares of preferred stock hereby classified shall be
designated the "Series C Preferred Stock" (the "Series C Preferred Stock"). The
initial number of authorized shares of the Series C Preferred Stock shall be
One Million (1,000,000). The Stated Value of the Series C Preferred Stock shall
be $4.00 per share, and the Par Value of the Series C Preferred Stock shall be
$.01 per share. The date that a share of Series C Preferred Stock is issued is
referred to herein as its "Date of Issue."
2. Distributions.
The holders of the Series C Preferred Stock shall be entitled to receive,
when and as declared by the Board of Directors of the Company, out of funds at
the time legally available for payment of dividends in the State of New York, a
cumulative dividend at an annual rate, based on a year of 360 days consisting
of 12 thirty-day months, equal to 6% applied to the amount of the Stated Value
per share of Series C Preferred Stock. Such dividends shall be payable in
respect of each share of Series C Preferred Stock quarterly, in arrears, on the
last day of March, June, September and December in each year (each a "Dividend
Payment Date"), commencing on the first such date to occur which is at least
thirty days after its Date of Issue. The dividend payable on the first Dividend
Payment Date shall be calculated and based on the period from the Date of Issue
through such Dividend Payment Date. Each period commencing on the later of the
Date of Issue of a share of the Series C Preferred Stock or the first day after
the last preceding Dividend Payment Date and ending on the next Dividend
Payment Date or, in the case of a final dividend, the effective date of a
liquidating distribution or conversion of such shares of Series C Preferred
Stock into Common Stock is referred to herein as a "Dividend Period." If the
date fixed for payment of a final liquidating distribution on any shares of
Series C Preferred Stock or the date on which any shares of Series C Preferred
Stock are converted into Common Stock does not coincide with a Dividend Payment
Date, then subject to the provisions hereof relating to such liquidating
distribution or conversion, the final Dividend Period applicable to such shares
shall be the period from the last Dividend Payment Date prior to the date such
liquidating distribution or conversion occurs through the effective date of such
liquidating distribution or conversion.
3. Conversion.
Subject to the limitation set forth in paragraph 3(K) below, the Series C
Preferred Stock shall be convertible into such number of fully paid, validly
issued and nonassessable shares of Common Stock, free and clear of any liens,
claims or encumbrances as hereinafter provided and, when so converted, shall be
canceled and retired and shall not be reissued as such:
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(A) Any holder of the Series C Preferred Stock may at any time or from
time to time convert such stock into the Common Stock of the Company. In order
to convert the Series C Preferred Stock into Common Stock, the holder thereof
on any business day must present and surrender to the Company at its offices
located at 809 Aquidneck Avenue, Middletown, RI 02842 the certificate or
certificates of the Series C Preferred Stock to be converted into Common Stock,
duly endorsed to the Company or in blank, together with a notice of conversion,
which shall state therein the number of shares to be converted and the name or
names in which such holder wishes the certificate or certificates for Common
Stock to be issued ("Conversion Notice").
(B) Each holder of Series C Preferred Stock shall have the right to
convert such Series C Preferred Stock on and subject to the following terms and
conditions:
(i) The Series C Preferred Stock shall be converted into Common Stock
at the conversion ratio, determined as hereinafter provided, in effect at the
time of conversion. Unless such conversion ratio shall be adjusted as
hereinafter provided, the conversion ratio shall be one (1) share of Common
Stock for each share of Series C Preferred Stock ("Conversion Ratio").
(ii) The conversion of the Series C Preferred Stock shall be deemed
to have occurred on the date the holder thereof provides and surrenders, as the
case may be, to the Company, pursuant to paragraph 3(A) hereof, a Conversion
Notice and the certificate or certificates representing the Series C Preferred
Stock to be converted into Common Stock, duly endorsed to the Company or in
blank. The person or persons entitled to receive the Common Stock issuable upon
such conversion shall be treated for all purposes as the record holder or
holders of such Common Stock at such time. As promptly as practicable on or
after the date of any conversion, but in no event later than 10 business days
following the receipt by the Company of the Conversion Notice, the Company
shall issue and deliver by hand against a signed receipt therefor or by United
States registered mail, return receipt requested, or by overnight delivery
service, to the address designated by the holder in the Conversion Notice, a
stock certificate or stock certificates of the Company representing the number
of shares of Common Stock to which such holder is entitled, together with check
or cash in lieu of any fraction of a share and in payment of all accrued and
unpaid dividends, to the person or persons entitled to receive same. In case of
the conversion of only a part of the shares of any holder of Series C Preferred
Stock, the Company shall also issue and deliver to such holder a new
certificate of Series C Preferred Stock representing the number of shares of
such Series C Preferred Stock not converted by such holder.
(C)(i) Subject to the limitation set forth in paragraph 3(K) below,
the Company may require mandatory conversion of all, but not less than all, of
the Series C Preferred Stock on or after the first anniversary of the initial
purchase and sale of the Series C Preferred Stock (the "Mandatory Conversion
Date"), provided that (x) after the first anniversary of the initial purchase
and sale of the Series C Preferred Stock the average closing bid price of the
Company's Common Stock on the Over-the-Counter Bulletin Board or the Nasdaq
Stock Exchange, as applicable, for the 20 consecutive trading days immediately
preceding the
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Mandatory Conversion Date has exceeded $6.00 per share; and (y) the Company
elected to mandatory convert all other series of Preferred Stock.
(ii) Conversion of the Series C Preferred Stock in to Common Stock
pursuant to this paragraph 3(C) shall be deemed to have occurred on the
Mandatory Conversion Date whether or not the holder of such stock delivers to
the Company its certificate or certificates for the Series C Preferred Stock.
Anything in this Section 3(C) to the contrary notwithstanding, the Company may
not require the conversion of any shares of Series C Preferred Stock unless,
concurrently with such mandatory conversion, the Company shall also require the
mandatory conversion of the same Pro Rata Proportion (as hereinafter defined) of
shares of the Series A Preferred Stock of the Company. For the purposes of the
preceding sentence "Pro Rata Proportion" shall mean a fraction the numerator of
which shall be the number of shares of Series C Preferred Stock or Series A
Preferred Stock, as the case may be, subject to mandatory conversion and
denominator of which shall be all outstanding shares of Series C Preferred Stock
or Series A Preferred Stock, as the case may be.
(D) The Conversion Ratio shall be subject to adjustment as follows:
(i) If the Company subdivides (e.g., stock dividend) or splits up the
issued and outstanding shares of Common Stock into a greater number of shares of
the Common Stock, the Conversion Ratio in effect at the opening of business on
the business day immediately preceding the date fixed for the determination of
the stockholders whose shares of Common Stock shall be subdivided or split up
(the "Split Record Date") shall be proportionately increased, and in case issued
and outstanding shares of Common Stock shall be combined into a smaller number
of shares of Common Stock, the Conversion Ratio in effect at the opening of
business on the business day immediately preceding the date fixed for the
determination of the stockholders whose shares of Common Stock shall be combined
(the "Combination Record Date") shall be proportionately decreased, such
increase or decrease, as the case may be, becoming effective immediately after
the opening of business on the business day immediately after the Split Record
Date or the Combination Record Date, as the case may be.
(ii) In case of any capital reorganization, any reclassification of
the stock of the Company (other than as a result of a stock dividend or
subdivision, split up or combination of shares), or the merger of the Company
with or into another person or entity (other than a merger in which the Company
is the continuing corporation and which does not result in any change in the
Common Stock) or of the sale, exchange, lease, transfer or other disposition of
all or substantially all of the properties and assets of the Company as an
entirety or the participation by the Company in a share exchange as the
corporation the stock of which is to be acquired, the Series C Preferred Stock
shall (effective on the opening of business on the date after the effective date
of such reorganization, reclassification, merger, sale or exchange, lease,
transfer or other disposition or share exchange) be convertible into the kind
and number of shares of stock or other securities or property of the Company or
of the surviving corporation resulting from such merger or to which such
properties and assets shall have been sold, exchanged, leased, transferred or
otherwise disposed or which was the corporation whose securities were exchanged
for those of the Company to which the holder of the number of shares of Common
Stock
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<PAGE> 23
deliverable (at the close of business on the date immediately preceding the
effective date of such reorganization, reclassification, merger, sale,
exchange, lease, transfer or other disposition or share exchange) upon
conversion of Series C Preferred Stock would have been entitled upon such
reorganization, reclassification, merger, sale, exchange, lease, transfer or
other disposition or share exchange. The provisions of this subparagraph
3(B)(ii) shall similarly apply to successive reorganizations, reclassifications,
mergers, sales, exchanges, leases, transfers or other dispositions or other
share exchanges.
(iii) If the Company shall issue to the holders of its Common Stock rights or
warrants to subscribe for or purchase shares of its Common Stock at a price less
than 90% of the Current Market Price (as defined below in its paragraph) of the
Company's Common Stock at the record date fixed for the determination of the
holders of Common Stock entitled to such rights or warrants, the conversion rate
in effect immediately prior to said record date shall be increased, effective at
the opening of business on the next following full business day, to an amount
determined by multiplying such conversion rate by a fraction the numerator of
which is the number of shares of Common Stock of the Company outstanding
immediately prior to said record date plus the number of additional shares of
its Common Stock offered for subscription or purchase and the denominator of
which is said number of shares outstanding immediately prior to said record date
plus the number of shares of Common Stock of the Company which the aggregate
subscription or purchase price of the total number of shares so offered would
purchase at the Current Market Price of the Company's Common Stock at said
record date. The term "Current Market Price" at said record date shall mean the
average of the daily last reported sale price per share of the Company's Common
Stock on the principal stock exchange on which the Common Stock is then listed
during the 20 consecutive full business days commencing with the 30th full
business day before said record date, provided that if there was no reported
sale on any such day or days there shall be substituted the average of the
closing bid and asked quotations on that exchange on that day, and provided
further that if the Common Stock was not listed on any stock exchange on any
such day or days there shall be substituted the average of the lowest bid and
the highest asked quotations in the over-the-counter market on that day.
(iv) Whenever the Conversion Ratio shall be adjusted as provided
herein, the Company shall prepare and send to the holders of the Series C
Preferred Stock a statement, signed by the chief financial officer of the
Company, showing in detail the facts requiring such adjustment and the
Conversion Ratio that shall be in effect after such adjustment.
(v) In the event the Company shall propose to take any action of the
types described in paragraph 3(D) hereof, the Company shall give notice to the
holder of Series C Preferred Stock, which notice shall specify the record date,
if any, with respect to any such action and the date on which such action is to
take place. Such notice shall be given on or prior to the earlier of 30 days
prior to the record date or the date which such action shall be taken. Such
notice shall also set forth such facts with respect thereto as shall be
reasonably necessary to indicate the effect of such action (to the extent such
effect may be known at the date of such notice) on the Conversion Ratio and the
number, kind or class of shares or other securities or property which shall be
deliverable or purchasable upon the occurrence of such action or
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<PAGE> 24
deliverable upon conversion of the Series C Preferred Stock. Failure to give
notice in accordance with this paragraph 3(D)(v) shall not render such action
ultra vires, illegal or invalid.
(E) No adjustment of the Conversion Ratio shall be made in any of the
following cases:
(i) the grant or exercise of stock options hereafter granted, or
under any employee stock option plan now or hereafter authorized, to the extent
that the aggregate of the number of shares which may be purchased under such
options and the number of shares issued under such employee stock option plan
is less than or equal to ten percent (10%) of the number of shares of Common
Stock outstanding on January 1 of the year of the grant or exercise;
(ii) the issuance of shares of Common Stock in connection with the
acquisition by the Company or by any subsidiary of the Company of 80% or more
of the assets of another corporation, and shares issued in connection with the
acquisition by the Company or by any subsidiary of the Company of 80% or more
of the voting shares of another corporation (including shares issued in
connection with such acquisition of voting shares of such other corporation
subsequent to the acquisition of an aggregate of 80% of such voting shares),
shares issued in a merger of the Company or a subsidiary of the Company with
another corporation in which the Company or the Company's subsidiary is the
surviving corporation, and shares issued upon the conversion of other
securities issued in connection with any such acquisition or in any such merger;
(iii) the issuance of shares of Common Stock pursuant to all stock
options, warrants and convertible securities outstanding on the date of the
filing of this Certificate of Amendment to the Certificate of Incorporation of
the Company ("Certificate");
(iv) sales of Common Stock of the Company for cash in an
underwritten public offering.
(F) Whenever the Conversion Ratio is adjusted as herein provided, the
Company shall prepare a certificate signed by the Treasurer of the Company
setting forth the adjusted conversion ratio and showing in reasonable detail
the facts upon which such adjustment is based. As promptly as practicable, the
Company shall cause a copy of such certificate to be mailed to each holder of
record of issued and outstanding Series C Preferred Stock at the address of
such holder appearing on the Company's books.
(G) The Company shall pay all taxes that may be payable in respect of the
issue or delivery of Common Stock on conversion of Series C Preferred Stock
pursuant hereto, but shall not pay any tax which may be payable with respect to
income or gains of the holder of any Series C Preferred Stock or Common Stock
or any tax which may be payable in respect of any transfer involved in the
issue and delivery of the Common Stock in a name other than that in which the
Series C Preferred Stock so converted was registered, and no such issue or
delivery shall be made unless and until the person requesting such issue has
paid to the Company the
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<PAGE> 25
amount of any such tax, or has established, to the satisfaction of the Company,
that such tax has been paid.
(H) (i) Upon conversion of any shares of Series C Preferred Stock
pursuant to paragraphs 3(A) and (B) hereof, the holders of such shares of
Series C Preferred Stock so converted shall not be entitled to receive any
dividends declared with respect to such shares of Series C Preferred Stock
unless such dividends shall have been declared by the Board of Directors and
the record date for such dividends shall have been on or before the date such
shares shall have been converted. No payment or adjustment shall be made on
account of dividends declared and payable to holders of Common Stock of record
on a date prior to the date of the conversion of shares of Series C Preferred
Stock pursuant to paragraphs 3(A) and 3(B) hereof.
(ii) Upon the mandatory conversion of any shares of Series C
Preferred Stock pursuant to paragraph 3(C) hereof, the holders of such shares
of Series C Preferred Stock so converted shall be entitled to receive a dollar
amount equal to all accrued dividends and unpaid distributions prior to the
Mandatory Conversion Date, whether or not declared thereon.
(I) No fractional shares or scrip representing fractional shares shall be
issued upon the conversion of any shares of Series C Preferred Stock. If more
than one share of Series C Preferred Stock shall be surrendered for conversion
at one time by the same holder, the number of full shares issuable upon
conversion thereof shall be computed on the basis of the aggregate number of
such shares so surrendered. If the conversion of any share of Series C
Preferred Stock results in a fraction, an amount equal to such fraction
multiplied by the current market value of the Common Stock on the day of
conversion shall be paid to such holder in cash by the Company. For purposes of
this paragraph 3(I), "current market value of Common Stock" shall mean the
value of the Common Stock as reflected in the last trade of the Common Stock on
the date of conversion.
(J) The Company shall at all times reserve and keep available, free from
preemptive rights, out of its authorized Common Stock, for the purpose of
effecting the conversion of the issued and outstanding Series C Preferred
Stock, the full number of shares of Common Stock then deliverable in the event
and upon the conversion of all of the Series C Preferred Stock then issued and
outstanding.
(K) In no event shall PNC Bank Corp. or any indirect or direct subsidiary
thereof (collectively, "PNC") be entitled to convert any shares of Series C
Preferred Stock nor shall the Company be entitled to require conversion of any
shares of Series C Preferred Stock in excess of that number of shares of
Series C Preferred Stock upon the conversion of which the sum of (1) the number
of shares of Common Stock beneficially owned (as such term is defined for the
purposes of Rule 13(d) promulgated under the Securities Exchange Act of 1934,
as amended) by PNC and (2) the number of shares of Common Stock issuable upon
the conversion of the number of shares of Series C Preferred Stock with respect
to which the determination in this provision is made, would result in the
beneficial ownership by PNC of five percent (5%) or more of the issued and
outstanding shares of Common Stock and any series of voting preferred stock of
the Company unless PNC has provided to the Company a written opinion of counsel
that
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<PAGE> 26
a greater percentage of beneficial ownership of such capital stock is
permissible pursuant to then applicable laws or regulations.
(L) In no event shall PNC be entitled to sell or otherwise transfer shares
of Series C Preferred Stock and Common Stock to a person unaffiliated with PNC
or Company if immediately after the transfer (1) the number of shares of Common
Stock and any series of voting preferred stock of the Company and (2) the number
of shares of Common Stock issuable upon the conversion of the shares of Series C
Preferred Stock would result in the beneficial ownership by the acquiring person
of five percent (5%) or more of the issued and outstanding shares of Common
Stock and any series of voting preferred stock of the Company unless (1)
pursuant to a widely dispersed public offering, (2) immediately prior to the
transfer the acquiring person would hold, upon exercise of the conversion rights
of any Series C Preferred Stock it held immediately prior to the transfer, more
than 50 percent of the issued and outstanding Common Stock and any series of
voting preferred stock of the Company or (3) the Company has stated in writing
that it has no objection to such transfer.
4. Liquidation or Dissolution.
In the event of any voluntary or involuntary liquidation, dissolution, or
winding up of the affairs of the Company, the holders of the issued and
outstanding Series C Preferred Stock shall be entitled to receive for each
share of Series C Preferred Stock, before any distribution of the assets of the
Company shall be made to the holders of any other class of capital stock,
except for holders of the Series A Convertible Preferred Stock which shall have
the rights and preferences set forth in the Designation of Rights and
Preferences of the Series A Preferred Shares as previously adopted by the
Company's Board of Directors and on file with the New York Secretary of State on
the date hereof, a dollar amount equal to the Stated Value thereof plus all
accrued and unpaid distributions whether or not earned or declared thereon,
without interest. After payments in full have been made to all holders of any
series of the issued and outstanding preferred stock of the Company, or funds
necessary for such payment shall have been set aside in trust for the account of
the holders of any series of the issued and outstanding preferred stock of the
Company, so as to be and continue to be available therefor, then, before any
further distribution of the assets of the Company shall be made, a dollar amount
equal to that already distributed to the holders of any series of the issued and
outstanding preferred stock of the Company shall be distributed pro-rata to the
holders of the other issued and outstanding classes of capital stock of the
Company, subject to the rights of any other class of capital stock set forth in
the Certificate of Incorporation, as amended, of the Company. After such payment
shall have been made in full to the holders of such other issued and outstanding
capital stock, or funds necessary for such payment shall have been set aside in
trust for the account of the holders of such other issued and outstanding
capital stock so as to be and continue to be available therefor, the holders of
the issued and outstanding Series C Preferred Stock shall be entitled to
participate with the holders of all other classes of issued and outstanding
capital stock in the final distribution of the remaining assets of the Company,
and, subject to any rights of any other class of capital stock set forth in the
Certificate of Incorporation, as amended, of the Company, the remaining assets
of the Company shall be divided and distributed ratably among the holders of
both the Series C Preferred Stock and the other capital stock then issued and
outstanding
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<PAGE> 27
according to the proportion by which their respective record ownership of
shares of Common Stock Equivalents (as defined below in this paragraph) bears
to the total number of shares of Common Stock Equivalents then issued and
outstanding. "Common Stock Equivalents" shall mean all shares of Common Stock
that are outstanding plus all shares of Common Stock issuable upon conversion
of Series A Convertible Preferred Stock, Series B Convertible Preferred Stock
or the Series C Preferred Stock or any other series of convertible preferred
stock of the Company. If, upon such liquidation, dissolution, or winding up,
the assets of the Company distributable, as aforesaid, among the holders of any
series of preferred stock of the Company shall be insufficient to permit the
payment of them of said amount, the entire assets shall be distributed ratably
among the holders of any series of issued and outstanding preferred stock of
the Company. A consolidation or merger of the Company, a share exchange, a
sale, lease, exchange or transfer of all or substantially all of its assets as
an entirety, or any purchase or redemption of stock of the Company of any
class, shall not be regarded as a "liquidation, dissolution, or winding up of
the affairs of the Company" within the meaning of this paragraph 4.
5. Voting Rights and Board Representation.
(A) Except as otherwise required by applicable law, the Series C
Preferred Stock shall not be entitled to vote on any matter.
(B) So long as there are at least 500,000 shares of Series C Preferred
Stock outstanding (which number shall be subject to proportional adjustment to
reflect any subdivisions, splits or reverse stock splits of the Series C
Preferred Stock) the holders of the Series C Preferred Stock voting separately
as a class shall be entitled, as such holders voting separately as a class may
determine, to elect one director to the Board of Directors or to appoint one
observer to the Board of Directors.
6. Changes in Terms of Series C Preferred Stock.
The terms of the Series C Preferred Stock may not be amended, altered or
repealed, and no class of capital stock or securities convertible into capital
stock shall be authorized, including by way of a merger, which has superior
rights to the Series C Preferred Stock as to distributions or liquidation,
without the consent of the holders of at least two-thirds of the outstanding
shares of Series C Preferred Stock. This Section 6 shall in no way limit the
Company's abilities to issue securities which are pari passu with the Series C
Preferred Stock.
7. No Implied Limitations.
Except as otherwise provided by express provisions of this Certificate,
nothing herein shall limit, by inference or otherwise, the discretionary right
of the Board of Directors to classify and reclassify and issue any shares of
Series C Preferred Stock and to fix or alter all terms thereof to the full
extent provided in the Certificate of Incorporation, as amended, of the Company.
8. General Provisions.
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<PAGE> 28
In addition to the above provisions with respect to the Series C Preferred
Stock, such Series C Preferred Stock shall be subject to, and entitled to the
benefits of, the provisions set forth in the Company's Certificate of
Incorporation, as amended, of the Company with respect to preferred stock
generally but not with respect to any series of preferred stock in particular.
9. Notices.
All notices required or permitted to be given by the Company with respect
to the Series C Preferred Stock shall be in writing, and if delivered by first
class United States mail, postage prepaid, or by overnight delivery service, to
the holders of the Series C Preferred Stock at their last addresses as they
shall appear upon the books of the Company, shall be conclusively presumed to
have been duly given, whether or not the stockholder actually receives such
notice; provided, however, that failure to duly give such notice by mail, or
any defect in such notice, to the holders of any stock designated for
redemption, shall not affect the validity of the proceedings for the
redemption of any other shares of Series C Preferred Stock.
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<PAGE> 1
Exhibit 10.11
MARKETING SERVICES AND ADMINISTRATIVE AGREEMENT
This Marketing Services and Administrative Agreement ("Agreement") is made
as of September 29, 1999 (the "Effective Date"), by and between CollegeLink.com
Incorporated, a Delaware corporation having its principal offices at 809
Aquidneck Avenue, Middletown, Rhode Island 02842 ("CollegeLink") and PNC Bank,
National Association, a national banking association having its principal
offices at 249 Fifth Avenue, Pittsburgh, Pennsylvania 15222 ("PNC Bank").
CollegeLink and PNC Bank are sometimes referred to collectively as the "Parties"
and individually as "Party." Capitalized terms used in this Agreement are
defined in Section 12 or otherwise in this Agreement.
WHEREAS, CollegeLink operates a Web site that allows the electronic filing of
college applications and other products and services to collegebound students
and the academic institutions which such students attend;
WHEREAS, PNC Bank desires to promote its financial services and products by
maintaining a presence in various forms on the CollegeLink Web site during the
term of this Agreement; and
NOW, THEREFORE, in consideration of the promises and the mutual covenants,
CollegeLink and PNC Bank agree as follows:
1. Services. CollegeLink shall provide the following Services and those set
forth on Exhibit A to PNC Bank:
A. CollegeLink will promote PNC Bank as an Official Sponsor of
CollegeLink in the methods described below:
(i) PNC Bank will have its logo, in a nonlinking format, hard coded
into the CollegeLink home page above the fold and in a prominent position.
(ii) CollegeLink will, when available, provide banner advertising
throughout the CollegeLink Web site.
B. CollegeLink agrees that PNC Bank's advertisements as described in this
Agreement shall not be included on any pages/locations that could be considered
to violate the right of privacy of a third party, and such advertisement shall
not contain any defamatory, slanderous or libelous statements, false, fraudulent
or deceptive statements, or misrepresentations.
C. CollegeLink agrees to maintain logs that will track information,
including, but not limited to, number of views of per page, from what site the
viewer came from, etc. CollegeLink will provide access to such logs to PNC Bank,
in mutually agreeable formats, media and time frames.
<PAGE> 2
D. The Parties agree that the "brand name" of the Financial Services to
be provided via the CollegeLink Web site will be mutually agreed upon by the
Parties on a product or service basis.
E. CollegeLink will create, operate and maintain the CollegeLink Web site
in a manner consistent with best industry practices.
F. CollegeLink will be responsible for operation of the CollegeLink Web
site and will provide all necessary software, hardware, bandwidth and hosting
facilities for the CollegeLink Web site.
G. CollegeLink will create a link from the CollegeLink Web site to
www.pncbank.com, or such other web site as PNC Bank may designate.
2. Exclusivity. A. During the term of this Agreement, PNC Bank shall be the
exclusive provider of Content relating to Financial Services on the CollegeLink
Web site, as more fully described in this Agreement. PNC Bank may, in its sole
discretion, provide Content relating to any Financial Service, which Financial
Service the Parties have agreed to make available, whether such Financial
Service is provided by PNC Bank, its Affiliates, or any third party.
B. PNC Bank agrees that during the term of this Agreement, PNC Bank will
not enter an agreement substantially similar to the terms of this Agreement with
CollegeNet, Embark.com, gocollege, or any other company deemed to be a direct
competitor as mutually agreed by the parties. Notwithstanding the prior
sentence, PNC Bank may enter agreements with CollegeNet, Embark.com or gocollege
for services such as the purchase of student loan applications, advertising PNC
Bank's products or services, including banner advertising or click through
arrangements.
C. The Parties agree that the provision of noncredit insurance is not
covered by the terms of the prior paragraph. The Parties further agree that they
will mutually discuss provision of non-credit insurance prior to such insurance
being available via the CollegeLink Web site.
3. Compensation. During the Term of the Agreement, Bank shall pay CollegeLink
in accordance with the terms of Exhibit B.
4. Implementation. A. The Parties agree that for each Financial Service to be
offered by PNC Bank via the CollegeLink Web site, the Parties shall mutually
agree to implementation plans ("Implementation Plan") that will, at a minimum,
set forth each Parties responsibilities, the applicable time frames, any testing
requirements and will require the signature of both Parties. Such Implementation
Plans shall be documented in exhibits that will be attached to this Agreement
and incorporated by this reference.
B. The Parties agree within ten (10) days of execution of this Agreement
to designate an individual to act as a single point of contact and CollegeLink
agrees to designate a team of people to manage, support and monitor the
implementation activities as stated in Exhibit C.
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<PAGE> 3
5. Support. CollegeLink agrees to vigorously support and promote the
CollegeLink Web site and the products and services of PNC Bank, as described in
this Agreement.
6. Representations and Warranties.
A. CollegeLink represents and warrants that: (i) it is duly organized,
validly existing and in good standing under the laws of the United States of
America; authorized to do business under the rules of the state in which it is
incorporated; (ii) it is authorized to enter into this Agreement and to perform
its obligations and the execution and delivery of this Agreement by CollegeLink
has been approved by all necessary action; (iii) it has all required permits,
licenses, and other governmental authorizations and approvals; (iv) it shall
comply with all local, state, federal, and international laws and regulations in
performing its obligations hereunder and in maintaining the CollegeLink Web
site; (v) it has a disaster recovery plan reasonably customary in CollegeLink's
industry; (vi) this Agreement has been duly executed and delivered on behalf of
CollegeLink and is a legal, valid and binding obligation of CollegeLink
enforceable against it in accordance with the terms of this Agreement; (vii)
each of CollegeLink's employees, agents and subcontractors assigned to perform
any services hereunder will have the proper skill and training to perform such
services and such services will be performed in a competent and professional
manner; (viii) neither the execution, delivery or performance of this Agreement
by CollegeLink, nor the consummation by CollegeLink of the transactions
contemplated hereby, will result in a breach of, or constitute a default (or an
event which, with notice or lapse of time, or both, would constitute a default)
under, any of the terms, conditions or provisions of any material license,
contract, agreement or other instrument to which CollegeLink is a Party or by
which it or its assets may be bound; and (ix) the services to be performed and
the materials provided by it (a) do not infringe or violate any patent,
copyright, trade secret, trademark, or other Intellectual Property right of any
third party, (b) do not violate any applicable law, statute, ordinance or
regulation; (c) to its knowledge are not knowingly defamatory or libelous; (d)
are not lewd, pornographic or obscene; (e) do not knowingly violate any laws
regarding unfair competition, anti discrimination or false advertising; (f) do
not promote violence or contain hate speech; (g) do not knowingly contain
viruses, trojan horses, worms, time bombs, or other similar harmful or
deleterious programming routines; (h) the fees set forth in the attached Exhibit
B are reasonable compensation for the activities or services being provided
under the terms of this Agreement or (i) are and will remain capable of
correctly performing all functions, calculations, comparisons, sequencing,
displays and other processing of calendar dates and date related data, before,
during and after the year 2000, without error or degradation of performance.
B. PNC Bank represents and warrants that: (i) it is a national banking
association duly organized, validly existing and in good standing under the laws
of the United States of America; (ii) it is authorized to enter into this
Agreement and to perform its obligations and the execution and delivery of this
Agreement by PNC Bank has been approved by all necessary action; (iii) it has
all required permits, licenses, and other governmental authorizations and
approvals; (iv) it shall comply with all local, state, federal, and
international laws and regulations in performing its obligations hereunder and
in maintaining the Financial Services and the PNC Bank Web site; (v) this
Agreement has been duly executed and delivered on behalf of PNC Bank and is a
legal, valid and binding obligation of PNC Bank enforceable against it in
accordance with the terms of this Agreement; (vi) each of PNC Bank's employees,
agents and subcontractors
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<PAGE> 4
assigned to perform any services hereunder will have the proper skill and
training to perform such services and such services will be performed in a
competent and professional manner; (vii) neither the execution, delivery or
performance of this Agreement by PNC Bank, nor the consummation by PNC Bank of
the transactions contemplated hereby, will result in a breach of, or constitute
a default (or an event which, with notice or lapse of time, or both, would
constitute a default) under, any of the terms, conditions or provisions of any
material license, contract, agreement or other instrument to which PNC Bank is a
Party or by which it or its assets may be bound and (viii) the services to be
performed and the materials provided by it (a) do not infringe or violate any
patent, copyright, trade secret, trademark, or other Intellectual Property right
of any third party; (b) do not violate any applicable law, statute, ordinance or
regulation; (c) to its knowledge are not knowingly defamatory or libelous; (d)
are not lewd, pornographic or obscene; (e) do not knowingly violate any laws
regarding unfair competition, anti discrimination or false advertising; or (f)
do not promote violence or contain hate speech.
7. Indemnification.
A. CollegeLink agrees to indemnify, defend and hold harmless PNC Bank and
its parent, subsidiaries, successors and assigns, directors, officers,
employees, agents and Affiliate from any and all losses, liabilities, damages,
actions, claims, expenses and costs (including reasonable attorneys' fees)
(collectively, "Losses") relating to (i) a breach of this Agreement by
CollegeLink, except to the extent that such Losses result from, arise out of, or
relate to the gross negligence or willful misconduct of PNC Bank; (ii) the
negligence, gross negligence or willful misconduct of CollegeLink or any of
CollegeLink's Affiliates, subcontractors or agents; (iii) a breach by
CollegeLink of any of its representations, warranties or obligations under this
Agreement; or (iv) the infringement of any Intellectual Property right of any
third party by CollegeLink's use thereof, except to the extent that CollegeLink
or any of its Affiliates reproduces any PNC Bank Content as provided by PNC Bank
or any of its Affiliates.
B. PNC Bank agrees to indemnify, defend and hold harmless CollegeLink and
its parent, subsidiaries, successors and assigns, directors, officers,
employees, agents and Affiliate from any and all losses, liabilities, damages,
actions, claims, expenses and costs (including reasonable attorneys' fees)
relating to a (i) breach of this Agreement by PNC Bank, except to the extent
that such Losses result from, arise out of, or relate to the gross negligence or
willful misconduct of CollegeLink, or (ii) the negligence, gross negligence or
willful misconduct of PNC Bank or any of PNC Bank's Affiliates, subcontractors
or agents; (iii) a breach by PNC Bank of any of its representations, warranties
or obligations under this Agreement; or (iv) the infringement of any
Intellectual Property right of any third party by PNC Bank's use thereof.
C. In connection with any claim or action described in this Section, the
Party seeking indemnification (i) will give the indemnifying Party prompt
written notice of the claim, (ii) will cooperate with the indemnifying Party (at
the indemnifying Party's expense) in connection with the defense and settlement
of the claim, and (iii) will permit the indemnifying Party to control the
defense and settlement of the claim, provided that the indemnifying Party may
not settle the claim without the indemnified Party's prior written consent
(which will not be unreasonably withheld). Further, the indemnified Party (at
its cost) may participate in the defense and settlement of the claim.
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<PAGE> 5
D. Indemnification Procedures For Third Party Claims. In any case where a
person or entity will seek indemnification under this Agreement (the
"Indemnified Party") for a third party claim, suit or proceeding ("Third Party
Claim"), such indemnification will be conditioned on such Indemnified Party's
compliance with the following procedures:
(i) The Indemnified Party will give prompt written notice to the
Party from whom such indemnification is sought (the "Indemnifying Party")
of each claim for indemnification under this Agreement, specifying the
amount and nature of the claim (a "Notice of Claim"). Provided that such
Notice of Claim is given (unless the failure to provide such Notice of
Claim does not prejudice the interests of the Indemnifying Party), and the
Indemnifying Party has not contested in writing the Indemnified Party's
right to Indemnification as set forth below, the Indemnifying Party, at its
own expense and using counsel of its own choosing, will promptly defend,
contest and otherwise protect against any such claim, suit or proceeding.
If within a reasonable time period following the receipt of a Notice of
Claim, the Indemnifying Party contests in writing the Indemnified Party's
right to indemnification with respect to the Third Party Claim described in
the Notice of Claim, the Indemnified Party will defend against and contest
such Third Party Claim.
(ii) If the Indemnifying Party is defending against the Third Party
Claim, the Indemnified Party may, but will not be obligated to, participate
in the defense of any such third party claim, suit or proceeding, at its
own expense and using counsel of its own choosing, but the Indemnifying
Party will be entitled to control the defense thereof unless the
Indemnified Party has relieved the Indemnifying Party from liability with
respect to the particular matter. The Indemnified Party will cooperate and
provide such assistance as the Indemnifying Party reasonably may request in
connection with the Indemnifying Party's defense and will be entitled to
recover from the Indemnifying Party the reasonable costs of providing such
assistance. The Indemnifying Party will inform the Indemnified Party on a
regular basis of the status of such claim, suit or proceeding and the
Indemnifying Party's defense thereof.
(iii) In any Third Party Claim the defense of which is controlled by
the Indemnifying Party, the Indemnifying Party will not, without
Indemnified Party's prior written consent, compromise or settle such claim,
suit or proceeding if: (x) such compromise or settlement would impose an
injunction or other equitable relief upon the Indemnified Party; or (y)
such compromise or settlement does not include the third party's release of
the Indemnified Party from all liability relating to such claim, suit or
proceeding for which the Indemnified Party is entitled to be indemnified.
(iv) If the Indemnifying Party fails to timely defend, contest, or
otherwise protect against any such claim, suit, or proceeding, and fails to
contest in writing the Indemnified Party's right to indemnification, the
Indemnified Party may, but will not be obligated to, defend, contest or
otherwise protect against the same, and make any compromise or settlement
thereof and recover the entire costs thereof from the Indemnifying Party,
including reasonable fees and disbursements of counsel and all
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amounts paid as a result of such claim, suit or proceeding and the
compromise or settlement thereof
(v) The obligation of a Party to indemnify the other Party's
officers, directors, employees and agents in accordance with this Section 7
may be enforced exclusively by the other Party and nothing herein will be
construed to grant such officers, directors, employees and agents any
individual rights, remedies, obligations or liabilities with respect to the
Parties. The Parties may amend or modify this Agreement in any respect
without the consent of such officers, directors, employees and agents.
8. Term of Agreement; Termination
A. The term of this Agreement will become effective beginning on the
Effective Date and shall expire on the fifth (5th) anniversary of the Effective
Date, unless terminated earlier or extended as set forth herein.
B. In its sole discretion, PNC Bank will have the right to terminate this
Agreement without breach or penalty upon thirty (30) days' prior written notice
to CollegeLink, if CollegeLink (i) is sold or otherwise transferred to a person
or entity that does not Control CollegeLink as of the Effective Date; (ii)
merges with any other entity or otherwise undergoes a reorganization and upon
the consummation of such merger or reorganization, the shareholders of
CollegeLink immediately prior to such merger or reorganization hold less than
fifty percent (50%) of the total voting power of the resulting entity; or (iii)
sells all or substantially all of its assets to any person or entity that does
not Control CollegeLink as of the Effective Date.
C. At the end of year 2, PNC Bank may terminate this Agreement by
providing at least one hundred eighty (180) days' prior written notice of its
intention to terminate this Agreement or agree to pay the increased minimum fee
as set forth in Exhibit B for the remainder of the term.
D. In the event of a material breach by either Party of any
representation, warranty, covenant, agreement or obligation stated in this
Agreement, the nonbreaching Party may terminate this Agreement by written notice
to the breaching Party if the breaching Party fails to cure such material breach
within thirty (30) days of receipt of written notice thereof from the
nonbreaching Party, the nonbreaching Party will have the right to terminate this
Agreement if such breach has or is reasonably likely to have a material adverse
effect on the benefits reasonably anticipated to flow from this Agreement to the
nonbreaching Party. In addition, either Party may terminate this Agreement
effective upon written notice stating its intention to terminate in the event
the other Party (i) ceases to function as a going concern or to conduct
operations in the normal course of business, or (ii) has a petition filed by or
against it under any state or federal bankruptcy or insolvency law which
petition has not been dismissed or set aside within ninety (90) days of its
filing.
E. If any Banking Regulator finds that PNC Bank is not authorized to
engage in activities contemplated by this Agreement because of the adoption of a
new law or regulation, a modification to an existing law or regulation, or a
modification to any interpretation by a
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Banking Regulator of any applicable law or regulation, PNC Bank shall provide
CollegeLink with written notice of such within three (3) business days of
receiving such notice and the Parties shall work together to promptly modify or
remove only those aspects of the Agreement which violate the applicable law or
regulation. If upon the modification or removal of the affected aspects of this
Agreement, the Parties mutually agree that this Agreement is not capable of
serving the function which was the original intent of the Parties, the Agreement
shall terminate.
F. Upon termination for any reason or expiration of this Agreement:
(i) licenses and rights granted by PNC Bank to CollegeLink hereunder
will terminate, including, but not limited to, any rights relating to the
PNC Bank Content and any material (electronic or otherwise) disseminated by
CollegeLink pursuant to this Agreement, any advertising banners displayed,
and any Promotional Material containing any of the foregoing;
(ii) CollegeLink will (a) cease commercial public use of any material
(electronic or otherwise) disseminated by CollegeLink pursuant to this
Agreement, and (b) disable all PNC Bank Links on the CollegeLink Web site,
any advertising banners displayed pursuant to this Agreement, and any other
PNC Bank Content Material on the CollegeLink Web site or contained in any
Promotional Material;
(iii) all licenses and rights granted by CollegeLink to PNC Bank
hereunder will terminate, except with respect to the maintenance of
cobranded customer accounts at PNC Bank that continue after termination;
(iv) each Party will promptly and at the direction of the other Party,
either destroy or return to the disclosing Party, and will not take or use,
all items of any nature which belong to the disclosing Party and all
records (in any form, format or medium) containing or relating to
Confidential Information; and
(v) each Party will take such actions and execute and deliver such
instruments as are necessary or convenient to insure that the other Party's
Intellectual Property is not infringed and that, except as provided in
clause (iii) above, all licenses granted pursuant to this Agreement are
terminated.
9. NonSolicitation of PNC Bank Customers. CollegeLink will not (i) target or
solicit individual, identifiable persons on the basis that such person are
viewers of PNC Bank Content or customers of PNC Bank or any of its Affiliates
("PNC Bank Contacts"), or any group of PNC Bank Contacts, by direct mail, fax,
email, online advertising, cookie or identification based automatic routing to
non-PNC Bank Web sites, or by similar means, without the prior written consent
of PNC Bank; or (ii) sell, license, disclose, distribute, or transfer to any
third party a list consisting of PNC Bank Contacts, or any aggregate financial
or demographic information about PNC Bank Contacts, that identifies the
individuals as PNC Bank Contacts, whether expressly or by direct implication.
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10. Confidentiality. Other than as required or appropriate for securities laws
disclosure or to Banking Regulators, CollegeLink and PNC Bank agree to keep in
confidence, certain Confidential Information. All Confidential Information shall
remain the sole property of the disclosing Party and its confidentiality shall
be maintained and protected by the receiving Party with at least the same degree
of care as the receiving Party uses for the protection of its own confidential
and proprietary information. The receiving Party shall not disclose such
Confidential Information to any third party, excluding its auditors, consultants
or Banking Regulators. These restrictions shall not apply to any Confidential
Information: (i) after it has become generally available to the public without
breach of this Agreement by the receiving Party; (ii) is rightfully in the
receiving Party's possession before disclosure to it by the disclosing Party;
(iii) is independently developed by the receiving Party; (iv) is rightfully
received by the receiving Party from a third party without a duty of
confidentiality; or (z) is required to be disclosed under operation of law. In
the event a Party is required to disclose Confidential Information as required
by law, such Party will, to the extent practicable and/or legally permissible,
in advance of such disclosure, provide the disclosing Party with prompt notice
of such requirement, and shall redact, or cause to be redacted, the publicly
available version to the fullest extent permitted by law.
11. Limitation of Liability. NEITHER PARTY SHALL HAVE ANY LIABILITY FOR ANY
INDIRECT, SPECIAL, PUNITIVE OR CONSEQUENTIAL DAMAGES INCLUDING, WITHOUT
LIMITATION, LOSS OF PROFIT OR BUSINESS OPPORTUNITIES, WHETHER OR NOT THE PARTY
WAS ADVISED OF THE POSSIBILITY OF SUCH. EXCEPT AS EXPRESSLY SET FORTH HEREIN,
NEITHER PARTY MAKES ANY, AND EACH PARTY HEREBY SPECIFICALLY DISCLAIMS ANY
REPRESENTATIONS OR WARRANTIES, EXPRESS OR IMPLIED, REGARDING THE SERVICES
CONTEMPLATED BY THIS AGREEMENT, INCLUDING ANY IMPLIED WARRANTY OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE AND IMPLIED WARRANTIES
ARISING FROM COURSE OF DEALING OR COURSE OF PERFORMANCE. THIS LIMITATION OF
LIABILITY WILL NOT APPLY TO: A. Any claim arising from the gross negligence or
willful misconduct of a Party, its directors, officers, employees, agents or
subcontractors; B. Any claim of infringement of any copyright, trademark,
service mark, trade name or patent; or C. Any claim arising from a breach of the
confidentiality provisions of this Agreement.
12. Definitions. As used in this Agreement the following terms will have the
following meanings:
"Affiliate" means, with respect to either Party, any entity which, directly
or indirectly, owns or Controls, is owned or controlled by, or is under
common Ownership or common Control with such Party.
"Agreement" means this Marketing Services and Administrative Agreement,
together with each Exhibit listed on Schedule A hereto, whether in
existence on the Effective Date or agreed to and executed by the Parties on
or after the Effective Date, as they may be amended from time to time.
"Banking Regulator" means any federal or state agency or department that
has regulatory authority over PNC Bank or any of its Affiliates, or any of
their activities, and includes,
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but is not limited to, the Office of Thrift Supervision, the Federal
Deposit Insurance Corporation, the Board of Governors of the Federal
Reserve System, the Office of the Comptroller of the Currency and the
Securities and Exchange Commission.
"Business Day" means everyday Monday through Friday, excluding Federal
holidays.
"Confidential Information" means any information of a Party disclosed to
the other Party in the course of this Agreement, which is identified as, or
should be reasonably understood to be, confidential to the disclosing
Party, including, but not limited to, know how, trade secrets, data,
technical processes and formulas, source code, product designs, sales, cost
and other unpublished financial information, product and business plans,
projections, marketing data and this Agreement and all Exhibits hereto.
Confidential Information will not include information which: (a) is known
or becomes known to the recipient directly or indirectly from a third party
source other than one having an obligation of confidentiality to the
providing Party; (b) is or becomes publicly available or otherwise ceases
to be secret or confidential, except through a breach of this Agreement by
the recipient; or (c) is or was independently developed by the recipient
without use of or reference to the providing Party's Confidential
Information, as shown by evidence in the recipient's possession.
"Content" means information, materials, products, services, advertisements,
promotions, Links, pointers, technology and software appearing on the Web.
"Control" means the power to direct the management or the affairs of an
entity, whether by equity holdings, contract or otherwise. A person or
entity that holds more than 10% of the total voting power of an issuer of
securities register under section 12 of the Securities Exchange Act of
1934, as amended, will be deemed to Control such issuer.
"Financial Services" means all deposit accounts, loans, investment products
and other products or services that PNC Bank or any of its Affiliates is
authorized by law, regulation or policies or interpretations of Banking
Regulators to offer to customers including without limitation, access and
payment devices, debit cards, check cards, "smart" cards, stored value
cards, checking accounts, bill presentment and payment services, savings
accounts, money market deposit accounts, certificate of deposits, time
deposits, home equity, personal and small business loans, student loans,
merchant services, cash management services, mortgages and mortgage related
services, credit cards which purchase goods or services and obtain cash
advances through credit, annuities, financial planning and advice, credit
insurance, securities brokerage services, or the sale of mutual funds,
including money market funds.
"Intellectual Property" means (a) all inventions (whether patentable or
unpatentable and whether or not reduced to practice), all improvements
thereon, and all patents, patent applications and patent disclosures,
together with all reissuances, continuations, continuations inpart,
revisions, extensions and reexaminations thereof, (b) all trademarks,
service marks, trade dress, logos, trade names, domain names and corporate
names, together with all translations, adaptations, derivations and
combinations thereof and
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including all good will associated therewith, and all applications,
registrations and renewals in connections therewith, (c) all copyrightable
works, all copyrights and all applications, registrations and renewals in
connection therewith, (d) all mask works and all applications,
registrations and renewals in connection therewith, (e) all trade secrets
and confidential business information (including ideas, research and
development, know how, formulas, compositions, manufacturing and production
processes and techniques, methods, schematics, technology, technical data,
designs, drawings, flowcharts, block diagrams, specifications, customer and
supplier lists, pricing and cost information and business and marketing
plans and proposals), (f) all computer software (including data and related
documentation), (g) all other proprietary rights, (h) all copies and
tangible embodiments of any of the foregoing categories of intellectual
property (in whatever form or medium), and (i) all licenses, sublicenses,
agreements, or permissions related to any of the foregoing categories of
intellectual property.
"Link" means a URL hidden behind a formatting option that may take the form
of a colored item of text (such as a URL description), logo, icon or image,
and which a user activates to move between one Web page or Web site and
another Web page or Web site.
"Ownership" means the beneficial ownership of more than thirty percent
(30%) of the equity of an entity.
"PNC Bank Web Site" means all properties on the Web that are formally
registered or maintained by PNC Bank or its Affiliates.
"SelfHelp Code" means any back door, time bomb, drop dead device, or other
software routine designed to disable a computer program automatically with
the passage of time or under the positive control of a person other than a
licensee of the program. SelfHelp Code does not include software routines
in a computer program, if any, designed to permit CollegeLink (or other
person acting by authority of CollegeLink) to obtain access to a licensee's
computer system (e.g. remote access via modem) for purposes of maintenance
or technical support.
"Unauthorized Code" means any virus, Trojan horse, worm, or other software
routines or hardware components designed to permit unauthorized access, to
disable, erase, or otherwise harm software, hardware, or data; or to
perform any other such actions. The term Unauthorized Code does not include
SelfHelp Code.
"URL" means Universal Resource Locator, which provides a unique Internet
protocol address for accessing a page on the Web.
"Web" means the World Wide Web, a system for accessing and viewing text,
graphics, sound and other media via the collection of computer networks
known as the Internet.
13. Governing Law. This Agreement shall be governed by and construed in
accordance with the substantive laws of the United States and the laws of the
Commonwealth of Pennsylvania, without giving effect to applicable conflicts of
law principles.
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14. Notices. All notices which either Party may be required or desire to give
to the other Party shall be in writing and will be (as elected by the Party
giving such notice): (i) personally delivered; (ii) transmitted by postage
prepaid registered or certified airmail, return receipt requested; (iii)
transmitted by facsimile (with a copy of such transmission by postage prepaid
registered or certified airmail, return receipt requested); or (iv) deposited
prepaid with a nationally recognized overnight courier service. Unless otherwise
provided herein, all notices will be deemed to have been duly given on (x) the
date of receipt (or if delivery is refused, the date of such refusal) if
delivered personally, by facsimile or by courier; or (y) three (3) days after
the date of posting if transmitted by mail. Either party may change its address
for notice purposes hereof on written notice to the other Party pursuant to this
Section. Notices sent by mail or courier shall be sent to the following
addresses:
If to PNC Bank: PNC Bank, National Association
249 Fifth Avenue, P1-POPP-8-1
Pittsburgh, Pennsylvania 15222
ATTN: Manager Electronic Commerce
with a copy to: Managing Counsel, Regional Consumer Bank
Legal Division
One PNC Plaza, P1-POPP-21-1
249 Fifth Avenue
Pittsburgh, Pennsylvania 15222
If to CollegeLink: CollegeLink.com Incorporated
809 Aquidneck Avenue
Middletown, Rhode Island 02842
ATTN: President
with a copy to: David Broadwin, Esq.
Foley, Hoag & Eliot
One Post Office Square
Boston, Massachusetts 02110
15. Counterparts. This Agreement may be executed in any number of counterparts
with the same effect as if the Parties had all signed the same document. All
counterparts will be construed together and will constitute one agreement.
16. Assignment. Neither Party will transfer or assign any rights or delegate
any obligations hereunder, in whole or in part, whether involuntarily or by
operation of law, without the prior written consent of the other Party, which
consent shall not be unreasonably withheld; provided, however, PNC Bank may
transfer or assign this Agreement to its parent, Affiliate, subsidiary or to an
entity who acquires or merges with all or substantially all of PNC Bank assets.
Any
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purported transfer, assignment or delegation by either Party without the
appropriate prior written consent shall be null and void and of no force or
effect.
17. Headings. Sections, titles, or captions in no way define, limit, extend, or
describe the scope of this Agreement nor the intent of any of its provisions.
18. Severability. Any provision of this Agreement that is prohibited or
unenforceable in any jurisdiction will, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining portions hereof or affecting the validity or enforceability of such
provision in any other jurisdiction.
19. Entire Agreement. This Agreement, and its Exhibits, contain the entire
agreement of the Parties with respect to the subject matter hereof, and
supersedes all prior and/or contemporaneous agreements or understandings,
written or oral, between the Parties with respect to the subject matter hereof.
20. Amendment. This Agreement may not be amended or modified by the Parties in
any manner, except by an instrument in writing signed on behalf of each of the
Parties to which such amendment or modification applies by a duly authorized
officer or representative.
21. Waiver. Any of the provisions of this Agreement may be waived by the Party
entitled to the benefit thereof. Neither Party will be deemed, by an act or
omission, to have waived any of its rights or remedies hereunder unless such
waiver is in writing and signed by the waiving Party, and then only to the
extent specifically set forth in such writing. A waiver with reference to one
event will not be construed as continuing or as a bar to or waive of any right
or remedy as to a subsequent event.
22. Independent Contractors. PNC Bank and CollegeLink are each independent
contractors, and this Agreement will not be construed as creating a joint
venture, partnership, franchise, employment or agency relationship between PNC
Bank and CollegeLink.
23. Inspection Rights. A. CollegeLink agrees to permit any auditors retained by
PNC Bank to audit the records and procedures of CollegeLink that are directly
related to this Agreement. CollegeLink further agrees that certain federal or
state auditors or examiners may require access to such records and procedures
and CollegeLink shall cooperate with respect to any such governmental or
administrative audit or examination.
B. PNC Bank agrees to permit any auditors retained by CollegeLink to
audit the records and procedures of PNC Bank that are directly related to this
Agreement. PNC Bank further agrees that certain federal or state auditors or
examiners may require access to such records and procedures and PNC Bank shall
cooperate with respect to any such governmental or administrative audit or
examination.
24. Force Majeure. Neither Party shall be held liable for any delay or failure
in performance of any part of this Agreement from any cause beyond its control
or without its fault or negligence, such as acts of God, acts of civil or
military authority, government regulations, embargoes, epidemics, war,
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terrorist acts, riots, insurrections, fires, explosions, earthquakes, nuclear
accident, floods, power blackouts, volcanic action, major environmental
disturbances, unusually severe weather conditions, inability to secure products
or services of other persons or transportation facilities, or acts or omissions
of transportation common carriers or suppliers.
25. Limitation of Actions. Neither Party shall bring any legal action against
the other Party to this Agreement more than two (2) years after the later of (a)
the date the cause of action arose or (b) the date the Party entitled to bring
such action first became aware of its existence.
26. Third Party Rights. This Agreement shall not provide any person not a party
to the Agreement with any remedy, claim, liability, reimbursement, cause of
action, or other right in excess of those existing without reference to this
Agreement.
27. Jury Trial Waiver. IN ANY LITIGATION IN WHICH THE PARTIES ARE ADVERSE, THE
PARTIES AGREE TO WAIVE THEIR RESPECTIVE RIGHTS TO A TRIAL BY JURY.
28. Survival. In the event of the termination or expiration of this Agreement,
the provisions of this Agreement that by their nature extend beyond the
expiration or termination of this Agreement shall remain in effect beyond such
termination or expiration until fulfilled.
29. Further Assurances. At any time or from time to time after the date of this
Agreement, each Party will, at the request of the other Party, execute and
deliver any further instruments or documents and take all such further action as
the other Party may reasonably request in order to evidence the consummation of
the transactions contemplated by this Agreement.
30. Compliance with Law. CollegeLink acknowledges that PNC Bank is a federally
regulated association and is responsible for complying with applicable rules,
laws and regulations. The Parties represent and warrant that all activities and
obligations conducted under the terms of this Agreement will be provided in
compliance with all applicable rules, laws and regulations.
31. Parental Guarantee. By its signature below, Cytation.com Incorporated, a
New York corporation, unconditionally and irrevocably guarantees full and prompt
performance by CollegeLink of (i) its obligations under the terms of this
Agreement and (ii) any obligation related to this Agreement that may be imposed
upon CollegeLink by a court or governmental entity.
IN WITNESS WHEREOF, each of the Parties hereto has caused this Agreement to
be executed on its behalf as of the dated stated below.
PNC BANK, NATIONAL ASSOCIATION COLLEGELINK.COM INCORPORATED
BY: /s/ Martin E. Evancoe BY: /s/ Thomas J. Burgess
______________________________ ________________________________
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ITS: Senior Vice President ITS: President
------------------------ -------------------
DATE: 9/30/99 DATE: 9/30/99
---------------------- -------------------
Solely with respect to paragraph 31:
CYTATION.COM INCORPORATED
BY: /s/ Kevin J. High
----------------------------------
ITS: President
----------------------------------
DATE: 9/30/99
----------------------------------
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EXHIBIT A
The Marketing Program to be provided by CollegeLink to PNC Bank, include, but
are not limited to:
a. Branding of the program with a name such as "The CollegeLink Financial
Plan" presented by PNC Bank.
b. Sets of marketing materials tailored to each of three audiences,
universities, students and parents.
c. Vigorous sales plan aimed at universities with calls being scheduled
for teams of CollegeLink and PNC Bank personnel.
d. Media plan using both direct mail and specialty publications, plus
selected general publications such as college editions of U.S. News or Newsweek.
e. Public relations in both print and broadcast aimed at not only the
target markets indicated above but also at the financial press.
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EXHIBIT B
COMPENSATION
A. PNC Bank agrees to pay CollegeLink in accordance with the following
schedule:
1. Branding: CollegeLink student loans, others TBD
2. Minimum Annual Fee: $100,000 - Year 1, 2
$250,000 - Years 3, 4, and 5
The Minimum Annual Fee is to be paid upon execution of this Agreement and,
thereafter, paid prior to the anniversary date of this Agreement.
3. Product Sales exceeding the Minimum Annual Fee:
Student Loans: $30 per loan application from execution through
June 30,
$40 per loan application, as defined below, as of
July 1, 2000
Home Equity: $50.00 for "loan services" as outlined in
paragraph B.
Brokerage Account: $50.00 per account (parents only, not students)
Deposit Account: $5.00 per student account (excluding students at
PNC
Other Products/Services: As mutually agreed by the Parties
4. CollegeLink Web site visitors that originate from pncbank.com: No fee to
CollegeLink for products sold, except for Student Loans
B. For purposes of this Exhibit "loan services" means the provision of
settlement services, including, but not limited to, (i) taking information from
the borrower and filling out the applications; (ii) educating the prospective
borrower in the home buying and financing process, advising the borrower about
the different types of loan products available, and demonstrating how closing
costs and monthly payments could vary under each product; (iii) collecting
financial information and other related documents that are part of the
application process; (iv) initiating/ordering verifications of employment and
verifications of deposits; (v) initiating/ordering requests for mortgage and
other loan verifications; (vi) initiating/ordering appraisals; (vii)
initiating/ordering inspections or engineering reports; (viii) providing
disclosures to the borrower; (ix) assisting the borrower in understanding and
clearing credit problems; (x) maintaining regular contact with the borrower,
realtors, lender, between application and closing to appraise them of the status
of the application and gather any additional information, as needed; (xi)
ordering legal documents; (xii) participating in the loan closing; or (xiii)
other identifiable and meaningful services similar to the services noted above.
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EXHIBIT C
STUDENT LOAN IMPLEMENTATION
A. CollegeLink agrees to:
1. Provide, the CollegeLink Web site, on a 24x7 basis, excluding
reasonable maintenance time.
2. Provide access to all information provided by prospective students
necessary and not deemed to be confidential to complete the
application or financial aid process and create electronic loan
applications pre-filled with necessary student, parent and college
information to expedite and automate the loan process.
3. Include, as part of the CollegeLink Web site, links to other Web sites
such as, the Department of Education, pncbank.com, etc.
4. Designate a dedicated management contact.
5. Provide PNC Bank with the ability to market/advertise its products or
services as part of the student application process, as the Parties'
may mutually agree.
6. Provide PNC Bank with reasonable space on the CollegeLink Web site
application, to ask the following question:
Are you interested in student loans?
7. Provide web resources as necessary to integrate sites to attain the
Parties' common goals
8. Provide such other information and assistance as the Parties may
mutually agree
B. PNC Bank agrees to:
1. Provide relevant financial survival tips for parents and students
2. Provide interactive financial checkup and evaluation
3. Provide competitively priced Financial Services
4. Provide a dedicated management contact
5. Provide web resources as necessary to integrate sites to attain the
Parties' common goals
6. Provide such other information and assistance as the Parties' may
mutually agree
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Exhibit 10.12
EMPLOYMENT AGREEMENT
This Employment Agreement (the "Agreement"), entered into as of the 11th
day of February, 1999, is by and between Cytation.com Incorporated, a New York
corporation (the "Company") and Richard A. Fisher ("Fisher").
WITNESSETH:
WHEREAS, the Company is engaged primarily in the business of hosting and
administering proprietary on-line enterprise learning solutions and related
services; and
WHEREAS, Fisher is currently employed by the Company as Chairman of the
Board and General Counsel; and
WHEREAS, the Company desires that Fisher continue in the employment of the
Company and Fisher desires to continue to be employed by the Company.
NOW THEREFORE, in consideration of the premises and of the mutual covenants
herein contained, the parties do hereby agree as follows:
1. DEFINITIONS. For purposes of this Agreement, the following terms shall
have the meanings set forth below:
"BASE SALARY" means the aggregate annual amount paid by the Company for
base salary as provided in Section 3(a) hereof.
"BOARD" means the Board of Directors of the Company.
"CAUSE" means, as determined in good faith by two-thirds of the Board, (1)
Fisher's material and irreparable breach of this Agreement, (2) Fisher's gross
negligence in the performance of any of his material duties and responsibilities
hereunder; (3) Fisher's willful dishonesty or fraud with respect to the business
or affairs of the Company; (4) Fisher's conviction of a felony crime; or (5)
chronic alcohol abuse or illegal drug abuse by Fisher.
"CHANGE IN CONTROL" means (i) a consolidation or merger of the Company with
or into any other corporation, or any other entity or person, other than a
wholly-owned subsidiary of the Company, excluding any transaction in which the
stockholders of the Company immediately prior to the transaction will maintain
voting control or own at least 50% (in each case, in substantially the same
proportion as before such event) of the resulting entity after the transaction;
(ii) any corporate reorganization, including an exchange offer, in which the
Company shall not be the continuing or surviving entity resulting from such
reorganization, excluding any transaction in which the stockholders of the
Company immediately prior to the transaction will maintain voting control or own
at least 50% (in each case, in substantially the
<PAGE> 2
same proportion as before such event) of the resulting entity after the
transaction; or (iii) the sale of a substantial portion of the Company's assets,
which shall be deemed to occur on the date that any one person, or more than one
person acting as a group, acquires (or has acquired during the 12 month period
ending on the date of the most recent acquisition by such person or persons)
assets from the Company that have a total fair market value equal to more than
75% of the total fair market value of all the assets of the Company.
"COMMON SHARES" means shares of the Company's common stock, $.001 par
value.
"COMPLETE DISABILITY" means Fisher's qualification for benefits under the
long-term disability insurance policy described in Section 3(f) hereof.
"DESIGNATED BENEFICIARY" means the person(s) designated by Fisher to the
Board to be his beneficiary under this Agreement in the event of his death. If
no beneficiary has been designated, or the designated beneficiary has
predeceased Fisher, the Designated Beneficiary shall be Fisher's estate.
'EMPLOYMENT DATE" means February 11, 1999.
"GOOD REASON" means (i) a material and adverse change in Fisher's title,
status, authority, duties, function or benefits; (ii) any reduction in Fisher's
Base Salary or the failure to pay Fisher's Base Salary for a period of more than
90 days; (iii) the relocation of Fisher's principal place of employment to a
location outside of the State of Rhode Island; or (iv) a material breach by the
Company of its obligations hereunder.
"INITIAL TERM" means the three (3) year period beginning on the Employment
Date and ending on the third anniversary thereof.
"SEVERANCE" means (i) Base Salary at the rate in effect at the time of the
event triggering the Company's obligation to pay Severance, (ii) the
acceleration of vesting of all options held by Fisher to purchase Company stock,
and the extension of the exercise period of all such options until the second
anniversary of the date of termination; and (iii) for as long as Fisher shall be
living during the period for which he is entitled to Severance, the continuation
of the benefits described in Sections 3(d)-(g) hereof. In the event that Fisher
is not eligible for continued participation in the health insurance plan in
which Fisher was participating at the time of termination, the Company shall pay
the full cost of comparable coverage (determined without regard to cost).
"SUBSEQUENT TERM" means the three (3) year period beginning immediately
following the expiration of the Initial Term and ending on the third anniversary
thereof.
"TERRITORY" means the United States of America.
"TRADE SECRET, PROPRIETARY OR CONFIDENTIAL INFORMATION" means any and all
confidential, trade secret and/or proprietary information of the Company or its
clients, including
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without limitation financial information, projected budgets, marketing
strategies, past performances, client lists, pricing policies, operational
methods, marketing plans or strategies, product development techniques or plans,
flowcharts, software programs, data, systems, techniques, business acquisition
plans, inventions and research projects and other business affairs or any other
documents or materials, whether or not reduced to tangible form, pertaining to
the business of Company.
2. EMPLOYMENT AND DUTIES.
(a) Effective as of the Employment Date, the Company hereby agrees to
employ Fisher as General Counsel of the Company. As such, Fisher shall have the
responsibilities, duties and authority reasonably accorded to and expected of
such position. Fisher will report directly to the Board and carry out its
directives to him. Fisher shall also serve as Chairman of the Board, and shall
serve as a member of Executive Committee of the Board and/or any other committee
of the Board as the Board may request.
(b) Fisher hereby agrees to accept the employment, directorship,
responsibilities and duties described in subparagraph (a) above as of the
Employment Date upon the terms and conditions herein contained. Fisher agrees to
devote substantially all of his business and productive time, skill, attention
and efforts to promote and further the business of the Company. In all aspects
of his employment and directorship, Fisher shall faithfully adhere to, execute
and fulfill all directives, policies and standards established by the Company.
(c) Fisher shall not, during the term of Fisher's employment hereunder, be
engaged in any other business activity pursued for gain, profit or other
pecuniary advantage if such activity substantially interferes with Fisher's
duties and responsibilities hereunder. The foregoing limitations shall not be
construed as prohibiting Fisher from making personal investments in such form or
manner as will neither require Fisher's services in the operation or affairs of
the companies or enterprises in which such investments are made nor violate the
terms of Section 4 hereof.
3. COMPENSATION. For all services rendered by Fisher, the Company shall
compensate Fisher as follows:
(a) BASE SALARY. Effective as of the Employment Date, Base Salary payable
to Fisher shall be $175,000. Provided that the Company shall have raised in
excess of $7,000,000 of new equity capital after the Employment Date and prior
to January 1, 2000, effective as of January 1, 2000, Base Salary shall be
increased to $200,000, and effective as of January 1, 2001, Base Salary shall be
increased to $225,000. Subsequent increases in Base Salary shall be determined
by the Board. Base Salary shall be paid in accordance with the Company's
standard payroll procedures.
(b) BONUS AND/OR PERFORMANCE COMPENSATION. Bonus and/or other performance
compensation may be payable to Fisher at the discretion of the Board.
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(c) STOCK OPTIONS. Effective as of the Employment Date, the Company agrees
to award Fisher an option to purchase 400,000 Common Shares at an exercise price
equal to $4.00 per share. Twenty-five percent (25%) of such option (i.e. 100,000
Common Shares) (hereinafter referred to as the "Class A portion") shall become
vested in 13 equal installments on the first day of each calendar quarter
beginning April 1, 1999, except that the last installment shall vest on the
third anniversary of the Employment Date. Notwithstanding the foregoing, the
Class A portion shall become immediately exercisable in full if the closing bid
of the Common Shares equals or exceeds $15.00 for five consecutive trading days.
The remaining seventy-five percent (75%) of such option (i.e. 300,000 Common
Shares) (hereinafter referred to as the "Class B portion") shall become
exercisable on the third anniversary of the Employment Date; provided, however,
if prior to the third anniversary of the Employment Date, but after June 7,
1999, (i) the closing bid of the Common Shares equals or exceeds $10.00 per
share for five consecutive trading days, then one third (1/3) of such Class B
portion shall become immediately exercisable, (ii) the closing bid of the Common
Shares equals or exceeds $12.50 per share for five consecutive trading days,
then two-thirds (2/3) of the Class B portion (cumulatively) shall be immediately
exercisable; and (iii) the closing bid of the Common Shares equals or exceeds
$15.00 per share for five consecutive trading days, then the Class B portion
shall be immediately exercisable in full. In addition, the option shall become
immediately exercisable in full upon (xi) the consummation of a Change in
Control, (xii) the occurrence of an event resulting in a Company obligation to
pay Fisher Severance as provided in Section 5 hereof, (xiii) Fisher's death, or
(xiv) Fisher's Complete Disability. The option shall have a term of 10 years
except as otherwise provided in Section 5 hereof. As soon as practicable after
the Employment Date, the Company shall cause the offering of the option and the
Common Shares covered by such option to be registered with the Securities and
Exchange Commission on a Form S-8 Registration Statement.
(d) WELFARE AND RETIREMENT BENEFITS. During the term of Fisher's
employment with the Company, at no cost to Fisher, the Company shall provide
Fisher with family coverage under the health insurance plan chosen by Fisher
from the plans offered to the Company's regular full-time employees. Fisher may
participate in such additional employee benefit plans, including but not limited
to 401(k), pension, and dental insurance plans, as the Company makes available
generally to executives of the Company.
(e) LIFE INSURANCE. During the term of Fisher's employment with the
Company, the Company will continue to pay the premiums with respect to that
certain Northwestern Mutual whole life insurance policy owned by Fisher as of
the date hereof, paying a death benefit in the amount of $600,000.
(f) LONG-TERM DISABILITY INSURANCE. During the term of Fisher's employment
with the Company, the Company will secure and maintain a long-term disability
insurance policy with respect to Fisher providing for benefits of not less than
$5,000 per month for 60 months.
(g) AUTOMOBILE. During the term of the Fisher's employment with the
Company, the Company will provide Fisher with a monthly automobile allowance of
$1,000.
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(h) VACATION. During the term of the Fisher's employment with the Company,
Fisher will be allowed up to five (5) weeks of paid vacation during each
calendar year. Unused vacation during any calendar year may not be carried over
into a succeeding calendar year.
(i) DIRECTORS AND OFFICERS INSURANCE. During the term of Fisher's
employment with the Company, the Company shall use its best efforts to insure
Fisher for all acts and services he performs and provides hereunder and agrees
to indemnify him for any losses, costs, claims, damages and expenses that he may
incur as a result of his employment activities hereunder which are neither
willful nor grossly negligent to the fullest extent permitted under law.
(j) BUSINESS EXPENSES. During the term of Fisher's employment with the
Company, the Company will reimburse Fisher for the costs of cell phone and home
fax operation, and an Internet telephone line. The Company will reimburse Fisher
for the ordinary and necessary business travel, lodging, meal and entertainment
expenses he reasonably incurs in furtherance of the business activities of the
Company. The Company's agreement under this subparagraph (j) is subject to
Fisher's substantiation and reporting of such expenses in accordance with
Company policy and applicable federal and state income tax laws.
4. NON-COMPETITION AGREEMENT.
(a) Fisher will not, during the period of Fisher's employment by or with
the Company, and for a period of one (1) year immediately following the
termination of Fisher's employment under this Agreement, for any reason
whatsoever, directly or indirectly, for Fisher or on behalf of or in conjunction
with any other person, persons, company, partnership, corporation or business of
whatever nature:
(i) engage, as an officer, director, stockholder, owner, partner,
joint venturer, or in a managerial, consulting or advisory capacity,
whether as an employee, independent contractor, consultant or advisor,
or as a sales representative, in any business which offers any
services or products in direct competition with Company within the
Territory;
(ii) call upon any person who is, at that time, within the
Territory, an employee of the Company in a managerial capacity for the
purpose or with the intent of enticing such employee away from or out
of the employ of Company;
(iii) call upon any person or entity which is, at that time, or
which has been, within one (1) year prior to that time, a client of
Company within the Territory for the purpose of soliciting or selling
products or services in direct competition with Company within the
Territory;
(iv) call upon any prospective acquisition candidate, on Fisher's
own behalf or on behalf of any competitor, which candidate was, to
Fisher's actual knowledge after due inquiry, either called upon by
Company or for which Company made an acquisition analysis, for the
purpose of acquiring such entity;
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or
(v) induce or attempt to induce any person known by Fisher to be
a customer, supplier, or business relation of the Company to cease
doing business with the Company or in any way interfere with the
relationship between the Company and any person known by Fisher to be
a customer, supplier, licensee, or business relation of the Company.
Notwithstanding the above, the foregoing covenants shall not be deemed to
prohibit Fisher from acquiring as an investment not more than one percent (1 %)
of the capital stock of a competing business, whose stock is traded on a
national securities exchange or over-the-counter.
(b) Because of the difficulty of measuring economic losses to Company as a
result of a breach of the foregoing covenants, and because of the immediate and
irreparable damage that could be caused to Company for which Company would have
no other adequate remedy, Fisher agrees that the foregoing covenants may be
enforced by Company in the event of breach by Fisher, by injunctions and
restraining orders.
(c) The covenants in this Section 4 are severable and separate, and the
unenforceability of any specific covenant shall not affect the provisions of any
other covenant. Moreover, in the event any court of competent jurisdiction shall
determine that the scope, time or territorial restrictions set forth are
unreasonable, then it is the intention of the parties that such restrictions be
enforced to the fullest extent which the court deems reasonable, and this
Agreement shall thereby be reformed.
(d) Fisher acknowledges that the covenants in this Section 4 (i) are
agreed to by Fisher as an inducement for and in consideration of the Company's
entering into this Agreement, and (ii) contain limitations as to time,
geographic area and scope of activity to be restrained that are reasonable and
do not impose a greater restraint than is necessary to protect the goodwill or
other business interests of Company.
(e) Fisher agrees that all of the covenants in this Section 4 shall be
construed as an agreement independent of any other provision in this Agreement,
that Company shall be the beneficiary of and have the right to enforce such
covenants, and that the existence of any claim or cause of action of Fisher
against Company, whether predicated on this Agreement or otherwise, shall not
constitute a defense to the enforcement by Company of such covenants. It is
specifically agreed that the period of one (1) year following termination of
employment stated at the beginning of this Section 4, during which the
agreements and covenants of Fisher made in this Section 4 shall be effective,
shall be computed by excluding from such computation any time during which
Fisher is in violation of any provision of this Section 4.
5. TERM AND TERMINATION.
(a) TERM. Fisher's employment pursuant to this Agreement shall begin on
the Employment Date, and shall terminate upon the expiration of the Initial
Term, unless extended as
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provided in subparagraph (b) below. Notwithstanding the foregoing, this
Agreement shall immediately terminate upon the occurrence of the following
events: (i) Fisher's death; (ii) Fisher's Complete Disability; (iii) Fisher's
resignation with or without Good Reason; or (iv) termination of Fisher's
employment by the Company with or without Cause.
(b) EXTENSION OF AGREEMENT. If neither the Company nor Fisher have given
written notice to the other that this Agreement shall not be renewed at the end
of the Initial Term at least sixty (60) days prior to the expiration thereof,
then Fisher's employment under this Agreement shall be automatically extended
for the Subsequent Term unless sooner terminated as herein provided. In the
event that the Company does not renew this Agreement through the Subsequent
Term, Executive will receive Severance for one (1) year after expiration of the
Initial Term. That portion of Severance attributable to Base Salary shall be
paid, at the election of the Company, in equal monthly installments through the
end of the one (1) year severance period, or in a single lump sum payment made
not more than 30 days after the expiration of the Initial Term. In the event
that Fisher does not renew this Agreement through the Subsequent Term, any
unvested portion of the option described in Section 3(c) hereof shall terminate
upon the expiration of the Initial Term, and any vested portion of such option
shall terminate if not exercised within 90 days of the expiration of the Initial
Term.
(c) DEATH. If Fisher dies while in the employ of the Company, the Company
will pay to Fisher's Designated Beneficiary Base Salary accrued through the date
of death. The option described in Section 3(c) hereof shall become immediately
exercisable in full. Such option shall terminate if not exercised within one (1)
year after the date of death.
(d) COMPLETE DISABILITY. In the event of Fisher's Complete Disability, the
Company will pay Fisher Base Salary accrued through the date of Complete
Disability. The option described in Section 3(c) hereof shall become immediately
exercisable in full. Such option shall terminate if not exercised within one (1)
year after the date of Complete Disability.
(e) EXECUTIVE RESIGNATION; COMPANY TERMINATION WITHOUT CAUSE.
(i) Either Fisher or the Company may terminate this Agreement for an
reason without Cause by providing the other party at least five (5) business
days advance written notice of termination.
(ii) Upon termination of this Agreement by Fisher other than for Good
Reason, Fisher shall be entitled to receive Base Salary accrued through the date
of termination. Any unvested portion of the stock option described in Section
3(c) hereof shall terminate immediately, and any vested portion of such option
shall terminate if not exercised within 90 days of termination.
(iii) Upon termination of this Agreement by Fisher for Good Reason, or by
the Company without Cause, Fisher will receive Severance until the later of (i)
the expiration of the Initial Term or Subsequent Term, as applicable, or (ii)
one (1) year after the date of termination. That portion of Severance
attributable to Base Salary shall be paid at the election of the Company in
equal monthly installments through the end of the severance period or in a
single lump sum
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payment not more than thirty (30) days after termination of this Agreement.
Fisher shall have no obligation to seek or obtain other employment and the
failure to seek or obtain other employment shall not reduce in any way the
Company's obligations under this Section 5(e)(iii).
(f) TERMINATION FOR CAUSE. In the event the Company terminates Fisher's
employment for Cause, Fisher shall be entitled to Base Salary accrued through
the date of termination, but shall be entitled to no further rights or benefits
hereunder. Any unvested portion of the stock option described in Section 3(c)
hereof shall terminate immediately, and any vested portion of such option shall
terminate if not exercised within 90 days of termination.
6. RETURN OF COMPANY PROPERTY. All records, files, business plans,
financial statements, manuals, memoranda, lists, designs, patents, and other
property delivered to or compiled by Fisher by or on behalf of Company or any of
its representatives, vendors or clients which pertain to the business of Company
shall be and remain the property of Company and be subject at all times to its
discretion and control. Likewise, all correspondence, reports, records, charts,
advertising materials and other similar data pertaining to the business,
activities or future plans of Company which is collected by Fisher shall be
delivered promptly to the Company without request by it upon termination of
Fisher's employment.
7. INVENTIONS AND WORKS. Fisher shall disclose promptly to the Company
any and all significant conceptions and ideas for inventions, improvements and
valuable discoveries, whether patentable or not, and any and all works of
authorship (including computer software), whether copyrightable or not, which
are conceived or made by Fisher, solely or jointly with another, during the
period of employment or within one (1) year thereafter, and which are directly
related to the business or activities of Company and which Fisher conceives as a
result of Fisher's employment by the Company. Fisher hereby assigns and agrees
to assign all Fisher's interests therein to the Company or its nominee. Whenever
requested to do so by the Company, Fisher shall execute any and all
applications, assignments or other instruments that the Company shall deem
necessary to apply for and obtain copyright registration or Letters Patent of
the United States or any foreign country or to otherwise protect the Company's
interest therein.
8. TRADE SECRET, PROPRIETARY AND CONFIDENTIAL INFORMATION. Fisher
acknowledges and agrees that during the course of Fisher's employment with the
Company, Fisher may learn about, develop or be entrusted with Trade Secret,
Proprietary and Confidential Information. The Company has in the past and will
in the future use reasonable efforts to keep secret the Trade Secret,
Proprietary and Confidential Information. Fisher expressly acknowledges and
agrees that unless the Trade Secret, Proprietary and Confidential Information
becomes publicly known through legitimate means not involving an act or omission
by Fisher: (i) the Trade Secret, Proprietary and Confidential Information is,
and at all times shall remain, the sole and exclusive property of the Company
unless it shall become publicly known in the Company's business without any
involvement on Fisher's part; (ii) Fisher shall use the utmost diligence to
guard and protect the Trade Secret, Proprietary and Confidential-Information
from disclosure to any other person or entity except in the scope of the
discharge of his duties to the Company; (iii) Fisher shall not use for his own
benefit, or for the benefit of any other person or entity other than the
Company, and shall not disclose, directly or indirectly, to any other person
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or entity, any of the Trade Secret, Proprietary and Confidential Information
except in the scope of the discharge of his dudes to the Company; and (iv)
except in the scope of the discharge of his duties to the Company, Fisher shall
not seek or accept any of the Trade Secret, Proprietary and Confidential
Information from any former, present, or future employee of the Company.
9. NO PRIOR AGREEMENTS. Fisher hereby represents and warrants to the
Company that the execution of this Agreement by Fisher and Fisher's employment
by the Company and the performance of Fisher's duties hereunder will not violate
or be a breach of any agreement with a former employer, client or any other
person or entity. Further, Fisher agrees to indemnify the Company for any claim,
including, but not limited to, attorneys fees and expenses of investigation, by
any such third party that such third party may now have or may hereafter come to
have against the Company based upon or arising out of any non-competition
agreement, invention or secrecy agreement between Fisher and such third party
which was in existence as of the date of this Agreement.
10. ASSIGNMENT; BINDING EFFECT. Fisher understands that Fisher has been
selected for employment by the Company on the basis of Fisher's personal
qualifications, experience and skills. Fisher agrees, therefore, that Fisher
cannot assign all or any portion of Fisher's performance under this Agreement.
Subject to the preceding two (2) sentences, this Agreement shall be binding
upon, inure to the benefit of and be enforceable by the parties hereto and their
respective heirs, legal representatives, successors and assigns.
11. NO GUARANTEE OF EMPLOYMENT. This Agreement does not create any
obligation of the Board to accept any proposed venture capital investment, or
any guarantee that an Employment Date will occur. In the event that Fisher is
employed by the Company in any capacity prior to an Employment Date, the terms
of this Agreement shall not apply.
12. COMPLETE AGREEMENT. This Agreement is not a promise of future
employment. Fisher has no oral representations, understandings or agreements
with the Company or any of its officers, directors or representatives covering
the same subject matter as this Agreement. This written Agreement is the final,
complete and exclusive statement and expression of the agreement between the
Company and Fisher and of all the terms of this Agreement, and it cannot be
varied, contradicted or supplemented by evidence of any prior or contemporaneous
oral or written agreements. This written Agreement may not be later modified
except by a further writing signed by a duly authorized officer of the Company
and Fisher, and no term of this Agreement may be waived except by writing signed
by the party waiving the benefit of such term.
13. NOTICE. Whenever any notice is required hereunder, it shall be given
in writing addressed as follows:
To the Company: Cytation.com Incorporated
809 Aquidneck Avenue
Middletown, RI 02842
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To Fisher: Richard A. Fisher
337 Rumstick Road
Barrington, RI 02806
Notice shall be deemed given and effective three (3) days after the deposit
in the U.S. mail of a writing addressed as above and sent first class mail,
certified, return receipt requested, or when actually received if earlier.
Either party may change the address for notice by notifying the other party of
such change in accordance with this Section 13.
14. SEVERABILITY; HEADINGS. If any portion of this Agreement is held
invalid or inoperative, the other portions of this Agreement shall be deemed
valid and operative and, so far as is reasonable and possible, effect shall be
given to the intent manifested by the portion held invalid or inoperative. The
paragraph headings herein are for reference purposes only and are not intended
in any way to describe, interpret, define or limit the extent or intent of this
Agreement or of any part hereof.
15. ARBITRATION. Any dispute, controversy or claim arising out of or
relating to this Agreement or the breach or performance hereof will be settled
by arbitration in accordance with the laws of the State of Delaware by an
arbitrator mutually agreed upon by the Company and Fisher. If an arbitrator
cannot be agreed upon, the Company and Fisher shall each choose an arbitrator,
and these two together shall select a third arbitrator. If the first two
arbitrators cannot agree on the appointment of a third arbitrator, then the
third arbitrator will be appointed by the American Arbitration Association in
Providence, Rhode Island. Such arbitration will be conducted in the City of
Providence in accordance with the Commercial Arbitration Rules of the American
Arbitration Association, except with respect to the selection of arbitrators
which shall be as provided in this Paragraph 15. Judgment upon the award
rendered by the arbitrators may be entered in any court having jurisdiction
thereof.
16. GOVERNING LAW. This Agreement shall in all respects be construed
according to the laws of the State of Delaware.
17. COUNTERPARTS. This Agreement may be executed simultaneously in two (2)
or more counterparts, each of which shall be deemed an original and all of which
together shall constitute but one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
CYTATION.COM INCORPORATED
By: /s/ Kevin J. High
------------------------------------------
Title: President
---------------------------------------
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Richard A. Fisher
/s/ Richard A. Fisher
----------------------------------------------
Richard A. Fisher
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Exhibit 10.13
EMPLOYMENT AGREEMENT
This Employment Agreement (the "Agreement"), entered into as of the 11th
day of February, 1999, is by and between Cytation.com Incorporated, a New York
corporation (the "Company") and Kevin J. High ("High").
WITNESSETH:
WHEREAS, the Company is engaged primarily in the business of hosting and
administering proprietary online enterprise learning solutions and related
services; and
WHEREAS, High is currently employed by the Company as President; and
WHEREAS, the Company desires that High continue in the employment of the
Company as President and High desires to continue to be employed by the Company
in such capacity.
NOW THEREFORE, in consideration of the premises and of the mutual covenants
herein contained, the parties do hereby agree as follows:
1. DEFINITIONS. For purposes of this Agreement, the following terms shall have
the meanings set forth below:
"BASE SALARY" means the aggregate annual amount paid by the Company for
base salary as provided in Section 3(a) hereof.
"BOARD" means the Board of Directors of the Company.
"CAUSE" means, as determined in good faith by two-thirds of the Board, (1)
High's material and irreparable breach of this Agreement, (2) High's gross
negligence in the performance of any of his material duties and responsibilities
hereunder; (3) High's willful dishonesty or fraud with respect to the business
or affairs of the Company; (4) High's conviction of a felony crime; or (5)
chronic alcohol abuse or illegal drug abuse by High.
"CHANGE IN CONTROL" means (i) consolidation or merger of the Company with
or into any other corporation, or any other entity or person, other than a
wholly-owned subsidiary of the Company, excluding any transaction in which the
stockholders of the Company immediately prior to the transaction will maintain
voting control or own at least 50% (in each case, in substantially the same
proportion as before such event) of the resulting entity after the transaction;
(ii) any corporate reorganization, including an exchange offer, in which the
Company shall not be the continuing or surviving entity resulting from such
reorganization, excluding any transaction in which the stockholders of the
Company the transaction will maintain voting control or own at least 50% (in
each case, in substantially the same proportion as before such event) of the
resulting entity after the transaction; or (iii) the sale of a substantial
<PAGE> 2
portion of the Company's assets, which shall be deemed to occur on the date that
any one person, or more than one person acting as a group, acquires (or has
acquired during the 12 month period ending on the date of the most recent
acquisition by such person or persons assets from the Company that have a total
fair market value equal to more than 75% of the total fair market value of all
the assets of the Company.
"COMPLETE DISABILITY" means High's qualification for benefits under the
long-term disability insurance policy described in Section 3(f) hereof.
"COMMON SHARES" means shares of the Company's common stock, $.001 par
value.
"DESIGNATED BENEFICIARY" means the person(s) designated by High to the
Board to be his beneficiary under this Agreement in the event of his death. If
no beneficiary has been designated, or the designated beneficiary has
predeceased High, the Designated Beneficiary shall be High's estate.
"EMPLOYMENT DATE" means February 11, 1999.
"GOOD REASON" means (i) a material and adverse change in High's title,
status, authority, duties, function or benefits; (ii) any reduction in High's
Base Salary or the failure to pay High's Base Salary for a period of more than
60 days; (iii) the relocation of High's principal place of employment to a
location outside of the State of Rhode Island; or (iv) a material breach by the
Company of its obligations hereunder.
"INITIAL TERM" means the three (3) year period beginning on the Employment
Date and ending on the third anniversary thereof.
"SEVERANCE" means (i) Base Salary at the rate in effect at the time of the
event triggering the Company's obligation to pay Severance, (ii) the
acceleration of vesting of all options held by High to purchase Company stock,
and the extension of the exercise period of all such options until the second
anniversary of the date of termination, and (iii) for as long as High shall be
living during the period for which he is entitled to Severance, the continuation
of the benefits described in Sections 3(d)-(g) hereof. In the event that High is
not eligible for continued participation in the health insurance plan in which
High was participating at the time of termination, the Company shall pay the
full cost of comparable coverage (determined without regard to cost).
"SUBSEQUENT TERM" means the three (3) year period beginning immediately
following the expiration of the Initial Term and ending on the third anniversary
thereof.
"TERRITORY" means the United States of America.
"TRADE SECRET, PROPRIETARY OR CONFIDENTIAL INFORMATION" means any and all
confidential, trade secret and/or proprietary information of the Company or its
clients, including without limitation financial information, projected budgets,
marketing strategies, past
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performances, client lists, pricing policies, operational methods, marketing
plans or strategies, product development techniques or plans, flowcharts,
software programs, data, systems, techniques, business acquisition plans,
inventions and research projects and other business affairs or any other
documents or materials, whether or not reduced to tangible form, pertaining to
the business of Company.
2. EMPLOYMENT AND DUTIES.
(a) Effective as of the Employment Date, the Company hereby agrees to
employ High as its President. As such, High shall have responsibilities, duties
and authority reasonably accorded to and expected of such position. High will
report directly to the Board and carry out its directives to him. High shall
serve as a director of the Company until such time as his successor is elected,
and shall serve as a member of Executive Committee of the Board and/or any other
committee of the Board as the Board may request.
(b) High hereby agrees to accept the employment and responsibilities and
duties described in subparagraph (a) above as of the Employment Date upon the
terms and conditions herein contained. High agrees to devote his full business
and productive time, skill, attention and efforts to promote and further the
business of the Company. In all aspects of his employment, High shall faithfully
adhere to, execute and fulfill all directives, policies and standards
established by the Company.
(c) High shall not, during the term of High's employment hereunder, be
engaged in any other business activity pursued for gain, profit or other
pecuniary advantage if such activity interferes with High's duties and
responsibilities hereunder. The foregoing limitations shall not be construed as
prohibiting High from making personal investments in such form or manner as will
neither require High's services in the operation or affairs of the companies or
enterprises in which such investments are made nor violate the terms of Section
4 hereof.
3. COMPENSATION. For all services rendered by High, the Company shall
compensate High as follows:
(a) BASE SALARY. Effective as of the Employment Date, Base Salary payable
to High shall be $175,000. Provided that the Company shall have raised in excess
of $7,000,000 of new equity capital after the Employment Date but before January
1, 2000, effective as of January 1, 2000, Base Salary shall be increased to
$200,000 and effective as of January 1, 2001, Base Salary shall be increased to
$225,000. Subsequent increases in Base Salary shall be determined by the Board.
Base Salary shall be paid in accordance with the Company's standard payroll
procedures.
(b) BONUS AND/OR PERFORMANCE COMPENSATION. Bonus and/or other performance
compensation may be payable to High at the discretion of the Board.
(c) STOCK OPTIONS. Effective as of the Employment Date, the Company agrees
to award High an option to purchase 400,000 Common Shares at an exercise price
equal to $4.00 per
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share. Twenty-five percent (25%) of such option (i.e. 100,000 Common Shares)
(hereinafter referred to as the "Class A portion") shall become vested in 13
equal installments on the first day of each calendar quarter beginning April 1,
1999, except that the last installment shall vest on the third anniversary of
the Employment Date. Notwithstanding the foregoing, the Class A portion shall
become immediately exercisable in full if the closing bid of the Common Shares
equals or exceeds $15.00 for five consecutive trading days. The remaining
seventy-five percent (75%) of such option (i.e. 300,000 Common Shares)
(hereinafter referred to as the "Class B portion") shall become exercisable on
the third anniversary of the Employment Date; provided, however, if prior to the
third anniversary of the Employment Date, but after June 7, 1999, (i) the
closing bid of the Common Shares equals or exceeds $10.00 per share on any
trading day, then one third (1 /3) of such Class B portion shall become
immediately exercisable, (ii) the closing bid of the Common Shares equals or
exceeds $12.50 per share on any trading day, then two-thirds (2/3) of the Class
B portion (cumulatively) shall be immediately exercisable; and (iii) the closing
bid of the Common Shares equals or exceeds $15.00 per share, on any trading day,
then the Class B portion shall be immediately exercisable in full. In addition,
the option shall become immediately exercisable in full upon (xi) the
consummation of a Change in Control, (xii) the occurrence of an event resulting
in a Company obligation to pay High Severance as provided in Section 5 hereof,
(xiii) High's death, or (xiv),High's Complete Disability. The option shall have
a term of 10 years except as otherwise provided in Section 5 hereof. As soon as
practicable after the Employment Date, the Company shall cause the offering of
the option and the Common Shares covered by such option to be registered with
the Securities and Exchange Commission on a Form S-8 Registration Statement.
(c)
(d) WELFARE AND RETIREMENT BENEFITS. During the term of High's employment
with the Company, at no cost to High, the Company shall provide High with family
coverage under the health insurance plan chosen by High from the plans offered
to the Company's regular full-time employees. High may participate in such
additional employee benefit plans, including but not limited to 401 (k),
pension, and dental insurance plans, as the Company makes available generally to
executives of the Company.
(e) LIFE INSURANCE. During the term of High's employment with the Company,
the Company shall make premium payments for a permanent whole life insurance
policy on the life of High, such policy to be secured and owned by High or
any other person designated by High, up to a maximum annual amount of $14,850.
(f) LONG-TERM DISABILITY INSURANCE. During the term of High's employment
with the Company, the Company will secure and maintain a long-term disability
insurance policy with respect to High providing for benefits of not less than
$5,000 per month for 60 months.
(g) AUTOMOBILE. During the term of High's employment with the Company,
the Company will provide High with a monthly automobile allowance of $ 1,000.
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(h) VACATION. During the term of High's employment with the Company,
High will be allowed up to five (5) weeks of paid vacation during each calendar
year. Unused vacation during any calendar year may not be carried over into a
succeeding calendar year.
(i) DIRECTORS AND OFFICERS INSURANCE. During the term of High's
employment with the Company, the Company shall use its best efforts to insure
High for all acts and services he performs and provides hereunder and agrees to
indemnify him for any losses, costs, claims, damages and expenses that he may
incur as a result of his employment activities hereunder which are neither
willful nor grossly negligent to the fullest extent permitted under law.
(j) BUSINESS EXPENSES. During the term of High's employment with the
Company, the Company will reimburse High for the costs of cell phone and home
fax operation, and an internet telephone line. The Company will reimburse High
for the ordinary and necessary business travel, lodging, meal and entertainment
expenses he reasonably incurs in furtherance of the business activities of the
Company. The Company's agreement under this subparagraph (j) is subject to
High's substantiation and reporting of such expenses in accordance with Company
policy and applicable federal and state income tax laws.
4. NON-COMPETITION AGREEMENT.
(a) High will not, during the period of High's employment by or with the
Company, and for a period of one (1) year immediately following the termination
of High's employment under this Agreement, for any reason whatsoever, directly
or indirectly, for High or on behalf of or in conjunction with any other person,
persons, company, partnership, corporation or business of whatever nature:
(i) engage, as an officer, director, stockholder, owner, partner,
joint venturer, or in a managerial, consulting or advisory capacity, whether as
an employee, independent contractor, consultant or advisor, or as a sales
representative, in any business which offers any services or products in direct
competition with Company within the Territory;
(ii) call upon any person who is, at that time, within the Territory,
an employee of the Company in a managerial capacity for the purpose or with the
intent of enticing such employee away from or out of the employ of Company;
(iii) call upon any person or entity which is, at that time, or which
has been, within one (1) year prior to that time, a client of Company within the
Territory for the purpose of soliciting or selling products or services in
direct competition with Company within the Territory;
(iv) call upon any prospective acquisition candidate, on High's own
behalf or on behalf of any competitor, which candidate was, to High's actual
knowledge after due inquiry, either called upon by Company or for which Company
made an acquisition analysis, for the purpose of acquiring such entity; or
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<PAGE> 6
(v) induce or attempt to induce any person known by High to be a
customer, supplier, or business relation of the Company to cease doing business
with the Company or in any way interfere with the relationship between the
Company and any person known by High to be a customer, supplier, licensee, or
business relation of the Company.
Notwithstanding the above, the foregoing covenants shall not be deemed to
prohibit High from acquiring as an investment not more than one percent (1%) of
the capital stock of a competing business, whose stock is traded on a national
securities exchange or over-the-counter.
(b) Because of the difficulty of measuring economic losses to Company as a
result of a breach of the foregoing covenants, and because of the immediate and
irreparable damage that could be caused to Company for which Company would have
no other adequate remedy, High agrees that the foregoing covenants may be
enforced by Company in the event of breach by High, by injunctions and
restraining orders.
(c) The covenants in this Section 4 are severable and separate, and the
unenforceability of any specific covenant shall not affect the provisions of any
other covenant. Moreover, in the event any court of competent jurisdiction shall
determine that the scope, time or territorial restrictions set forth are
unreasonable, then it is the intention of the parties that such restrictions be
enforced to the fullest extent which the court deems reasonable, and this
Agreement shall thereby be reformed.
(d) High acknowledges that the covenants in this Section 4 (i) are agreed
to by High as an inducement for and in consideration of the Company's entering
into this Agreement, and (ii) contain limitations as to time, geographic area
and scope of activity to be restrained that are reasonable and do not impose a
greater restraint than is necessary to protect the goodwill or other business
interests of Company.
(e) High agrees that all of the covenants in this Section 4 shall be
construed as an agreement independent of any other provision in this Agreement,
that Company shall be the beneficiary of and have the right to enforce such
covenants, and that the existence of any claim or cause of action of High
against Company, whether predicated on this Agreement or otherwise, shall not
constitute a defense to the enforcement by Company of such covenants. It is
specifically agreed that the period of one (1) year following termination of
employment stated at the beginning of this Section 4, during which the
agreements and covenants of High made in this Section 4 shall be effective,
shall be computed by excluding from such computation any time during which High
is in violation of any provision of this Section 4.
5. TERM AND TERMINATION.
(a) TERM. High's employment pursuant to this Agreement shall begin on the
Employment Date, and shall terminate upon the expiration of the Initial Term,
unless extended as provided in subparagraph (b) below. Notwithstanding the
foregoing, this Agreement shall immediately terminate upon the occurrence of the
following events: (i) High's death; (ii) High's
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Complete Disability; (iii) High's resignation with or without Good Reason; or
(iv) termination of High's employment by the Company with or without Cause.
(b) EXTENSION OF AGREEMENT. If neither the Company nor High have given
written notice to the other that this Agreement shall not be renewed at the end
of the Initial Term at least sixty (60) days prior to the expiration thereof,
then High's employment under this Agreement shall be automatically extended for
the Subsequent Term unless sooner terminated as herein provided. In the event
that the Company does not renew this Agreement through the Subsequent Term,
Executive will receive Severance for one (1) year after expiration of the
Initial Term. That portion of Severance attributable to Base Salary shall be
paid, at the election of the Company, in equal monthly installments through the
end of the one (1) year severance period, or in a single lump sum payment made
not more than 30 days after the expiration of the Initial Term. In the event
that High does not renew this Agreement through the Subsequent Term, any
unvested portion of the option described in Section 3(c) hereof shall terminate
upon the expiration of the Initial Term, and any vested portion of such option
shall terminate if not exercised within 90 days of the expiration of the Initial
Term.
(c) DEATH. If High dies while in the employ of the Company, the Company
will pay to High's Designated Beneficiary Base Salary accrued through the date
of death. The option described in Section 3(c) hereof shall become immediately
exercisable in full. Such option shall terminate if not exercised within one (1)
year after the date of death.
(d) COMPLETE DISABILITY. In the event of High's Complete Disability, the
Company will pay High Base Salary accrued through the date of Complete
Disability. The option described in Section 3(c) hereof shall become immediately
exercisable in full. Such option shall terminate if not exercised within one (1)
year after the date of Complete Disability.
(e) EXECUTIVE RESIGNATION; COMPANY TERMINATION WITHOUT CAUSE.
(i) Either High or the Company may terminate this Agreement for any reason
without Cause by providing the other party at least five (5) business days
advance written notice of termination.
(ii) Upon termination of this Agreement by High other than for Good Reason,
High shall be entitled to receive Base Salary accrued through the date of
termination. Any unvested portion of the stock option described in Section 3(c)
hereof shall terminate immediately, and any vested portion of such option shall
terminate if not exercised within 90 days of termination.
(iii) Upon termination of this Agreement by High for Good Reason, or by the
Company without Cause, High will receive Severance until the later of (i) the
expiration of the Initial Term or Subsequent Term, as applicable, or (ii) two
(2) years after the date of termination. That portion of Severance attributable
to Base Salary shall be paid in a single lump sum payment not more than thirty
(30) days after termination of this Agreement. High shall have no obligation to
seek or obtain other employment and the failure to seek or obtain other
employment shall not reduce in any way the Company's obligations under this
Section 5(e)(iii).
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(f) TERMINATION FOR CAUSE. In the event the Company terminates High's
employment for Cause, High shall be entitled to Base Salary accrued through the
date of termination, but shall be entitled to no further rights or benefits
hereunder. Any unvested portion of the stock option described in Section 3(c)
hereof shall terminate immediately, and any vested portion of such option shall
terminate if not exercised within 90 days of termination.
6. RETURN OF COMPANY PROPERTY. All records, files, business plans,
financial statements, manuals, memoranda, lists, designs, patents, and other
property delivered to or compiled by High by or on behalf of Company or any of
its representatives, vendors or clients which pertain to the business of Company
shall be and remain the property of Company and be subject at all times to its
discretion and control. Likewise, all correspondence, reports, records, charts,
advertising materials and other similar data pertaining to the business,
activities or future plans of Company which is collected by High shall be
delivered promptly to the Company without request by it upon termination of
High's employment.
7. INVENTIONS AND WORKS. High shall disclose promptly to the Company any
and all significant conceptions and ideas for inventions, improvements and
valuable discoveries, whether patentable or not, and any and all works of
authorship (including computer software), whether copyrightable or not, which
are conceived or made by High, solely or jointly with another, during the period
of employment or within one (1) year thereafter, and which are directly related
to the business or activities of Company and which High conceives as a result of
High's employment by the Company. High hereby assigns and agrees to assign all
High's interests therein to the Company or its nominee. Whenever requested to do
so by the Company, High shall execute any and all applications, assignments or
other instruments that the Company shall deem necessary to apply for and obtain
copyright registration or Letters Patent of the United States or any foreign
country or to otherwise protect the Company's interest therein.
8. TRADE SECRET, PROPRIETARY AND CONFIDENTIAL INFORMATION. High
acknowledges and agrees that during the course of High's employment with the
Company, High may learn about, develop or be entrusted with Trade Secret,
Proprietary and Confidential Information. The Company has in the past and will
in the future use reasonable efforts to keep secret the Trade Secret,
Proprietary and Confidential Information. High expressly acknowledges and agrees
that unless the Trade Secret, Proprietary and Confidential Information becomes
publicly known through legitimate means not involving an act or omission by
High: (i) the Trade Secret, Proprietary and Confidential Information is, and at
all times shall remain, the sole and exclusive property of the Company unless it
shall become publicly known in the Company's business without any involvement on
High's part; (ii) High shall use the utmost diligence to guard and protect the
Trade Secret, Proprietary and Confidential Information from disclosure to any
other person or entity except in the scope of the discharge of his duties to the
Company; (iii) High shall not use for his own benefit, or for the benefit of any
other person or entity other than the Company, and shall not disclose, directly
or indirectly, to any other person or entity, any of the Trade Secret,
Proprietary and Confidential Information except in the scope of the discharge of
his duties to the Company; and (iv) except in the scope of the discharge of his
duties to the Company, High shall not seek or accept any of the Trade Secret,
Proprietary and Confidential Information from any former, present, or future
employee of the Company.
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9. NO PRIOR AGREEMENTS. High hereby represents and warrants to the
Company that the execution of this Agreement by High and High's employment by
the Company and the performance of High's duties hereunder will not violate or
be a breach of any agreement with a former employer, client or any other person
or entity. Further, High agrees to indemnify the Company for any claim,
including, but not limited to, attorneys' fees and expenses of investigation, by
any such third party that such third party may now have or may hereafter come to
have against the Company based upon or arising out of any non-competition
agreement, invention or secrecy agreement between High and such third party
which was in existence as of the date of this Agreement.
10. ASSIGNMENT; BINDING EFFECT. High understands that High has been
selected for employment by the Company on the basis of High's personal
qualifications, experience and skills. High agrees, therefore, that High cannot
assign all or any portion of High's performance under this Agreement. Subject to
the preceding two (2) sentences, this Agreement shall be binding upon, inure to
the benefit of and be enforceable by the parties hereto and their respective
heirs, legal representatives, successors and assigns.
11. NO GUARANTEE OF EMPLOYMENT. This Agreement does not create any
obligation of the Board to accept any proposed venture capital investment, or
any guarantee that an Employment Date will occur. In the event that High is
employed by the Company in any capacity prior to an Employment Date, the terms
of this Agreement shall not apply.
12. COMPLETE AGREEMENT . This Agreement is not a promise of future
employment. High has no oral representations, understandings or agreements with
the Company or any of its officers, directors or representatives covering the
same subject matter as this Agreement. This written Agreement is the final,
complete and exclusive statement and expression of the agreement between the
Company and High and of all the terms of this Agreement, and it cannot be
varied, contradicted or supplemented by evidence of any prior or contemporaneous
oral or written agreements. This written Agreement may not be later modified
except by a further writing signed by a duly authorized officer of the Company
and High, and no term of this Agreement may be waived except by writing signed
by the party waiving the benefit of such term.
13. NOTICE. Whenever any notice is required hereunder, it shall be given
in writing addressed as follows:
To the Company: Cytation.com Incorporated
809 Aquidneck Avenue
Middletown, RI 02842
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To High: Kevin J. High
One Mount View Road
Portsmouth, RI 02871
Notice shall be deemed given and effective three (3) days after the deposit
in the U.S. mail of a writing addressed as above and sent first class mail,
certified, return receipt requested, or when actually received if earlier.
Either party may change the address for notice by notifying the other party of
such change in accordance with this Section 13.
14. SEVERABILITY; HEADINGS. If any portion of this Agreement is held
invalid or inoperative, the other portions of this Agreement shall be deemed
valid and operative and, so far as is reasonable and possible, effect shall be
given to the intent manifested by the portion held invalid or inoperative. The
paragraph headings herein are for reference purposes only and are not intended
in any way to describe, interpret, define or limit the extent or intent of this
Agreement or of any part hereof.
15. ARBITRATION. Any dispute, controversy or claim arising out of or
relating to this Agreement or the breach or performance hereof will be settled
by arbitration in accordance with the laws of the State of Rhode Island by an
arbitrator mutually agreed upon by the Company and High. If an arbitrator cannot
be agreed upon, the Company and High shall each choose an arbitrator, and these
two together shall select a third arbitrator. If the first two arbitrators
cannot agree on the appointment of a third arbitrator, then the third arbitrator
will be appointed by the American Arbitration Association in Providence, Rhode
Island[?]. Such arbitration will be conducted in the City of Providence in
accordance with the Commercial Arbitration Rules of the American Arbitration
Association, except with respect to the selection of arbitrators which shall be
as provided in this Section 15. Judgment upon the award rendered by the
arbitrators may be entered in any court having jurisdiction thereof.
16. GOVERNING LAW. This Agreement shall in all respects be construed
according to the laws of the State of Delaware.
17. COUNTERPARTS. This Agreement may be executed simultaneously in two (2)
or more counterparts, each of which shall be deemed an original and all of which
together shall constitute but one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
day and year first above written.
CYTATION.COM INCORPORATED
By: /s/ Richard A. Fisher
--------------------------------------
Title: Chairman of the Board
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KEVIN J. HIGH
/s/ Kevin. J. High
----------------------------
Kevin J. High
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<PAGE> 1
Exhibit 10.14
AGREEMENT
THIS AGREEMENT dated as of June 30, 1998 between the College Entrance
Examination Board, an education corporation organized under the laws of the
State of New York (the "College Board") on its own behalf and on behalf of the
Educational Testing Service, an education corporation organized under the laws
of the State of New York ("ETS"), and ECI, Inc., a Massachusetts corporation
("ECI").
WHEREAS, ECI is engaged in the business of assisting students and
institutions of higher education with the student application process through
its software product CollegeLink ("CollegeLink");
WHEREAS, the College Board, through its ExPAN software product
("ExPAN"), makes available to students a broad range of counseling regarding
application to institutions of higher education;
WHEREAS, the College Board and ECI desire that CollegeLink be used in
conjunction with ExPAN, as more fully provided below.
NOW THEREFORE, in consideration of the mutual promises and covenants
contained herein, the College Board and ECI agree as follows:
1. GRANT OF LICENSE. ECI hereby grants to the College Board, for the
term of this Agreement, a nonexclusive license to CollegeLink, to integrate
CollegeLink into and utilize CollegeLink in connection with the College Board's
ExPAN program, subject to the terms and conditions of this Agreement. Without
ECI's prior written consent, the College Board shall not license or sub-license
CollegeLink to others. Except as otherwise expressly provided herein, this
Agreement does not confer upon the College Board the right to use CollegeLink
for any other purpose.
2. INTEGRATION. The College Board will be responsible for integrating
CollegeLink into the ExPAN program. The College Board will bear the costs of
such integration, including the costs of mapping the ExPAN personal profile
capability into the CollegeLink student software and the modification of the
CollegeLink software to accommodate multiple users in ExPAN.
ECI will provide reasonable technical support to the College Board, on
an ongoing basis, to assist the College Board with (i) the process of
integrating CollegeLink into ExPAN, (ii) the training of College Board personnel
in the use of CollegeLink and (iii) assisting the College Board and ExPAN users
in the resolution of any problems encountered in the use of CollegeLink. ECI
will continue to develop and modify CollegeLink to ensure CollegeLink files and
applications may be used in connection with ExPAN. On an ongoing basis, ECI will
update CollegeLink's programming to accommodate colleges which are new users to
the CollegeLink System.
<PAGE> 2
3. MARKETING ARRANGEMENT. In connection with the license grant
hereunder, the College Board will utilize CollegeLink, and make the CollegeLink
name and "CollegeLink" trademark visible in connection with its ExPAN program.
The combination of the CollegeLink and ExPAN software programs is hereinafter
referred to as "ExPAN-CollegeLink".
The College Board agrees to use reasonable efforts to actively market
ExPAN-CollegeLink. Such marketing-related undertakings will include, without
limitation:
(a) CollegeLink will be integrated into ExPAN so that it may
be downloaded by users of ExPAN. CollegeLink software will be available for free
distribution to users other than ExPAN users on the College Board Website,
College Board Online.
(b) The College Board agrees to train its regional consultants
and service representatives to enable them to better provide information
services and access to users and potential users of ExPANCollegeLink.
(c) ECI will be allowed to participate in ExPAN related
activities at College Board regional and national conferences, as well as
seminars for colleges, secondary schools and college fairs, to provide
information about ExPAN-CollegeLink.
(d) The College Board and ECI will engage in mutually agreed
upon joint marketing activities relating to ExPAN-CollegeLink.
(e) The College Board will engage in appropriate direct
marketing activities to provide information about ExPAN-CollegeLink in a manner
it deems reasonable.
4. FEES. (a) In addition to ECI's provision of the services and
software development set forth in Section 2 hereof, and as a reimbursement of
software expenses for college application replications of low revenue-producing
institutions in the amount of $125 per replication (as determined based upon a
list of colleges subject to such fee to be mutually agreed upon by the parties),
the College Board shall remit to ECI payments, not to exceed $25,000 per year,
as follows. Payments will be remitted by the College Board to ECI on each July 1
and September 30, with the first payment of $15,000 due on July 1, 1998.
Thereafter, payments will be made by the College Board based upon bills
submitted to the College Board by ECI and as shall be agreed upon by the
parties, provided that, the July 1, 1999 payment shall not exceed $15,000. In
the event that during the term of this Agreement the scope and/or amount of such
services materially changes, as reasonably determined by either party, upon
notice to the other party of such material change, each party agrees that it
will in good faith use its best efforts to negotiate promptly an adjustment to
the annual payment due under this Section 4(a).
(b) In connection with the services that the College Board provides
hereunder, ECI will remit to the College Board semi-annually on each December 31
and June 30 25% of the revenue collected by ECI in such semi-annual period from
student fees associated with, and college fees associated with, (i)
ExPAN-CollegeLink and (ii) CollegeLink software downloaded
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from College Board Online, as set forth below. Revenues collected by ECI from
student fees shall equal the aggregate revenue received from such students minus
shipping and handling costs associated with earning such revenues. Revenues
collected by ECI from colleges shall equal the product of (x) the aggregate
revenue received from such colleges and (y) the ratio that (i) the aggregate
number of applications prepared for colleges through CollegeLink attributable to
ExPAN-CollegeLink and CollegeLink software downloaded from College Board Online
bears to (ii) the aggregate number of applications prepared through CollegeLink.
5. BOOKS AND RECORDS. At the College Board's request, ECI will make
available, during normal business hours and upon reasonable notice, the relevant
books and records in respect of the amounts payable by ECI pursuant to Section 4
(b) of this Agreement for audit by the College Board or its agents, auditors,
accountants, or other representatives.
6. MONTHLY ACCOUNTING. ECI will provide to the College Board on a
monthly basis a written accounting of its collections and revenues from, and
reports of the number of applications by institution generated through, (i)
ExPANCollegeLink and (ii) CollegeLink software downloaded from College Board
Online.
7. SHARING OF ENHANCEMENTS. The College Board and ECI shall each
document and disclose promptly to the other, without charge, all future
installment modifications or enhancements of CollegeLink and ExPAN which become
known to either of them, except any such installment modifications or
enhancements which are the proprietary and confidential information of any third
party.
8. PROPRIETARY RIGHTS. (a) ECI acknowledges that ExPAN and College
Board Online, including all future installment modifications and enhancements
referred to in Section 7 above and developed by either party hereto, are and
shall at all times remain the College Board's and ETS' property and that,
without limiting the generality of the foregoing, as between the College Board,
ETS and ECI, the College Board and ETS are the owners of all rights therein
including, without limitation, (a) any copyrights and all renewals and
extensions thereof, (b) any trade secrets or know-how embodied therein, (c) any
technical data or information contained therein, and (d) the design and visual
front-end appearance to any user of ExPAN or the College Board Online.
(b) The College Board and ETS acknowledge that CollegeLink,
including all future installment modifications and enhancements referred to in
Section 7 above and developed by either party hereto, is and shall at all times
remain ECI's sole and exclusive property and that, without limiting the
generality of the foregoing, as between ECI, the College Board and ETS, ECI is
the sole and exclusive owner of all rights therein including, without
limitation, (a) any copyrights and all renewals and extensions thereof, (b) any
trade secrets or know-how embodied therein, (c) any technical data or
information contained therein, and (d) the design and visual front-end
appearance to any User of CollegeLink.
9. RIGHTS IN DATA. All data, including names, collected or obtained by
ECI through ExPAN-CollegeLink or CollegeLink software downloaded from College
Board Online shall be
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used solely for its intended admissions related purposes, as authorized by the
providers of such data, and may not be sold, distributed or otherwise
appropriated for ECI's own use.
10. CONFIDENTIAL INFORMATION. The parties recognize that it may be
desirable or necessary for one party the "Disclosing Party") to disclose to the
other party (the "Receiving Party") confidential and proprietary information of
the Disclosing Party ("Confidential Information"). In the event of any such
disclosure, the Receiving Party agrees that for a period of 2 years from the
date of disclosure of Confidential Information by a Disclosing Party to the
Receiving Party, the Receiving Party shall:
(i) receive all Confidential Information disclosed to it,
whether written or oral, in strictest confidence, and shall not
disclose Confidential Information to any person other than those
of its employees or agents to whom disclosure of such
Confidential Information is necessary in connection with the
performance of this Agreement;
(ii) receive and utilize all Confidential Information
disclosed to it solely in connection with the performance of this
Agreement;
(iii) safeguard all Confidential Information disclosed to
it, and prevent Confidential Information from becoming disclosed
to any unauthorized person or entity; and
(iv) promptly return to the Disclosing Party, upon
reasonable request at the termination of this Agreement, all
documents in the possession or control of the Receiving Party or
its agents that contain o r relate to Confidential Information.
As used herein, "Confidential Information" shall not include any data
or information that:
(i) was in the lawful possession of the Receiving Party,
without obligation of confidentiality, prior to disclosure of
such information by the Disclosing Party;
(ii) is furnished to the Receiving Party by a third party
without breach of any obligation of confidentiality to the
Disclosing Party;
(iii) becomes publicly known without breach of any
obligation of confidentiality to the Disclosing Party;
(iv) this Agreement, or the Disclosing Party in writing,
shall expressly permit the Receiving Party to publicly disclose;
or
(v) was developed, invented, or otherwise known to the
Receiving Party outside of its services under this Agreement.
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The obligations of the parties under this Section shall survive
termination of this Agreement. Nothing contained in this Agreement shall be
deemed to transfer or confer ownership or other exclusive rights from the
Disclosing Party to the Receiving Party of any Confidential Information or other
information owned by the Disclosing Party, or in the public domain.
11. RELATIONSHIPS OF PARTIES. This Agreement is non-exclusive and
either party is free to enter into and continue similar arrangements with other
parties, to provide products and services to any licensee or prospective
licensee and to develop, completely independently of the products and services
which are the subject of this Agreement, use or market products, services or
materials similar to or competitive with the products and services which are the
subject of this Agreement; provided such arrangements and efforts do not violate
the provisions of or interfere with the obligations of the parties under this
Agreement; and provided, further, that the College Board shall not provide
access through ExPAN to any college application service other than CollegeLink.
12. INDEMNIFICATION. ECI agrees to indemnify, hold harmless and
defend the College Board and its directors, officers, employees, vendors and
agents from any and all incurred fines, penalties, judgments, losses, claims,
liabilities, damages, costs and expenses (including reasonable attorney's fees
and costs of suit) relating to this Agreement to the extent they arise out of:
(i) a breach of ECI's obligations set forth in this
Agreement, except to the extent caused by the College Board's (or
any of its employees') negligence, willful misconduct, bad faith,
or reckless disregard of its duties and obligations under this
Agreement;
(ii) the willful misconduct or intentionally tortious
conduct of ECI (or any of its employees) in connection with the
performance of obligations under this Agreement; or
(iii) any failure by ECI to comply with any terms of this
Agreement;
The College Board agrees to indemnify, hold harmless and defend ECI and
its directors, officers, employees, vendors and agents from any and all incurred
fines, penalties, judgments, losses, claims, liabilities, damages, costs and
expenses (including reasonable attorney's fees and costs of suit) relating to
this Agreement to the extent they arise out of:
(i) a breach of the College Board's obligations set forth in
this Agreement, EXCEPT to the extent caused by ECI's (or any of
its employees') negligence, willful misconduct, bad faith, or
reckless disregard of its duties and obligations under this
Agreement;
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<PAGE> 6
(ii) the willful misconduct or intentionally tortious
conduct of the College Board (or any of its employees) in
connection with the performance of obligations under this
Agreement; or
(iii) any failure by the College Board to comply with any
terms of this Agreement.
The provisions of this Section 12 shall survive the termination or
expiration of this Agreement and shall extend to any claims brought hereunder to
the attention of the other party before the second anniversary of the date of
such termination or expiration.
13. TERM. This Agreement shall be in effect for two years from the date
hereof, with an option for a third year, upon the mutual agreement of the
parties. Thereafter, this Agreement may be renewed for successive periods by
mutual agreement of the parties. The College Board or ECI, however, may at any
time deliver to the other at least one year's prior written notice of its
election to terminate this Agreement, whereupon this Agreement shall terminate
at the end of such notice period or such lesser period as may be required by
law. Upon the expiration or termination of this Agreement, the College Board
shall promptly return to ECI, at the College Board's expense, (i) all materials
in the College Board's possession constituting CollegeLink (including without
limitation all system tapes, disks, technical manuals, and other software)
delivered by the ECI to the College Board for College Board's use, and (ii) any
copies of such materials made by the College Board.
14. AUTHORITY. Each of the College Board and ECI hereby represents and
warrants to the other that it has the right and authority to enter into this
Agreement, and that the Agreement is the legal, valid and binding obligation of
the party enforceable against it in accordance with its terms.
15. NOTICES. All notices or other communications hereunder shall be
deemed to have been duly given and made if in writing and if served by personal
delivery upon the party for whom it is intended on the day so delivered, if
delivered by registered or certified mail, return receipt requested, on the
third business day following such mailing or by a national courier service on
the business day following such mailing, or if sent by facsimile on the day
sent, or if not a business day, the next succeeding business day, provided that
the facsimile is promptly confirmed by telephone confirmation thereof, to the
person at the address set forth below, or such other address as may be
designated in writing hereafter, in the same manner, by such person:
The College Board
45 Columbus Avenue
New York, NY 10023
Attention: Kenneth W. Rodgers, Senior Vice President,
Facsimile: (212) 713-8282
With a copy to:
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Sullivan & Cromwell
125 Broad Street
New York, NY 10004
Attention: Henry Christensen III
Facsimile: (212) 558-3588
and to ECI at:
55 Green Street
Clinton, MA 01510
Attention: Gerald Paxton, President
Facsimile: (978) 365-4900
With a copy to:
Testa, Hurwitz & Thibeault, LLP
High Street Tower
125 High Street Boston, MA 02110
Attention: Gordon Hayes
Facsimile: (617) 248-7100
16. LAW GOVERNING. This Agreement shall be construed in accordance with
and governed by the laws of the state of New York applicable to agreements made
and to be performed in New York without regard to its conflicts of laws
principles.
17. LIMITATION OF LIABILITY. In no event shall either party be liable
to the other for any lost profits or any claim based upon any third party claim
or ANY INDIRECT, INCIDENTAL SPECIAL OR CONSEQUENTIAL DAMAGES, EVEN IF ADVISED OF
THE POSSIBILITY OF SUCH DAMAGES.
18. ASSIGNMENT. Rights and obligations under this Agreement may not be
assigned or delegated by any party, or succeeded to by the successors or
permitted assignees of any party, without the written consent of the other
party, and any attempt to assign any rights or delegate any obligations, or
succeed to any rights or obligations arising under this Agreement, without such
written consent shall be void and shall result in the immediate termination of
this Agreement at the election of the other party.
19. AMENDMENT; WAIVER. Any provision of this Agreement may be amended
or waived if, and only if, such amendment or waiver is in writing and signed, in
the case of an amendment, by the parties, or in the case of a waiver, by the
party against whom the waiver is to be effective. No failure or delay by any
party in exercising any right, power or privilege hereunder shall operate as a
waiver thereof nor shall any single or partial exercise thereof or the exercise
of any other right, power or privilege. Except as otherwise provided herein, the
rights and remedies herein provided shall be cumulative and not exclusive of any
rights or remedies provided by law.
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<PAGE> 8
20. SEVERABILITY. The provisions of this Agreement shall be deemed
severable and the invalidity or unenforceability of any provision shall not
affect the validity or enforceability of the other provisions hereof. If any
provision of this Agreement, or the application thereof to any person or entity
or any circumstance, is invalid or unenforceable, (a) a suitable and equitable
provision shall be substituted therefor in order to carry out so far as may be
valid and enforceable provision and (b) the remainder of this Agreement and the
application of such provision to other persons, entities or circumstances shall
not be affected by such invalidity or unenforceability, nor shall such
invalidity or unenforceability affect the validity or enforceability of such
provision , or the application thereof, in any other jurisdiction.
21. THIRD-PARTY RIGHTS. Nothing contained in this Agreement, express or
implied, establishes or creates, or is intended or will be construed to
establish or create, any right in or remedy of, or any duty or obligation to,
any third party.
IN WITNESS WHEREOF, the College Board and ECI have executed and
delivered the Agreement as of the date first written above.
COLLEGE ENTRANCE
EXAMINATION BOARD
By: /s/ Kenneth B. Brown
-------------------------------------
Name: Kenneth B. Brown
Title: Vice President and Treasurer
Attest: /s/ Thomas M. Mcnamara
--------------------------
Name: Thomas M.McNamara
Title: Asst. Treasurer
ECI, INC.
By: /s/ Gerald A. Paxton
-------------------------------------
Name: Gerald A. Paxton
Title: Chief Executive Officer
Attest:
----------------------------
Name:
Title:
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<PAGE> 1
Exhibit 10.16
LEASE
THIS INSTRUMENT IS A LEASE, dated as of September 22, 1999 in which the
Landlord and the Tenant are the parties hereinafter named, and which
relates to space in the building known as the Tech 2 Office Building, having an
address of 55 Hammarlund Way, Middletown, Rhode Island 02840 (the "Building").
The parties to this instrument hereby agree with each other as follows:
ARTICLE I
BASIC LEASE PROVISIONS
1.1 INTRODUCTION. The following terms and provisions in this Article I set
forth basic data and, where appropriate, constitute definitions of the terms
hereinafter listed:
1.2 LANDLORD AND TENANT.
Landlord: Midview, LLC
Landlord's Original Address: c/o Nordblom Management Co., Inc.
31 Third Avenue
Burlington, MA 0 1803
Tenant: Cytation.com, Incorporated, a New York corporation
Tenant's Original Address: 809 Aquidneck Avenue
Middletown, RI 02842
1.3 BASIC DATA.
Basic Rent: On an annual, monthly and per square foot basis, the basic rent
shall be as follows:
<TABLE>
<CAPTION>
Annual Rent Monthly Rent Per Square Foot
- - - -------------------------------------------------------------------------------
<S> <C> <C> <C>
Months 1-3 $ -0- $ -0- $ -0-
Months 4-15 122,325.00 10,193.75 10.50
Months 16-27 125,237.50 10,436.46 10.75
Months 28-39 128,150.00 10,679.17 11.00
Months 40-51 131,062.50 10,921-88 11.25
Months 52-63 133,975.00 11,164.58 11.50
- - - -------------------------------------------------------------------------------
</TABLE>
Base Operating Expenses: The Operating Expenses for the calendar year 1999.
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Base Utility Expenses: The Utility Expenses for the calendar year 1999 (which do
not include electricity supplied to those portions of the Building leased or
intended to be leased to tenants).
Base Taxes: The real estate taxes assessed to the Property as of December 31,
1998 and due in calendar year 1999, as they may be reduced by the amount of any
abatement (plus any cost incurred in obtaining any abatement).
Building Rentable Area: 45,048 rentable square feet
Business Days: All days except Saturdays, Sundays, New Year's Day, Washington's
Birthday, Memorial Day, Independence Day, Labor Day, Columbus Day, Veterans'
Day, Thanksgiving Day, Christmas Day (and the following day when any such day
occurs on Sunday).
Commencement Date: As defined in Section 4.1.
Escalation Charges: Collectively, Tenant's obligations on account of Taxes,
Operating Expenses and Utility Expenses.
Escalation Factor: 26%.
Initial Term: Five (5) years and three (3) months commencing on the Commencement
Date and expiring at the close of the business day on November 30, 2004.
Initial Public Liability Insurance: $1,000,000 per person; $3,000,000 per
occurrence (combined single limit for property damage, bodily injury or death).
Manager: Nordblom Management Co., Inc., 31 Third Avenue, Burlington, MA 01803
Operating Expenses: As set forth in Section 9.1 and Exhibit C.
Operating Year: As defined in Section 9.1.
Permitted Use: General office.
Premises: A portion of the Building as shown in cross hatching on Exhibit A
annexed hereto and located on the second floor of the Building.
Premises Rentable Area: Approximately 11,650 square feet located on the second
floor of the Building as shown on Exhibit A attached hereto.
Property: The Building and the parcel of land on which it is located (including
adjacent sidewalks).
Security Deposit: $33,493.74, subject to the terms of Section 14.17.
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Term of this Lease: The Initial Term as defined above and any extension thereof
in accordance with the provisions of this Lease.
Utility Expenses: As defined in Section 9.1.
1.4 EXHIBITS: The following Exhibits are annexed to this Lease and incorporated
herein by this reference:
Exhibit A - Plan Showing Premises
Exhibit B - Operating Expenses
Exhibit C - Rules and Regulations
ARTICLE II
PREMISES AND APPURTENANT RIGHTS
2.1 LEASE OF PREMISES. Landlord hereby demises and leases to Tenant for the
Term of this Lease and upon the terms and conditions hereinafter set forth, and
Tenant hereby accepts from Landlord, the Premises.
2.2 APPURTENANT RIGHTS AND RESERVATIONS. (a) Tenant shall have, as appurtenant
to the Premises, the non-exclusive right to use, and permit its invitees to use
in common with others, public or common lobbies, hallways, stairways and
elevators and common walkways necessary for access to the Building, existing
common conduits and risers for computer, telephone and telecommunications
purposes,and, if the portion of the Premises on any floor includes less than the
entire floor, the common toilets, corridors and elevator lobby of such floor;
but Tenant shall have no other appurtenant rights and all such rights shall
always be subject to reasonable rules and regulations from time to time
established by Landlord pursuant to Section 14.7 and to the right of Landlord to
designate and change from time to time areas and facilities so to be used.
(b) Excepted and excluded from the Premises are the ceiling, floor,
perimeter walls and exterior windows, except the inner surfaces thereof, but the
entry doors (and related glass and finish work) to the Premises are a part
thereof, and Tenant agrees that Landlord shall have the right to place in the
Premises (but in such manner as to reduce to a minimum interference with
Tenant's use of the Premises) interior storm windows, subcontrol devices (by way
of illustration, an electric sub panel, etc.), utility lines, pipes, equipment
and the like, in, over and upon the Premises. Tenant shall install and maintain,
as Landlord may require, proper access panels in any hung ceilings or walls as
may be installed by Tenant in the Premises to afford access to any facilities
above the ceiling or within or behind the walls.
(c) Tenant shall have, as appurtenant to the Premises, the non-exclusive
night to use, and permit its invitees to use in common with others, the parking
areas located on the Property;
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<PAGE> 4
provided, however, that such use of the parking areas by Tenant or its invitees
shall not exceed sixty (60) parking spaces at any given time. The use of such
parking area shall be subject to reasonable rules and regulations from time to
time established by Landlord pursuant to Section 14.7 and to the right of
Landlord to designate and change from time-to-time parking areas and facilities
so to be used.
ARTICLE III
BASIC RENT
3.1 PAYMENT. (a) Tenant agrees to pay to Landlord, or as directed by Landlord,
commencing on the Commencement Date without offset, abatement (except as
provided in Article 12. 1), deduction or demand, the Basic Rent. Such Basic Rent
shall be payable in equal monthly installments, in advance, on the first day of
each and every calendar month during the Term of this Lease, at Landlord's
Original Address, or at such other place as Landlord shall from time-to-time
designate by notice to Tenant. Until another designation is given, Basic Rent
and all other charges for which provision is herein made shall be paid by
remittance payable to the Manager and addressed to the Manager, at 31 Third
Avenue, Burlington, MA 01803 Attention: Accounts Receivable, and all remittances
so received as aforesaid, or by any subsequently designated recipient, shall be
treated as a payment to Landlord. In the event that any installment of Basic
Rent is not paid within five (5) days of when due, Tenant shall pay, in addition
to any other charges due under this Lease, at Landlord's request an
administrative fee equal to 5% of the overdue payment.
(b) Basic Rent for any partial month shall be pro-rated on a daily basis,
and if the first day on which Tenant must pay Basic Rent shall be other than the
first day of a calendar month, the first payment which Tenant shall make to
Landlord shall be equal to a proportionate part of the monthly installment of
Basic Rent for the partial month from the first day on which Tenant must pay
Basic Rent to the last day of the month in which such day occurs, plus the
installment of Basic Rent for the succeeding calendar month.
(c) At the time of execution of this Lease, Tenant shall pay the first
month's Basic Rent, which shall be held by Landlord as advance rental and
security, and which shall be forfeited, without limitation of other remedies, in
the event of any Default by Tenant occurring prior to the Commencement Date. If
no such default occurs, then such payment shall be applied by Landlord against
the Basic Rent for the first month of the Lease term.
ARTICLE IV
COMMENCEMENT; EARLY ACCESS AND CONDITION
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<PAGE> 5
4.1 COMMENCEMENT DATE. The Commencement Date shall be the later of (a) October
1, 1999, or (b) the date on which Landlord substantially completes the
Landlord's work described in Section 5.5, or would have substantially completed
the same, if not for one or more delays caused by Tenant, its agents, employees
or contractors.
4.2 EARLY ACCESS. Tenant and its contractors shall have access to the Premises
prior to the Commencement Date for purposes of performing alterations as
provided for in this Lease, installing wiring and equipment, and furnishing the
Premises. Notwithstanding the foregoing, Tenant shall not have access to the
Premises until Tenant furnishes to Landlord the Security Deposit described in
Section 14.17 and all insurance documents required hereunder. Tenant's access to
the Premises prior to the Commencement Date shall be subject to the terms and
conditions of this Lease, except that Tenant shall not be required to pay rent
or any additional charges provided for herein.
4.3 CONDITION OF PREMISES. Except as otherwise set forth in this Lease, the
Premises are being leased in "as-is" condition, without warranty or
representation by Landlord. Tenant acknowledges that it has inspected the
Premises and common areas of the Building and has found the same to be
satisfactory.
ARTICLE V
USE OF PREMISES; SIGNAGE; ALTERATIONS
5.1 PERMITTED USE. Tenant agrees to conform to the following provisions during
the Term of this Lease:
(a) Tenant shall continuously throughout the Term of this Lease occupy the
Premises for the Permitted Use and for no other purposes.
(b) Tenant shall, in its use of the Premises, comply with the requirements
of all applicable governmental laws, rules and regulations.
(c) Tenant shall not perform any act or carry on any practice which may
injure the Premises, or any other part of the Building, or cause offensive odors
or loud noise or constitute a nuisance or menace to any other tenant or other
persons in the Building.
(d) Tenant shall cause all freight to be delivered to or removed from the
Building and the Premises in accordance with rules and regulations established
by Landlord therefor.
5.2 SIGNAGE. Tenant will not place on the exterior of the Premises (including
both interior and exterior surfaces of doors and interior surfaces of windows)
or on any part of the Building outside the Premises, any signs, symbol,
advertisements or the like visible to public view outside of the Premises
without the prior written consent of the Landlord. Landlord will not
unreasonably withhold consent for signs or lettering on the entry doors to the
Premises provided such signs conform to building standards adopted by Landlord
and Tenant has submitted a sketch
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<PAGE> 6
of the sign to be placed on such entry doors. Tenant's name shall be listed in
the Building directory in the lobby and on any exterior signage for the Building
at no cost to Tenant. Said listings shall be consistent with Building Standards
as adopted by Landlord.
5.3 ALTERATIONS BY TENANT. Tenant shall make no alterations or improvements in
or to the Premises without Landlord's prior written consent. Any such
alterations, additions or improvements shall (i) be in accordance with complete
plans and specifications submitted by Tenant and approved in advance by
Landlord; (ii) be performed in a good and workmanlike manner and in compliance
with all applicable laws, regulations, codes, ordinances and directives of any
governmental agencies; including without limitation, the Americans with
Disabilities Act, as that term is hereinafter defined, (iii) be performed and
completed in the manner required in this Article V; (iv) be performed at such
times as Landlord may from time to time designate; and (v) become part of the
Premises and the Property of Landlord upon the expiration or sooner termination
of this Lease.
5.4 PREPARATION OF THE PREMISES. Tenant shall exercise all reasonable efforts
to complete the work necessary to prepare the Premises for Tenant's occupancy in
accordance with Landlord's building standards and the terms and conditions of
this Article V.
5.5 LANDLORD'S WORK. Landlord shall paint and carpet the Premises at Landlord's
expense. Landlord shall use reasonable efforts to complete such work prior to
the Commencement Date. Tenant shall be permitted to make such paint and carpet
selections as are available within building standards.
5.6 All articles of personal property and all business fixtures, machinery and
equipment and furniture owned or installed by Tenant solely at its expense in
the Premises ("Tenant's Removable Property") shall remain the property of Tenant
and may be removed by Tenant at any time prior to the expiration of this Lease,
provided that Tenant, at its expense, shall repair any damage to the Building,
caused by such removal.
5.7 Notice is hereby given that Landlord shall not be liable for any labor or
materials furnished or to be furnished to Tenant upon credit, and that no
mechanic's, materialman's or other lien for any such labor or materials shall
attach to or affect the reversion or other estate or interest of Landlord in and
to the Premises, Building or Property. Whenever and as often as any such lien
shall have been filed against the Premises based upon any act or interest of
Tenant or of anyone claiming through Tenant, Tenant shall forthwith take such
actions by bonding, deposit or payment as will remove or satisfy the lien.
5.8 All of the Tenant's alterations, improvements and installation of
furnishings shall be coordinated with any work being performed by Landlord and
in such manner as to maintain harmonious labor relations and not damage the
Property or interfere with Building construction or operation and, except for
installation of furnishings, shall be performed by a contractors selected by
Landlord or, at Landlord's election, by contractors first approved by Landlord.
Installation and moving of furnishings, equipment and the like shall be
performed only with labor compatible with that being employed by Landlord for
work in or to the Building and
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<PAGE> 7
Tenant shall not employ or pen-nit the use of any labor or otherwise take any
personnel providing services in the Building. Tenant, before its work is s ,
tarted shall secure all licenses and permits necessary therefor; deliver to
Landlord a statement of the names of all its contractors and subcontractors and
the estimated cost of all labor and material to be furnished by them, and cause
each contractor to carry workmen's compensation insurance in statutory amounts
covering all the contractor's and subcontractor's employees and comprehensive
public liability insurance and property damage insurance with such limits as
Landlord may reasonably require but in no event less than a combined single
limit of Two Million and No/100ths Dollars ($2,000,000.00) (all such insurance
to be written in companies approved by Landlord and insuring Landlord and Tenant
as well as the contractors), and to deliver to Landlord certificates of all such
insurance. Tenant agrees to pay promptly when due the entire cost of any work
done on the Premises by Tenant, its agents, employees, or independent
contractors, and not to cause or permit any liens for labor or materials
performed or furnished in connection therewith to attach to the Premises or the
Property and immediately to discharge any such liens which may so attach and, at
the request of Landlord to deliver to Landlord security satisfactory to Landlord
against liens arising out of the furnishing of such labor and material. Upon
completion of any work done on the Premises by Tenant, its agents, employees, or
independent contractors, Tenant shall promptly deliver to Landlord original lien
releases and waivers executed by each contractor, subcontractor, supplier,
materialman, architect, engineer or other party which furnished labor, materials
or other services in connection with such work and pursuant to which all liens,
claims and other rights against the Property in connection with such work are
unconditionally released and waived. Tenant shall deliver such releases to
Landlord with a certification by Tenant to the effect that all releases and
waivers required by the preceding sentence are being delivered with the
certification. Tenant shall pay within fourteen (14) days after being billed
therefor by Landlord, as an additional charge hereunder, one hundred percent
(100%) of any increase in real estate taxes on the Property not otherwise billed
to Tenant which shall, at any time after commencement of the Tenn, result from
any alteration, addition or improvement to the Premises made by or on behalf of
Tenant (including Tenant's original installation and Tenant's subsequent
alterations, additions, substitutions and improvements).
ARTICLE VI
ASSIGNMENT AND SUBLETTING
6.1 Tenant covenants and. agrees that whether voluntarily, involuntarily, by
operation of law or other-wise, neither this Lease nor the term and estate
hereby granted, nor any interest herein or therein, will be assigned, mortgaged,
pledged, encumbered or otherwise transferred without Landlord's prior written
consent, which consent will not be unreasonably withheld, and that neither the
Premises nor any part thereof will be encumbered in any manner by reason of any
act or omission on the part of Tenant, or used or occupied, by anyone other than
Tenant, or for any use or purpose other than a Permitted Use, or be sublet
(which term, without limitation, shall include granting of concessions, licenses
and the like) in whole or in part, or be offered or advertised for assignment or
subletting. It shall be reasonable for Landlord to condition its consent on any
assignment on the requirement that, based on certified financial statements or
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other financial information reasonably requested by Landlord, any proposed
assignee shall, in Landlord's sole discretion, be of financial solvency to make
payments under this Lease and otherwise comply with its terms.
6.2 The provisions of Section 6.1 shall apply to a transfer (by one or more
transfers) of a majority of the stock or partnership interests, or other
evidences of ownership of Tenant as if such transfer were an assignment of this
Lease; but such provisions shall not apply to transactions with an entity into
or with which Tenant is merged or consolidated or to which substantially all of
Tenant's assets are transferred or to any entity which controls or is controlled
by Tenant or is under common control with Tenant, provided that in any of such
events (i) the successor to Tenant has a net worth computed in accordance with
generally accepted accounting principles at least equal to the net worth of
Tenant immediately prior to such merger, consolidation or transfer, (ii) proof
satisfactory to Landlord of such net worth shall have been delivered to Landlord
at least 10 days prior to the effective date of any such transaction, and (iii)
the assignee agrees directly with Landlord, to be bound by all the obligations
of Tenant hereunder including, without limitation, the covenant against further
assignment or subletting.
6.3 If this Lease be assigned, or if the Premises or any part thereof be sublet
or occupied by anyone other than Tenant, Landlord may, at any time and from time
to time, collect rent and other charges from the assignee, subtenant or
occupant, and apply the net amount collected to the rent and other charges
herein reserved, but no such assignment, subletting, occupancy, collection or
modification of any provisions of this Lease shall be deemed a waiver of this
covenant, or the acceptance of the assignee, subtenant or occupant as a tenant
or a release of the original named Tenant from the further performance by the
original named Tenant hereunder. No assignment or subletting hereunder shall
relieve Tenant from its obligations hereunder and Tenant shall remain fully and
primarily liable therefor. No assignment or subletting, or occupancy shall
affect the Permitted Uses.
6.4 If this Lease is assigned, or if any portion of the Premises is sublet,
then all money or other economic consideration received by Tenant as a result of
such assignment or subletting, however denominated under the assignment or
sublease, which exceeds, in the aggregate, (a) the total sums which Tenant is
obligated to pay Landlord under this lease (prorated to reflect obligations
allocable to any portion of the Premises subleased), plus (b) any reasonable
expenses incurred by Tenant in connection with the assignment or sublease
including without limitation, brokerage commissions, legal expenses, costs of
alterations and improvements and reasonable rent concessions, shall be paid to
Landlord in monthly installments as additional rent under this Lease, without
affecting or reducing any other obligations of Tenant hereunder. For purposes of
making the calculation described in the preceding sentence, the expenses
incurred by Tenant shall be amortized on a straight line basis over the
remaining term of the Lease (in the case of an assignment) or over the term of
the sublease (in the case of a sublease).
ARTICLE VII
RESPONSIBILITY FOR REPAIRS AND CONDITIONS OF PREMISES;
SERVICES TO BE FURNISHED BY LANDLORD
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7.1 LANDLORD'S REPAIRS. (a) Except as otherwise provided in this Lease,
Landlord agrees to keep in good order, condition and repair the roof, public
areas, exterior walls (including exterior glass and structure of the Building
(including plumbing, HVAC and other mechanical systems for the common areas of
the Building, and electrical systems installed by Landlord, but excluding any
systems installed specifically for Tenant's benefit), all insofar as they affect
the Premises, except that Landlord shall in no event be responsible to Tenant
for the condition of glass in the Premises or for the doors (or related glass
and finish work) leading to the Premises, or for any condition in the Premises
or the Building caused by any act or neglect of Tenant, its agents, employees,
invitees or contractors. Landlord shall not be responsible to make any
improvements or repairs to the Building other than as expressly in this Section
7.1 provided, unless expressly provided otherwise in this Lease.
(b) Landlord shall never be liable for any failure to make repairs which
Landlord has undertaken to make under the provisions of this Section 7.1 or
elsewhere in this Lease, unless Tenant has given notice to Landlord of the need
to make such repairs, and Landlord has failed to commence to make such repairs
within a reasonable time after receipt of such notice, or fails to proceed with
reasonable diligence to complete such repairs.
(c) Any services which Landlord is required to furnish pursuant to the
provisions of this Lease may, at Landlord's option be furnished from time to
time, in whole or in part, by employees of Landlord or by the Manager of the
Property or by one or more third persons.
7.2 TENANT'S AGREEMENT. (a) Tenant will keep neat and clean and maintain in
good order, condition and repair the Premises and every part thereof, excepting
only those repairs for which Landlord is responsible under the ternis of this
Lease, reasonable wear and tear of the Premises, and damage by fire or other
casualty and as a consequence of the exercise of the power of eminent domain;
and shall surrender the Premises, at the end of the Tenn, in such condition.
Without limitation, Tenant shall continually during the Term of this Lease
maintain the Premises in accordance with all governmental laws, regulations,
codes and ordinances from time to time in effect and all directives, rules and
regulations of the proper officers of governmental agencies having jurisdiction,
and shall, at Tenant's own expense, obtain all permits, licenses and the like
required by applicable law. Notwithstanding the foregoing or the provisions of
Article XII, Tenant shall be responsible for the cost of repairs which may be
necessary by reason of damage to the Building caused by any act or neglect of
Tenant or its agents, employees, contractors or invitees (including any damage
by fire or any other casualty arising therefrom, but only to the extent not
covered by insurances). Tenant shall procure and pay for janitorial services
within the Premises, or shall reimburse Landlord on demand in the event Landlord
procures such services and pays the costs thereof.
(b) If repairs are required to be made by Tenant pursuant to the terms
hereof, Landlord may demand that Tenant make the same forthwith, and if Tenant
refuses or neglects to commence such repairs and complete the same with
reasonable dispatch after such demand, Landlord may (but shall not be required
to do so) make or cause such repairs to be made (the provisions of Section 14.18
being applicable to the costs thereof) and shall not be responsible to
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Tenant for any loss or damage that may accrue to Tenant's property or business
by reason thereof. Notwithstanding the foregoing, Landlord may elect to take
action hereunder immediately and without notice to Tenant if Landlord reasonably
believes an emergency to exist.
7.3 FLOOR LOAD - HEAVY MACHINERY. (a) Tenant shall not place a load upon any
floor in the Premises exceeding the floor load per square foot of area which
such floor was designed to carry and which is allowed by law. Landlord reserves
the night to prescribe the weight and position of all business machines and
mechanical equipment, including safes, which shall be placed so as to distribute
the weight. Business machines and mechanical equipment shall be placed and
maintained by Tenant at Tenant's expense in settings sufficient. in Landlord's
Judgment, to absorb and prevent vibration, noise and annoyance. Tenant shall not
move any safe, heavy machinery, heavy equipment, freight, bulky matter or
fixtures into or out of the Building without Landlord's prior consent, which
consent may include a requirement to provide insurance, naming Landlord as an
insured, in such amounts as Landlord may deem reasonable.
(b) If such safe, machinery, equipment, freight, bulky matter or fixtures
requires special handling, Tenant agrees to employ only persons holding a Master
Rigger's License to do such work, and that all work in connection therewith
shall comply with applicable laws and regulations. Any such moving shall be at
the sole risk and hazard of Tenant, and Tenant will exonerate, indemnity and
save Landlord harmless against and from any liability, loss, injury, claim or
suit resulting directly or indirectly from such moving.
7.4 MAINTENANCE. Tenant shall maintain the Premises in a clean condition in
accordance with reasonable standards of cleanliness. Tenant shall also be
responsible for replacing light bulbs in the Premises, and performing all
maintenance within the Premises other than that which is expressly allocated to
Landlord in this Lease.
7.5 BUILDING SERVICES. (a) Landlord shall, on Business Days from 8:00 a.m. to
5:30 p.m., furnish heating and cooling as normal seasonal changes may require to
provide reasonably comfortable space temperature and ventilation for occupants
of the Premises under normal business operation at an occupancy of not more than
one person per 125 square feet of Premises Rentable Area and an electrical load
not exceeding two watts per square foot of Premises Rentable Area; provided,
however, that Tenant shall pay the cost of all electricity used in connection
with such heating and cooling. If Tenant shall require air conditioning, heating
or ventilation outside of the hours and days above specified then, unless
electricity is metered solely and directly to Tenant, Landlord may furnish such
service and Tenant shall pay therefor such charges as may from time to time be
in effect. In the event Tenant introduces to the Premises personnel or equipment
which overloads the capacity of any of the Building systems or in any other way
interferes with the ability of such systems to perform adequately their proper
functions, supplementary systems may, if and as needed, at Landlord's option, be
provided by Landlord, at Tenant's expense.
(b) Landlord shall also provide:
(i) Passenger elevator service from the existing passenger elevator
system, if any, in
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common with Landlord and other tenants in the Building;
(ii) At Tenant's expense, hot water for lavatory purposes and cold water
(at temperatures supplied by the Town of Middletown) for drinking,
lavatory and toilet purposes. Landlord may install a water meter and
thereby measure Tenant's water consumption for all purposes. In the
latter event, Landlord shall pay the cost of the meter and the cost of
installation thereof and shall keep such meter and installation
equipment in good working order and repair. Tenant agrees to pay for
water consumed, as shown on such meter, at the rate imposed upon the
Landlord by the Town of Middletown, together with the sewer charge
based on such meter charges, as and when bills are rendered, and in
default in making such payment Landlord may pay such charges and
collect the same from Tenant as an additional charge;
(iii) Access to the Premises on Business Days twenty-four hours per day,
subject to reasonable security restrictions and restrictions based on
emergency conditions and all other applicable provisions of this
Lease; and
(iv) Removal of snow from the parking areas, common sidewalks located on
the Property and the entrances to the Building.
(v) Landscaping services to the Property.
(c) Landlord reserves the right to curtail, suspend, interrupt and/or stop
the supply of water, sewer service, electrical current and other services, and
to curtail, suspend, interrupt and/or stop use of entrances and/or lobbies
serving access to the Building, without thereby incurring any liability to
Tenant, when necessary by reason of accident or emergency, or for repairs,
alterations, replacements or improvements in the judgment of Landlord desirable
or necessary, or when prevented from supplying a such services or use by
strikes, lockouts, difficulty in obtaining materials, accidents or any other
cause beyond Landlord's control, or by laws, orders or inability, by exercise of
reasonable diligence, to obtain electricity, water, gas, steam, coal, oil or
other suitable fuel or power. No diminution or abatement of rent or other
compensation, nor any direct, indirect or consequential damages shall or will be
claimed by Tenant as a result of, nor shall this Lease or any of the obligations
of Tenant be affected or reduced by reason of any such interruption,
curtailment, suspension or stoppage in the furnishing of the foregoing services
or use, irrespective of the cause thereof. Failure or omission on the part of
Landlord to furnish any of the foregoing services or use shall not be construed
as an eviction of Tenant, actual or constructive, nor entitle Tenant to an
abatement of rent, nor to render the Landlord liable in damages, nor release
Tenant from prompt fulfillment of any of its covenants under this Lease;
provided, however, that Landlord agrees to take reasonable steps to diminish the
effect of any interruption, curtailment, suspension or stoppage in the
furnishing of such services. Notwithstanding anything contained in this Lease to
the contrary, in the event that, through no fault of Tenant, its agents,
employees, invitees or contractors, the Landlord fails to or is unable to
fulfill any of its obligations under this Lease or furnish services or utilities
to the Premises such that Tenant is materially unable to use the Premises (or a
portion thereof) for the conduct of its
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business for a period longer than 7 consecutive days, Basic Rent and Escalation
Charges shall abate in proportion to and to the extent of such material
interference and such unusable portion.
7.6 ELECTRICITY. (a) Tenant shall purchase and receive electric current
for the Premises directly from the public utility corporation serving the
Building and Landlord shall permit Landlord's existing wires, risers, conduits
and other electrical equipment of Landlord to be used for such purpose. Tenant
covenants and agrees that its use of electric current shall not, unless metered
solely and directly to Tenant, exceed two (2) watts per square foot of Premises
Rentable Area and its total connected load will in no event exceed the maximum
load from time to time permitted by applicable governmental regulations.
Landlord shall not in any way be liable or responsible to Tenant for any loss or
damage or expense which Tenant may sustain or incur if during the Term of this
Lease, either the quantity or character of electric current is chan-ed or
electric current is no longer available or suitable for Tenant's requirements
due to a factor or cause beyond Landlord's control. Landlord, at Tenant's
expense, shall purchase and install all lamps, tubes, bulbs, starters and
ballasts. Tenant shall pay all charges for electricity used or consumed in the
Premises, including without limitation, any and all electricity charges relating
to the heating, ventilating and air conditioning of the Premises. Landlord shall
bear the cost of installation, repair and maintenance of any electric meter to
be used or installed in the Premises.
(b) In order to insure that the foregoing requirements are not exceeded and
to avert possible adverse affect on the Building's electrical system, Tenant
shall not, without Landlord's prior consent, connect any fixtures, appliances or
equipment to the Building's electrical distribution system other than
typewriters, computers, word processors, photocopiers, and other similar
customary office equipment without the prior written consent of the Landlord.
From time to time during the Term of this Lease, Landlord shall have the right
to have an electrical consultant selected by Landlord make a survey of Tenant's
electric usage, the result of which shall be conclusive and binding upon
Landlord and Tenant. In the event that such survey shows that Tenant has
exceeded the requirements set forth in paragraph (a), in addition to any other
rights Landlord may have hereunder, Tenant shall, upon demand, reimburse
Landlord for the costs of such survey.
ARTICLE VIII
REAL ESTATE TAXES
8.1 PAYMENTS ON ACCOUNT OF REAL ESTATE TAXES. (a) For the purposes of this
Article, the term "Tax Year" shall mean the calendar year 2000 and each calendar
year thereafter commencing during the Term of this Lease; and the term "Taxes"
shall mean real estate taxes assessed with respect to the Property for any Tax
Year, but specifically excluding income, franchise, inheritance, estate,
transfer and conveyance taxes, and any penalties or interest assessed by reason
of Landlord's failure to pay taxes when due.
(b) In the event that, for any reason, Taxes shall be greater during any
Tax Year than
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Base Taxes at any time during the Term, including any extended term, Tenant
shall pay to Landlord, as an Escalation Charge, an amount equal to (i) the
excess of Taxes over Base Taxes, multiplied by (ii) the Escalation Factor, such
amount to be apportioned for any fraction of a Tax Year in which the
Commencement Date falls or the Term of this Lease ends.
(c) Estimated payments by Tenant on account of Taxes shall be made monthly
and at the time and in the fashion herein provided for the payment of Basic
Rent. The monthly amount so to be paid to Landlord shall be sufficient to
provide Landlord by the time real estate tax payments are due a sum equal to
Tenant's required payments, as estimated by Landlord from time to time, on
account of Taxes for the then current Tax Year. Promptly Landlord shall advise
Tenant of the amount thereof and the computation of Tenant's payment on account
thereof. If estimated payments theretofore made by Tenant for the Tax Year
covered by such bills exceed the required payments on account thereof for such
Year, Landlord shall credit the amount of overpayment against subsequent
obligations of Tenant on account of Taxes (or refund such overpayment if the
Term of this Lease has ended and Tenant has no further obligation to Landlord);
but if the greater than estimated payments theretofore made on account thereof
for such Tax Year, Tenant shall make payment to Landlord within 30 days after
being so advised by Landlord. Landlord shall have the same rights and remedies
for the non-payment by Tenant of any payments due on account of Taxes as
Landlord has hereunder for the failure of Tenant to pay Basic Rent.
8.2 ALTERNATE TAXES. (a) If some method or type of taxation shall replace the
current method of assessment of real estate taxes in whole or in part, or the
type thereof, or if additional types of taxes are imposed upon the Property or
Landlord relating to the Property (other than income, franchise, inheritance,
estate, transfer or conveyance taxes), Tenant agrees that Tenant shall pay a
proportionate share of the same as an additional charge computed in a fashion
consistent with the method of computation herein provided, to the end that
Tenant's share thereof shall be, to the maximum extent practicable, comparable
to that which Tenant would bear under the foregoing provisions.
(b) If a tax (other than Federal or State net income tax) is assessed on
account of the rents or other charges payable by Tenant to Landlord under this
Lease, Tenant agrees to pay the same as an additional charge within ten (10)
days after billing therefor, unless applicable law prohibits the payment of such
tax by Tenant.
ARTICLE IX
OPERATING EXPENSES
9.1 DEFINITIONS. For the purposes of this Article, the following terms shall
have the following respective meanings:
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(a) Operating Year: The calendar year 2000, and each calendar year
thereafter in which any part of the Term of this Lease shall fall, including any
extended term.
(b) Operating Expenses: The aggregate costs or expenses reasonably incurred
by Landlord with respect to the operation, administration, cleaning, repair,
maintenance and management of the Property (but specifically excluding Utility
Expenses) all as set forth in Exhibit B annexed hereto, provided that, if during
any portion of the Operating Year for which Operating Expenses are being
computed, less than all of Building Rentable Area was occupied by tenants or if
Landlord is not supplying all tenants with the services being supplied
hereunder, actual Operating Expenses incurred shall be reasonably extrapolated
by Landlord on an item by item basis to the estimated Operating Expenses that
would have been incurred if the Building were fully occupied for such Year and
such services were being supplied to all tenants, and such extrapolated amount
shall, for the purposes hereof, be deemed to be the Operating Expenses for such
Year.
(c) Utility Expenses: The aggregate costs or expenses reasonably incurred
by Landlord with respect to supplying electricity (other than electricity
supplied to those portions of the Building leased to tenants), oil, steam, gas,
water and sewer and other utilities supplied to the Property and not paid for
directly by tenants, provided that, if during any portion of the Operating Year
for which Utility Expenses are being computed, less than all Building Rentable
Area was occupied by tenants or if Landlord is not supplying all tenants with
the utilities being supplied hereunder, actual utility expenses incurred shall
be reasonably extrapolated by Landlord on an item-by-item basis to the estimated
Utility Expenses that would have been incurred if the Building were fully
occupied for such Year and such utilities were being supplied to all tenants,
and such extrapolated amount shall, for the purposes hereof, he deemed to be the
Utility Expenses for such Year.
9.2 TENANT'S PAYMENTS. (a) In the event that for any Operating Year Operating
Expenses shall exceed Base Operating Expenses, Tenant shall pay to Landlord, as
an Escalation Charge, an amount equal to (i) such excess Operating Expenses
multiplied by (ii) the Escalation Factor, such amount to be apportioned for any
partial Operating Year in which the Commencement Date falls or the Term of this
Lease, including any extended term, ends.
(b) In the event that for any Operating Year Utility Expenses shall exceed
Base Utility Expenses, Tenant shall pay to Landlord, as an Escalation Charge, an
amount equal to (i) such excess Utility Expenses multiplied by (ii) the
Escalation Factor, such amount to be apportioned for any partial Operating Year
in which the Commencement Date falls or the Term of this Lease, including any
extended term, ends.
(c) Estimated payments by Tenant on account of Operating Expenses and
Utility Expenses shall be made monthly and at the time and in the fashion herein
provided for the payment of Basic Rent. The monthly amount so to be paid to
Landlord shall be sufficient to provide Landlord by the end of each Operating
Year a sum equal to Tenant's required payments, as estimated by Landlord from
time to time during each Operating Year, on account of Operating Expenses and
Utility Expenses for such Operation Year. After the end of each Operating Year,
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Landlord shall submit to Tenant a reasonably detailed accounting of Operating
Expenses and Utility Expenses for such Year and Landlord shall certify to the
accuracy thereof. If estimated payments theretofore made for such Year by Tenant
exceed Tenant's required payment on account thereof for such Year, according to
such statement, Landlord shall credit the amount of overpayment against
subsequent obligations of Tenant with respect to Operating Expenses and Utility
Expenses (or refund such overpayment if the Term of this Lease has ended and
Tenant has no further obligation to Landlord), but, if the required payments on
account thereof for such Year are greater than the estimated payments (if any)
theretofore made on account thereof for such Year, Tenant shall make payment to
Landlord within thirty (30) days after being so advised by Landlord. Landlord
shall have the same rights and remedies for the nonpayment by Tenant of any
payments due on account of Operating Expenses and Utility Expenses as Landlord
has hereunder for the failure of Tenant to pay Basic Rent.
(d) Tenant shall have the right to cause Landlord's determination of any of
the Escalation Charges to be audited by an auditor reasonably acceptable to
Landlord. The determination by such auditor shall be prima facie evidence of the
proper amount of such Escalation Charges. If such audit shall indicate that
Landlord's determination of any of the foregoing is (1) overstated, or (ii)
understated, then in the case of (i) Landlord shall credit the difference
against monthly installments of Basic Rent or Escalation Charges next thereafter
coming due (or refund the difference if the Lease Term has ended and Tenant has
no further obligation to Landlord), or in the case of (ii) Tenant shall pay to
Landlord the amount of such excess. The cost of such audit shall be paid for by
Tenant unless such audit shall indicate a total overstatement of more than 5%,
in which case the cost of such audit shall be paid for by Landlord. Landlord's
obligation under this Paragraph shall survive the expiration of the Lease Term
or earlier termination of this Lease.
ARTICLE X
INDEMNITY AND PUBLIC LIABILITY INSURANCE
10.1 TENANT'S INDEMNITY. To the maximum extent this agreement may be made
effective according to law, Tenant agrees to defend, indemnify and save harmless
Landlord from and against all claims, loss, liability, costs and damages of this
whatever nature arising from any default by Tenant under this Lease and to the
extent not due to the fault of Landlord or those acting by or under Landlord,
the following: (a) from any accident, injury, death or damage whatsoever to any
person, or to the property of any person, occurring in the Premises; (ii) from
any accident, injury, death or damage occurring outside of the Premises but on
the Property, where such accident, damage or injury results from an act or
omission on the part of Tenant or Tenant's agents, employees, invitees or
independent contractors; or (Iii) in connection with the conduct or management
of the Premises or of any business therein, or any thing or work whatsoever
done, or any condition created by Tenant in or about the Premises; and, in any
case, occurring after the date of this Lease, until the end of the Term of this
Lease, and thereafter so long as Tenant is in occupancy of the Premises. This
indemnity and hold harmless agreement shall include indemnity against all costs,
expenses and liabilities incurred in, or in connection
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with, any such claim or proceeding brought thereon, and the defense thereof,
including, without limitation, reasonable attorneys' fees and costs at both the
trial and appellate levels. The provisions of this Section 10.1 shall survive
the expiration or any earlier termination of this Lease.
10.2 PUBLIC LIABILITY INSURANCE. Tenant agrees to maintain in full force from
the date upon which Tenant first enters the Premises for any reason, throughout
the Term of this Lease, and thereafter so long as Tenant is in occupancy of any
part of the Premises, a policy of general liability and property damage
insurance (including broad form contractual liability, independent contractor's
hazard and completed operations coverage) under which Landlord, Manager (and
such other persons as are in privity of estate with Landlord as may be set out
in notice from time to time) and Tenant are named as insured parties, and under
which the insurer agrees to defend, indemnify and hold Landlord, Manager, and
those in privity of estate with Landlord, harmless from and against all cost,
expense and/or liability arising out of or based upon any and all claims,
accidents, injuries and damages set forth in Section 10. 1. Each such policy
shall be non-cancellable and non-amendable with respect to Landlord, Manager,
and Landlord's said designees without thirty (30) days, prior notice to Landlord
and shall be in at least the amount of the Initial Public Liability Insurance
specified in Section 1.3 or such greater amounts as Landlord shall from time to
time reasonably request, and a duplicate original or certificate thereof shall
be delivered to Landlord.
10.3 TENANT'S RISK. To the maximum extent this agreement may be made effective
according to law, Tenant agrees to use and occupy the Premises and to use such
other portions of the Property as Tenant is herein given the right to use at
Tenant's own risk; and Landlord shall have no responsibility or liability for
any loss of or damage to Tenant's Removable Property or for any inconvenience,
annoyance, interruption or injury to business arising from Landlord's making any
repairs or changes which Landlord is permitted by this Lease or required by law
to make in or to any portion of the Premises or other sections of the Property,
or in or to the fixtures, equipment or appurtenances thereof. Tenant shall carry
"all-risk" property insurance on a "replacement cost" basis (including,
so-called improvements and betterments), and provide a waiver of subrogation as
required in Section 14.20. The provisions of this Section 10.3 shall be
applicable from and after the execution of this Lease and until the end of the
Term of the-Lease, and during such further period as Tenant may use or be in
occupancy of any part of the Premises or of the Building.
10.4 INJURY CAUSED BY THIRD PARTIES. To the maximum extent this agreement may be
made effective according to law, Tenant agrees that Landlord shall not be
responsible or liable to Tenant, or to those claiming by, through or under
Tenant, for any loss or damage that may be occasioned by or through the acts or
omissions of persons occupying adjoining premises or any part of the premises
adjacent to or connecting with the Premises or any part of the Property or
otherwise. The provisions of this Section 10.4 shall survive the expiration or
any earlier termination of this Lease.
10.5 LANDLORD'S INSURANCE. Landlord shall carry at all times during the term of
the Lease with respect to the Building and the Property, insurance against loss
or damage from fire
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and other casualties ordinarily included in a standard extended coverage or "all
risks" endorsement. Such insurance shall be in an amount equal to at least the
replacement value of said Building, issued by companies qualified to do business
in the State of Rhode Island, and shall provide a waiver of subrogation as
required in section 14-20.
ARTICLE XI
LANDLORD'S ACCESS TO PREMISES
Landlord shall upon reasonable prior notice (except in an emergency) have the
right to enter the Premises at all reasonable hours for the purpose of
inspecting or making repairs to the same, and Landlord shall also have the right
to make access available at all reasonable hours to prospective or existing
mortgagees, purchasers or tenants of any part of the Property.
ARTICLE XII
FIRE, EMINENT DOMAIN, ETC.
ABATEMENT OF RENT. If the Premises shall be damaged by fire or casualty, Basic
Rent and Escalation Charges payable by Tenant shall abate proportionately for
the period in which, by reason of such damage, there is material interference
with Tenant's use of the Premises, having regard to the extent to which Tenant
may be required to discontinue Tenant's use of all or a portion of the Premises,
but such abatement or reduction shall end if and when Landlord shall have
substantially restored the Premises (excluding any alterations, additions or
improvements made by Tenant pursuant to Section 5.2) to the condition in which
they were prior to such damage. If the Premises shall be affected by any
exercise of the power of eminent domain, Basic Rent and Escalation Charges
payable by Tenant shall be justly and equitably abated and reduced according to
the nature and extent of the loss of use thereof suffered by Tenant. In no event
shall Landlord have any liability for damages to Tenant for inconvenience,
annoyance, or interruption of business arising from such fire, casualty or
eminent domain.
LANDLORD'S RIGHTS OF TERMINATION. If the Premises or the Building are
substantially damaged by fire or casualty (the term "substantially damaged"
meaning damage of such a character that the same cannot, in ordinary course,
reasonably be expected to be repaired within sixty (60) days from the time the
repair work would commence), or if any part of the Building is taken by any
exercise of the right of eminent domain, then Landlord shall have the right to
terminate this Lease (even if Landlord's entire interest in the Premises may
have been divested) by giving notice of Landlord's election so to do within 60
days after the occurrence of such casualty or the effective date of such taking,
whereupon this Lease shall terminate thirty (30) days after the date of such
notice with the same force and effect as if such date were the date originally
established as the expiration date hereof.
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RESTORATION. If this Lease shall not be terminated pursuant to Section 12.2,
Landlord shall thereafter use due diligence to restore the Premises (excluding
any alterations, additions or improvements made by Tenant) to proper condition
for Tenant's use and occupation, provided that Landlord's obligation shall be
limited to the amount of insurance proceeds available therefor. If for any
reason, such restoration shall not be substantially completed within four (4)
months after the casualty or the effective date of taking, (which four-month
period may be extended for such periods of time as Landlord is prevented from
proceeding with or completing such restoration for any cause beyond Landlord's
reasonable control, but in no event for more than an additional two months),
Tenant shall have the right to terminate this Lease by giving notice to Landlord
thereof within thirty (30) days after the expiration of such period (as so
extended). Upon the giving of such notice, this Lease shall cease and come to an
end without further liability or obligation on the part of either party unless,
within such 30-day period, Landlord substantially completes such restoration.
Such right of termination shall be Tenant's sole and exclusive remedy at law or
in equity for Landlord's failure so to complete such restoration.
12.4 AWARD. Landlord shall have and hereby reserves and excepts, and Tenant
hereby grants and assigns to Landlord, all rights to recover for damages to the
Property and the leasehold interest hereby created, and to compensation accrued
or hereafter to accrue by reason of such taking, damage or destruction, and by
way of confirming the foregoing, Tenant hereby grants and assigns, and covenants
with Landlord to grant and assign to Landlord, all rights to such damages or
compensation. Nothing contained herein shall be construed to prevent Tenant
from, at its sole cost and expense, prosecuting a separate condemnation
proceeding with respect to a claim for the value of any of Tenant's Removable
Property installed in the Premises by Tenant at Tenant's expense and for
relocation expenses, provided that such action shall not affect the amount of
compensation otherwise recoverable by Landlord from the taking authority.
ARTICLE XIII
DEFAULT
13.1 TENANT'S DEFAULT. (a) If at any time subsequent to the date of this Lease
any one or more of the following events (herein referred to as a "Default of
Tenant") shall. occur and be continuing:
(i) Tenant shall fail to pay the Basic Rent, Escalation Charges or other
sums payable as additional charges hereunder within five (5) days after written
notice; provided, however, that no such notice shall be required upon the second
such failure within any 365 day period; or
(ii) Tenant shall neglect or fail to perform or observe any other covenant
herein contained on Tenant's part to be performed or observed, or Tenant shall
desert or abandon the Premises or the Premises shall become, or appear to have
become vacant (regardless whether the keys shall have been surrendered or the
rent and all other sums due shall have been paid), and Tenant shall fail to
remedy the same within thirty (30) days after notice to Tenant specifying
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such neglect or failure, or if such failure is of such a nature that Tenant
cannot reasonably remedy the same within such thirty (30) day period, Tenant
shall fail to commence promptly to remedy the same and to prosecute such remedy
to completion with diligence and continuity; or
(iii) Tenant's leasehold interest in the Premises shall be taken on
execution or by other process of law directed against Tenant; or
(iv) Tenant shall make an assignment for the benefit of creditors or shall
file a voluntary petition in bankruptcy or shall be adjudicated bankrupt or
insolvent, or shall file any petition or answer seeking any reorganization,
arrangement, composition, readjustment, liquidation, dissolution or similar
relief for itself under any present or future Federal, State or other statute,
law-or regulation for the relief of debtors, or shall seek or consent to or
acquiesce in the appointment of any trustee, receiver or liquidator of Tenant or
of all or any substantial part of its properties, or shall admit in writing its
inability to pay its debts generally as they become due; or
(v) A petition shall be filed against Tenant in bankruptcy or under any
other law seeking any reorganization, arrangement, composition, readjustment,
liquidation, dissolution or similar relief under any present or future Federal,
State or other statute, law or regulation and shall remain undismissed or
unstayed for an aggregate of sixty (60) days (whether or not consecutive), or if
any debtor in possession (whether or not Tenant), trustee, receiver or
liquidator of Tenant or of all or any substantial part of its properties or of
the Premises shall be appointed without the consent or acquiescence of Tenant
and such appointment shall remain unvacated or unstayed for an aggregate of
sixty (60) days (whether or not consecutive);
then, (1) if such Default of Tenant shall occur prior to the Commencement
Date, this Lease shall ipso facto, and without further act on the part of
Landlord, terminate, and (2) if such Default of Tenant shall occur and be
continuing after the Commencement Date, Landlord may terminate this Lease by
notice to Tenant, and thereupon this Lease shall come to an end as fully and
completely as if such date were the date herein originally fixed for the
expiration of the Term of this Lease, and Tenant will then quit and surrender
the Premises to Landlord, but Tenant shall remain liable as hereinafter
provided.
(b) If this Lease shall be terminated as provided in this Article, or if
any execution or attachment shall be issued against Tenant or any of Tenant's
property whereupon the Premises shall be taken or occupied by someone other than
Tenant, then Landlord may, without notice, re-enter the Premises, either by
summary proceedings, ejectment or otherwise in accordance with applicable law,
and remove and dispossess Tenant and all other persons and any and all property
from the same, as if this Lease had not been made, and Tenant hereby waives the
service of notice of intention to re-enter or to institute legal proceedings to
that end.
(c) In the event of any termination, Tenant shall pay the Basic Rent,
Escalation Charges and other sums payable hereunder up to the time of such
termination, and thereafter Tenant, until the end of what would have been the
Term of this Lease in the absence of such termination, and whether or not the
Premises shall have been relet, shall be liable to Landlord for, and shall pay
to
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Landlord, as liquidated current damages, the Basic Rent, Escalation Charges and
other sums which would he payable hereunder if such termination had not
occurred, less the net proceeds, if any, of any reletting of the Premises, after
deducting all expenses in connection with such reletting, including, without
limitation, all repossession costs, brokerage commission, legal expenses,
attorneys, fees, advertising, expenses of employees, alteration costs and
expenses of preparation for such reletting. Tenant shall pay such current
damages to Landlord monthly on the days which the Basic Rent would have been
payable hereunder if this Lease had not been terminated.
(d) At any time after such termination, whether or not Landlord shall have
collected any such current damages, as liquidated final damages and in lieu of
all such current damages beyond the date of such demand, at Landlord's election
Tenant shall pay to Landlord an amount equal to the excess, if any, of the Basic
Rent, Escalation Charges and other sums as hereinbefore provided which would be
payable hereunder from the date of such demand (assuming that, for the purposes
of this paragraph, annual payments by Tenant on account of Taxes, Utility
Expenses and Operating Expenses would be the same as the payments required for
the immediately preceding Operating or Tax Year) for what would be the then
unexpired Term of this Lease if the same had remained in effect, over the then
fair net rental value of the Premises for the same period.
(e) In the case of any Default by Tenant, re-entry, expiration and
dispossession by summary proceeding or otherwise, Landlord may (i) re-let the
Premises or any part or part thereof, either in the name of Landlord or
otherwise, for a term or terms which may at Landlord's option be equal to or
less than or exceed the period, which would otherwise have constituted the
balance of the Term of this Lease and may grant concessions or free rent to the
extent that Landlord considers advisable and necessary to re-let the same and
(ii) may make such reasonable alterations, repairs and decorations in the
Premises as Landlord in its sole judgment considers advisable and necessary for
the purpose of reletting the Premises; and the making of such alterations,
repairs and decorations shall not operate or be construed to release Tenant from
liability hereunder as aforesaid, Landlord shall in no event be liable in any
way whatsoever for failure to re-let the Premises, or, in the event that the
Premises are re-let, for failure to collect the rent under such re-letting.
Tenant hereby expressly waives any and all rights of redemption granted by or
under any present or future laws in the event of Tenant being evicted or
dispossessed, or in the event of Landlord obtaining possession of the Premises,
by reason of the violation by Tenant of any of the covenants and conditions of
this Lease.
(f) The specified remedies to which Landlord may resort hereunder are not
intended to be exclusive of any remedies or means of redress to which Landlord
may at any time be entitled to lawfully, and Landlord may invoke any remedy
(including the remedy of specific performance) allowed at law or in equity as if
specific remedies were not herein provided for.
(g) All costs and expenses incurred by or on behalf of Landlord (including,
without limitation, attorneys' fees and expenses) in enforcing its rights
hereunder or occasioned by any Default of Tenant shall be paid by Tenant.
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13.2 LANDLORD'S DEFAULT. Landlord shall in no event be in default of the
performance of any of Landlord's obligations hereunder unless and until Landlord
shall have unreasonably failed to perform such obligation within a period of
time reasonably required to correct any such default, after notice by Tenant to
Landlord specifying wherein Landlord has failed to perform any such obligations.
ARTICLE XIV
MISCELLANEOUS PROVISIONS
14.1 HAZARDOUS USE. Tenant covenants and agrees that Tenant will not do or
permit anything to be done in or upon the Premises, or bring in anything or keep
anything therein, which shall increase the rate of property or liability
insurance on the Premises or of the Building above the standard rate applicable
to premises being occupied for Permitted Uses; and Tenant further agrees that,
in the event that Tenant shall do any of the foregoing, Tenant will promptly pay
to Landlord, on demand any such increase resulting therefrom, which shall be due
and payable as an additional charge hereunder. The Landlord confirms that the
use of propane gas as described herein will not be considered an extra hazardous
use; provided that tenant uses such propane gas in accordance with all
applicable federal, state and local laws.
14.2 WAIVER. (a) Failure on the part of Landlord or Tenant to complain of any
action or non-action on the part of any other, no matter how long the same may
continue, shall never be a waiver by Tenant or Landlord, respectively, of any of
the other's rights hereunder. Further, no waiver at any time of any of the
provisions hereof by Landlord or Tenant shall be construed as a waiver of any of
the other provisions hereof, and a waiver at any time of any of the provisions
hereof shall not be construed as a waiver at any subsequent time of the same
provisions. The consent or approval of Landlord or Tenant to or of any action by
the other requiring such consent or approval shall not be construed to waive or
render unnecessary Landlord's or Tenant's consent or approval to or of any
subsequent similar act by the other.
(b) No payment by Tenant, or acceptance by Landlord, of a lesser amount
than shall be due from Tenant to Landlord shall be treated otherwise than as a
payment on account of the earliest installment of any payment due from Tenant
under the provisions hereof. The acceptance by Landlord of a check for a lesser
amount with an endorsement or statement thereon, or upon any letter accompanying
such check, that such lesser amount is payment in full, shall be given no
effect, and Landlord may accept such check without prejudice to any other rights
or remedies which Landlord may have against Tenant.
14.3 COVENANT OF QUIET ENJOYMENT. Tenant, subject to the terms and provisions
of this Lease, on payment of the Basic Rent and Escalation Charges and
observing, keeping and performing all of the other terms and provisions of this
Lease on Tenant's part to be observed,
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kept and performed, shall lawfully, peaceably and quietly have, hold, occupy and
enjoy the Premises during the term hereof without hindrance or ejection by any
persons lawfully claiming, under Landlord to have title to the Premises superior
to Tenant; the foregoing covenant of quiet enjoyment is in lieu of any other
covenant, express or implied.
14.4 LANDLORD'S LIABILITY (a) Tenant specifically agrees to look solely to
Landlord's then equity interest in the Property at the time owned, for recovery
of any judgment from Landlord; it being specifically agreed that Landlord
(original or successor) shall never be personally liable for any such judgment,
or for the payment of any monetary obligation to Tenant. The provision contained
in the foregoing sentence is not intended to, and shall not, limit any right
that Tenant might otherwise have to obtain injunctive relief against Landlord or
Landlord's successors in interest, or to take any action not involving the
personal liability of Landlord (original or successor) to respond in monetary
damages from Landlord's assets other than Landlord's equity interest in the
Property.
(b) With respect to any services or utilities to be furnished by Landlord
to Tenant, Landlord shall in no event be liable for failure to furnish the same
when prevented from doing because of a strike, lockout or other labor troubles,
breakdown, accident, fire or other casualty, an order or regulation of or by any
governmental authority, failure of supply, or inability by the exercise of
reasonable diligence to obtain fuel, supplies, parts or labor necessary to
famish such services, war or other national emergency, or for any other cause
which is beyond Landlord's reasonable control, or for any cause due to any act
or neglect of Tenant or Tenant's servants, agents, employees, licensees or any
person claiming by, through or under Tenant; nor shall any such failure give
rise to any claim in Tenant's favor that Tenant has been evicted, either
constructively or actually, partially or wholly.
(c) In no event shall Landlord ever be liable to Tenant for any loss of
business or any other indirect or consequential damages suffered by Tenant from
whatever cause.
(d) With respect to any repairs or restoration which are required or
permitted to be made by Landlord, the same may be made during normal business
hours and Landlord shall have no liability for damages to Tenant for
inconvenience, annoyance or interruption of business arising therefrom.
14.5 NOTICE TO MORTGAGEE OR GROUND LESSOR. After receiving notice from any
person, firm or other entity that it holds a mortgage or a ground lease which
includes the Premises, no notice from Tenant to Landlord alleging any default by
Landlord shall be effective unless and until a copy of the same is given to such
holder or ground lessor (provided Tenant shall have been furnished with the name
and address of such holder or ground lessor), and the curing of any of
Landlord's defaults by such holder or ground lessor shall be treated as
performance by Landlord.
14.6 ASSIGNMENT OF RENTS AND TRANSFER OF TITLE. (a) With reference to any
assignment by Landlord of Landlord's interest in this Lease, or the rents
payable hereunder, conditional in nature or otherwise, which assignment is made
to the bolder of a mortgage on
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property which includes the Premises, Tenant agrees that the execution thereof
by Landlord, and the acceptance thereof by the holder of such mortgage, shall
never be treated as an assumption by such holder of any of the obligations of
Landlord hereunder unless such holder shall, by notice sent to Tenant,
specifically otherwise elect and that, except as aforesaid, such holder shall be
treated as having assumed Landlord's obligations hereunder only upon foreclosure
of such bolder's mortgage and the taking of possession of the Premises.
(b) In no event shall the acquisition of Landlord's interest in the
Property by a purchaser which, simultaneously therewith, leases Landlord's
entire interest in the Property back to the seller thereof be treated as an
assumption by operation of law or otherwise, of Landlord's obligations
hereunder, but Tenant shall look solely to such seller-lessee, and its
successors from time to time in title, for performance of Landlord's obligations
hereunder. In any such event, this Lease shall be subordinate to the lease to
such purchaser provided that lessor-buyer recognizes Tenant's rights under this
Lease. For all purposes, such seller-lessee, and its successors in title, shall
be the Landlord hereunder unless and until Landlord's position shall have been
assumed by such purchaser-lessor.
(c) Except as provided in paragraph (b) of this Section, in the event of
any transfer of title to the Property by Landlord, Landlord shall thereafter be
entirely freed and relieved from the performance and observance of a covenants
and obligations hereunder provided, that Landlord's successor agrees to perform
and observe the covenants and obligations of Landlord hereunder.
14.7 RULES AND REGULATIONS. Tenant shall abide by rules and regulations from
time to time established by Landlord, it being agreed that such rules and
regulations will be established and applied by Landlord in a non-discriminatory
fashion, such that all rules and regulations shall be generally applicable to
other tenants of the Building of similar nature to the Tenant named herein.
Landlord agrees to use reasonable efforts to insure that any such rules and
regulations are uniformly enforced, but Landlord shall not be liable to Tenant
for violation of the same by any other tenant or occupant of the building, or
persons having business with them. In the event that there shall be any conflict
between such rules and regulations and the provisions of this Lease, the
provisions of this Lease shall control. The rules and regulations to be in
effect as of the Commencement Date are attached hereto as Exhibit C.
14.8 ADDITIONAL CHARGES. If Tenant shall fail to pay when due any sums under
this Lease designated or payable as an additional charge, Landlord shall have
the same rights and remedies as Landlord has hereunder for failure to pay Basic
Rent.
14.9 INVALIDITY OF PARTICULAR PROVISIONS. If any term or provision of this
Lease, or the application thereof to any person or circumstance shall, to any
extent, be invalid or unenforceable, the remainder of this Lease, or the
application of such term or provision to persons or circumstances other than
those as to which it is held invalid or unenforceable, shall not be affected
thereby, and each term and provision of this Lease shall be valid and be
enforced to the fullest extent permitted by Law.
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14.10 PROVISIONS BINDING, ETC. Except as herein otherwise provided, the terms
hereof shall be binding upon and shall inure to the benefit of the successors
and assigns, respectively, of Landlord and Tenant and, if Tenant shall be an
individual, upon and to his heirs, executors, administrators, successors and
assigns. Each term and each provision of this Lease to be performed by Tenant
shall be construed to be both a covenant and a condition. The reference
contained to successors and assigns of Tenant is not intended to constitute a
consent to assignment by Tenant, but has reference only to those instances in
which Landlord may later give consent to a particular assignment as required by
those provisions of Article VI hereof.
14.11 RECORDING. Tenant agrees not to record this Lease, but each party hereto
agrees, on the request of the other, to execute a so-called notice or memorandum
of lease in form recordable and complying with applicable law and reasonably
satisfactory to Landlord's and Tenant's attorneys. In no event shall such
document set forth the rent or other charges payable by Tenant under this Lease;
and any such document shall expressly state that it is executed pursuant to the
provisions contained in this Lease, and is not intended to vary the terms and
conditions of this Lease.
14.12 NOTICES. Whenever, by the terms of this Lease, notices, consents or
approvals shall or may by given either to Landlord or to Tenant, such notices,
consents or approvals shall be in writing and shall he sent by registered or
certified mail, return receipt requested, postage prepaid as follows.
If intended for Landlord, addressed to Landlord at Landlord's Original Address
with a copy to:
Dale J. Lois, Esq.
Martin, Lois & Gasparrini
1177 Summer Street
Stamford, CT 06905
(or to such other address as may from time to time hereafter be designated by
Landlord by like notice).
If intended for Tenant, addressed to Tenant at Tenant's Original Address until
the Commencement Date and thereafter to the Premises (or to such other address
or addresses as may from time to time hereafter be designated by Tenant by like
notice) with a copy to:
David A. Broadwin, Esq.
Foley, Hoag & Elliot LLP
One Post Office Square
Boston, MA 02110
All such notices shall he effective when deposited in the United States Mail
within the Continental United States, provided that the same are received in
ordinary course at the address to which the same were sent.
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14.13 WHEN LEASE BECOMES BINDING. The submission of this document for
examination and negotiation does not constitute an offer to lease, or a
reservation of, or option for, the Premises, and this document shall become
effective and binding only upon the execution and delivery hereof by both
Landlord and Tenant. All negotiations, considerations, representations and
understandings between Landlord and Tenant are incorporated herein and this
Lease expressly supersedes any proposals or other written documents relating
hereto. This Lease may be modified or altered only by written agreement between
Landlord and Tenant, and no act or omission of any employee or agent of Landlord
shall alter, change or modify any of the revisions hereof.
14.14 PARAGRAPH HEADINGS. The paragraph headings throughout this instrument are
for convenience and reference only and the words contained therein shall in no
way be held to explain, modify, amplify or aid in the interpretation,
construction, or meaning of the provisions of this Lease.
14.15 RIGHTS OF MORTGAGEE OR GROUND LESSOR. (a) This Lease shall be subordinate
to any mortgage or ground lease from time to time encumbering the Premises,
whether executed and delivered prior to or subsequent to the date of this Lease,
if the holder of such mortgage or ground lease shall so elect. If this Lease is
subordinate to any mortgage or ground lease and the holder thereof (or
successor) shall succeed to the interest of Landlord, at the election of such
holder (or successor), Tenant shall attorn to such holder and this Lease shall
continue in full force and effect between such holder (or successor) and Tenant.
Tenant agrees to execute such instruments of subordination or attornment in
confirmation of the foregoing agreement as such holder may request. Failure to
comply with any such request shall be deemed a Default of Tenant under this
Lease.
(b) Notwithstanding anything to the contrary contained in Section 14.15(a),
Tenant shall not be required to subordinate this Lease to any mortgage or ground
lease or to the lien of any mortgage, nor shall the subordination provided
herein be self-operative, unless the holder of such mortgage or ground lease
shall enter into an agreement with Tenant, recordable in form, to the effect
that in the event of foreclosure of or similar action taken under such mortgage
or termination of such ground lease, this Lease shall not be terminated or
disturbed by such mortgageholder or ground lessor or anyone claiming under such
mortgageholder or ground lessor, so long as Tenant shall not be in default
beyond any applicable grace and cure periods under this Lease. The form of any
such agreement shall be the form as required by any such mortgagee or ground
lessor. It is agreed and understood that the provisions of this clause (b) shall
only be applicable to the rights of the original Tenant named herein and such
rights shall not inure to the benefit of, nor be applicable to, any successor or
assign of Tenant.
14.16 STATUS REPORT. Recognizing that both parties may find it necessary to
establish to third parties, such as accountants, banks, mortgagees, ground
lessors, or the like, the then current status of performance hereunder, either
party, on the request of the other made from time to time, will within ten days
after a written request, furnish to Landlord, or the holder of any mortgage or
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ground lease encumbering the Premises, or to Tenant, as the case may be, a
statement of the status of any matter pertaining to this Lease, including,
without limitation, acknowledgement that (or the extent to which) each party is
in compliance with its obligations under the terms of this Lease.
14.17 SECURITY DEPOSIT. (a) Landlord acknowledges that it has received
$33,493.74 as a security deposit ("the Security Deposit"), as security for the
faithful performance and observance by Tenant of the terms, provisions and
conditions of this Lease.
(b) Landlord shall have the right from time to time without prejudice to
any other remedy Landlord may have on account thereof, to apply all or part of
the Security Deposit to Landlord's damages arising from, or to cure, any Default
of Tenant. If Landlord shall so apply all or part of the Security Deposit,
Tenant shall immediately deposit with Landlord the amount so applied. In the
event there is no existing Default of Tenant at such time, Landlord shall
promptly return any cash security deposit which it is holding, or so much
thereof as shall theretofore not been applied in accordance with the terms of
this Section 14.17, to Tenant on the expiration or earlier termination of the
Term of this Lease and surrender of possession of the Premises by Tenant to
Landlord at such time. While Landlord holds the Security Deposit, Landlord shall
have no obligation to pay interest on the same and shall have the right to
commingle the same with Landlord's other funds. If Landlord conveys Landlord's
interest under this Lease, the Security Deposit, or any part thereof not
previously applied, may be turned over by Landlord to Landlord's grantee, and,
if so turned over, Tenant agrees to look solely to such grantee for proper
application of the Security Deposit in accordance with the terms of this Section
14.17, and the return thereof in accordance therewith. The holder of a mortgage
shall not be responsible to Tenant for the return or application of any cash
security deposit delivered to Landlord in connection with this Lease, whether or
not it succeeds to the position of Landlord hereunder unless such deposit shall
have been received in hand by such holder.
14.18 REMEDYING DEFAULTS. Landlord shall have the right, but shall not be
required, to pay such sums or to do any act which requires the expenditure of
monies which may be necessary or appropriate by reason of the failure or neglect
of Tenant to perform any of the provisions of this Lease, and in the event of
the exercise of such right by Landlord, Tenant agrees to pay to Landlord
forthwith upon demand all such sums, together with interest thereon at a rate
equal to 3% over the prime rate in effect from time to time at the First
National Bank of Boston (but in no event less than 18% per annum), as an
additional charge. Any payment of Basic Rent, Escalation Charges or other sums
payable hereunder not paid when due shall, at the option of Landlord, bear
interest at a rate equal to 3% over the prime rate in effect from time to time
at the First National Bank of Boston (but in no event less than 18% per annum)
from the due date thereof and shall be payable forthwith on demand by Landlord,
as an additional charge.
14.19 HOLDING OVER. Any holding over by Tenant after the expiration of the Term
of this Lease shall be treated as a daily tenancy at sufferance at a rate equal
to the then fair rental value of the Premises but in no event less twice the sum
of (i) Basic Rent and (ii) Escalation Charges in effect on the expiration date.
Tenant shall also pay to Landlord all damages, direct and/or indirect (including
any loss of a tenant or rental income), sustained by reason of any such holding
over.
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Otherwise, such holding over shall be on the terms and conditions set forth in
this Lease as far as applicable.
14.20 WAIVER OF SUBROGATION. Insofar as, and to the extent that, the following
provision shall not make it impossible to secure insurance coverage obtainable
from responsible insurance companies doing business in the locality in which the
Property is located (even though extra premium may result therefrom) Landlord
and Tenant mutually agree that any property damage insurance carried by either
shall provide for the waiver by the insurance carrier of any right of
subrogation against the other, and they further mutually agree that, with
respect to any damage to property, the loss from which is covered by insurance
then being carried by them, respectively, the one carrying such insurance and
suffering such loss releases the other of and from any and all claims with
respect to such loss to the extent of the insurance proceeds paid with respect
thereto.
14.21 SURRENDER OF PREMISES. Upon the expiration or earlier termination of the
Term of this Lease, Tenant shall peaceably quit and surrender to Landlord the
Premises in neat and clean condition and in good order, condition and repair,
together with all alterations, additions and improvements which may have been
made or installed in, on or to the Premises prior to or during the Term of this
Lease, excepting only ordinary wear and use and damage by fire or other casualty
for which, under other provisions of this Lease, Tenant has no responsibility of
repair and restoration. Tenant shall remove all of Tenant's Removable Property
and, to the extent specified by Landlord at the time the Landlord shall have
given its approval, all alterations and additions made by Tenant and all
partitions wholly within the Premises; and shall repair any damage to the
Premises or the Building caused by such removal. Any Tenant's Removable Property
which shall remain in the Building or on the Premises after the expiration or
termination of the Term of this Lease shall be deemed conclusively to have been
abandoned, and either may be retained by Landlord as its property or may be
disposed of in such manner as Landlord may see fit, at Tenant's sole cost and
expense.
14.22 BROKERAGE. Tenant warrants and represents that Tenant has dealt with no
broker in connection with the consummation of this Lease other than CB Richard
Ellis (the "Broker"), and, in the event of any brokerage claims against Landlord
predicated upon prior dealings with Tenant, Tenant agrees to defend the same and
indemnify Landlord against any such claim (except any claim by the Broker).
Provided this Lease is fully-executed and exchanged between the parties,
Landlord shall pay the brokerage commission due to the Broker pursuant to a
separate agreement.
14.23 SPECIAL TAXATION PROVISIONS. Tenant agrees to cooperate with Landlord to
amend the provisions of this Lease if Landlord is advised by its counsel that
all or any portion of the monies paid by Tenant to Landlord hereunder are, or
may be deemed to be, unrelated business income within the meaning of the United
States Internal Revenue Code, or regulation issued thereunder, and Tenant agrees
that it will execute all documents or instruments necessary to effect such
amendment or amendments, provided that no such amendment shall result in Tenant
having to pay in the aggregate more money on account of its occupancy of the
Premises or increase Tenant's other obligations under the provisions of this
Lease, as so amended and
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provided further, that no such amendment or amendments shall result in Tenant
receiving under the provisions of this Lease less services than it is entitled
to receive nor services of a lesser quality.
14.24 HAZARDOUS MATERIALS. Tenant shall not (either with or without negligence)
cause or permit the escape, disposal, release or threat of release of any
biologically or chemically active or other Hazardous Materials (as said term is
hereafter defined) on, in, upon or under the Property or the Premises. Tenant
shall not allow the generation, storage, use or disposal of such Hazardous
Materials in any manner not sanctioned by law or by the highest standards
prevailing in the industry for the generation, storage, use and disposal of such
Hazardous Materials, nor allow to be brought into the Property any such
Hazardous Materials except for use in the ordinary course of Tenant's business,
and then only after written notice is given to Landlord of the identity of such
Hazardous Materials. Hazardous Materials shall include, without limitation, any
material or substance which is (i) petroleum, (ii) asbestos, (iii) designated as
a "hazardous substance" pursuant to Section 311 of the Federal Water Pollution
Control Act, 33 U.S.C. 1251 et seq. (33 U.S.C. Sec. 1321) or listed pursuant to
307 of the Federal Water Pollution Control Act (33 U.S.C. Sec. 1317), (iv)
defined as a "hazardous waste" pursuant to Section 1004 of the Resource
Conservation and Recovery Act, 42 U.S.C. Sec. 9601 et seq. (42 U.S.C. Sec.
6903), (v) defined as a '.'hazardous substance" pursuant to Section 101 of the
Comprehensive Environmental Response, Compensation, and Liability Act 42 U.S.C.
See. 9601 et seq. (42 U.S.C. Sec. 9601), as amended, or (vi) defined as "oil" or
a "hazardous waste", a "hazardous substance", a "hazardous material" or a "toxic
material" under any other law, rule or regulation applicable to the Property,
including, without limitation, R.I. Gen. Laws Section 23-19.1-4, as amended. If
any lender or governmental agency shall ever require testing to ascertain
whether or not there has been any release of Hazardous Materials, then the
reasonable costs thereof shall be reimbursed by Tenant to Landlord upon demand
as additional charges but only if such requirement applies to the Premises and
may be the result of the acts or omissions of Tenant or persons acting under
Tenant. In addition, Tenant shall execute affidavits, representations and the
like, from time to time, at Landlord's request concerning Tenant's best
knowledge and belief regarding the presence of Hazardous Materials on the
Premises. In all events, Tenant shall indemnify and save Landlord harmless from
any release or threat of release or the presence or existence of Hazardous
Materials on the Premises occurring while Tenant is in possession, or elsewhere
on the Property if caused by Tenant or persons acting under Tenant. The within
covenants and indemnity shall survive the expiration or earlier termination of
the Tenn of this Lease. Landlord expressly reserves the right to enter the
Premises to perform regular inspections.
14.25 REQUIREMENTS OF PUBLIC AUTHORITY. (a) Legal Requirements. Tenant shall, at
its own cost and expense, promptly observe and comply with all Legal
Requirements (as said term is hereafter defined). Tenant shall pay all costs,
expenses, liabilities, losses, damages, fines, penalties, claims and demands,
that may in any manner arise out of or be imposed on the Landlord or the
Property because of the failure of Tenant to comply with the covenants of this
Section 14.26 or any Legal Requirement. As used herein, the term "Legal
Requirements" shall mean and include all Federal, State, county and local laws,
rules, ordinances, codes, regulations, statutes, administrative orders, by-laws
or orders of any governmental agency or authority applicable to, imposed upon or
relating to Tenant's use and enjoyment of the Premises by Tenant
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or anything done on the Property by Tenant or its agents, employees,
representatives or contractors, as the same are the responsibility of Tenant
under this Lease.
(b) Contests. Provided that there shall then exist no Default of Tenant,
Tenant shall have the right to contest by appropriate legal proceedings
diligently conducted in good faith, in the name of the Tenant, without cost,
expense, liability or damage to the Property or to Landlord, the validity or
application of any Legal Requirement and, if compliance with any of the terms of
any such Legal Requirement may legally be delayed pending the prosecution of any
such proceeding, Tenant may delay such compliance therewith until the final
determination of such proceeding (but in no event shall such a delay or extend
the Commencement Date), provided in each case that: (i) Landlord shall not be
subject to civil or criminal, claims, penalty or damages or to prosecution for a
crime, nor shall the Property or any equipment and improvements therein or any
part thereof be subject to being condemned or vacated, or subject to any lien or
encumbrance, by reason of non-compliance or otherwise by reason of such contest;
(ii) before the commencement of such contest, Tenant shall furnish to Landlord
the bond of a surety company satisfactory to Landlord, in form and substance
satisfactory to Landlord and in an amount equal to one hundred percent (100%) of
the cost of such compliance (as estimated by Landlord) and shall indemnify
Landlord against the cost of such compliance and any liability resulting from or
incurred in connection with such contest or non-compliance (including without
limitation, attorneys fees); (iii) such non-compliance or contest shall not
constitute or result in any violation of any mortgage or ground lease now or
hereafter encumbering the Property, or if any present or future holder of any
such mortgage or the lessor's position under any ground lease (a "Land Lessor")
shall condition such non-compliance or contest upon the taking of action or
furnishing of security by Landlord, such action shall be taken and such security
shall be furnished at the expense of Tenant; and (iv) Tenant shall keep Landlord
regularly advised as to the status of such proceedings in good faith and shall
diligently prosecute same to completion. Landlord shall be deemed subject to
prosecution for a crime if Landlord, any present or future holder of any such
mortgage, a Land Lessor or any of their officers, directors, partners,
shareholders, agents or employees, is charged with a crime of any kind whatever
unless such charge is withdrawn five (5) days before such party is required to
plead or answer thereto. This Section 14.26 shall survive the expiration or
earlier termination of this Lease.
14.26 COMPLIANCE WITH THE AMERICANS WITH DISABILITIES ACT; LANDLORD'S AND
TENANT'S OBLIGATIONS. In any case where it is determined that the Americans with
Disabilities Act of 1990, 42 U.S.C. Sec. 12001 et seq., as amended (the
"Americans with Disabilities Act"), and any regulations issued pursuant thereto
shall be applicable to the Building or the Premises, it is agreed and understood
that the costs of work improvements and materials necessary to effect such
compliance shall be borne by Landlord or Tenant, as applicable in accordance
with the following allocations:
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Location Party Responsible for Costs
-------- ---------------------------
Exterior of Premises
including common areas
not exclusively used by
Tenant Landlord
Premises including common
areas exclusively used by
Tenant Tenant
14.27 INDEMNITIES. Wherever in this Lease it is provided that one of the parties
hereto (the "Indemnitor") agrees to indemnify the other party hereto (the
"Indemnitee"), it is hereby agreed that:
(a) As soon as reasonably practical after obtaining knowledge of the
existence of a claim or demand upon which it may be entitled to indemnification,
the Indemnitee shall provide written notice thereof to the Indemnitor, which
notice shall state the facts giving rise to the claim or demand for which the
indemnity is asserted;
(b) The Indemnitee shall cooperate in the defense of any such claim or
demand (at no cost to the Indemnitee), including making available at reasonable
times to the Indemnitor and its counsel the personnel and records of the
Indemnitee relevant to such defense; and
(c) No such action, suit or proceeding shall be settled otherwise
compromised without (i) giving the Indemnitee timely notice of such proposed
settlement or compromise and (ii) the express written consent of the Indemnitee.
14.28 OPTION TO EXTEND. (a) Provided that Tenant shall have well and faithfully
performed in a timely manner all of the terms, covenants and conditions on
Tenant's part to be performed under this Lease, Tenant shall have an option to
extend the term of this Lease for one additional period of five (5) years (the
"Option to Extend"). The Option to Extend shall be exercised only by written
notice from Tenant received by Landlord no more than eight (8) months and no
less than six (6) months prior to the expiration of the Initial Term ("Notice of
Option to Extend"), failing which notice Tenant's right to extend the term of
this Lease shall be null and void. The Notice of Option to Extend shall be
effective only if given in the timely manner described and provided Tenant is
not in default under this Lease beyond applicable grace and cure periods either
on the date of the Notice of Option to Extend or on the date of expiration of
the Initial Term.. Any extended term of this Lease shall be on the terms and
conditions as the Initial Term, except as otherwise expressly provided herein.
Once the term of this Lease is duly extended any reference herein to the Term
hereof shall mean the term of this Lease as extended (the "Extended Term").
30
<PAGE> 31
(b) The Basic Rent as defined in Section 1.2 hereof for the Extended Term
of this Lease shall be the then fair market value figure for the Basic Rent for
the Premises during any such extended term as determined pursuant to this
Section 14.29(b). Notwithstanding anything to the contrary contained herein, in
no event shall the Basic Rent for any given lease year of the Extended Term be
less than the Basic Rent for any previous year of the Term as extended. Within
ten (10) days of its receipt of the Notice of Option to Extend, Landlord shall
deliver Tenant notice (the "Landlord's Rental Notice") of Landlord's estimate of
the fair market value for the Basic Rent for the Premises for the Extended Term.
If Landlord and Tenant cannot agree on such fair market value within fourteen
(14) days of Tenant's receipt of the Landlord Rental Notice, (the "Landlord's
Rental Notice Date"), the parties shall, within twenty-eight (28) days after the
Landlord's Rental Notice. Date, select a single appraiser who will determine
such fair market value. If the parties cannot agree on a single appraiser, then
each party will select an appraiser within said twenty-eight (28) days after the
Landlord's Rental Notice Date and such two appraisers will select a third
appraiser within seven (7) days of the date of the selection of such two
appraisers. The appraisers so selected shall all be members of the Institute of
Real Estate Appraisers, and in the case of the third appraiser chosen by the
other two appraisers, shall not have acted in any capacity for either Landlord
or Tenant within five (5) years of such appraiser's selection. The three
appraisers shall render their decision as to their estimate of the fair market
value of the Premises and a decision by the majority of the appraisers shall be
binding upon Landlord and Tenant. The cost of the foregoing appraisers shall be
borne equally by Landlord and Tenant.
14.29 GOVERNING LAW. This Lease shall be governed exclusively by the provisions
hereof and by the laws of the State of Rhode Island, as the same may from time
to time exist.
14.30 ADDITIONAL SPACE AND USE OF LOADING DOCK. Landlord shall use reasonable
efforts to keep Tenant informed of the availability of the approximately 11,650
square foot space on the north side of the first floor of the Building (the
"Additional Space"), with the intention of providing Tenant with an opportunity
to make a proposal to lease the Additional Space if Tenant so desires. Until
such time as Landlord has leased the Additional Space to Tenant or a third
party, Tenant shall be permitted to use the loading dock and receiving area
adjacent thereto at no additional charge, but subject to all of the terms and
conditions of this Lease as pertain to the Premises.
IN WITNESS WHEREOF, Landlord and Tenant have caused this Lease to be duly
executed, under seal, by persons hereunto duly authorized, in multiple copies,
each to be considered an original hereof, as of the date first set forth above.
TENANT: LANDLORD:
Cytation.com, Incorporated Midview, LLC
By: /s/ Richard A. Fisher By: /s/ Alexander D. Walker, III
---------------------------- --------------------------------
Alexander D. Walker, III
Prospect Manager
Its Chairman and General Counsel Its Member
---------------------------- --------------------------------
Hereunto duly authorized Hereunto duly authorized
By: /s/ Ogden Hunnewell
--------------------------------
Ogden Hunnewell
Nordic Manager
31
<PAGE> 32
Exhibit "A"
Second Floor
[Floor Plan]
FLOOR PLATE
CB Richard Ellis
1
<PAGE> 33
EXHIBIT B
TO LEASE
BETWEEN PROSPECT NORDIC, LLC, LANDLORD
AND
CYTATION.COM, INCORPORATED, TENANT
OPERATING EXPENSES
A. Without limitation, Operating Expenses shall include:
1. All expenses incurred by Landlord or Landlords agents which shall be
directly related to employment of personnel, including amounts incurred for
wages, salaries and other compensation for services, payroll, social security,
unemployment and similar taxes, workmen's compensation insurance, disability
benefits, pensions, hospitalization, retirement plans and group insurance,
uniforms and working clothes and the cleaning thereof, and expenses imposed on
Landlord or Landlord's agents in connection with the operation, repair,
maintenance, cleaning, management and protection of the Property, and its
mechanical systems including, without limitation, day and night supervisors,
property manager, accountants, bookkeepers, janitors, carpenters, engineers,
mechanics, electricians and plumbers -and personnel engaged in supervision of
any of the persons mentioned above: provided that, if any such employee, is also
employed on other property of Landlord, such compensation shall be suitably
allocated by Landlord among the Property and such other properties.
2. The cost of services, materials and supplies furnished or used in the
operation, repair, maintenance, cleaning, management and protection of the
Property including, without limitation, fees and assessments, if any, imposed
upon Landlord, or charged to the Property, by any governmental agency or
authority or other duly authorized private or public entity on account of public
safety services, transit, housing, police, fire, sanitation or other services or
purported benefits.
3. The cost of replacements for tools and other similar equipment used in the
repair, maintenance, cleaning and protection of the Property, provided that, in
the case of any such equipment used jointly on other property of Landlord, such
costs shall be allocated by Landlord among the Property and such other
properties.
4. Premiums for insurance against damage or loss to the Building from such
hazards as shall from time to time be generally required by institutional
mortgagees in the Providence, Rhode Island area for similar properties,
including, but not by way of limitation, insurance covering loss of rent
attributable to any such hazards, and public liability insurance.
5. Where the Property is managed by Landlord or an affiliate of Landlord, a
sum equal to the amounts customarily charged by management firms in the
Providence, Rhode Island area for similar properties, but in no event more
than five percent (5%) of gross annual income, whether or not actually paid, or
where managed by other than Landlord or an affiliate thereof, the
2
<PAGE> 34
amounts accrued for management, together with, in either case, amounts accrued
for legal and other professional fees relating to the Property, but excluding
such fees and commissions paid in connection with services rendered for
securing, enforcing or renewing, leases and for matters not related to the
normal administration and operation of the Building
6. If, during the Term of the Lease, Landlord shall made a capital
expenditure, the total cost of which is not properly includable in Operating
Expenses for the operating Year in which it was made, such expenditure shall not
be expensed in the Operating Year in which it was made, but there shall
nevertheless be included in Operating Expenses for said Operating Year in which
it was made and in Operating Expenses for each succeeding Operating Year an
annual charge-off therefor. The annual charge-off shall be determined by
dividing the original capital expenditure plus an interest factor, reasonably
determined by Landlord, as being. the interest rate then being charged for
long-term mortgages, by institutional lenders on like properties within the
locality in which the Building is located, by the number of years of useful life
of the capital expenditure, and the useful life shall be determined reasonably
by Landlord in accordance with generally accepted accounting principles and
practices in effect at the time of making such expenditure.
7. Betterment assessments provided the same are apportioned equally over the
longest period permitted by law, and not otherwise included in Taxes.
8. Amounts paid to independent contractors for services, materials and
supplies furnished for the operation, repair, maintenance, cleaning and
protection of the Property.
Notwithstanding the foregoing, Operating Expenses shall exclude:
(1) Payments for rented equipment, the cost of which equipment would
constitute a capital expenditure if the equipment were purchased;
(2) Expenses incurred by Landlord in connection with services or other
benefits of a type which are not building standard services or
benefits provided to tenants generally, but which are provided only to
specific tenants;
(3) Any items to the extent such items are reimbursable to Landlord by
Tenant (other than as an Escalation Charge), by other tenants or
occupants of the Building, or by any third parties;
(4) All costs related to the preparation of any portion of the Building
for occupancy by a tenant or other occupant;
(5) Any cost incurred by the negligent acts or omissions of Landlord, its
agents and employees;
(6) Advertising and promotional expenses associated with the marketing of
vacant space in the Building;
3
<PAGE> 35
(7) Costs and expenses incurred by Landlord in connection with the repair
of damage to the Building or Property caused by fire or other
casualty, insured against hereunder, except for reasonable and
customary deductibles;
(8) The cost of any item for which Landlord is reimbursed through
condemnation awards; and
(9) Costs incurred due to violation by Landlord or any other tenant of the
Building of any lease or any laws, rules, regulations or ordinances
applicable to the Building.
4
<PAGE> 36
EXHIBIT C
TO LEASE
BETWEEN PROSPECT NORDIC, LLC, LANDLORD
AND
CYTATION-COM, INCORPORATED, TENANT
RULES AND REGULATIONS
The following Rules and Regulations constitute a part of the Lease and of the
Tenant's obligations thereunder in respect of the Tenant's use and occupancy of
the Premises and the Building:
I. Building Hours
1.1 The Tenant is advised, for the protection and safety of its personnel, to
lock the front doors to the Premises at the end of each working day. Front doors
to the Premises also should be locked whenever the Tenant's receptionist leaves
the area.
1.2 If the Tenant wishes to remove fixtures or materials from the Premises
after 6:00 p.m. or to have work performed after 6:00 p.m., the terms of the
Lease shall govern the Tenant's right to such conduct and the Building
Management office must be notified in advance in writing.
1.3 If the Tenant's employees plan to work in the Premises on a weekend or
holiday, Tenant shall be responsible for locking the door to the main lobby.
II. Elevators, Deliveries and Parking
2.1 If the Tenant expects delivery of any bulky material, the Tenant shall
install elevator pads in the elevator to protect the same and shall take care
not to exceed the capacity thereof. Elevators shall be available for deliveries
at all times.
2.2 All hand trucks used for deliveries must be equipped with rubber bumpers
and tires.
2.3 The Building loading dock may be used only for deliveries. No vehicles are
allowed to stand or park in this area after unloading nor are vehicles allowed
to park at the loading dock for service calls. The Tenant shall advise its
vendors and suppliers of this rule. Any vehicle abusing these loading dock
privileges are subject to being towed at the owner's expense.
III. General Use of the Building and the Premises
3.1 The Tenant is not permitted to place or store property on the sidewalks,
passageways, parking areas or courtyards adjacent to the Building or in the
elevators, vestibules, stairways, or corridors (except as may be necessary for
brief periods during deliveries).
3.2 No animals may be brought into or kept in or about the Building or the
Premises.
5
<PAGE> 37
3.3 Rubbish, rags, sweepings, acid and any and all harmful or damaging
substances may not be deposited in the lavatories or in the janitor closets.
The Tenant shall make arrangements with the building management office for
disposal of any unusual trash.
3.4 If the Tenant's use of the Premises beyond normal office uses results in
the imposition of special or additional requirements for heating or air
conditioning facilities, the Tenant shall pay the reasonable cost of providing
such additional facilities or service.
3.5 Canvassing, soliciting or peddling in the Building is prohibited, and the
Tenant shall cooperate to prevent the same.
3.6 Except as permitted by the Lease, Lessee shall not bring or permit to be
brought or kept in or on the Premises any inflammable, combustible, corrosive,
caustic, poisonous, or explosive substance or cause or permit any noxious odors
to permeate or emanate from the Premises, or permit or suffer the Premises to be
occupied or used in a manner which is reasonably offensive or objectionable to
Lessor or other tenants of the Building by reason of light, radiation, noise,
and/or vibration, or interfere in any materially adverse way with other tenant's
use of their leased premises in the Building or their business invitees.
3.7 The Tenant shall give immediate notice to the Landlord in case of theft,
unauthorized solicitation or accident in the Premises or of defects therein or
in any building fixtures or equipment, or of any known emergency in the
Building.
3.8 No portion of the Premises or Building shall at any time be used or
occupied as sleeping or lodging quarters.
3.9 The toilet rooms, urinals, wash bowls and other apparatus shall not be used
for any purpose other than that for which they were constructed and no foreign
substance of any kind whatsoever shall be thrown therein and the expense of any
breakage or stoppage or damage resulting from the violation of the rule shall be
borne by the tenant who or whose employees shall have caused it.
3.10 The Tenant shall comply with all traffic, security, safety and other rules
and regulations promulgated from time to time by the Landlord in accordance with
the Lease, and shall use its unreserved parking spaces in common with all other
tenants of the Building.
3.11 The Landlord reserves the right to rescind, add to or amend any rules or
regulations, to add new rules or regulations and to waive any rules or
regulation all as expressly set forth in the Lease.
IV. Repairs and Services
4.1 Repairs, installation, or alterations to the Building or its fixtures shall
be subject to the terms of the Lease and, in addition, must be approved and
scheduled by the building manager to the extent and in the manner required by
the Lease.
6
<PAGE> 38
4.2 All requests for work to be done in the Premises by any of the building
management staff should be directed to the building manager, building employees
are not permitted to perform any work outside their regular duties except upon
special instruction from the building manager.
4.3 All schedules for the performance of the Tenants construction and repair
work must be coordinated with the building manager to avoid conflicts with
various building construction and maintenance schedules. The Tenant must inform
the building manager, at least 72 hours before any work is to begin, of the
nature of the work, where and when it is to be performed, and the name of the
individuals who will supervise the performance of the work. Work may not begin
until the requirements of the Lease have been satisfied.
V. Floor Load - Heavy Machinery
5.1 The Tenant may not place a load upon any floor in the Premises or Building
exceeding the floor load which is allowed by law and which such floor was
designed to carry. The Landlord reserves the right to prescribe the weight and
position of all business machines and mechanical equipment, including safes, all
of which shall be so placed as to distribute the weight. The Tenant shall place
and maintain its business machines and mechanical equipment in setting
sufficient, in the Landlord's judgment, to absorb and prevent vibration, noise
and annoyance. The Tenant may not move any safe, heavy machines, heavy
equipment, freight, bulky matter or fixtures into or out of the Building without
the Landlord's prior consent, which consent may include a requirement to provide
insurance, naming the Landlord as an insured, in such amounts as the Landlord
may deem reasonable. Notwithstanding the foregoing, proper placement of all such
business machines, etc., in the Premises shall be the Landlord's responsibility.
5.2 If any such safe, machinery, equipment, freight and bulky matter or
fixtures requires special handling, the Tenant shall employ only persons with
proper qualifications to do such work; and all work in connection therewith must
comply with applicable laws and regulations. Any such moving shall be at the
Tenant's own sole risk and hazard and the Tenant will defend, exonerate,
indemnify and save the Landlord harmless against and from any liability, loss,
injury, claim, or suit resulting from such moving as set forth in the Lease.
VI. Electrical System - Energy Conservation - Water
6.1 In order to assure that the Building's electrical standards are not
exceeded and to avert possible adverse effect on the Building's electric system,
the Tenant may not, without the Landlord's prior consent, connect any fixtures,
appliances or equipment to the Building's electrical distribution system other
than standard office equipment, such as typewriters, pencil sharpeners, adding
machines, hand-held or desk calculators, dictating equipment, office computers
and copiers and other equipment used in the normal course of the Tenant's
business.
6.2 The Landlord reserves the right to implement policies and procedures it
deems, in its reasonable judgment, to be necessary or expedient in order to
conserve and/or preserve energy and related services, or to be necessary or
required in order to comply with applicable government laws, rules, regulations,
codes, orders and standards.
7
<PAGE> 39
6.3 The windows of the Building are designed for superior insulation and to
reduce glare, Building standard blinds or drapes present an elegant appearance
and contribute to the effectiveness of the Building's heating and cooling
systems. The Tenant should keep the blinds or drapes closed when windows are
exposed to the sun's rays in summer and keep them open when the sun is bright
enough to provide warmth during the winter months.
VII. Advertising
7.1 Neither the Landlord's name, nor the name of the Building shall be used
without the Landlord's consent in any advertising material (except on business
stationery or as an address in advertising matter), nor shall any such name, as
aforesaid, be used in any undignified, confusing, detrimental or misleading
manner.
VIII. Life Safety and Emergency Procedures
8.1 In case of emergency situations such as power failure, water leaks or
serious injury, the Tenant should call the building management office
immediately. In case of fire or smoke, the Tenant should pull the nearest alarm
(located on its floor) and then call the building management office.
IX. Hazardous and Prohibited Uses
9.1 Except as provided in the Lease, the Tenant may not use, or permit the use
or occupancy of, the Premises, or permit any act or practice to be done or
anything to be brought into or kept in or about the Premises or any part
thereof: (i) which would violate any of the covenants, agreements, terms,
provisions and conditions of the Lease or such other covenants~ agreements,
terms, provisions and conditions otherwise applicable to or binding upon the
Premises; (ii) for any unlawful purposes or in any unlawful manner; (iii) which,
in the reasonable judgment of Landlord shall in any way (a) adversely affect the
appearance of the Building as a first-class warehouse and office building, or
(c) cause any offensive odors or loud noises or constitute a nuisance or a
menace to any others in or about the Premises.
9.2 Except as provided in the Lease, the Tenant shall not do or permit anything
to be done in or upon the Premises or the Building, or bring in anything or keep
anything therein, which shall either constitute or generate hazardous chemicals
or wastes under applicable law or regulations, or which shall increase the rate
of property or liability insurance on the Premises or of the Building above the
standard rate applicable to premises being occupied for uses permitted under the
Lease; and if the Tenant shall do any of the foregoing, the Tenant shall
promptly pay to Landlord, on demand, any costs or expenses resulting therefrom
as provided in the Lease, and any other damages to which the Tenant may be
exposed by reason of such action by the Tenant and for which the Tenant is
required to pay pursuant to the provisions of the Lease.
Notwithstanding anything to the contrary contained in these Rules and
Regulations, in the event of a conflict between these Rules and Regulations and
the Lease, the terms of the Lease shall control.
8
<PAGE> 1
Exhibit 23.2
CONSENTS OF INDEPENDENT AUDITOR
We hereby consent to the use in this Registration Statement for Cytation.com
Incorporated of our independent auditor's report, dated September 3, 1999,
relating to the financial statements of Cytation.com Incorporated as of June 30,
1999 and 1998, and for each of the years ended June 30, 1999, 1998 and 1997,
which appear in such Registration Statement. We also consent to the reference to
us under the heading "Experts" in such Registration Statement, with respects
only pertaining to Cytation.com Incorporated.
We hereby consent to the use in this Registration Statement for Cytation.com
Incorporated of our independent auditor's report, dated October 1, 1999,
relating to the financial statements of Online Network, L.L.C., T/A Online
Scouting Network as of September 30, 1998 and 1997, and for each of the years
ended September 30, 1998 and, 1997, which appear in such Registration Statement.
We also consent to the reference to us under the heading "Experts" in such
Registration Statement, with respects only pertaining to Online Network, L.L.C.,
T/A Online Scouting Network.
Radin, Glass & Co., LLP
New York, New York
October 18, 1999
<PAGE> 1
Exhibit 23.3
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Registration Statement of Cytation.com
Incorporated of our independent auditors' report, dated August 10, 1999,
relating to the financial statements of ECI, Inc. as of and for the years ended
December 31, 1998, 1997 and 1996, which appear in such Registration Statement.
We also consent to the reference to us under the heading "Experts" in such
Registration Statement, with respect only to matters pertaining to ECI, Inc.
Paolilli & Jarek, LLC
Chelmsford, Massachusetts
October 20, 1999
<PAGE> 1
Exhibit 23.4
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in a Registration Statement our report
dated October 11, 1999 relating to the financial statements and financial
statement schedule of Student Success (a division of Graphic Management
Corporation), which appear in such Registration Statement. We also consent to
the reference to us under the heading "Experts" in such Registration Statement,
with respect only to matters pertaining to Student Success (a division of
Graphic Management Corporation).
SCHENCK & ASSOCIATES SC
/s/ SCHENCK & ASSOCIATES SC
Schenck & Associates SC
Green Bay, Wisconsin
October 20, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEETS AND STATEMENTS OF OPERATIONS INCLUDED IN THE COMPANY'S FORM 10-K FOR THE
YEAR ENDED JUNE 30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-START> JUL-1-1998
<PERIOD-END> JUN-30-1999
<CASH> 1,387,100
<SECURITIES> 0
<RECEIVABLES> 100,163
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,556,512
<PP&E> 250,484
<DEPRECIATION> 0
<TOTAL-ASSETS> 1,806,996
<CURRENT-LIABILITIES> 430,344
<BONDS> 0
0
3,100,000
<COMMON> 9,152
<OTHER-SE> 2,459,718
<TOTAL-LIABILITY-AND-EQUITY> 1,806,996
<SALES> 561,921
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 3,148,346
<OTHER-EXPENSES> 1,417,110
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (2,586,425)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,586,425)
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
