-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, IX7+MnIwxVQ142D2m64TiT4k1fjzYpTeBwUvt08uUqgO1W8UGUASucWiRY60RUPs IQgcn6XH9NBrOf5590dYyg== 0000891092-99-000007.txt : 19990111 0000891092-99-000007.hdr.sgml : 19990111 ACCESSION NUMBER: 0000891092-99-000007 CONFORMED SUBMISSION TYPE: SB-2 PUBLIC DOCUMENT COUNT: 8 FILED AS OF DATE: 19990108 FILER: COMPANY DATA: COMPANY CONFORMED NAME: LOG ON AMERICA INC CENTRAL INDEX KEY: 0001074927 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 050496586 FILING VALUES: FORM TYPE: SB-2 SEC ACT: SEC FILE NUMBER: 333-70307 FILM NUMBER: 99503160 BUSINESS ADDRESS: STREET 1: 3 REGENCY PLAZA CITY: PROVIDENCE STATE: RI ZIP: 02903 BUSINESS PHONE: 4015498200 MAIL ADDRESS: STREET 1: 3 REGENCY PLAZA CITY: PROVIDENCE STATE: RI ZIP: 02903 SB-2 1 FORM SB-2 As filed with the Securities and Exchange Commission on January 8, 1999 Registration No. 333-_________ ================================================================================ SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 -------------------- FORM SB-2 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 -------------------- LOG ON AMERICA, INC. (Name of Small Business Issuer in its Charter) 7375 05-0496586 Delaware (Primary Standard Industrial (I.R.S. Employer (State of Incorporation) Classification Code Number) Identification No.) -------------------- 3 Regency Plaza Providence, Rhode Island 02903 (401) 459-6298 (Address and telephone number of principal executive offices and principal place of business) -------------------- David R. Paolo, President Log On America, Inc. 3 Regency Plaza Providence, Rhode Island 02903 (401) 459-6298 (Name, address and telephone number of agent for service) Copies to: Michael H. Freedman, Esq. Lawrence B. Fisher, Esq. Silverman, Collura, Chernis & Balzano, P.C. Orrick, Herrington & Sutcliffe LLP 381 Park Avenue South, Suite 1601 30 Rockefeller Plaza, 40th Floor New York, New York 10016 New York, New York 10112 Telephone (212) 779-8600 Telephone (212) 506-3660 Facsimile (212) 779-8858 Facsimile (212) 506-3730 Approximate date of proposed sale to the public: As soon as practicable after the effective date of this Registration Statement. If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] ______________________________ If this form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] __________________________________ If this form is a post-effective registration statement 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, check the following box. [ ] ================================================================================ 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, as amended, or until the Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine. CALCULATION OF REGISTRATION FEE
=========================================================================================================================== Proposed Proposed Maximum Maximum Title of Each Class of Securities to be Amount to be Offering Price Per Aggregate Offering Amount of Registered Registered Share(1) Price (1) Registration Fee - --------------------------------------------------------------------------------------------------------------------------- Common Stock, $.01 par value 2,300,000(2) $7.50 $17,250,000 $4,795.50 - --------------------------------------------------------------------------------------------------------------------------- Representative's Warrants to purchase shares of Common Stock 200,000 $.0001 $20 $0(4) - --------------------------------------------------------------------------------------------------------------------------- Common Stock Issuable Upon Exercise of Representative's Warrants 200,000(3) $9.00 $1,800,000 $500.40 - --------------------------------------------------------------------------------------------------------------------------- Common Stock held by Selling Securityholders 1,896,116 $7.50 $14,220,870 $3,953.40 - --------------------------------------------------------------------------------------------------------------------------- Common Stock underlying Warrants held by Selling Securityholders 1,131,921(3) $7.50 $8,489,407.50 $2,360.06 - --------------------------------------------------------------------------------------------------------------------------- Total 5,728,038 -- $41,760,305 $11,609.36 ===========================================================================================================================
(1) Estimated solely for the purpose of calculating the amount of the registration fee pursuant to Rule 457 of the Securities Act. (2) Includes 300,000 shares of Common Stock Issuable upon exercise of an over-allotment option granted to the Underwriter. (3) Pursuant to Rule 416 of the Securities Act, there are also being registered hereby such additional indeterminate number of shares of Common Stock as may become issuable pursuant to the anti-dilution provisions of the Representative's Warrants. (4) No registration fee is required pursuant to Rule 457 of the Securities Act. SUBJECT TO COMPLETION, DATED JANUARY 8, 1999 2,000,000 Shares LOG ON AMERICA, INC. Common Stock This is an initial public offering of shares of Common Stock of Log On America, Inc. ("LOA") No public market currently exists for our shares. We anticipate that the initial public offering price will be between $7.00 and $8.00 per share. We have applied to list the Common Stock on the American Stock Exchange ("AMEX") under the symbol "LOA." The market price of the securities may differ after the offering. Please see the Risk Factors beginning on page 7 to read about certain factors you should consider before buying shares of Common Stock. Neither the Securities and Exchange Commission nor any other regulatory body has approved or disapproved of these securities or passed upon the accuracy or adequacy of this Prospectus. Any representation to the contrary is a criminal offense. ------------------------- Per Share Total --------- ----- Initial public offering price.............. $ $ Underwriting discount...................... $ $ Proceeds, before expenses, to LOA.......... $ $ This Prospectus also relates to the registration for resale of 1,896,116 shares of Common Stock and 1,131,921 shares of Common Stock underlying warrants for the purchase of Common Stock held by certain Selling Securityholders identified in this Prospectus. Such shares may not be sold for a period of twelve months from the effective date of this Prospectus without the prior written consent of Security Capital Trading, Inc. LOA will not receive any proceeds from the sale of such shares. The Underwriters may, under certain circumstances, purchase up to an additional 300,000 shares from LOA at the initial public offering price less the underwriting discount. This Offering is a "firm commitment" underwriting. This means that all 2,000,000 shares must be purchased by the principal Representative (subject to certain conditions) if it purchases any of the shares. The Underwriters expect to deliver the shares against payment in New York, New York on __________, 1999. The information in this preliminary prospectus is not complete and may be changed. The securities may not be sold until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell nor does it seek an offer to buy these securities in any jurisdiction where the sale is not permitted. SECURITY CAPITAL TRADING, INC. Prospectus dated _______, 1999 CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK OFFERED HEREBY, INCLUDING PURCHASES OF COMMON STOCK TO COVER SOME OR ALL OF A SHORT POSITION IN THE COMMON STOCK MAINTAINED BY THE REPRESENTATAIVE AND THE IMPOSITION OF PENALTY BIDS. FOR A DESCRITPION OF THESE ACTIVITIES, SEE "UNDERWRITING." LOA is not currently a reporting company under the Securities and Exchange Act of 1934, and therefore has not filed any reports with the Securities and Exchange Commission. Upon completion of this offering, LOA intends to register under the Exchange Act and furnish its stockholders with annual reports containing audited financial statements reported on by independent auditors and quarterly reports containing unaudited financial information for the first three quarters of each fiscal year. (Picture of man holding phone on the left); The words "Bridging the Gap Between Voice, Date and the Internet" on the right, along the with Company logo. PROSPECTUS SUMMARY The following summary is qualified in its entirety by, and should be read in conjunction with the more detailed information and financial statements and the notes relating thereto, appearing elsewhere in this Prospectus. Unless otherwise specified, all information in this Prospectus assumes an initial public offering price of $7.50 and no exercise of the Underwriter's over-allotment option. You should read the entire Prospectus carefully, including the "Risk Factors" section and the financial statements and notes thereto. The Company Log On America, Inc. ("LOA") is a Northeast regional competitive local exchange carrier ("CLEC") and Information/Internet Service Provider ("IISP") positioning itself to provide a full range of Internet, voice, data and cable programming solutions to commercial clients. The majority of our current operations is providing dedicated access lines for commercial accounts. We currently maintain a national dial-up Internet service along with commercial Internet Protocol ("IP") transit throughout the Northeast. We, along with our predecessor entities, have been providing on-line services, and related products, to individual and corporate clients since November, 1992. We were recently approved as a competitive local exchange company in the State of Rhode Island. We believe our CLEC status will allow us to provide a full range of local telecommunication services to our customers such as voice, data and the Internet. Our clients include residential users, Internet Exchange Carriers ("IXC"), Internet Services Provides ("ISP"), wireless carriers and business, government and institutional end users. We intend to provide to our clients all of all of our services in selected cities with a population of 200,000 to 1,000,000. In 1997, Log On America, Inc., a Rhode Island corporation ("LOARI") sold 100% of its assets to Global Telemedia International, Inc. ("GTMI") and agreed to change its name to Tekcom, Inc. In consideration of the sale of LOARI, GTMI agreed to: (i) assume all outstanding liabilities of LOARI; and (ii) pay LOARI shareholders 20% of the value of all LOARI business on the third anniversary of the purchase ("Contingent Sum"). To transfer the assets and liabilities of LOARI, GTMI formed a wholly owned subsidiary, System 4, Inc. System 4, Inc., a Delaware corporation, changed its name to Log On America, Inc. in July 1997. Wan Secure, Inc. ("WS") was organized in Delaware in January 1998 to purchase 100% of the outstanding capital of LOA from GTMI. Pursuant to such acquisition, LOA became a wholly owned subsidiary of WS. In consideration for the purchase, WS executed a note in the amount of $100,000 (the "GTMI Note"). The GTMI Note was personally guaranteed by David R. Paolo, WS's majority shareholder. In September 1998, WS effected a merger with and into LOA whereby WS was the survivor. Simultaneously with the merger, WS changed its name to Log On America., Inc. In and around February 1998, 100% of the shareholders of Tekcom, Inc. (formerly LOARI) agreed to surrender and release all rights and claims to the Contingent Sum. As 3 consideration for such surrender and release, Tekcom shareholders received an aggregate of 795,130 shares of LOA. In July 1998, GTMI accepted a settlement of the GTMI Note. In consideration for such settlement, GTMI received $25,000. As a result of the aforesaid transactions, we are a successor in interest to WS, System 4, Inc. and LOARI. We incorporated in Rhode Island ("LOARI") in 1992 and, subsequent to the aforesaid transactions, we are now a Delaware corporation. Our principal offices are located at 3 Regency Plaza, Providence, Rhode Island 02903, telephone (401) 459-6298, facsimile (401) 459-6222, email: paolo@loa.com, and we maintain a website at "www.loa.com." Nothing contained on our website should be construed as a part of this Prospectus. 4 THE OFFERING Shares of Common Stock Offered by LOA..........2,000,000 shares of Common Stock (2,300,000 if the Underwriter's over-allotment option is exercised in full). Securities Outstanding Upon Completion of this Offering...........6,610,716shares of Common Stock issued and outstanding (6,910,716 if the Underwriter's over-allotment option is exercised in full)(1). Use of Proceeds.........We intend to use the net proceeds from the sale of the Common Stock to: (i) finance network expansion and equipment upgrades, (ii) strategic acquisitions, (iii) marketing and sales activity, and (iv) working capital and general corporate purposes. Risk Factors............The shares of Common Stock offered by us are highly speculative, involve a high degree of risk and immediate and substantial dilution and should not be purchased by an investor who cannot afford the loss of his or her entire investment. Proposed American Stock Stock Exchange Symbol .."LOA" - --------------------------- (1) Excludes (i) 1,131,922 shares of Common Stock reserved for issuance upon the exercise of warrants; and (ii) 200,000 shares of Common Stock reserved for issuance upon the exercise of the Underwriter's Warrants. 5 Summary Financial Data The following summary financial data should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operation" and the financial statements and Notes thereto, included elsewhere in this Prospectus. The statement of operations data for the years ended December 31, 1997 and 1996, and the balance sheet data for the year ended December 31, 1997 are derived from LOA's audited Financial Statements included elsewhere in this Prospectus. The statement of operations data for the nine month periods ended September 30, 1998 and 1997, and the balance sheet data for the nine month period ended September 30, 1998 have been derived from unaudited financial statements and include all adjustments (consisting of only normal recurring adjustments) that LOA considers necessary for a fair statement of the results of such interim periods. The operating results for the nine months ended September 30, 1998 are not necessarily indicative of the results to be expected for the full year or for any future period.
For the Nine Months Ended Year Ended September 30, December 31, ------------- ------------ (unaudited) 1998 1997 1997 1996 ---- ---- ---- ---- Statement of Operations Data: Revenues $ 551,304 $ 217,038 $ 351,560 $ 186,702 Total Operating Costs and Expenses $ 727,249 382,395 629,584 323,517 Net loss $ (178,228) $(167,825) $(280,001) $(163,036) =========== ========= ========= ========= Basic and diluted net loss per share $ (.05) $ (1,661) $ (2,772) $ (1,614) Shares used in computing basic and diluted net loss per share 3,708,770 101 101 101
December 31, 1997 September 30, 1998 ----------------- ------------------ (Unaudited)
Actual Actual As Adjusted(1) Balance Sheet Data (end of period): Cash........................... -- $ 69,911 $13,823,145 Working Capital (Deficit)...... (384,126) $(279,870) $13,551,640 Total Assets................... 362,655 $ 602,204 $16,711,438 Total Debt..................... 22,796 $ 18,486 $ 0 Total Liabilities.............. 463,396 $ 454,908 $ 364,142 Stockholders' Equity (Deficit).................... (100,741) $ 147,296 $16,347,296
- ---------- (1) The as adjusted balance sheet data as of September 30, 1998 gives effect to (i) the completion on December 22, 1998 of a private placement of 369,216 shares of Common Stock at $3.25 per share ("December Placement"); and (ii) the 2,000,000 shares offered hereby at an assumed initial offering price of $7.50 per share and the application of the net proceeds therefrom. 6 RISK FACTORS The shares of Common Stock offered hereby are highly speculative in nature and involve a high degree of risk. Therefore each prospective investor should consider very carefully certain risks and speculative factors inherent in and affecting our business prior to the purchase of any of the shares of Common Stock offered hereby, as well as all of the other matters set forth elsewhere in this Prospectus. Limited Operating History - Anticipated Future Losses. Our historical financial data is not reliable as a basis upon which to predict our future revenues or operating expenses for a number of reasons, including our limited operating history, the emerging nature of the Internet industry, and our growth strategy. In addition, we have suffered recurring losses from operations since our inception and have recorded limited revenues to date and expect to operate at a loss for the foreseeable future. Our business must be considered in light of the risks, expenses, and problems frequently encountered by companies with a limited operating history. For example, since 1992, we have incurred substantial operating losses and as of September 30, 1998, our accumulated deficit was approximately $178,228. The continuation of our operations is contingent upon our success in establishing markets for our products and services and achieving profitable operations. Although we intend to expand our marketing of products and services, no assurance can be given that we will be able to achieve these objectives or that, if these objectives are achieved, we will ever be profitable. Such operations will also require additional financing for us in the form of debt or equity. There can be no assurance that we will be able to achieve profitability and, if achieved, sustain such profitability, nor can there be any assurance as to when such profitability might be achieved. If we are unsuccessful in addressing any of these risks, it could have a material adverse effect on our business, results of operations and financial condition. Planning the development of our business, and accurately predicting our future revenues and expenses, is difficult because our business and the industry in which we compete are in the early stages of development. We also expect that, as in many new industries, there will be intense competition. Our potential customers and users will be intensely competitive. Our potential customers and users will experiment with many different products until it becomes apparent which ones work best. We believe that this will result in a wide range of pricing models for a variety of difference services and will decrease the predictability of our revenues. In addition, at this early state of development, our business and financial condition could be damaged materially by cancellation or non-renewal of existing or future client contracts. This could happen if the perceived value of our services falls below the expectations of our current or prospective clients, or for many other reasons. Given the possibility of such revenue fluctuations, we do not believe that quarterly comparisons of the results of our operations during any fiscal year or from year to year are 7 necessarily meaningful or useful to predict future results. Also, the price at which our securities trade may be subject to substantial volatility because of fluctuations in our financial results. Significant Capital Requirements; Dependence on Offering Proceeds; Need for Additional Financing. We anticipate, based on our currently proposed plans and assumptions, that the proceeds of the sale of the shares of Common Stock offered hereby will be sufficient to satisfy our contemplated cash requirements for at least the 12 month period following the consummation of this Offering. After such time, we will require additional funding. There is no current arrangements with respect to sources of additional financing. There can be no assurance that other additional financing will be available on commercially reasonable terms, or at all. The inability to obtain additional financing, when needed, would have a material adverse effect on us, including possibly requiring us to curtail or cease operations. To the extent that any future financing involves the sale of our equity securities, our then existing stockholders shares, including investors shares in this Offering, would be substantially diluted. To the extent we incur indebtedness or otherwise issues debt securities, we will be subject to risks associated with indebtedness, including the risk that interest rates may fluctuate and cash flow may be insufficient to pay principal and interest on such indebtedness. Limited Sales Force and Channels of Distribution. Currently we have a limited number of sales and marketing employees and we have not established distribution channels for our services and products. There can be no assurance that we will be able to develop a sufficient sales force and marketing group. The inability to develop a sufficient sales force and marketing group would have a material adverse effect on our business, results of operations and financial condition. Dependence on Computer Infrastructure; Lack of Insurance. Substantially all of our communications hardware and certain of our computer hardware operations are located at our offices in Providence, Rhode Island. There can be no assurance that a system failure at our present location would not adversely affect the performance of our services. Our system is vulnerable to damage from fire, flood, earthquakes, power loss, telecommunications failures, break-ins and similar events. Moreover, we do not presently have a disaster recovery plan, carry any business interruption insurance or have a any secondary "Off-Site" systems or a formal disaster recovery plan. Despite our implementation of network security measures, our servers are vulnerable to computer viruses, physical or electronic break-ins and similar disruptive problems. Computer viruses, break-ins or other problems caused by third parties could lead to interruptions, delays or cessation in service to users of our services and products. The occurrence of any of these risks could have a material adverse effect on our business, results of operations and financial condition. 8 Liability for Information Retrieved from the Internet. There is a risk that materials may be downloaded and distributed to others by the on-line or Internet services operated or facilitated by us or the Internet access providers with which we have a relationship with. In the event this were to happen there is the potential that claims may be made against us for defamation, negligence, copyright or trademark infringement or some other theory. Such claims or the imposition of liability may have a material adverse effect on our business, results of operations and financial condition. Internet Security and E-Commerce Risks. A significant barrier to e-commerce and communications over the Internet has been the need for secure transmission of confidential information. Internet usage could decline if any well-publicized compromise of security occurred. We may incur significant costs to protect against the threat of security breaches or to alleviate problems caused by such breaches. If a third person were able to misappropriate our users' personal information or credit card information, users could possibly sue us or bring claims against us. Need to Manage Growth Effectively The pursuit of our business strategy will place a significant strain on our managerial, operational and financial resources. We will need to improve our financial and management controls, reporting systems and procedures; expand, train and manage our work force for marketing, sales and support, product development, site design, and network and equipment repair and maintenance, and manage multiple relationships with various customers, strategic partners and other third parties. We will need to continually expand and upgrade our technology infrastructure and systems and ensure continued high levels of service, speedy operation, and reliability. In addition, we will have to improve our methods for measuring the performance and commercial success of our different products to better respond to customers demands for information on product effectiveness and to better determine which products and services can be developed most profitably. Dependence on the Internet To achieve our objectives, we may have to acquire technologies or products or enter into strategic alliances and acquisitions. For those initiatives to succeed, we must make our existing technology, business, and systems work effectively with those of our strategic partners and any acquired properties without under expense, distraction of management from other priorities or other disruptions to our existing business. Currently, our market is highly dependent upon the increased use of the Internet by consumers for information, publication, distribution and commerce. Our future operating results will depend substantially upon the increased use of the Internet by individuals and companies for information, publication, distribution and commerce. Critical issues concerning the commercial use of the Internet (including security, reliability, cost, ease of use, access, and quality of service) remain unresolved and may impact the growth of Internet use. If widespread commercial use of the Internet does not 9 develop, our business, results of operations and financial condition will be materially adversely affected. Moreover, the success of our services and products depend, in large part, upon the development of an infrastructure for providing Internet access and services. The Internet has experienced, and it is expected to continue to experience, significant growth in the number of users. There can be no assurance that the Internet infrastructure will continue to be able to support the demands placed on it by this continued growth in use. The Internet could also lose its viability due to delays in the development or adoption of new standards and protocols to handle increased levels of internet activity, or due to increased governmental regulation. There can be no assurance that the infrastructure or complementary services necessary to make the Internet a viable commercial marketplace will be developed, or, if developed, that the Internet will become a viable commercial marketplace for services and products such as the services that we currently offer. If the necessary infrastructure or complementary services or facilities are not developed, or if the Internet does not become a liable commercial marketplace, our business, results of operations and financial condition will be materially adversely affected. Security Risks. Although we are not aware of any attempts by programmers or "hackers" to penetrate our network security, there can be no assurance that such actions will not occur in the future. A party who is able to penetrate our network security could misappropriate proprietary information or cause interruptions in the operation of our Web sites, which could have a material adverse effect on our business, financial condition and results of operations. We may be required to expend significant capital and resources to protect against the threat of such security breaches or to alleviate problems caused by such breaches. Concerns over the security of Internet transactions and the privacy of users may also inhibit the growth of the Internet generally, particularly as a means of conducting commercial transactions. Security breaches or the inadvertent transmission of computer viruses could expose us to a risk of loss or litigation and possible liability. Our business, results of operations, and financial condition could be materially adversely effected if contractual provisions attempting to limit our liability in such areas are not successful or enforceable, or if other parties do not accept such contractual provisions as part of our agreements. Possibility of Economic Downturn Any substantial downturn in economic conditions or any significant increase in the cost of operations in general could significantly depress discretionary consumer spending and, therefore, have a material adverse effect on our sales of products and services. In addition, the future unavailability of attractive financing rates could adversely affect our business. 10 Management's Discretion in Application of Net Proceeds. Our intention is to allocate a substantial amount of the net proceeds of from this Offering to the acquisition, development and marketing of our various business activities. Investors in this Offering will not be able to direct the use of these funds or have any opportunity to review the development and or marketing of products. Investors must therefore rely on our management for directing the expenditure of the Offering proceeds. There can be no assurance that any such acquisition, development or marketing will prove successful. Internet Competition. The Internet connectivity business is highly competitive, and there are no substantial barriers to entry and it is our belief that competition will intensify. Currently, our primary competitors include such companies as: (i) national Internet Service Providers (Netcom On Line Communication Services, Inc., PSINet, Inc., UUNET Technologies, Inc. and BBN Corp.); (ii) regional providers; (iii) on-line service provide (America Online, Inc.); and (iv) regional telephone companies and long distance companies such as MCI Worldcom, Inc. and AT&T Corp. Many of our current and potential competitors have substantially greater human and financial resources, experience, and brand name recognition than us, and may have significant competitive advantages through other lines of business and existing business relationships. Furthermore, additional major media and other companies with financial and other resources substantially greater than ours may introduce new Internet products and services addressing these markets in the future. Our future growth and profitability will depend, in part, upon consumer and commercial acceptance of our voice, data and Internet technology, and significant penetration of our Internet related products and services. There can be no assurance that our competitors will not develop products or services that are superior to ours or achieve greater market acceptance than our products and services. Competition could have a material adverse effect on our ability to consummate arrangements with clients or enter into strategic business alliances, or on our business, financial condition and results of operations. Moreover, as a strategic response to changes in the competitive environment, we may make certain pricing, service or marketing decisions or enter into acquisitions or new ventures that could have a material adverse effect on our business, financial condition and results of operations. Regulation, Rules and Governing Law. We are currently subject to regulation by the Federal Communications Commission ("FCC") and related state agencies. Additionally, we may be required to file related applications with the FCC. In so far as the Internet is a relatively new medium, the legal obligations and First Amendment rights of service providers and participants in the Internet, are not well defined and are evolving. The Internet has not been subject to regulation by the FCC or other governmental agencies, and standards applicable to print publishers and television in respect of the law of 11 defamation and obscenity are not clearly applicable to the Internet. To the extent these issues have been considered by the courts, outcomes have not been uniform. In 1996, Congress passed a telecommunications act which, among other things, includes protection from liability for Internet providers who take steps to prevent defamatory material from being published on the Internet and also includes provisions to protect children from indecent material on the Internet. Certain provisions of that legislation regarding the imposition of criminal penalties for publication of indecent materials on the Internet were recently held to be unconstitutional by the United States Supreme Court. In addition, the adoption of additional laws in the United States and in foreign countries could adversely affect our business No Assurance as to Future Acquisitions. Our business plan calls for the acquisition of certain competitors. Our ability to achieve our expansion plans depends in large part on our sound business judgment relative to quality targets and our negotiating strength. There can be no assurance, however, that our acquisition targets will be receptive to our proposals or that we will be able to enter into acquisition agreements on acceptable terms, if at all. Moreover there can be no assurance that once acquisitions are made they will have a positive effect on our operations. Early Stage Products and Technology. The market in which we compete is characterized by rapidly changing technology, evolving industry standards, frequently introduced new services, products and enhancements and changing customer demands. Our products and technology will depend, in part, upon the ability to develop and manage customer applications of those products and technologies. Many of our anticipated products and service applications are in the early stages of development and/or marketing, and are subject to the risks inherent in the development and marketing of new products and services. Many of our competitors have already introduced products that include one or more of the features incorporated in our products. We expect that our competitors may attempt to replicate the technology of our products or employ competing technologies, if our products are commercially successful. Our risks include competition from telecommunication companies, computer software, and technology or service companies, failure of our products to attain widespread acceptance in the marketplace, and the development of unforeseen design or engineering problems with our products and applications. There can be no assurance that these or other risks associated with new product and service development or introduction will not occur. The occurrence of one or more of these risks could have a materially adverse effect on our financial condition and operating results. 12 Dependence on Third Party Suppliers. We depend in large part on third-party suppliers for our access to the Internet through leased telecommunications lines, such as Bell Atlantic Corp. and MCI Worldcom, Inc.. Although this access is available from several alternative suppliers, there can be no assurance that we can obtain substitute services from other providers at reasonable or comparable prices or in a timely manner. We are also dependent upon the regional telephone operating company (Bell Atlantic) to provide installations of circuits and to maintain those circuits. Substantial failure by any of these third parties to perform as we require could materially adversely affect our business, operations, and financial condition. Dependence on Key Personnel. Our ability carry out our proposed activities will be dependent, to a substantial degree, upon the efforts of our CEO, David Paolo. The loss of the services of Mr. Paolo, or his incapacity to perform his duties would have a material adverse effect upon our activities and prospects. We do not have key man life insurance coverage on the life of Mr. Paolo. Our success is also dependent on our ability to recruit and motivate high quality personnel. There can be no assurance that we will be able to hire and retain such personnel. The loss of the services of any of our key employees or officers could adversely affect on our business. Dilution of Common Stock. Dilution represents the difference between the offering price and the net tangible book value per share immediately after the completion of the Offering. The net tangible value of the presently outstanding shares will, at no additional cost to the holders thereof, be increased from approximately 13 $.03 per share as of September 30, 1998 to $.29 per share as of December 22, 1998 as a result of our $1,200,000 private placement of 369,216 shares of Common Stock ("December Placement"). The net tangible book value will increase to $2.47 if all of the shares are sold in this Offering ($2.69 if the Underwriter's over-allotment is exercised in full). The shares of Common Stock acquired by the public investors at $7.50 per share will have the same net tangible book value of $2.47 per Share ($2.69 if the Underwriter's over-allotment is exercised). Investors in this Offering will thus suffer an immediate loss of $5.03 per share ($4.81 if the Underwriter's over-allotment is exercised in full) in the net tangible book value of each share purchased. Control by Directors and Executive Officers. Upon completion of this Offering, our present Stockholders will own approximately 70% of the then outstanding shares of Common Stock. Therefore, the majority of outstanding shares will be owned by our existing Stockholders and these shareholders will poses voting control, giving them the ability to amend corporate filings, elect all of our board of directors, and otherwise control all matters requiring approval by our the shareholders, including approval of significant corporate transactions. The purchasers of the shares of Common Stock offered hereby would have no effective voice in our management and we would be controlled by the existing Stockholders. No Prior Public Market. Prior to the Offering, there has been no public market for our Common Stock. Although we intend to apply for listing of the Common Stock offered hereby on the American Stock Exchange, there can be no assurance that an active trading market will develop or be maintained. The market prices for securities of Internet companies have historically been volatile. Factors that could cause the market price of the Common Stock to fluctuate substantially include but are not limited to: o future technological innovations; o new commercial products; o changes in regulation; o period to period fluctuations in financial performance; and o fluctuations in the securities markets. Such price changes have often been unrelated to the operating performance of the affected companies. These broad market fluctuations may adversely affect the market price of the Common Stock. Arbitrary Determination of Offering Price Our initial public offering price for the shares of Common Stock offered hereby will be determined by negotiations between us and Security Capital Trading, Inc. ("Security Capital"), the Representative of several Underwriters, and may bear no relationship to the price at which the 14 Common Stock may trade after completion of this Offering. Factors which may be considered in determining the initial public offering price include but are not limited to: o the information set forth in this Prospectus and otherwise available to Security Capital; o the history of and the prospects for the industry in which we operate; o the assessment of our management; o our past and present operations; o our prospects for future earnings; o the present state of our development; o the general condition of the securities markets at the time of this Offering; and o the recent market prices of and the demand for publicly traded common stock of generally comparable companies. A decline in the trading price of the Common Stock could also impact negatively upon our ability to raise additional equity capital in the future. Impact of Potential AMEX Delisting on Marketability of Securities; Broker\Dealer Sales of Our Securities. We intend to list our Common Stock on the American Stock Exchange ("AMEX"). AMEX has rules which establish criteria for the continued listing of securities on AMEX. Generally, AMEX will consider delisting or suspending a company based on, among other things, the following criteria: Stockholders' equity, operating losses, reduced market value of publicly held shares, substantial disposition of assets, and total number of shareholders. If we were to continue to incur operating losses, we might be unable to maintain the standards for continued listing and the listed securities could be subject to delisting from AMEX. If our securities are delisted, an investor would find it more difficult to dispose of our securities or to obtain accurate quotations as to the price of our securities. Any news coverage concerning our delisting may also adversely affect an investor's ability to dispose of our securities. In addition, if our securities were delisted, they would likely be subject to a rule that imposes additional sales practice requirements on broker\dealers who sell such securities to persons other than established customers and accredited investors (accredited investors are generally persons having net worth in excess of $1,000,000 or annual income exceeding $200,000, or $300,000 together with a spouse). For transactions covered by this rule, the broker\dealer must make a special suitability determination for the purchaser and must have received the purchaser's written consent to the transaction prior to sale, as well as disclosing certain information concerning the risks of purchasing low priced securities on the market for such securities. Consequently, delisting, if it occurred, would adversely affect the ability of broker\dealers to sell our securities and would make subsequent financing more difficult. 15 Penny Stock Regulation. If we are unable to meet the AMEX listing or maintenance requirements and the price per share of our Common Stock were to drop below $5.00 per share, then our securities would become subject to certain "penny stock" rules promulgated by the Securities and Exchange Commission. Under such rule, broker\dealers who recommend such securities to persons other than established customers and accredited investors must make a special written suitability determination for the purchaser and receive the purchaser's written agreement to a transaction prior to sale. Securities are exempt from this rule if the market price is at least $5.00 per share. The Commission has adopted regulations that generally define a "penny stock" to be an equity security that has a market price of less than $5.00 per share or an exercise price of less than $5.00 per share subject to certain exceptions. Such exceptions include equity securities listed on AMEX and equity securities issued by an issuer that has: (i) net tangible assets of at least $2,000,000, if such issuer has been in continuous operation for more than three years, or (ii) net tangible assets of at least $5,000,000, if such issuer has been in continuous operation for less than three years, or (iii) average revenue of at least $6,000,000 for the preceding three years. Unless an exception is available, the regulations require the delivery, prior to any transaction involving a penny stock, of a risk of disclosure schedule explaining the penny stock market and the risks associated therewith. Shares Eligible for Future Sale. Upon completion of this Offering, we will have 6,610,716 shares of Common Stock outstanding (6,910,716 shares if the Underwriter's over-allotment option is exercised in full). The 2,000,000 shares of Common Stock offered hereby (2,300,000 shares if the Underwriter's over-allotment option is exercised in full) will be freely tradeable without restriction or further registration under the Securities Act, except for any shares purchased by our "affiliates," as such term is defined in Rule 144 promulgated under the Securities Act. The outstanding shares of Common Stock prior to the Offering are "restricted securities" within the meaning of Rule 144. Restricted securities may only be sold in private transactions or pursuant to Rule 144. In addition, an aggregate of 1,131,922 shares are issuable upon the exercise of outstanding warrants. All of such shares will be restricted securities when issued, unless registered. We along with our Stockholders and our warrant holders have agreed to not (without the prior written consent of Security Capital), directly or indirectly, offer, sell, pledge, grant any option to purchase, or otherwise sell or dispose of any shares of LOA's Common Stock or other similar securities for a period of twelve months after the Offering. Sales of substantial amounts of Common Stock (including shares issued upon the exercise of outstanding warrants) in the public market after the Offering or the prospect of such sales could adversely affect the market price of the Common Stock and may have a material affect on our ability to raise any necessary capital to fund its future operations. 16 No Dividends. We have never paid dividends on our Common Stock and do not contemplate paying dividends in the foreseeable future. It is Management's present intention to retain future earnings, if any, for use in our business. Possible Anti-Takeover Effects of Delaware Law We are subject to the provisions of Section 203 of the General Corporation Law of the State of Delaware. In general, Section 203 prohibits a publicly held Delaware corporation from engaging in a "business combination" with an "interested stockholder" for a period of three years after the date of the transaction in which the person becomes an interested stockholder, unless the business combination is approved in a prescribed manner or unless the interested stockholder acquires at least 85% of the corporation's voting stock (excluding shares held by certain designated stockholders) in the transaction in which it becomes an interested stockholder. A "business combination" includes mergers, asset sales and other transactions resulting in financial benefit to the interested stockholder. Subject to certain exceptions, an "interested stockholder" is a person who, together with affiliates and associates, owns, or within the previous three years did own, 15% or more of the corporation's voting stock. This provision of the Delaware law could delay and make more difficult a business combination even if the business combination would be beneficial, in the short term, to the interests of our stockholders and also could limit the price certain investors might be willing to pay in the future for shares of our Common Stock. Limitation of Liability and Indemnification. Our certificate of incorporation limits, to the maximum extent permitted by the Delaware General Corporation Law, the personal liability of directors for monetary damages for breach of their fiduciary duties as directors, and provides that we shall indemnify its officers and directors and may indemnify its employees and other agents to the fullest extent permitted by law. Section 145 of the Delaware law provides that a corporation may indemnify a director, officer, employee or agent made or threatened to be made a party to an action by reason of the fact that he was a director, officer, employee or agent of the corporation or was serving at the request of the corporation against expenses actually and reasonably incurred in connection with such action if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the interests of the corporation, and, with respect to any criminal action or proceeding, if he had no reasonable cause to believe his conduct was unlawful. Delaware law does not permit a corporation to eliminate a director's duty of care, and the provisions of our certificate of incorporation have no effect on the availability of equitable remedies, such as injunction or rescission, for a director's breach of the duty of care. We may enter into indemnification agreements with its directors and officers which may require it, among other things, to indemnify such directors and officers against liabilities that may arise by reason of their status or service as directors or officers (other than liabilities arising from 17 willful misconduct of a culpable nature), to advance their expenses incurred as a result of any proceeding against them as to which they could be indemnified, and to obtain directors' and officers' insurance, if available on reasonable terms. Year 2000. Like many other entities, we are currently assessing our computer software and database with respect to its functionality beyond the turn of the century. The extent and estimated cost of the modifications which will be required cannot yet be determined, although it is expected that such expenditures will not have a material effect on the financial condition and results of our operations. In June, 1998, we began converting our computer system to be year 2000 compliant. As of December 15, 1998, all of our non-IT systems were compliant. As of December 15, 1998, we spent $1,500 on our Year 2000 compliant efforts. This figure includes all labor and expenses. Lack of Experience of the Representative. Security Capital Trading, Inc. has participated as a Representative in only two public offerings of securities since commencing operations in June 1995. Security Capital's lack of experience may have an adverse effect on its ability to market the securities offered hereby as well as the development and maintenance of a trading market for our securities following the Offering. Security Capital's inexperience may result in its inability to correctly utilize over-allotment, stabilization and market maintenance strategies that more experienced Underwriters utilize to assist in maintaining orderly trading markets. This may adversely affect the price of our Common Stock and the ability of purchasers in the Offering to resell their shares. Risks Associated with Forward Looking Statements. This Prospectus contains "forward-looking statements," which can be identified by the use of such words as "intend," "anticipate," "believe," "estimate," "project," or "expect" or similar statements. The statements in "Risk Factors" are cautionary statements. They identify important factors, with respect to forward-looking statements, that could cause actual results to differ materially from those forecasted in such statements. All forward-looking statements in this Prospectus are expressly qualified in their entirety by the cautionary statements in this paragraph. 18 USE OF PROCEEDS The net proceeds to LOA from the sale of the 2,000,000 shares of Common Stock offered hereby are estimated to be approximately $12,725,000, and $14,682,500 if the Underwriter's over-allotment option is exercised in full, (assuming an initial offering price of $7.50 per share), after deducting underwriting discounts and commissions, and other estimated expenses of approximately $325,000 payable by LOA. LOA anticipates using the net proceeds from the Offering as follows:: Amount($): Percent(%)(1) ----------- ------------- Network expansion and equipment upgrades(2) $4,700,000 36.9% Strategic acquisitions(3) $4,100,000 32.2% Marketing and sales(4) $2,000,000 15.7% Working capital and general corporate purposes(5) $1,925,000 15.1% - -------------------------- (1) Assumes no exercise of the Underwriter's over-allotment option. (2) LOA intends to purchase routing and switching equipment to continue its network buildup of the specific products and services which is currently offered. (3) LOA does not currently have any plans or agreements regarding acquisitions. (4) LOA intends to hire additional sales and marketing personnel and advertise in various media sources. (5) Working capital and general corporate purposes consist primarily of selling general and administrative expenses. Proceeds from the sale of the over-allotment option, if any, will be used for working capital and general corporate purposes. The foregoing represents LOA's best estimate of its allocation of the net proceeds from the sale of shares of Common Stock offered hereby based on the current state of LOA's business operations, LOA's current plans and current economic and industry conditions and is subject to reallocation among the categories listed above or for additional purposes. Accordingly, LOA will have broad discretion as to the application of the net proceeds. LOA believes that the net proceeds of this Offering will be sufficient to meet its projected needs for working capital and capital requirements through at least the 12 months following 19 completion of this Offering. Pending such uses, LOA intends to invest the net proceeds from this Offering in interest bearing accounts, certificates of deposit, money market funds or other short term investments. 20 CAPITALIZATION The following table sets forth the capitalization of LOA: (i) as of September 30, 1998; and (ii) as adjusted to give effect to (a) the completion of the December Placement of 369,216 shares of Common Stock at $3.25 per share and the application of the estimated net proceeds therefrom; and (b) the consummation of the Offering at an assumed initial public offering price of $7.50 per share and the application of the estimated net proceeds therefrom which include the repayment of all outstanding debt. The table should be read in conjunction with the Financial Statements, including the Notes thereto, appearing elsewhere in this Prospectus. September 30, 1998 ------------------ Actual As Adjusted(1) ------ -------------- Long Term Note Payable: ................. $ 12,490 -- Stockholders' Equity (deficit): Common Stock, $.01 par value; 20,000,000 shares authorized, 4,241,500 issued and outstanding as of September 30, 1998; and 6,610,716 issued and outstanding, as adjusted ............................ $ 18,070 $ 41,762 Additional paid-in capital(2) ........... $ 307,454 $ 16,483,762 --------- ------------ Accumulated deficit ..................... $(178,228) $ (178,228) --------- ------------ Total Stockholders' equity ......... $ 147,296 $ 16,347,248 --------- ------------ Total capitalization ............... $ 147,296 $ 16,347,248 ========= ============ - ---------- (1) Does not include: (i) 1,000,000 shares of Common Stock reserved for issuance upon the exercise of outstanding warrants exercisable during the five year period commencing January 15, 1999 at an exercise price of $1.00 per share; (ii) 13,076 shares of Common Stock reserved for issuance upon the exercise of outstanding warrants granted on December 3, 1998, which warrants are exercisable during the four year period commencing December 3, 1999 and expiring December 3, 2003 at $3.90 per share; 23,845 shares of Common Stock reserved for issuance upon the exercise of outstanding warrants, granted on December 23, 1998, which warrants are exercisable during the four year period commencing December 23, 1999 and expiring December 23, 2003 at $3.90 per share; (iii) 50,000 shares of Common Stock reserved for issuance upon the exercise of outstanding warrants exercisable during the five year period commencing December 31, 1998 at $3.50 per share; (iv) 45,000 shares of Common Stock reserved for issuance upon the exercise of outstanding warrants exercisable during the four year period commencing December 31, 1998 at $3.25 per share; (v) 300,000 shares of Common Stock issuable upon exercise of the Underwriter's over-allotment option; and (vi) 200,000 shares of Common Stock reserved for issuance upon the exercise of the Representative's Warrants exercisable during the four year period 21 commencing one year from the date of this Prospectus at an exercise price of 120% of the public offering price. (2) In January, 1998 the board of directors of LOA approved a change in authorized common stock from 1,000 shares at no par value to 5,000,000 shares at $.01 par value. Simultaneously, the President of the Company and then sole shareholder exchanged his 1,000 shares for 1,958,620 shares of the newly authorized $.01 par value stock. In addition, the President received 475,980 shares of stock issued as a result of the settlement with the Tekcom Contingent Sum holders. DIVIDEND POLICY LOA has never paid any dividends on its Common Stock. LOA does not intend to declare or pay dividends on the Common Stock, but to retain earnings, if any, for the operation and expansion of LOA's business. Dividends will be subject to the discretion of the Board of Directors and will be contingent on future earnings, if any, LOA's financial condition, capital requirements, general business conditions and such other factors as the Board of Directors deems relevant. 22 DILUTION Purchasers of the shares of Common Stock offered hereby will experience an immediate and substantial dilution in the net tangible book value of their investment. The difference between the initial public offering price per share of Common Stock and the net tangible book value per share of Common Stock after this Offering constitutes the dilution per share of Common Stock to investors in this Offering. Net tangible book value per share is determined by dividing the net tangible book value (total tangible assets less total liabilities) by the number of outstanding shares of Common Stock. As of September 30, 1998, LOA had a net tangible book value of $147,296, approximately $.03 per share of Common Stock. After considering LOA's December Placement of 369,216 shares at $3.25 per share, the net tangible book value per share at December 22, 1998 is $.29 per share. Without taking into account any other changes in such net tangible book value of LOA after December 22, 1998, other than to give effect to the sale of all of the shares of Common Stock offered hereby at an assumed initial public offering price of $7.50 per share, the net tangible book value on December 22, 1998, would have been $16,347,296 or $2.47 per share, which represents an immediate increase in the net tangible book value of approximately $2.18 or an increase of 752% per share to existing Stockholders and an immediate dilution of $5.03 per share or 67% to new investors. The following table illustrates this per share dilution: Assumed initial public offering price per share ............................... $7.50 Net tangible book value per share as of September 30, 1998............. $ .03 Increase per share attributable to December Placement.......................... $0.26 Increase per share attributable to this Offering............................... $2.18 Net tangible book value per share after this Offering............................ $2.47 Dilution per share to new investors post December Placement........................ $5.03 23 The following table summarizes, as of December 31, 1998, the number of shares of Common Stock purchased from LOA, the total consideration paid to LOA and the average price per share paid by existing Stockholders and by new investors. Shares Purchased(1) Total Consideration ------------------- ------------------- Average Price Number Percent Amount Percent Per Share ------ ------- ------ ------- --------- Existing Stockholders............ 4,610,716 70% $1,525,524 9% $ .33 New Investors........... 2,000,000 30% $15,000,000 91% $7.50 --------- --- ----------- --- ---- Total............. 6,610,716 100% $16,525,524 100% --------- ---- ---------- ---- (1) Does not include (i) 1,000,000 shares of Common Stock reserved for issuance upon the exercise of outstanding warrants exercisable during the five year period commencing January 15, 1999 at an exercise price of $1.00 per share; (ii) 36,921 shares of Common Stock reserved for issuance upon the exercise of outstanding warrants exercisable during the four year period commencing December, 1999 at $3.90 per share; (iii) 50,000 shares of Common Stock reserved for issuance upon the exercise of outstanding warrants exercisable during the four year period commencing December 31, 1998 at $3.50 per share; and (iv) 45,000 shares of Common Stock reserved for issuance upon the exercise of outstanding warrants exercisable during the four year period commencing December 31, 1998 at $3.25 per share; (v) 300,000 shares of Common Stock issuable upon the exercise of the Underwriter's over-allotment option; and (vi) 200,000 shares of Common Stock reserved for issuance upon there exercise of the Representative's Warrants exercisable during a four year period commencing one year from the date of this Prospectus at an exercise price of 120% of the initial public offering price. Should the Underwriter's over-allotment option be exercised, the new investors will hold 2,300,000 shares of Common Stock representing 33.3% of the outstanding shares of Common Stock after the Offering. The proceeds of $17,250,000 would represent approximately 92% of the total consideration paid by investors. 24 SELECTED FINANCIAL DATA The following table sets forth selected financial information with respect to LOA as of and for the periods indicated. The statement of operations data for the years ended December 31, 1997 and 1996, and the balance sheet data for the year ended December 31, 1997 are derived from LOA's audited Financial Statements included elsewhere in this Prospectus. The statement of operations data for the nine month periods ended September 30, 1998 and 1997, and the balance sheet data for the nine month period ended September 30, 1998 have been derived from unaudited financial statements and include all adjustments (consisting of only normal recurring adjustments) that LOA considers necessary for a fair statement of the results of such interim periods. Results for the nine months ended September 30, 1998 are not necessarily indicative of the results to be expected for the full year or for any future period. The selected financial information should be read in conjunction with the financial statements and notes thereto and the discussion under "Management's Discussion and Analysis of Financial Condition and Results of Operations" included elsewhere in this Prospectus. For the Nine Months Ended Year Ended September 30, December 31, ------------- ------------ (unaudited) 1998 1997 1997 1996 ---- ---- ---- ---- Statement of Operations Data: Revenues .................. $ 551,304 $ 217,038 $ 351,560 $ 186,702 Total Operating Costs and Expenses ............. $ 727,249 382,395 629,584 323,517 Net loss .................. $ (178,228) $(167,825) $(280,001) $(163,036) =========== ========= ========= ========= Basic and diluted net loss per share ....... $ (.05) $ (1,661) $ (2,772) $ (1,614) Shares used in computing basic and diluted net loss per share ........ 3,708,770 101 101 101 December 31, 1997 September 30, 1998 ----------------- ------------------ (Unaudited) Actual Actual As Adjusted(1) ------ ------ -------------- Balance Sheet Data (end of period): Cash -- $ 69,911 $13,823,145 Working Capital (Deficit) (384,126) $(279,870) $13,551,640 Total Assets 362,655 $ 602,204 $16,711,438 Total Debt 22,796 $ 18,486 $ 0 Total Liabilities 463,396 $ 454,908 $ 364,142 Stockholders' Equity (Deficit) (100,741) $ 147,296 $16,347,296 (1) The as adjusted balance sheet data as of September 30, 1998 gives effect to (i) the completion on December 22, 1998 of a private placement of 369,216 shares of Common Stock at $3.25 per share ("December Placement"); and (ii) the 2,000,000 shares offered hereby at an assumed initial offering price of $7.50 per share and the application of the net proceeds therefrom. 25 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Certain information contained in this Registration Statement, including in this "Management's Discussion and Analysis of Financial Condition and Results of Operations," contain forward-looking statements. The forward-looking statements contained herein are based on current expectations that involve a number of risks and uncertainties. Such forward-looking statements are based on assumptions which include, but are not limited to, the ability of LOA to obtain additional financing, the ability of LOA to implement its acquisition strategy and the success of that strategy, that LOA will continue to design, market and provide successful new services, that competitive conditions will not change materially, that demand for LOA's services will continue to grow, that LOA will retain and add qualified personnel, that LOA's forecasts will accurately anticipate revenue growth and the costs of producing that growth, and that there will be no material adverse change in LOA's business. In light of the significant uncertainties inherent in the forward-looking information included in this Registration Statement, actual results could differ materially from the forward-looking information contained in this Registration Statement. The following discussion and analysis should be read in conjunction with the Selected Financial Data and the Financial Statements and Notes thereto included elsewhere herein Overview LOA is a Northeast regional competitive local exchange carrier ("CLEC") and Information/Internet Service Provider ("IISP") positioning itself to provide a full range of Internet, voice, data and cable programming solutions to commercial clients. LOA currently provides a variety of Internet-related services to business organizations, including leased lines, web page hosting, web page design, Internet set-up and sales of DEC Alpha web servers to customers in the State of Rhode Island. LOA has developed a base of corporate and institutional customers for its Internet services and has built the necessary network infrastructure for an Internet service network. The majority of LOA's current operations is providing dedicated access lines for commercial accounts. LOA maintains a national dial-up Internet service along with commercial Internet Protocol ("IP") transit throughout the Northeast. LOA, and its predecessor entities, has been providing on-line services including web page hosting and design, and other related products, to individual and corporate clients since November 1992. LOA has been approved as a competitive local exchange company. LOA believes its CLEC status allows it to provide a range of local telecommunication services to its customers including voice, data, and Internet services. Such customers may include residential users, Internet Exchange Carriers ("IXC"), Internet Service Providers ("ISP"), wireless carriers and business, government and institutional end users. LOA believes it will be able to provide typical phone service such as dial tone, toll calls (in-state long distance), long distance, as well as high-speed Internet access, through the use of home cable into a residence. 26 Currently, LOA is a retail customer of Bell Atlantic. LOA intends to market certain new communication link services to existing customers while attempting to gain additional market share from the ILECs. These new services include, POP-to-Pop Special Access, End-User/IXC Special Access and Private Line. Results of Operations Comparison of Nine Months Ended September 30, 1998 to Nine Months Ended September 30, 1997 Revenues LOA's revenues are primarily comprised of dial-up, dedicated access service and web services. Revenues grew 154% from $217,038 to $551,304 for the nine months ended September 30, 1998 as compared to the comparable period in 1997. Revenue growth performance is attributable to an increase in sales efforts, services offered and an aggressive marketing campaign in LOA's local market, Rhode Island. Dial-up During 1998, LOA expended significant marketing efforts in Rhode Island to expand its Internet dial-up customer base through billboard advertising, radio media, and target marketing campaigns. As a result, dial-up revenue grew from $58,793 to $177,111 from the nine months ended September 30, 1997 as compared to the comparable period in 1998 for an increase of 200%. Dedicated Access Service During the fourth quarter of 1997, LOA increased its sales efforts for dedicated Internet access service which resulted in higher revenue growth during 1998. As a result, dedicated Internet access service business grew based principally on ISDN, T-1 and High Speed circuit growth. Revenues grew from $115,456 to $314,272 from the nine months ended September 30, 1997 as compared to the comparable period in 1998 for an increase of 172%. Web Services During 1998, Web site hosting and consulting became more important to LOA's new and existing customers as the popularity of the web increased as a business tool. Accordingly, to respond to this increase in demand, LOA increased its sales efforts and increased server capacities and speed. As a result, web services revenue relating to Dial-up access, Point to Point, 384k & 56k Frame Relay, xDSL, Domain Names and Web Page Design & Hosting grew from $32,975 to $51,343 from the nine months ended September 30, 1997 as compared to the comparable period in 1998 for an increase of 56%. 27 Gross Profit Gross profit consists of total revenue less the cost of delivering services and equipment. Gross profit increased from $126,572 to $322,254 for an increase of 58% for the nine months ended September 30, 1997 and 1998, respectively. Selling General, and Administrative Expenses Selling general, and administrative expenses ("SG&A") increased from $291,929 in the nine months ended September 30, 1997 to $495,375 in the nine months ended September 30, 1998 for an increase of 70%. These increases were primarily attributed to six additional personnel and overhead costs associated with LOA's expansion efforts, including additional telecommunication costs of approximately $106,000 relating to building out LOA's network backbone. Advertising Advertising expenses were $4,600 for the nine months ended September 30, 1997, and $64,820 for the nine months ended September 30, 1998 for an increase of 1,039%. Legal and Accounting Legal and accounting expenses increased from $19,206 in the nine months ended September 30, 1997 to $28,524 in the nine months ended September 30, 1998 for an increase of 50%. This increase resulted from legal and accounting work required in preparation of LOA's September and December private placements. Other Expenses Other expenses represent interest on LOA small business loans and penalties in connection with LOA's payroll tax delinquency. Other expenses were $2,468 and $2,283 for the nine months ended September 30, 1997, and 1998, respectively. Net Loss As a result of the foregoing, net loss grew from $167,825 to $178,228 for the nine months ended September 30, 1997, and 1998, respectively, for an increase of 6.2%. 28 Comparison of Fiscal Year Ended December 31, 1997 to Fiscal Year Ended December 31, 1996 Revenues LOA's revenue grew 88% from $186,702 to $351,560 for the year ended December 31, 1998, as compared to the comparable period in 1997. Revenue growth performance is attributable to increasing sales efforts, services offered, and an aggressive marketing campaign in LOA's local market, Rhode Island. Dial-up During 1997, LOA expended significant marketing efforts to expand its others services dedicated to access and web services. This resulted in a decrease in LOA's dial-up customer base. As a result, dial-up revenue decreased from $168,119 to $123,680 from 1996 to 1997 for a decrease of 26%. Dedicated Access Service During the fourth quarter of 1997, LOA increased its sales efforts for dedicated access service which resulted in higher revenue growth during fiscal year 1998. As a result, dedicated access service business grew based principally on ISDN, T-1 and High Speed circuit growth. Revenues grew from $14,153 to $172,734 from fiscal year 1996 to fiscal year 1997, for an increase of 1,120%. Web Services During 1997, Web site hosting and consulting became more important to LOA's new and existing customers as the popularity of the web increased as a business tool. As a result, web services revenue grew from $4,430 to $41,895 from fiscal year 1996 to fiscal year 1997 for an increase of 846%. Gross Profit Gross profit consists of total revenue less the cost of delivering services and equipment. Gross profit increased from $134,666 to $213,036 from 1996 to 1997 for an increase of 55%. This increase was a direct result of the increase in revenues. Selling General, and Administrative Expenses Selling general, and administrative expenses ("SG&A") increased from $271,481 in fiscal year 1996 to $491,060 in fiscal year 1997, for an increase of 81%. The increases was primarily attributed to three additional personnel and overhead costs associated with LOA's 29 expansion efforts. Included in overhead costs were additional telecommunication costs of $140,364 related to building out LOA's network. Advertising expenses were $64,820 and $8,089 for the years ended December 31, 1997, and 1996, respectively. Other Expenses Other expenses represent interest on a small business loan and tax penalties in connection with certain payroll taxes owed to Internal Revenue Service ("IRS"). LOA settled with the IRS in the amount of $41,559 and received a final release to that effect, dated December 28, 1998. Other expenses were $26,221 and $1,977 in fiscal year 1996 and fiscal year 1997, respectively. This decrease was primarily attributed to the decrease in penalties during 1997. Net Loss As a result of the foregoing, net loss grew from $163,036 to $280,001 in 1996 and 1997 for an increase of 72%. Liquidity and Capital Resources LOA has historically financed our operations primarily through the sale of equity and debt securities and through funds provided by LOA's predecessor's parent company. During 1997, LOA received $179,260 from its parent company, GTMI. These funds were utilized to fund operations, expand marketing efforts and expand LOA's customer base. During the third quarter of 1998, LOA sold 275,000 shares of Common Stock in a private placement, dated August 18, 1998, resulting in gross proceeds of $275,000 for use in operational activities. Subsequent to September 30, 1998, LOA sold an additional 369,216 shares of Common Stock in the December Placement resulting in gross proceeds of approximately $1,200,000, and net proceeds of approximately $1,044,000. As of September 30, 1998, LOA had notes payable totaling $18,486, and accrued but unpaid expenses totaling $72,280, current accounts payable totaling $338,433, and a current working capital deficiency of $279,870. This working capital deficiency has been eliminated as a result of the December Placement. Certain payroll taxes were owed to the IRS. LOA settled with the IRS in full in the amount of $41,559 and received a final release to that effect, dated December 28, 1998. In August 1998, certain consultants were issued 1,000,000 warrants. The warrants are exercisable during the five-year period commencing January 15, 1999, at the exercise price of $1.00. The shares of Common Stock underlying the warrants contain certain piggyback 30 registration rights. In December 1998, LOA issued 131,921 warrants to consultants and a placement agent in connection with the December Placement. 50,000 and 45,000 of the warrants are exercisable at $3.50 and $3.25 per share, respectively. The warrants are exercisable during the four-year period commencing December 31, 1998. Also issued in December 1998, were 36,921 warrants exercisable at $3.90, which are exercisable during the four year period commencing December 15, 1999. For the period ended September 30, 1998, LOA's negative cash flow from operations was $146,123, down from $159,628 for the same period in the prior year due to an increase in revenue growth. LOA anticipates based upon its currently prepared plans and assumptions relating to operations that the net proceeds from the sale of the securities offered herein and the projected cash flow from operations that the cash available will be sufficient to satisfy our contemplated cash requirements for at least the 12 months following completion of this Offering. Year 2000 Compliance. The inability of computers, software and other equipment utilizing microprocessing to organize and properly address certain fields containing a two-digit year is commonly referred to as the Year 2000 problem. As the year 2000 approaches, such systems may be unable to accurately process certain date-based information. LOA has implemented a Year 2000 program to ensure that LOA's computer systems and applications will function properly beyond 1999. LOA has identified vendor and business partner software with which it electronically interacts, or from which it purchases supplies, and has requested Year 2000 compliance certifications. LOA has received verbal assurances from those vendors and business partners that they and their respective suppliers are Year 2000 compliant. Although the LOA believes all of its systems are and will be Year 2000 compliant, there can be no assurances that all of LOA's vendors' and business partners' systems will be Year 2000 compliant. LOA's cost to comply with the Year 2000 initiative is not expected to be material. In addition, LOA is communicating with its external service providers to ensure that such service providers are taking appropriate action to address Year 2000 issues. However, there can be no assurance that the systems of third parties on which LOA's systems rely will connect, or that a conversion is compatible with LOA's systems and accordingly would not have an adverse effect on LOA's systems. Recent Accounting Pronouncements. In March 1998, the Accounting Standards Executive Committee issued AICPA Statement of Position 98-1, "Accounting for the Costs of Computer Software Developed or 31 Obtained for Internal Use" ("SOP 98-1"). This statement provides guidance on accounting for the costs of computer software developed or obtained for internal use and identifies characteristics of internal use software as well as assists in determining when computer software is for internal use. SOP 98-1 is effective for fiscal years beginning after December 15, 1998, with earlier application permitted. LOA has not determined the impact of the adoption of SOP 98-1 as this is highly dependent upon the nature, timing and extent of future internal use software development. In March 1998, the Accounting Standards Executive Committee issued AICPA Statement of Position 98-5, "Reporting on the Costs of Start-up Activities." This Statement of Position provides guidance on the financial reporting of start-up costs and organization costs. It requires that the cost of start-up activities and organization costs be expensed as incurred. The SOP is effective for financial statements for fiscal years beginning after December 15, 1998. LOA does not expect adoption of this SOP to have a material impact on its financial statements. LOA will be required to adopt Statement of Financial Accounting Standards ("SFAS") No. 131, "Disclosures about Segments of an Enterprise and Related Information." Statement 131 superseded SFAS No. 14, "Financial Reporting for Segments of a Business Enterprise" and is effective for years beginning after December 31, 1997. Statement 131 establishes standards for the way that public business enterprises report selected information about operating segments in financial reports. Statement 131 also establishes standards for related disclosures about products and services, geographic areas, and major customers. The addition of Statement 131 will not effect LOA's results of operations or financial position, but may effect the disclosure of the segment information in the future. In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." This statement changes the previous accounting definition of derivative--which focused on freestanding contracts such as options and forwards (including futures and swaps)--expanding it to include embedded derivatives and many commodity contracts. Under the Statement, every derivative is recorded in the balance sheet as either an asset or liability measured at its fair value. The Statement requires that changes in the derivative's fair value be recognized currently in earnings unless specific hedge accounting criteria are met. SFAS No. 133 is effective for fiscal years beginning after June 15, 1999. Earlier application is allowed as of the beginning of any quarter beginning after issuance. LOA does not anticipate that the adoption of SFAS 133 will have a material impact on its financial position or results of operations. 32 BUSINESS Overview LOA was incorporated in Rhode Island ("LOARI") in 1992 for the purpose of providing online and Internet related services. LOA is a Rhode Island regional competitive local exchange carrier ("CLEC") and information/Internet Service Provider ("IISP"). LOA currently provides a variety of internet solutions to both commercial and residential customers and we plan to include a full range of local telecommunication services, resulting in an ability to offer a complete menu of Internet, voice, data, video, and cable programming solutions to our customers. LOA believes that the Northeast region provides access to attractive Tier 1 (cities with populations over 2,000,000), Tier 2 and 3 (cities with populations between 250,000 and 2,000,000) demographic markets within close proximity of planned network expansions resulting in efficient utilization of network capacity. Our plan is to initiate an acquisition campaign targeting ISPs, CLECs and resellers of telecommunication services to gain market share, name recognition and valuable industry talent. In parallel with the acquisition program, LOA intends to initiate an internal growth strategy that will pursue market share through an increased direct sales force offering an expanded product line to both commercial and residential customers. Anticipated market penetration will require system upgrade and expansion through the purchase of equipment and the hiring by management of addition technical personnel. Our goal is to be a leading provider of a wide range of Internet, voice, data, video, and cable programming solutions to a diverse customer base in the Northeast. We believe that a strategy comprised of acquisitions and direct sales will allow us to achieve our desired market penetration and competitive position. In January of 1997, LOARI sold 100% of its assets to Global Telemedia International, Inc. ("GTMI") and agreed to change its name to Tekcom, Inc. In consideration for the sale, GTMI agreed to (i) assume all outstanding liabilities of LOARI; and (ii) pay LOARI shareholders 20% of the value of all LOARI business on the third anniversary of the purchase ("Contingent Sum"). At this time GTMI formed System 4, Inc., a wholly owned Delaware subsidiary, in which to transfer the LOARI assets and liabilities. In July 1997, System 4, Inc. changed its name to Log On America, Inc. Wan Secure, Inc. ("WS") was organized in Delaware in January 1998, to purchase 100% of the outstanding capital stock of LOA from GTMI. Pursuant to such acquisition, LOA became a wholly owned subsidiary of WS. In consideration for the purchase, WS executed a note in the amount of $100,000 ("GTMI Note"). The GTMI Note was personally guaranteed by David R. Paolo, WS's majority shareholder. In September 1998, WS effected a merger with and into LOA whereby WS was the survivor. Simultaneously with the merger, WS changed its name to Log On America, Inc. 33 In and around February 1998, 100% of the shareholders of Tekcom, Inc. (formerly LOARI) agreed to surrender and release all rights and claims to the Contingent Sum. As consideration for such surrender and release, Tekcom shareholders received an aggregate of 795,130 shares of LOA. In July 1998, GTMI accepted a settlement of the GTMI Note. In consideration for such settlement, GTMI accepted $25,000. As a result of the aforesaid transactions, LOA is a successor in interest to WS, System 4 and LOARI. Business LOA is an Internet Service Provider ("ISP") which provides its customers with access to the Internet. The majority of LOA's current operations is providing dedicated access lines for commercial accounts. LOA maintains a national dial-up Internet service along with commercial Internet Protocol ("IP") transit throughout the Northeast. LOA, and its predecessor entities, has been providing on-line services, and related products, to individual and corporate clients since November 1992. LOA has also recently been approved as a competitive local exchange company ("CLEC") in Rhode Island. LOA believes its CLEC status allows it to provide a full range of local telecommunication services to its customers including voice, data, and Internet services. Such customers include residential users, Internet Exchange Carriers ("IXC"), Internet Service Providers ("ISP"), wireless carriers and business, government and institutional end users. LOA believes that its prices will be competitive with those charged by independent local exchange carriers ("ILECs"). LOA intends to provide typical phone service such as dial tone, toll calls (in-state long distance), long distance, as well as high-speed Internet access, through the use of one cable into the home of a user in the second quarter of 1999 in Rhode Island. LOA believes its commercial customers will benefit from LOA's CLEC status by LOA's ability to resell local phone services from the area's local provider (Bell Atlantic) at a discount to certain of its competitors. Currently, LOA is a retail customer of Bell Atlantic. LOA is also positioned to address local and wide area network ("LAN/WAN") security issues and provide secure virtual private networks, encrypted DS0 to DS3 IP transit, LAN/WAN design, Intranets, secure commerce, secure server applications, and firewall sales and support. Marketing and Business Strategy. LOA's goal is to be a leading provider of a wide range of Internet, voice, data, video, and cable programming solutions in the Northeast. To effectuate such goal LOA intends to develop, utilize and package its services for the marketplace at competitive prices. LOA has focused its efforts on high revenue, high margin commercial clients which enter into term contracts for service, generally 12 months in duration. LOA believes this approach differentiates it from its competitors who generally seek bulk quantities of Internet dial-up customers for a monthly fee without contractual commitment. Although LOA also markets to customers on a monthly fee basis without contractual commitment, LOA relies on service and performance to attract and to keep its clients. LOA also provides equipment and security products to its clients which provides enhanced customer service and helps LOA meet the demands of its customers. 34 LOA employs the following marketing strategies: targeted direct marketing, development of brochures, trade show participation and print media. Upon consummation of this Offering, LOA plans to expand its direct marketing sales team, and to employ more sales staff in the Northeast. LOA currently offers a comprehensive range of Internet access options, Web production services and Web hosting services designed to meet the needs of businesses and individual subscribers. LOA's strategy is to focus on cities that have not become the primary target markets for national ISPs such as Netcom On Line Communication Services, Inc. and America Online, Inc. or long distance carriers, and have a population base sufficient to provide a return on investment to justify our initiatives. It is the objective of LOA to provide a "one-stop-shop" to its customers. The "one-stop-shop" will require reliable Internet access, guidance and training regarding the use of the Internet and support on how to take full advantage of Internet applications pertinent to the individual customer. LOA plans to leverage its local presence in the form of customized service, and direct field sales force and customer service organizations to provide on-site sales and support. LOA also plans to remain competitive in the individual internet market with reasonably priced services. LOA believes its recent approval as a CLEC from the Rhode Island Public Utilities Commission provides LOA with the ability to become a full service provider of local telecommunications services to IXCs, ISPs, wireless carriers and business, government and institutional end users in selected cities by offering products and customer service at prices competitive with those charged by the ILECs. Internet Business Our strategy is to continue to focus on our internet market in the Northeast, to expand to surrounding markets and to provide direct on-site sales contact with the business communities in those areas. LOA intends to continue to expand its subscriber base by providing high quality services coupled with the expertise to assist its customers with solutions to their internet and telecommunication needs. LOA intends to achieve its strategy by focusing on the following key elements: 1. Focus On Business Customers. LOA believes that use of the Internet by businesses will grow substantially over the next several years. The Internet has the potential to enhance productivity through improved communications, access to data, and through new ways of organizing how businesses interact, both with other commercial enterprises and with consumers. LOA believes that the Internet provides the potential for businesses, large and small, to maintain a worldwide presence for marketing their products and making information about their products and services available to interested parties in ways not possible before. LOA believes that many businesses are aware, in general, that the Internet provides a potential new means of conducting commerce, and that businesses do not have the knowledge or technical expertise required to access or use the Internet. LOA believes that by offering its business customers a service oriented 35 relationship, it can position itself as a value added supplier and thus gain a competitive advantage over certain of its larger competitors which may be unwilling or unable to provide the kind of customized service that LOA intends to provide. In order to implement this strategy, LOA instituted a technical personnel sales staff, currently comprised of 2 individuals. 2. Provide High-Bandwidth, Reliable Infrastructure Services. LOA has contracted with Bell Atlantic to deploy LOA's first 155Mbs OC/3 Sonnet ring ("Sonnet") around the city of Providence, Rhode Island. Sonnet will allow LOA to deliver high speed Internet access throughout all major points of Providence, Road Island. 3. Provide Value-Added Services. LOA offers a range of value-added services designed to assist business customers in taking advantage of opportunities offered by the Internet. Our current value-added services include Web services, network consulting, security consulting, data services, commercial transaction and payment processing services, Intranet applications, and e-mail to fax services. 4. Pricing Strategy. LOA believes that price competition will intensify as the Internet market grows and matures. LOA intends to remain competitive by pricing its services to reflect market conditions. Accordingly, LOA believes that management of its costs will be critical to remaining competitive. LOA has made and plans to continue to make investments in its hardware and network infrastructure which are designed to increase efficiency and reduce the cost of delivering its services. LOA intends to price all of its services in order to remain competitive with demand, competition and market trends. Internet Products and Services. LOA is a Northeast CLEC and IISP providing Internet and wide area network ("WAN") access, Web Hosting and Web Development. Its current clients include educational facilities such as Providence College, international corporations such as Cookson America, Inc., and Toray Plastics, Inc., organizations such as Butler Hospital and the Bell Atlantic Telecommunications Center, and governmental agencies such as the Rhode Island Supreme Court, the Office of the Rhode Island Attorney General and the Rhode Island Public Utilities Commission. LOA provides its clients with a variety of services for Internet access such as: e-mail, web sites, and dedicated circuits with wide bandwidth to enhance data transmission. LOA's services are used by clients to receive and/or send data or display products and services on the Internet using text, high-resolution color photographs, video and/or audio. LOA is the Domain Name registration provider for Wenzhou Emy Network Information Company, a Chinese entity which markets access to the World Wide Web to institutions and corporations within the Zhejiang Province of the People's Republic of China. 36 The following list summarizes and defines the specific products and services which LOA currently offers: Dial-up access: Retail access for home users with personal computers. Point to Point, 384k & 56k Frame Relay: Dedicated access for higher bandwidth solutions for corporate needs. xDSL: High bandwidth solutions for residential and corporate needs. Domain Names: The name used as a means of identity for use on the Internet in the People's Republic of China. Web Page Design & Hosting: Building, designing and construction of a web sites, including corporate web sites that reside and are served from the ISP's web server. Equipment sales: The sale of hardware associated with the deployment of Internet services. DEC Alpha servers, Cisco Routers, CSU/DSU and cables. Banner Advertisements: Display ads and links listed on LOA's web site. Secure Virtual Private Networks: Provides long haul connectivity between remote sites. Encrypted DS0 to DS3 IP transit: Secure IP Tunneling with T1 to T3 local loops back-hauled through LOA's backbone. Secure LAN and WAN design: LOA's technical team can design Local Area or Wide Area Networks for small to large corporations seeking security protection and flexibility in communications. Intranet, Extranet, Secure Commerce: LOA's technical personnel can design custom Intranet, Extranet or Secure Commerce Server to meet various business needs. Security Breach Investigations: LOA investigates compromised networks and attempts to identify perpetrators of security breaches. Data Loss Insurance: LOA also offers its customers a "Data Loss Insurance Policy" that insures a network from the threat of security breaches. Continue To Increase The Number Of Cities Served. During 1996, LOA achieved its goal of having dial-up services in a total of 230 area codes, and LOA plans to have its own network systems in operation or under construction in a total of 20 cities by the middle of 1999, and a total of 50 cities by the end of 2000. There can be no assurance that LOA will meet such goals. LOA's expansion into additional cities is expected to be accomplished by the acquisition of existing networks as well as the development of new 37 networks. By adding networks, LOA believes it can increase revenues and obtain economies of scale in its operating costs. Planned CLEC Business. On October 6, 1998, LOA's application for CLEC status with the Rhode Island Public Utilities Commission was approved. LOA intends to become a full service provider of local telecommunications services to IXCs, ISPs, wireless carriers and business, government and institutional end users in selected cities in the Northeast by offering products with customer service at competitive prices with those charged by the ILECs. LOA plans on preparing other applications for CLEC status in the Northeast. The principal elements of LOA's CLEC strategy include: Targeting Second and Third Tier Markets. As an early entrant in selected second and third tier cities (cities with a population of between 250,000 to 2,000,000), as well as through its acquisition strategy, LOA believes it can attain a competitive position by securing franchises and rights-of-way, installing CLEC networks and facilities and establishing customer relationships with IXCs, ISPs, wireless carriers and business, government and institutional end users that will enable it to take advantage of the potential growth rates for local exchange service revenues in those markets. Currently, LOA has not secured, and has no agreements to secure, any franchises, rights-of-way, installed CLEC networks, facilities, established customer relationships with IXCs, ISPs, wireless carriers, business, or government and institutional end users. LOA also intends to pursue opportunities in selected first tier markets defined as those cities in the Northeast with over two million people. LOA intends to utilize its existing operational capabilities in conjunction with proposed operating agreements with IXC customers. LOA's intends to design its networks to access at least 70% to 80% of the identified business, government and institutional end user revenue base and the IXC facilities ("Points of Presence" or "POPs") and substantially all of the central offices of the ILECs within the defined markets. Expand and Enhance Service Offerings. LOA intends to expand its capability to provide enhanced services to complement its planned switch-based services. LOA intends that its enhanced services will include, among other things, high speed video conferencing, frame relay and ATM-based packet transport services 38 along with its currently existing Internet access products. LOA plans to upgrade and add to its systems and services as technology and regulations permit. Planned CLEC Products And Services. LOA plans to provide several types of switched access and private line services to IXC and end-user customers. Historically, competitive access providers ("CAPs") were able to offer only non-switched special access and private line services which involved the installation of dedicated lines to provide the following types of communications links: POP-to-POP Special Access. Telecommunications lines linking the POPs of one IXC or the POPs of different IXCs in a market, allowing these POPs to exchange transmissions for transport to their final destinations. End-User/IXC Special Access. Telecommunications lines between an end user, such as a business, and the local POP of its selected IXC. Private Line. Telecommunications lines connecting various locations of one or more customers' operations, suitable for transmitting voice and data traffic internally. Collocated Special Access: A dedicated line carrying switched transmissions from the IXC POP, through the ILEC's central office to the end users. Collocated POP-to-ILEC Switched Access Transport: A dedicated line carrying switched transmissions from the ILEC's central office to an IXC's POP. In order to provide these services, LOA intends to offer various types of dedicated fiber optic lines that operate at different speeds and handle varying amounts of traffic to provide tailor-made solutions to its customers' needs, including: DS-0: A dedicated line service that meets the requirements of business communications, with transmission capacity of up to 64 kilobits of bandwidth per second (a voice grade equivalent circuit). This service offers a basic low capacity dedicated digital channel for connecting telephones, fax machines, personal computers and other telecommunications equipment. DS-1: A high speed channel typically linking high volume customer locations to IXCs or other customer locations. Used for voice transmissions as well as the interconnection of Local Area Networks ("LANs"), DS-1 service accommodates transmission speeds of up to 1.544 megabits per second, the equivalent of 24 voice-grade equivalent circuits. LOA offers this high-capacity service for customers who need a larger communications pipeline. DS-3: This service provides a very high capacity digital channel with transmission capacity of 45 megabits per second, which is equivalent to 28 DS-1 circuits or 672 voice grade 39 equivalent circuits. This is a digital service used by IXCs for central office connections and by some large commercial users to link multiple sites. LOA intends to add capabilities to provide local dial tone and switched access termination and origination services to its networks. It is intended that the business customers served by LOA can acquire centrex and long-distance services from LOA as a reseller. In order to provide these services, LOA intends to purchase these services in bulk from the ILEC and the IXC and provide its retail customers with a single source of integrated local and long distance telecommunications services and facilities management at a discount from the published retail ILEC tariff rates. By using centrex service instead of a private branch exchange ("PBX") to direct their telecommunications traffic, customers can avoid the large investment in equipment required and the fixed costs associated with maintaining a PBX network infrastructure. LOA's centrex service, as envisioned, will allow medium to small business customers who lack the size or resources to support their own PBX to benefit from a telecommunications system. LOA intends to provide a full range of consulting, management, engineering and information system solutions for telephone, cable television and wireless providers and other telecommunications infrastructure owners and operators in the United States. Competition The Internet connectivity and telecommunications business is highly competitive, and there are no substantial barriers to entry. LOA believes that competition will intensify and its ability to successfully compete depends on a number of factors including market presence, the capacity, reliability, and the security of its network infrastructure, its pricing of services compared to its competitors, the timing of new products and services by LOA and its competitors, LOA's ability to react to changes in the market, and industry and economic trends. LOA's competitors consist of (1) regional Internet access providers, (2) national Internet service providers, (3) on-line service companies, (4) regional telephone companies and national long distance carriers, and (5) hardware/software companies and cable operators, as discussed below: 1. Regional Internet Access Providers. LOA's competitors include numerous regional Internet access providers. 2. National Internet Service Providers. National Internet service providers include companies such as Netcom On Line Communication Services, Inc., a division of ICG Telecom Group, Inc. ("Netcom"), PSINet, Inc. ("PSI"), UUNET Technologies, Inc. ("UUNET"), and BBN Corp., a division of GTE Corp. ("BBN"). These national competitors have established national and international networks, providing extensive coverage throughout the United States and select international locations. Netcom, PSI and UUNET have established communications and network infrastructure, adapt more swiftly to new or 40 emerging technologies and changes in customer requirements, take advantage of acquisition and other opportunities more readily, and devote more resources to the marketing and sale of services, than LOA. Netcom, PSI and BBN have targeted the individual dial-up market, while UUNET has specifically targeted the business markets. 3. On-line Service Companies. Other competitors include the national on-line service providers such as America On-line, Inc., Delphi Information Services, Inc., a division of News Corp., and Genie, a division of General Electric Information Services. Most of the established on-line services are rapidly expanding their Internet access services in order to offer more direct access to the Internet at more competitive prices. On-line service companies are focused on the individual dial-up market and are becoming direct competitors with the national Internet providers and the long distance telecommunication carriers. 4. Regional Telephone Companies and National Long Distance Companies. Regional telephone companies such as Bell Atlantic Corp., Southern New England Telephone Co., and national long distance carriers such AT&T Corp., MCI Worldcom, Inc., and Sprint Corp. have recently announced Internet access services. 5. Hardware / Software Companies and Cable Operators. In 1995, Microsoft Corporation announced its entry into the on-line service business with "Microsoft Network," a consumer on-line service that was released as a standard integrated feature of the Windows 95 operating system. It can reasonably be expected that other significant software and/ or hardware companies will follow suit. Cable operators such as Cox Communications, Inc., and Tele-Communications, Inc., have also announced their intention to utilize their cable networks to offer Internet services. Cable modems have the capacity to transmit at speeds up to 10 megabits per second versus the normal telephone dial-up speed of 56.6 kilobits per second. Several cable companies are in the process of upgrading their systems to handle the Internet. Each of LOA's primary markets is highly competitive. Many of LOA's competitors are much larger than LOA and have substantially greater resources. 6. CLEC - Regional CLEC competitors include Teleport, Inc., MCI Worldcom, Inc., and TCG, Inc. Most of these competitors have substantially greater resources than LOA. Government Regulation. LOA is currently subject to regulation by the Federal Communications Commission ("FCC") and related state agencies. In so far as the Internet is a relatively new medium, the legal obligations and First Amendment rights of service providers and participants in the Internet, are not well defined and are evolving. The Internet has not been subject to regulation by the FCC 41 or other governmental agencies, and standards applicable to print publishers and television in respect of the law of defamation and obscenity are not clearly applicable to the Internet. To the extent these issues have been considered by the courts, outcomes have not been uniform. In 1996, Congress passed a telecommunications act which, among other things, includes protection from liability for Internet providers who take steps to prevent defamatory material from being published on the Internet and also includes provisions to protect children from indecent material on the Internet. Certain provisions of that legislation regarding the imposition of criminal penalties for publication of indecent materials on the Internet were recently held to be unconstitutional by the United States Supreme Court. The Internet could lose its viability due to delays in the development or adoption of new standards and protocols to handle increased levels of internet activity, or due to increased governmental regulation. There can be no assurance that the infrastructure or complementary services necessary to make the internet a viable commercial marketplace will be developed, or, if developed, that the Internet will become a viable commercial marketplace for services and products such as those offered by LOA. If the necessary infrastructure or complementary services or facilities are not developed, or if the Internet does not become a liable commercial marketplace, our business, results of operations and financial condition will be materially adversely affected. In addition, the adoption of additional laws in the United States and in foreign countries could adversely affect our business. Proprietary Technology. LOA regards its technology as proprietary and attempts to protect it with copyrights, trademarks, trade secret laws, restrictions on disclosure and transferring title and other methods. We have registered the Internet domain name www.loa.com. There can be no assurance that potential users and advertisers will not confuse our domain name with other similar domain names. If such confusion occurs, we may lose business to a competitor, and have to adjust our advertising rates and service fees accordingly, or some users of our services may have negative experiences with other companies on their Web sites that such users erroneously associate with us. Employees. As of December 31, 1998, LOA had 12 employees. Of these 12 employees, 4 were engaged in technical support, 2 in information processing services, 1 in customer support functions, 2 were engaged in sales and marketing, and 3 in administration and finance functions. LOA has no collective bargaining agreement in place and believes that its relationship with its employees is good. 42 Facilities. LOA entered into a lease agreement between LOA and Regency Plaza Associates dated May 1, 1996, for the premises located at 3 Regency Plaza, Providence, Rhode Island 02903. Said lease was amended on August 6, 1997, to provide for rental increases, additional space, and extension of its term. The lease currently provides for a term expiring on May 31, 1999. Monthly rent is currently $2,568. The facilities currently comprise approximately 3,000 square feet. The Company also maintains office space comprising less than 500 square feet in Massachusetts through a verbal arrangement with a customer. The Company discounts services to the customer in consideration for such space. The Company uses this space to service its Massachusetts clients and customers. Upon completion of this Offering, the Company intends to enter into a lease arrangement for an office in Massachusetts. Legal Proceedings. There is currently no pending or threatened litigation against LOA. 43 MANAGEMENT Directors and Officers The following table sets forth certain information concerning each of the directors and officers of LOA: Name Age Position - ---- --- -------- David R. Paolo 30 President, CEO and Chairman Donald J. Schattle II 33 V.P. of Operations and Technology and Director Kenneth M. Cornell 30 CFO Raymond Paolo 53 V.P. of Administration, Secretary Treasurer and Director Paul Phillips 55 Director Deborah Stevenson 33 Director David R. Paolo is the President, Chief Executive Officer, Chairman and founder of LOA. He has served in this position since the formation of LOA's precursor, LOARI. In 1994, Mr. Paolo was appointed as Ambassador for the Greater Providence Chamber of Commerce, which he still retains, and in 1996, he was voted chairman of the NYNEX Advisory Board. Mr. Paolo attended Roger Williams University from 1986 to 1990. Donald J. Schattle II has served as Vice President of Operations and Technology since 1998. From 1997 to 1998, he served as Senior Systems Administrator, Director of Operations for LOA's predecessor, LOARI. Prior thereto, Mr. Schattle owned a computer consulting and technical support firm, Cybersultants, Inc., from 1995 to 1996, and was a systems administrator, and service and support engineer for AAA of South Central New England from 1992 to 1996. Mr. Schattle graduated from the University of Rhode Island in 1994 with a B.A. degree. Kenneth M. Cornell has served as Chief Financial Officer since December 1998. Mr. Cornell is President of Cornell & Associates, Inc. a company providing financial advisory services. From July 1996 to May 1997, he served as Controller of Global Telemedia International, Inc. From 1991 to 1996 he worked at Ernst & Young LLP in the audit department. Mr. Cornell graduated with a B.S. from the University Fisher School of Accounting in May 1990. In 1991, he graduated from said university with a Masters in Accounting. Raymond Paolo has served as V.P. of Administration, Secretary, Treasurer and director of LOA since October 1998. Prior thereto, he was Chief Financial Officer of LOARI since its inception in 1992. Mr. Paolo has worked as an independent sales representative for R.E.P. Enterprises from 1991 to 1992 and as President of Horizon Distributors, Inc., a consumer electronics and computer mass merchandiser from 1985 to 1990. Mr. Paolo graduated from the University of 44 Rhode Island in 1968 with a B.S. in Business Administration. In 1980, he graduated from the Williams School of Banking with a M.A. in Business Administration. Paul Phillips has served as a director of LOA since May 1998. From 1967 to the present, Mr. Phillips has served as manager of computer operations with Blue Cross/Blue Shield of Rhode Island. Mr. Phillips manages day to day operations at Blue Cross/Blue Shield's mainframe and network systems. Mr. Philliips attended Johnson and Wales University in Rhode Island from 1970 to 1972. Deborah Stevenson has served as a director of LOA since May 1998. Ms. Stevenson has over 10 years of experience in the data processing field in the manufacturing and financial areas working for Hasbro, where she worked from 1988-1994, and currently as Systems Project Manager at Fleet Technology Solutions, a division of Fleet Bank. Ms. Stevenson graduated in 1989 from Community College of Rhode Island with an A.S. in computer science. Directors are elected to serve until the next annual meeting of the Stockholders and until their successors have been duly elected and qualified. Raymond Paolo is the father of David R. Paolo. Compensation of Directors Directors do not receive compensation for attendance at meetings of the Board of Directors, but will be reimbursed for certain expenses in connection with attendance at board meetings. Audit Committee The Board of Directors intends to have a standing Audit Committee as of the closing of the Offering. The Audit Committee will be comprised of the following directors: Paul Phillips, Deborah Stevenson and David Paolo. The Audit Committee will assist the Board of Directors in exercising its fiduciary responsibilities for oversight of audit and related matters, including corporate accounting, reporting and control practices. It will be responsible for recommending to the Board of Directors the independent auditors for the following year. The Audit Committee intends to meet periodically with management, financial personnel and the independent auditors to review internal accounting controls and auditing and financial reporting matters. Executive Compensation For the years ended December 31, 1996, 1997 and 1998, David R. Paolo, LOA's President, was compensated and/or received advances in the amount of $60,000, $77,617 and $105,700, respectively. In 1998, Mr. Paolo executed a promissory note to LOA in the amount of $77,617 ("Paolo Note"). Pursuant to the terms of the Paolo Note, LOA agrees to forgive 25% of the principal amount each year. No other officer or director received compensation in excess of $100,000 for each of fiscal 1996, 1997 and 1998. 45
Annual Compensation Long-Term Compensation ------------------- ---------------------- Restricted Securities Name and Other Annual Stock Underlying All Other Principal Position Year Salary Bonus Compensation Awards Options Compensation - ------------------ ---- ------ ----- ------------ ------ ------- ------------ David R. Paolo 1998 $90,000 $2,500 -0- -0- -0- $13,200(1) 1997 $77,617 -0- -0- -0- -0- -0- 1996 $60,000 -0- -0- -0- -0- -0-
(1) Represents $7,800 for car allowance and $5,400 for club membership. Employment Agreements On January 12, 1998, LOA amended an employment agreement with David R. Paolo dated January 3, 1997, to serve as President and Chief Executive Officer of LOA (the "David Employment Agreement"). The term of the David Employment Agreement is for six years commencing on January 12, 1998. Mr. Paolo's base compensation of $91,500 per year was increased to $124,500 upon the consummation of a previous private offering, dated August 28, 1998. Pursuant to the terms and conditions of the David Employment Agreement, Mr. Paolo will receive an annual increase in base compensation of 10% for the term of the agreement. Mr. Paolo's base compensation was increased to $136,950, effective January 1, 1999. The David Employment Agreement contains a provision for performance based bonuses, including non-qualified stock options upon the effectuation of a Company stock option plan, car allowance, and club membership. The David Employment Agreement contains a non-compete clause for a period of two years following the termination of Mr. Paolo's employment. The David Employment Agreement may be terminated upon 90 days written notice by either party. In addition, under certain terms and conditions of the David Employment Agreement, if LOA terminates the David Employment Agreement; Mr. Paolo may be entitled to receive the balance of any unpaid salary which would otherwise be payable to Mr. Paolo (during the remainder of the term of the David Employment Agreement). On January 12, 1998, LOA entered into an employment agreement with Raymond Paolo to serve as Chief Financial Officer of LOA (the "Raymond Employment Agreement"). On January 1, 1999 LOA amended the Raymond Employment Agreement to reflect his current position as V.P. of Administration, Secretary and Treasurer of LOA. The Raymond Employment Agreement's term is for six years. Mr. Paolo's base compensation of $51,500 per year was increased to $69,500 upon the consummation of a previous private offering, dated August 8, 1998. Pursuant to the terms and conditions of the Raymond Employment Agreement, Mr. Paolo will receive an annual increase in base compensation of 10% for the term of the agreement. Mr. Paolo's base compensation was increased to $76,450, effective January 1, 1999. The Raymond Employment Agreement contains a provision for performance based bonuses, including non-qualified stock options upon the effectuation of a Company stock option 46 plan and car allowance. The Raymond Employment Agreement contains a non-compete clause for a period of two years following the termination of Mr. Paolo's employment. The Raymond Employment Agreement may be terminated upon 90 days written notice by either party. In addition, under certain terms and conditions of the Raymond Employment Agreement, if LOA terminates the Raymond Employment Agreement; Mr. Paolo may be entitled to receive the balance of any unpaid salary which would otherwise be payable to Mr. Paolo (during the remainder of the term of the Raymond Employment Agreement). Stock Option Plan. In January 1998, LOA adopted the 1999 Stock Option Plan ("Plan"). The purpose of the Plan is to enable LOA to attract, retain and motivate key employees, directors, and on occasion, consultants, by providing them with stock options. Options granted under the Plan may be either incentive stock options, as defined in Section 422A of the Internal Revenue Code of 1986, as amended, or non-qualified stock options. LOA has reserved 1,000,000 shares of Common Stock for issuance under the Plan. As of the date of this Prospectus, no options have been granted pursuant to the Plan. The Plan will be administered by the Board of Directors. The Board has the power to determine the terms of any options granted thereunder, including the exercise price, the number of shares subject to the option, and conditions of exercise. Options granted under the Plan are generally not transferable, and each option is generally exercisable during the lifetime of the optionee only by such optionee. The exercise price of all incentive stock options granted under the Plan must be at least equal to the fair market value of the shares of common stock on the date of the grant. With respect to any participant who owns stock possessing more than 10% of the voting power of all classes of stock of LOA ("10% Owners"), the exercise price of any incentive stock option granted must be equal to at least 110% of the fair market value on the grant date. The term of all incentive stock options under the Plan may not exceed ten years, or five years in the case of 10% Owners. The specific terms of each option grant are approved by the Board of Directors and are reflected in a written stock option agreement. Right to Designate Director. The Representative has the right, for a period of five years from the closing of this Offering, to designate a person for election to LOA's Board of Directors. Limitations of Liability and Indemnification of Directors and Officers. LOA's Certificate of Incorporation, as amended and Amended Bylaws limit the liability of directors and officers to the maximum extent permitted by Delaware law. Delaware law provides that directors of a corporation will not be personally liable for monetary damages for breach of their fiduciary duties as directors, including gross negligence, except liability for (i) breach of the directors' duty of loyalty; (ii) acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of the law, (iii) the unlawful payment of a dividend or 47 unlawful stock purchase or redemption, and (iv) any transaction from which the director derives an improper personal benefit. Delaware law does not permit a corporation to eliminate a director's duty of care, and this provision of LOA's Certificate of Incorporation has no effect on the availability of equitable remedies, such as injunction or rescission, based upon a director's breach of the duty of care. LOA is planning to enter into indemnification agreements with each of its current and future directors and officers which provide for indemnification of, and advancing of expenses to, such persons to the greatest extent permitted by Delaware law, including by reason of action or inaction occurring in the past and circumstances in which indemnification and the advancing of expenses are discretionary under Delaware law. LOA's Certificate of Incorporation authorizes LOA to purchase and maintain insurance for the purposes of indemnification. LOA intends to apply for directors' and officers' insurance, although there can be no assurance that LOA will be able to obtain such insurance on reasonable terms, or at all. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of LOA pursuant to the foregoing provisions, or otherwise, LOA 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. Corporation Takeover Provisions Section 203 of the Delaware General Corporation Law LOA is subject to the provisions of Section 203 of the Delaware General Corporation Law ("Section 203"). Under Section 203, certain "business combinations" between a Delaware corporation whose stock generally is publicly traded or held of record by more than 2,000 stockholders and an "interested stockholder" are prohibited for a three-year period following the date that such stockholder became an interested stockholder, unless (i) the corporation has elected 48 in its original certificate of incorporation not to be governed by Section 203 (LOA did not make such an election) (ii) the business combination was approved by the Board of Directors of the corporation before the other party to the business combination became an interested stockholder (iii) upon consummation of the transaction that made it an interested stockholder, the interested stockholder owned at least 85% of the voting stock of the corporation outstanding at the commencement of the transaction (excluding voting stock owned by directors who are also officers or held in employee benefit plans in which the employees do not have a confidential right to render or vote stock held by the plan) or, (iv) the business combination was approved by the Board of Directors of the corporation and ratified by two-thirds of the voting stock which the interested stockholder did not own. The three-year prohibition also does not apply to certain business combinations proposed by an interested stockholder following the announcement or notification of certain extraordinary transactions involving the corporation and a person who had not been an interested stockholder during t he previous three years or who became an interested stockholder with the approval of the majority of the corporation's directors. The term "business combination" is defined generally to include mergers or consolidations between a Delaware corporation and an "interested stockholder," transactions with an "interested stockholder" involving the assets or stock of the corporation or its majority-owned subsidiaries and transactions which increase an interested stockholder's percentage ownership of stock. The term "interested stockholder" is defined generally as a stockholder who, together with affiliates and associates, owns (or, within three years prior, did own) 15% or more of a Delaware corporation's voting stock. Section 203 could prohibit or delay a merger, takeover or other change in control of LOA and therefore could discourage attempts to acquire LOA. 49 PRINCIPAL SHAREHOLDERS The following table sets forth as of December 31, 1998, and as adjusted for this Offering, the number and percentage of outstanding shares of Common Stock beneficially owned by each person who beneficially owns (i) more than 5% of the outstanding shares of Common Stock; (ii) each of LOA's officers and directors; and (iii) all of LOA's officers and directors as a group. Except as otherwise noted, the persons named in this table, based upon information provided by such persons, have sole voting and investment power with respect to all shares of Common Stock beneficially owned by them. Number of Shares % Beneficially % Beneficially Name and Address of Beneficially Owned Before Owned After Beneficial Owner(1) Owned Offering Offering(2) - ------------------- ------------ -------------- -------------- David R. Paolo ................ 2,434,600 52.8% 35.2% Raymond Paolo ................. 200,000 4.3% 2.9% Donald Schattle II ............ 80,000 1.7% 1.2% Paul Phillips ................. 13,500 ** ** Deborah Stevenson ............. 27,000 ** ** Kenneth Cornell ............... 45,000(3) ** ** Marilyn Henderson ............. 375,000 8.1% 5.4% ICC Consulting, Inc. .......... 250,000(4) 5.4% 3.6% 25A Sintsink Drive West Port Washington, NY 11050 Scofield Dennison Corp. ....... 250,000(4) 5.4% 3.6% 130 Shore Rd. Port Washington, NY 11050 Northeastern Fibercom ......... 250,000(4) 5.4% 3.6% 8 West 38th St. New York, NY 10018 Horizon Fiber, Inc. ........... 250,000(4) 5.4% 3.6% 22 Cherry Lane Putnam Valley, NY 10579 All Officers and Directors .... 2,800,100 60.7% 40.5% as a Group (6 persons) ** Less than 1% (1) Unless otherwise indicated, the addresses of each beneficial owner is c/o Log On America, Inc., 3 Regency Plaza, Providence, Rhode Island 02903. 50 (2) Assumes the sale of all of the shares of Common Stock offered hereby and the exercise of the Underwriter's over-allotment option. Does not reflect the exercise of the Representative's Warrants. (3) Represents warrants for the purchase of 45,000 shares of Common Stock issuable to the securityholder in consideration of accounting and other related services rendered. Such warrants are exercisable during a four year period commencing December 31, 1998 at $3.25 per share. (3) Represents warrants for the purchase of 250,000 shares of Common Stock during the four year period commencing January 15, 1999 at an exercise price of $1.00 per share in consideration of business sales and promotion services rendered. 51 CERTAIN TRANSACTIONS In 1997, LOA America, Inc., a Rhode Island corporation ("LOARI") sold 100% of its assets and liabilities to Global Telemedia International, Inc. ("GTMI") and agreed to change its name to Tekcom, Inc. In consideration for the sale, GTMI assumed the liabilities of LOARI and agreed to pay LOARI shareholders 20% of the value of all LOARI business on the third anniversary of the purchase ("Contingent Sum"). At this time GTMI formed System 4, Inc., a wholly owned Delaware subsidiary, in which to transfer the LOARI assets and liabilities. System 4, Inc. then changed its name to LOA America, Inc. In January 1998, Wan Secure, Inc. ("WS") was organized in Delaware to purchase 100% of the outstanding capital stock of LOA from GTMI. In consideration for the purchase, WS executed a note in the amount of $100,000 ("GTMI Note"). The GTMI Note was personally guaranteed by David R. Paolo, WS's majority shareholder. In and around February 1998, 100% of Tekcom, Inc. (formerly LOARI) shareholders agreed to surrender and release all rights and claims to the Contingent Sum. As consideration for such surrender and release, Tekcom shareholders received shares in LOA. In July 1998, the GTMI accepted a settlement of the GTMI Note. In consideration for such settlement, GTMI accepted $25,000. In May 1998, David R. Paolo, LOA's president and CEO, and Raymond Paolo, an officer and director of LOA, executed promissory notes to LOA in the amounts of $77,617.80 and $47,859.41, respectively ("Paolo Notes"). Pursuant to the terms of the Paolo Notes, LOA agrees to forgive 25% of the principal amount for each note per year. Accordingly, the Paolo Notes will be completely forgiven in 2002. LOA currently has office space in Massachusetts of less than 500 square feet under a verbal arrangement with a customer. In consideration of the use of its customers office LOA provides discounted services to the customer. The office is used to service its clients located in Massachusetts. 52 DESCRIPTION OF SECURITIES The following section does not purport to be complete and is qualified in its entirety by reference to the detailed provisions of LOA's Certificate of Incorporation and By-laws, copies of which have been filed with LOA's Registration Statement on Form SB-2, of which this Prospectus forms a part. The authorized capital stock of LOA consists of 20,000,000 shares of Common Stock, $.01 par value. As of December 31, 1998, 4,610,716 shares of Common Stock were issued and outstanding. As of such date, there were 64 record holders of the Common Stock. LOA is not authorized to issue Preferred Stock. Common Stock Shares of Common Stock are entitled to one vote per share, either in person or by proxy, on all matters that may be voted upon by the owners thereof at meetings of the shareholders. There is no provision for cumulative voting with respect to the election of directors by the holders of Common Stock. Therefore, the holders of more than 50% of the shares of outstanding Common Stock can, if they choose to do so, elect all of the directors of LOA. In such event, the holders of the remaining shares of Common Stock will not be able to elect any directors. The holders of Common Stock (i) have equal rights to dividends from funds legally available therefore, when and if declared by the board of directors of LOA; (ii) are entitled to share ratably in all of the assets of LOA available for distribution to holders of Common Stock upon liquidation, dissolution or winding up of the affairs of LOA; and (iii) do not have preemptive, subscriptive or conversion rights, or redemption of sinking fund provisions applicable thereto. The outstanding shares of Common Stock are duly authorized, validly issued, fully paid and nonassessable. Warrants LOA currently has 1,095,000 common stock purchase warrants ("Warrants") outstanding. 1,000,000 of such Warrants, held in the aggregate by four beneficial owners, are exercisable during the five year period commencing January 15, 1999 at an exercise price of $1.00. 50,000 of such Warrants, held by one beneficial owner, are exercisable during the five year period commencing December 31, 1998 at an exercise price of $3.50 per share. 45,000 of such Warrants, held by one beneficial owner, are exercisable during the four year period commencing December 31, 1998 at $3.25 per share. The shares of Common Stock underlying the Warrants contain piggyback registration rights, which the holders have waived with respect to this Offering and the twelve month period following completion of this Offering. 53 Placement Agent Warrants LOA issued warrants to its placement agent, Security Capital Trading, Inc., in connection with its private placement between November and December 1998. Such warrants provide for the purchase of: (ii) 13,076 shares of Common Stock upon the exercise of warrants granted on December 3, 1998, which warrants are exercisable during the four year period commencing December 3, 1999 and expiring December 3, 2003 at an exercise price of $3.90 per share; and (ii) 23,845 shares of Common Stock upon the exercise of warrants granted on December 23, 1998, which warrants are exercisable during the four year period commencing December 23, 1999 and expiring December 23, 2003 at an exercise price of $3.90 per share. These warrants provide for piggy-back and demand registration rights. Representative's Warrants LOA has agreed to sell to the Representative, upon closing of this Offering, warrants for the purchase of 200,000 shares of Common Stock ("Representative's Warrants"). The Representative's Warrants may be purchased for $20. The Representative's Warrants are exercisable at a price equal to 120% of the Common Stock offering price. The Representative's Warrants are exercisable during the four year period commencing one year from the date of issuance. The Representative's Warrants contain provisions which protect the holders thereof against dilution. The exercise price and number of shares of Common Stock and Representative's Warrants purchasable will be subject to adjustment under certain circumstances, including, but not limited to, stock dividends, stock splits, mergers, acquisitions and recapitalization. Pursuant to the terms of the Representative's Warrants, LOA has agreed that, for a period of five years commencing on the date of this Prospectus, upon written demand of the holders of a majority of the Representative's Warrants and the securities issued pursuant thereto, LOA will, on one occasion, register for sale in a public offering under the Securities Act all or any portion of the securities issuable upon exercise of the Representative's Warrants (and the Warrants and Shares included therein). Any such registration would be at LOA's expense. LOA has also agreed to include such underlying securities in any appropriate registration statement which is filed by LOA during the five years following the date of this Prospectus. Transfer Agent LOA intends to appoint Continental Stock Transfer & Trust Company as the transfer agent and registrar for the shares of Common Stock offered hereby. 54 RESALES BY SELLING SECURITYHOLDERS The registration statement, of which this Prospectus forms a part, also relates to the registration by LOA, for the account of the Selling Securityholders, of an aggregate of 1,896,116 shares of Common Stock and 1,131,921 shares of Common Stock underlying warrants. The Selling Securityholders' shares are not being underwritten by the Underwriters in connection with this Offering. The Selling Securityholders have agreed not to directly or indirectly offer, sell, transfer or otherwise encumber or dispose of any of their Common Stock for a period of twelve months after the date of this Prospectus. The sale of the Selling Securityholders' shares by the Selling Securityholders may be effected from time to time in transactions (which may include block transactions by or for the account of the Selling Securityholders) in the over-the-counter market or in negotiated transactions, or through the writing of options on the Selling Securityholders' shares, a combination of such methods of sale, or otherwise. Sales may be made at fixed prices which may be changed, at a market prices prevailing at the time of sale, or at negotiated prices. The Selling Securityholders may effect such transactions by selling the Selling Securityholders' shares directly to purchasers, through broker\dealers acting as agents for the Selling Securityholders, or to broker\dealers who may purchase shares as principals and thereafter sell the Selling Securityholders' shares from time to time in the over-the-counter market, in negotiated transactions, or otherwise. Such broker\dealers, if any, may receive compensation in the form of discounts, concessions or commissions from the Selling Securityholders and/or the purchaser for whom which broker-dealers may act as agents or to whom they may sell as principals or both (which compensation as to a particular broker-dealer may be in excess of customary commissions). The Selling Securityholders and broker-dealers, if any, acting in connection with such sales, might be deemed to be "underwriters" within the meaning of Section 2(11) of the Securities Act and any commission received by them and any profit upon the resale of such securities might be deemed to be underwriting discounts and commissions under the Securities Act. Sales of any shares of Common Stock by the Selling Securityholders may depress the price of the Common Stock in any market that may develop for the Common Stock.
Shares Owned Shares Owned Prior to Offering(1) Common Stock After Offering(2) Names of Selling -------------------- Offered By ------------------ Securityholders Number Beneficial Owner Number Percent - --------------- ------ ---------------- ------ ------- Robert A. Schattle 52,500 52,500 0 0 Brian C. Schattle 50,000 50,000 0 0 Donald J. Schattle 207,500 207,500 0 0 Vivian A. Tamburini 7,500 7,500 0 0
55
Shares Owned Shares Owned Prior to Offering(1) Common Stock After Offering(2) Names of Selling -------------------- Offered By ------------------ Securityholders Number Beneficial Owner Number Percent - --------------- ------ ---------------- ------ ------- Arthur G. Schattle 10,000 10,000 0 0 and Sheila M. Schattle JT Marilyn Henderson 375,000 375,000 0 0 Fred Stolle 200,000 200,000 0 0 Anthony Cattani 27,000 27,000 0 0 John K. Greim, Sr. 64,000 64,000 0 0 Victor Calderone 32,400 32,400 0 0 Robert and Shirley Henebury 20,250 20,250 0 0 Paul Phillips 13,500 13,500 0 0 Equity Mortgage 13,500 13,500 0 0 Ernest Hoffer 13,500 13,500 0 0 John Greim, Jr. 13,500 13,500 0 0 Joseph DiGianfilippo 13,500 13,500 0 0 Betty and Anthony Fiorillo 13,500 13,500 0 0 Shannon Love Eldridge 13,500 13,500 0 0 Peter Florio 20,250 20,250 0 0 Steven Marino 27,000 27,000 0 0 Mark and Debbie Stephenson 27,000 27,000 0 0 Vincent Cipriano 27,000 27,000 0 0 Karen S. Kelly 10,000 10,000 0 0 Deborah L. Peacock 100,000 100,000 0 0 Robert M. Kessler 50,000 50,000 0 0 Michael Lombardi 4,500 4,500 0 0 James and Cindy Dugan 4,500 4,500 0 0 Mitchell Cheek 4,500 4,500 0 0 David Forsley 4,500 4,500 0 0 Thomas O'Donnell 2,500 2,500 0 0 Mail Processing Concepts 4,500 4,500 0 0 Raymond T. Mancini 50,000 50,000 0 0 Donald St. Angelo 25,000 25,000 0 0 Richard St. Angelo 25,000 25,000 0 0 Charles E. Casale 30,768 30,768 0 0 Deborah Lee 15,384 15,384 0 0 Eugene I. Meyers 23,076 23,076 0 0 Clyde D. Adams TTEE 15,384 15,384 0 0 Adams Revocable Trust Wayne B. Peacock 15,384 15,384 0 0 Larry H. Pallini 15,384 15,384 0 0 Joseph D. DiMase TTEE 15,384 15,384 0 0 Money Purchase Pension Plan Louis J. Petrillo and Anna Marie Mariniello JT 7,692 7,692 0 0 Shirley Lynn Gasbarro Trust 15,384 15,384 0 0 Faustin M. Kabwe 15,384 15,384 0 0 Michel Van Lierde 15,384 15,384 0 0 Dr. Christoph Ludz 15,384 15,384 0 0 Robert Standaert 7,692 7,692 0 0
56
Shares Owned Shares Owned Prior to Offering(1) Common Stock After Offering(2) Names of Selling -------------------- Offered By ------------------ Securityholders Number Beneficial Owner Number Percent - --------------- ------ ---------------- ------ ------- Paul J. Gardella and 30,768 30,768 0 0 Mark Edelsberg as Tenants In Common Shaji Ravindranathan and 7,692 7,692 0 0 Paul K. Chang as Tenants In Common Robert F. Tierney and Corinne M. Tierney JT 15,384 15,384 0 0 Kleopatra Georgiades 15,384 15,384 0 0 Dalia Silverman 15,384 63,384(3) 0 0 Edward Miller and Diane Miller JT 7,692 7,692 0 0 Stuart Cohen and Paul Waltzer as Tenants in Common 15,384 15,384 0 0 Robert Manheimer 15,384 15,384 0 0 Dr. Kenneth Barton 7,692 7,692 0 0 Girolamo Sorbara 15,384 15,384 0 0 Amar C. Amar 3,846 3,846 0 0 R. Shastri Divakaruni 3,846 3,846 0 0 LOA Investment LLC 7,692 7,692 0 0 Security Capital Trading, Inc. 36,921 36,921(4) 0 0 ICC Consulting, Inc. 250,000 250,000(5) 0 0 Scofield Dennison Corp. 250,000 250,000(5) 0 0 Northeastern Fibercom 250,000 250,000(5) 0 0 Horizon Fiber, Inc. 250,000 250,000(5) 0 0 Michael H. Freedman 2,000 2,000(6) 0 0 Kenneth M. Cornell 45,000 45,000(7) 0 0
(1) For purposes of this table, a person or group of persons is deemed to have "beneficial ownership" of any shares of Common Stock which such person has the right to acquire such shares within 60 days of December 31, 1998. For purposes of computing the percentage of outstanding shares of Common Stock held by each person or group of persons named above, any security which such person or persons has or have the right to acquire within such date is deemed to be outstanding but is not deemed to be outstanding for the purpose of computing the percentage ownership of any other person. Except as indicated in the footnotes to this table and pursuant to applicable community property laws, LOA believes based on information supplied by such persons, that the persons named in this table have sole voting and investment power with respect to all shares of Common Stock which they beneficially own. (2) Assumes the sale of all of the shares offered hereby. 57 (3) Includes 48,000 shares of Common Stock underlying a warrant exercisable during the five year period commencing December 31, 1998. (4) Represents shares of Common Stock underlying warrants for the purchase of 36,922 shares of Common Stock exercisable during the four year period commencing December 1999 at an exercise price of $3.90 per share. (5) Represents shares of Common Stock underlying warrants for the purchase of 250,000 shares of Common Stock during the five year period commencing January 15, 1999 at an exercise price of $1.00 per share. (6) Represents shares of Common Stock underlying a warrant for the purchase of 2,000 shares of Common Stock exercisable during the five year period commencing December 31, 1998 at an exercise price of $3.50 per share. (7) Represents shares of Common Stock underlying a warrant for the purchase of 45,000 shares of Common Stock during the four year period commencing December 31, 1998 at an exercise price of $3.25 per share. 58 SHARES ELIGIBLE FOR FUTURE SALE Prior to this Offering, there has been no market for LOA's Common Stock and no prediction can be made as to the effect, if any, that market sales of shares of Common Stock or the availability of such shares for sale will have on the market prices from time to time. The possibility that substantial amounts of shares of Common Stock may be sold in the public market may adversely affect prevailing market prices for the shares of Common Stock and/or may impair LOA's ability to raise equity capital in the future. Upon completion of this Offering, LOA will have 6,610,716 shares of Common Stock outstanding (6,910,716 shares if the Underwriter's over-allotment option is exercised in full). The 2,000,000 shares of Common Stock offered hereby (2,300,000 shares if the Underwriter's over-allotment option is exercised in full) will be freely tradeable without restriction or further registration under the Securities Act, except for any shares purchased by "affiliates" of LOA, as such term is defined in pursuant to Rule 144 promulgated under the Securities Act. The remaining shares of Common Stock were sold by LOA in private transactions and may only be sold if registered under the Securities Act, sold in accordance with Rule 144 or Rule 701 thereunder or pursuant to an exemption from registration. In addition, an aggregate of 1,131,922 shares are issuable upon the exercise of outstanding warrants. All of such shares will be restricted securities when issued, unless registered. LOA and each of its securityholders, as well as holders of warrants to purchase Common Stock have agreed that they will not, without the prior written consent of the Representative, directly or indirectly, offer, sell, pledge, grant any option to purchase, or otherwise sell or dispose of any shares of Common Stock or other similar securities, which they owned prior to the Offering, for a period of twelve months after the Offering. Such agreements provide that the Representative may, in its sole discretion and at any time without notice, release all or a portion of the shares subject to these lock-up agreements; however, the Representative has no intention to do so. In general, under Rule 144 as currently in effect, a person (or persons whose shares are aggregated), including an affiliate (as that term is defined under the rules and regulations of the Securities Act), who has beneficially owned "restricted securities" for at least one year will be entitled to sell within any three month period a number of shares that does not exceed the greater of (i) 1% of the then outstanding shares of Common Stock, or (ii) the average weekly trading volume in the Common Stock on all national securities exchanges and/or reported through the automated quotation system of registered securities associations during the four calendar weeks immediately preceding the date on which notice of the sale is filed with the Commission. Sales pursuant to Rule 144 are also subject to certain other requirements regarding the manner of sale, notice and availability of current public information about LOA. A person (or persons whose shares are aggregated) who is not deemed to have been an affiliate of LOA at any time during the three months immediately preceding the sale is entitled to sell restricted securities pursuant to Rule 144(k) without regard to the limitations described above, provided that two years have expired since the later of the date on which such restricted securities were acquired from the LOA 59 or the date they were acquired from an affiliate of LOA. Affiliates, including members of the Board of Directors and certain of the officers of LOA continue to be subject to such limitations. As defined in Rule 144, an "affiliate" of an issuer is a person that directly, or indirectly through one or more intermediaries, controls or is controlled by, or is under common control with, such issuer. Under Rule 701, persons who purchase shares upon exercise of options granted prior to the effective date of this Offering, are entitled to sell such shares beginning 90 days after the effective date of the Offering in reliance upon Rule 144 without having to comply with the holding period requirements set forth under Rule 144. 60 UNDERWRITING The Underwriters named below ("Underwriters"), for whom Security Capital Trading, Inc. is acting as Representative, have severally agreed, subject to the terms and conditions contained in the Underwriting Agreement ("Underwriting Agreement"), to purchase from LOA, and LOA has agreed to sell to the Underwriters on a firm commitment basis, the respective number of shares of Common Stock set forth opposite their names: Number of Underwriters Shares - ------------ ------ Security Capital Trading, Inc............................... Total.............................................. 2,000,000 The Underwriters are committed to purchase all the securities offered hereby, if any of the securities are purchased. The Underwriting Agreement provides that the obligations of the several Underwriters are subject to the conditions precedent specified therein. The Selling Securityholders' shares are not being underwritten by the Underwriters in connection with this Offering. The sale of the Selling Securityholders shares by the Selling Securityholders may be effected from time to time in transactions, which may include block transactions by or for the account of the Selling Securityholders, in the over-the-counter market or in negotiated transactions or through the writing of options on the Selling Securityholders shares, a combination of such methods of sale, or otherwise. Sales may be made at fixed prices which may be changed at market prices prevailing at the time of sale, or at negotiated prices. LOA has been advised by the Representative that the Underwriters initially propose to offer the shares of Common Stock to the public at the public offering price set forth on the cover page of this Prospectus and to certain dealers concessions not in excess of $______ per share of Common Stock. Such dealers may reallow a concession not in excess of $______ per share of Common Stock to certain other dealers. After the commencement of the Offering, the public offering price, concessions and reallowances may be changed by the Representative. The Representative has informed LOA that it does not expect sales to discretionary accounts by the Representative to exceed five percent of the shares of Common Stock offered by LOA hereby. LOA has granted to the Underwriters an over-allotment option, exercisable during the 45-day period from the date of this Prospectus, to purchase from LOA up to an additional 300,000 shares of Common Stock at the initial public offering prices, less underwriting discounts and the non-accountable expense allowance. Such option may be exercised only for the purpose of covering over-allotments, if any, incurred in the sale of the shares of Common 61 Stock offered hereby. To the extent such option is exercised in whole or in part, each Underwriter will have a firm commitment, subject to certain conditions, to purchase the number of the additional shares of Common Stock proportionate to its initial commitment. LOA has agreed to pay to the Representative a non-accountable expense allowance equal to three percent of the gross proceeds derived from the sale of the shares of Common Stock underwritten, of which $50,000 has been paid to date. LOA has agreed to indemnify the Underwriters against certain liabilities, including liabilities under the Securities Act, or to contribute to payments the Underwriters may be required to make. LOA has been advised that, in the opinion of the Commission, such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In connection with this Offering, certain Underwriters and selling group members and their respective affiliates may engage in transactions that stabilize, maintain or otherwise affect the market price of the Securities. Such transactions may include stabilization transactions effected in accordance with Rule 104 of Regulation M, pursuant to which such persons may bid for or purchase the Common Stock for the purpose of stabilizing their respective market prices. The Underwriters also may create a short position for the account of the Underwriters by selling more shares of Common Stock in connection with the Offering than they are committed to purchase from LOA, and in such case may purchase shares of Common Stock in the open market following completion of the Offering to cover all or a portion of such short position. The Underwriters may also cover all or a portion of such short position, up to 300,000 shares of Common Stock, by exercising the over-allotment option referred to above. In addition, the Representative may impose "penalty bids" under contractual arrangements with the Underwriters whereby it may reclaim from an Underwriter (or dealer participating in the Offering) for the account of other Underwriters, the selling concession with respect to the shares of Common Stock that are distributed in the Offering but subsequently purchased for the account of the Underwriters in the open market. Any of the transactions described in this paragraph may result in the maintenance of the prices of the shares of Common Stock at a level above that which might otherwise prevail in the open market. None of the transactions described in this paragraph is required, and, if they are undertaken, they may be discontinued at any time. LOA's directors and executive officers, and all holders of shares of Common Stock, warrants or other securities convertible, exercisable or exchangeable for Common Stock, have, pursuant to certain lock-up agreements ("Lock-up Agreements"), agreed not to offer, sell or otherwise dispose of any shares of Common Stock for a period of twelve months following the date of this Prospectus without the prior written consent of the Representative. An appropriate legend shall be placed on the certificates representing such securities. The Representative has no general policy with respect to the release of shares prior to the expiration of the lock-up period and has no present intention to waive or modify any of these restrictions on the sale of LOA securities. 62 In connection with this Offering, LOA has agreed to sell to the Representative, and/or its designees, for nominal consideration, Representative's Warrants to purchase from LOA up to 200,000 shares of Common Stock. The Representative's Warrants are initially exercisable at any time during a period of four (4) years commencing one year from the date of the Prospectus at a price of 120% of the initial public offering price per share of Common Stock. The Representative's Warrants provide for adjustment in the number of securities issuable upon the exercise thereof as a result of certain subdivisions and combinations of the Common Stock. The Representative's Warrants grant to the holders thereof certain rights of registration for the securities issuable upon exercise thereof. In addition, the Representative's Warrants may not be sold, transferred, assigned, hypothecated or otherwise disposed of, in whole or in part, for a period of one year from the date of the prospectus, except to officers of the Representative. Prior to this Offering, there has been no public market for LOA's Common Stock. Consequently, the initial public offering price of the Common Stock has been determined by negotiation between the LOA and the Representative and does not necessarily bear any relationship to LOA's asset value, net worth or other established criteria of value. The factors considered in such negotiations, in addition to prevailing market conditions, included the history of and prospects for the industry in which LOA competes, an assessment of LOA's management, the prospects of LOA, its capital structure and such other factors as were deemed relevant. LOA has also granted to the Representative, the right, for a period of five years from the closing of the offering, to nominate a designee of the Representatives for election to the Board of Directors of LOA. LOA's officers, directors and principal shareholders have agreed to vote their shares in favor of such designee. The Representative has not yet exercised its right to designate such a person. If the Representative elects not to exercise this right, then the Representative may designate one person to attend meetings of the Board of Directors. Security Capital Trading, Inc. commenced operations in June 1995. Security Capital Trading, Inc. has participated as a Representative in only two public offering of securities. Accordingly, the Representative has only limited experience as an underwriter of the public offering of securities. The foregoing is a summary of the principal terms of the agreements described above and does not purport to be complete. Reference is made to a copy of each such agreement which is filed as an exhibit to the Registration Statement of which this Prospectus is a part. LEGAL MATTERS The validity of the issuance of the shares of Common Stock being offered hereby are being passed upon for LOA by Silverman, Collura, Chernis & Balzano, P.C. ("SCCB"). Orrick, Herrington & Sutcliffe LLP, New York, New York 10112, is acting as counsel for the 63 Representatives in connection with this Offering. Certain designees of SCCB have been granted warrants for the purchase of an aggregate of 50,000 shares of Common Stock exercisable during the five year period commencing December 31, 1998 at an exercise price of $3.50 per share. EXPERTS The financial statements included in this Registration Statement for the years ended December 31, 1997 and 1996 have been examined by Tauber & Balser, PC. ("T&B"), independent certified public accountants, as set forth in its report appearing elsewhere herein, and are included in reliance upon such report and upon the authority of said firm as experts in accounting and auditing. ADDITIONAL INFORMATION With respect to the securities offered hereby, LOA has filed with the principal office of the Securities and Exchange Commission ("Commission") in Washington, D.C., a Registration Statement on Form SB-2 under the Securities Act of 1933, as amended ("Securities Act"). For purposes hereof, the term "Registration Statement" means the original Registration Statement and any and all amendments thereto. This Prospectus does not contain all of the information set forth in the Registration Statement and the exhibits thereto, to which reference hereby is made. For further information with respect to LOA and the securities offered hereby, reference is made to the Registration Statement, including the exhibits thereto, and the financial statements and notes filed as a part thereof. Each statement made in this Prospectus concerning a document filed as an exhibit to the Registration Statement is not necessarily complete and is qualified in its entirety by reference to such exhibit for a complete statement of its provisions. Any interested party may inspect the Registration Statement and its exhibits without charge, or obtain a copy of all or any portion thereof, at prescribed rates, at the public reference facilities of the Commission at its principal office at Judiciary Plaza, 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549. The Registration Statement and exhibits may also be inspected at the Commission's regional offices at Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511, and at 7 World Trade Center, Suite 1300, New York, New York 10048. Such other reports and other information may also be inspected without charge at a website maintained by the Commission. The address of the website is www.sec.gov. 64 GLOSSARY OF SELECTED TERMS "Associated Services" means products indirectly related to telecommunications, including but not limited to Internet access, video conferencing, video on demand and e-mail. "Carriers" denotes companies that are licensed by the various states to carry domestic and/or international long-distance traffic. These companies may have their own switching facilities or may contract to use the switching platform(s) of other carriers. "Internet" means a wide collection of inter-connected networks that all use the transmission control protocol/Internet protocol (TCP/IP) operating system and that evolved from the Advanced Research Projects Administration Network which was developed in the late 1960s. The Internet "ISP" means a company that provides access service to the Internet. Services may be provided to businesses or individual customers via simple local dial in capability or by means of dedicated high-speed transmission devices. "PTT" is the acronym for the Postal, Telephone and Telegraph agency or ministry within a country that is responsible for the management and licensing of those services within and into and out of that country. "Telecommunications Industry" is intended to include carriers of voice, data and video traffic, Internet services and associated products, including transmission by satellite, wired and wireless means. The industry also includes other marketers and providers of any services. 65 LOG ON AMERICA, INC. FINANCIAL STATEMENTS SEPTEMBER 30, 1998 and 1997 (Unaudited) AND DECEMBER 31, 1997 and 1996 LOG ON AMERICA, INC. TABLE OF CONTENTS Pages ----- INDEPENDENT AUDITORS' REPORT F-2 BALANCE SHEETS F-3-F-4 STATEMENTS OF OPERATIONS F-5 STATEMENTS OF CASH FLOWS F-6-F-7 STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY) F-8 NOTES TO FINANCIAL STATEMENTS F-9-F-15 F-1 INDEPENDENT AUDITORS' REPORT Board of Directors and Shareholders Log On America, Inc. Providence, Rhode Island We have audited the accompanying balance sheet of Log On America, Inc. as of December 31, 1997 and the related statements of operations, stockholders' equity (deficiency) and cash flows for the years ended December 31, 1997 and 1996. 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 Log On America, Inc. as of December 31, 1997, and the results of its operations and its cash flows for the years ended December 31, 1997 and 1996, in conformity with generally accepted accounting principles. s/ Tauber & Balser, P.C. Atlanta, Georgia December 18, 1998 F-2 LOG ON AMERICA, INC. BALANCE SHEETS SEPTEMBER 30, 1998 (UNAUDITED) and DECEMBER 31, 1997 ASSETS September 30, December 31, 1998 1997 ------------ ------------ (Unaudited) CURRENT ASSETS Cash $ 69,911 $ -- Accounts receivable, net of allowance for doubtful accounts of $4,264 at September 30, 1998 and $12,723 at December 31, 1997 87,495 59,602 Other current assets 5,142 1,948 -------- -------- TOTAL CURRENT ASSETS 162,548 61,550 -------- -------- PROPERTY & EQUIPMENT, net of accumulated depreciation of $159,157 at September 30, 1998 and $128,164 at December 31, 1997 62,123 66,727 OTHER ASSETS Goodwill, net of accumulated amortization of $58,721 at September 30, 1998 and $25,857 at December 31, 1997 248,015 155,140 Notes receivable - officer 128,813 78,533 Deposits 705 705 -------- -------- 377,533 234,378 -------- -------- TOTAL ASSETS $602,204 $362,655 ======== ======== F-3 LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY) September 30, December 31, 1998 1997 ------------- ------------ (Unaudited) CURRENT LIABILITIES Notes payable - current portion $ 5,996 $ 5,076 Accounts payable 338,433 315,626 Accrued expenses 72,280 83,445 Deferred revenues 25,709 38,262 Notes payable - related party -- 3,267 --------- --------- TOTAL CURRENT LIABILITIES 442,418 445,676 --------- --------- LONG-TERM DEBT, net of current portion Note payable 12,490 17,720 --------- --------- STOCKHOLDERS' EQUITY (DEFICIENCY) Common Stock, $.01 par value; authorized 20,000,000 shares and issued and outstanding 4,241,500 shares as of September 30, 1998 Authorized 1,000 shares and issued and outstanding 100 shares as of December 31, 1997, respectively 18,070 179,260 Additional paid-in capital 307,454 -- Accumulated deficit (178,228) (280,001) --------- --------- TOTAL STOCKHOLDERS' EQUITY (DEFICIENCY) 147,296 (100,741) --------- --------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY) $ 602,204 $ 362,655 ========= ========= The accompanying notes are an integral part of these financial statements. F-4 LOG ON AMERICA, INC. STATEMENTS OF OPERATIONS FOR THE NINE MONTHS SEPTEMBER 30, 1998 and 1997 (UNAUDITED) and FOR THE YEARS ENDED DECEMBER 31, 1997 and 1996
Nine Months Ended September 30 Year Ended December 31, ------------------ ----------------------- 1998 1997 1997 1996 ---- ---- ---- ---- (Unaudited) REVENUES Dial up $ 177,111 $ 58,793 $ 123,680 $ 168,119 Dedicated access service 314,272 115,456 172,734 14,153 Web services 51,343 32,975 41,895 4,430 Other 8,578 9,814 13,251 -- ----------- --------- --------- --------- Total Revenues 551,304 217,038 351,560 186,702 ----------- --------- --------- --------- OPERATING EXPENSES Communication and internet services 228,950 90,466 138,524 52,036 General and administrative 498,299 291,929 491,060 271,481 ----------- --------- --------- --------- Total Operating Expenses 727,249 382,395 629,584 323,517 ----------- --------- --------- --------- OPERATING LOSS (175,945) (165,357) (278,024) (136,815) ----------- --------- --------- --------- OTHER EXPENSES Interest (2,283) (2,468) (1,977) (2,139) Penalties -- -- -- (24,082) ----------- --------- --------- --------- (2,283) (2,468) (1,977) (26,221) ----------- --------- --------- --------- NET LOSS $ (178,228) $(167,825) $(280,001) $(163,036) =========== ========= ========= ========= WEIGHTED AVERAGE COMMON SHARES USED IN COMPUTING BASIC AND DILUTED LOSS PER SHARE 3,708,770 101 101 101 ----------- --------- --------- --------- BASIC AND DILUTED LOSS PER COMMON SHARE $ (.05) $ (1,661) $ (2,772) $ (1,614) =========== ========= ========= =========
The accompanying notes are an integral part of these financial statements. F-5 LOG ON AMERICA, INC. STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 and 1997 (UNAUDITED) and FOR THE YEARS ENDED DECEMBER 31, 1997 and 1996
Nine Months Ended September 30, Year Ended December 31, ---------------------- ----------------------- 1998 1997 1997 1996 ---- ---- ---- ---- (Unaudited) CASH FLOWS FROM OPERATING ACTIVITIES: Net Loss $(178,228) $(167,825) $(280,001) $(163,036) --------- --------- --------- --------- Adjustments: Stock issued for services 4,392 -- -- -- Stock issued for settlement of prior obligations 10,022 -- -- -- Notes receivable forgiven related to stock subscriptions 36,110 -- -- -- Depreciation and amortization 63,858 37,473 71,296 36,347 Bad debt provision (8,459) (395) 903 11,820 Negative amortization of note payable -- -- -- 1,445 Changes in: Accounts receivable (19,432) (39,657) (46,808) (10,933) Prepaid advertising -- -- 20,000 (20,000) Other current assets (3,194) (549) (1,948) -- Note receivable - officer (50,280) (54,501) (78,533) -- Accounts payable 22,806 24,861 105,820 152,464 Accrued expenses (11,165) 7,998 13,568 61,254 Deferred revenue (12,553) 32,967 38,262 -- --------- --------- --------- --------- Total Adjustments 32,105 8,197 122,560 232,397 --------- --------- --------- --------- NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES (146,123) (159,628) (157,441) 69,361 --------- --------- --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES: Acquisition of property and equipment (26,389) (12,257) (12,257) (92,857) --------- --------- --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds on notes payable-related party -- -- -- 6,667 Proceeds from capital contribution from parent company -- 179,260 179,260 Proceeds from sale of common stock 275,000 -- -- 10,000 Payments on note payable (29,310) (3,292) (6,362) (594) Payments on notes payable-related party (3,267) (3,200) (3,200) (200) --------- --------- --------- --------- NET CASH PROVIDED BY FINANCING ACTIVITIES 242,423 169,501 169,698 15,873 --------- --------- --------- --------- NET INCREASE (DECREASE) IN CASH 69,911 883 -- (7,623) CASH BEGINNING OF PERIOD -- -- -- 7,623 --------- --------- --------- --------- CASH END OF PERIOD $ 69,911 $ 883 $ -- $ -- ========= ========= ========= =========
The accompanying notes are an integral part of these financial statements. F-6 LOG ON AMERICA, INC. STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 and 1997 (UNAUDITED) and FOR THE YEARS ENDED DECEMBER 31, 1997 and 1996 Nine Months Year Ended Ended September 30, December 31, ------------------- ----------------- 1998 1997 1997 1996 ---- ---- ---- ---- (Unaudited) SUPPLEMENTAL DISCLOSURES OF CASH INFORMATION: Cash paid for interest $2,952 $554 $3,148 $972 ====== ==== ====== ==== SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING ACTIVITIES: Details of acquisition Fair value of assets acquired $ 134,311 ========= Goodwill established $ 180,998 ========= Liabilities assumed $ 315,309 ========= The accompanying notes are an integral part of these financial statements. F-7 LOG ON AMERICA, INC. STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY) FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 (UNAUDITED) and THE YEARS ENDED DECEMBER 31, 1997 and 1996
Total Common Stock Issued Additional Stockholders' --------------------- Paid-In Accumulated Equity Shares Par Value Capital Deficit (Deficiency) ------ --------- ------- ------- ------------ BALANCE DECEMBER 31, 1995 100 $ 144,200 $ -- $(172,162) $ (27,962) Shares issued 2 10,000 -- -- 10,000 Net loss -- -- -- (163,036) (163,036) ---------- --------- -------- --------- --------- BALANCE DECEMBER 31, 1996 102 154,200 -- (335,198) (180,998) Acquisition of assets and assumptions of liabilities of Global Telemedia, Inc. (102) (154,200) -- 335,198 180,998 Capital infusion by parent company 100 179,260 -- -- 179,260 Net loss -- -- -- (280,001) (280,001) ---------- --------- -------- --------- --------- BALANCE DECEMBER 31, 1997 100 179,260 -- (280,001) (100,741) Acquisition of assets and assumption of liabilities by WAN Secure, Inc. (100) (179,260) -- 280,001 100,741 Issuance of common stocks for services 62,750 628 3,764 -- 4,392 Issuance of common stock for notes 1,150,000 11,500 24,610 -- 36,110 Issuance of common stock 275,000 2,750 272,250 -- 275,000 Issuance of common stock to President 2,434,600 -- -- -- -- Issuance of common stock for settlement of prior obligations 319,150 3,192 6,830 -- 10,022 Net loss -- -- -- (178,228) (178,228) ---------- --------- -------- --------- --------- BALANCE SEPTEMBER 30, 1998 (unaudited) 4,241,500 $ 18,070 $307,454 $(178,228) $ 147,296 ========== ========= ======== ========= =========
The accompanying notes are an integral part of these financial statements. F-8 LOG ON AMERICA, INC. NOTES TO FINANCIAL STATEMENTS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 and 1997 (UNAUDITED) and THE YEARS ENDED DECEMBER 31, 1997 and 1996 1. Summary of Significant Accounting Policies Nature of Business and Operating History Log On America, Inc. was incorporated in Rhode Island ("LOARI") in 1992 for the purposes of providing online and Internet related services. In 1997, LOARI sold 100% of its assets to Global Telemedia International, Inc. ("GTMI") and agreed to change its name to Tekcom, Inc. In consideration for the sale, GTMI agreed to (i) assume all outstanding liabilities of LOARI; and (ii) pay LOARI shareholders 20% of the value of all LOARI business on the third anniversary of the purchase ("Contingent Sum"). At this time, GTMI formed System 4, Inc., a wholly owned Delaware subsidiary, in which to transfer the LOARI assets and liabilities. In July 1997, System 4, Inc. changed its name to Log On America, Inc. ("LOA"). Wan Secure, ("WS") was organized in Delaware in January 1998 to purchase 100% of the outstanding capital stock of LOA from GTMI. Pursuant to such acquisition, LOA became a wholly owned subsidiary of WS. In consideration for the purchase, WS executed a note in the amount of $100,000 ("GTMI Note"). The GTMI Note was personally guaranteed by David R. Paolo, WS's majority shareholder. In September 1998, WS effected a merger with and into LOA whereby WS was the survivor. Simultaneously with the merger, WS changed its name to Log On America, Inc. (the "Company"). In and around February 1998, 100% of the shareholders of Tekcom, Inc. (formerly LOARI) agreed to surrender and release all rights and claims to the Contingent Sum. As consideration for such surrender and release, Tekcom shareholders received an aggregate of 795,130 shares; 319,150 shares were issued to the Contingent Sum holders and 475,980 shares were issued to the founder and President of the Company. In July 1998, GTMI accepted a settlement of the GTMI Note. In consideration for such settlement, GTMI accepted $25,000. As a result of the aforesaid transactions, the Company is a successor in interest to WS, System 4 and LOARI. Unaudited Financial Statements The balance sheet and statement of changes in stockholders' equity as of September 30, 1998 and the statements of income and cash flows for the nine months ended September 30, 1998 and 1997 are unaudited, and in the opinion of management, include all normal and recurring adjustments necessary to present fairly the Company's financial position, results of operations and cash flows. The data disclosed in these notes to the financial statements for these periods is also unaudited. The results of operations for the periods presented are not necessarily indicative of the operations for the full year. Fair Value of Financial Instruments All current assets and liabilities are carried at cost, which approximates fair value because of the short maturity of those instruments. F-9 LOG ON AMERICA, INC. NOTES TO FINANCIAL STATEMENTS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 and 1997 (UNAUDITED) and THE YEARS ENDED DECEMBER 31, 1997 and 1996 1. Summary of Significant Accounting Policies, continued Credit Risk The Company's accounts receivable potentially subject the Company to credit risks as collateral is generally not required. The Company's risk of loss is limited due to advance billings to customers for services, the use of pre-approved charges to customer credit cards, and the ability to terminate access on delinquent accounts. The carrying amount of the Company's receivables approximates their fair value. Property and Equipment Purchased property and equipment are recorded at cost, and depreciated using an accelerated method over the estimated useful lives of the assets, commencing when the assets are installed or placed in service. Goodwill The excess of liabilities assumed over the fair value of assets acquired when the Company sold all of its assets and liabilities to Global Telemedia International, Inc. (GTMI) on January 2, 1997 was $180,998. In January, 1998 WAN Secure, Inc. purchased all of the liabilities and assets of LOA from GTMI, resulting in additional excess liabilities over fair value of assets acquired of $99,882. The resulting goodwill is being amortized by the straight-line method over a 7 year period. Amortization for the period ended September 30, 1998 was $32,864 (unaudited), and for the year ended December 31, 1997 was $25,857. Revenue Recognition The Company recognizes revenue when services are provided. Services are generally billed one month in advance. Advance billings and collections relating to future access services are recorded as deferred revenue and recognized when revenue is earned. Advertising Expense The advertising expense includes the cost of sales brochures, print advertising in trade publications and trade shows. The cost of advertising is expensed as incurred. Advertising expense was $4,600 (unaudited) for the period ended September 30, 1998 and $64,820 and $8,089 for the years ended December 31, 1997 and 1996, respectively. F-10 LOG ON AMERICA, INC. NOTES TO FINANCIAL STATEMENTS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 and 1997 (UNAUDITED) and THE YEARS ENDED DECEMBER 31, 1997 and 1996 1. Summary of Significant Accounting Policies, continued Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles (GAAP) 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 may differ from these estimates. Stock Based Compensation As permitted by SFAS No. 123, Accounting for Stock-Based Compensation, the Company accounts for its stock-based compensation arrangements pursuant to APB No. 25, Accounting for Stock Issued to Employees. In accordance with those provisions, because the exercise price of the Company's stock options equals the market price of the underlying stock on the grant date, no compensation expense is recognized. Net Loss Per Share In February 1997, the Financial Accounting Standards Board issued SFAS No. 128 (SFAS No. 128), Earnings Per Share, which established new standards for computing and presenting earnings per share. SFAS No. 128 replaced the calculation of primary and fully diluted earnings per share with basic and diluted earning per share. Unlike primary earnings per share, basic earnings per share excludes any dilutive effects of stock options, warrants and convertible securities. Diluted earnings per share is very similar to the previously reported fully diluted earnings per share. All loss per share amounts have been presented to conform to the SFAS No. 128 presentation. Stock options are warrants have not been included in the computation of diluted loss per share as the computation would not be dilutive. For additional disclosure regarding stock options and warrants see Note 9. 2. Notes Receivable - Officers Notes receivable - officers consisted of amounts loaned to officers of the Company in the amount of $128,813 at September 30, 1998 (unaudited) and $78,533 at December 31, 1997. In May 1998, David R. Paolo, the Company's President and CEO, and Raymond Paolo, an officer and director, executed promissory notes to the Company in the amounts of $77,617 and $47,859, respectively ("Paolo Notes"). Pursuant to the terms of the Paolo Notes, the Company agrees to forgive 25% of the principal amount for each note per year if the officers remain employed by the Company. If employment is terminated, the notes become immediately due and payable. F-11 LOG ON AMERICA, INC. NOTES TO FINANCIAL STATEMENTS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 and 1997 (UNAUDITED) and THE YEARS ENDED DECEMBER 31, 1997 and 1996 3. Property and Equipment Property and equipment consist of the following: September 30, December 31, 1998 1997 ------------- ------------ (Unaudited) Computer, telecommunications and office equipment $219,326 $192,937 Leasehold improvements 1,954 1,954 -------- -------- 221,280 194,891 Less accumulated depreciation 159,157 128,164 -------- -------- $ 62,123 $ 66,727 ======== ======== Depreciation expense for the period ended September 30, 1998 was $30,993 (unaudited), and $45,439 and $36,347 for the years ended December 31, 1997 and 1996, respectively. 4. Accrued Expenses and Deferred Revenues Accrued expenses and deferred revenues consisted of the following as of: September 30, December 31, 1998 1997 ------------- ------------ (Unaudited) Accrued payroll taxes $59,722 $ 66,994 Accrued expenses 12,558 16,451 ------- --------- $72,280 $ 83,445 ======= ========= F-12 LOG ON AMERICA, INC. NOTES TO FINANCIAL STATEMENTS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 and 1997 (UNAUDITED) and THE YEARS ENDED DECEMBER 31, 1997 and 1996 5. Notes Payable September 30, December 31, 1998 1997 ------------- ------------ (Unaudited) Notes payable consist of the following: Note payable to Small Business Loan Fund Corporation at 6.98%, due October 1999, interest and principal payable monthly in the amount of $594, with balance due at maturity $18,486 $22,796 Notes payable to related parties at 9.25%, interest and principal due in lump sum at various due dates in 1997 and 1998 -- 3,267 ------- ------- 18,486 26,063 Less current portion 5,996 8,343 ------- ------- $12,490 $17,720 ======= ======= Maturities of notes payable are as follows for the years ended December 31, 1998 $ 8,343 1999 17,720 ------- $26,063 ======= 6. Income Taxes There are no income tax assets, liabilities or income tax expense included in the financial statements. The Company has incurred losses since inception for both book and tax purposes. However, the Company can not utilize any federal or state loss carryforwards due to changes in ownership of the Company. 7. Lease Commitments The Company leases office space and equipment under operating leases expiring in 1999. Rental expense for the period ended September 30, 1998 was $46,412 (unaudited), and $50,700 and $18,204 for the years ended December 31, 1997 and 1996, respectively. The following represent minimum rental payments due: Years ended December 31, Amount ------------ ------ 1998 $54,684 1999 23,961 ------- $78,645 ======= F-13 LOG ON AMERICA, INC. NOTES TO FINANCIAL STATEMENTS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 and 1997 (UNAUDITED) and THE YEARS ENDED DECEMBER 31, 1997 and 1996 7. Lease Commitments (continued) The Company has office space in Massachusetts of less than 500 square feet under a verbal agreement with a customer. In consideration of the use of its customer's office, LOA provides discounted services to the customer. The office is used to service its clients located in Massachusetts. 8. Reverse Merger and Subsequent Events In October 1998, Log On America, Inc., a Delaware corporation and wholly owned subsidiary of WAN Secure, Inc. completed a reverse merger with its parent company. WAN Secure, Inc. then changed its name to Log On America, Inc., and remained a Delaware corporation. In a private offering that occurred in November and December 1998, the Company sold $1,200,000 of unregistered shares at a price of $50,000 per unit which consists of 15,384 shares of common stock ($3.25 per share). Net proceeds to LOA were $1,044,000. Securities issued under the private offering were done so in reliance upon the exemption from registration afforded by Section 4(2) of the Securities Act and Rule 506 of Regulation D. Accordingly, the transfer of the units and underlying shares of common stock is subject to substantial restrictions. In December 1998, the Company issued 50,000 and 45,000 warrants exercisable at $3.50 and $3.25, respectively. The warrants are exercisable during the four year period commencing December 31, 1998. In December 1998, the Company approved an initial public offering of up to 2,300,000 shares of its common stock. On December 21, 1998, the Company paid $41,559 to the Internal Revenue Service for settlement of all past due payroll taxes. 9. Stock Options and Warrants As of January 4, 1999, the Board of Directors has authorized the granting of options for up to 1,000,000 shares of Common Stock to officers, directors, and employees at a strike price at 85% to 90% of market value. In August 1998, the Company issued 1,000,000 warrants to certain consultants. The warrants are exercisable during the five-year period commencing January 15, 1999 at the exercise price of $1.00. The shares of common stock underlying the warrants contain piggyback registration rights. The value of the warrants granted of $1,000,000 was determined using the Black-Sholes model. F-14 LOG ON AMERICA, INC. NOTES TO FINANCIAL STATEMENTS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 and 1997 (UNAUDITED) and THE YEARS ENDED DECEMBER 31, 1997 and 1996 9. Stock Options and Warrants (continued) In December 1998, the Company issued 131,922 warrants to consultants and underwriters in conjunction with the private offering and the proposed public offering. 50,000 and 45,000 of the warrants are exercisable at $3.50 and $3.25 per share, respectively. The warrants are exercisable during the four-year period commencing December 31, 1998. Also issued in December 1998, were 36,922 warrants exercisable at $3.90, which are exercisable during the four year period commencing December 15, 1998.The total value of the December, 1998 warrants, as determined by using the Black-Sholes model, was $465,245. 10. Employment Agreements The Company has employment agreements through 2004 with David R. Paolo, President and CEO and Raymond Paolo, an officer and director. The agreements call for an annual increase of base compensation of 10%, and include provisions for performance based bonuses. The Company's potential minimum obligation under the agreements was $1,302,828 at September 30, 1998. 11. Common Stock Issued to President In January, 1998 the board of directors of Wan Secure, Inc. approved a change in authorized common stock from 1,000 shares at no par value to 5,000,000 shares at $.01 par value. Simultaneously, the President of the Company and then sole shareholder exchanged his 1,000 shares for 1,958,620 shares of the newly authorized $.01 par value stock. In addition, the President received 475,980 shares of stock issued as a result of the settlement with the Tekcom Contingent Sum holders. F-15 ================================================================================ No dealer, salesman or any other person is authorized to give any information or to represent anything not contained in this Prospectus. You must not rely on any unauthorized information or representations. This Prospectus is an offer to sell the securities offered hereby, but only under circumstances and in jurisdictions where it is lawful to do so. The information contained in this Prospectus is current only as of this date TABLE OF CONTENTS Page ---- Prospectus Summary.............................................................3 Risk Factors...................................................................7 Use of Proceeds...............................................................19 Capitalization................................................................21 Dividend Policy...............................................................22 Dilution......................................................................23 Selected Financial Data.......................................................25 Management's Discussion and Analysis of Financial Condition.........................................................26 Business......................................................................33 Management....................................................................44 Principal Shareholders........................................................50 Certain Transactions..........................................................52 Description of Securities.....................................................53 Resales by Selling Securityholders............................................55 Shares Eligible for Future Sale...............................................59 Underwriting..................................................................61 Legal Matters.................................................................63 Experts.......................................................................64 Additional Information........................................................64 Glossary of Selected Terms....................................................65 Index to Financial Statements................................................F-1 -------------------- Until __________, 1999 (25 days after the date of this Prospectus), all dealers effecting transactions in the registered securities, whether or not participating in this distribution, may be required to deliver a Prospectus. This delivery requirement is in addition to the obligation of dealers to deliver a Prospectus when acting as Representatives and with respect to their unsold allotments or subscriptions. ================================================================================ ================================================================================ 2,000,000 SHARES LOG ON AMERICA, INC. COMMON STOCK -------------------- PROSPECTUS -------------------- Security Capital Trading, Inc. ____________, 1999 ================================================================================ PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION SEC Registration Fee $11,609.36 American Stock Exchange Listing Fee $10,000 NASD Filing Fee $ 4,676.03 Printing and Engraving Expenses $75,000* Legal Fees and Expenses $125,000* Accounting Fees and Expenses $50,000* Transfer Agent's Fees and Expenses $10,000 Blue Sky Fees and Expenses $35,000 Miscellaneous Expenses $ 4,000 ----------- TOTAL $325,285* *Estimated The Selling Securityholders will not pay any portion of the foregoing expenses of issuance and distribution. ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS LOA's Certificate of Incorporation, as amended and Amended Bylaws limit the liability of directors and officers to the maximum extent permitted by Delaware law. Delaware law provides that directors of a corporation will not be personally liable for monetary damages for breach of their fiduciary duties as directors, including gross negligence, except liability for (i) breach of the directors' duty of loyalty; (ii) acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of the law, (iii) the unlawful payment of a dividend or unlawful stock purchase or redemption, and (iv) any transaction from which the director derives an improper personal benefit. Delaware law does not permit a corporation to eliminate a director's duty of care, and this provision of LOA's Certificate of Incorporation has no effect on the availability of equitable remedies, such as injunction or rescission, based upon a director's breach of the duty of care. LOA is planning to enter into indemnification agreements with each of its current and future directors and officers which provide for indemnification of, and advancing of expenses to, such persons to the greatest extent permitted by Delaware law, including by reason of action or inaction occurring in the past and circumstances in which indemnification and the advancing of expenses are discretionary under Delaware law. II-1 LOA's Certificate of Incorporation authorizes LOA to purchase and maintain insurance for the purposes of indemnification. LOA intends to apply for directors' and officers' insurance, although there can be no assurance that LOA will be able to obtain such insurance on reasonable terms, or at all. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of LOA pursuant to the foregoing provisions, or otherwise, LOA 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. Corporation Takeover Provisions Section 203 of the Delaware General Corporation Law LOA is subject to the provisions of Section 203 of the Delaware General Corporation Law ("Section 203"). Under Section 203, certain "business combinations" between a Delaware corporation whose stock generally is publicly traded or held of record by more than 2,000 stockholders and an "interested stockholder" are prohibited for a three-year period following the date that such stockholder became an interested stockholder, unless (i) the corporation has elected in its original certificate of incorporation not to be governed by Section 203 (LOA did not make such an election) (ii) the business combination was approved by the Board of Directors of the corporation before the other party to the business combination became an interested stockholder (iii) upon consummation of the transaction that made it an interested stockholder, the interested stockholder owned at least 85% of the voting stock of the corporation outstanding at the commencement of the transaction (excluding voting stock owned by directors who are also officers or held in employee benefit plans in which the employees do not have a confidential right to render or vote stock held by the plan) or, (iv) the business combination was approved by the Board of Directors of the corporation and ratified by two-thirds of the voting stock which the interested stockholder did not own. The three-year prohibition also does not apply to certain business combinations proposed by an interested stockholder following the announcement or notification of certain extraordinary transactions involving the corporation and a person who had not been an interested stockholder during t he previous three years or who became an interested stockholder with the approval of the majority of the corporation's directors. The term "business combination" is defined generally to include mergers or consolidations between a Delaware corporation and an "interested stockholder," transactions with an "interested stockholder" II-2 involving the assets or stock of the corporation or its majority-owned subsidiaries and transactions which increase an interested stockholder's percentage ownership of stock. The term "interested stockholder" is defined generally as a stockholder who, together with affiliates and associates, owns (or, within three years prior, did own) 15% or more of a Delaware corporation's voting stock. Section 203 could prohibit or delay a merger, takeover or other change in control of LOA and therefore could discourage attempts to acquire LOA. ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES December 1998 Private Placement (December Placement) In December 1998 LOA closed a private placement of 24 units ("Units"), each unit consisting of 15,384 shares of Common Stock, at a price of $50,000 per Unit. LOA sold 369,216 shares of its Common Stock and raised gross proceeds of $1,200,000. The placement agent for the December Placement was Security Capital Trading, Inc., which received a commission of 10% of the $1,200,000 raised and a non-accountable expense allowance of 3% per Unit sold. Security Capital Trading, Inc. was granted warrants to purchase 13,076 shares of Common Stock reserved for issuance upon the exercise of outstanding warrants granted on December 3, 1998, which warrants are exercisable during the four year period commencing December 3, 1999 and expiring December 3, 2003 at $3.90 per share; and 23,845 shares of Common Stock reserved for issuance upon the exercise of outstanding warrants, granted on December 23, 1998, which warrants are exercisable during the four year period commencing December 23, 1999 and expiring December 23, 2003 at $3.90 per share. The December Placement was exempt from state and federal registration pursuant to Rule 506 of Regulation D, and Section 4(2) of the Securities Act. July 1998 Private Placement In July 1998 LOA closed a private placement of shares of Common Stock at a price of $1.00 per share. LOA sold 275,000 shares of Common Stock and received gross proceeds of $275,000. The private placement was offered by LOA's officers and directors, none of whom received commissions for the sales. The private placement was exempt from state and federal registration pursuant to Rule 506 of Regulation D, and Section 4(2) of the Securities Act. Warrants In August 1998, LOA granted warrants for the purchase of 1,000,000 shares of Common Stock at an exercise price of $1.00 per share to four entities, ICC Consulting, Inc., Scofield Dennison Corp., Northeastern Fibercom and Horizon Fiber, Inc. in consideration of certain business promotion and sales. The warrants provide for piggy-back registration rights and are exercisable during the four year period commencing January 15, 1999. In December 1998, LOA granted warrants for the purchase of 50,000 shares of Common Stock to Silverman, Collura, Chernis & Balzano, P.C., LOA's legal counsel, for services rendered. The warrants provide for cashless exercise and piggy-back registration rights. The warrants are exercisable during the five year period commencing December 31, II-3 1998 at an exercise price of $3.50 per share. In December 1998, LOA granted warrants for the purchase of 45,000 shares of Common Stock to Kenneth M. Cornell, LOA's interim CFO, for services rendered. The warrants provide for piggy-back registration rights and are exercisable during the four year period commencing December 31, 1998 at an exercise price of $3.25 per share. In November and December 1998, LOA granted warrants to Security Trading Capital,Inc. for the purchase of 36,921 shares of Common Stock at an exercise price of $3.90 per share in connection with the December Placement. All of the above warrants were issued pursuant to an exemption under Section 4(2) of the Securities Act. ITEM 27. EXHIBITS Exhibit No. Description - ----------- ----------- 1.1 Form of Underwriting Agreement 1.2 Form of Representative's Warrant Agreement 3.1 Certificate of Incorporation of Registrant, as amended 3.2* By-laws of Registrant, as amended 4.1* Specimen certificate representing Registrant's Common Stock 5.1* Opinion of Silverman, Collura, Chernis & Balzano, P.C. with respect to legality of the securities of the Registrant being registered 10.1 David R. Paolo Employment Agreement 10.2 Raymond Paolo Employment Agreement 23.1* Consent of Silverman, Collura, Chernis & Balzano, P.C. (included in Exhibit 5.1) 23.2 Consent of Tauber & Balser, P.C. 24.1 Power of Attorney (set forth on signature page of the Registration Statement 27.1 Financial Data Schedule II-4 * to be filed by amendment b. Financial Statement Schedules. None ITEM 28. UNDERTAKINGS. (a) Rule 415 Offerings. The undersigned issuer hereby undertakes that it will: (1) File, during any period in which it offers or sells securities, a post-effective amendment to this Registration Statement to: (i) Include any prospectus required by Section 10(a)(3) of the Securities Act; (ii) Reflect in the prospectus any facts or events which, individually or together, represent a fundamental change in the information in the Registration Statement; and (iii) Includes any additional or changed material information on the plan of distribution. provided, however, the paragraphs (a)(1)(i) and (a)(1)(ii) do not apply if the Registration Statement is on Form S-3 or Form S-8, and the information required in a post-effective amendment by those paragraphs is contained in periodic reports filed by the Registrant pursuant to Section 13 or Section 15(d) of the Securities Exchange Act of 1934 that are incorporated by reference in the Registration Statement. (2) For determining liability under the Securities Act, treat each post-effective amendment as a new registration statement of the securities offered, and the offering of the securities at that time to be the initial bona fide offering. (3) File a post-effective amendment to remove from registration any of the securities that remain unsold at the end of the offering. (b) Request for acceleration of effective date. (1) Insofar as indemnification for liabilities arising under the Securities Act, may be permitted to directors, officers and controlling persons of the small business issuer pursuant to the foregoing provisions, or otherwise, the issuer 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 issuer of expenses incurred II-5 or paid by a director, officer or controlling person of the issuer in the successful defense of any action, suit or proceedings) is asserted by such director, officer or controlling person in connection with the securities being registered, the issuer 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 court. (2) For determining liability under the Securities Act, treat the information in the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in the form of prospectus file by the small business issuer under rule 424(b)(1), or (4) or 457(h) under the Securities Act as part of this registration statement as at the time the Commission declares it effective. (3) For determining any liability under the Securities Act, treat each post-effective amendment that contains a form of prospectus as a new registration statement for the securities offered in the registration statement, and that offering of the securities at that time as the initial bona fide offering of those securities. II-6 SIGNATURES In accordance with the requirements of the Securities Act of 1933, the Registrant certifies that it has reasonable grounds to believe that it meets all of the requirements of filing on Form SB-2 and authorized this registration statement to be signed on its behalf by the undersigned, in the City of Providence, State of Rhode Island, on January 6, 1999. LOG ON AMERICA, INC. By: s/David R. Paolo --------------------------------- David R. Paolo, President POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below, hereby constitutes and appoints David R. Paolo, his true and lawful attorney-in-fact, with full power of substitution and resubstitution, for his and in his name, place and stead, in any and all capacities, to sign any or all amendments or supplements to this Registration Statement and to file the same with all exhibits thereto and other documents in connection therewith, with the Commission, granting unto said attorney-in-fact full power and authority to do and perform each and every act and thing necessary or appropriate to be done with respect to this Registration Statement or any amendments or supplements hereto and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorney-in-fact, or his substitute or substitutes, 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 their respective capacities with LOA and on the dates indicated. Signature Title Date --------- ----- ---- s/ David R. Paolo Principal Executive Officer - ------------------------ and Chairman of the Board January 6, 1999 David R. Paolo s/ Kenneth M. Cornell Principal Financial Officer and - ------------------------ Principal Accounting Officer January 6, 1999 Kenneth M. Cornell s/ Raymond E. Paolo Vice President of Administration, - ------------------------ Secretary, Treasurer and Director January 6, 1999 Raymond E. Paolo Director - ------------------------ Donald J. Schattle III s/ Paul Phillips Director January 6, 1999 - ----------------------- Paul Phillips s/ Deborah Stevenson - ------------------------ Director January 6, 1999 Deborah Stevenson II-7 EXHIBIT INDEX Exhibit No. Description - ----------- ----------- 1.1 Form of Underwriting Agreement 1.2 Form of Representative's Warrant Agreement 3.1 Certificate of Incorporation of Registrant, as amended 3.2* By-laws of Registrant, as amended 4.1* Specimen certificate representing Registrant's Common Stock 5.1* Opinion of Silverman, Collura, Chernis & Balzano, P.C. with respect to legality of the securities of the Registrant being registered 10.1 David R. Paolo Employment Agreement 10.2 Raymond Paolo Employment Agreement 23.1* Consent of Silverman, Collura, Chernis & Balzano, P.C. (included in Exhibit 5.1) 23.2 Consent of Tauber & Balser, P.C. 24.1 Power of Attorney (set forth on signature page of the Registration Statement 27.1 Financial Data Schedule EX-1.1 2 UNDERWRITING AGREEMENT [Form of Underwriting Agreement - Subject to Additional Review] 2,000,000 Shares of Common Stock LOG ON AMERICA, INC. UNDERWRITING AGREEMENT New York, New York , 1999 SECURITY CAPITAL TRADING, INC. As Representative of the several Underwriters named in Schedule A to Exhibit A annexed hereto 520 Madison Avenue 10th Floor New York, New York 10022 Ladies and Gentlemen: Log On America, Inc., a Delaware corporation (the "Company"), confirms its agreement with Security Capital Trading, Inc. ("Security Capital") and each of the underwriters named in Schedule A hereto (collectively, the "Underwriters," which term shall also include any underwriter substituted as hereinafter provided in Section 11), for whom Security Capital is acting as Representative (in such capacity, Security Capital shall hereinafter be referred to as "you" or the "Representative"), with respect to the sale by the Company and the purchase by the Underwriters, acting severally and not jointly, of the respective number of shares ("Shares") of the Company's common stock, $0.01 par value per share ("Common Stock"). The aggregate 2,000,000 shares of Common Stock are hereinafter referred to as the "Firm Securities." Upon your request, as provided in Section 2(b) of this Agreement, the Company shall also issue and sell to the Underwriters, acting severally and not jointly, up to an additional 300,000 shares of Common Stock for the purpose of covering over-allotments, if any. Such 300,000 shares of Common Stock are hereinafter collectively referred to as the "Option Securities." The Company also proposes to issue and sell to you warrants (the "Representative's Warrants") pursuant to the Representative's Warrant Agreement (the "Representative's Warrant Agreement") for the purchase of an additional 200,000 shares of Common Stock. The shares of Common Stock issuable upon exercise of the Representative's Warrants are hereinafter referred to as the "Representative's Securities." The Firm Securities, the Option Securities, the Representative's Warrants and the Representative's Securities (collectively, hereinafter referred to as the "Securities") are more fully described in the Registration Statement and the Prospectus referred to below. 1. Representations and Warranties of the Company. The Company represents and warrants to, and agrees with, each of the Underwriters as of the date hereof, and as of the Closing Date (as hereinafter defined) and each Option Closing Date (as hereinafter defined), if any, as follows: (a) The Company has prepared and filed with the Securities and Exchange Commission (the "Commission") a registration statement, and an amendment or amendments thereto, on Form SB-2 (No. 333-_________), including any related preliminary prospectus ("Preliminary Prospectus"), for the registration of the Firm Securities, the Option Securities and the Representative's Securities under the Securities Act of 1933, as amended (the "Act"), which registration statement and amendment or amendments have been prepared by the Company in conformity with the requirements of the Act, and the rules and regulations (the "Regulations") of the Commission under the Act. The Company will promptly file a further amendment to said registration statement in the form heretofore delivered to the Underwriters and will not file any other amendment thereto to which the Underwriters shall have objected in writing after having been furnished with a copy thereof. Except as the context may otherwise require, such registration statement, as amended, on file with the Commission at the time the registration statement becomes effective (including the prospectus, financial statements, schedules, exhibits and all other documents filed as a part thereof or incorporated therein (including, but not limited to those documents or information incorporated by reference therein) and all information deemed to be a part thereof as of such time pursuant to paragraph (b) of Rule 430(A) of the Regulations), is hereinafter called the "Registration Statement", and the form of prospectus in the form first filed with the Commission pursuant to Rule 424(b) of the Regulations, is hereinafter called the "Prospectus." For purposes hereof, "Rules and Regulations" mean the rules and regulations adopted by the Commission under either the Act or the Securities Exchange Act of 1934, as amended (the "Exchange Act"), as applicable. (b) Neither the Commission nor any state regulatory authority has issued any order preventing or suspending the use of any Preliminary Prospectus, the Registration Statement or Prospectus or any part of any thereof and no proceedings for a stop order suspending the effectiveness of the Registration Statement or any of the Company's securities have been instituted or are pending or threatened. Each of the Preliminary Prospectus, the Registration Statement and Prospectus at the time of filing thereof conformed with the requirements of the Act and the Rules and Regulations, and none of the Preliminary Prospectus, the Registration Statement or Prospectus at the time of filing thereof contained an untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, except that this representation and warranty does not apply to statements made in reliance upon and in conformity with written information furnished to the Company with respect to the Underwriters by or on behalf of the Underwriters expressly for use in such Preliminary Prospectus, Registration Statement or Prospectus or any amendment thereof or supplement thereto. 2 (c) When the Registration Statement becomes effective and at all times subsequent thereto up to the Closing Date (as defined herein) and each Option Closing Date (as defined herein), if any, and during such longer period as the Prospectus may be required to be delivered in connection with sales by the Underwriters or a dealer, the Registration Statement and the Prospectus will contain all statements which are required to be stated therein in accordance with the Act and the Rules and Regulations, and will conform to the requirements of the Act and the Rules and Regulations; neither the Registration Statement nor the Prospectus, nor any amendment or supplement thereto, will contain any untrue statement of a material fact or omit 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, provided, however, that this representation and warranty does not apply to statements made or statements omitted in reliance upon and in strict conformity with information furnished to the Company in writing by or on behalf of any Underwriter expressly for use in the Preliminary Prospectus, Registration Statement or Prospectus or any amendment thereof or supplement thereto. (d) Each of the Company, a Delaware corporation, and the Company's wholly-owned subsidiary, ___________, a ______ corporation ("_______") (such subsidiary is hereinafter referred to as the "Subsidiary"), has been duly organized and is validly existing as a corporation in good standing under the laws of the jurisdiction of its organization. Except as set forth in the Prospectus, neither Company nor the Subsidiary owns an interest in any corporation, partnership, trust, joint venture or other business entity. Each of the Company and the Subsidiary is duly qualified and licensed and in good standing as a foreign corporation in each jurisdiction in which its ownership or leasing of any properties or the character of its operations requires such qualification or licensing. The Company owns, directly or indirectly, one hundred percent (100%) of the outstanding capital stock or other ownership interests of the Subsidiary, and all of such shares or other ownership interests have been validly issued, are fully paid and non-assessable, were not issued in violation of any preemptive rights and are owned free and clear of any liens, charges, claims, encumbrances, pledges, security interests, defects or other restrictions or equities of any kind whatsoever. Each of the Company and the Subsidiary has all requisite power and authority (corporate and other), and has obtained any and all necessary authorizations, approvals, orders, licenses, certificates, franchises and permits of and from all governmental or regulatory officials and bodies (including, without limitation, those having jurisdiction over environmental or similar matters), to own or lease its properties and conduct its business as described in the Prospectus; each of the Company and the Subsidiary is and has been doing business in compliance with all such authorizations, approvals, orders, licenses, certificates, franchises and permits and all applicable federal, state, local and foreign laws, rules and regulations; and neither the Company nor the Subsidiary has received any notice of proceedings relating to the revocation or modification of any such authorization, approval, order, license, certificate, franchise, or permit which, singly or in the aggregate, if the subject of an unfavorable decision, ruling or finding, would materially and adversely affect the condition, financial or otherwise, or the earnings, position, prospects, value, operation, properties, business or results of operations of the Company. The Reorganization (as defined in the Prospectus) pursuant to which the Company became the parent company of the Subsidiary has been consummated as described in the Prospectus. The disclosures in the Registration Statement concerning the effects of domestic and foreign laws, rules and regulations on the Company's and the Subsidiary's business as currently conducted and as contemplated are correct in all material respects and do not omit to state a material fact required to be stated therein or necessary to make 3 the statements contained therein not misleading in light of the circumstances under which they were made. (e) The Company has a duly authorized, issued and outstanding capitalization as set forth in the Prospectus under "Capitalization" and "Description of Securities" and will have the adjusted capitalization set forth therein on the Closing Date and each Option Closing Date, if any, based upon the assumptions set forth therein, and the Company is not a party to or bound by any instrument, agreement or other arrangement providing for it to issue any capital stock, rights, warrants, options or other securities, except for this Agreement, the Representative's Warrant Agreement and as described in the Prospectus. The Securities and all other securities issued or issuable by the Company conform or, when issued and paid for, will conform, in all respects to all statements with respect thereto contained in the Registration Statement and the Prospectus. All issued and outstanding securities of the Company have been duly authorized and validly issued and are fully paid and non-assessable and the holders thereof have no rights of rescission with respect thereto, and are not subject to personal liability by reason of being such holders; and none of such securities were issued in violation of the preemptive rights of any holders of any security of the Company or similar contractual rights granted by the Company. The Securities are not and will not be subject to any preemptive or other similar rights of any stockholder, have been duly authorized and, when issued, paid for and delivered in accordance with the terms hereof, will be validly issued, fully paid and non-assessable and will conform to the description thereof contained in the Prospectus; the holders thereof will not be subject to any liability solely as such holders; all corporate action required to be taken for the authorization, issue and sale of the Securities has been duly and validly taken; and the certificates representing the Securities will be in due and proper form. Upon the issuance and delivery pursuant to the terms hereof of the Securities to be sold by the Company hereunder, the Underwriters or the Representative, as the case may be, will acquire good and marketable title to such Securities free and clear of any lien, charge, claim, encumbrance, pledge, security interest, defect or other restriction or equity of any kind whatsoever. (f) The consolidated financial statements of the Company and the Subsidiary, together with the related notes and schedules thereto, included in the Registration Statement, each Preliminary Prospectus and the Prospectus fairly present the financial position, income, changes in cash flow, changes in stockholders' equity and the results of operations of the Company and the Subsidiary at the respective dates and for the respective periods to which they apply and such financial statements have been prepared in conformity with generally accepted accounting principles and the Rules and Regulations, consistently applied throughout the periods involved and such financial statements as are audited have been examined by Tauber & Balser, P.C., who are independent certified public accountants within the meaning of the Act and the Rules and Regulations, as indicated in their respective reports filed therewith. There has been no adverse change or development involving a prospective adverse change in the condition, financial or otherwise, or in the earnings, position, prospects, value, operation, properties, business, or results of operations of the Company or the Subsidiary, whether or not arising in the ordinary course of business, since the date of the financial statements included in the Registration Statement and the Prospectus and the outstanding debt, the property, both tangible and intangible, and the business of the Company and the Subsidiary, conform in all material respects to the descriptions thereof contained in the Registration Statement and the Prospectus. Financial information (including, without limitation, any pro forma financial information) set 4 forth in the Prospectus under the headings "Summary Financial Data," "Selected Financial Data," "Capitalization," and "Management's Discussion and Analysis of Financial Condition and Plan of Operation," fairly present, on the basis stated in the Prospectus, the information set forth therein, and have been derived from or compiled on a basis consistent with that of the audited financial statements included in the Prospectus; and, in the case of pro forma financial information, if any, the assumptions used in the preparation thereof are reasonable and the adjustments used therein are appropriate to give effect to the transactions and circumstances referred to therein. The amounts shown as accrued for current and deferred income and other taxes in such financial statements are sufficient for the payment of all accrued and unpaid domestic and foreign income taxes, interest, penalties, assessments or deficiencies applicable to the Company and the Subsidiary, whether disputed or not, for the applicable period then ended and periods prior thereto; adequate allowance for doubtful accounts has been provided for unindemnified losses due to the operations of the Company and the Subsidiary; and the statements of income do not contain any items of special or nonrecurring income not earned in the ordinary course of business, except as specified in the notes thereto. (g) Each of the Company and the Subsidiary (i) has paid all domestic and foreign taxes for which it is liable, (ii) has established adequate reserves for such taxes which are not due and payable, and (iii) does not have any tax deficiency or claims outstanding, proposed or assessed against it. (h) No transfer tax, stamp duty or other similar tax is payable by or on behalf of the Underwriters in connection with (i) the issuance by the Company of the Securities, (ii) the purchase by the Underwriters of the Firm Securities and the Option Securities from the Company and the purchase by the Representative of the Representative's Warrants from the Company, (iii) the consummation by the Company of any of its obligations under this Agreement, or (iv) resales of the Firm Securities and the Option Securities in connection with the distribution contemplated hereby. (i) Each of the Company and the Subsidiary maintains insurance policies, including, but not limited to, general liability, and property insurance, which insures each of the Company, the Subsidiary and their respective employees, against such losses and risks generally insured against by comparable businesses. Neither the Company nor the Subsidiary (A) has failed to give notice or present any insurance claim with respect to any matter, including but not limited to the Company's business, property or employees, under any insurance policy or surety bond in a due and timely manner, (B) has any disputes or claims against any underwriter of such insurance policies or surety bonds or has failed to pay any premiums due and payable thereunder, or (C) has failed to comply with all conditions contained in such insurance policies and surety bonds. There are no facts or circumstances under any such insurance policy or surety bond which would relieve any insurer of its obligation to satisfy in full any valid claim of the Company or the Subsidiary. (j) There is no action, suit, proceeding, inquiry, arbitration, investigation, litigation or governmental proceeding (including, without limitation, those having jurisdiction over environmental or similar matters), domestic or foreign, pending or threatened against (or circumstances that may give rise to the same), or involving the properties or business of, the Company or the Subsidiary which (i) questions the validity of the capital stock of the Company, 5 this Agreement or the Representative's Warrant Agreement, or of any action taken or to be taken by the Company pursuant to or in connection with this Agreement or the Representative's Warrant Agreement, (ii) is required to be disclosed in the Registration Statement which is not so disclosed (and such proceedings as are summarized in the Registration Statement are accurately summarized in all material respects), or (iii) might materially and adversely affect the condition, financial or otherwise, or the earnings, position, prospects, stockholders' equity, value, operation, properties, business or results of operations of the Company or the Subsidiary. (k) The Company has full legal right, power and authority to authorize, issue, deliver and sell the Securities, enter into this Agreement and the Representative's Warrant Agreement and to consummate the transactions provided for in this Agreement and the Representative's Warrant Agreement; and this Agreement and the Representative's Warrant Agreement have each been duly and properly authorized, executed and delivered by the Company. Each of this Agreement and the Representative's Warrant Agreement constitutes a legal, valid and binding agreement of the Company enforceable against the Company in accordance with its terms, and none of the Company's issue and sale of the Securities, execution or delivery of this Agreement or the Representative's Warrant Agreement, its performance hereunder and thereunder, its consummation of the transactions contemplated herein and therein, or the conduct of its business as described in the Registration Statement, the Prospectus, and any amendments or supplements thereto, conflicts with or will conflict with or results or will result in any breach or violation of any of the terms or provisions of, or constitutes or will constitute a default under, or result in the creation or imposition of any lien, charge, claim, encumbrance, pledge, security interest, defect or other restriction or equity of any kind whatsoever upon, any property or assets (tangible or intangible) of the Company or the Subsidiary pursuant to the terms of (i) the Certificate of Incorporation or By-Laws of the Company or the Certificate of Incorporation or Bylaws of the Subsidiary, (ii) any license, contract, collective bargaining agreement, indenture, mortgage, deed of trust, lease, voting trust agreement, stockholders agreement, note, loan or credit agreement or any other agreement or instrument to which the Company or the Subsidiary is a party or by which the Company or the Subsidiary is or may be bound or to which its or assets (tangible or intangible) is or may be subject, or any indebtedness, or (iii) any statute, judgment, decree, order, rule or regulation applicable to the Company or the Subsidiary of any arbitrator, court, regulatory body or administrative agency or other governmental agency or body (including, without limitation, those having jurisdiction over environmental or similar matters), domestic or foreign, having jurisdiction over the Company or the Subsidiary or any of its or their respective activities or properties. (l) No consent, approval, authorization or order of, and no filing with, any court, regulatory body, government agency or other body, domestic or foreign, is required for the issuance of the Securities pursuant to the Prospectus and the Registration Statement, the performance of this Agreement and the Representative's Warrant Agreement and the transactions contemplated hereby and thereby, including without limitation, any waiver of any preemptive, first refusal or other rights that any entity or person may have for the issue and/or sale of any of the Securities, except such as have been or may be obtained under the Act or may be required under state securities or Blue Sky laws in connection with the Underwriters' purchase and distribution of the Firm Securities and the Option Securities, and the Representative's Warrants to be sold by the Company hereunder. All authorizations, approvals, consents, orders, registrations, licenses or permits of any court or governmental agency or body necessary for 6 the consummation of the organization of the Company and the transfer of the Subsidiary's shares to the Company have been obtained or effected and are in full force and effect. (m) All executed agreements, contracts or other documents or copies of executed agreements, contracts or other documents filed as exhibits to the Registration Statement to which the Company or the Subsidiary is a party or by which it or they may be bound or to which its or their respective assets, properties or business may be subject have been duly and validly authorized, executed and delivered by the Company or the Subsidiary and constitute the legal, valid and binding agreements of the Company or the Subsidiary, as the case may be, enforceable against it in accordance with its terms. The descriptions in the Registration Statement of agreements, contracts and other documents are accurate and fairly present the information required to be shown with respect thereto by Form SB-2, and there are no contracts or other documents which are required by the Act to be described in the Registration Statement or filed as exhibits to the Registration Statement which are not described or filed as required, and the exhibits which have been filed are complete and correct copies of the documents of which they purport to be copies. (n) Subsequent to the respective dates as of which information is set forth in the Registration Statement and Prospectus, and except as may otherwise be indicated or contemplated herein or therein, neither the Company nor the Subsidiary has (i) issued any securities or incurred any liability or obligation, direct or contingent, for borrowed money, (ii) entered into any transaction other than in the ordinary course of business, or (iii) declared or paid any dividend or made any other distribution on or in respect of its capital stock of any class, and there has not been any change in the capital stock, or any change in the debt (long or short term) or liabilities or material adverse change in or affecting the general affairs, management, financial operations, stockholders' equity or results of operations of the Company or the Subsidiary. (o) No default exists in the due performance and observance of any term, covenant or condition of any license, contract, collective bargaining agreement, indenture, mortgage, installment sale agreement, lease, deed of trust, voting trust agreement, stockholders agreement, partnership agreement, note, loan or credit agreement, purchase order, or any other agreement or instrument evidencing an obligation for borrowed money, or any other material agreement or instrument to which the Company or the Subsidiary is a party or by which the Company or the Subsidiary may be bound or to which the property or assets (tangible or intangible) of the Company or the Subsidiary is subject or affected. (p) Each of the Company and the Subsidiary has generally enjoyed a satisfactory employer-employee relationship with its employees and is in compliance with all domestic and foreign laws and regulations respecting employment and employment practices, terms and conditions of employment and wages and hours. There are no pending investigations involving the Company or the Subsidiary by any governmental agency responsible for the enforcement of such domestic or foreign laws and regulations. There is no unfair labor practice charge or complaint against the Company or the Subsidiary or any lockout, strike, picketing, boycott, dispute, slowdown or stoppage pending or threatened against or involving the Company or the Subsidiary, or any predecessor entity, and none has ever occurred. No representation question exists respecting the employees of the Company or the Subsidiary, and no collective bargaining 7 agreement or modification thereof is currently being negotiated by the Company or the Subsidiary. No grievance or arbitration proceeding is pending under any expired or existing collective bargaining agreements of the Company or the Subsidiary. No labor dispute with the employees of the Company or the Subsidiary exists, or, is imminent. (q) Neither the Company nor the Subsidiary maintains, sponsors or contributes to any program or arrangement that is an "employee pension benefit plan," an "employee welfare benefit plan," or a "multiemployer plan" as such terms are defined in Sections 3(2), 3(1) and 3(37), respectively, of the Employee Retirement Income Security Act of 1974, as amended ("ERISA") ("ERISA Plans"). Neither the Company nor the Subsidiary maintains or contributes, now or at any time previously, to a defined benefit plan, as defined in Section 3(35) of ERISA. No ERISA Plan (or any trust created thereunder) has engaged in a "prohibited transaction" within the meaning of Section 406 of ERISA or Section 4975 of the Code, which could subject the Company or the Subsidiary to any tax penalty on prohibited transactions and which has not adequately been corrected. Neither the Company nor the Subsidiary has never completely or partially withdrawn from a "multiemployer plan." (r) Neither the Company, the Subsidiary nor any of its or their respective employees, directors, stockholders, partners, or affiliates (within the meaning of the Rules and Regulations) of any of the foregoing has taken or will take, directly or indirectly, any action designed to or which has constituted or which might be expected to cause or result in, under the Exchange Act, or otherwise, stabilization or manipulation of the price of any security of the Company to facilitate the sale or resale of the Securities or otherwise. (s) Except as otherwise disclosed in the Prospectus, none of the patents, patent applications, trademarks, service marks, trade names and copyrights, and licenses and rights to the foregoing presently owned or held by the Company or the Subsidiary, are in dispute so far as known by the Company or are in any conflict with the right of any other person or entity. Each of the Company and the Subsidiary (i) owns or has the right to use, free and clear of all liens, charges, claims, encumbrances, pledges, security interests, defects or other restrictions or equities of any kind whatsoever, all patents, trademarks, service marks, trade names and copyrights, technology and licenses and rights with respect to the foregoing, used in the conduct of its business as now conducted or proposed to be conducted without infringing upon or otherwise acting adversely to the right or claimed right of any person, corporation or other entity under or with respect to any of the foregoing and (ii) is not obligated or under any liability whatsoever to make any payment by way of royalties, fees or otherwise to any owner or licensee of, or other claimant to, any patent, trademark, service mark, trade name, copyright, know-how, technology or other intangible asset, with respect to the use thereof or in connection with the conduct of its business or otherwise. (t) Each of the Company and the Subsidiary owns and has the unrestricted right to use all trade secrets, know-how (including all other unpatented and/or unpatentable proprietary or confidential information, systems or procedures), inventions, designs, processes, works of authorship, computer programs and technical data and information (collectively herein "intellectual property") that are material to the development, manufacture, operation and sale of all products and services sold or proposed to be sold by the Company, free and clear of and without violating any right, lien, or claim of others, including without limitation, former 8 employers of its employees; provided, however, that the possibility exists that other persons or entities, completely independent of the Company or the Subsidiary, or its or their respective employees or agents, could have developed trade secrets or items of technical information similar or identical to those of the Company or the Subsidiary. Neither the Company nor the Subsidiary is aware of any such development of similar or identical trade secrets or technical information by others. (u) Each of the Company and the Subsidiary has good and marketable title to, or valid and enforceable leasehold estates in, all items of real and personal property stated in the Prospectus to be owned or leased by it, free and clear of all liens, charges, claims, encumbrances, pledges, security interests, defects, or other restrictions or equities of any kind whatsoever, other than those referred to in the Prospectus and liens for taxes not yet due and payable. (v) Tauber & Balser, P.C., whose report is filed with the Commission as a part of the Registration Statement, are independent certified public accountants as required by the Act and the Rules and Regulations. (w) The Company has caused to be duly executed legally binding and enforceable agreements pursuant to which each of the Company's officers, directors, stockholders and holders of securities exchangeable or exercisable for or convertible into shares of Common Stock has agreed not to, directly or indirectly, issue, offer, offer to sell, sell, grant any option for the sale or purchase of, assign, transfer, pledge, hypothecate or otherwise encumber or dispose of any shares of Common Stock or securities convertible into, exercisable or exchangeable for or evidencing any right to purchase or subscribe for any shares of Common Stock (either pursuant to Rule 144 of the Rules and Regulations or otherwise) or dispose of any beneficial interest therein for a period of not less than twelve (12) months following the effective date of the Registration Statement (the "Lock-Up Period") without the prior written consent of the Representative and the Company. During the 12 month period commencing on the effective date of the Registration Statement, the Company shall not, without the prior written consent of the Representative, sell, contract or offer to sell, issue, transfer, assign, pledge, distribute, or otherwise dispose of, directly or indirectly, any shares of Common Stock or any options, rights or warrants with respect to any shares of Common Stock. The Company will cause the Transfer Agent (as hereinafter defined) to mark an appropriate legend on the face of stock certificates representing all of such securities and to place "stop transfer" orders on the Company's stock ledgers. (x) There are no claims, payments, issuances, arrangements or understandings, whether oral or written, for services in the nature of a finder's or origination fee with respect to the sale of the Securities hereunder or any other arrangements, agreements, understandings, payments or issuance with respect to the Company, or any of its officers, directors, stockholders, partners, employees or affiliates, that may affect the Underwriters' compensation, as determined by the National Association of Securities Dealers, Inc. ("NASD"). (y) The Common Stock has been approved for listing on the American Stock Exchange ("Amex"). 9 (z) Neither the Company, the Subsidiary nor any of their respective officers, employees, agents or any other person acting on behalf of the Company or the Subsidiary has, directly or indirectly, given or agreed to give any money, gift or similar benefit (other than legal price concessions to customers in the ordinary course of business) to any customer, supplier, employee or agent of a customer or supplier, or official or employee of any governmental agency (domestic or foreign) or instrumentality of any government (domestic or foreign) or any political party or candidate for office (domestic or foreign) or other person who was, is, or may be in a position to help or hinder the business of the Company or the Subsidiary (or assist the Company or the Subsidiary in connection with any actual or proposed transaction) which (a) might subject the Company or the Subsidiary, or any other such person to any damage or penalty in any civil, criminal or governmental litigation or proceeding (domestic or foreign), (b) if not given in the past, might have had a material adverse effect on the assets, business or operations of the Company or the Subsidiary, or (c) if not continued in the future, might adversely affect the assets, business, condition, financial or otherwise, earnings, position, properties, value, operations or prospects of the Company or the Subsidiary. The Company's internal accounting controls are sufficient to cause the Company to comply with the Foreign Corrupt Practices Act of 1977, as amended. (aa) Except as set forth in the Prospectus, no officer, director, stockholder or partner of the Company, or any "affiliate" or "associate" (as these terms are defined in Rule 405 promulgated under the Rules and Regulations) of any of the foregoing persons or entities has or has had, either directly or indirectly, (i) an interest in any person or entity which (A) furnishes or sells services or products which are furnished or sold or are proposed to be furnished or sold by the Company or the Subsidiary, or (B) purchases from or sells or furnishes to the Company or the Subsidiary any goods or services, or (ii) a beneficial interest in any contract or agreement to which the Company or the Subsidiary is a party or by which it may be bound or affected. Except as set forth in the Prospectus under "Certain Transactions," there are no existing agreements, arrangements, understandings or transactions, or proposed agreements, arrangements, understandings or transactions, between or among the Company or the Subsidiary, and any officer, director, or 5% or greater securityholder of the Company, or any partner, affiliate or associate of any of the foregoing persons or entities. (bb) Any certificate signed by any officer of the Company, and delivered to the Underwriters or to Underwriters' Counsel (as defined herein) shall be deemed a representation and warranty by the Company to the Underwriters as to the matters covered thereby. (cc) The minute books of each of the Company and the Subsidiary have been made available to the Underwriters and contain a complete summary of all meetings and actions of the directors (including committees thereof) and stockholders of the Company and the Subsidiary, since the time of their respective incorporation, and reflect all transactions referred to in such minutes accurately in all material respects. (dd) Except and to the extent described in the Prospectus, no holders of any securities of the Company or of any options, warrants or other convertible or exchangeable securities of the Company have the right to include any securities issued by the Company in the Registration Statement or any registration statement to be filed by the Company or to require the 10 Company to file a registration statement under the Act and no person or entity holds any anti-dilution rights with respect to any securities of the Company. (ee) The Company has as of the effective date of the Registration Statement entered into an employment agreement with each of David R. Paolo and Raymond Paolo in the form filed as Exhibits ____ and ____, respectively, to the Registration Statement. (ff) The Company confirms as of the date hereof that it is in compliance with all provisions of Section 1 of Laws of Florida, Chapter 92-198, An Act Relating to Disclosure of Doing Business with Cuba, and the Company further agrees that if it or any affiliate commences engaging in business with the government of Cuba or with any person or affiliate located in Cuba after the date the Registration Statement becomes or has become effective with the Commission or with the Florida Department of Banking and Finance (the "Department"), whichever date is later, or if the information reported or incorporated by reference in the Prospectus, if any, concerning the Company's, or any affiliate's, business with Cuba or with any person or affiliate located in Cuba changes in any material way, the Company will provide the Department notice of such business or change, as appropriate, in a form acceptable to the Department. (gg) The Company is not, and upon the issuance and sale of the Securities as herein contemplated and the application of the net proceeds therefrom as described in the Prospectus under the caption "Use of Proceeds" will not be, an "investment company" or an entity "controlled" by an "investment company" as such terms are defined in the Investment Company Act of 1940, as amended (the "1940 Act"). (hh) The Company maintains a system of internal accounting controls sufficient to provide reasonable assurance that (i) transactions are executed in accordance with management's general or specific authorizations; (ii) transactions are recorded as necessary to permit preparations of financial statements in conformity with generally accepted accounting principles and to maintain accountability for assets; (iii) access to assets is permitted only in accordance with management's general or specific authorizations; and (iv) the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences. 2. Purchase, Sale and Delivery of the Securities. (a) On the basis of the representations, warranties, covenants and agreements herein contained, but subject to the terms and conditions herein set forth, the Company agrees to sell to each Underwriter, and each Underwriter, severally and not jointly, agrees to purchase from the Company at a price of $_______ [90% of the initial public offering price per share of Common Stock] per share of Common Stock, that number of Firm Securities set forth in Schedule A opposite the name of such Underwriter, subject to such adjustment as the Representative in its sole discretion shall make to eliminate any sales or purchases of fractional shares, plus any additional number of Firm Securities which such Underwriter may become obligated to purchase pursuant to the provisions of Section 11 hereof. (b) In addition, on the basis of the representations, warranties, covenants and agreements herein contained, but subject to the terms and conditions herein set forth, the 11 Company hereby grants an option to the Underwriters, severally and not jointly, to purchase all or any part of an additional 300,000 shares of Common Stock at a price of $_________ per share of Common Stock [90% of the initial public offering price per share of Common Stock]. The option granted hereby will expire forty-five (45) days after (i) the date the Registration Statement becomes effective, if the Company has elected not to rely on Rule 430A under the Rules and Regulations, or (ii) the date of this Agreement if the Company has elected to rely upon Rule 430A under the Rules and Regulations, and may be exercised in whole or in part from time to time only for the purpose of covering over-allotments which may be made in connection with the offering and distribution of the Firm Securities upon notice by the Representative to the Company setting forth the number of Option Securities as to which the several Underwriters are then exercising the option and the time and date of payment and delivery for any such Option Securities. Any such time and date of delivery (an "Option Closing Date") shall be determined by the Representative, but shall not be later than three (3) full business days after the exercise of said option, nor in any event prior to the Closing Date, as hereinafter defined, unless otherwise agreed upon by the Representative and the Company. Nothing herein contained shall obligate the Underwriters to make any over-allotments. No Option Securities shall be delivered unless the Firm Securities shall be simultaneously delivered or shall theretofore have been delivered as herein provided. (c) Payment of the purchase price for, and delivery of certificates for, the Firm Securities shall be made at the offices of the Representative at 520 Madison Avenue, 10th Floor, New York, New York 10022, or at such other place as shall be agreed upon by the Representative and the Company. Such delivery and payment shall be made at 10:00 a.m. (New York City time) on ________, 1999 or at such other time and date as shall be agreed upon by the Representative and the Company, but not less than three (3) nor more than five (5) full business days after the effective date of the Registration Statement (such time and date of payment and delivery being herein called the "Closing Date"). In addition, in the event that any or all of the Option Securities are purchased by the Underwriters, payment of the purchase price for, and delivery of certificates for, such Option Securities shall be made at the above-mentioned office of the Representative or at such other place as shall be agreed upon by the Representative and the Company on each Option Closing Date as specified in the notice from the Representative to the Company. Delivery of the certificates for the Firm Securities and the Option Securities, if any, shall be made to the Underwriters against payment by the Underwriters, severally and not jointly, of the purchase price for the Firm Securities and the Option Securities, if any, to the order of the Company for the Firm Securities and the Option Securities, if any, by New York Clearing House funds. In the event such option is exercised, each of the Underwriters, acting severally and not jointly, shall purchase that proportion of the total number of Option Securities then being purchased which the number of Firm Securities set forth in Schedule A hereto opposite the name of such Underwriter bears to the total number of Firm Securities, subject in each case to such adjustments as the Representative in its discretion shall make to eliminate any sales or purchases of fractional shares. Certificates for the Firm Securities and the Option Securities, if any, shall be in definitive, fully registered form, shall bear no restrictive legends and shall be in such denominations and registered in such names as the Underwriters may request in writing at least two (2) business days prior to the Closing Date or the relevant Option Closing Date, as the case may be. The certificates for the Firm Securities and the Option Securities, if any, shall be made available to the Representative at such office or such other place as the Representative may 12 designate for inspection, checking and packaging no later than 9:30 a.m. on the last business day prior to the Closing Date or the relevant Option Closing Date, as the case may be. (d) On the Closing Date, the Company shall issue and sell to the Representative Representative's Warrants at a purchase price of $.0001 per warrant, which Representative's Warrants shall entitle the holders thereof to purchase an aggregate of 200,000 shares of Common Stock. The Representative's Warrants shall be exercisable for a period of four (4) years commencing one (1) year from the effective date of the Registration Statement at a price equaling one hundred twenty percent (120%) of the respective initial public offering price of the Shares. The Representative's Warrant Agreement and form of Warrant Certificate shall be substantially in the form filed as Exhibit 4.1 to the Registration Statement. Payment for the Representative's Warrants shall be made on the Closing Date. 3. Public Offering of the Shares. As soon after the Registration Statement becomes effective as the Representative deems advisable, the Underwriters shall make a public offering of the Shares (other than to residents of or in any jurisdiction in which qualification of the Securities is required and has not become effective) at the price and upon the other terms set forth in the Prospectus. The Representative may from time to time increase or decrease the public offering price after distribution of the Shares has been completed to such extent as the Representative, in its sole discretion deems advisable. The Underwriters may enter into one of more agreements as the Underwriters, in each of their sole discretion, deem advisable with one or more broker-dealers who shall act as dealers in connection with such public offering. 4. Covenants and Agreements of the Company. The Company covenants and agrees with each of the Underwriters as follows: (a) The Company shall use its best efforts to cause the Registration Statement and any amendments thereto to become effective as promptly as practicable and will not at any time, whether before or after the effective date of the Registration Statement, file any amendment to the Registration Statement or supplement to the Prospectus or file any document under the Act or Exchange Act before termination of the offering of the Shares by the Underwriters of which the Representative shall not previously have been advised and furnished with a copy, or to which the Representative shall have objected or which is not in compliance with the Act, the Exchange Act or the Rules and Regulations. (b) As soon as the Company is advised or obtains knowledge thereof, the Company will advise the Representative and confirm the notice in writing (i) when the Registration Statement, as amended, becomes effective, if the provisions of Rule 430A promulgated under the Act will be relied upon, when the Prospectus has been filed in accordance with said Rule 430A and when any post-effective amendment to the Registration Statement becomes effective; (ii) of the issuance by the Commission of any stop order or of the initiation, or the threatening, of any proceeding suspending the effectiveness of the Registration Statement or any order preventing or suspending the use of the Preliminary Prospectus or the Prospectus, or any amendment or supplement thereto, or the institution of proceedings for that purpose; (iii) of the issuance by the Commission or by any state securities commission of any proceedings for the suspension of the qualification of any of the Securities for offering or sale in any jurisdiction or of the initiation, or the threatening, of any proceeding for that purpose; (iv) of the receipt of any 13 comments from the Commission; and (v) of any request by the Commission for any amendment to the Registration Statement or any amendment or supplement to the Prospectus or for additional information. If the Commission or any state securities commission shall enter a stop order or suspend such qualification at any time, the Company will make every effort to obtain promptly the lifting of such order. (c) The Company shall file the Prospectus (in form and substance satisfactory to the Representative) or transmit the Prospectus by a means reasonably calculated to result in filing with the Commission pursuant to Rule 424(b)(1) (or, if applicable and if consented to by the Representative, pursuant to Rule 424(b)(4)) not later than the Commission's close of business on the earlier of (i) the second business day following the execution and delivery of this Agreement and (ii) the fifth business day after the effective date of the Registration Statement. (d) The Company will give the Representative notice of its intention to file or prepare any amendment to the Registration Statement (including any post-effective amendment) or any amendment or supplement to the Prospectus (including any revised prospectus which the Company proposes for use by the Underwriters in connection with the offering of the Securities which differs from the corresponding prospectus on file at the Commission at the time the Registration Statement becomes effective, whether or not such revised prospectus is required to be filed pursuant to Rule 424(b) of the Rules and Regulations), and will furnish the Representative with copies of any such amendment or supplement a reasonable amount of time prior to such proposed filing or use, as the case may be, and will not file any such prospectus to which the Representative or Orrick, Herrington & Sutcliffe LLP ("Underwriters' Counsel") shall object. (e) The Company shall endeavor in good faith, in cooperation with the Representative, at or prior to the time the Registration Statement becomes effective, to qualify the Securities for offering and sale under the securities laws of such jurisdictions as the Representative may designate to permit the continuance of sales and dealings therein for as long as may be necessary to complete the distribution, and shall make such applications, file such documents and furnish such information as may be required for such purpose; provided, however, the Company shall not be required to qualify as a foreign corporation or file a general or limited consent to service of process in any such jurisdiction. In each jurisdiction where such qualification shall be effected, the Company will, unless the Representative agrees that such action is not at the time necessary or advisable, use all reasonable efforts to file and make such statements or reports at such times as are or may reasonably be required by the laws of such jurisdiction to continue such qualification. (f) During the time when a prospectus is required to be delivered under the Act, the Company shall use all reasonable efforts to comply with all requirements imposed upon it by the Act and the Exchange Act, as now and hereafter amended and by the Rules and Regulations, as from time to time in force, so far as necessary to permit the continuance of sales of or dealings in the Securities in accordance with the provisions hereof and the Prospectus, or any amendments or supplements thereto. If at any time when a prospectus relating to the Securities is required to be delivered under the Act, any event shall have occurred as a result of which, in the opinion of counsel for the Company or Underwriters' Counsel, the Prospectus, as then amended or supplemented, includes an untrue statement of a material fact or omits to state any 14 material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, or if it is necessary at any time to amend the Prospectus to comply with the Act, the Company will notify the Representative promptly and prepare and file with the Commission an appropriate amendment or supplement in accordance with Section 10 of the Act, each such amendment or supplement to be satisfactory to Underwriters' Counsel, and the Company will furnish to the Underwriters copies of such amendment or supplement as soon as available and in such quantities as the Underwriters may request. (g) As soon as practicable, but in any event not later than forty-five (45) days after the end of the 12-month period beginning on the day after the end of the fiscal quarter of the Company during which the effective date of the Registration Statement occurs (ninety (90) days in the event that the end of such fiscal quarter is the end of the Company's fiscal year), the Company shall make generally available to its security holders, in the manner specified in Rule 158(b) of the Rules and Regulations, and to the Representative, an earnings statement which will be in the detail required by, and will otherwise comply with, the provisions of Section 11(a) of the Act and Rule 158(a) of the Rules and Regulations, which statement need not be audited unless required by the Act, covering a period of at least twelve (12) consecutive months after the effective date of the Registration Statement. (h) During a period of five (5) years after the date hereof, the Company will furnish to its stockholders, as soon as practicable, annual reports (including financial statements audited by independent public accountants) and unaudited quarterly reports of earnings, and will deliver to the Representative: (i) concurrently with furnishing such quarterly reports to its stockholders, statements of income of the Company for each quarter in the form furnished to the Company's stockholders and certified by the Company's principal financial or accounting officer; (ii) concurrently with furnishing such annual reports to its stockholders, a balance sheet of the Company as at the end of the preceding fiscal year, together with statements of operations, stockholders' equity, and cash flows of the Company for such fiscal year, accompanied by a copy of the certificate thereon of independent certified public accountants; (iii) as soon as they are available, copies of all reports (financial or other) mailed to stockholders; (iv) as soon as they are available, copies of all reports and financial statements furnished to or filed with the Commission, the NASD or any securities exchange; (v) every press release and every material news item or article of interest to the financial community in respect of the Company, or its affairs, which was released or prepared by or on behalf of the Company; and 15 (vi) any additional information of a public nature concerning the Company (and any future subsidiary) or its businesses which the Representative may request. During such seven-year period, if the Company has an active subsidiary, the foregoing financial statements will be on a consolidated basis to the extent that the accounts of the Company and its subsidiary(ies) are consolidated, and will be accompanied by similar financial statements for any significant subsidiary which is not so consolidated. (i) The Company will maintain a transfer agent ("Transfer Agent") and, if necessary under the jurisdiction of incorporation of the Company, a Registrar (which may be the same entity as the Transfer Agent) for its Common Stock. (j) The Company will furnish to the Representative or on the Representative's order, without charge, at such place as the Representative may designate, copies of each Preliminary Prospectus, the Registration Statement and any pre-effective or post-effective amendments thereto (two of which copies will be signed and will include all financial statements and exhibits), the Prospectus, and all amendments and supplements thereto, including any prospectus prepared after the effective date of the Registration Statement, in each case as soon as available and in such quantities as the Representative may request. (k) On or before the effective date of the Registration Statement, the Company shall provide the Representative with true original copies of duly executed, legally binding and enforceable agreements pursuant to which, for a period of twelve (12) months from the effective date of the Registration Statement, each of the Company's stockholders and holders of securities exchangeable or exercisable for or convertible into shares of Common Stock agrees that it or he or she will not, directly or indirectly, issue, offer to sell, sell, grant an option for the sale or purchase of, assign, transfer, pledge, hypothecate or otherwise encumber or dispose of any shares of Common Stock or securities convertible into, exercisable or exchangeable for or evidencing any right to purchase or subscribe for any shares of Common Stock (either pursuant to Rule 144 of the Rules and Regulations or otherwise) or dispose of any beneficial interest therein without the prior consent of the Representatives (collectively, the "Lock-up Agreements"). During the 12 month period commencing on the effective date of the Registration Statement, the Company shall not, without the prior written consent of the Representative, sell, contract or offer to sell, issue, transfer, assign, pledge, distribute, or otherwise dispose of, directly or indirectly, any shares of Common Stock or any options, rights or warrants with respect to any shares of Common Stock. On or before the Closing Date, the Company shall deliver instructions to the Transfer Agent authorizing it to place appropriate legends on the certificates representing the securities subject to the Lock-up Agreements and to place appropriate stop transfer orders on the Company's ledgers. (l) Neither the Company, the Subsidiary, nor any of their respective officers, directors, stockholders, nor any of their respective affiliates (within the meaning of the Rules and Regulations) will take, directly or indirectly, any action designed to, or which might in the future reasonably be expected to cause or result in, stabilization or manipulation of the price of any securities of the Company. 16 (m) The Company shall apply the net proceeds from the sale of the Securities in the manner, and subject to the conditions, set forth under "Use of Proceeds" in the Prospectus. No portion of the net proceeds will be used, directly or indirectly, to acquire any securities issued by the Company. (n) The Company shall timely file all such reports, forms or other documents as may be required (including, but not limited to, a Form SR as may be required pursuant to Rule 463 under the Act) from time to time, under the Act, the Exchange Act, and the Rules and Regulations, and all such reports, forms and documents filed will comply as to form and substance with the applicable requirements under the Act, the Exchange Act, and the Rules and Regulations. (o) The Company shall furnish to the Representative as early as practicable prior to each of the date hereof, the Closing Date and each Option Closing Date, if any, but no later than two (2) full business days prior thereto, a copy of the latest available unaudited interim financial statements of the Company (which in no event shall be as of a date more than thirty (30) days prior to the date of the Registration Statement) which have been read by the Company's independent public accountants, as stated in their letters to be furnished pursuant to Sections 6(j) hereof. (p) The Company shall cause the Common Stock to be quoted on Amex and, for a period of five (5) years from the date hereof, use its best efforts to maintain the Amex quotation of the Common Stock to the extent outstanding. (q) For a period of five (5) years from the Closing Date, the Company shall furnish to the Representative at the Company's sole expense, (i) daily consolidated transfer sheets relating to the Common Stock, (ii) the list of holders of all of the Company's securities and (iii) a Blue Sky "Trading Survey" for secondary sales of the Company's securities prepared by counsel to the Company. (r) As soon as practicable, (i) but in no event more than five (5) business days before the effective date of the Registration Statement, file a Form 8-A with the Commission providing for the registration under the Exchange Act of the Securities and (ii) but in no event more than thirty (30) days after the effective date of the Registration Statement, take all necessary and appropriate actions to be included in Standard and Poor's Corporation Descriptions and Moody's OTC Manual and to continue such inclusion for a period of not less than five (5) years. (s) The Company hereby agrees that it will not, for a period of twelve (12) months from the effective date of the Registration Statement, adopt, propose to adopt or otherwise permit to exist any employee, officer, director, consultant or compensation plan or similar arrangement permitting (i) the grant, issue, sale or entry into any agreement to grant, issue or sell any option, warrant or other contract right (x) at an exercise price that is less than the greater of the public offering price of the Shares set forth herein and the fair market value on the date of grant or sale or (y) to any of its executive officers or directors or to any holder of 5% or more of the Common Stock; (ii) the payment for such securities with any form of consideration 17 other than cash; or (iii) the existence of stock appreciation rights, phantom options or similar arrangements. (t) Until the completion of the distribution of the Securities, the Company shall not, without the prior written consent of the Representative and Underwriters' Counsel, issue, directly or indirectly, any press release or other communication or hold any press conference with respect to the Company or its activities or the offering contemplated hereby, other than trade releases issued in the ordinary course of the Company's business consistent with past practices with respect to the Company's operations. (u) For a period equal to the lesser of (i) five (5) years from the date hereof, and (ii) the sale to the public of the Representative's Securities, the Company will not take any action or actions which may prevent or disqualify the Company's use of Form F-1 (or other appropriate form) for the registration under the Act of the Representative's Securities. 5. Payment of Expenses. (a) The Company hereby agrees to pay on each of the Closing Date and the Option Closing Date (to the extent not paid at the Closing Date) all expenses and fees (other than fees of Underwriters' Counsel, except as provided in (iv) below) incident to the performance of the obligations of the Company under this Agreement and the Representative's Warrant Agreement, including, without limitation, (i) the fees and expenses of accountants and counsel for the Company, (ii) all costs and expenses incurred in connection with the preparation, duplication, printing (including mailing and handling charges), filing, delivery and mailing (including the payment of postage with respect thereto) of the Registration Statement and the Prospectus and any amendments and supplements thereto and the printing, mailing (including the payment of postage with respect thereto) and delivery of this Agreement, the Representative's Warrant Agreement, the Agreement Among Underwriters, the Selected Dealer Agreements, and related documents, including the cost of all copies thereof and of the Preliminary Prospectuses and of the Prospectus and any amendments thereof or supplements thereto supplied to the Underwriters and such dealers as the Underwriters may request, in quantities as hereinabove stated, (iii) the printing, engraving, issuance and delivery of the Securities including, but not limited to, (x) the purchase by the Underwriters of the Firm Securities and the Option Securities and the purchase by the Representative of the Representative's Warrants from the Company, (y) the consummation by the Company of any of its obligations under this Agreement and the Representative's Warrant Agreement, and (z) resale of the Firm Securities and the Option Securities by the Underwriters in connection with the distribution contemplated hereby, (iv) the qualification of the Securities under state or foreign securities or "Blue Sky" laws and determination of the status of such securities under legal investment laws, including the costs of printing and mailing the "Preliminary Blue Sky Memorandum", the "Supplemental Blue Sky Memorandum" and "Legal Investments Survey," if any, and disbursements and fees of counsel in connection therewith, (v) costs and expenses incurred by the Company in connection with the "road show", (vi) fees and expenses of the Transfer Agent and registrar and all issue and transfer taxes, if any, (vii) applications for assignment of a rating of the Securities by qualified rating agencies, (viii) the fees payable to the Commission and the NASD, and (ix) the fees and expenses incurred in connection with the quotation of the Securities on Amex and any other exchange. 18 (b) If this Agreement is terminated by the Underwriters in accordance with the provisions of Section 6 or Section 12, the Company shall reimburse and indemnify the Underwriters for all of their actual out-of-pocket expenses, including the fees and disbursements of Underwriters' Counsel, less any amounts already paid pursuant to Section 5(c) hereof. (c) The Company further agrees that, in addition to the expenses payable pursuant to subsection (a) of this Section 5, it will pay to the Representative on the Closing Date by certified or bank cashier's check or, at the election of the Representative, by deduction from the proceeds of the offering of the Firm Securities, a non-accountable expense allowance equal to 2% of the gross proceeds received by the Company from the sale of the Firm Securities. 6. Conditions of the Underwriters' Obligations. The obligations of the Underwriters hereunder shall be subject to the continuing accuracy of the representations and warranties of the Company herein as of the date hereof and as of the Closing Date and each Option Closing Date, if any, as if they had been made on and as of the Closing Date or each Option Closing Date, as the case may be; the accuracy on and as of the Closing Date or Option Closing Date, if any, of the statements of the officers of the Company made pursuant to the provisions hereof; and the performance by the Company on and as of the Closing Date and each Option Closing Date, if any, of its covenants and obligations hereunder and to the following further conditions: (a) The Registration Statement shall have become effective not later than 12:00 P.M., New York time, on the date of this Agreement or such later date and time as shall be consented to in writing by the Representative, and, at the Closing Date and each Option Closing Date, if any, no stop order suspending the effectiveness of the Registration Statement shall have been issued and no proceedings for that purpose shall have been instituted or shall be pending or contemplated by the Commission and any request on the part of the Commission for additional information shall have been complied with to the reasonable satisfaction of Underwriters' Counsel. If the Company has elected to rely upon Rule 430A of the Rules and Regulations, the price of the Shares and any price-related information previously omitted from the effective Registration Statement pursuant to such Rule 430A shall have been transmitted to the Commission for filing pursuant to Rule 424(b) of the Rules and Regulations within the prescribed time period and, prior to the Closing Date, the Company shall have provided evidence satisfactory to the Representative of such timely filing, or a post-effective amendment providing such information shall have been promptly filed and declared effective in accordance with the requirements of Rule 430A of the Rules and Regulations. (b) The Representative shall not have advised the Company that the Registration Statement, or any amendment thereto, contains an untrue statement of fact which, in the Representative's opinion, is material, or omits to state a fact which, in the Representative's opinion, is material and is required to be stated therein or is necessary to make the statements therein not misleading, or that the Prospectus, or any supplement thereto, contains an untrue statement of fact which, in the Representative's opinion, is material, or omits to state a fact which, in the Representative's opinion, is material and is required to be stated therein or is necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. 19 (c) On or prior to each of the Closing Date and each Option Closing Date, if any, the Representative shall have received from Underwriters' Counsel, such opinion or opinions with respect to the organization of the Company, the validity of the Securities, the Registration Statement, the Prospectus and other related matters as the Representative may request and Underwriters' Counsel shall have received such papers and information as they request to enable them to pass upon such matters. (d) At the Closing Date, the Underwriters shall have received the favorable opinion of Silverman, Collura, Chernis & Balzano, P.C., counsel to the Company, dated the Closing Date, addressed to the Underwriters and in form and substance satisfactory to Underwriters' Counsel, to the effect that: (i) each of the Company and the Subsidiary (A) has been duly organized and is validly existing as a corporation in good standing under the laws of its jurisdiction, (B) is duly qualified and licensed and in good standing as a foreign corporation in each jurisdiction in which its ownership or leasing of any properties or the character of its operations requires such qualification or licensing, and (C) has all requisite corporate power and authority, and has obtained any and all necessary authorizations, approvals, orders, licenses, certificates, franchises and permits of and from all governmental or regulatory officials and bodies (including, without limitation, those having jurisdiction over environmental or similar matters), to own or lease its properties and conduct its business as described in the Prospectus; each of the Company and the Subsidiary is and has been doing business in compliance with all such authorizations, approvals, orders, licenses, certificates, franchises and permits and all domestic and foreign laws, rules and regulations; and, neither the Company nor the Subsidiary has received any notice of proceedings relating to the revocation or modification of any such authorization, approval, order, license, certificate, franchise, or permit which, singly or in the aggregate, if the subject of an unfavorable decision, ruling or finding, would materially adversely affect the business, operations, condition, financial or otherwise, or the earnings, business affairs, position, prospects, value, operation, properties, business or results of operations of the Company or the Subsidiary. The disclosures in the Registration Statement concerning the effects of domestic and foreign laws, rules and regulations on the Company's business as currently conducted and as contemplated are correct in all material respects and do not omit to state a fact required to be stated therein or necessary to make the statements contained therein not misleading in light of the circumstances in which they were made. (ii) the Company owns, directly or indirectly, one hundred percent (100%) of the outstanding capital stock or other ownership interests of the Subsidiary, and all such shares or other ownership interests have been validly issued, are fully paid and non-assessable, were not issued in violation of any preemptive rights and are owned free and clear of any liens, charges, claims, encumbrances, pledges, security interests, defects or other restrictions or equities of any kind whatsoever. (iii) except as described in the Prospectus, the Company does not own an interest in any other corporation, partnership, joint venture, trust or other business entity; 20 (iv) the Company has a duly authorized, issued and outstanding capitalization as set forth in the Prospectus, and any amendment or supplement thereto, under "CAPITALIZATION", and neither the Company nor the Subsidiary is a party to or bound by any instrument, agreement or other arrangement providing for it to issue, sell, transfer, purchase or redeem any capital stock, rights, warrants, options or other securities, except for this Agreement and the Representative's Warrant Agreement and as described in the Prospectus. The Securities and all other securities issued or issuable by the Company conform in all material respects to all statements with respect thereto contained in the Registration Statement and the Prospectus. All issued and outstanding securities of the Company have been duly authorized and validly issued and are fully paid and non-assessable; the holders thereof have no rights of rescission with respect thereto, and are not subject to personal liability by reason of being such holders; and none of such securities were issued in violation of the preemptive rights of any holders of any security of the Company or any similar rights granted by the Company. The Securities to be sold by the Company hereunder and under the Representative's Warrant Agreement are not and will not be subject to any preemptive or other similar rights of any stockholder, have been duly authorized and, when issued, paid for and delivered in accordance with the terms hereof, will be validly issued, fully paid and non-assessable and conform to the description thereof contained in the Prospectus; the holders thereof will not be subject to any liability solely as such holders; all corporate action required to be taken for the authorization, issue and sale of the Securities has been duly and validly taken; and the certificates representing the Securities are in due and proper form. The Representative's Warrants constitute valid and binding obligations of the Company to issue and sell, upon exercise thereof and payment therefor, the number and type of securities of the Company called for thereby. Upon the issuance and delivery pursuant to this Agreement of the Firm Securities and the Option Securities and the Representative's Warrants to be sold by the Company, the Underwriters and the Representative, respectively, will acquire good and marketable title to the Firm Securities and the Option Securities and the Representative's Warrants free and clear of any pledge, lien, charge, claim, encumbrance, pledge, security interest, or other restriction or equity of any kind whatsoever. No transfer tax is payable by or on behalf of the Underwriters in connection with (A) the issuance by the Company of the Securities, (B) the purchase by the Underwriters of the Firm Securities and the Option Securities from the Company, and the purchase by the Representative of the Representative's Warrants from the Company (C) the consummation by the Company of any of its obligations under this Agreement or the Representative's Warrant Agreement, or (D) resales of the Firm Securities and the Option Securities in connection with the distribution contemplated hereby. (v) the Registration Statement is effective under the Act, and, if applicable, filing of all pricing information has been timely made in the appropriate form under Rule 430A, and no stop order suspending the use of the Preliminary Prospectus, the Registration Statement or Prospectus or any part of any thereof or suspending the effectiveness of the Registration Statement has been issued and no proceedings for that purpose have been instituted or are pending or, to the best of such counsel's knowledge, threatened or contemplated under the Act; 21 (vi) each of the Preliminary Prospectus, the Registration Statement, and the Prospectus and any amendments or supplements thereto (other than the financial statements and other financial and statistical data included therein, as to which no opinion need be rendered) comply as to form in all material respects with the requirements of the Act and the Rules and Regulations. (vii) to the best of such counsel's knowledge, (A) there are no agreements, contracts or other documents required by the Act to be described in the Registration Statement and the Prospectus and filed as exhibits to the Registration Statement other than those described in the Registration Statement (or required to be filed under the Exchange Act if upon such filing they would be incorporated, in whole or in part, by reference therein) and the Prospectus and filed as exhibits thereto, and the exhibits which have been filed are correct copies of the documents of which they purport to be copies; (B) the descriptions in the Registration Statement and the Prospectus and any supplement or amendment thereto of contracts and other documents to which the Company or the Subsidiary is a party or by which it is bound, including any document to which the Company or the Subsidiary is a party or by which it is bound, incorporated by reference into the Prospectus and any supplement or amendment thereto, are accurate and fairly represent the information required to be shown by Form F-1; (C) there is not pending or threatened against the Company or the Subsidiary any action, arbitration, suit, proceeding, inquiry, investigation, litigation, governmental or other proceeding (including, without limitation, those having jurisdiction over environmental or similar matters), domestic or foreign, pending or threatened against (or circumstances that may give rise to the same), or involving the properties or business of the Company or the Subsidiary which (x) is required to be disclosed in the Registration Statement which is not so disclosed (and such proceedings as are summarized in the Registration Statement are accurately summarized in all respects), (y) questions the validity of the capital stock of the Company or this Agreement or the Representative's Warrant Agreement, or of any action taken or to be taken by the Company pursuant to or in connection with any of the foregoing; (D) no statute or regulation or legal or governmental proceeding required to be described in the Prospectus is not described as required; and (E) there is no action, suit or proceeding pending, or threatened, against or affecting the Company or the Subsidiary before any court or arbitrator or governmental body, agency or official (or any basis thereof known to such counsel) in which there is a reasonable possibility of a decision which may result in a material adverse change in the condition, financial or otherwise, or the earnings, position, prospects, stockholders' equity, value, operation, properties, business or results of operations of the Company or the Subsidiary, which could adversely affect the present or prospective ability of the Company to perform its obligations under this Agreement or the Representative's Warrant Agreement or which in any manner draws into question the validity or enforceability of this Agreement or the Representative's Warrant Agreement; (viii) the Company has full legal right, power and authority to enter into each of this Agreement and the Representative's Warrant Agreement, and to consummate the transactions provided for therein; and each of this Agreement and the Representative's Warrant Agreement has been duly authorized, executed and delivered by the Company. Each of this Agreement and the Representative's Warrant Agreement, assuming due 22 authorization, execution and delivery by each other party thereto constitutes a legal, valid and binding agreement 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 or other laws of general application relating to or affecting enforcement of creditors' rights and the application of equitable principles in any action, legal or equitable, and except as rights to indemnity or contribution may be limited by applicable law), and none of the Company's execution or delivery of this Agreement and the Representative's Warrant Agreement, its performance hereunder or thereunder, its consummation of the transactions contemplated herein or therein, or the conduct of its business as described in the Registration Statement, the Prospectus, and any amendments or supplements thereto, conflicts with or will conflict with or results or will result in any breach or violation of any of the terms or provisions of, or constitutes or will constitute a default under, or result in the creation or imposition of any lien, charge, claim, encumbrance, pledge, security interest, defect or other restriction or equity of any kind whatsoever upon, any property or assets (tangible or intangible) of the Company or the Subsidiary pursuant to the terms of, (A) the Certificate of Incorporation or By-Laws of the Company or the Certificate of Incorporation or By-laws of the Subsidiary, (B) any license, contract, collective bargaining agreement, indenture, mortgage, deed of trust, lease, voting trust agreement, stockholders agreement, note, loan or credit agreement or any other agreement or instrument to which the Company or the Subsidiary is a party or by which it is or they are or may be bound or to which any of its or their respective properties or assets (tangible or intangible) is or may be subject, or any indebtedness, or (C) any statute, judgment, decree, order, rule or regulation applicable to the Company or the Subsidiary of any arbitrator, court, regulatory body or administrative agency or other governmental agency or body (including, without limitation, those having jurisdiction over environmental or similar matters), domestic or foreign, having jurisdiction over the Company or the Subsidiary or any of their respective activities or properties. (ix) no consent, approval, authorization or order, and no filing with, any court, regulatory body, government agency or other body (other than such as may be required under Blue Sky laws, as to which no opinion need be rendered) is required in connection with the issuance of the Firm Securities and the Option Securities pursuant to the Prospectus and the Registration Statement, the issuance of the Representative's Warrants, the performance of this Agreement and the Representative's Warrant Agreement, and the transactions contemplated hereby and thereby; (x) the properties and business of each of the Company and the Subsidiary conforms in all material respects to the description thereof contained in the Registration Statement and the Prospectus; and each of the Company and the Subsidiary has good and marketable title to, or valid and enforceable leasehold estates in, all items of real and personal property stated in the Prospectus to be owned or leased by it, in each case free and clear of all liens, charges, claims, encumbrances, pledges, security interests, defects or other restrictions or equities of any kind whatsoever, other than those referred to in the Prospectus and liens for taxes not yet due and payable; (xi) neither the Company nor the Subsidiary is in breach of, or in default under, any term or provision of any license, contract, collective bargaining 23 agreement, indenture, mortgage, installment sale agreement, deed of trust, lease, voting trust agreement, stockholders' agreement, partnership agreement, note, loan or credit agreement or any other agreement or instrument evidencing an obligation for borrowed money, or any other agreement or instrument to which the Company or the Subsidiary is a party or by which the Company or the Subsidiary may be bound or to which the properties or assets (tangible or intangible) of the Company or the Subsidiary is subject or affected; and neither the Company nor the Subsidiary is in violation of any term or provision of its Certificate of Incorporation or By-Laws with respect to the Company and the Certificate of Incorporation or By-laws with respect to the Subsidiary or in violation of any franchise, license, permit, judgment, decree, order, statute, rule or regulation; (xii) the statements in the Prospectus under "RISK FACTORS," "THE COMPANY," "BUSINESS," "MANAGEMENT," "PRINCIPAL STOCKHOLDERS," "CERTAIN TRANSACTIONS," "DESCRIPTION OF SECURITIES," "RESALES BY SELLING SECURITYHOLDERS" and "SHARES ELIGIBLE FOR FUTURE SALE" have been reviewed by such counsel, and insofar as they refer to statements of law, descriptions of statutes, licenses, rules or regulations or legal conclusions, are correct in all material respects; (xiii) the Securities have been accepted for quotation on Amex; (xiv) the persons listed under the caption "PRINCIPAL STOCKHOLDERS" and "RESALES BY SELLING SECURITYHOLDERS" in the Prospectus are the respective "beneficial owners" (as such phrase is defined in regulation 13d-3 under the Exchange Act) of the securities set forth opposite their respective names thereunder as and to the extent set forth therein; (xv) neither the Company nor the Subsidiary, nor any of their respective officers, stockholders, employees or agents, nor any other person acting on behalf of the Company or the Subsidiary has, directly or indirectly, given or agreed to give any money, gift or similar benefit (other than legal price concessions to customers in the ordinary course of business) to any customer, supplier, employee or agent of a customer or supplier, or official or employee of any governmental agency or instrumentality of any government (domestic or foreign) or any political party or candidate for office (domestic or foreign) or other person who is or may be in a position to help or hinder the business of the Company or the Subsidiary (or assist it in connection with any actual or proposed transaction) which (A) might subject the Company or the Subsidiary to any damage or penalty in any civil, criminal or governmental litigation or proceeding, (B) if not given in the past, might have had an adverse effect on the assets, business or operations of the Company or the Subsidiary, as reflected in any of the financial statements contained in the Registration Statement, or (C) if not continued in the future, might adversely affect the assets, business, operations or prospects of the Company or the Subsidiary; (xvi) no person, corporation, trust, partnership, association or other entity has the right to include and/or register any securities of the Company in the Registration Statement, require the Company to file any registration statement or, if filed, to include any security in such registration statement; 24 (xvii) except as described in the Prospectus, there are no claims, payments, issuances, arrangements or understandings for services in the nature of a finder's or origination fee with respect to the sale of the Securities hereunder or financial consulting arrangements or any other arrangements, agreements, understandings, payments or issuances that may affect the Underwriters' compensation, as determined by the NASD; (xviii) assuming due execution by the parties thereto other than the Company, the Lock-up Agreements are legal, valid and binding obligations of the parties thereto, enforceable against the party and any subsequent holder of the securities subject thereto in accordance with its terms (except as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or other laws of general application relating to or affecting enforcement of creditors' rights and the application of equitable principles in any action, legal or equitable, and except as rights to indemnity or contribution may be limited by applicable law); (xix) except as described in the Prospectus, neither the Company nor the Subsidiary (A) maintains, sponsors or contributes to any ERISA Plans, (B) maintains or contributes, now or at any time previously, to a defined benefit plan, as defined in Section 3(35) of ERISA, and (C) has ever completely or partially withdrawn from a "multiemployer plan"; (xx) the Company is in compliance with all provisions of Section 1 of Laws of Florida, Chapter 92-198, An Act Relating to Disclosure of Doing Business with Cuba; (xxi) neither the Company, the Subsidiary or any of their affiliates shall be subject to the requirements of or shall be deemed an "Investment Company," pursuant to and as defined under, respectively, the Investment Company Act. Such counsel shall state that such counsel has participated in conferences with officers and other representatives of the Company, and representatives of the independent public accountants for the Company, at which conferences such counsel made inquiries of such officers, representatives and accountants and discussed the contents of the Preliminary Prospectus, the Registration Statement, the Prospectus, and related matters and, although such counsel is not passing upon and does not assume any responsibility for the accuracy, completeness or fairness of the statements contained in the Preliminary Prospectus, the Registration Statement and Prospectus, on the basis of the foregoing, no facts have come to the attention of such counsel which lead them to believe that either the Registration Statement or any amendment thereto, at the time such Registration Statement or amendment became effective or the Preliminary Prospectus or Prospectus or amendment or supplement thereto as of the date of such opinion contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein not misleading (it being understood that such counsel need express no opinion with respect to the financial statements and schedules and other financial and statistical data included in the Preliminary Prospectus, the Registration Statement or the Prospectus). Such counsel shall further state that its opinions may be relied upon by Underwriters' Counsel in rendering its opinion to the Underwriters. 25 In rendering such opinion, such counsel may rely (A) as to matters involving the application of laws other than the laws of the United States and jurisdictions in which they are admitted, to the extent such counsel deems proper and to the extent specified in such opinion, if at all, upon an opinion or opinions (in form and substance satisfactory to Underwriters' Counsel) of other counsel acceptable to Underwriters' Counsel, familiar with the applicable laws; (B) as to matters of fact, to the extent they deem proper, on certificates and written statements of responsible officers of the Company and certificates or other written statements of officers of departments of various jurisdictions having custody of documents respecting the corporate existence or good standing of the Company, provided that copies of any such statements or certificates shall be delivered to Underwriters' Counsel if requested. The opinion of such counsel for the Company shall state that the opinion of any such other counsel is in form satisfactory to such counsel and that the Representative, Underwriters' Counsel and they are each justified in relying thereon. Any opinion of counsel for the Company and the Subsidiary shall not state that it is to be governed or qualified by, or that it is otherwise subject to, any treatise, written policy or other document relating to legal opinions, including, without limitation, the Legal Opinion Accord of the ABA Section of Business Law (1991) or any comparable state accord. (e) At each Option Closing Date, if any, the Underwriters shall have received the favorable opinions of Silverman, Collura, Chernis & Balzano, P.C., counsel to the Company and the Subsidiary, dated such Option Closing Date, addressed to the Underwriters and in form and substance satisfactory to Underwriters' Counsel confirming as of such Option Closing Date the statements made by Haythe & Curley in their opinion delivered on the Closing Date. (f) On or prior to each of the Closing Date and each Option Closing Date, if any, Underwriters' Counsel shall have been furnished such documents, certificates and opinions as they may reasonably require for the purpose of enabling them to review or pass upon the matters referred to in subsection (c) of this Section 6, or in order to evidence the accuracy, completeness or satisfaction of any of the representations, warranties or conditions of the Company herein contained. (g) Prior to each of the Closing Date and each Option Closing Date, if any, (i) there shall have been no material adverse change nor development involving a prospective change in the condition, financial or otherwise, earnings, position, value, properties, results of operations, prospects, stockholders' equity or the business activities of the Company or the Subsidiary, whether or not in the ordinary course of business, from the latest dates as of which such condition is set forth in the Registration Statement and Prospectus; (ii) there shall have been no transaction, not in the ordinary course of business, entered into by the Company or the Subsidiary, from the latest date as of which the financial condition of the Company is set forth in the Registration Statement and Prospectus which is adverse to the Company; (iii) neither the Company nor the Subsidiary shall be in default under any provision of any instrument relating to any outstanding indebtedness; (iv) the Company shall not have issued any securities (other than the Securities) or declared or paid any dividend or made any distribution in respect of its capital stock of any class and there has not been any change in the capital stock or any material change in the debt (long or short term) or liabilities or obligations of the Company (contingent or otherwise); (v) no material amount of the assets of the Company or the Subsidiary shall have been pledged or mortgaged, except as set forth in the Registration Statement and Prospectus; (vi) no action, suit or proceeding, at law or in equity, shall have been pending or threatened (or 26 circumstances giving rise to same) against the Company or the Subsidiary, or affecting any of its or their respective properties or businesses before or by any court or federal, state or foreign commission, board or other administrative agency wherein an unfavorable decision, ruling or finding may adversely affect the business, operations, earnings, position, value, properties, results of operations, prospects or financial condition or income of the Company or the Subsidiary; and (vii) no stop order shall have been issued under the Act and no proceedings therefor shall have been initiated, threatened or contemplated by the Commission. (h) At each of the Closing Date and each Option Closing Date, if any, the Underwriters shall have received a certificate of the Company signed by the principal executive officer and by the chief financial or chief accounting officer of the Company, dated the Closing Date or Option Closing Date, as the case may be, to the effect that each of such persons has carefully examined the Registration Statement, the Prospectus and this Agreement, and that: (i) The representations and warranties of the Company in this Agreement are true and correct, as if made on and as of the Closing Date or the Option Closing Date, as the case may be, and the Company has complied with all agreements and covenants and satisfied all conditions contained in this Agreement on its part to be performed or satisfied at or prior to such Closing Date or Option Closing Date, as the case may be; (ii) No stop order suspending the effectiveness of the Registration Statement or any part thereof has been issued, and no proceedings for that purpose have been instituted or are pending or, to the best of each of such person's knowledge, are contemplated or threatened under the Act; (iii) The Registration Statement and the Prospectus and, if any, each amendment and each supplement thereto, contain all statements and information required to be included therein, and none of the Registration Statement, the Prospectus nor any amendment or supplement thereto includes any 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 not misleading and neither the Preliminary Prospectus or any supplement thereto included any untrue statement of a material fact or omitted 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 (iv) Subsequent to the respective dates as of which information is given in the Registration Statement and the Prospectus, (a) the Company has not incurred up to and including the Closing Date or the Option Closing Date, as the case may be, other than in the ordinary course of its business, any material liabilities or obligations, direct or contingent; (b) the Company has not paid or declared any dividends or other distributions on its capital stock; (c) neither the Company nor the Subsidiary has entered into any transactions not in the ordinary course of business; (d) there has not been any change in the capital stock or long-term debt or any increase in the short-term borrowings (other than any increase in the short-term borrowings in the ordinary course of business) of the Company; (e) neither the Company nor the Subsidiary has sustained any loss or damage to its properties or assets, whether or not insured; (f) there is no litigation which is 27 pending or threatened (or circumstances giving rise to same) against the Company or the Subsidiary or any affiliated party which is required to be set forth in an amended or supplemented Prospectus which has not been set forth; and (g) there has occurred no event required to be set forth in an amended or supplemented Prospectus which has not been set forth. References to the Registration Statement and the Prospectus in this subsection (i) are to such documents as amended and supplemented at the date of such certificate. (i) By the Closing Date, the Underwriters will have received clearance from the NASD as to the amount of compensation allowable or payable to the Underwriters, as described in the Registration Statement. (j) At the time this Agreement is executed, the Underwriters shall have received a letter, dated such date, addressed to the Underwriters in form and substance satisfactory (including the non-material nature of the changes or decreases, if any, referred to in clause (iii) below) in all respects to the Underwriters and Underwriters' Counsel, from ___________________: (i) confirming that they are independent certified public accountants with respect to the Company and the Subsidiary within the meaning of the Act and the applicable Rules and Regulations; (ii) stating that it is their opinion that the financial statements and supporting schedules of the Company included in the Registration Statement comply as to form in all material respects with the applicable accounting requirements of the Act and the Rules and Regulations thereunder and that the Representative may rely upon the opinion of Tauber & Balser, P.C. with respect to the financial statements and supporting schedules included in the Registration Statement; (iii) stating that, on the basis of a limited review which included a reading of the latest available unaudited interim financial statements of the Company, a reading of the latest available minutes of the stockholders and board of directors and the various committees of the board of directors of the Company, consultations with officers and other employees of the Company responsible for financial and accounting matters and other specified procedures and inquiries, nothing has come to their attention which would lead them to believe that (A) the unaudited financial statements and supporting schedules of the Company included in the Registration Statement do not comply as to form in all material respects with the applicable accounting requirements of the Act and the Rules and Regulations or are not fairly presented in conformity with generally accepted accounting principles applied on a basis substantially consistent with that of the audited financial statements of the Company included in the Registration Statement, or (B) at a specified date not more than five (5) days prior to the effective date of the Registration Statement, there has been any change in the capital stock or long-term debt of the Company, or any decrease in the stockholders' equity or net current assets or net assets of the Company as compared with amounts shown in the March 31, 1998 balance sheet included in the Registration Statement, other than as set forth in or contemplated by the Registration Statement, or, if there was any change or decrease, setting forth the 28 amount of such change or decrease, and (C) during the period from March 31, 1998 to a specified date not more than five (5) days prior to the effective date of the Registration Statement, there was any decrease in net revenues, net earnings or increase in net earnings per common share of any of the Company or the Subsidiary, in each case as compared with the corresponding period beginning March 31, 1997, other than as set forth in or contemplated by the Registration Statement, or, if there was any such decrease, setting forth the amount of such decrease; (iv) setting forth, at a date not later than five (5) days prior to the date of the Registration Statement, the amount of liabilities of the Company and the Subsidiary taken as a whole (including a break-down of commercial paper and notes payable to banks); (v) stating that they have compared specific dollar amounts, numbers of shares, percentages of revenues and earnings, statements and other financial information pertaining to the Company set forth in the Prospectus in each case to the extent that such amounts, numbers, percentages, statements and information may be derived from the general accounting records, including work sheets, of the Company and excluding any questions requiring an interpretation by legal counsel, with the results obtained from the application of specified readings, inquiries and other appropriate procedures (which procedures do not constitute an examination in accordance with generally accepted auditing standards) set forth in the letter and found them to be in agreement; (vi) statements as to such other matters incident to the transaction contemplated hereby as the Representatives may request. (k) At the Closing Date and each Option Closing Date, if any, the Underwriters shall have received from Tauber & Balser, P.C. a letter, dated as of the Closing Date or the Option Closing Date, as the case may be, to the effect that they reaffirm the statements made in the letter furnished pursuant to subsection (j) of this Section, except that the specified date referred to shall be a date not more than five (5) days prior to the Closing Date or the Option Closing Date, as the case may be, and, if the Company has elected to rely on Rule 430A of the Rules and Regulations, to the further effect that they have carried out procedures as specified in clause (v) of subsection (j) of this Section with respect to certain amounts, percentages and financial information as specified by the Representative and deemed to be a part of the Registration Statement pursuant to Rule 430A(b) and have found such amounts, percentages and financial information to be in agreement with the records specified in such clause (v). (l) On each of the Closing Date and each Option Closing Date, if any, there shall have been duly tendered to the Representative for the several Underwriters' accounts the appropriate number of Securities. (m) No order suspending the sale of the Securities in any jurisdiction designated by the Representative pursuant to subsection (e) of Section 4 hereof shall have been issued on either the Closing Date or the Option Closing Date, if any, and no proceedings for that purpose shall have been instituted or shall be contemplated. 29 (n) On or before the Closing Date, the Company shall have executed and delivered to the Representative, (i) the Representative's Warrant Agreement substantially in the form filed as Exhibit 1.___ to the Registration Statement, in final form and substance satisfactory to the Representative, and (ii) the Representative's Warrants in such denominations and to such designees as shall have been provided to the Company. (o) On or before the Closing Date, the Firm Securities and Option Securities shall have been duly approved for quotation on Amex, subject to official notice of issuance. (p) On or before the Closing Date, there shall have been delivered to the Representative all of the Lock-up Agreements, in form and substance satisfactory to Underwriters' Counsel. If any condition to the Underwriters' obligations hereunder to be fulfilled prior to or at the Closing Date or the relevant Option Closing Date, as the case may be, is not so fulfilled, the Representative may terminate this Agreement or, if the Representative so elects, it may waive any such conditions which have not been fulfilled or extend the time for their fulfillment. 7. Indemnification. (a) The Company agrees to indemnify and hold harmless each of the Underwriters (for purposes of this Section 7 "Underwriter" shall include the officers, directors, partners, employees, agents and counsel of the Underwriter, including specifically each person who may be substituted for an Underwriter as provided in Section 11 hereof), and each person, if any, who controls the Underwriter ("controlling person") within the meaning of Section 15 of the Act or Section 20(a) of the Exchange Act, from and against any and all losses, claims, damages, expenses or liabilities, joint or several (and actions, proceedings, investigations, inquiries, suits and litigation in respect thereof), whatsoever (including but not limited to any and all expenses whatsoever reasonably incurred in investigating, preparing or defending against any such claim, action, proceeding, investigation, inquiry, suit or litigation, commenced or threatened, or any claim whatsoever), as such are incurred, to which the Underwriter or such controlling person may become subject under the Act, the Exchange Act or any other statute or at common law or otherwise or under the laws of foreign countries, arising out of or based upon (A) any untrue statement or alleged untrue statement of a material fact contained (i) in any Preliminary Prospectus, the Registration Statement or the Prospectus (as from time to time amended and supplemented); (ii) in any post-effective amendment or amendments or any new registration statement and prospectus in which is included securities of the Company issued or issuable upon exercise of the Securities; or (iii) in any application or other document or written communication (in this Section 7 collectively called "application") executed by the Company or based upon written information furnished by the Company in any jurisdiction in order to qualify the Securities under the securities laws thereof or filed with the Commission, any state securities commission or agency, Amex or any other securities exchange; (B) the omission or alleged omission therefrom of a material fact required to be stated therein or necessary to make the statements therein not misleading (in the case of the Prospectus, in the light of the circumstances under which they were made), or (C) any breach of any representation, warranty, covenant or agreement of the Company contained herein or in any certificate by or on behalf of the Company or any of its officers delivered pursuant hereto, unless, in the case of clause (A) or (B) above, 30 such statement or omission was made in reliance upon and in strict conformity with written information furnished to the Company with respect to any Underwriter by or on behalf of such Underwriter expressly for use in any Preliminary Prospectus, the Registration Statement or Prospectus, or any amendment thereof or supplement thereto, or in any application, as the case may be. The indemnity agreement in this subsection (a) shall be in addition to any liability which the Company may have at common law or otherwise. (b) Each of the Underwriters agrees severally, but not jointly, to indemnify and hold harmless the Company, each of its directors, each of its officers who has signed the Registration Statement, and each other person, if any, who controls the Company within the meaning of the Act, to the same extent as the foregoing indemnity from the Company to the Underwriters but only with respect to statements or omissions, if any, made in any Preliminary Prospectus, the Registration Statement or Prospectus or any amendment thereof or supplement thereto or in any application made in reliance upon, and in strict conformity with, written information furnished to the Company with respect to any Underwriter by such Underwriter expressly for use in such Preliminary Prospectus, the Registration Statement or Prospectus or any amendment thereof or supplement thereto or in any such application, provided that such written information or omissions only pertain to disclosures in the Preliminary Prospectus, the Registration Statement or Prospectus directly relating to the transactions effected by the Underwriters in connection with this Offering. The Company acknowledges that the statements with respect to the public offering of the Firm Securities and the Option Securities set forth under the heading "Underwriting" and the stabilization legend in the Prospectus have been furnished by the Underwriters expressly for use therein and constitute the only information furnished in writing by or on behalf of the Underwriters for inclusion in the Prospectus. (c) Promptly after receipt by an indemnified party under this Section 7 of notice of the commencement of any claim, action, suit, investigation, inquiry, proceeding or litigation, such indemnified party shall, if a claim in respect thereof is to be made against one or more indemnifying parties under this Section 7, notify each party against whom indemnification is to be sought in writing of the commencement thereof (but the failure so to notify an indemnifying party shall not relieve it from any liability which it may have under this Section 7 except to the extent that it has been prejudiced in any material respect by such failure or from any liability which it may have otherwise). In case any such claim, action, suit, investigation, inquiry, proceeding or litigation is brought against any indemnified party, and it notifies an indemnifying party or parties of the commencement thereof, the indemnifying party or parties will be entitled to participate therein, and to the extent it may elect by written notice delivered to the indemnified party promptly after receiving the aforesaid notice from such indemnified party, to assume the defense thereof with counsel reasonably satisfactory to such indemnified party. Notwithstanding the foregoing, the indemnified party or parties shall have the right to employ its or their own counsel in any such case but the fees and expenses of such counsel shall be at the expense of such indemnified party or parties unless (i) the employment of such counsel shall have been authorized in writing by the indemnifying parties in connection with the defense of thereof at the expense of the indemnifying party, (ii) the indemnifying parties shall not have employed counsel reasonably satisfactory to such indemnified party to have charge of the defense thereof within a reasonable time after notice of commencement thereof, or (iii) such indemnified party or parties 31 shall have reasonably concluded that there may be defenses available to it or them which are different from or additional to those available to one or all of the indemnifying parties (in which case the indemnifying parties shall not have the right to direct the defense thereof on behalf of the indemnified party or parties), in any of which events such fees and expenses of one additional counsel shall be borne by the indemnifying parties. In no event shall the indemnifying parties be liable for fees and expenses of more than one counsel (in addition to any local counsel) separate from their own counsel for all indemnified parties in connection with any one claim, action, suit, investigation, inquiry, proceeding or litigation or separate but similar or related claims, actions, suits, investigations, inquiries, proceedings or litigation in the same jurisdiction arising out of the same general allegations or circumstances. Anything in this Section 7 to the contrary notwithstanding, an indemnifying party shall not be liable for any settlement of any claim, action, suit, investigation, inquiry, proceeding or litigation effected without its written consent; provided, however, that such consent was not unreasonably withheld. An indemnifying party will not, without the prior written consent of the indemnified parties, settle, compromise or consent to the entry of any judgment with respect to any pending or threatened claim, action, suit, investigation, inquiry, proceeding or litigation in respect of which indemnification or contribution may be sought hereunder (whether or not the indemnified parties are actual or potential parties to such claim, action, suit, investigation, inquiry, proceeding or litigation), unless such settlement, compromise or consent (i) includes an unconditional release of each indemnified party from all liability arising out of such claim, action, suit, investigation, inquiry, proceeding or litigation and (ii) does not include a statement as to or an admission of fault, culpability or a failure to act by or on behalf of any indemnified party. (d) In order to provide for just and equitable contribution in any case in which (i) an indemnified party makes claim for indemnification pursuant to this Section 7, but it is judicially determined (by the entry of a final judgment or decree by a court of competent jurisdiction and the expiration of time to appeal or the denial of the last right of appeal) that such indemnification may not be enforced in such case notwithstanding the fact that the express provisions of this Section 7 provide for indemnification in such case, or (ii) contribution under the Act may be required on the part of any indemnified party, then each indemnifying party shall contribute to the amount paid as a result of such losses, claims, damages, expenses or liabilities (or actions in respect thereof) (A) in such proportion as is appropriate to reflect the relative benefits received by each of the contributing parties, on the one hand, and the party to be indemnified on the other hand, from the offering of the Firm Securities and the Option Securities or (B) if the allocation provided by clause (A) above is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) above but also the relative fault of each of the contributing parties, on the one hand, and the party to be indemnified on the other hand in connection with the statements or omissions that resulted in such losses, claims, damages, expenses or liabilities, as well as any other relevant equitable considerations. In any case where the Company is the contributing party and the Underwriters are the indemnified party, the relative benefits received by the Company on the one hand, and the Underwriters, on the other, shall be deemed to be in the same proportion as the total net proceeds from the offering of the Firm Securities and the Option Securities (before deducting expenses) bear to the total underwriting discounts received by the Underwriters hereunder, in each case as set forth in the table on the Cover Page of the Prospectus. Relative fault shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company, or by the Underwriters, and the parties' relative intent, 32 knowledge, access to information and opportunity to correct or prevent such untrue statement or omission. The amount paid or payable by an indemnified party as a result of the losses, claims, damages, expenses or liabilities (or actions in respect thereof) referred to above in this subsection (d) shall be deemed to include any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any such action or claim. Notwithstanding the provisions of this subsection (d), the Underwriters shall not be required to contribute any amount in excess of the underwriting discount applicable to the Firm Securities and the Option Securities purchased by the Underwriters hereunder. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. For purposes of this Section 7, each person, if any, who controls the Company or the Underwriter within the meaning of the Act, each officer of the Company who has signed the Registration Statement, and each director of the Company shall have the same rights to contribution as the Company or the Underwriter, as the case may be, subject in each case to this subsection (d). Any party entitled to contribution will, promptly after receipt of notice of commencement of any action, suit or proceeding against such party in respect to which a claim for contribution may be made against another party or parties under this subsection (d), notify such party or parties from whom contribution may be sought, but the omission so to notify such party or parties shall not relieve the party or parties from whom contribution may be sought from any obligation it or they may have hereunder or otherwise than under this subsection (d), or to the extent that such party or parties were not adversely affected by such omission. The contribution agreement set forth above shall be in addition to any liabilities which any indemnifying party may have at common law or otherwise. 8. Representations and Agreements to Survive Delivery. All representations, warranties and agreements contained in this Agreement or contained in certificates of officers of the Company submitted pursuant hereto, shall be deemed to be representations, warranties and agreements at the Closing Date and the Option Closing Date, as the case may be, and such representations, warranties and agreements of the Company and the indemnity agreements contained in Section 7 hereof, shall remain operative and in full force and effect regardless of any investigation made by or on behalf of any Underwriter, the Company, any controlling person of any Underwriter or the Company, and shall survive termination of this Agreement or the issuance and delivery of the Securities to the Underwriters and the Representative, as the case may be. Effective Date. This Agreement shall become effective at 10:00 a.m., New York City time, on the next full business day following the date hereof, or at such earlier time after the Registration Statement becomes effective as the Representative, in its discretion, shall release the Securities for sale to the public; provided, however, that the provisions of Sections 5, 7 and 10 of this Agreement shall at all times be effective. For purposes of this Section 9, the Securities to be purchased hereunder shall be deemed to have been so released upon the earlier of dispatch by the Representative of telegrams to securities dealers releasing such securities for offering or the release by the Representative for publication of the first newspaper advertisement which is subsequently published relating to the Securities. 33 10. Termination. (a) Subject to subsection (b) of this Section 10, the Representative shall have the right to terminate this Agreement, (i) if any domestic or international event or act or occurrence has materially adversely disrupted, or in the Representative's opinion will in the immediate future materially adversely disrupt, the financial markets; or (ii) if any material adverse change in the financial markets shall have occurred; or (iii) if trading generally shall have been suspended or materially limited on or by, as the case may be, any of the New York Stock Exchange, the American Stock Exchange, the NASD, the Boston Stock Exchange, the Commission or any governmental authority having jurisdiction over such matters; or (iv) if trading of any of the securities of the Company shall have been suspended, or any of the securities of the Company shall have been delisted, on any exchange or in any over-the-counter market; (v) if the United States shall have become involved in a war or major hostilities, or if there shall have been an escalation in an existing war or major hostilities or a national emergency shall have been declared in the United States; or (vi) if a banking moratorium has been declared by a state or federal authority; or (vii) if a moratorium in foreign exchange trading has been declared; or (viii) if the Company or the Subsidiary shall have sustained a loss material or substantial to the Company or the Subsidiary by fire, flood, accident, hurricane, earthquake, theft, sabotage or other calamity or malicious act which, whether or not such loss shall have been insured, will, in the Representative's opinion, make it inadvisable to proceed with the offering, sale and/or delivery of the Securities; or (ix) if there shall have been such a material adverse change in the conditions or prospects of the Company, or such material adverse change in the general market, political or economic conditions, in the United States, Turkey or elsewhere, that, in each case, in the Representative's judgment, would make it inadvisable to proceed with the offering, sale and/or delivery of the Securities or (x) if either David R. Paolo or Raymond Paolo shall no longer serve the Company in their respective present capacities. (b) If this Agreement is terminated by the Representative in accordance with the provisions of Section 10(a) the Company shall promptly reimburse and indemnify the Representative for all of its actual out-of-pocket expenses, including the fees and disbursements of counsel for the Underwriters (less amounts previously paid pursuant to Section 5(c) above). Notwithstanding any contrary provision contained in this Agreement, if this Agreement shall not be carried out within the time specified herein, or any extension thereof granted to the Representative, by reason of any failure on the part of the Company to perform any undertaking or satisfy any condition of this Agreement by it to be performed or satisfied (including, without limitation, pursuant to Section 6 or Section 12) then, the Company shall promptly reimburse and indemnify the Representative for all of its actual out-of-pocket expenses, including the fees and disbursements of counsel for the Underwriters (less amounts previously paid pursuant to Section 5(c) above). In addition, the Company shall remain liable for all Blue Sky counsel fees and disbursements, expenses and filing fees. Notwithstanding any contrary provision contained in this Agreement, any election hereunder or any termination of this Agreement (including, without limitation, pursuant to Sections 6, 10, 11 and 12 hereof), and whether or not this Agreement is otherwise carried out, the provisions of Section 5 and Section 7 shall not be in any way affected by such election or termination or failure to carry out the terms of this Agreement or any part hereof. 34 11. Substitution of the Underwriters. If one or more of the Underwriters shall fail (otherwise than for a reason sufficient to justify the termination of this Agreement under the provisions of Section 6, Section 10 or Section 12 hereof) to purchase the Securities which it or they are obligated to purchase on such date under this Agreement (the "Defaulted Securities"), the Representative shall have the right, within 24 hours thereafter, to make arrangement for one or more of the non defaulting Underwriters, or any other underwriters, to purchase all, but not less than all, of the Defaulted Securities in such amounts as may be agreed upon and upon the terms herein set forth; if, however, the Representative shall not have completed such arrangements within such 24-hour period, then: (a) if the number of Defaulted Securities does not exceed 10% of the total number of Firm Securities to be purchased on such date, the non-defaulting Underwriters shall be obligated to purchase the full amount thereof in the proportions that their respective underwriting obligations hereunder bear to the underwriting obligations of all non-defaulting Underwriters, or (b) if the number of Defaulted Securities exceeds 10% of the total number of Firm Securities, this Agreement shall terminate without liability on the part of any non-defaulting Underwriters (or, if such default shall occur with respect to any Option Securities to be purchased on an Option Closing Date, the Underwriters may at the Representative's option, by notice from the Representative to the Company, terminate the Underwriters' obligation to purchase Option Securities from the Company on such date). No action taken pursuant to this Section 11 shall relieve any defaulting Underwriter from liability in respect of any default by such Underwriter under this Agreement. In the event of any such default which does not result in a termination of this Agreement, the Representative shall have the right to postpone the Closing Date for a period not exceeding seven (7) days in order to effect any required changes in the Registration Statement or Prospectus or in any other documents or arrangements. 12. Default by the Company. If the Company shall fail at the Closing Date or at any Option Closing Date, as applicable, to sell and deliver the number of Securities which it is obligated to sell hereunder on such date, then this Agreement shall terminate (or, if such default shall occur with respect to any Option Securities to be purchased on an Option Closing Date, the Underwriters may at the Representative's option, by notice from the Representative to the Company, terminate the Underwriters' obligation to purchase Option Securities from the Company on such date) without any liability on the part of any non-defaulting party other than pursuant to Section 5, Section 7 and Section 10 hereof. No action taken pursuant to this Section 12 shall relieve the Company from liability, if any, in respect of such default. 13. Notices. All notices and communications hereunder, except as herein otherwise specifically provided, shall be in writing and shall be deemed to have been duly given if mailed or transmitted by any standard form of telecommunication. Notices to the Underwriters shall be directed to the Representative at Security Capital Trading, Inc., 520 Madison Avenue, 10th Floor, New York, New York 10022, Attention: Ronald Heineman, with a copy to Orrick, Herrington & Sutcliffe LLP, 666 Fifth Avenue, New York, New York 10103, Attention: Lawrence B. Fisher, Esq. Notices to the Company shall be directed to the Company at Log On America, Inc., 3 Regency Plaza, Providence, Rhode Island, 02903, Attention: 35 David R. Paolo, with a copy to Silverman, Collura, Chernis & Balzano, P.C., 381 Park Avenue South, New York, New York, 10016, Attention: Michael H. Freedman, Esq. 14. Parties. This Agreement shall inure solely to the benefit of and shall be binding upon, the Underwriters, the Company and the controlling persons, directors and officers referred to in Section 7 hereof, and their respective successors, legal representatives and assigns, and no other person shall have or be construed to have any legal or equitable right, remedy or claim under or in respect of or by virtue of this Agreement or any provisions herein contained. No purchaser of Securities from any Underwriter shall be deemed to be a successor by reason merely of such purchase. 15. Construction. This Agreement shall be governed by and construed and enforced in accordance with the laws of the State of New York without giving effect to the choice of law or conflict of laws principles. 16. Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original, and all of which taken together shall be deemed to be one and the same instrument. 17. Entire Agreement; Amendments. This Agreement and the Representative's Warrant Agreement constitute the entire agreement of the parties hereto and supersede all prior written or oral agreements, understandings and negotiations with respect to the subject matter hereof. This Agreement may not be amended except in a writing, signed by the Representative and the Company. 36 If the foregoing correctly sets forth the understanding between the Underwriters and the Company, please so indicate in the space provided below for that purpose, whereupon this letter shall constitute a binding agreement among us. Very truly yours, LOG ON AMERICA, INC. By:________________________ Name: Title: Confirmed and accepted as of the date first above written. SECURITY CAPITAL TRADING, INC. For itself and as Representative of the several Underwriters named in Schedule A hereto. By:___________________________________ Name: Title: 37 SCHEDULE A Number of Shares Name of Underwriters to be Purchased - -------------------- --------------- Security Capital Trading, Inc.............................. Total...................................................... --------- 2,000,000 ========= EX-1.2 3 WARRANT AGREEMENT - -------------------------------------------------------------------------------- LOG ON AMERICA, INC. AND SECURITY CAPITAL TRADING, INC. REPRESENTATIVE'S WARRANT AGREEMENT Dated as of ___________, 1999 - -------------------------------------------------------------------------------- REPRESENTATIVE'S WARRANT AGREEMENT dated as of _________, 1999 between LOG ON AMERICA, INC., a Delaware corporation (the "Company"), and SECURITY CAPITAL TRADING, INC. ("SCT") (SCT is hereinafter referred to variously as the "Holder" or "Holders" or the "Representative"). W I T N E S S E T H: WHEREAS, the Company proposes to issue to the Representative or its designee(s) warrants ("Warrants") to purchase up to an aggregate 200,000 shares (the "Shares) of common stock, $.01 par value per Share ("Common Stock"), of the Company; and WHEREAS, the Representative has agreed pursuant to the underwriting agreement (the "Underwriting Agreement") dated as of the date hereof between the Company and the several Underwriters listed therein to act as the Representative in connection with the Company's proposed public offering of 2,000,000 shares of Common Stock at a public offering price of $______ per Share (the "Public Offering"); and WHEREAS, the Warrants to be issued pursuant to this Agreement will be issued on the Closing Date (as such term is defined in the Underwriting Agreement) by the Company to the Representative in consideration for, and as part of the Representative's compensation in connection with, the Representative acting as the Representative pursuant to the Underwriting Agreement; NOW, THEREFORE, in consideration of the premises, the payment by the Representative to the Company of an aggregate twenty dollars ($20.00), the agreements herein set forth and other good and valuable consideration, hereby acknowledged, the parties hereto agree as follows: 1. Grant. The Representative (or its designees) is hereby granted the right to purchase, at any time from _____________, 2000 [twelve months after date of this Agreement], 2 until 5:30 P.M., New York time, on ___________, 2004 [five years after date of this Agreement], up to an aggregate of 200,000 Shares of Common Stock, at an initial exercise price (subject to adjustment as provided in Section 8 hereof) of $_____ per Share [120% of initial public offering price per share of Common Stock], subject to the terms and conditions of this Agreement. 2. Warrant Certificates. The warrant certificates (the "Warrant Certificates") delivered and to be delivered pursuant to this Agreement shall be in the form set forth in Exhibit A, attached hereto and made a part hereof, with such appropriate insertions, omissions, substitutions, and other variations as required or permitted by this Agreement. 3. Exercise of Warrant. 3.1 Method of Exercise. The Warrants initially are exercisable at an aggregate initial exercise price (subject to adjustment as provided in Section 8 hereof) per Share set forth in Section 6 hereof payable by certified or official bank check in New York Clearing House funds, subject to adjustment as provided in Section 8 hereof. Upon surrender of a Warrant Certificate with the annexed Form of Election to Purchase duly executed, together with payment of the Exercise Price (as hereinafter defined) for the Shares purchased at the Company's principal executive offices (presently located at 3 Regency Plaza, Providence, Rhode Island, 02903) the registered holder of a Warrant Certificate ("Holder" or "Holders") shall be entitled to receive a certificate or certificates for the shares of Common Stock so purchased. The purchase rights represented by each Warrant Certificate are exercisable at the option of the Holder thereof, in whole or in part (but not as to fractional shares of the Common Stock). Warrants may be exercised to purchase all or part of the Shares represented thereby. In the case of the purchase of less than all the Shares purchasable under any Warrant Certificate, the Company shall cancel 3 said Warrant Certificate upon the surrender thereof and shall execute and deliver a new Warrant Certificate of like tenor for the balance of the Shares purchasable thereunder. 3.2 Exercise by Surrender of Warrant. In addition to the method of payment set forth in Section 3.1 and in lieu of any cash payment required thereunder, the Holder(s) of the Warrants shall have the right at any time and from time to time to exercise the Warrants in full or in part by surrendering the Warrant Certificate in the manner specified in Section 3.1 in exchange for the number of Shares equal to the product of (x) the number of Shares as to which the Warrants are being exercised, multiplied by (y) a fraction, the numerator of which is the Market Price (as defined in Section 3.3 hereof) of the Shares minus the Exercise Price of the Shares and the denominator of which is the Market Price per Share. Solely for the purposes of this Section 3.2, Market Price shall be calculated either (i) on the date on which the form of election attached hereto is deemed to have been sent to the Company pursuant to Section 14 hereof ("Notice Date") or (ii) as the average of the Market Price for each of the five trading days immediately preceding the Notice Date, whichever of (i) or (ii) results in a greater Market Price. 3.3 Definition of Market Price. (a) As used herein, the phrase "Market Price of the Shares" at any date shall be deemed to be the last reported sale price, or, in case no such reported sale takes place on such day, the average of the last reported sale prices for the last three (3) trading days, in either case as officially reported by the principal securities exchange on which the Common Stock is listed or admitted to trading or by the Nasdaq National Market ("Nasdaq/NM") or the Nasdaq Small Cap Market ("Nasdaq Small Cap"), or, if the Common Stock is not listed or admitted to trading on any national securities exchange or quoted by the National Association of Securities Dealers Automated Quotation System ("Nasdaq"), the average closing bid price as furnished by the National 4 Association of Securities Dealers, Inc. ("NASD") through Nasdaq or similar organization if Nasdaq is no longer reporting such information. (b) If the Market Price of the Common Stock cannot be determined pursuant to Section 3.3(a) above, the Market Price of the Common Stock shall be determined in good faith (using customary valuation methods) by resolution of the members of the Board of Directors of the Company, based on the best information available to it. 4. Issuance of Certificates. Upon the exercise of the Warrants, the issuance of certificates for shares of Common Stock shall be made forthwith (and in any event such issuance shall be made within five (5) business days thereafter) without charge to the Holder thereof including, without limitation, any tax which may be payable in respect of the issuance thereof, and such certificates shall (subject to the provisions of Sections 5 and 7 hereof) be issued in the name of, or in such names as may be directed by, the Holder thereof. The Warrant Certificates and the certificates representing the shares of Common Stock shall be executed on behalf of the Company by the manual or facsimile signature of the then present Chairman or Vice Chairman of the Board of Directors or President or Vice President of the Company under its corporate seal reproduced thereon, attested to by the manual or facsimile signature of the then present Secretary or Assistant Secretary or Treasurer or Assistant Treasurer of the Company. Warrant Certificates shall be dated the date of execution by the Company upon initial issuance, division, exchange, substitution or transfer. 5 5. Restriction On Transfer of Warrants. The Holder of a Warrant Certificate, by its acceptance thereof, covenants and agrees that the Warrants are being acquired as an investment and not with a view to the distribution thereof; that the Warrants may not be sold, transferred, assigned, hypothecated or otherwise disposed of, in whole or in part, for a period of one (1) year from the date hereof, except to officers or partners of the Representative. 6. Exercise Price. 6.1 Initial and Adjusted Exercise Price. Except as otherwise provided in Section 8 hereof, the initial exercise price of each Warrant shall be 120% of the initial public offering price of the securities to be offered. The adjusted exercise price shall be the price which shall result from time to time from any and all adjustments of the initial exercise price in accordance with the provisions of Section 8 hereof. 6.2 Exercise Price. The term "Exercise Price" herein shall mean the initial exercise price or the adjusted exercise price, depending upon the context. 7. Registration Rights. 7.1 Registration Under the Securities Act of 1933. The Warrants and the shares of Common Stock underlying the Warrants and the other securities issuable upon exercise of the Warrants (collectively, the "Warrant Securities") have been registered under the Securities Act of 1933, as amended (the "Act") pursuant to the Company's Registration Statement on Form SB-2 (Registration No. 333-_____) (the "Registration Statement"). All the representations and warranties of the Company contained in the Underwriting Agreement relating to the Registration Statement, the Preliminary Prospectus and Prospectus (as such terms are defined in the Underwriting Agreement) and made as of the dates provided therein, are hereby incorporated by reference. The Company agrees and covenants promptly to file post effective amendments to such Registration Statement as may be necessary to maintain the effectiveness of the Registration Statement as long as 6 any Warrants are outstanding. In the event that, for any reason, whatsoever, the Company shall fail to maintain the effectiveness of the Registration Statement, upon exercise, in part or in whole, of the Warrants, certificates representing the shares of Common Stock underlying the Warrants shall bear the following legend: The securities represented by this certificate have not been registered under the Securities Act of 1933, as amended ("Act"), and may not be offered, sold, pledged, hypothecated, assigned or transferred except pursuant to (i) an effective registration statement under the Act, (ii) to the extent applicable, Rule 144 under the Act (or any similar rule under such Act relating to the disposition of securities), or (iii) an opinion of counsel, if such opinion shall be reasonably satisfactory to counsel to the issuer, that an exemption from registration under such Act is available. 7.2 Piggyback Registration. If, at any time commencing after the Closing Date of the public offering hereof and expiring seven (7) years thereafter, the Company proposes to register any of its securities under the Act (other than pursuant to Form S-8, S-4 or a comparable registration statement) the Company will give written notice by registered mail, at least thirty (30) days prior to the filing of each such registration statement, to the Representative and to all other Holders of the Warrants and/or the Warrant Securities of its intention to do so. If the Representative or other Holders of the Warrants and/or Warrant Securities notifies the Company within twenty (20) days after receipt of any such notice of its or their desire to include any such securities in such proposed registration statement, the Company shall afford the Representative and such Holders of the Warrants and/or Warrant Securities the opportunity to have any such Warrant Securities registered under such registration statement. 7 Notwithstanding the provisions of this Section 7.2, the Company shall have the right at any time after it shall have given written notice pursuant to this Section 7.2 (irrespective of whether a written request for inclusion of any such securities shall have been made) to elect not to file any such proposed registration statement, or to withdraw the same after the filing but prior to the effective date thereof. 7.3 Demand Registration. (a) At any time commencing after the Closing Date of the public offering hereof and expiring five (5) years thereafter, the Holders of the Warrants and/or Warrant Securities representing a "Majority" (as hereinafter defined) of such securities (assuming the exercise of all of the Warrants) shall have the right (which right is in addition to the registration rights under Section 7.2 hereof), exercisable by written notice to the Company, to have the Company prepare and file with the Securities and Exchange Commission (the "Commission"), on one occasion, a registration statement and such other documents, including a prospectus, as may be necessary in the opinion of both counsel for the Company and counsel for the Representative and Holders, in order to comply with the provisions of the Act, so as to permit a public offering and sale of their respective Warrant Securities for nine (9) consecutive months by such Holders and any other Holders of the Warrants and/or Warrant Securities who notify the Company within ten (10) days after receiving notice from the Company of such request. (b) The Company covenants and agrees to give written notice of any registration request under this Section 7.3 by any Holder or Holders to all other registered Holders of the Warrants and the Warrant Securities within ten (10) days from the date of the receipt of any such registration request. (c) Notwithstanding anything to the contrary contained herein, if the Company shall not have filed a registration statement for the Warrant Securities within the time period 8 specified in Section 7.4(a) hereof pursuant to the written notice specified in Section 7.3(a) of a Majority of the Holders of the Warrants and/or Warrant Securities, the Company shall have the option, upon the written notice of election of a Majority of the Holders of the Warrants and/or Warrant Securities to repurchase (i) any and all Warrant Securities at the higher of the Market Price per share of Common Stock on (x) the date of the notice sent pursuant to Section 7.3(a) or (y) the expiration of the period specified in Section 7.4(a) and (ii) any and all Warrants at such Market Price less the Exercise Price of such Warrant. Such repurchase shall be in immediately available funds and shall close within two (2) days after the later of (i) the expiration of the period specified in Section 7.4(a) or (ii) the delivery of the written notice of election specified in this Section 7.3(c). (d) In addition to the registration rights under Section 7.2 and subsection (a) of this Section 7.3, at any time commencing after the date hereof and expiring five (5) years thereafter, any Holder of Warrants and/or Warrant Securities shall have the right, exercisable by written request to the Company, to have the Company prepare and file, on one occasion, with the Commission a registration statement so as to permit a public offering and sale for nine (9) consecutive months by any such Holder of its Warrant Securities provided, however, that the provisions of Section 7.4(b) hereof shall not apply to any such registration request and registration and all costs incident thereto shall be at the expense of the Holder or Holders making such request. 7.4 Covenants of the Company With Respect to Registration. In connection with any registration under Section 7.2 or 7.3 hereof, the Company covenants and agrees as follows: (a) The Company shall use its best efforts to file a registration statement within thirty (30) days of receipt of any demand therefor, shall use its best efforts to have any registration statement declared effective at the earliest possible time, and shall furnish each Holder desiring to sell Warrant Securities such number of prospectuses as shall reasonably be requested. 9 (b) The Company shall pay all costs (excluding fees and expenses of Holder(s)' counsel and any underwriting or selling commissions), fees and expenses in connection with all registration statements filed pursuant to Sections 7.2 and 7.3(a) hereof including, without limitation, the Company's legal and accounting fees, printing expenses, blue sky fees and expenses. The Holder(s) will pay all costs, fees and expenses in connection with any registration statement filed pursuant to Section 7.3(d). If the Company shall fail to comply with the provisions of Section 7.4(a), the Company shall, in addition to any other equitable or other relief available to the Holder(s), be liable for any or all incidental or special damages sustained by the Holder(s) requesting registration of their Warrant Securities, excluding consequential damages. (c) The Company will take all necessary action which may be required in qualifying or registering the Warrant Securities included in a registration statement for offering and sale under the securities or blue sky laws of such states as reasonably are requested by the Holder(s), provided that the Company shall not be obligated to execute or file any general consent to service of process or to qualify as a foreign corporation to do business under the laws of any such jurisdiction. (d) The Company shall indemnify the Holder(s) of the Warrant Securities to be sold pursuant to any registration statement and each person, if any, who controls such Holders within the meaning of Section 15 of the Act or Section 20(a) of the Securities Exchange Act of 1934, as amended ("Exchange Act"), against all loss, claim, damage, expense or liability (including all expenses reasonably incurred in investigating, preparing or defending against any claim whatsoever) to which any of them may become subject under the Act, the Exchange Act or otherwise, arising from such registration statement but only to the same extent and with the same effect as the provisions pursuant to which the Company 10 has agreed to indemnify the Underwriters contained in Section 7 of the Underwriting Agreement. The Company further agree(s) that upon demand by an indemnified person, at any time or from time to time, it will promptly reimburse such indemnified person for any loss, claim, damage, liability, cost or expense actually and reasonably paid by the indemnified person as to which the Company has indemnified such person pursuant hereto. Notwithstanding the foregoing provisions of this Section 7.4(d) any such payment or reimbursement by the Company of fees, expenses or disbursements incurred by an indemnified person in any proceeding in which a final judgment by a court of competent jurisdiction (after all appeals or the expiration of time to appeal) is entered against the Company or such indemnified person as a direct result of the Holder(s) or such person's gross negligence or willful misfeasance will be promptly repaid to the Company. (e) The Holder(s) of the Warrant Securities to be sold pursuant to a registration statement, and their successors and assigns, shall severally, and not jointly, indemnify the Company, its officers and directors and each person, if any, who controls the Company within the meaning of Section 15 of the Act or Section 20(a) of the Exchange Act, against all loss, claim, damage or expense or liability (including all expenses reasonably incurred in investigating, preparing or defending against any claim whatsoever) to which they may become subject under the Act, the Exchange Act or otherwise, arising from information furnished by or on behalf of such Holders, or their successors or assigns, for specific inclusion in such registration statement to the same extent and with the same effect as the provisions contained in Section 7 of the Underwriting Agreement pursuant to which the Underwriters have agreed to indemnify the Company. The Holder(s) further agree(s) that upon demand by an indemnified person, at any time or from time to time, they will promptly reimburse such indemnified person for any loss, claim, damage, liability, cost or expense 11 actually and reasonably paid by the indemnified person as to which the Holder(s) have indemnified such person pursuant hereto. Notwithstanding the foregoing provisions of this Section 7.4(e) any such payment or reimbursement by the Holder(s) of fees, expenses or disbursements incurred by an indemnified person in any proceeding in which a final judgment by a court of competent jurisdiction (after all appeals or the expiration of time to appeal) is entered against the Company or such indemnified person as a direct result of the Company or such person's gross negligence or willful misfeasance will be promptly repaid to the Holder(s). (f) Nothing contained in this Agreement shall be construed as requiring the Holder(s) to exercise their Warrants prior to the initial filing of any registration statement or the effectiveness thereof. (g) The Company shall not permit the inclusion of any securities other than the Warrant Securities to be included in any registration statement filed pursuant to Section 7.3 hereof, or permit any other registration statement to be or remain effective during the effectiveness of a registration statement filed pursuant to Section 7.3 hereof, without the prior written consent of the Holders of the Warrants and Warrant Securities representing a Majority of such securities (assuming the exercise of all of the Warrants). (h) The Company shall furnish to each Holder participating in the offering and to each underwriter, if any, a signed counterpart, addressed to such Holder or underwriter, of (i) an opinion of counsel to the Company, dated the effective date of such registration statement (and, if such registration includes an underwritten public offering, an opinion dated the date of the closing under the underwriting agreement), and (ii) a "cold comfort" letter dated the effective date of such registration statement (and, if such registration includes an underwritten public offering, a letter dated the date of the closing under the 12 underwriting agreement) signed by the independent public accountants who have issued a report on the Company's financial statements included in such registration statement, in each case covering substantially the same matters with respect to such registration statement (and the prospectus included therein) and, in the case of such accountants' letter, with respect to events subsequent to the date of such financial statements, as are customarily covered in opinions of issuer's counsel and in accountants' letters delivered to underwriters in underwritten public offerings of securities. (i) The Company shall as soon as practicable after the effective date of the registration statement, and in any event within 15 months thereafter, make "generally available to its security holders" (within the meaning of Rule 158 under the Act) an earnings statement (which need not be audited) complying with Section 11(a) of the Act and covering a period of at least 12 consecutive months beginning after the effective date of the registration statement. (j) The Company shall deliver promptly to each Holder participating in the offering requesting the correspondence and memoranda described below and to the managing underwriter, if any, copies of all correspondence between the Commission and the Company, its counsel or auditors and all memoranda relating to discussions with the Commission or its staff with respect to the registration statement and permit each Holder and underwriter to do such investigation, upon reasonable advance notice, with respect to information contained in or omitted from the registration statement as it deems reasonably necessary to comply with applicable securities laws or rules of the NASD. Such investigation shall include access to books, records and properties and opportunities to discuss the business of the Company with its officers and independent auditors, all to such 13 reasonable extent and at such reasonable times and as often as any such Holder or underwriter shall reasonably request. (k) The Company shall enter into an underwriting agreement with the managing underwriter selected for such underwriting by Holders holding a Majority of the Warrant Securities requested to be included in such underwriting, which may be the Representative. Such agreement shall be satisfactory in form and substance to the Company, each Holder and such managing underwriter, and shall contain such representations, warranties and covenants by the Company and such other terms as are customarily contained in agreements of that type used by the managing underwriter. The Holders shall be parties to any underwriting agreement relating to an underwritten sale of their Warrant Securities and may, at their option, require that any or all of the representations, warranties and covenants of the Company to or for the benefit of such underwriters shall also be made to and for the benefit of such Holders. Such Holders shall not be required to make any representations or warranties to or agreements with the Company or the underwriters except as they may relate to such Holders and their intended methods of distribution. (l) In addition to the Warrant Securities, upon the written request therefor by any Holder(s), the Company shall include in the registration statement any other securities of the Company held by such Holder(s) as of the date of filing of such registration statement, including without limitation, restricted shares of Common Stock, options, warrants or any other securities convertible into shares of Common Stock. 14 (m) For purposes of this Agreement, the term "Majority" in reference to the Holders of Warrants or Warrant Securities shall mean in excess of fifty percent (50%) of the then outstanding Warrants or Warrant Securities that (i) are not held by the Company, an affiliate, officer, creditor, employee or agent thereof or any of their respective affiliates, members of their family, persons acting as nominees or in conjunction therewith and (ii) have not been resold to the public pursuant to a registration statement filed with the Commission under the Act. 8. Adjustments to Exercise Price and Number of Securities. 8.1 Subdivision and Combination. In case the Company shall at any time subdivide or combine the outstanding shares of Common Stock, the Exercise Price shall forthwith be proportionately decreased in the case of subdivision or increased in the case of combination. 8.2 Stock Dividends and Distributions. In case the Company shall pay dividend in, or make a distribution of, shares of Common Stock or of the Company's capital stock convertible into Common Stock, the Exercise Price shall forthwith be proportionately decreased. An adjustment made pursuant to this Section 8.2 shall be made as of the record date for the subject stock dividend or distribution. 8.3 Adjustment in Number of Securities. Upon each adjustment of the Exercise Price pursuant to the provisions of this Section 8, the number of Warrant Securities issuable upon the exercise at the adjusted Exercise Price of each Warrant shall be adjusted to the nearest whole number by multiplying a number equal to the Exercise Price in effect immediately prior to such adjustment by the number of Warrant Securities issuable upon exercise of the Warrants immediately prior to such adjustment and dividing the product so obtained by the adjusted Exercise Price. 15 8.4 Definition of Common Stock. For the purpose of this Agreement, the term "Common Stock" shall mean (i) the class of stock designated as Common Stock in the Certificate of Incorporation of the Company as may be amended or restated as of the date hereof, or (ii) any other class of stock resulting from successive changes or reclassifications of such Common Stock consisting solely of changes in par value, or from par value to no par value, or from no par value to par value. 8.5 Merger or Consolidation or Sale. (a) In case of any consolidation of the Company with, or merger of the Company with, or merger of the Company into, another corporation (other than a consolidation or merger which does not result in any reclassification or change of the outstanding Common Stock), the corporation formed by such consolidation or merger shall execute and deliver to the Holder a supplemental warrant agreement providing that the holder of each Warrant then outstanding or to be outstanding shall have the right thereafter (until the expiration of such Warrant) to receive, upon exercise of such Warrant, the kind and amount of shares of stock and other securities and property receivable upon such consolidation, merger, sale or transfer by a holder of the number of shares of Common Stock of the Company for which such Warrant might have been exercised immediately prior to such consolidation, merger, sale or transfer. Such supplemental warrant agreement shall provide for adjustments which shall be identical to the adjustments provided in this Section 8. The above provision of this subsection shall similarly apply to successive consolidations or mergers. (b) In the event of (i) the sale by the Company of all or substantially all of its assets, or (ii) the engagement by the Company or any of its affiliates in a "Rule 13e-3 transaction" as defined in paragraph (a)(3) of Rule 13e-3 of the General Rules and Regulations under the Securities Exchange Act of 1934, as amended, or (iii) a distribution to the Company's stockholders of any cash, assets, property, rights, evidences of indebtedness, securities or any other thing of value, or 16 any combination thereof, the Holders of the unexercised Warrants shall receive notice of such sale, transaction or distribution twenty (20) days prior to the date of such sale or the record date for such transaction or distribution, as applicable, and, if they exercise such Warrants prior to such date, they shall be entitled, in addition to the shares of Common Stock issuable upon the exercise thereof, to receive such property, cash, assets, rights, evidence of indebtedness, securities or any other thing of value, or any combination thereof, on the payment date of such sale, transaction or distribution. 8.6 No Adjustment of Exercise Price in Certain Cases. No adjustment of the Exercise Price shall be made if the amount of said adjustment shall be less than ten cents (104) per Warrant Security, provided, however, that in such case any adjustment that would otherwise be required then to be made shall be carried forward and shall be made at the time of and together with the next subsequent adjustment which, together with any adjustment so carried forward, shall amount to at least ten cents ($.10) per Warrant Security. 9. Exchange and Replacement of Warrant Certificates. Each Warrant Certificate is exchangeable without expense, upon the surrender thereof by the registered Holder at the principal executive office of the Company, for a new Warrant Certificate of like tenor and date representing in the aggregate the right to purchase the same number of Shares in such denominations as shall be designated by the Holder thereof at the time of such surrender. Upon receipt by the Company of evidence reasonably satisfactory to it of the loss, theft, destruction or mutilation of any Warrant Certificate, and, in case of loss, theft or destruction, of indemnity or security reasonably satisfactory to it, and reimbursement to the Company of all reasonable expenses incidental thereto, and upon surrender and cancellation of the Warrants, if mutilated, the Company will make and deliver a new Warrant Certificate of like tenor, in lieu thereof. 17 10. Elimination of Fractional Interests. The Company shall not be required to issue certificates representing fractions of shares of Common Stock upon the exercise of the Warrants, it being the intent of the parties that all fractional interests shall be eliminated by rounding any fraction up to the nearest whole number of shares of Common Stock, or other securities, properties or rights. 11. Reservation and Listing of Securities. The Company shall at all times reserve and keep available out of its authorized shares of Common Stock, solely for the purpose of issuance upon the exercise of the Warrants, such number of shares of Common Stock or other securities, properties or rights as shall be issuable upon the exercise thereof. The Company covenants and agrees that, upon exercise of the Warrants and payment of the Exercise Price therefor, all shares of Common Stock and other securities issuable upon such exercise shall be duly and validly issued, fully paid, non-assessable and not subject to the preemptive rights of any stockholder. As long as the Warrants shall be outstanding, the Company shall use its best efforts to cause all shares of Common Stock issuable upon the exercise of the Warrants to be listed (subject to official notice of issuance) on all securities exchanges on which the Common Stock issued to the public in connection herewith may then be listed and/or quoted on Nasdaq National Market or Nasdaq Small Cap Market. 12. Notices to Warrant Holders. Nothing contained in this Agreement shall be construed as conferring upon the Holders the right to vote or to consent or to receive notice as a stockholder in respect of any meetings of stockholders for the election of directors or any other matter, or as having any rights whatsoever as a stockholder of the Company. If, however, at any time prior to the expiration of the Warrants and their exercise, any of the following events shall occur: 18 (a) the Company shall take a record of the holders of its shares of Common Stock for the purpose of entitling them to receive a dividend or distribution payable otherwise than in cash, or a cash dividend or distribution payable otherwise than out of current or retained earnings, as indicated by the accounting treatment of such dividend or distribution on the books of the Company; or (b) the Company shall offer to all the holders of its Common Stock any additional shares of capital stock of the Company or securities convertible into or exchangeable for shares of capital stock of the Company, or any option, right or warrant to subscribe therefor; or (c) a dissolution, liquidation or winding up of the Company (other than in connection with a consolidation or merger) or a sale of all or substantially all of its property, assets and business as an entirety shall be proposed; then, in any one or more of said events, the Company shall give written notice of such event at least twenty (20) days prior to the date fixed as a record date or the date of closing the transfer books for the determination of the stockholders entitled to such dividend, distribution, convertible or exchangeable securities or subscription rights, or entitled to vote on such proposed dissolution, liquidation, winding up or sale. Such notice shall specify such record date or the date of closing the transfer books, as the case may be. Failure to give such notice or any defect therein shall not affect the validity of any action taken in connection with the declaration or payment of any such dividend, or the issuance of any convertible or exchangeable securities, or subscription rights, options or warrants, or any proposed dissolution, liquidation, winding up or sale. 13. Notices. All notices, requests, consents and other communications hereunder shall be in writing and shall be deemed to have been duly made when delivered, or mailed by registered or certified mail, return receipt requested: 19 (d) If to the registered Holder of the Warrants, to the address of such Holder as shown on the books of the Company; or (e) If to the Company, to the address set forth in Section 3 hereof or to such other address as the Company may designate by notice to the Holders. 14. Supplements and Amendments. The Company and the Representative may from time to time supplement or amend this Agreement without the approval of any Holders of Warrant Certificates (other than the Representative) in order to cure any ambiguity, to correct or supplement any provision contained herein which may be defective or inconsistent with any provisions herein, or to make any other provisions in regard to matters or questions arising hereunder which the Company and the Representative may deem necessary or desirable and which the Company and the Representative deem shall not adversely affect the interests of the Holders of Warrant Certificates. 15. Successors. All the covenants and provisions of this Agreement shall be binding upon and inure to the benefit of the Company, the Holders and their respective successors and assigns hereunder. 16. Termination. This Agreement shall terminate at the close of business on __________, 2003. Notwithstanding the foregoing, the indemnification provisions of Section 7 shall survive such termination until the close of business on _____________, 2008. 17. Governing Law, Submission to Jurisdiction. This Agreement and each Warrant Certificate issued hereunder shall be deemed to be a contract made under the laws of the State of New York and for all purposes shall be construed in accordance with the laws of said State without giving effect to the rules of said State governing the conflicts of laws. The Company, the Representative and the Holders hereby agree that any action, proceeding or claim against it arising out of, or relating in any way to, this Agreement shall be 20 brought and enforced in the courts of the State of New York or of the United States of America for the Southern District of New York, and irrevocably submits to such jurisdiction, which jurisdiction shall be exclusive. The Company, the Representative and the Holders hereby irrevocably waive any objection to such exclusive jurisdiction or inconvenient forum. Any such process or summons to be served upon any of the Company, the Representative and the Holders (at the option of the party bringing such action, proceeding or claim) may be served by transmitting a copy thereof, by registered or certified mail, return receipt requested, postage prepaid, addressed to it at the address as set forth in Section 14 hereof. Such mailing shall be deemed personal service and shall be legal and binding upon the party so served in any action, proceeding or claim. The Company, the Representative and the Holders agree that the prevailing party(ies) in any such action or proceeding shall be entitled to recover from the other party(ies) all of its/their reasonable legal costs and expenses relating to such action or proceeding and/or incurred in connection with the preparation therefor. 18. Entire Agreement; Modification. This Agreement (including the Underwriting Agreement to the extent portions thereof are referred to herein) contains the entire understanding between the parties hereto with respect to the subject matter hereof and may not be modified or amended except by a writing duly signed by the party against whom enforcement of the modification or amendment is sought. 19. Severability. If any provision of this Agreement shall be held to be invalid or unenforceable, such invalidity or unenforceability shall not affect any other provision of this Agreement. 20. Captions. The caption headings of the Sections of this Agreement are for convenience of reference only and are not intended, nor should they be construed as, a part of this Agreement and shall be given no substantive effect. 21 21. Benefits of this Agreement. Nothing in this Agreement shall be construed to give to any person or corporation other than the Company and the Representative and any other registered Holder(s) of the Warrant Certificates or Warrant Securities any legal or equitable right, remedy or claim under this Agreement; and this Agreement shall be for the sole and exclusive benefit of the Company and the Representative and any other Holder(s) of the Warrant Certificates or Warrant Securities. 22. Counterparts. This Agreement may be executed in any number of counterparts and each of such counterparts shall for all purposes be deemed to be an original, and such counterparts shall to either constitute but one and the same instrument. 22 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed, as of the day and year first above written. LOG ON AMERICA, INC. By: ---------------------------------------- David R. Paolo President and Chief Executive Officer Attest: - -------------------------------- Secretary SECURITY CAPITAL TRADING, INC. By: ---------------------------------------- Name: Title: 23 EXHIBIT A [FORM OF WARRANT CERTIFICATE] THE WARRANTS REPRESENTED BY THIS CERTIFICATE AND THE OTHER SECURITIES ISSUABLE UPON EXERCISE THEREOF MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO (i) AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, AS AMENDED, (ii) TO THE EXTENT APPLICABLE, RULE 144 UNDER SUCH ACT (OR ANY SIMILAR RULE UNDER SUCH ACT RELATING TO THE DISPOSITION OF SECURITIES), OR (iii) AN OPINION OF COUNSEL, IF SUCH OPINION SHALL BE REASONABLY SATISFACTORY TO COUNSEL FOR THE ISSUER, THAT AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT IS AVAILABLE. THE TRANSFER OR EXCHANGE OF THE WARRANTS REPRESENTED BY THIS CERTIFICATE IS RESTRICTED IN ACCORDANCE WITH THE WARRANT AGREEMENT REFERRED TO HEREIN. EXERCISABLE ON OR BEFORE 5:00 P.M., NEW YORK TIME, ________, 2004 No. W-01 200,000 Warrants WARRANT CERTIFICATE This Warrant Certificate certifies that __________, or registered assigns, is the registered holder of __________ Warrants to purchase initially, at any time from ____________, 2000 [one year from the effective date of the Registration Statement] until 5:00 p.m. New York time on ____________, 2004 [five years from the effective date of the Registration Statement] ("Expiration Date"), up to 200,000 Shares of common stock, $.01 par value ("Common Stock") of LOG ON AMERICA, INC., a Delaware corporation (the "Company"), at the initial exercise price, subject to adjustment in certain events (the "Exercise Price"), of $_____________ [120% of the public offering price per Share] per Share upon surrender of this Warrant Certificate and payment of the Exercise Price at an office or agency of the Company, or by surrender of this Warrant Certificate in lieu of cash payment, but subject to the conditions set forth herein and in the warrant agreement dated as of _________________, 1999 between the Company and Security Capital Trading, Inc. (the "Warrant Agreement"). Payment of the Exercise Price shall be made by certified or official bank check in New York Clearing House funds payable to the order of the Company or by surrender of this Warrant Certificate. No Warrant may be exercised after 5:00 p.m., New York time, on the Expiration Date, at which time all Warrants evidenced hereby, unless exercised prior thereto, hereby shall thereafter be void. The Warrants evidenced by this Warrant Certificate are part of a duly authorized issue of Warrants issued pursuant to the Warrant Agreement, which Warrant Agreement is hereby incorporated by reference in and made a part of this instrument and is hereby referred to for a description of the rights, limitation of rights, obligations, duties and immunities thereunder of the Company and the holders (the words "holders" or "holder" meaning the registered holders or registered holder) of the Warrants. The Warrant Agreement provides that upon the occurrence of certain events the Exercise Price and the type and/or number of the Company's securities issuable thereupon may, subject to certain conditions, be adjusted. In such event, the Company will, at the request of the holder, issue a new Warrant Certificate evidencing the adjustment in the Exercise Price and the number and/or type of securities issuable upon the exercise of the Warrants; provided, however, that the failure of the Company to issue such new Warrant Certificates shall not in any way change, alter, or otherwise impair, the rights of the holder as set forth in the Warrant Agreement. Upon due presentment for registration of transfer of this Warrant Certificate at an office or agency of the Company, a new Warrant Certificate or Warrant Certificates of like tenor and evidencing in the aggregate a like number of Warrants shall be issued to the transferee(s) in exchange for this Warrant Certificate, subject to the limitations provided herein and in the Warrant Agreement, without any charge except for any tax or other governmental charge imposed in connection with such transfer. Upon the exercise of less than all of the Warrants evidenced by this Certificate, the Company shall forthwith issue to the holder hereof a new Warrant Certificate representing such Warrant. The Company may deem and treat the registered holder(s) hereof as the absolute owner(s) of this Warrant Certificate (notwithstanding any notation of ownership or other writing hereon made by anyone), for the purpose of any exercise hereof, and of any distribution to the holder(s) hereof, and for all other purposes, and the Company shall not be affected by any notice to the contrary. All terms used in this Warrant Certificate which are defined in the Warrant Agreement shall have the meanings assigned to them in the Warrant Agreement. 2 IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to be duly executed under its corporate seal. Dated as of ___________, 1999 LOG ON AMERICA, INC. [SEAL] By:________________________________________ David R. Paolo President and Chief Executive Officer Attest: ________________________________________ Secretary 3 [FORM OF ELECTION TO PURCHASE PURSUANT TO SECTION 3.1] The undersigned hereby irrevocably elects to exercise the right, represented by this Warrant Certificate, to purchase _____________ Shares and herewith tenders in payment for such securities a certified or official bank check payable in New York Clearing House Funds to the order of Log On America, Inc. in the amount of $__________, all in accordance with the terms of Section 3.1 of the Representative's Warrant Agreement dated as of ___________, 1999 between Log On America, Inc. and Security Capital Trading, Inc. The undersigned requests that certificates for such securities be registered in the name of _______________ whose address is __________________________ and that such certificates be delivered to ______________________________ whose address is ____________________________. Dated: Signature ____________________________________________ (Signature must conform in all respects to name of holder as specified on the face of the Warrant Certificate.) ________________________________________________________ (Insert Social Security or Other Identifying Number of Holder) 4 [FORM OF ELECTION TO PURCHASE PURSUANT TO SECTION 3.2] The undersigned hereby irrevocably elects to exercise the right, represented by this Warrant Certificate, to purchase ____________ Shares all in accordance with the terms of Section 3.2 of the Representative's Warrant Agreement dated as of ______________, 1999 between Log On America, Inc. and Security Capital Trading, Inc. The undersigned requests that certificates for such securities be registered in the name of __________________ whose address is _______________________ and that such certificates be delivered to _____________________ whose address is ____________________________________. Dated: Signature _____________________________________________ (Signature must conform in all respects to name of holder as specified on the face of the Warrant Certificate.) ________________________________________________________ (Insert Social Security or Other Identifying Number of Holder) 5 [FORM OF ASSIGNMENT] (To be executed by the registered holder if such holder desires to transfer the Warrant Certificate.) FOR VALUE RECEIVED _____________ hereby sells, assigns and transfers unto ________________________________________________________________________________ (Please print name and address of transferee) this Warrant Certificate, together with all right, title and interest therein, and does hereby irrevocably constitute and appoint ________________ Attorney, to transfer the within Warrant Certificate on the books of the within-named Company, with full power of substitution. Dated: Signature: _____________________________________________ (Signature must conform in all respects to name of holder as specified on the face of the Warrant Certificate.) ________________________________________________________ (Insert Social Security or Other Identifying Number of Holder) 6 EX-3.1 4 CERTIFICATE OF INCORPORATION CERTIFICATE OF INCORPORATION OF Wan Secure, Inc. FIRST: The name of this corporation is Wan Secure, Inc. SECOND: Its registered office in the State of Delaware is to be located at 1313 N. Market Street, Wilmington DE 19801-1151, County of New Castle. The registered agent in charge thereof is The Company Corporation, address "same as above". THIRD: The nature of the business and, the objects and purposes proposed to be transacted, promoted and carried on, are to do any or all the things herein mentioned as fully and to the same extent as natural persons might or could do, and in any part of the world, viz: The purpose of the corporation is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of Delaware. FOURTH: The amount of the total authorized capital stock of this corporation is divided into 1,000 shares of stock at NO par value. FIFTH: The name and mailing address of the incorporator is as follows: Regina Cephas, 1313 N. Market St., Wilmington DE 19801-1151 SIXTH: The Directors shall have power to make and to alter or amend the By-Laws; to fix the amount to be reserved as working capital, and to authorize and cause to be executed, mortgages and liens without limit as to the amount, upon the property and franchise of the Corporation. With the consent in writing, and pursuant to a vote of the holders of a majority of the capital stock issued and outstanding, the Directors shall have the authority to dispose, in any manner, of the whole property of this corporation. The By-Laws shall determine whether and to what extent the accounts and books of this corporation, or any of them shall be open to the inspection of the stockholder; and no stockholder shall have any right of inspecting any account, or book or document of this Corporation, except as conferred by the law of the By-Laws, or by resolution of the stockholders. The stockholders and directors shall have the power to hold their meetings and keep the books, documents and papers of the Corporation outside of the State of Delaware, at such places as may be from time to time designated by the By-Laws or by resolution of the stockholders or directors, except as otherwise required by the laws of Delaware. SEVENTH: Directors of the corporation shall not be liable to either the corporation or its stockholders for monetary damages for a breach of fiduciary duties unless the breach involves: (1) a director's duty of loyalty to the corporation or its stockholders; (2) acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law; (3) liability for unlawful payments of dividends or unlawful stock purchase or redemption by the corporation; or (4) a transaction from which the director derived an improper personal benefit. I, THE UNDERSIGNED, for the purpose of forming a Corporation under the laws of the State of Delaware, do make, file and record this Certificate and do certify that the facts herein are true; and I have accordingly hereunto set my hand. DATED: January 2, 1998 /s/ Regina Cephas Regina Cephas CERTIFICATE OF AMENDMENT OF CERTIFICATE OF INCORPORATION OF WAN SECURE, INC. ---------------------------- WAN SECURE, INC., a corporation organized and existing under and by virtue of the General Corporation Law of the State of Delaware, DOES HEREBY CERTIFY: FIRST: That the Board of Directors of said corporation at a meeting duly convened and held, adopted the following resolution: RESOLVED that the Board of Directors hereby declares it advisable and in the best interest of the Company that Article Fourth of the Certificate of Incorporation be amended to read as follows: FOURTH: The total number of shares of stock which this corporation is authorized to issue is: Five Million (5,000,000) shares with a par value of One Cent ($.01) per share, amounting to Fifty Thousand Dollars ($50,000.00). SECOND: That the said amendment has been consented to and authorized by the holders of a majority of the issued and outstanding stock entitled to vote by written consent given in accordance with the provisions of Section 228 of the General Corporation Law of the State of Delaware. THIRD: That the aforesaid amendment as duly adopted in accordance with the applicable provisions of Sections 242 and 228 of the General Corporation Law of the State of Delaware. IN WITNESS WHEREOF, said corporation has caused this Certificate to be signed by David Paolo this 17 day of August A.D. 1998. /s/ David Paolo ----------------------- Authorized Officer CERTIFICATE OF OWNERSHIP AND MERGER OF WAN SECURE, INC., a Delaware corporation, AND LOG ON AMERICA, INC., a Delaware corporation, being its wholly owned subsidiary WAN SECURE, INC., a corporation organized and existing under and by virtue of the General Laws of the State of Delaware, does hereby certify: FIRST, that WAN SECURE, INC., is the parent corporation of LOG ON AMERICA, INC., a corporation organized and existing under and by virtue of the General Laws of the State of Delaware, and is the 100% owner of the 100 shares issued by LOG ON AMERICA, INC., which corporation had been authorized under its articles of incorporation to issue 1,000 shares of common stock at $.001 thereof. SECOND, that the Board of Directors of WAN SECURE, INC., at a special meeting duly convened and held, adopted the following resolution: RESOLVED, the Board of Directors hereby declares it advisable and in the best interest of WAN SECURE, INC., effective immediately, that: LOG ON AMERICA, INC., as the wholly owned subsidiary of WAN SECURE, INC., be merged into WAN SECURE, INC., its parent, which surviving corporation shall assume all of the obligations and assert ownership in all the property of LOG ON AMERICA, INC.; that the 100 issued shares of LOG ON AMERICA, INC., owned by WAN SECURE, INC., being 100% of the issued shares of LOG ON AMERICA, INC., be surrendered and canceled; that 100% of the authorized shares of LOG ON AMERICA, INC., be voided and thereby be incapable of issuance at any time; that the name of WAN SECURE, INC., as the surviving corporation, be changed to LOG ON AMERICA, INC.; that upon surrender of shares previously issued by WAN SECURE, INC., which surviving corporation shall be henceforth known as LOG ON AMERICA, INC., it shall provide its shareholders with replacement shares on a pro rata basis so as to reflect the change of name from WAN SECURE, INC., to LOG ON AMERICA, INC.; and, that its president and secretary, jointly or singly, take such action as each or both deem necessary to effectuate the resolutions of the board of directors and be and are, jointly or singly, authorized to execute any and all documents as each or both deem necessary to effectuate said resolutions. A copy of said Resolution having been adopted on September 15, 1998, is attached hereto and incorporated by reference. THIRD, That said certificate of ownership and merger has been unanimously consented to and authorized by the board of directors of WAN SECURE, INC., in accordance with the provisions of the General Laws of the State of Delaware. IN WITNESS WHEREOF, WAN SECURE, INC., HAS CAUSED THIS CERTIFICATE OF OWNERSHIP AND MERGER TO BE SIGNED BY DAVID R. PAOLO, ITS PRESIDENT, AND RAYMOND E. PAOLO, ITS SECRETARY, ON THIS 2th DAY OF OCTOBER 1998. /s/ David R. Paolo ------------------------------- David R. Paolo, President, being a duly Authorized Officer /s/ Raymond E. Paolo ------------------------------- Raymond E. Paolo, Secretary, being a duly Authorized Officer Subscribed and sworn to before me this 2th day of October 1998. /s/ [ILLEGIBLE] ------------------------------- Notary Public: My Commission Expires: 9/22/2001 CERTIFICATE OF AMENDMENT OF CERTIFICATE OF INCORPORATION OF LOG ON AMERICA, INC. Log On America, Inc., a corporation organized and existing under and by virtue of the General Corporation Law of the State of Delaware, does hereby certify: FIRST: That the Board of Directors of said corporation at a meeting duly convened and held, adopted the following resolution: RESOLVED that the Board of Directors hereby declares it advisable and in the best interest of the Company that Article Fourth of the Certificate of Incorporation be amended to read as follows: FOURTH: The total number of shares of stock which this corporation is authorized to issue is: Twenty Million (20,000,000) shares with a par value on One Cent ($.01) par share, amounting to Two Hundred Thousand Dollars ($200,000.00). SECOND: That the said amendment has been unanimously consented to and authorized by the holders of the issued and outstanding stock entitled to vote by written consent given in accordance with the provisions Section 228 of the General Corporation Law of the State of Delaware. THIRD: That the aforesaid amendment was duly adopted in accordance with applicable provisions of Sections 242 and 228 of the General Corporation Laws of the State of Delaware. IN WITNESS WHEREOF, said corporation has caused this Certificate to be signed by David R. Paolo, its President and Raymond E. Paolo, its Treasurer, on this 22nd of August 1998. /s/ David R. Paolo ------------------------------- David R. Paolo, President, Authorized Officer /s/ Raymond E. Paolo ------------------------------- Raymond E. Paolo, Treasurer Authorized Officer CERTIFICATE OF AMENDMENT OF CERTIFICATE OF INCORPORATION OF LOG ON AMERICA, INC. Adopted in accordance with the provisions of Section 242 of the General Corporation Law of the State of Delaware David R. Paolo and Raymond E. Paolo, the president and secretary respectively, of Log On America, Inc. ("Corporation"), a corporation existing under the laws of the State of Delaware do hereby certify as follows: FIRST: That the Certificate of Incorporation, of said Corporation has been amended as follows: 1. By striking out the whole of Article SEVENTH thereof as it now exists and inserting in lieu thereof a new Article SEVENTH to read in its entirety as follows: SEVENTH: No director of the Corporation shall be liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, except for liability (i) for any breach of the director's duty of loyalty to the Corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under Section 174 of the Delaware General Corporation Law ("DGCL"), or (iv) for any transaction from which the director derived an improper personal benefit. If the DGCL is hereafter amended to authorize corporate action further limiting or eliminating the personal liability of directors, then the liability of a director to the Corporation shall be limited or eliminated to the fullest extent permitted by the DGCL, as so amended from time to time. No repeal or modification of this ARTICLE SEVENTH, directly or by adoption of an inconsistent provision of this Certificate of Incorporation by the stockholders of the Corporation shall be effective with respect to any cause of action, suit, claim or other matter, that, but for this ARTICLE SEVENTH, would accrue or arise prior to such repeal or modification. 2. By adding a new ARTICLE EIGHTH and ARTICLE NINTH to read in their entirety as follows: EIGHTH: The Corporation shall, to the fullest extent permitted by Section 145 of the DGCL, as the same may be amended and supplemented, indemnify any and all persons whom it shall have power to indemnify under said section ("Indemnitee") from and against any and all of the expenses, liabilities or other matters referred to in or covered by said section, and the indemnification provided for herein shall not be deemed exclusive of any other rights to which those indemnified may be entitled under any By-law, agreement, vote of stockholders or disinterested directors or otherwise, both as to action in his official capacity and as to action in another capacity while holding such office, and shall continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of the heirs, executors and administrators of such a person. The Corporation shall pay in advance of the final disposition of such Indemnitee upon the receipt of an undertaking by or on behalf of such Indemnitee to repay such amount if it shall ultimately be determined that he is not entitled to be indemnified by the Corporation as authorized in this ARTICLE EIGHTH. NINTH: The Corporation may maintain insurance, at its expense, to protect itself and any director, officer, employee or agent of the Corporation or another corporation, partnership, joint venture, trust or other enterprise against any such expense, liability, or loss, whether or not the Corporation would have the power to indemnity such person against such expense, liability or loss under the DGCL. SECOND: That such amendment has been duly adopted in accordance with the provisions of Section 242 of the DGCL by obtaining the written consent of the holders of the majority of the stock of Log On America, Inc. entitled to vote at a meeting of stockholders pursuant to Section 228 of the DGCL. IN WITNESS WHEREOF, we, the undersigned, have executed and subscribed this certificate this 4 day of January, 1999. /s/ David R. Paolo ---------------------------- David R. Paolo, President ATTEST: /s/ Raymond E. Paolo - --------------------------- Raymond E. Paolo, Secretary EX-10.1 5 EMPLOYMENT AGREEMENT EMPLOYMENT AGREEMENT This Amendment No. 1 to Employment Agreement ("Agreement") is entered into and made effective as of January 12, 1998, by and among Log On America, Inc., a Delaware corporation, WAN Secure, Inc. a Delaware corporation ("Employer") and David R. Paolo ("Employee"). R E C I T A L S WHEREAS, Employer and Employee have entered into a certain Employment Agreement, dated as of January 3, 1997, and Employer and Employee desire to enter into this Agreement in order to restate such Employment Agreement in its entirety, as set forth below; WHEREAS, Employer is desirous of hiring Employee as one of its key employees; WHEREAS, Employee is willing to accept employment as an employee of Employer; and WHEREAS, the parties hereto desire to delineate the responsibilities of Employee and the expectations of Employer; NOW, THEREFORE, in consideration of the foregoing recitals and the mutual covenants and obligations herein contained, the parties hereto agree as follows: AGREEMENT 1. EMPLOYMENT. Employer hereby employs Employee, and Employee hereby accepts employment with Employer, upon the terms and conditions set forth in this Agreement. 2. TERM OF EMPLOYMENT. The employment of Employee pursuant to the terms of this Agreement shall commence as of January 12, 1998, and shall continue for a period of Six (6) years, unless sooner terminated pursuant to the provisions hereof; PROVIDED, HOWEVER, that this Agreement shall, unless earlier terminated, as of the fifteenth of each month of the term of this Agreement, be automatically extended for an additional month. 3. DUTIES. 3.1. BASIC DUTIES. Subject to the direction and control of the Board of Directors of Employer, Employee shall serve as the President and Chief Executive Officer of Employer and shall fulfill all duties and obligations of such office. 3.2. OTHER DUTIES OF EMPLOYEE. In addition to the foregoing, Employee shall perform such other or different duties related to those set forth in Paragraph 3.1 as may be assigned to him from time to time by Employer; PROVIDED, HOWEVER, that any such additional assignment shall be at a level of responsibility commensurate with that set forth in Paragraph 3.1 and PROVIDED, FURTHER, that Employee may serve, or continue to serve, on the boards of directors of and hold any other offices or positions in, companies or entities that in the judgment of Employer will not present any conflict of interest with Employer or any of its operations or adversely affect the performance of Employee's duties pursuant to this Agreement. 3.3. TIME DEVOTED TO EMPLOYMENT. Employee shall devote his full time to the business of Employer during the term of this Agreement to fulfill his obligations hereunder. 3.4. PLACE OF PERFORMANCE OF DUTIES. The services of Employee shall be performed at Employer's place of business and at such other locations as shall be designated from time to time by Employer. 4. COMPENSATION AND METHOD OF PAYMENT. 4.1 TOTAL COMPENSATION. As compensation under this Agreement, Employer shall pay and Employee shall accept the following: (1) For each year of this Agreement, measured from the effective date hereof, base compensation of nine one thousand five hundred dollars ($91,500), increased to one hundred twenty four thousand five hundred dollars ($124,500) immediately upon adequate funding and further increased annually by ten percent (10%) per year, plus such additional increases as may be approved from time to time by the Board of Directors of Employer. All such increases shall be effective as of the beginning of such calendar year in which the increase becomes effective pursuant to the terms hereof or is approved by the Board of Directors, as the case may be. Such adjustments may be based on the performance of Employer, the value of Employee to Employer or any other factors considered relevant by Employer. (2) For each year: (i) an income performance based bonus ("Income Performance Bonus"), payable quarterly, as stated in the 1998 management incentive plan (3) Reimbursement of such discretionary expenses as are reasonable and necessary, in the judgment of the Board of Directors, for Employee's performance of his responsibilities under this Agreement. (4) Nonqualified options as described in the 1998 employee stock option plan. (5) Participation in Employer's employee fringe benefit programs in effect from time to time for employees at comparable levels of responsibility. Participation will be in accordance with any applicable policies adopted by Employer. Employee shall be entitled to vacations, absences for illness, and to similar benefits of employment, and shall be subject to such policies and procedures as may be adopted by Employer. Without limiting the generality of the foregoing, it is initially anticipated that such benefits of employment shall include four (4) weeks' vacation during each 12-month period of employment with Employer (which shall accrue monthly on a PRO RATA basis and which shall be carried forward for a period not to exceed three (3) years and otherwise in accordance with Employer's policies); major medical and health insurance; life and disability insurance; and stock option plans for employees and members of the Board of Directors. Employer further agrees that in the event it offers disability insurance to its employees, Employer shall arrange for Employee to be covered by similar insurance. (6) In addition, Employee shall be entitled to: (a) a car allowance of $650 per month, (b) a club membership expense allowance of $450 per month, the reasonable cost of premiums for a whole life insurance policy with a death benefit of one million dollars ($1,000,000), and (d) if for any reason Employee shall not be covered by a health insurance policy of Employer, a medical insurance coverage expense allowance of $800 per month. (7) In the event of a Change of Control of Employer (as such term is defined in Section 4.3(2) hereof), Employee shall be entitled to receive the balance of the unpaid base compensation ("Unpaid Base Compensation") which would otherwise be payable to Employee during the remainder of the term of this Agreement pursuant to Section 4.1(1) hereof within thirty (30) days of the date of such Change of Control and any and all options granted to Employee pursuant to Section 4.1(4) hereof and otherwise shall vest immediately upon the date of such Change of Control; PROVIDED, HOWEVER, in the event of such Change of Control of Employer, the term of this Agreement shall automatically be extended to a period of five (5) years from the date of such Change of Control of Employer for purposes of this Section 4.1(7). 4.2 PAYMENT OF COMPENSATION. Employer shall pay the compensation provided for in Section 4.1 hereof as follows: (1) Employer shall pay the base compensation in cash in fifty-two equal installments or in accordance with Employer's payroll practices for all its employees, but in no event less frequently than bi-monthly. (2) Employer shall pay all Incentive Compensation in cash or in securities ("Securities") issued by Employer, which shall be at the sole election of Employee, to a Deferred Compensation Trust, to be established by Employer in the form provided in Exhibit "B" hereto. With respect to each year, Employee shall, on or before the beginning of such year, inform Employer in writing of the percentage of Incentive Compensation which shall be paid in cash and of the percentage thereof which shall be paid in Securities to the Deferred Compensation Trust. (3) Employer shall pay in cash the reimbursement of such discretionary expenses provided in Section 4.1(3) hereof. 4.3 AMOUNTS PAID TO THE DEFERRED COMPENSATION TRUST (1) The amount of Incentive Compensation paid by the Company to the Deferred Compensation Trust may not be subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, attachment or garnishment by creditors of Employee or his beneficiaries, and Employee has only the status of a general unsecured creditor of the Company as to the amounts of Incentive Compensation paid pursuant to this Agreement. (2) The total of Incentive Compensation paid to the Deferred Compensation Trust pursuant to this Agreement will be distributed to Employee therefrom in a lump sum on the occurrence of the earliest of the following: (a) Employee's termination of service because of death, disability, or termination of employment; (b) Employee's attainment of the age of sixty-five (65) years; or (c) A Change of Control of Employer. For all purposes of this Agreement, a "Change of Control" shall mean: (i) the acquisition by any person, entity or group of persons, within the meaning of Section 13(d) or 14(d), or any comparable successor provisions, of the Securities Exchange Act of 1934 (the "Act") of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Act) of at least twenty-five percent (25%) of either the outstanding shares of common stock or the combined voting power of Employer's then outstanding voting securities entitled to vote generally, or (ii) the approval by the stockholders of Employer of a reorganization, merger or consolidation, in which persons who were stockholders of Employer immediately prior to such reorganization, merger or consolidation do not, immediately thereafter, own or control more than fifty percent (50%) of the combined voting power entitled to vote generally in the election of directors of the surviving corporation of such reorganization merger or consolidation, or a liquidation or dissolution of Employer or of the sale of all or substantially all of Employer's assets, or (iii) in the event Employer terminates Employee pursuant to this Agreement for any reason other than the occurrence of any of the events set forth in Sections 5.2(2), (3), (4), (6), (7) or (9) hereof, or (iv) in the event any person shall be elected by the stockholders of Employer to the Board of Directors of Employer who shall not have been nominated for election by a majority of the Board of Directors of Employer or any duly appointed committee thereof 5. TERMINATION OF AGREEMENT. 5.1. BY NOTICE. This Agreement, and the employment of Employee hereunder, may be terminated by Employee or Employer upon ninety (90) days' written notice of termination; PROVIDED, HOWEVER, in the event Employer terminates this Agreement for any reason other than the occurrence of any of the events set forth in Sections 5.2(2), (3), (4), (6), (7) or (9), and subject to Section 4.1(7) hereof. Employee shall be entitled to receive the balance of the unpaid base salary which would otherwise be payable to Employer during the remainder of the term of this Agreement pursuant to Sections 4.1(1) and 4.1(6) hereof within thirty (30) days after such ninety (90) day notice period. 5.2. OTHER TERMINATION. This Agreement, and the employment of Employee hereunder, shall terminate immediately upon the occurrence of any one of the following events: (1) The death or mental or physical incapacity of Employee. (2) The loss by Employee of legal capacity (other than as described in Section 5.2(1) hereof). (3) The failure by Employee to devote substantially all of his available professional time to the business of Employer or the willful and habitual neglect of duties. (4) The willful engaging by Employee in an act of dishonesty constituting a felony under the laws of the state in which Employer's principal place of business is located, resulting or intending to result in gain or personal enrichment at the expense of Employer or to the detriment of Employer's business and to which Employee is not legally entitled. (5) The continued incapacity in excess of one hundred eighty (180) days on the part of Employee to perform his duties, unless waived by Employer. (6) The mutual written agreement of Employee and Employer. (7) The expiration of the term of this Agreement. (8) The involuntary termination of Employee as a director of Employer. (9) Employee's breach of this Agreement. 5.3 EFFECT OF TERMINATION BY REASON OF DEATH OR INCAPACITY. In the event of the termination of Employee's employment pursuant to Sections 5.2(1) or (5) of this Agreement prior to the completion of the term of employment specified herein, and subject to Section 4.1(7) hereof, Employee shall be entitled to receive the balance of the unpaid compensation (including any Incentive Compensation pursuant to Section 4.4 hereof) which is not covered by disability or other insurance and which would otherwise be payable to Employee during the term of this Agreement pursuant to Section 4.1(1) hereof within 60 days after such termination. 5.4. REMEDIES. No termination of the employment of Employee pursuant to the terms of this Agreement shall prejudice any other remedy to which any party to this Agreement may be entitled either at law, in equity, or under this Agreement. 6. PROPERTY RIGHTS AND OBLIGATIONS OF EMPLOYEE. 6.1. TRADE SECRETS. For purposes of this Agreement, "trade secrets" shall include without limitation any and all financial, cost and pricing information and any and all information contained in any drawings, designs, plans, proposals, customer lists, records of any kind, data, formulas, specifications, concepts or ideas, where such information is reasonably related to the business of Employer and has not previously been publicly released by duly authorized representatives of Employer or Parent or otherwise lawfully entered the public domain. 6.2. PRESERVATION OF TRADE SECRETS. Employee will preserve as confidential all trade secrets pertaining to Employer's business that have been or may be obtained or learned by him by reason of his employment or otherwise. Employee will not, without the written consent of Employer, either use for his own benefit or purposes or disclose or permit disclosure to any third parties, either during the term of his employment hereunder or thereafter (except as required in fulfilling the duties of his employment), any trade secret connected with the business of Employer. 6.3. TRADE SECRETS OF OTHERS. Employee agrees that he will not disclose to Employer or induce Employer to use any trade secrets belonging to any third party. 6.4. PROPERTY OF EMPLOYER. Employee agrees that all documents, reports, files, analyses, drawings, designs, tools, equipment, plans (including, without limitation, marketing and sales plans), proposals, customer lists, computer software or hardware, and similar materials that are made by him or come into his possession by reason of his employment with Employer are the property of Employer and shall not be used by him in any way adverse to Employer's interests. Employee will not allow any such documents or things, or any copies, reproductions or summaries thereof to be delivered to or used by any third party without the specific consent of Employer. Employee agrees to deliver to the Board of Directors of Employer or its designee, upon demand, and in any event upon the termination of Employee's employment, all of such documents and things which are in Employee's possession or under his control. 6.5 NONCOMPETITION BY EMPLOYEE. During the term of this Agreement, and for a period of one (1) year following the termination of this Agreement, Employee shall not, directly or indirectly, either as an employee, employer, consultant, agent, principal, partner, principal stockholder, corporate officer, director, or in any other individual or representative capacity: (i) engage or participate in any business that is in competition in any manner with the business of Employer; (ii) divert, take away or attempt to divert or take away (and during the one year period, call on or solicit) any of Employer's clients within the United States. For purposes of this Agreement, the term "Employer's clients" shall mean clients who had a business relationship with Employer prior to Employee's employment with Employer and those who develop a business relationship with Employer, during Employee's employment with Employer; (iii) undertake planning for or organization of any business within the United States or in any other country in which Employer is engaged in business activity competitive with Employer's business within the United States or in any other country in which Employer is engaged in business or combine or conspire with employees or other representative of Employer's business within the United States or in any other country in which Employer is engaged in business for the purpose of organizing any such competitive activity within the United States or in any other country in which Employer is engaged in business; or (iv) induce or influence (or seek to induce or influence) any person who is engaged, as an employee, agent, independent contractor or otherwise by Employer within the United States or in any other country in which Employer is engaged in business to terminate his or her employment or engagement. 6.6 SURVIVAL PROVISIONS AND CERTAIN REMEDIES. Unless otherwise agreed to in writing between the parties hereto, the provisions of this Section 6 shall survive the termination of this Agreement. The covenants in this Section 6 shall be construed as separate covenants and to the extent any covenant shall be judicially unenforceable, it shall not affect the enforcement of any other covenant. In the event Employee breaches any of the provisions of this Section 6, Employee agrees that Employer shall be entitled to injunctive relief in addition to any other remedy to which Employer may be entitled. 7. GENERAL PROVISIONS. 7.1. NOTICES. Any notices or other communications required or permitted to be given hereunder shall be given sufficiently only if in writing and served personally or sent by certified mail, postage prepaid and return receipt requested, addressed as follows: If to Employer: Log On America, Inc. 3 Regency Plaza Providence, RI 02903 Attn: Raymond E. Paolo Tel: 401-453-6100 Ext: 2 Fax: 401-459-6222 If to Employee: David R. Paolo 6 Juniper Lane Johnston, RI 02903 Tel: 401-459-6299 Fax: 401-459-6222 However, either party may change his/its address for purposes of this Agreement by giving written notice of such change to the other party in accordance with this Paragraph 7.1. Notices delivered personally shall be deemed effective as of the day delivered and notices delivered by mail shall be deemed effective as of three days after mailing (excluding weekends and federal holidays). 7.2. CHOICE OF LAW AND FORUM. Except as expressly provided otherwise in this Agreement, this Agreement shall be governed by and construed in accordance with the laws of the State of Rhode Island. The parties agree that any dispute arising under this Agreement, whether during the term of this Agreement or at any subsequent time, shall be resolved exclusively in the courts of the State of Rhode Island and the parties hereby submit to the jurisdiction of such courts for all purposes provided herein and appoint the Secretary of State of the State of Rhode Island as agent for service of process for all purposes provided herein. 7.3. ENTIRE AGREEMENT; MODIFICATION AND WAIVER, This Agreement supersedes any and all other agreements, whether oral or in writing, between the parties hereto with respect to the employment of Employee by Employer and contains all covenants and agreements between the parties relating to such employment in any manner whatsoever. Each party to this Agreement acknowledges that no representations, inducements, promises, or agreements, oral or written, have been made by any party, or anyone acting on behalf of any party, which are not embodied herein, and that no other agreement, statement, or promise not contained in this Agreement shall be valid or binding. Any modification of this Agreement shall be effective only if it is in writing signed by the party to be charged. No waiver of any of the provisions of this Agreement shall be deemed, or shall constitute, a waiver of any other provision, whether or not similar, nor shall any waiver constitute a continuing waiver. No waiver shall be binding unless executed in writing by the party making the waiver. 7.4. ASSIGNMENT. Because of the personal nature of the services to be rendered hereunder, this Agreement may not be assigned in whole or in part by Employee without the prior written consent of Employer. However, subject to the foregoing limitation, this Agreement shall be binding on, and shall inure to the benefit of, the parties hereto and their respective heirs, legatees, executors, administrators, legal representatives, successors and assigns. 7.5. SEVERABILITY. If for any reason whatsoever, any one or more of the provisions of this Agreement shall be held or deemed to be inoperative, unenforceable, or invalid as applied to any particular case or in all cases, such circumstances shall not have the effect of rendering any such provision inoperative, unenforceable, or invalid in any other case or of rendering any of the other provisions of this Agreement inoperative, unenforceable or invalid. 7.6 CORPORATE AUTHORITY. Employer represents and warrants as of the date hereof that Employer's execution and delivery of this Agreement to Employee and the carrying out of the provisions hereof have been duly authorized by Employer's Board of Directors and authorized by Employer's shareholders and further represents and warrants that neither the execution and delivery of this Agreement, nor the compliance with the terms and provisions thereof by Employer will result in the breach of any state regulation, administrative or court order, nor will such compliance conflict with, or result in the breach of, any of the terms or conditions of Employer's Articles of Incorporation or Bylaws, as amended, or any agreement or other instrument to which Employer is a party, or by which Employer is or may be bound, or constitute an event of default thereunder, or with the lapse of time or the giving of notice or both constitute an event of default thereunder. 7.7. ATTORNEYS' FEES. In any action at law or in equity to enforce or construe any provisions or rights under this Agreement, the unsuccessful party or parties to such litigation, as determined by the courts pursuant to a final judgment or decree, shall pay the successful party or parties all costs, expenses, and reasonable attorneys' fees incurred by such successful party or parties (including, without limitation, such costs, expenses, and fees on any appeals), and if such successful party or parties shall recover judgment in any such action or proceedings, such costs, expenses, and attorneys' fees shall be included as part of such judgement. 7.8. COUNTERPARTS. This Agreement may be executed simultaneously in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 7.9. HEADINGS AND CAPTIONS. Headings and captions are included for purposes of convenience only and are not a part hereof. 7.10. CONSULTATION WITH COUNSEL. Employee acknowledges that he has had the opportunity to consult with counsel independent of Employer or Employer's counsel, Fredrick Stolle Esq., regarding the entering into of this Agreement and has done so to the extent he sees fit. IN WITNESS WHEREOF, the parties hereto have executed this Agreement effective as of the day and year first written above at Providence, Rhode Island. "Employer" Log On America, Inc., a Delaware corporation By: /s/ Raymond E. Paolo 1/12/98 ---------------------- Raymond E. Paolo Chief Financial Officer "Employer" WAN Secure, Inc., a Delaware corporation By: /s/ Raymond E. Paolo 1/12/98 ---------------------- Raymond E. Paolo Chief Financial Officer "Employee" By: /s/ David R. Paolo 1/12/98 ---------------------- David R. Paolo EX-10.2 6 EMPLOYMENT AGREEMENT EMPLOYMENT AGREEMENT This Employment Agreement ("Agreement") is entered into and made effective as of January 1, 1999, by and between Log On America, Inc., a Delaware corporation ("Employer") and Raymond E. Paolo ("Employee"). R E C I T A L S WHEREAS, Employer and Employee have entered into a certain Employment Agreement, dated as of January 12, 1998 by and among the Employer, the Employee and Wan Secure, Inc., and Employer and Employee desire to enter into this Agreement in order to restate such Employment Agreement in its entirety, as set forth below; WHEREAS, Employer is desirous of hiring Employee as one of its key employees; WHEREAS, Employee is willing to accept employment as an employee of Employer; and WHEREAS, the parties hereto desire to delineate the responsibilities of Employee and the expectations of Employer; NOW, THEREFORE, in consideration of the foregoing recitals and the mutual covenants and obligations herein contained, the parties hereto agree as follows: AGREEMENT 1. EMPLOYMENT. Employer hereby employs Employee, and Employee hereby accepts employment with Employer, upon the terms and conditions set forth in this Agreement. 2. TERM OF EMPLOYMENT. The employment of Employee pursuant to the terms of this Agreement shall commence as of January 12, 1998, and shall continue for a period of six (6) years, unless sooner terminated pursuant to the provisions hereof; PROVIDED, HOWEVER, that this Agreement shall, unless earlier terminated, as of the fifteenth of each month of the term of this Agreement, be automatically extended for an additional month. 3. DUTIES. 3.1. BASIC DUTIES. Subject to the direction and control of the Board of Directors of Employer, Employee shall serve as the Vice President of Administration, Secretary and Treasurer of Employer and shall fulfill all duties and obligations of such office. 3.2. OTHER DUTIES OF EMPLOYEE. In addition to the foregoing, Employee shall perform such other or different duties related to those set forth in Paragraph 3.1 as may be assigned to him from time to time by Employer; PROVIDED, HOWEVER, that any such additional assignment shall be at a level of responsibility commensurate with that set forth in Paragraph 3.1 and PROVIDED, FURTHER, that Employee may serve, or continue to serve, on the boards of directors of, and hold any other offices or positions in, companies or entities that in the judgment of Employer will not present any conflict of interest with Employer or any of its operations or adversely affect the performance of Employee's duties pursuant to this Agreement. 3.3. TIME DEVOTED TO EMPLOYMENT. Employee shall devote his full time to the business of Employer during the term of this Agreement to fulfill his obligations hereunder. 3.4. PLACE OF PERFORMANCE OF DUTIES. The services of Employee shall be performed at Employer's place of business and at such other locations as shall be designated from time to time by Employer. 4. COMPENSATION AND METHOD OF PAYMENT. 4.1 TOTAL COMPENSATION. As compensation under this Agreement, Employer shall pay and Employee shall accept the following: (1) For each year of this Agreement, measured from the effective date hereof, base compensation of fifty one thousand five hundred dollars ($51,500), increased to Sixty Nine thousand five hundred dollars ($69,500) immediately upon adequate funding and further increased annually by ten percent (10%) per year, plus such additional increases as may be approved from time to time by the Board of Directors of Employer. All such increases shall be effective as of the beginning of such calendar year in which the increase becomes effective pursuant to the terms hereof or is approved by the Board of Directors, as the case may be. Such adjustments may be based on the performance of Employer, the value of Employee to Employer or any other factors considered relevant by Employer. (2) For each year: (i) an income performance based bonus ("Income Performance Bonus"), payable quarterly, as stated in the 1998 management incentive plan (3) Reimbursement of such discretionary expenses as are reasonable and necessary, in the judgment of the Board of Directors, for Employee's performance of his responsibilities under this Agreement. (4) Nonqualified options as described in the 1999 employee stock option plan. (5) Participation in Employer's employee fringe benefit programs in effect from time to time for employees at comparable levels of responsibility. Participation will be in accordance with any applicable policies adopted by Employer. Employee shall be entitled to vacations, absences for illness, and to similar benefits of employment, and shall be subject to such policies and procedures as may be adopted by Employer. Without limiting the generality of the foregoing, it is initially anticipated that such benefits of employment shall include four (4) weeks' vacation during each 12-month period of employment with Employer (which shall accrue monthly on a PRO RATA basis and which shall be carried forward for a period not to exceed three (3) years and otherwise in accordance with Employer's policies); major medical and health insurance; life and disability insurance; and stock option plans for employees and members of the Board of Directors. Employer further agrees that in the event it offers disability insurance to its employees, Employer shall arrange for Employee to be covered by similar insurance. (6) In addition, Employee shall be entitled to: (a) a car allowance of $450 per month (b) if for any reason Employee shall not be covered by a health insurance policy of Employer, a medical insurance coverage expense allowance of $800 per month. (7) In the event of a Change of Control of Employer (as such term is defined in Section 4.3(2) hereof), Employee shall be entitled to receive the balance of the unpaid base compensation ("Unpaid Base Compensation") which would otherwise be payable to Employee during the remainder of the term of this Agreement pursuant to Section 4.1(1) hereof within thirty (30) days of the date of such Change of Control and any and all options granted to Employee pursuant to Section 4.1(4) hereof and otherwise shall vest immediately upon the date of such Change of Control; PROVIDED, HOWEVER, in the event of such Change of Control of Employer, the term of this Agreement shall automatically be extended to a period of five (5) years from the date of such Change of Control of Employer for purposes of this Section 4.1(7). 4.2 PAYMENT OF COMPENSATION. Employer shall pay the compensation provided for in Section 4.1 hereof as follows: (1) Employer shall pay the base compensation in cash in fifty-two equal installments or in accordance with Employer's payroll practices for all its employees, but in no event less frequently than bi-monthly. (2) Employer shall pay all Incentive Compensation in cash or in securities ("Securities") issued by Employer, which shall be at the sole election of Employee, to a Deferred Compensation Trust, to be established by Employer in the form provided in Exhibit "B" hereto. With respect to each year, Employee shall, on or before the beginning of such year, inform Employer in writing of the percentage of Incentive Compensation which shall be paid in cash and of the percentage thereof which shall be paid in Securities to the Deferred Compensation Trust. (3) Employer shall pay in cash the reimbursement of such discretionary expenses provided in Section 4.1(3) hereof. 4.3 AMOUNTS PAID TO THE DEFERRED COMPENSATION TRUST (1) The amount of Incentive Compensation paid by the Company to the Deferred Compensation Trust may not be subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, attachment or garnishment by creditors of Employee or his beneficiaries, and Employee has only the status of a general unsecured creditor of the Company as to the amounts of Incentive Compensation paid pursuant to this Agreement. (2) The total of Incentive Compensation paid to the Deferred Compensation Trust pursuant to this Agreement will be distributed to Employee therefrom in a lump sum on the occurrence of the earliest of the following: (a) Employee's termination of service because of death, disability, or termination of employment; (b) Employee's attainment of the age of sixty-five (65) years; or (c) A Change of Control of Employer. For all purposes of this Agreement, a "Change of Control" shall mean: (i) the acquisition by any person, entity or group of persons, within the meaning of Section 13(d) or 14(d), or any comparable successor provisions, of the Securities Exchange Act of 1934 (the "Act") of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Act) of at least twenty-five percent (25%) of either the outstanding shares of common stock or the combined voting power of Employer's then outstanding voting securities entitled to vote generally, or (ii) the approval by the stockholders of Employer of a reorganization, merger or consolidation, in which persons who were stockholders of Employer immediately prior to such reorganization, merger or consolidation do not, immediately thereafter, own or control more than fifty percent (50%) of the combined voting power entitled to vote generally in the election of directors of the surviving corporation of such reorganization merger or consolidation, or a liquidation or dissolution of Employer or of the sale of all or substantially all of Employer's assets, or (iii) in the event Employer terminates Employee pursuant to this Agreement for any reason other than the occurrence of any of the events set forth in Sections 5.2(2),(3),(4),(6), (7) or (9) hereof, or (iv) in the event any person shall be elected by the stockholders of Employer to the Board of Directors of Employer who shall not have been nominated for election by a majority of the Board of Directors of Employer or any duly appointed committee thereof 5. TERMINATION OF AGREEMENT. 5.1. BY NOTICE. This Agreement, and the employment of Employee hereunder, may be terminated by Employee or Employer upon ninety (90) days' written notice of termination; PROVIDED, HOWEVER, in the event Employer terminates this Agreement for any reason other than the occurrence of any of the events set forth in Sections 5.2 (2), (3), (4), (6), (7) or (9), and subject to Section 4.1(7) hereof, Employee shall be entitled to receive the balance of the unpaid base salary which would otherwise be payable to Employer during the remainder of the term of this Agreement pursuant to Sections 4.1(1) and 4.1(6) hereof within thirty (30) days after such ninety (90) day notice period. 5.2. OTHER TERMINATION. This Agreement, and the employment of Employee hereunder, shall terminate immediately upon the occurrence of any one of the following events: (1) The death or mental or physical incapacity of Employee. (2) The loss by Employee of legal capacity (other than as hdescribed in Section 5.2(1) hereof). (3) The failure by Employee to devote substantially all of his available professional time to the business of Employer or the wilful and habitual neglect of duties. (4) The willful engaging by Employee in an act of dishonesty constituting a felony under the laws of the state in which Employer's principal place of business is located, resulting or intending to result in gain or personal enrichment at the expense of Employer or to the detriment of Employer's business and to which Employee is not legally entitled. (5) The continued incapacity in excess of one hundred eighty (180) days on the part of Employee to perform his duties, unless waived by Employer. (6) The mutual written agreement of Employee and Employer. (7) The expiration of the term of this Agreement. (8) The involuntary termination of Employee as a director of Employer. (9) Employee's breach of this Agreement. 5.3 EFFECT OF TERMINATION BY REASON OF DEATH OR INCAPACITY. In the event of the termination of Employee's employment pursuant to Sections 5.2(1) or (5) of this Agreement prior to the completion of the term of employment specified herein, and subject to Section 4.1(7) hereof, Employee shall be entitled to receive the balance of the unpaid compensation (including any Incentive Compensation pursuant to Section 4.4 hereof) which is not covered by disability or other insurance and which would otherwise be payable to Employee during the term of this Agreement pursuant to Section 4.1(1) hereof within 60 days after such termination. 5.4. REMEDIES. No termination of the employment of Employee pursuant to the terms of this Agreement shall prejudice any other remedy to which any party to this Agreement may be entitled either at law, in equity, or under this Agreement. 6. PROPERTY RIGHTS AND OBLIGATIONS OF EMPLOYEE. 6.1. TRADE SECRETS. For purposes of this Agreement, "trade secrets" shall include without limitation any and all financial, cost and pricing information and any and all information contained in any drawings, designs, plans, proposals, customer lists, records of any kind, data, formulas, specifications, concepts or ideas, where such information is reasonably related to the business of Employer and has not previously been publicly released by duly authorized representatives of Employer or Parent or otherwise lawfully entered the public domain. 6.2. PRESERVATION OF TRADE SECRETS. Employee will preserve as confidential all trade secrets pertaining to Employer's business that have been or may be obtained or learned by him by reason of his employment or otherwise. Employee will not, without the written consent of Employer, either use for his own benefit or purposes or disclose or permit disclosure to any third parties, either during the term of his employment hereunder or thereafter (except as required in fulfilling the duties of his employment), any trade secret connected with the business of Employer. 6.3. TRADE SECRETS OF OTHERS. Employee agrees that he will not disclose to Employer or induce Employer to use any trade secrets belonging to any third party. 6.4. PROPERTY OF EMPLOYER. Employee agrees that all documents, reports, files, analyses, drawings, designs, tools, equipment, plans (including, without limitation, marketing and sales plans), proposals, customer lists, computer software or hardware, and similar materials that are made by him or come into his possession by reason of his employment with Employer are the property of Employer and shall not be used by him in any way adverse to Employer's interests. Employee will not allow any such documents or things, or any copies, reproductions or summaries thereof to be delivered to or used by any third party without the specific consent of Employer. Employee agrees to deliver to the Board of Directors of Employer or its designee, upon demand, and in any event upon the termination of Employee's employment, all of such documents and things which are in Employee's possession or under his control. 6.5 NONCOMPETITION BY EMPLOYEE. During the term of this Agreement, and for a period of one (1) year following the termination of this Agreement, Employee shall not, directly or indirectly, either as an employee, employer, consultant, agent, principal, partner, principal stockholder, corporate officer, director, or in any other individual or representative capacity: (i) engage or participate in any business that is in competition in any manner with the business of Employer; (ii) divert, take away or attempt to divert or take away (and during the one year period, call on or solicit) any of Employer's clients within the United States. For purposes of this Agreement, the term "Employer's clients" shall mean clients who had a business relationship with Employer prior to Employee's employment with Employer and those who develop a business relationship with Employer, during Employee's employment with Employer; (iii) undertake planning for or organization of any business within the United States or in any other country in which Employer is engaged in business activity competitive with Employer's business within the United States or in any other country in which Employer is engaged in business or combine or conspire with employees or other representative of Employer's business within the United States or in any other country in which Employer is engaged in business for the purpose of organizing any such competitive activity within the United States or in any other country in which Employer is engaged in business; or (iv) induce or influence (or seek to induce or influence) any person who is engaged, as an employee, agent, independent contractor or otherwise by Employer within the United States or in any other country in which Employer is engaged in business to terminate his or her employment or engagement. 6.6 SURVIVAL PROVISIONS AND CERTAIN REMEDIES. Unless otherwise agreed to in writing between the parties hereto, the provisions of this Section 6 shall survive the termination of this Agreement. The covenants in this Section 6 shall be construed as separate covenants and to the extent any covenant shall be judicially unenforceable, it shall not affect the enforcement of any other covenant. In the event Employee breaches any of the provisions of this Section 6, Employee agrees that Employer shall be entitled to injunctive relief in addition to any other remedy to which Employer may be entitled. 7. GENERAL PROVISIONS. 7.1. NOTICES. Any notices or other communications required or permitted to be given hereunder shall be given sufficiently only if in writing and served personally or sent by certified mail, postage prepaid and return receipt requested, addressed as follows: If to Employer: Log On America, Inc. 3 Regency Plaza Providence, RI 02903 Attn: David R. Paolo Tel: 401-453-6100 Ext: 1 Fax: 401-459-6222 If to Employee: Raymond E.. Paolo 57 Venice Street Johnston, RI 02919 Tel: 401-459-6297 Fax: 401-459-6222 However, either party may change his/its address for purposes of this Agreement by giving written notice of such change to the other party in accordance with this Paragraph 7.1. Notices delivered personally shall be deemed effective as of the day delivered and notices delivered by mail shall be deemed effective as of three days after mailing (excluding weekends and federal holidays). 7.2. CHOICE OF LAW AND FORUM. Except as expressly provided otherwise in this Agreement, this Agreement shall be governed by and construed in accordance with the laws of the State of Rhode Island. The parties agree that any dispute arising under this Agreement, whether during the term of this Agreement or at any subsequent time, shall be resolved exclusively in the courts of the State of Rhode Island and the parties hereby submit to the jurisdiction of such courts for all purposes provided herein and appoint the Secretary of State of the State of Rhode Island as agent for service of process for all purposes provided herein. 7.3. ENTIRE AGREEMENT; MODIFICATION AND WAIVER. This Agreement supersedes any and all other agreements, whether oral or in writing, between the parties hereto with respect to the employment of Employee by Employer and contains all covenants and agreements between the parties relating to such employment in any manner whatsoever. Each party to this Agreement acknowledges that no representations, inducements, promises, or agreements, oral or written, have been made by any party, or anyone acting on behalf of any party, which are not embodied herein, and that no other agreement, statement, or promise not contained in this Agreement shall be valid or binding. Any modification of this Agreement shall be effective only if it is in writing signed by the party to be charged. No waiver of any of the provisions of this Agreement shall be deemed, or shall constitute, a waiver of any other provision, whether or not similar, nor shall any waiver constitute a continuing waiver. No waiver shall be binding unless executed in writing by the party making the waiver. 7.4. ASSIGNMENT. Because of the personal nature of the services to be rendered hereunder, this Agreement may not be assigned in whole or in part by Employee without the prior written consent of Employer. However, subject to the foregoing limitation, this Agreement shall be binding on, and shall inure to the benefit of, the parties hereto and their respective heirs, legatees, executors, administrators, legal representatives, successors and assigns. 7.5. SEVERABILITY. If for any reason whatsoever, any one or more of the provisions of this Agreement shall be held or deemed to be inoperative, unenforceable, or invalid as applied to any particular case or in all cases, such circumstances shall not have the effect of rendering any such provision inoperative, unenforceable, or invalid in any other case or of rendering any of the other provisions of this Agreement inoperative, unenforceable or invalid. 7.6 CORPORATE AUTHORITY. Employer represents and warrants as of the date hereof that Employer's execution and delivery of this Agreement to Employee and the carrying out of the provisions hereof have been duly authorized by Employer's Board of Directors and authorized by Employer's shareholders and further represents and warrants that neither the execution and delivery of this Agreement, nor the compliance with the terms and provisions thereof by Employer will result in the breach of any state regulation, administrative or court order, nor will such compliance conflict with, or result in the breach of, any of the terms or conditions of Employer's Articles of Incorporation or Bylaws, as amended, or any agreement or other instrument to which Employer is a party, or by which Employer is or may be bound, or constitute an event of default thereunder, or with the lapse of time or the giving of notice or both constitute an event of default thereunder. 7.7. ATTORNEYS' FEES. In any action at law or in equity to enforce or construe any provisions or rights under this Agreement, the unsuccessful party or parties to such litigation, as determined by the courts pursuant to a final judgment or decree, shall pay the successful party or parties all costs, expenses, and reasonable attorneys' fees incurred by such successful party or parties (including, without limitation, such costs, expenses, and fees on any appeals), and if such successful party or parties shall recover judgment in any such action or proceedings, such costs, expenses, and attorneys' fees shall be included as part of such judgment. 7.8. COUNTERPARTS. This Agreement may be executed simultaneously in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 7.9. HEADINGS AND CAPTIONS. Headings and captions are included for purposes of convenience only and are not a part hereof. 7.10. CONSULTATION WITH COUNSEL. Employee acknowledges that he has had the opportunity to consult with counsel independent of Employer or Employer's counsel, Fredrick Stolle Esq., regarding the entering into of this Agreement and has done so to the extent he sees fit. IN WITNESS WHEREOF, the parties hereto have executed this Agreement effective as of the day and year first written above at Providence, Rhode Island. "Employer" Log On America, Inc., a Delaware corporation By: /s/ David R. Paolo -------------------------- David R. Paolo President and Chief Executive Officer "Employee" By: /s/ Raymond E. Paolo -------------------------- Raymond E.. Paolo EX-23.1 7 CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACC TAUBER & BALSER, P.C. Certified Public Accountants 3340 Peachtree Road, N.E. Suite 250 Atlanta, GA 30326 CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS We hereby consent to the use in the Registration Statement on Form S-B2 of our report dated December 18, 1998, relating to the financial statements of Log On America, Inc. We also consent to the reference to our firm under the caption 'Experts' in the Prospectus. /s/ Tauber & Balser, P.C. Tauber & Balser, P.C. Atlanta, Georgia January 7, 1999 EX-27 8 FDS --
5 9-MOS DEC-31-1997 JAN-01-1998 SEP-30-1998 69,911 0 91,759 4,264 0 162,548 221,280 159,157 602,204 442,418 0 0 0 18,070 129,226 602,204 0 551,304 228,950 228,950 493,299 0 2,283 (178,228) 0 (178,228) 0 0 0 (178,228) (.05) (.05)
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