-----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, EhUY5bXZvE36Fxfv71GSHud0h6dJz30w0Q2fH6sCn52H0VrZDRif1ms6jVj6yPW6 mqSkMN/Y7UVBUrZEQTe1og== 0000903893-96-000730.txt : 19960912 0000903893-96-000730.hdr.sgml : 19960912 ACCESSION NUMBER: 0000903893-96-000730 CONFORMED SUBMISSION TYPE: SB-2 PUBLIC DOCUMENT COUNT: 18 FILED AS OF DATE: 19960911 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: WEBSECURE INC CENTRAL INDEX KEY: 0001003504 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] IRS NUMBER: 043296069 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SB-2 SEC ACT: 1933 Act SEC FILE NUMBER: 333-11751 FILM NUMBER: 96628597 BUSINESS ADDRESS: STREET 1: 1711 BROADWAY STREET 2: CORPORATE CENTER NORTH CITY: SAUGUS STATE: MA ZIP: 01906 MAIL ADDRESS: STREET 1: 1711 BROADWAY CITY: SAUGUS STATE: MA ZIP: 01906 SB-2 1 FORM SB-2 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 11, 1996 REGISTRATION NO. 333- ================================================================================ SECURITIES AND EXCHANGE COMMISSION 7 WORLD TRADE CENTER NEW YORK, NEW YORK 10048 ------------- FORM SB-2 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ------------- WEBSECURE, INC. (EXACT NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER) ------------- DELAWARE 7374 04-3296069 (STATE OR OTHER (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER JURISDICTION OF CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.) INCORPORATION OR ORGANIZATION) ------------- 1711 BROADWAY SAUGUS, MASSACHUSETTS 01906 (617) 867-2300 (ADDRESS, INCLUDING ZIP CODE AND TELEPHONE NUMBER OF PRINCIPAL EXECUTIVE OFFICES AND PRINCIPAL PLACE OF BUSINESS AND NAME, ADDRESS AND TELEPHONE NUMBER OF AGENT FOR SERVICE) ------------- COPIES TO: PAUL D. BROUDE, ESQUIRE WILLIAM M. PRIFTI, ESQUIRE ANDREW D. MYERS, ESQUIRE LYNNFIELD WOODS OFFICE PARK O'CONNOR, BROUDE & ARONSON 220 BROADWAY, SUITE 204 950 WINTER STREET, SUITE 2300 LYNNFIELD, MASSACHUSETTS 01940 WALTHAM, MASSACHUSETTS 02154 TELEPHONE: (617) 593-4525 TELEPHONE: (617) 890-6600 FACSIMILE: (617) 598-5222 FACSIMILE: (617) 890-9261 ------------- APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC: As soon as practicable after the effective date of this Registration Statement. If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, as amended, check the following box. [x] CALCULATION OF REGISTRATION FEE
==================================================================================================================================== TITLE OF EACH CLASS AMOUNT PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF OF SECURITIES TO BE TO BE OFFERING PRICE AGGREGATE REGISTRATION REGISTERED REGISTERED PER UNIT OFFERING PRICE(1) FEE ---------- ---------- -------- ----------------- --- Common stock, $.01 par value per share ("Common Stock")(2) 1,150,000 $ 8.00 $ 9,200,000 $ 3,172.41 Redeemable Common Stock Purchase Warrants ("Redeemable Warrants") 1,150,000 .20 230,000 79.31 Common Stock issuable upon exercise of the Redeemable Warrants(3) 1,150,000 9.60 11,040,000 3,806.90 Representatives' Warrant 1 100.00 100 .03 Redeemable Warrants underlying the Representatives' Warrant 100,000 .26 26,000 8.97 Common Stock underlying Redeemable Warrants issuable upon exercise of the Representatives' Warrant 100,000 10.66 1,248,000 430.34 Common Stock underlying the Representatives' Warrant 100,000 10.40 1,040,000 358.62 Total Registration Fee $7,856.58 ====================================================================================================================================
(1) Estimated solely for the purpose of calculating the registration fee. (2) Includes 150,000 shares of Common Stock subject to the Underwriters' overallotment option. (3) Includes 150,000 shares of Common Stock issuable upon exercise of Redeemable Warrants subject to the Underwriters' overallotment option. ------------- Pursuant to Rule 416, there are also being registered such additional shares of Common Stock as may become issuable pursuant to antidilution provisions of the Redeemable Warrants and the Representatives' Warrant. 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 COMMISSION, ACTING PURSUANT TO SECTION 8(A), MAY DETERMINE. ================================================================================ WEBSECURE, INC. CROSS REFERENCE SHEET Pursuant to Item 501 of Regulation S-B
ITEM NUMBER OF FORM SB-2 LOCATION OR CAPTION IN PROSPECTUS ------------------------ --------------------------------- 1. Front of the Registration Statement and Outside Front Cover of Prospectus Outside Front Cover Page 2. Inside Front and Outside Back Cover Pages of Prospectus Inside Front Cover Page; Outside Back Cover Page 3. Summary Information and Risk Factors Prospectus Summary; Risk Factors 4. Use of Proceeds Use of Proceeds 5. Determination of Offering Price Outside Front Cover Page; Risk Factors -- Absence of Public Market; Underwriting 6. Dilution Dilution 7. Selling Security Holders Principal and Selling Stockholders 8. Plan of Distribution Outside Front Cover Page; Underwriting 9. Legal Proceedings Business -- Legal Proceedings 10. Directors, Executive Officers, Promoters and Control Persons Management -- Directors and Executive Officers 11. Security Ownership of Certain Beneficial Owners and Management Principal and Selling Stockholders 12. Description of Securities Outside Front Cover Page; Description of Securities 13. Interest of Named Experts and Counsel Not Applicable 14. Disclosure of Commission Position on Indemnification for Securities Act Liabilities Management -- Limitation on Officers' and Directors' Liabilities 15. Organization Within Last Five Years Certain Transactions 16. Description of Business Business 17. Management's Discussion and Analysis or Plan of Operation Plan of Operations 18. Description of Property Business -- Facilities 19. Certain Relationships and Related Transactions Certain Transactions 20. Market for Common Equity and Related Stockholder Matters Risk Factors -- Absence of Public Market; Dividend Policy; Description of Securities 21. Executive Compensation Management -- Executive Officers' Compensation 22. Financial Statements Financial Statements 23. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure Not Applicable
Information contained herein is subject to completion or amendment. A registration statement relating to these securities has been filed with the Securities and Exchange Commission. These securities may not be sold nor may offers to buy be accepted prior to the time the registration statement becomes effective. This prospectus shall not constitute an offer to sell or the solicitation of an offer to buy nor shall there be any sale of these securities in any State in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such State. SUBJECT TO COMPLETION, DATED SEPTEMBER 11, 1996 PROSPECTUS [LOGO] WEBSECURE, INC. 1,000,000 SHARES OF COMMON STOCK AND 1,000,000 REDEEMABLE COMMON STOCK PURCHASE WARRANTS WebSecure, Inc., a Delaware corporation (the "Company"), hereby offers 1,000,000 shares (the "Shares") of common stock, $.01 par value per share (the "Common Stock") and 1,000,000 redeemable common stock purchase warrants (the "Redeemable Warrants"). The Common Stock and the Redeemable Warrants offered hereby (sometimes hereinafter collectively referred to as the "Securities") may be purchased separately in this offering (the "Offering"). Each Redeemable Warrant entitles the holder to purchase one share of Common Stock at a price of $9.60 per share commencing ninety (90) days from the date of this Prospectus until _______, 1999. The Redeemable Warrants are redeemable by the Company at a redemption price of $.20 per Redeemable Warrant at any time commencing 90 days from the date of this Prospectus on 30 days' prior written notice, provided that the average of the high and low sales prices of the Common Stock during 10 consecutive trading days ending within 20 days prior to the notice of redemption equals or exceeds $12.00 per share. A certain stockholder of the Company (the "Selling Stockholder") has granted the underwriters of the Offering (the "Underwriters") an option, exercisable within 30 days after the date hereof, to purchase up to an additional 150,000 shares of Common Stock to cover overallotments, if any. See "DESCRIPTION OF SECURITIES." Prior to this Offering, there has been no public market for the Common Stock or the Redeemable Warrants and no assurance can be given that any such market will develop or, if developed, that it will be sustained. It is currently anticipated that the initial public offering prices will be between $7.00 and $8.00 per share of Common Stock and $.20 per Redeemable Warrant. For the method of determining the initial public offering price of the Common Stock and Redeemable Warrants, see "RISK FACTORS" and "UNDERWRITING." The Company intends to apply for listing of the shares of Common Stock and Redeemable Warrants offered hereby on the American Stock Exchange ("AMEX") under the symbols "WBS" and "WBS.WS", respectively. __________________________ THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK AND IMMEDIATE SUBSTANTIAL DILUTION. SEE "RISK FACTORS" COMMENCING ON PAGE 6 AND "DILUTION." __________________________ THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
PRICE TO UNDERWRITING PROCEEDS TO PUBLIC DISCOUNT(1) COMPANY(2) ------- ------------ ---------- Per Share $ $ $ Per Redeemable Warrant $ $ $ ------- ------------ ---------- Total(3) $ $ $ ======= ============ ==========
- ----------- (1) Does not reflect additional compensation to be received in the form of (a) a 3% non-accountable expense allowance and other compensation payable to Coburn & Meredith, Inc. and Shamrock Partners, Ltd., the representatives of the Underwriters (the "Representatives") and (b) a warrant (the "Representatives' Warrant") to purchase up to 100,000 shares of Common Stock at $10.40 price per share and/or up to 100,000 Redeemable Warrants at $.26 per Redeemable Warrant. In addition, the Company has agreed to indemnify the Underwriters against certain civil liabilities, including liabilities under the Securities Act of 1933, as amended (the "Securities Act"). See "UNDERWRITING." (2) Before deducting additional expenses of the Offering payable by the Company, estimated at $430,000, excluding the Representatives' non-accountable expense allowance. (3) The Selling Stockholder and the Company have granted the Underwriters an option to purchase up to an additional 150,000 shares of Common Stock and up to 150,000 Redeemable Warrants, respectively, on the same terms and conditions set forth above, solely to cover overallotments, if any. If the overallotment option is exercised in full, the total "Price to Public," "Underwriting Discount," "Proceeds to Company" and Proceeds to Selling Stockholders will be $___ , $___ , $ and $___ , respectively. See "UNDERWRITING." ________________________ The Shares and Redeemable Warrants are being offered on a "firm commitment basis" by the Underwriters, when, as, and if delivered to and accepted by the Underwriters and subject to prior sale, withdrawal or cancellation of the offer without notice. It is expected that delivery of certificates representing the Securities will be made at the clearing offices of Coburn & Meredith, Inc., New York, New York, on or about , 1996. COBURN & MEREDITH, INC. SHAMROCK PARTNERS, LTD. THE DATE OF THIS PROSPECTUS IS , 1996 IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE SHARES OR THE REDEEMABLE WARRANTS AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH TRANSCTIONS MAY BE EFFECTED ON THE AMERICAN STOCK EXCHANGE, OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. Prior to this Offering, the Company has not been a reporting company under the Securities Exchange Act of 1934, as amended (the"Exchange Act"). Subsequent to this Offering, the Company intends to furnish to its stockholders annual reports, which will include financial statements audited by independent accountants, and such other periodic reports as it may determine to furnish or as may be required by law. PROSPECTUS SUMMARY The following summary is qualified in its entirety by reference to the more detailed information and Financial Statements and Notes thereto appearing elsewhere in this Prospectus. Unless otherwise indicated, the information in this Prospectus assumes an initial public offering price of $8.00 per share, no exercise of the Underwriters' overallotment option, the Redeemable Warrants or the Representatives' Warrant. THE COMPANY WebSecure, Inc. (the "Company"), a development stage company, is an Internet service provider that offers Internet access and support services to businesses for secure commercial transactions and communications over the Internet. The Company plans to offer a broad range of marketing, sales and connectivity solutions to businesses and, to a lesser extent, to individuals, including the establishment of (i) commercial sites on the World Wide Web (the "Web"), (ii) electronic store design, (iii) browsing and purchasing capabilities, and (iv) transaction processing. The Company will also provide general Internet services, such as connectivity to the Internet and electronic mail hosting services. By offering turnkey solutions to commercial Internet needs, the Company plans to become a "one-stop provider" of Internet products and services to businesses seeking to establish a commercial presence over the Internet. In addition to the Company's array of Internet services generally offered by providers, the Company plans to offer customers the ability to engage in secure personal computer ("PC") to PC Internet commerce transactions, utilizing software applications for business transactions that contain credit card or other confidential information, and for confidential Internet communications purposes. The Company has developed for marketing to the public comprehensive service and support capabilities that include the following: * Internet access and host services. * Internet business development and marketing services. * Internet secure commerce processing. * Internet hardware and software. * Internet training. The range of customized service options include full Internet access service, SLIP/PPP connection, Web browsing capability, electronic mail and USENET News, among others. The Company's Internet business development and marketing services also provide commercial users with a back-end link from the user's Internet host site to major accounting systems, including SBT, and business management support for integrating secure Internet commerce into the user's existing accounting financial systems. In addition, a turn-key arrangement is available to meet the needs of individual users, along with sales and marketing consulting to implement Internet commerce capability. The Company further offers support to develop and maintain a Web host presence for businesses and to assist clients in marketing and selling through the Internet. To assist businesses in utilizing the Internet, the Company offers training classes in accessing and navigating through the Internet, which classes are tailored to each user's environment, including support for Windows, Windows 95, Windows NT and Macintosh client access. According to Input, a market research firm, it is estimated that worldwide corporate spending on Internet technologies and services more than tripled between 1994 and 1995, reaching approximately $12 billion in 1995. By the year 2000, Input projects total spending to reach $200 billion, reflecting the growth in this industry. The Internet and the Web provide users with the potential for a new commercial marketplace in which goods, services and information can be marketed and sold, and over which other financial transactions can occur. Although no assurances can be given, the Company believes that the use of the Internet as a commercial medium will become more widespread with the continued development and acceptance of systems providing secure execution of financial transactions. From the net proceeds of this Offering, the Company expects to devote approximately 30% to increased marketing and sales activity and approximately 30% for programming research and service development. The Company was incorporated under Delaware law on July 19, 1995. The Company's executive offices are located at 1711 Broadway, Saugus, Massachusetts 01906 and its telephone number is (617) 867-2300. 3 THE OFFERING Securities Offered by the Company................. 1,000,000 shares of Common Stock and 1,000,000 Redeemable Warrants. Each Redeemable Warrant entitles the holder to purchase one share of Common Stock at a price of $9.60 per share commencing 90 days from the date of this Prospectus until ____ , 1999. The Redeemable Warrants may be redeemed by the Company if the average of the high and low sales prices of the Common Stock equals or exceeds $12.00 per share during 10 consecutive trading days. See "DESCRIPTION OF SECURITIES." Shares of Common Stock to be Outstanding After Offering.......... 5,605,000 shares(1)(2) Use of Proceeds........... The net proceeds of the Offering will be used for selling and marketing; research and development; purchase or lease of capital equipment and software; repayment of indebtedness; and working capital and general corporate purposes. See "USE OF PROCEEDS." Proposed AMEX Symbols(3): Common Stock .......... WBS Redeemable Warrants ... WBS.WS - --------- (1) Excludes (a) 800,000 shares of Common Stock reserved for issuance upon exercise of stock options which may be granted under the Company's 1996 Stock Option Plan, of which options to purchase 394,800 shares are outstanding as of the date of this Prospectus and (b) 60,000 shares of Common Stock reserved for issuance upon exercise of stock options which may be granted under the Company's 1996 Formula Stock Option Plan, of which options to purchase 5,000 shares are outstanding as of the date of this Prospectus. See "RISK FACTORS -- Substantial Options and Warrants Reserved" and "MANAGEMENT." (2) Includes 2,500,000 shares of Common Stock issued upon the conversion of the 625,000 shares of Class B Common Stock outstanding as of the date of this Prospectus. (3) No assurance can be given that an active trading market will develop, or if developed, will be sustained for the Common Stock or the Redeemable Warrants. See "RISK FACTORS -- Absence of Public Market." 4 SUMMARY FINANCIAL INFORMATION The following sets forth certain historical financial information of the Company.
CUMULATIVE PERIOD FROM FROM NINE MONTHS INCEPTION INCEPTION ENDED (JULY 19, 1995) TO (JULY 19, 1995) TO MAY 31, 1996 AUGUST 31, 1995 MAY 31, 1996 ------------ ----------------- ----------------- STATEMENT OF OPERATIONS DATA: Revenue $ 41,772 $ -- $ 41,772 Loss from operations (7,231,563) (33,626) (7,265,189) Net loss (7,258,649) (33,626) (7,292,275) Net loss per common and common equivalent share(1) (1.51) (0.01) (1.52) Shares used in computing net loss per common and common equivalent share(1) 4,804,900 4,804,900 4,804,900
MAY 31, 1996 ---------------------------- ACTUAL AS ADJUSTED(2) --------- -------------- BALANCE SHEET DATA: Current assets $ 966,114 $ 7,670,114 Total assets 1,860,516 8,564,516 Working capital (deficiency) (8,095) 6,695,905 Total liabilities 1,302,066 1,302,066 Stockholders' equity 558,450 7,262,450
- --------- (1) Computed on the basis described in Note 2 of Notes to Financial Statements. (2) Gives effect to the receipt by the Company of the estimated net proceeds of approximately $6,704,000 from the sale of the Securities offered hereby. See "RISK FACTORS -- Substantial Options and Warrants Reserved" and "UNDERWRITING." 5 RISK FACTORS An investment in the Company is speculative in nature and should not be considered by investors who are not able to bear the risk of losing their entire investment. The following risk factors should be considered carefully in addition to the other information contained elsewhere in this Prospectus before purchasing the Common Stock or Redeemable Warrants offered hereby. Limited Operating History; Accumulated Deficit; No Assurance of Successful Operations; Qualified Report of Independent Certified Public Accountants. The Company is a development stage company founded in July 1995 and presently has only a limited number of customers utilizing its services on a trial basis. The Company does not intend to offer most of its planned services commercially until the second half of 1996. Accordingly, the Company has only a limited operating history upon which an evaluation of the Company and its prospects can be based. The Company's prospects are subject to all of the risks encountered by a company in an early stage of development, particularly in light of the uncertainties relating to the new and evolving markets in which the Company intends to operate. To address these risks, the Company must, among other things, further develop and/or license supporting software from third parties; commercially offer its services; successfully implement its marketing strategy; respond to competitive developments; attract, retain and motivate qualified personnel; and develop and upgrade its technology. No assurance can be given that the Company will succeed in addressing any or all of these issues and the failure to do so would have a material adverse effect on the Company's business, prospects, financial condition and operating results. In addition, the report by the Company's independent certified public accountants on the Company's financial statements for the nine months ended May 31, 1996, the period from inception (July 19, 1995) to August 31, 1995 and for the cumulative period from inception (July 19, 1995) to May 31, 1996 states that the Company incurred a cumulative net loss of $7,292,275 through May 31, 1996 which raises substantial doubt about the Company's ability to continue as a going concern without the anticipated proceeds from the Offering and increased revenues and earnings from operations. The Company anticipates realizing only limited revenue during 1996, and the Company's ability to generate meaningful revenue thereafter is subject to substantial uncertainty. The Company anticipates that its operating expenses will increase substantially in the foreseeable future as it further develops its technology and offers its services, increases its sales and marketing activities, creates and expands the distribution channels for its services and broadens its customer support capabilities. Accordingly, the Company expects to incur losses for the foreseeable future. No assurance can be given that the Company's services will be rendered successfully or on a timely basis, or that the Company will be successful in obtaining market acceptance of its services. No assurance can be given that the Company will be able to achieve or sustain operating profitability. See "PLAN OF OPERATIONS." Early Stage of Market Development; Unproven Acceptance of the Company's Proposed Products and Services. Most of the Company's services are designed as a means of facilitating commerce over the Internet, which is a worldwide communications system that allows users to transmit and receive messages and information over telephone and other communications lines using terminals or computers. The market for the Company's services is at a very early stage of development, is evolving rapidly, and is characterized by an increasing number of market entrants who have introduced or are developing competing products and services. As is typical for a new and rapidly evolving industry, demand and market acceptance for recently introduced products and services are subject to a high level of uncertainty. The adoption of the Internet for commerce and as a means of communication, particularly by those individuals and enterprises that historically have relied upon traditional means of commerce and communication, will require a broad acceptance of new methods of conducting business and exchanging information. Enterprises that already have invested substantial resources in other methods of conducting business may be reluctant or slow to adopt a new strategy that may limit or compete with their existing business. Individuals with established patterns of purchasing goods and services and effecting payments may be reluctant to alter those patterns. Moreover, the security and privacy concerns of existing and potential users of the Company's services, as well as concerns related to confidentiality, may inhibit the growth of Internet commerce and communication generally, and market acceptance of the Company's services in particular. 6 The use of the Company's services is dependent in part upon the continued development of an industry and infrastructure for providing Internet access and carrying Internet traffic. The Internet may not prove to be a viable commercial marketplace or communications network because of inadequate development of the necessary infrastructure, such as adequate capacity, a reliable network, acceptable levels of security or timely development of complementary products, such as high speed modems. If the Company's market fails to develop or develops more slowly than expected, or if the infrastructure for the Internet is not adequately developed or the Company's services do not achieve market acceptance by a significant number of individuals and businesses, the Company's business, financial condition, prospects and operating results will be materially and adversely affected. Dependence on Third-Party Intellectual Property Rights. The Company currently licenses certain proprietary and patented technology from third parties. No assurance can be given that any patented technology licensed by the Company will provide meaningful protection from competitors. Even if a competitor's products were to infringe on patents licensed by the Company, it would be costly for the Company to enforce its rights in an infringement action and would divert funds and management resources from the Company's operations. See "BUSINESS -- Proprietary Information." All of the Company's planned services incorporating data encryption and authentication is based on proprietary software of RSA Data Security ("RSA"), which is licensed, on a non-exclusive basis, through SBT Corporation, a nonaffiliated company ("SBT"). The Company has licensed the rights to another encryption technology called Titan(tm) from a nonaffiliated company. No assurance can be given as to when, or if, the Titan(tm) encryption technology will be ready for commercial use by the Company. Until such technology may be used by the Company, as to which no assurance can be given, the Company intends to continue to use the RSA encryption software licensed through SBT. No assurance can be given that the encryption software presently licensed by the Company will continue to be available to the Company on commercially reasonable terms, or at all. In the past, certain parties have claimed to have rights with respect to the encryption software licensed by the Company. If such claims are pursued successfully by such parties, the Company may be prevented from using the software or, in the alternative, the Company may be forced to pay an additional royalty to use such software. The Company also licenses, on a non-exclusive basis, accounting and business support software from SBT. No assurance can be given that the Company's third party licenses will continue to be available to the Company on commercially reasonable terms, or at all. The loss of or inability to maintain any of these software licenses could result in delays in introduction of the Company's services until equivalent software, if available, is identified, licensed and integrated into the Company's planned services, which could have a material adverse effect on the Company's business, financial condition, prospects and operating results. See "BUSINESS -- Proprietary Information" and "BUSINESS -- Research and Development." Competition. The market for Internet-based software and services is new and rapidly evolving, resulting in a dynamic competitive environment. The Company competes with many companies that have substantially greater financial, marketing, technical and human resources than the Company. In addition, there are many companies that may enter the market in the future with new technologies, products and services that may be competitive with services offered or to be offered by the Company. Because there are many potential entrants to the field, it is extremely difficult to assess which companies are likely to offer competitive products and services in the future, and in some cases it is difficult to discern whether an existing product or service is competitive with the Company's services. The Company expects competition to persist and intensify in the future. Competitive factors in the Internet-based software and services market include core technology, breadth of product functionality and features, product performance and quality, marketing and distribution resources, customer service and support and price. Additional competition could come from other Internet companies and software and hardware vendors that incorporate Internet payment capabilities into their products or other Internet services companies that provide hosting, connectivity, Internet training and domain registration services. The payment mechanisms used by the Company in the provision of its services utilize existing credit card verification procedures. Certain of the Company's competitors and potential competitors have developed or are developing new methods to transmit, verify and accept credit card payments over the Internet. In this regard, MasterCard and Visa recently announced that they would work together to establish a single industry standard for secure electronic transactions. These and other potential new payment 7 mechanisms may be perceived to be superior to those employed by the Company and could render the Company's services unmarketable. In addition, if an industry standard is established, no assurance can be given that the technology upon which such standard is based will be available to the Company on commercially reasonable terms, or at all, which could have a material adverse effect on the Company's business, financial condition, prospects and operating results. Virtually all of the Company's current and potential competitors have longer operating histories, greater name recognition, larger installed customer bases and significantly greater financial, technical and marketing resources than the Company. Such competitors may be able to undertake more extensive marketing campaigns, adopt more aggressive pricing policies and make more attractive offers to potential customers. In addition, many of the Company's current or potential competitors, such as Netscape, Microsoft and AT&T have broad distribution channels that may be used to bundle competing products directly to end-users or purchasers. If such competitors were to bundle products that compete with the Company for sale to their customers, the demand for the Company's services may be substantially reduced, and the ability of the Company to broaden the utilization of its services would be substantially diminished. No assurance can be given that the Company will be able to compete effectively with current or future competitors or that such competition will not have a material adverse effect on the Company's business, financial condition, prospects and operating results. See "BUSINESS -- Competition." Potential Fluctuations in Quarterly Operating Results. As a result of the Company's limited operating history, the Company has only limited historical financial data for quarterly periods on which to base planned operating expenses. The Company's planned expense levels are based in part on its development and marketing requirements and anticipated competition, as well as its expectations as to future revenue. However, the Company has recognized very limited revenue to date, which makes future revenue levels difficult to forecast. The Company may be unable to adjust its spending levels on a timely basis to compensate for unexpected revenue shortfalls. In addition, the Company anticipates that its operating expenses will increase substantially in the future as the Company continues to develop and market its initial services, seeks to increase its selling and marketing activities, attempts to create and expand the distribution channels for its services, and broadens its customer support capabilities. The inability of the Company to offer its services on a timely basis or any material shortfall in demand for the Company's services in relation to the Company's expectations would have a material adverse effect on the Company's business, financial condition, prospects and operating results. The Company expects to experience significant fluctuations in future quarterly operating results that may be caused by many factors. These factors include, among others, the timing of the introduction of, or enhancements to, the Company's services; demand for the Company's services; the timing of introduction of products or services by the Company's competitors; the mix of the Company's services provided, market acceptance of Internet commerce, the timing and rate at which the Company increases its expenses to support projected growth; competitive conditions in the industry and general economic conditions. The Company believes that period-to-period comparisons of its operating results are not meaningful and should not be relied upon as any indication of future performance. Due to the foregoing factors, among others, it is likely that the Company's future quarterly operating results will not meet the expectations of market analysts or investors from time to time or at all, which may have a material adverse effect on the market price of the Company's Securities. See "PLAN OF OPERATIONS." Development of New Services, Industry Acceptance and Technological Change. A substantial portion of the Company's anticipated revenue will be derived from fees charged to businesses and individuals for transactions effected through the Company. Accordingly, broad acceptance of the Company's services by these businesses and individuals is critical to the Company's success, as is the Company's ability to design, develop, test, introduce and support new services and enhancements on a timely basis that meet changing customer needs and respond to technological developments and emerging industry standards. The market for the Company's proposed services is characterized by rapidly changing technology and evolving industry standards. The Company's proposed services are designed around certain technical standards with respect to data encryption and current and future sales of the Company's services will be dependent on industry acceptance of such standards. While the Company intends to provide compatibility with the standards promulgated by leading industry 8 participants and groups, widespread adoption of a proprietary or closed standard could preclude the Company from effectively doing so. Moreover, a number of leading industry participants have announced their intention to enter into or expand their position in the market for Internet payments through the development of new technologies and standards. No assurance can be given that the Company's services will achieve market acceptance; that the Company will be successful in developing and introducing its proposed services or new services that meet changing customer needs; that the Company will be able to respond to technological changes or evolving industry standards in a timely manner, if at all; or that the standards upon which the Company's services are or will be based will be accepted by the industry. In addition, no assurance can be given that services or technologies developed by others will not render the Company's services noncompetitive or obsolete. The inability of the Company to respond to changing market conditions, technological developments, evolving industry standards or changing customer requirements, or the development of competing technology or products that renders the Company's services noncompetitive or obsolete, would have a material adverse effect on the Company's business, financial condition, prospects and operating results. See "BUSINESS -- Marketing and Sales." Risks of Defects and Development Delays. The Company has not sold a material amount of its services and proposed services, in part because these services require additional software development. Services based on sophisticated software and computing systems often encounter development delays and the underlying software may contain undetected errors or failures when introduced or when the volume of services provided increases. The Company may experience delays in the development of the software and computing systems underlying the Company's proposed services. In addition, there can be no assurance that, despite testing by the Company and potential customers, errors will not be found in the underlying software, or that the Company will not experience development delays, which could result in delays in the market acceptance of its services and could have a material adverse effect on the Company's business, financial condition, prospects and operating results. See "BUSINESS -- Research and Development." Dependence on Key Personnel. The Company's performance is substantially dependent on the performance of its executive officers and key employees, most of whom have worked together for only a short period of time. The Company is dependent on its ability to retain and motivate high quality personnel, especially its management and development teams. The Company does not have "key person" life insurance policies on any of its employees. The loss of the services of any of its key employees could have a material adverse effect on the Company's business, financial condition, prospects and operating results. The Company's future success also depends on its continuing ability to identify, hire, train and retain highly qualified technical and managerial personnel. Competition for such personnel is intense. No assurance can be given that the Company will be able to attract, assimilate or retain qualified technical and managerial personnel in the future, and the failure of the Company to do so would have a material adverse effect on the Company's business, financial condition, prospects and operating results. See "BUSINESS -- Employees" and "MANAGEMENT." Limited Sales Force; Evolving Distribution Channels. The Company has few sales and marketing employees and does not have established distribution channels for its services. In order to generate substantial revenue, the Company must achieve broad distribution of its services to businesses and individuals and secure general adoption of its services and technology. No assurance can be given as to the ability of the Company to generate sufficient demand for its services and the inability of the Company to do so would have a material adverse effect on the Company's business, financial condition, prospects and operating results. See "BUSINESS -- Marketing and Distribution." Dependence on Intellectual Property Rights; Risk of Infringement. The Company's success and ability to compete are dependent in part upon its proprietary technology relating to the encryption of credit card payment information over the Internet. The Company has no patents and relies on applicable copyright, trade secret and trademark laws to protect certain proprietary information of the Company. To the extent proprietary technology is involved, the Company relies on trade secrets that it seeks to protect, in part, through confidentiality agreements with certain employees, consultants and other parties. No assurance can be given that these agreements will not be breached, that the Company will have adequate remedies for any breach, or that the Company's trade secrets will not otherwise become 9 known to, or independently developed by, existing or potential competitors of the Company. The Company generally does not seek to protect its proprietary information through patents or registered trademarks, although it may seek to do so in the future. The Company may be involved from time to time in litigation to determine the enforceability, scope and validity of its rights. In addition, no assurance can be given that the Company's products will not infringe any patents of others. Litigation in order to protect the Company's intellectual property rights could result in substantial cost to the Company and diversion of effort by the Company's management and technical personnel. See "BUSINESS -- Proprietary Information." Risks Associated with Encryption Technology. A significant barrier to Internet commerce is the secure exchange of financial information over public networks. The Company relies on encryption and authentication technology licensed from third parties to provide the security and authentication necessary to effect the secure exchange of financial information over the Internet, including public key cryptography technology licensed from RSA. No assurance can be given that advances in computer capabilities, new discoveries in the field of cryptography or other events or developments will not result in a compromise or breach of the RSA or other algorithms used by the Company to protect customer transaction data. In August and September 1995, certain RSA algorithms used by Netscape were compromised. There can be no assurance that the Company's security will not likewise be compromised. If any such compromise of the Company's security were to occur, it could have a material adverse effect on the Company's business, financial condition, prospects and operating results. In addition, no assurance can be given that existing security systems of others will not be penetrated or breached, which could have a material adverse effect on the market acceptance of Internet security services. This could have a material and adverse effect on the Company's business, financial condition, prospects and operating results. Government Regulation and Legal Uncertainties. The Company is not currently subject to direct regulation by any government agency, other than regulations applicable to businesses generally, and there are currently few laws or regulations directly applicable to access to, or commerce on, the Internet. However, due to the increasing popularity and use of the Internet, it is possible that a number of laws and regulations may be adopted with respect to the Internet, covering issues such as user privacy, pricing and characteristics and quality of products and services. The recently enacted Telecommunications Reform Act of 1996 imposes criminal penalties on anyone who distributes obscene, lascivious or indecent communications on the Internet. The adoption of any laws or regulations governing commerce on the Internet may result in decreased growth of the Internet, which could have an adverse effect on the Company's business, financial condition, prospects and operating results. Moreover, the applicability to the Internet of existing laws governing issues such as property ownership, libel and personal privacy is uncertain. Further, due to the encryption technology contained in the Company's products, such products are subject to U.S. export controls. No assurance can be given that such export controls, either in their current form or as may be subsequently enacted, will not delay the introduction of new products or limit the Company's ability to distribute products outside the United States or electronically. While the Company intends to take precautions against unlawful exportation, the global nature of the Internet makes it virtually impossible to effectively control the distribution of the Company's products. In addition, federal or state legislation or regulation may further limit levels of encryption or authentication technology. Further, various countries regulate the import of certain encryption technology and have adopted laws relating to personal privacy issues which could limit the Company's ability to distribute products in those countries. Any such export or import restrictions, new legislation or regulation or government enforcement of existing regulations could have a material adverse impact on the Company's business, financial condition, prospects and operating results. Future Capital Needs; Uncertainty of Additional Financing. The Company currently anticipates that its available cash resources combined with the net proceeds of this Offering, as well as anticipated funds from operations, will be sufficient to meet its presently anticipated working capital and capital expenditure requirements for at least the next 12 months. Thereafter, the Company may need to raise additional funds. The Company may need to raise additional funds sooner in order to fund more rapid expansion, to develop new or enhanced services, to respond to competitive pressures or to acquire complementary businesses or technologies. If additional funds are raised through the issuance of equity securities, the percentage ownership of the stockholders of the Company will be reduced, stockholders 10 may experience additional dilution, or such equity securities may have rights, preferences or privileges senior to those of the holders of the Company's Common Stock. No assurance can be given that additional financing will be available when needed on terms favorable to the Company or at all. If adequate funds are not available or are not available on acceptable terms, the Company may be unable to develop or enhance its services, take advantage of future opportunities or respond to competitive pressures, which could have a material adverse effect on the Company's business, financial condition, prospects and operating results. See "DILUTION," "USE OF PROCEEDS" and "PLAN OF OPERATIONS -- Liquidity and Capital Resources." Management of Growth. If there is market acceptance for the services to be offered by the Company, the Company anticipates that it will be required to expand its operations to address such market demand. In addition, the Company anticipates significantly increasing the size of its research and development, sales and marketing and customer support staff following the completion of this Offering. There can be no assurance that such internal expansion will be successfully completed, that such expansion will result in market acceptance of the Company's services, that such expansion will generate sufficient revenues, or that the Company will be able to compete successfully against the significantly more extensive and well-funded sales and marketing and research and development operations of the Company's competitors. In addition, a substantial number of the Company's employees were only recently hired, thereby subjecting the Company to increased risk of employee turnover. The Company's rapid growth and the integration of operations is expected to place a significant strain on the Company's managerial, operational and financial resources. The inability of the Company to promptly address and respond to these circumstances could have a material adverse effect on the Company's business, financial condition, prospects or operating results. Risk of Loss From Returned Transactions, Merchant Fraud or Erroneous Transmissions. The Company intends to utilize two principal fund transfer systems: the automated clearinghouse ("ACH") system for electronic fund transfers and the national credit card systems (e.g., American Express, Discover, MasterCard and Visa) for electronic credit card settlements. In its use of these established payment systems, the Company may bear some of the credit risks normally assumed by other users of these systems arising from returned transactions caused by unauthorized use, disputes, theft or fraud. The Company also may bear some risk of merchant fraud and transmission errors if it is unable to have erroneously transmitted funds returned by an unintended recipient. In addition, the agreement between the Company's users of its services for allocation of these risks will be in electronic form, and while digitally signed, will not be manually signed and hence may not be enforceable. Finally, the Company may be subject to merchant fraud, including such actions as inputting false sales transactions or false credits. Returned transactions, merchant fraud or erroneous transmissions could have a material adverse effect on the Company's business, financial condition, prospects or operating results. See "BUSINESS -- Seamless Commerce(tm) over the World Wide Web." System Interruption and Security Risks; Potential Liability and Lack of Insurance. The Company's operations are dependent on its ability to protect its computer system from interruption due to system malfunction or due to damage from fire, earthquake, power loss, telecommunications failure, unauthorized entry or other events, many of which are beyond the Company's control. Any malfunction, damage, failure or other condition or event that causes interruptions in the Company's operations could have a material adverse effect on the Company's business, financial condition, prospects or operating results. The Company has experienced disruption in its computer systems in the past due to human error and it is possible that the Company may experience similar disruptions in the future. Most of the Company's computer equipment, including its processing equipment, is currently located at a single site. While the Company believes that its existing and planned precautions of redundant systems, regular data backups and other procedures are adequate to prevent any significant system outage or data loss, no assurance can be given that such procedures will be adequate to prevent or ameliorate any failure or loss. Despite the implementation of security measures, the Company's data infrastructure may also be vulnerable to computer viruses, hackers or similar disruptive problems caused by its customers, other Internet users or otherwise, which may result in significant liability to the Company and also may deter potential customers from using the Company's services. Persistent problems continue to affect public and private data networks. The Company intends to 11 limit its liability to customers, including liability arising from the failure of the security features contained in the Company's system and services, through contractual provisions. However, no assurance can be given that such limitations will be enforceable. The Company currently does not have product liability insurance to protect against these risks and no assurance can be given that such insurance will be available to the Company on commercially reasonable terms or at all. Bank Failure; Limitation on Access to Funds. Certain of the Company's services may involve holding funds of individuals in financial institutions. These funds will be held in accounts by the Company as agent for these individuals. The Company will use reasonable business judgment in selecting the financial institutions in which funds are held, and will place funds only in banks which are subject to state or federal regulation (or the non-U.S. equivalent), are insured by the Federal Deposit Insurance Corporation and are believed by the Company to be financially sound. Furthermore, the Company believes that because the user funds would be held in a fiduciary or trust capacity by the Company, they would not be subject to the claims of the Company's creditors or a bankruptcy trustee. There can be no assurance, however, that should there be a failure of a financial institution in which the Company has placed user funds, or should a creditor or trustee of a user or of the Company seek control over an agency account containing user funds, that the Company would not be subject to litigation and possible liability to users. The Company does not have insurance to protect against certain of these risks, and there is no assurance that such insurance will become available, or if made available, would be affordable to the Company. No Prior Public Market; Possible Volatility of Stock Price. Prior to this Offering, there has been no public market for the Company's Common Stock or Redeemable Warrants, and there can be no assurance that an active public market for the Common Stock or Redeemable Warrants will develop or be sustained after the Offering. The initial offering price will be determined by negotiation between the Company and the Underwriters based upon several factors. See "UNDERWRITING." The market price of the Company's Common Stock and Redeemable Warrants is likely to be highly volatile and could be subject to wide fluctuations in response to quarterly variations in operating results, announcements of technological innovations or new software or services by the Company or its competitors, changes in financial estimates by securities analysts, or other events or factors, many of which are beyond the Company's control. In addition, the stock market has experienced significant price and volume fluctuations that have particularly affected the market prices of equity securities of many high technology companies and that often have been unrelated to the operating performance of such companies. These broad market fluctuations may adversely affect the market price of the Company's Common Stock and Redeemable Warrants. In the past, following periods of volatility in the market price for a company's securities, securities class action litigation has often been instituted. Such litigation could result in substantial costs and a diversion of management attention and resources, which could have a material adverse effect on the Company's business, financial condition, prospects or operating results. Shares Eligible for Future Sale. Sales of substantial numbers of shares of Common Stock in the public market following this Offering could adversely affect the market price for the Common Stock. Upon completion of the Offering, the Company will have outstanding an aggregate of 5,605,000 shares of Common Stock, assuming no exercise of outstanding options and warrants. Of these shares, all of the shares sold in this Offering will be freely tradeable without restriction or further registration under the Securities Act of 1933, as amended (the "Securities Act"), unless such shares are purchased by "affiliates" of the Company, as that term is defined in Rule 144 under the Securities Act ("Affiliates"). The remaining 4,605,000 shares of Common Stock held by existing stockholders are "restricted securities" as that term is defined in Rule 144 under the Securities Act (the "Restricted Shares"). Restricted Shares may be sold in the public market only if registered or if they qualify for an exemption from registration. Between December 1997 and April 1998 all of the 4,605,000 shares of Common Stock outstanding as of the date of this Prospectus will become available for sale under Rule 144 promulgated under the Securities Act. All of the Company's officers, directors and holders of 5% or more of the Common Stock have agreed not to sell shares of Common Stock beneficially held by them for a period of 13 months following the date of this Prospectus (except for shares of Common Stock subject to the Underwriters' overallotment option) without the Representatives' written consent. In addition, the Company has agreed that it will not issue any shares of Common Stock for a period 12 of 13 months following the date of this Prospectus without the Representatives' written consent, except for shares of Common Stock issuable upon exercise of stock options that have been or may be granted under the Company's 1996 Stock Option Plan (the "Plan") and 1996 Formula Stock Option Plan (the "Formula Plan"). See "DESCRIPTION OF SECURITIES" and "SHARES ELIGIBLE FOR FUTURE SALE." Dilution; Possible Right to Purchase Additional Shares. Investors participating in this Offering will incur immediate and substantial dilution. To the extent outstanding options or warrants to purchase the Company's Common Stock are exercised, there will be further dilution. See "DILUTION." Substantial Options and Warrants Reserved; Representatives' Warrant. Under the Plan and the Formula Plan, the Company may issue options to purchase up to an aggregate of 860,000 shares of Common Stock to employees, officers, directors, and consultants. Options to purchase 399,800 shares are outstanding under the Plan and Formula Plan as of the date of this Prospectus. In addition, the Redeemable Warrants offered hereby are exercisable to purchase shares of Common Stock at any time commencing 90 days from the date of this Prospectus until ___ , 1999. The Company will also sell to the Representatives the Representatives' Warrant to purchase up to 100,000 shares of Common Stock at a price of $10.40 and up to 100,000 Redeemable Warrants at $0.26 per Redeemable Warrant. The Redeemable Warrants underlying the Representatives' Warrant are exercisable at $10.66 per share. The existence of the Redeemable Warrants, the Representatives' Warrant and the options that may be issued under the Plans or otherwise, may prove to be a hindrance to future financing efforts by the Company. In addition, the exercise of any such options or warrants may further dilute the net tangible book value of the Common Stock. Further, the holders of such options and warrants may exercise them at a time when the Company would otherwise be able to obtain additional equity capital on terms more favorable to the Company. See "MANAGEMENT -- Stock Option Plans" and "UNDERWRITING." The Company has agreed that, under certain circumstances, it will register under federal and state securities laws the Representatives' Warrant and/or the Securities issuable thereunder. In addition, if the Representatives should exercise their registration rights to effect the distribution of the Representatives' Warrant or Securities underlying the Representatives' Warrant, the Representatives, prior to and during such distribution, will be unable to make a market in the Company's securities. If the Representatives cease making a market, the market and market prices for the Securities may be adversely affected, and holders thereof may be unable to sell or otherwise dispose of the Securities. See "UNDERWRITING." Redeemable Warrant Solicitation. Upon the exercise of the Redeemable Warrants more than one year after the date of this Prospectus, and to the extent not inconsistent with the guidelines of the National Association of Securities Dealers, Inc., and the Rules and Regulations of the Securities and Exchange Commission (the "Commission"), the Company has agreed to pay the Representatives a commission equal to five percent of the exercise price of the Redeemable Warrants in connection with solicitations of exercises of Redeemable Warrants made by the Representatives. However, no compensation will be paid to the Representatives in connection with the exercise of the Redeemable Warrants if (a) the market price of the underlying shares of Common Stock is lower than the exercise price, (b) the Redeemable Warrants are exercised in an unsolicited transaction, or (c) the Redeemable Warrants subject to the Representatives' Warrant are exercised. In addition, in connection with any solicitation by the Representatives after the date of this Prospectus of Redeemable Warrant exercises, unless granted an exemption by the Commission from Rule 10b-6 promulgated under the Exchange Act, the Representatives and any other soliciting broker-dealer will be prohibited from engaging in any market making activities with respect to the Company's securities for the period commencing either two or nine business days (depending on the market price of the Common Stock) prior to any solicitation of the exercise of Redeemable Warrants until the later of (i) the termination of such solicitation activity or (ii) the termination (by waiver or otherwise) of any right which the Representatives or any other soliciting broker-dealer may have to receive a fee for the exercise of Redeemable Warrants following such solicitation. As a result, the Representatives or any other soliciting broker-dealer may be unable to provide a market for the Company's securities, should they desire to do so, during certain periods while the Redeemable Warrants are exercisable. See "UNDERWRITING." Requirement to Maintain Current Prospectus; Non-Registration in Certain Jurisdictions of Shares Underlying the Redeemable Warrants; Possible Redemption of Redeemable Warrants. Purchasers of the Redeemable Warrants will have the right to exercise them to purchase shares of Common Stock only if 13 a current prospectus relating to such shares is then in effect and only if the shares are qualified for sale under the securities laws of the state or states in which the purchaser resides. Absent any material changes in the Company's business which would cause this Prospectus to cease to be current at an earlier date, this Prospectus will cease to be current nine months following the date of this Prospectus. The Company has undertaken and intends to maintain a current prospectus that will permit the purchase and sale of the Common Stock underlying the Redeemable Warrants, but there can be no assurance that the Company will be able to do so. The Company will not call the Redeemable Warrants for redemption at any time that a current prospectus covering the Redeemable Warrants is not effective. The Redeemable Warrants may be deprived of any value if a current prospectus covering the shares is not, or cannot be, registered in the applicable states. Commencing 90 days from the date of this Prospectus, the Redeemable Warrants may be subject to redemption at $.20 per Redeemable Warrant on 30 days' prior written notice, provided that the average of the high and low sales prices of the Common Stock equals or exceeds $12.00 per share during the 10 consecutive trading days ending within 20 days prior to the notice of redemption. In the event the Company exercises the right to redeem the Redeemable Warrants, such Redeemable Warrants will be exercisable until the close of business on the date fixed for redemption in such notice. If any Redeemable Warrant called for redemption is not exercised by such time, it will cease to be exercisable and the holder will be entitled only to the redemption price. Therefore, upon the notice of redemption, holders of the Redeemable Warrants may be forced to (i) exercise the Redeemable Warrants at a time when it may be financially disadvantageous to do so, (ii) sell the Redeemable Warrants, notwithstanding possible adverse market conditions, or (iii) accept the nominal redemption price of $.20 per Redeemable Warrant. See "DESCRIPTION OF SECURITIES." Possible Anti-Takeover Effects of Certain Charter Provisions. The Company's Certificate of Incorporation authorizes the Board of Directors to issue up to 1,000,000 shares of preferred stock, $.01 par value per share (the "Preferred Stock"). No shares of Preferred Stock are currently outstanding, and the Company has no present plans for the issuance thereof. The Preferred Stock may be issued in one or more series, the terms of which may be determined at the time of issuance by the Board of Directors, without further action by stockholders, and may include voting rights (including the right to vote as a series on particular matters), preferences as to dividends and liquidation, conversion and redemption rights and sinking fund provisions. However, the issuance of any such shares of Preferred Stock could adversely affect the rights of holders of Common Stock and, therefore, could reduce the value of the Common Stock. In addition, the ability of the Board of Directors to issue Preferred Stock could discourage, delay, or prevent a takeover of the Company. See "DESCRIPTION OF SECURITIES." In addition, the Company, as a Delaware corporation, is subject to the General Corporation Law of the State of Delaware, including Section 203, an anti-takeover law enacted in 1988. In general, the law restricts the ability of a public 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 became an interested stockholder. As a result of the application of Section 203 and certain provisions in the Company's Certificate of Incorporation and Bylaws, potential acquirors of the Company may find it more difficult or be discouraged from attempting to effect an acquisition transaction with the Company, thereby possibly depriving holders of the Company's securities of certain opportunities to sell or otherwise dispose of such securities at above-market prices pursuant to such transactions. Control by Existing Stockholders. Upon completion of this Offering, the existing stockholders will control approximately 82% of the shares of Common Stock eligible to vote and will therefore be able to elect all of the members of the Board of Directors and control the outcome of any issues which may be subject to a vote of the Company's stockholders. See "MANAGEMENT," "DILUTION" and "PRINCIPAL AND SELLING STOCKHOLDERS." Benefit to Affiliates. The Company intends to use a portion of the proceeds from the Offering to repay up to $900,000 of indebtedness owed to Centennial Technologies, Inc. ("Centennial"). Centennial owns approximately 23% of the issued and outstanding shares of Common Stock of the Company prior to the Offering. In addition, Centennial will sell up to 150,000 shares of Common Stock if the Underwriters' over-allotment option is exercised. See "PRINCIPAL AND SELLING STOCKHOLDERS" and "CERTAIN TRANSACTIONS." 14 USE OF PROCEEDS The net proceeds to be received by the Company from the sale of the Shares and Redeemable Warrants offered hereby, after deducting underwriting commissions and other estimated expenses of the Offering, including the Representatives' non-accountable expense allowance, are estimated to be approximately $6,704,000 ($6,730,100 if the Underwriters' overallotment option is exercised in full). The net proceeds are intended to be used approximately as follows:
AMOUNT ------ Selling and Marketing $ 2,000,000 Research and Development 2,000,000 Purchase or Lease of Capital Equipment and Software 1,000,000 Repayment of Indebtedness 900,000 Working Capital and General Corporate Purposes 804,000 ----------- $ 6,704,000 ===========
SELLING AND MARKETING The Company intends to use up to $2,000,000 of the net proceeds of the Offering to increase selling and marketing activities, including hiring additional salespeople. The Company also intends to increase the number of on-site and off-site demonstrations, increase advertising in trade publications and on radio and television, and attend trade shows. See "BUSINESS -- Selling and Marketing." RESEARCH AND DEVELOPMENT The Company intends to use approximately $2,000,000 of the net proceeds from the Offering for research and development activities. The Company intends to hire up to twelve programmers, graphic artists, designers and network engineers to develop and enhance the Company's software to build the Company's network infrastructure and to provide ongoing systems support. The Company also intends to refine and enhance its business and accounting software related to order fulfillment and automated credit clearance. Software programmers may also develop new products for the Company, including products developed from technology licensed from third parties. The Company also intends to hire additional graphic designers and Web site programmers to develop and refine industry-specific Web site templates. See "BUSINESS -- Research and Development." PURCHASE OR LEASE OF CAPITAL EQUIPMENT AND SOFTWARE The Company intends to use up to $1,000,000 of the net proceeds of the Offering to purchase or lease additional equipment and software, including workstations (approximately $200,000), computer servers (approximately $200,000), communications equipment, such as telephone lines, routers and switches (approximately $500,000) and software, including communications, accounting, security and file management software (approximately $100,000). REPAYMENT OF INDEBTEDNESS The Company intends to use up to $900,000 of the proceeds from the Offering to repay loans from Centennial Technologies Inc. ("Centennial"). Centennial has, from time to time, made loans to the Company for general corporate purposes pursuant to promissory notes that bear interest at the rate of 9.0% per annum and are due on demand. As of September 9, 1996, the principal balance on these notes was approximately $855,000. See "PRINCIPAL AND SELLING STOCKHOLDERS" and "CERTAIN TRANSACTIONS." WORKING CAPITAL AND GENERAL CORPORATE PURPOSES Approximately $804,000 of the net proceeds from the Offering will be used for general corporate purposes, including working capital. These amounts may also be used, in part, to purchase additional capital equipment or to fund joint ventures or acquisitions within the Company's principal market. The Company presently has no commitments with respect to any joint venture or acquisition. 15 The allocation of the net proceeds of this Offering set forth above represents the Company's best estimate based upon its present plans and certain assumptions regarding general economic and industry conditions and the Company's future revenues and expenditures. The Company reserves the right to reallocate the proceeds within the above described categories or to other purposes in response to, among other things, changes in its plans, industry conditions, and the Company's future revenues and expenditures. Based on the Company's operating plan, management believes that the proceeds from this Offering and anticipated cash flow from operations will be sufficient to meet the Company's anticipated cash needs and finance its plans for expansion for at least 12 months from the date of this Prospectus. Thereafter, the Company anticipates that it may require additional financing to meet its current or future plans for expansion. No assurance can be given that the Company will be successful in obtaining such financing on favorable terms, or at all. If the Company is unable to obtain additional financing, its ability to meet its current plans for expansion could be adversely affected. See "RISK FACTORS -- Future Capital Needs; Uncertainty of Additional Financing" and "PLAN OF OPERATIONS." Proceeds not immediately required for the purposes described above will be invested principally in U.S. government securities, short-term certificates of deposit, money market funds, or other high- grade, short-term, interest-bearing investments. 16 DILUTION At May 31, 1996, the net tangible book value of the Company was approximately $334,000, or $.07 per share of Common Stock based on the 4,605,000 shares of Common Stock outstanding after giving retroactive effect to the conversion of the Class B Common Stock into 2,500,000 shares of Common Stock. Net tangible book value per share represents the amount of the Company's total assets less the amount of its intangible assets and liabilities, divided by the number of shares of Common Stock outstanding at May 31, 1996. After giving effect to the receipt of the net proceeds (estimated to be approximately $6,704,000) from the sale of the Securities offered hereby, the pro forma net tangible book value of the Company at May 31, 1996, would have been approximately $7,038,000 or $1.26 per share of Common Stock. This would result in dilution to the public investors (i.e., the difference between the offering price of a share of Common Stock and the net tangible book value thereof after giving effect to this Offering) of $6.94 per share. The following table illustrates the per share dilution:
Public offering price per share of Common Stock(1) $ 8.20 Net tangible book value per share of Common Stock at May 31, 1996 $ .07 Increase in net tangible book value per share of Common Stock(1) 1.19 ---- Pro forma net tangible book value per share of Common Stock after Offering(2) $ 1.26 ====== Dilution of net tangible book value per share of Common Stock to new investors $ 6.94 ======
- --------- (1) Including $.20 per Redeemable Warrant. (2) The calculation of pro forma net tangible book value and the other computations above does not include (a) 800,000 shares of Common Stock reserved for issuance upon exercise of stock options which may be granted under the Plan, of which options to purchase 394,800 shares are outstanding as of the date of this Prospectus and (b) 60,000 shares of Common Stock reserved for issuance upon exercise of stock options which may be granted under the Formula Plan, of which options to purchase 5,000 shares are outstanding as of the date of this Prospectus. The following table sets forth, as of the date of this Prospectus, the number of shares of Common Stock purchased, the percentage of Common Stock purchased, the total consideration paid, the percentage of total consideration paid, and the average price per share paid, by the existing stockholders of the Company and the investors in this Offering:
SHARES PURCHASED TOTAL CONSIDERATION ---------------- ------------------- AVERAGE PRICE PER NUMBER PERCENTAGE AMOUNT PERCENTAGE SHARE ------ ---------- ------ ---------- ----- New Investors 1,000,000 17.8% $ 8,000,000 50.0% $8.00 Existing Stockholders(1) 4,605,000 82.2% 7,850,725 50.0% $1.71 --------- ---- ----------- ---- TOTAL 5,605,000 100.0% $15,850,725 100.0% ========= ===== =========== =====
- --------- (1) After giving effect to the conversion of Class B Common Stock into 2,500,000 shares of Common Stock. 17 CAPITALIZATION The following table sets forth the capitalization of the Company as of May 31, 1996, and as adjusted to reflect the sale and issuance of the Securities offered hereby and the initial application of the estimated net proceeds thereof as described in "USE OF PROCEEDS."
MAY 31, 1996 ------------ PRO FORMA ACTUAL AS ADJUSTED ------ ----------- Capital lease obligations, net of current $ 327,857 $ 327,857 ----------- ----------- STOCKHOLDERS' EQUITY: Preferred Stock -- $.01 par value, authorized -- 1,000,000 shares, issued -- none -- -- Common Stock -- $.01 par value, authorized -- 20,000,000 shares, issued -- 2,105,000 shares; 5,605,000 shares pro forma, as adjusted(1)(2) 21,050 56,050 Class B Common Stock -- $.01 par value; authorized -- 2,000,000 shares, issued -- 625,000 shares, zero shares pro forma, as adjusted(2) 6,250 -- Additional paid-in capital 7,827,025 14,502,275 Subscription receivable (3,600) (3,600) Accumulated deficit (7,292,275) (7,292,275) ------------ ------------ Total stockholders' equity 558,450 7,262,450 ------------ ------------ TOTAL CAPITALIZATION $ 886,307 $ 7,590,307 ============ ============
- -------- (1) Does not include (a) 800,000 shares of Common Stock reserved for issuance upon exercise of stock options which may be granted under the Plan, of which options to purchase 394,800 shares are outstanding as of the date of this Prospectus and (b) 60,000 shares of Common Stock reserved for issuance upon exercise of stock options which may be granted under the Formula Plan, of which options to purchase 5,000 shares are outstanding as of the date of this Prospectus. (2) Gives effect to the conversion of 625,000 shares of Class B Common Stock into a total of 2,500,000 shares of Common Stock on the date of this Prospectus. DIVIDEND POLICY The Company has not paid dividends on its Common Stock since its inception and does not intend to pay any dividends to its stockholders in the foreseeable future. The Company currently intends to reinvest earnings, if any, in the development and expansion of its business. The declaration of dividends in the future will be at the election of the Board of Directors and will depend upon the earnings, capital requirements, and financial position of the Company, general economic conditions, and other pertinent factors. 18 SELECTED FINANCIAL DATA The statement of operations data for the period from inception (July 19, 1995) through May 31, 1996 and the balance sheet at May 31, 1996 are derived from, and should be read in conjunction with, the audited Financial Statements and Notes thereto included elsewhere in the Prospectus. The historical operating results are not necessarily indicative of future operating results. The Selected Financial Data should be read in conjunction with "PLAN OF OPERATIONS" and the Financial Statements and the notes thereto included elsewhere in this Prospectus.
PERIOD FROM CUMULATIVE NINE MONTHS INCEPTION FROM INCEPTION ENDED (JULY 19, 1995) TO (JULY 19, 1995) TO MAY 31, 1996 AUGUST 31, 1995 MAY 31, 1996 ------- ---- --------------- ------------ STATEMENT OF OPERATIONS DATA: Revenue: Product revenue $ 17,971 $ -- $ 17,971 Service revenue 23,801 -- 23,801 ----------- ---------- ----------- Total revenue 41,772 -- 41,772 ----------- ---------- ----------- Cost of revenue: Product revenue 13,628 -- 13,628 Service revenue 58,193 -- 58,193 ----------- ---------- ----------- Total cost of revenue 71,821 -- 71,821 ----------- ---------- ----------- Gross margin (30,049) -- (30,049) ----------- ---------- ----------- Operating expenses: Research and development 439,265 809 440,074 Selling and marketing 178,870 1,946 180,816 General and administrative 823,379 30,871 854,250 Charge for acquired research and development 5,760,000 -- 5,760,000 ----------- ---------- ----------- Total operating expenses 7,201,514 33,626 7,235,140 ----------- ---------- ----------- Loss from operations (7,231,563) (33,626) (7,265,189) Interest expense, net (27,086) -- (27,086) ----------- ---------- ----------- Net loss $(7,258,649) $ (33,626) $(7,292,275) =========== ========== =========== Net loss per common and common equivalent share(1) $ (1.51) $ (.01) $ (1.52) =========== ========== =========== Shares used in computing net loss per common and common equivalent share(1) 4,804,900 4,804,900 4,804,900 =========== ========== ===========
MAY 31, 1996 ------------ ACTUAL AS ADJUSTED(2) ------ --------------- BALANCE SHEET DATA: Current assets $ 966,114 $ 7,670,114 Total assets 1,860,516 8,564,516 Working capital (deficiency) (8,095) 6,695,905 Total liabilities 1,302,066 1,302,066 Stockholders' equity 558,450 7,262,450
- --------- (1) Computed on the basis described in Note 2 of the Notes to Financial Statements. (2) Gives effect to the receipt by the Company of the estimated net proceeds of approximately $6,704,000 from the sale of the Securities offered hereby. See "RISK FACTORS -- Substantial Options and Warrants Reserved" and "UNDERWRITING." 19 PLAN OF OPERATIONS OVERVIEW The Company, a development stage company, offers Internet access and support services for secure commercial transactions and communications over the Internet. The Company plans to provide complete solutions for businesses seeking to market and sell products and services over the Internet, including the establishment of (i) commercial Web sites, (ii) electronic store design, (iii) browsing and purchasing capabilities, and (iv) transaction processing. In addition, the Company provides general Internet services, such as connectivity and communications services. By offering turnkey solutions to commercial Internet needs, the Company plans to become a "one-stop provider" of Internet products and services to businesses seeking to establish a commercial presence over the Internet. The financial results for the period from inception (July 19, 1995) to May 31, 1996 relate to the Company's initial organization, establishment of infrastructure and Internet training courses. The Company has incurred losses since inception and has a working capital deficiency. As a result, the independent certified public accountants' report contains an explanatory paragraph regarding the Company's ability to continue as a going concern. The Company does not believe that the operating results from this period will provide meaningful comparisons to subsequent periods. The Company's plan of operation for the next twelve months will principally involve software development to enable the Company to offer certain of its planned services on a commercial basis, the sale of connectivity and the provision of Internet access services, Web page development, intranet systems, and the receipt of transaction fees. After the Offering, the Company intends to use a portion of the proceeds of the Offering to hire additional personnel, including marketing, sales and customer service personnel, to meet the Company's anticipated growth, as to which no assurance can be given. The Company recently upgraded its Internet access to a "Tier I" level, which provides the Company with a direct connection to the National Access Point ("NAP") in Chicago, Illinois. In addition, the Company has established redundancy systems in Boston, Massachusetts with respect to its communication links and computer servers to be used should its direct NAP link or computer servers located at the Company's Saugus, Massachusetts facility experience temporary difficulties. See "RISK FACTORS - System Interruption and Security Risks; Potential Liability and Lack of Insurance." Revenue. The Company has not recognized any meaningful revenue from its inception through May 31, 1996 and the Company anticipates realizing only limited revenue during 1996. The Company's ability to generate significant revenue thereafter is uncertain. The Company's services are directed at businesses that intend to engage in commerce and communications over the Internet. The Company's business plan contemplates that its initial revenue will be derived from providing general Internet services, such as connectivity, hosting and e-mail services. In the future, the Company anticipates it will derive revenue from transaction processing fees from third parties, Web page development, connectivity charges, charges for hosting services, education and intranet networking. Operating Expenses. The Company's cost of revenue has exceeded the Company's service revenue due to the development stage nature of the business. The Company's operating expenses have increased each quarter since the Company's inception. The Company believes that operating expenses will increase in the future as the Company continues the development of its services and expands its operations. Research and Development. The Company's research and development efforts are focused on developing Web site templates suitable to conduct commerce over the Internet. The Company is also developing intranet models for intraorganization communications that can be used by municipal governments and multi-site organizations. The Company's engineers are also developing the Company's communications infrastructure to allow for daily information transfer to the Company for periodic back-up of customer files and disaster control purposes. Selling and Marketing. Selling and marketing expenses are expected to consist primarily of salaries, commissions, trade show expenses, and advertising and marketing costs. The Company anticipates a substantial increase in its selling and marketing expenses in the future. The Company intends to use a direct selling force that will target certain industries and sell across vertical markets, as well as independent sales agents. 20 General and Administrative. General and administrative expenses consist primarily of compensation expenses and fees for professional services. General and administrative expenses were approximately $855,000 for the period from inception to May 31, 1996. Approximately $560,000 of these expenses were paid to Employee Resource Inc. ("ERI"), an employee leasing company owned by the Company's President and Chief Executive Officer, Robert Kuzara. ERI leases to the Company all of its employees, including the officers of the Company. The Company anticipates a substantial increase in its general and administrative expenses in the future. See "CERTAIN TRANSACTIONS." LIQUIDITY AND CAPITAL RESOURCES Since its inception, the Company has financed its activities primarily from notes payable to Centennial Technologies, Inc. ("Centennial") and the sale of its Common Stock to private investors. Working capital deficiency at May 31, 1996 was approximately $(8,095). The Company has a capital lease agreement which is secured by fixed assets and guaranteed by Centennial. The outstanding balance as of May 31, 1996 was approximately $389,000, bears interest at the rate of 10.35% per annum and matures in December 2000. See "CERTAIN TRANSACTIONS." Based on the Company's operating plan, management believes that the net proceeds from this Offering and anticipated cash flow from operations will be sufficient to meet the Company's anticipated cash needs and finance its plans for expansion for at least 12 months from the date of the Prospectus. Thereafter, the Company anticipates that it will require additional financing to meet its current plans of expansion. No assurance can be given of the Company's ability to obtain such financing on favorable terms, if at all. If the Company is unable to obtain additional financing, its ability to meet its current plans for expansion could be materially adversely affected. IMPACT OF INFLATION Although no assurance can be given, increases in the inflation rate are not expected to materially adversely affect the Company's business. NEW ACCOUNTING STANDARDS Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," issued by the Financial Accounting Standards Board ("FASB"), is effective for financial statements for fiscal years beginning after December 15, 1995. The new standard establishes new guidelines regarding when impairment losses on long-lived assets, which include plant and equipment and certain identifiable intangible assets and goodwill, should be recognized and how impairment losses should be measured. The Company does not expect the adoption of this standard to have a material effect on its financial position or results of operations. In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based Compensation." The Company has determined that it will continue to account for stock-based compensation for employees under Accounting Principles Board Opinion No. 25 and elect the disclosure-only alternative under SFAS No. 123. The Company will be required to disclose the pro forma net income or loss and per share amounts in the notes to the financial statements using the fair-value-based method beginning in the year ending August 31, 1997, with comparable disclosures for the year ended August 31, 1996. The Company has not determined the impact of these pro forma adjustments. 21 BUSINESS The Company, a development stage company, offers Internet access and support services for secure commercial transactions and communications over the Internet. The Company plans to offer a broad range of marketing, sales and connectivity solutions to businesses and, to a lesser extent, to individuals, including the establishment of (i) commercial sites on the Web, (ii) electronic store design, (iii) browsing and purchasing capabilities, and (iv) transaction processing. The Company will also provide general Internet services, such as connectivity to the Internet and electronic mail hosting services. By offering turnkey solutions to commercial Internet needs, the Company plans to become a "one-stop provider" of Internet products and services to businesses seeking to establish a commercial presence over the Internet. In addition to the Company's array of Internet services generally offered by providers, the Company plans to offer customers the ability to engage in secure PC to PC Internet commerce transactions, utilizing software applications for business transactions that contain credit card or other confidential information, and for confidential communications purposes. The Company's comprehensive service and support capabilities include the following: * Internet access and host services. * Internet business development and marketing services. * Internet secure commerce processing. * Internet hardware and software. * Internet training. The range of customized service options include full Internet access service, SLIP/PPP connection, Web browsing capability, electronic mail and USENET News, among others. The Company's Internet business development and marketing services also provide commercial users with a back-end link from the user's Internet host site to major accounting systems, including SBT, and business management support for integrating secure Internet commerce into the user's existing accounting financial systems. In addition, a turn-key arrangement is available to meet the needs of individual users, along with sales and marketing consulting to implement Internet commerce capability. The Company further offers businesses support in the development and maintenance of a Web host presence and assists clients in marketing and selling through the Internet. The Company also offers training classes for business users in accessing and navigating through the Internet, which classes are tailored to each user's environment, including support for Windows, Windows 95, Windows NT and Macintosh client access. INDUSTRY BACKGROUND THE INTERNET The Internet is a rapidly growing global web of computer networks that permits users to communicate throughout the world. Each Internet user has access to every other user, as well as information contained on an increasing number of "host" or "server" computers. Host computers are generally maintained by Internet service providers ("ISPs"), such as the Company, that provide access to the Internet. According to Input, a market research firm, it is estimated that worldwide corporate spending on Internet technologies and services more than tripled between 1994 and 1995, reaching approximately $12 billion in 1995. By the year 2000, Input projects total spending to reach $200 billion. The Internet and the Web provide users with the potential for a new commercial marketplace in which goods, services and information can be marketed and sold, and over which other financial transactions can occur. Although no assurances can be given, the Company believes that the use of the Internet as a commercial medium will become more widespread with the continued development and acceptance of systems providing secure execution of financial transactions. 22 Until 1993, the Internet infrastructure was subsidized by the federal government and commercial use was, for the most part, prohibited. The connection of commercial Internet providers beginning in 1993 has lead to an increase in the use of the Internet of nearly 20% per month compounded since December 1994. Most of the growth in the number of commercial hosts is driven by the need of businesses to enhance communications among workers, customers and suppliers while cutting costs. The communications links of the Internet allow businesses to make information and communications available to employees, customers and suppliers with minimal human involvement. Industry data indicates that consumer use of the Internet is also growing at a rapid rate. Consumer use of the Internet is being driven by the growth of ISP's and on-line service providers, such as America Online, CompuServe and Prodigy, which are expanding their offerings to include Internet access. In addition, national and regional telephone companies and cable television operators are expanding their services to include Internet access. ACCESS TO THE INTERNET Unlike on-line services such as CompuServe, Prodigy and America Online, the Internet is a loose confederation of millions of computers located worldwide. When a user dials into an on-line service provider such as Prodigy, he or she calls a modem connected to a central computer owned by Prodigy. The subject areas and user interface that appear on the user's computer monitor are determined by the service, which may also include Internet access as a component of the overall service provided. Direct Internet access involves two steps, accessing the Internet and connecting to one of the millions of machines attached. AT&T and other telecommunications companies have begun to offer Internet access and related services. Once connected to the Internet, a computer has an address, much like a telephone number, that makes it accessible to millions of other computers. Unlike long-distance telephone calls, connections to services on the Internet are not determined based on distance; instead, the connection cost is based on the proximity of the user to its ISP, which in most cases is located close to the user. Therefore, it often costs the same to access a computer on the other side of the world as to access a computer across town. In addition, an Internet user can move from communicating with one computer across the world to another across town almost instantly. The Internet is not controlled by any one country, corporation or other entity. However, several major companies have become the major providers for the communications that link the network together in the United States. The companies that carry much of the commercial traffic on the Internet include AT&T Corporation, Alternet, PSI, SprintLink, and ANS. The national providers act primarily as wholesalers of their communications infrastructure to regional ISPs. Regional providers establish satellite offices to provide local access dial-up connections for their customers. These local dial-up connections connect end users to a local point of presence (a "POP") established by the regional provider to access the Internet. The end-user connects to the Internet through the local POP. THE WORLD WIDE WEB The Web is a world wide collection of interlinked documents on the Internet containing text, graphics, sound and video. The emergence of the Web has fostered the recent rapid growth in Internet use by businesses and individuals. International Data Corporation has estimated that the number of individuals worldwide with access to the Internet will reach approximately 200 million by the end of 1999, of which 125 million are expected to be accessing the Web. The Web allows a broad range of users to easily access information on the Internet and interact with individuals or organizations offering textual, graphic or other information. Utilizing the Web, merchants are able to provide full color graphic images of their merchandise, up-to-the-minute pricing and inventory information, automated order-taking and interactive customer support. Publishers and information providers are using the Web to disseminate publications and information to allow users to search and retrieve data. Consumers are increasingly using browsers, such as Netscape Navigator(tm), to visit various Web sites to access information and to purchase goods and services. 23 ELECTRONIC COMMERCE OVER THE INTERNET The Internet provides businesses and individuals with a new economic environment in which to conduct business. The availability of rapid, low-cost access to millions of users offers several cost and marketing advantages to businesses. For example, commercial Web sites enable a volume of visitors that would be impossible through physical commerce. In addition, Internet merchants' need for physical store premises, warehouses and distribution centers is greatly reduced and in some cases eliminated by allowing shipment directly from the manufacturer to the consumer. Internet communications may also reduce the cost of advertising and marketing as access to electronic media spreads to compete with print and traditional broadcast media. The overall costs to the consumer may be reduced in the future by the marketing and distribution efficiencies made possible by conducting commerce over the Internet. Although no assurance can be given, the Company believes that commercial activity over the Internet will increase substantially in the future. SEAMLESS COMMERCE(tm) OVER THE WORLD WIDE WEB The Company plans to provide complete Internet start-up and maintenance services for businesses that wish to conduct commerce over the Internet. The Company offers its services separately, so that customers may elect to use some or all of the Company's capabilities to achieve "Seamless Commerce(tm)." The Company's services can be categorized as follows: INTERNET CONNECTIVITY The Company provides access to the Internet by establishing a connection from its customers to one of the Company's points of presence, or POPs, which are strategically located communications centers that connect directly to the Internet. The Company currently operates two POPs, one at its main office in Saugus, Massachusetts, and one in Salem, Massachusetts. The Company plans to use a portion of the proceeds from this Offering to establish several other POPs in New England. Links from the Company's customers to the Company's POPs may be made through regular or upgraded telephone lines or through other high-capacity links that can accommodate heavier user traffic. For its connectivity service, the Company anticipates it will charge customers a one time set up fee in addition to a monthly fee that will vary depending on the type of connection from the customer to the POP. As part of its Internet access services, the Company establishes electronic mail ("e-mail") addresses for its customers. E-mail allows Internet users to communicate electronically with other Internet users around the world. The Company has also established e-mail services that allow for communication within an organization through the Company's host computer, without access to the Internet. The Company provides "intranet" e-mail to businesses and other organizations seeking to accommodate convenient intracompany communications at a reduced cost. CONSULTING AND DEVELOPMENT SERVICES The Company plans to design, develop and manage Web sites for its business customers. Web sites may contain graphic design, text, video and audio components. The Web sites designed by the Company for its customers contain order forms to receive orders for customers products and services. To date, the Company has designed six Web sites, of which four were for related parties. See "CERTAIN TRANSACTIONS." As part of its consulting and development services, the Company may design and install networks at customers' facilities to access and download information from the Company's server to the customers' computers. This information may be organized by the Company in accordance with customer specifications to include information such as total visits, visits per hour, visits per geographic location, links viewed, comments provided, total orders received and orders per hour. For some customers, the Company may also provide complete back room support services. These services would include inventory control and purchasing, order and delivery tracking and other services. 24 COMMERCIAL HOST SERVICES The Company's commercial host services are designed to allow businesses to establish a reliable, high performance Web site without having to invest in the technology and human components necessary to maintain an on-line presence. The maintenance of a Web site by the Company includes the use of sufficient storage capacity on the Company's server computer to accommodate visits, or "hits," by Internet users to a customer's Web site. Web sites may vary in popularity and complexity, requiring different degrees of storage capacity. Web sites allow for user comments and order taking and may contain a number of links to other Web sites either at the Company's server or at different locations. The Company can identify and track the number of "hits" to a Web site, as well as, in most cases, the e-mail address of the visitor. The Company may charge for the maintenance and use of this information. Commercial host services will also include the provision of technical support and access management control, the latter of which allows for the restriction of access to certain information. For example, by providing a special access code to certain customers, companies can permit someone to review information on the status of an order, proposed delivery dates, or price lists over the Internet without human involvement. This can be an attractive feature to customers of manufacturers, fulfillment houses and others. ORDER PROCESSING One of the services the Company plans to offer includes receiving and processing orders for its customers with a minimum level of human involvement. Processing orders over the Internet involves the following: Automatically download order form. One of the links within a customer's Web site will contain an order form. When a user visits the link containing this form, software will automatically be downloaded to the user's personal computer to accept an order and encrypt the credit card information of the user. Once the user completes the requested information, the user will send the order information to the Company's server through the press of a button on the user's computer. The user may also elect to complete the order orally over the telephone. See "RISK FACTORS -- Dependence on Third Party Intellectual Property Rights; Risk of Infringement" and "RISK FACTORS -- System Interruption and Security Risks; Potential Liability and Lack of Insurance." Clear credit card information. The Company's computers will automatically decrypt the user's credit card information from the order form. The credit card information is then checked and cleared over traditional networks. Fulfillment. Once credit is cleared, the order information will be transmitted automatically to the customer or the customer's fulfillment house. The order information may include (i) a "pick list," which contains a list of the merchandise ordered, (ii) a manifest for shipping, (iii) a shipping label, and (iv) an order identification tag. Transfer of funds. The Company will electronically transfer funds it receives from the credit card company to its customer. Order tracking. Order tracking and delivery may be monitored through the order identification tag transmitted to the customer or its fulfillment house. In addition, most delivery services now also have their own tracking systems, allowing for order tracking from the moment the order is received by the Company through fulfillment to final delivery. INTERNET TRAINING The Company provides Internet training at its facility in Saugus, Massachusetts to teach and promote use of the Internet. The Company's classes are all hands-on, with students learning by actually using the Internet during the session, which generally lasts for four hours. 25 SELLING AND MARKETING The Company has conducted limited selling and marketing efforts to date. The Company primarily markets its services through presentations to local business organizations, advertising and, to a lesser degree, attendance at trade shows. The Company plans to use a portion of the net proceeds from the Offering to increase its selling and marketing activities by hiring an additional ten sales people, purchasing additional demonstration equipment and attending additional trade shows and advertising on radio and television. See "USE OF PROCEEDS." RESEARCH AND DEVELOPMENT The Company's research and development efforts are presently focused on programming off-the-shelf software to refine and enhance Web site templates. The Company is developing Web site templates for distribution companies, manufacturers and service providers. Templates will be customized by the Company for individual customers. In addition, the Company plans to install, test and enhance business development software licensed from third parties to automate order processing and business support services for the Company's customers. The Company intends to use a portion of the net proceeds from the Offering to hire additional programmers to support its research and development activities. See "USE OF PROCEEDS." In March 1996, the Company acquired an exclusive worldwide license from Manadarin Trading Company Limited ("MTCL") to develop and market three software programs related to the management of data collection and processing from remote sites. The Company presently intends to further develop these programs. In connection with the license, the Company issued 625,000 shares of Class B Common Stock to the licensor. See "DESCRIPTION OF SECURITIES." In April 1996, the Company entered into an exclusive, ten year agreement with International Software Development Limited ("ISDL") pursuant to which the Company licensed the right to use and sublicense an encryption software program called Titan(tm). In exchange for the license, the Company issued 802,500 shares of Common Stock to ISDL. The Company intends to further test and develop Titan(tm) to determine whether Titan(tm) would be able to withstand attempts to violate its integrity. No assurance can be given as to whether Titan(tm) will be commercially offered by the Company. See "RISK FACTORS -- Dependence on Intellectual Property Rights; Risks of Infringement." PROPRIETARY INFORMATION The Company's success and ability to compete is dependent in part upon proprietary technology relating to the encryption of credit card payment information over the Internet. The Company has no patents and relies on copyright, trade secret and trademark laws to protect certain proprietary information of the Company. To the extent proprietary technology is involved, the Company relies on trade secrets that it seeks to protect, in part, through confidentiality agreements with certain personnel, consultants and other parties. No assurance can be given that these agreements will not be breached, that the Company will have adequate remedies for any breach, or that the Company's trade secrets will not otherwise become known to, or independently developed by, existing or potential competitors of the Company. The Company generally does not seek to protect its proprietary information through patents or registered trademarks, although it may seek to do so in the future. The Company may be involved from time to time in litigation to determine the enforceability, scope and validity of its rights. In addition, no assurance can be given that the Company's products will not infringe any patents of others. Litigation to protect the Company's intellectual property rights could result in substantial cost to the Company and diversion of effort by the Company's management and technical personnel. The Company currently licenses certain proprietary and patented technology from third parties. No assurance can be given that any patented technology licensed by the Company will provide meaningful protection from competitors. Even if a competitor's products were to infringe on patented technology licensed by the Company, it would be costly for the Company to enforce its rights in an infringement action and would divert funds and management resources from the Company's operations. 26 All of the Company's planned services incorporating data encryption and authentication is based on proprietary software of RSA Data Security, which is licensed, on a non-exclusive basis, through SBT Corporation. The Company has licensed the rights to another encryption technology called Titan(tm). No assurance can be given as to when, or if, the Titan(tm) encryption technology will be ready for commercial use by the Company. Until such time as Titan(tm) may be used by the Company, as to which no assurance can be given, the Company intends to continue to use the RSA encryption software licensed through SBT. No assurance can be given that the encryption software presently licensed by the Company will continue to be available to the Company on commercially reasonable terms, or at all. In the past, certain parties have claimed to have rights with respect to the encryption software licensed by the Company. If such claims are successfully pursued by such parties, such parties may prevent the Company from using the software or, in the alternative, may force the Company to pay an additional royalty to use such software. The Company also licenses, on a non-exclusive basis, accounting and business support software from SBT. No assurance can be given that the Company's third party licenses will continue to be available to the Company on commercially reasonable terms, or at all. The loss of or inability to maintain any of these software licenses could result in delays in introduction of the Company's services until equivalent software, if available, is identified, licensed and integrated into the Company's planned services, which could have a material adverse effect on the Company's business, financial condition, prospects or operating results. See "RISK FACTORS -- Dependence on Intellectual Property Rights; Risks of Infringement" and "RISK FACTORS -- Dependence on Third-Party Intellectual Property Rights." COMPETITION The market for Internet-based software and services is new and rapidly evolving, resulting in a dynamic competitive environment. The Company competes with many companies that have substantially greater financial, marketing, technical and human resources than the Company. In addition, there are many companies that may enter the market in the future with new technologies, products and services that may be competitive with services offered or to be offered by the Company. Because there are many potential entrants to the field, it is extremely difficult to assess which companies are likely to offer competitive products and services in the future, and in some cases it is difficult to discern whether an existing product or service is competitive with the Company's services. The Company expects competition to persist and intensify in the future. Competitive factors in the Internet-based software and services market include core technology, breadth of product functionality and features, product performance and quality, marketing and distribution resources, customer service and support and price. Additional competition could come from other Internet companies and software and hardware vendors that incorporate Internet payment capabilities into their products or other Internet services companies that provide hosting, connectivity, Internet training and domain registration services. The payment mechanisms used by the Company in the provision of its services utilize existing credit card verification procedures. Certain of the Company's competitors and potential competitors have developed or are developing new methods to transmit, verify and accept credit card payments over the Internet. In this regard, MasterCard and Visa recently announced that they would work together to establish a single industry standard for secure electronic transactions. These and other potential new payment mechanisms may be perceived to be superior to those employed by the Company and could render the Company's services unmarketable. In addition, if an industry standard is established, no assurance can be given that the technology upon which such standard is based will be available to the Company on commercially reasonable terms, or at all, which could have a material adverse effect on the Company's business, financial condition, prospects and operating results. Virtually all of the Company's current and potential competitors have longer operating histories, greater name recognition, larger installed customer bases and significantly greater financial, technical and marketing resources than the Company. Such competitors may be able to undertake more extensive marketing campaigns, adopt more aggressive pricing policies and make more attractive offers to 27 potential customers. In addition, many of the Company's current or potential competitors, such as Netscape, Microsoft and AT&T have broad distribution channels that may be used to bundle competing products directly to end-users or purchasers. If such competitors were to bundle competing products for their customers, the demand for the Company's services may be substantially reduced, and the ability of the Company to broaden successfully the utilization of its services would be substantially diminished. No assurance can be given that the Company will be able to compete effectively with current or future competitors or that such competition will not have a material adverse effect on the Company's business, financial condition, prospects or operating results. See "BUSINESS -- Competition." PERSONNEL As of May 31, 1996, the Company had 21 full-time personnel that were leased from ERI, of which five were executive officers (three of which are also involved with sales and marketing), two were involved with sales and marketing functions, six were involved with research and product development, two were involved with administration and one was involved with customer support. None of the Company's personnel is represented by a labor union, and the Company is not aware of any activities seeking such organization. The Company considers its relationships with its personnel to be satisfactory. FACILITIES The Company's principal executive offices and manufacturing operations are based in a facility located in Saugus, Massachusetts that consists of approximately 20,000 square feet of space. The Company currently pays rent in the amount of approximately $15,000 per month, $4,591 of which is paid pursuant to a lease that expires in August 2000, and the balance is paid on a month-to-month basis. The Company believes that its facilities are adequate for its current needs and that adequate facilities for expansion, if required, are available at competitive rates. LEGAL PROCEEDINGS The Company is not a party to any material pending litigation. 28 MANAGEMENT DIRECTORS AND EXECUTIVE OFFICERS The Directors and executive officers and key personnel of the Company, their positions held with the Company and their ages are as follows:
NAME AGE POSITION ---- --- -------- John J. Shields 57 Chairman of the Board of Directors Robert Kuzara 52 President, Chief Executive Officer, Secretary and Director Carole Ouellette 45 Chief Financial Officer, Treasurer and Director William Blocher 42 Chief Technology Officer Paul MacDonald 58 Vice President of Operations Michael Appe 44 Director
Directors are elected each year for a period of one year at the Company's annual meeting of stockholders and serve until their successors are duly elected by the stockholders. Vacancies and newly created directorships resulting from any increase in the number of authorized directors may be filled by a majority vote of directors then in office. Officers are elected by, and serve at the pleasure of, the Board of Directors. The Board of Directors intends to establish Audit and Compensation Committees following the completion of this Offering. The following is a brief summary of the background of each director and executive officer of the Company: JOHN J. SHIELDS has served as the Chairman of the Board of Directors of the Company since April 1996. Since April 1993, Mr. Shields has served as the President and Chief Executive Officer of Kings Point Holdings Incorporated, a technical consulting and venture capital company that is also engaged in cranberry cultivation. From January 1990 to April 1993, Mr. Shields served as the President and Chief Executive Officer of Computervision Corporation, a publicly traded provider of software for computer-aided design. ROBERT KUZARA has served as President, Chief Executive Officer and a Director of the Company since its inception in July 1995. From 1978 to the present, Mr. Kuzara has also served as a principal of Kuzara Consultants, Inc., a financial consulting firm specializing in the rehabilitation of troubled companies. Mr. Kuzara is also a principal of the Center for Business Planning Limited, a provider of business support services for small businesses, Employee Resources, Inc., an employee leasing company, and Cauldron Corporation, a t-shirt screening and distribution company. From March 1994 through November 1995, Mr. Kuzara served on the Board of Directors of Centennial Technologies, Inc., a publicly traded manufacturer of personal computer cards. CAROLE OUELLETTE has served as the Company's Chief Financial Officer and Treasurer since March 1996 and as a Director since May 1996. From March 1991 through February 1996, Ms. Ouellette served as the Controller at Centennial Technologies, Inc., a publicly traded manufacturer of personal computer cards. Ms. Ouellette holds a Masters of Business Administration from Suffolk University School of Management. WILLIAM K. BLOCHER, PH.D. has served as the Company's Chief Technology Officer since January 1996. From 1990 to June 1995, Dr. Blocher served as the President and Chief Technologist of BBC Computers, Inc. From July 1995 through January 1996, Dr. Blocher also served as Chief Technologist of Presage Corporation, a communications company. Dr. Blocher also serves on the teaching staff of Boston University and Harvard University. Dr. Blocher has a Ph.D. in computer science from Boston University and a Masters in Mathematics from Boston University. 29 PAUL J. MACDONALD has served as the Company's Vice President of Operations since February 1996. From September 1995 through February 1996, Mr. MacDonald served as Vice President of Operations at Presage Corporation, a communications company. From February 1991 through August 1995, Mr. MacDonald served as Vice President of Operations at National Communications Corporation. MICHAEL APPE has served as a Director of the Company since May 1996. Since November 1994, Mr. Appe has been an independent marketing consultant. From July 1987 through November 1994, he served in various capacities at Microsoft, most recently as Vice President of U.S. Sales. Mr. Appe earned a Bachelors of Science in Mathematics from the University of Vermont. EXECUTIVE OFFICERS' COMPENSATION All of the Company's personnel are leased from ERI, an employee leasing company. Under the Company's arrangement with ERI, the Company pays ERI a service fee based on employee salary, state and federal taxes, and health benefits offered. ERI administers the Company's payroll and benefit policies. See "CERTAIN TRANSACTIONS." The following table sets forth the compensation paid to Mr. Robert Kuzara, the Company's President and Chief Executive Officer, through ERI, during the period from inception through May 31, 1996. There were no executive officers of the Company who earned total compensation in excess of $100,000 during this period. SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION ------------------- NAME AND ALL OTHER PRINCIPAL POSITION YEAR(1) SALARY BONUS COMPENSATION(2) (A) (B) (C) (D) (I) - ------------------------------------ ------ ------ ----- --------------- Robert Kuzara, President and Chief Executive Officer 1996 $87,500 $0 $7,500 - ---------- (1) For the period from inception (July 19, 1995) to May 31, 1996. (2) Mr. Kuzara received a monthly car allowance of $1,000 per month during this period.
EMPLOYMENT AGREEMENTS, TERMINATION OF EMPLOYMENT AND CHANGE IN CONTROL ARRANGEMENTS In April 1996, the Company entered into an employment and non-competition agreement with Mr. Kuzara, the Company's President and Chief Executive Officer, that expires on April 4, 1999 (the "Kuzara Employment Agreement"). The Kuzara Employment Agreement provides for a salary of $150,000 per annum plus annual bonuses following the Company's initial public offering based on increases in the market price of the Company's Common Stock. Mr. Kuzara is also entitled to receive benefits offered to the Company's personnel generally as well as severance benefits equal to one year's salary plus the average bonus Mr. Kuzara received during the three years prior to the termination of his employment, payable in a lump sum if: (i) the Company or a substantial portion of the Company is acquired without the Board of Directors' approval; (ii) his employment is terminated without cause (as defined below); (iii) his salary is reduced without his consent or (iv) there is a change in his principal place of employment from the greater Boston, Massachusetts area without his consent. The Kuzara Employment Agreement provides that "cause" includes (i) the failure of Mr. Kuzara to substantially perform the services described in his employment agreement; (ii) conviction of a felony; and (iii) fraud or embezzlement involving the Company, its customers, suppliers or affiliates. The Kuzara Employment Agreement contains a provision prohibiting Mr. Kuzara from competing with the Company for a one-year period following termination of his employment. Mr. Kuzara also received options to purchase 200,000 shares of Common Stock of the Company at $4.00 per share in connection with his employment with the Company. 30 In May 1996, the Company entered into an employment and non-competition agreement with Ms. Ouellette, the Company's Chief Financial Officer, that expires on May 1, 1999 (the "Ouellette Employment Agreement"). The Ouellette Employment Agreement provides for an annual salary of $85,000 plus bonuses as may be determined by the Company's Board of Directors. Ms. Ouellette is entitled to receive benefits offered to other executive officers of the Company as well as severance benefits equal to 150% of her monthly base salary then in effect for a period of six months from the date of termination, if: (i) the Company or a substantial portion of the Company is acquired without the Board of Directors' approval; (ii) her employment is terminated without cause (as defined below); (iii) her salary is reduced without her consent or (iv) there is a change in her principal place of employment from the greater Boston, Massachusetts area without her consent. The Ouellette Employment Agreement provides that "cause" includes (i) the material and repetitive failure or refusal to perform the services described in her employment agreement; (ii) conviction of a felony; and (iii) fraud or embezzlement involving the Company, its customers, suppliers or affiliates. The Ouellette Employment Agreement contains a provision prohibiting Ms. Ouellette from competing with the Company for a one-year period following termination of employment. COMPENSATION OF DIRECTORS The Directors of the Company received no compensation for their services as Directors during 1995. Following this Offering, each of the non-management Directors will receive a fee of $2,000 per year plus travel expenses. Non-employee Directors also participate in the Company's Formula Plan. LIMITATION ON OFFICERS' AND DIRECTORS' LIABILITIES Pursuant to the Company's Certificate of Incorporation and under Delaware law, Directors of the Company are not liable to the Company or its stockholders for monetary damages for breach of fiduciary duty, except for liability in connection with a breach of loyalty, for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, or for dividend payments or stock repurchases in violation of Delaware law or for any transaction in which a Director has derived an improper personal benefit. In addition, the Company's Bylaws include provisions to indemnify its officers and Directors and other persons against expenses, judgments, fines and amounts paid in settlement in connection with threatened, pending or completed suits or proceedings against such persons by reason of serving or having served as officers, Directors or in other capacities, except in relation to matters with respect to which such persons shall be determined not to have acted in good faith, lawfully or in the best interests of the Company. With respect to matters to which the Company's officers, Directors, personnel, agents or other representatives are determined to be liable for misconduct or negligence in the performance of their duties, the Company's Bylaws provide for indemnification only to the extent that the Company determines that such person acted in good faith and in a manner not opposed to the best interests of the Company. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to Directors, officers, underwriters and controlling persons of the Company pursuant to the foregoing provisions, or otherwise, the Company 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. STOCK OPTION PLANS 1996 STOCK OPTION PLAN In February 1996, the Board of Directors and stockholders of the Company adopted the Plan, which provides for the grant to employees, officers, Directors, and consultants of options to purchase up to 800,000 shares of Common Stock, consisting of both "incentive stock options" within the meaning of Section 422 of the United States Internal Revenue Code of 1986, as amended (the "Code"), and non-qualified options. Incentive stock options are issuable only to employees of the Company, while non-qualified options may be issued to non-employee Directors, consultants, and others, as well as to employees of the Company. 31 The per share exercise price of the Common Stock subject to any incentive stock option may not be less than the fair market value of the Common Stock on the date the option is granted. The per share exercise price of the Common Stock subject to a non-qualified option may be established by the Board of Directors. The aggregate fair market value (determined as of the date the option is granted) of the Common Stock that first becomes exercisable by any employee in any one calendar year pursuant to the exercise of incentive stock options may not exceed $100,000. No person who owns, directly or indirectly, at the time of the granting of any incentive stock option to him or her, more than 10% of the total combined voting power of all classes of stock of the Company (a "10% Stockholder") shall be eligible to receive any incentive stock options under the Plan unless the option price is at least 110% of the fair market value of the Common Stock subject to the option, determined on the date of grant. No stock option may be transferred by an optionee other than by will or the laws of descent and distribution, and during the lifetime of an optionee, the option will be exercisable only by him or her. In the event of termination of employment other than by death or disability, the optionee will have three months after such termination during which he or she can exercise the option. Upon termination of employment of an optionee by reason of death or permanent total disability, his or her options remain exercisable for one year thereafter to the extent such options were exercisable on the date of such termination. No similar limitation applies to non-qualified options. Options under the Plan must be granted within 10 years from the effective date of the Plan. The incentive stock options granted under the Plan cannot be exercised more than 10 years from the date of grant except that incentive stock options issued to a 10% Stockholder are limited to five year terms. All options granted under the Plan provide for the payment of the exercise price in cash or by delivery to the Company of shares of Common Stock already owned by the optionee having a fair market value equal to the exercise price of the options being exercised, or by a combination of such methods of payment. Therefore, an optionee may be able to tender shares of Common Stock to purchase additional shares of Common Stock and may theoretically exercise all of his or her stock options with no additional investment other than his or her original shares. Any unexercised options that expire or that terminate upon an employee ceasing to be employed with the Company become available once again for issuance. As of the date of this Prospectus, options to purchase 394,800 shares of Common Stock have been granted under the Plan, including to the following officers and Directors of the Company:
EXERCISE NUMBER OF PRICE EXPIRATION NAME AND TITLE OPTIONS PER SHARE DATE -------------- ------- --------- ---------- John J. Shields 100,000 $4.00 4/30/01 Chairman of the Board Robert Kuzara 200,000 $4.00 2/12/01 President and Chief Executive Officer Carole Ouellette 17,500 $4.00 2/12/01 Chief Financial Officer William Blocher 25,000 $4.00 2/12/01 Chief Technical Officer Paul MacDonald 17,500 $4.00 2/12/01 Vice President of Operations
1996 FORMULA STOCK OPTION PLAN In February 1996, the Company's Board of Directors and stockholders adopted the Formula Plan to incentivize non-employee Directors who will administer the Company's discretionary stock option plans. Under the Formula Plan, options will be granted pursuant to a formula that determines the timing, pricing and amount of the option awards using only objective criteria, without discretion on the part of the administrators of the Formula Plan. The Formula Plan provides that its provisions may not be 32 amended more than once every six months, other than to comply with changes in the Internal Revenue Code, the Employee Retirement Income Security Act, or the rules thereunder. Also, any provision for forfeiture or termination of an option award will be specific and objective, rather than general, subjective or discretionary. Options to purchase up to sixty thousand (60,000) shares of Common Stock may be granted under the Formula Plan. Beginning on June 1, 1996, and annually thereafter on the business day immediately following the Company's annual meeting of stockholders, options shall be granted under the Formula Plan, without approval or discretion on the part of the Board, to non-employee Directors as follows: Each non-employee Director who has not been a Director on such date for at least one year will receive options to purchase five thousand (5,000) shares of common stock, which will vest fully one year thereafter, subject to continued service as a Director of the Company. Each non-employee Director who has been a Director of the Company for at least one year as of such date will receive options to purchase one thousand (1,000) shares of common stock, which will vest fully upon the date of the grant. The exercise price of such options will be the fair market value of the shares of stock on the date of the grant, and said options will be exercisable subject to the Directors' continued service as a Director of the Company on such date. No stock option may be transferred by an optionee other than by will or the laws of descent and distribution, and during the lifetime of an optionee, the option will be exercisable only by him or her. In the event that the optionee ceases to be a Director for any reason other than death, the option will be exercisable only to the extent of the purchase rights, if any, which have accrued as of the date of such cessation; provided that upon any such cessation of service, the remaining rights to purchase shall in any event terminate upon the expiration of the original term of the option. Upon termination of service as a Director by reason of death, the Director's options remain exercisable until the expiration of the original term of the options. However, any such exercise is limited to the purchase rights that have accrued as of the date when the optionee ceased to be a Director whether by death or otherwise. Options under the Formula Plan must be granted within ten years from the effective date of the Formula Plan. The options granted under the Formula Plan cannot be exercised more than ten years from the date of grant. Under the Formula Plan, the number of options that will be granted to the eligible recipients (only non-employee Directors) can be determined; however, the exercise price of such options cannot be determined, as the exercise price will be that which is equal to the fair market value of the Company's Common Stock on the date of each grant. As of the date of this Prospectus, options to purchase up to 5,000 shares of Common Stock have been granted under the Formula Plan to Mr. Appe. 33 PRINCIPAL AND SELLING STOCKHOLDERS The following table sets forth, as of the date of this Prospectus, the ownership of the Common Stock by (i) each person who is known by the Company to own of record or beneficially more than five percent (5%) of the Common Stock, (ii) each of the Company's Directors and executive officers, and (iii) all Directors and executive officers as a group. Except as otherwise indicated, the stockholders listed in the table have sole voting and investment powers with respect to the shares indicated.
PERCENTAGE OF CLASS(1) ---------------------- NUMBER OF SHARES BENEFICIALLY BEFORE AFTER NAME AND ADDRESS OF BENEFICIAL OWNER(2) OWNED OFFERING OFFERING(3) --------------------------------------- ------------ -------- ----------- Centennial Technologies, Inc.(4) 488,750 10.6% 8.7% Robert Kuzara(5) 180,000 3.9 3.2 Michael Appe(6) 60,000 1.3 1.1 John J. Shields(7) 0 0 0 Carole Ouellette(8) 0 * * All Officers and Directors as a Group(1)(3)(5)(6)(7)(9) 240,000 5.2 4.3 - ----------- * Less than 1.0%. (1) Pursuant to the rules of the Securities and Exchange Commission, shares of Common Stock which an individual or group has a right to acquire within 60 days pursuant to the exercise of options or warrants are deemed to be outstanding for the purpose of computing the percentage ownership of such individual or group, but are not deemed to be outstanding for the purpose of computing the percentage ownership of any other person shown in the table. Percentage ownership listed also gives effect to the issuance of 2,500,000 shares of Common Stock as of the date of this Prospectus upon the conversion of 625,000 shares of Class B Common Stock, which results in 4,605,000 and 5,605,000 shares of Common Stock outstanding before and after the Offering, respectively. (2) The address for all of these individuals except Centennial Technologies, Inc. is WebSecure, Inc., 1711 Broadway, Saugus, Massachusetts 01906. The address for Centennial Technologies, Inc. is 37 Manning Road, Billerica, Massachusetts 01821. (3) Unless specified otherwise in the notes below, excludes shares of Common Stock issuable upon the exercise of: (i) the Redeemable Warrants; (ii) the Representatives' Warrant; (iii) Redeemable Warrants subject to the overallotment option and the Representatives' Warrant and (iv) up to 860,000 options which have been or may be granted under the Plan and the Formula Plan. See "MANAGEMENT -- Stock Option Plans," and "UNDERWRITING." (4) If the Underwriters' overallotment option is exercised in full, Centennial Technologies, Inc. ("Centennial") will sell to the Underwriters 150,000 shares of Common Stock, in which event Centennial will beneficially own approximately 5.9% after the Offering. John J. Shields, the Chairman of the Board of Directors of the Company, has been a Director of Centennial since April 1996. See "CERTAIN TRANSACTIONS." (5) Does not include 200,000 shares of Common Stock issuable upon exercise of stock options at an exercise price of $4.00 per share that vest beginning in February 1997. (6) Does not include 5,000 shares of Common Stock issuable to Mr. Appe upon exercise of stock options that vest in May 1997 at an exercise price of $4.00 per share. (7) Does not include 100,000 shares of Common Stock issuable upon exercise of stock options at an exercise price of $4.00 per share that vest beginning in April 1997. (8) Does not include 17,500 shares of Common Stock issuable upon exercise of stock options at an exercise price of $4.00 per share that vest beginning in February 1997. (9) Does not include options to purchase 17,500 and 25,000 shares of Common Stock at $4.00 per share issuable upon exercise of stock options held by Mr. MacDonald and Mr. Blocher, respectively, that vest beginning in February 1997.
34 CERTAIN TRANSACTIONS The Company has provided and continues to provide Internet access, Web site development and management and other services to Centennial Technologies, Inc. ("Centennial") and three companies owned by Mr. Kuzara, the Company's President and Chief Executive Officer and a member of the Board of Directors. These services have been provided at no cost in exchange for such companies agreeing to serve as test sites for the Company's services during its development stage. Following the commercial offering of the Company's services, the Company will charge these companies fees at the Company's standard rates then in effect. Centennial purchased 350,000 shares of the Company's Common Stock in October 1995 in exchange for $10,000 and the guaranty of certain lease obligations of the Company. In April 1996, Centennial purchased 138,750 shares of Common Stock for $555,000 in connection with a private placement conducted by the Company, in which it raised $2,000,000 from Centennial and unaffiliated investors. Centennial has, from time to time, made loans to the Company for general operations. The loans are evidenced by promissory notes that bear interest at the rate of 9% per annum and are due on demand. As of September 8, 1996, approximately $855,000 remained outstanding under these loans. The Company intends to repay this amount with a portion of the proceeds from this Offering. In addition, in September 1996, Centennial agreed to guaranty certain additional lease obligations of the Company relating to the acquisition of capital equipment. Mr. Shields has been a Director of Centennial since April 1996. Mr. Kuzara served as a Director of Centennial from April 1994 through November 1995. Prior to this Offering and the conversion of the Class B Common Stock, Centennial owns approximately 23.2% of the Company's outstanding Common Stock. If the Underwriters' overallotment option is exercised in full, Centennial will sell 150,000 shares of its Common Stock in connection with this Offering. See "USE OF PROCEEDS" and "PRINCIPAL STOCKHOLDERS." All of the Company's employees are leased by ERI, an employee leasing company that is owned by Mr. Kuzara. For the nine months ended May 31, 1996, approximately $560,000 was billed by ERI to the Company. The Company owed ERI approximately $237,000 and $17,000 as of May 31, 1996 and August 31, 1995, respectively. The Center for Business Planning ("CBP") is a back room support company founded by Mr. Kuzara in May 1995. CBP provided services to the Company in connection with the start-up of the Company. CBP charged the Company a management fee for its services. For the nine months ended May 31, 1996, approximately $74,000 was billed from CBP to the Company. The Company owed CBP approximately $72,000 as of May 31, 1996. CBP ceased operations as of July 1, 1996, at which time two former CBP employees joined the Company. Information Capture Corporation ("ICC"), a manufacturer of inventory control devices, loaned the Company approximately $95,000 to purchase furniture, which amount was repaid as of May 31, 1996. Mr. Kuzara owns twenty percent (20%) of the outstanding Common Stock of ICC. The Company billed approximately $9,000 to ICC for the sublet of office space and equipment rental, all of which was paid as of May 31, 1996. During the nine months ended May 31, 1996, the Company loaned Mediajet, Inc. ("Mediajet") approximately $125,000 pursuant to a note that bore interest at the rate of 9% per annum and is due upon demand. The note was repaid in June 1996. Mediajet is owned by a former officer of the Company. The Company believes that the above arrangements were on terms at least as favorable as could be obtained from unaffiliated parties. Mr. Kuzara and Mr. Appe received 180,000 and 60,000 shares of Common Stock of the Company for nominal consideration in connection with the founding of the Company. See "PRINCIPAL STOCKHOLDERS." 35 DESCRIPTION OF SECURITIES The following summary description of the Company's capital stock is qualified in its entirety by reference to the Company's Certificate of Incorporation, as amended. COMMON STOCK The Company is authorized to issue up to 20,000,000 shares of Common Stock, $.01 par value per share. As of the date of this Prospectus, the Company had _____ stockholders of record. Holders of Common Stock are entitled to one vote for each share held of record on each matter submitted to a vote of stockholders. There is no cumulative voting for election of Directors. Subject to the prior rights of any series of preferred stock which may from time to time be outstanding, if any, holders of Common Stock are entitled to receive ratably dividends when, as, and if declared by the Board of Directors out of funds legally available therefor and, upon the liquidation, dissolution, or winding up of the Company, are entitled to share ratably in all assets remaining after payment of liabilities and payment of accrued dividends and liquidation preferences on the preferred stock, if any. Holders of Common Stock have no preemptive rights and have no rights to convert their Common Stock into any other securities. The outstanding Common Stock is, and the Common Stock to be outstanding upon completion of this Offering will be, validly authorized and issued, fully paid, and nonassessable. Subsequent to the completion of this Offering, the current stockholders of the Company will own approximately 82% of the outstanding Common Stock (77% if the Underwriters' overallotment option is exercised in full). As a result, the current stockholders will be able to elect all of the members of the Board of Directors and control the policies and affairs of the Company. CLASS B COMMON STOCK The Company is authorized to issue up to 2,000,000 shares of Class B Common Stock, $.01 par value per share. In April 1996, the Company issued 625,000 shares of Class B Common Stock to MTCL. See "BUSINESS -- Research and Development." Holders of Class B Common Stock are not entitled to vote on any actions to be taken by the stockholders of the Company unless expressly required by law. Holders of Class B Common Stock are entitled to receive dividends ratably with holders of unclassified shares of Common Stock when, as, and if declared by the Board of Directors out of funds legally available therefor and only after holders of unclassified shares of Common Stock have received a dividend or dividends equal to $10.00 per share. Upon the liquidation, dissolution, or winding up of the Company, holders of Class B Common Stock are entitled to share ratably in all assets of the Company up to a maximum of $1.00 per share of Class B Common Stock after payment of liabilities and payment of accrued dividends and liquidation preferences on the preferred stock, if any, and after the holders of Common Stock have been paid an amount equal to $8.00 per share. Holders of Common Stock have no preemptive rights. Each share of Class B Common Stock converts automatically into four shares of Common Stock upon one of the following events: (a) the effectiveness of a firm commitment underwriting of the Company's securities for gross proceeds equal to or greater than $5,000,000, or (b) the sale of all or substantially all of the Company's assets based on a value of the Company equal to or greater than $30,000,000. The Company's 625,000 outstanding shares of Class B Common Stock will convert automatically into 2,500,000 shares of Common Stock as of the date of this Prospectus. REDEEMABLE WARRANTS The following is a brief summary of certain provisions of the Redeemable Warrants, but such summary does not purport to be complete and is qualified in all respects by reference to the actual text of the Warrant Agreement between the Company and American Securities Transfer & Trust, Incorporated (the "Transfer and Warrant Agent"). A copy of the Warrant Agreement has been filed as an exhibit to the Registration Statement of which this Prospectus is a part. See "ADDITIONAL INFORMATION." 36 Exercise Price and Terms Each Redeemable Warrant entitles the registered holder thereof to purchase at any time commencing ___ , 1996 through ____, 1999, one share of Common Stock at a price of $9.60 per share, subject to adjustment in accordance with the anti-dilution and other provisions referred to below. The holder of any Redeemable Warrant may exercise such Redeemable Warrant by surrendering the certificate representing the Redeemable Warrant to the Company's Transfer and Warrant Agent, with the subscription on the reverse side of such certificate properly completed and executed, together with payment of the exercise price. The Redeemable Warrants may be exercised at any time in whole or in part at the applicable exercise price commencing 90 days from the date of this Prospectus until expiration of the Redeemable Warrants on ___ , 1999. No fractional shares will be issued upon the exercise of the Redeemable Warrants. REDEMPTION Commencing 90 days from the date of this Prospectus, the Redeemable Warrants are subject to redemption at $.20 per Redeemable Warrant on 30 days' prior written notice, provided that the average high and low sales prices of the Common Stock as reported in AMEX equals or exceeds $12.00 per share during the 10 consecutive trading days ending within 20 days prior to the notice of redemption. In the event the Company exercises the right to redeem the Redeemable Warrants, such Redeemable Warrants will be exercisable until the close of business on the date fixed for redemption in such notice. If any Redeemable Warrant called for redemption is not exercised by such time, it will cease to be exercisable and the warrantholder will be entitled only to the redemption price. ADJUSTMENTS The exercise price and the number of shares of Common Stock purchasable upon the exercise of the Redeemable Warrants are subject to adjustment upon the occurrence of certain events, including stock dividends, stock splits, combinations or reclassifications on or of the Common Stock. Additionally, an adjustment would be made in the case of a reclassification or exchange of Common Stock, consolidation or merger of the Company with or into another corporation or sale of all or substantially all of the assets of the Company in order to enable holders of Redeemable Warrants to acquire the kind and the number of shares of stock or other securities or property receivable in such event by a holder of the number of shares that might otherwise have been purchased upon the exercise of the Redeemable Warrants. No adjustments will be made unless such adjustment would require an increase or decrease of at least $.10 or more in such exercise price. No adjustment to the exercise price of the shares subject to the Redeemable Warrants will be made for dividends (other than stock dividends), if any, paid on the Common Stock or for securities issued pursuant to exercise of the Redeemable Warrants, the Representative's Warrant, currently outstanding options or options which may be granted under the Plan or shares issued in connection with the acquisition of another business by the Company. TRANSFER, EXCHANGE AND EXERCISE The Redeemable Warrants are fully registered and may be presented to the Transfer and Warrant Agent for transfer, exchange or exercise at any time beginning 90 days after the date of this Prospectus until the close of business on ___, 1999, at which time the Redeemable Warrants become wholly void and of no value. If a market for the Redeemable Warrants develops, the holder may sell the Redeemable Warrants instead of exercising them. There can be no assurance, however, that a market for the Redeemable Warrants will develop or continue. If the Company is unable to qualify for sale in particular states its Common Stock underlying the Redeemable Warrants, holders of the Redeemable Warrants desiring to exercise the Redeemable Warrants in those states will have no choice but to either sell such Redeemable Warrants or let them expire. See "RISK FACTORS -- Requirement to Maintain Current Prospectus; Non-Registration in Certain Jurisdictions of Shares Underlying the Redeemable Warrants; Possible Redemption of Redeemable Warrants." 37 Warrantholder not a Stockholder The Redeemable Warrants do not confer upon holders any voting or other rights as stockholders of the Company. PREFERRED STOCK The Company is authorized to issue up to 1,000,000 shares of preferred stock, $.01 par value per share (the "Preferred Stock"). The Preferred Stock may be issued in one or more series, the terms of which may be determined at the time of issuance by the Board of Directors, without further action by stockholders, and may include voting rights (including the right to vote as a series on particular matters), preferences as to dividends and liquidation, conversion rights, redemption rights, and sinking fund provisions. No shares of Preferred Stock will be outstanding as of the closing of this Offering, and the Company has no present plans for the issuance thereof. The issuance of any such Preferred Stock could adversely affect the rights of the holders of Common Stock and, therefore, reduce the value of the Common Stock. The ability of the Board of Directors to issue Preferred Stock could discourage, delay, or prevent a takeover of the Company. See "RISK FACTORS -- Possible Issuance of Preferred Stock." TRANSFER AGENT The Company has appointed American Securities Transfer & Trust, Incorporated, Lakewood, Colorado, as Transfer and Warrant Agent for its Common Stock and Redeemable Warrants. 38 SHARES ELIGIBLE FOR FUTURE SALE Upon completion of this Offering, the Company will have 5,605,000 shares of Common Stock outstanding. Of these shares, the 1,000,000 Shares offered hereby will be freely tradeable without further registration under the Securities Act. Up to 150,000 additional shares of Common Stock may be purchased by the Representative after the first anniversary date of this Prospectus through the exercise of the Representatives' Warrant. Any and all shares of Common Stock purchased upon exercise of the Representatives' Warrant may be freely tradeable, provided that the Company satisfies certain securities registration and qualification requirements in accordance with the terms of the Representatives' Warrant. See "UNDERWRITING." All of the presently outstanding 4,605,000 shares of Common Stock are "restricted securities" within the meaning of Rule 144 of the Securities Act and will not be eligible for sale in the public market in reliance upon, and in accordance with, the provisions of Rule 144 until November 1997. See "UNDERWRITING," "RISK FACTORS -- Shares Eligible For Future Sale" and "RISK FACTORS -- Sales Pursuant to Rule 144." In general, under Rule 144 as currently in effect, a person (or persons whose shares are aggregated), including a person who may be deemed to be an "affiliate" of the Company as that term is defined under the Securities Act, will be entitled to sell within any three-month period a number of shares beneficially owned for at least two years 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 during the four calendar weeks preceding such sale. Sales under Rule 144 are also subject to certain requirements as to the manner of sale, notice, and the availability of current public information about the Company. However, a person who is not deemed to have been an affiliate of the Company during the 90 days preceding a sale by such person, and who has beneficially owned shares of Common Stock for at least three years, may sell such shares without regard to the volume, manner of sale, or notice requirements of Rule 144. Prior to this Offering, there has been no public market for the Company's securities. Following this Offering, the Company cannot predict the effect, if any, that sales of Common Stock pursuant to Rule 144 or otherwise, or the availability of such shares for sale, will have on the market price prevailing from time to time. Nevertheless, sales by the current stockholders of substantial amounts of Common Stock in the public market could adversely affect prevailing market prices for the Common Stock. In addition, the availability for sale of a substantial amount of Common Stock acquired through the exercise of the Redeemable Warrants or the Representatives' Warrant could adversely affect prevailing market prices for the Common Stock. The Company's officers, Directors and holders of 5% of the outstanding shares of Common Stock, in addition to holders of shares of Common Stock issued upon conversion of the shares of Class B Common Stock have agreed not to sell the shares beneficially owned by such persons for a period of 13 months from the date of this Prospectus (except for shares of Common Stock that are subject to the Underwriters' overallotment option) without the Representatives' written consent. In addition, the Company has agreed that it will not issue any shares of Common Stock for a period of 13 months following the date of this Prospectus without the Representatives' written consent, except for shares of Common Stock issuable upon exercise of stock options that have been or may be granted under the Plan and the Formula Plan. 39 UNDERWRITING The underwriters named below (the "Underwriters"), for whom Coburn & Meredith, Inc. and Shamrock Partners, Ltd. are acting as Representatives, have severally agreed, subject to the terms and conditions of the Underwriting Agreement (the form of which has been filed as an exhibit to the Registration Statement), to purchase from the Company the respective numbers of Shares and Redeemable Warrants set forth opposite their names in the table below. The Underwriting Agreement provides that the obligations of the Underwriters are subject to certain conditions precedent and that the Underwriters shall be obligated to purchase all of the Shares and Redeemable Warrants, if any are purchased.
NUMBER OF NUMBER OF REDEEMABLE NAME SHARES WARRANTS ---- -------- ---------- Coburn & Meredith, Inc. Shamrock Partners, Ltd. --------- ---------- 1,000,000 1,000,000 ========= ==========
Through the Representatives, the several Underwriters have advised the Company that they propose to offer the Shares and Redeemable Warrants to the public at the public offering prices set forth on the cover of this Prospectus. The Representatives have advised the Company that they may allow certain dealers concessions of not in excess of $.__ per share of Common Stock and $__ per Redeemable Warrant, of which a sum not in excess of $.__ per share of Common Stock and $__ per Redeemable Warrant may in turn be reallowed by such dealers to other dealers. After the issuance of the Shares and the Redeemable Warrants, the public offering prices, the concessions and the reallowances may be changed. The Representatives have further advised the Company that they do not expect sales to discretionary accounts to exceed five percent of the total number of Shares and Redeemable Warrants offered hereby. The Selling Stockholder has granted an option to the Underwriters, exercisable during the 30-day period following the effective date of the Underwriting Agreement, to purchase up to 150,000 shares of Common Stock and up to 150,000 Redeemable Warrants, respectively, at the offering price less underwriting discounts and the non-accountable expense allowance. The Underwriters may exercise such option only to satisfy overallotments in the sale of the Shares and Redeemable Warrants. In connection with this Offering, the Company has agreed to sell to the Representatives, for nominal consideration, the Representatives' Warrant, which confers the right to purchase up to 100,000 shares of Common Stock and up to 100,000 Redeemable Warrants. The Representatives' Warrant is initially exercisable at the price (the "Exercise Price") of $10.40 per share of Common Stock and $.26 per Redeemable Warrant for a period of four years commencing one year from the effective date of this Prospectus. The shares of Common Stock and Redeemable Warrants issuable upon exercise of the Representatives' Warrant are identical to those offered hereby except that the Redeemable Warrants underlying the Representatives' Warrant are exercisable at $10.66 per share and are not redeemable by the Company. The Representatives' Warrant contains provisions providing for adjustment of the Exercise Price and the number and type of securities issuable upon the exercise thereof upon the occurrence of certain events. The Representatives' Warrant grants to the holders thereof certain rights of registration of the securities issuable upon the exercise thereof upon the occurrence of certain events. Upon the exercise of the Redeemable Warrants more than one year after the date of this Prospectus, and to the extent not inconsistent with the guidelines of the National Association of Securities Dealers, Inc., and the Rules and Regulations of the Commission, the Company has agreed to pay the Representatives a commission equal to five percent of the exercise price of the Redeemable Warrants in connection with solicitations of exercises of Redeemable Warrants made by the Representatives. However, no compensation will be paid to the Representatives in connection with the exercise of the Redeemable Warrants if (a) the market price of the underlying shares of Common Stock is lower than the exercise price, (b) the Redeemable Warrants are exercised in an unsolicited transaction, or (c) the Redeemable Warrants subject to the Representatives' Warrant are exercised. 40 The Underwriting Agreement provides for reciprocal indemnification between the Company and the Underwriters against certain liabilities in connection with the Registration Statement, including liabilities under the Securities Act. The Company has agreed with the Representatives that it will not issue additional shares of Common Stock for a period of 13 months from the date of this Prospectus (except for shares issuable upon exercise of stock options) without the Representatives' written consent. The foregoing is a brief summary of certain provisions of the Underwriting Agreement and does not purport to be a complete statement of its terms and conditions. A copy of the Underwriting Agreement is on file with the Commission as an exhibit to the Registration Statement of which this Prospectus is a part. See "ADDITIONAL INFORMATION." Prior to the Offering, there has been no public market for any of the Company's securities. The initial public offering prices of the Shares and Redeemable Warrants will be determined by negotiations between the Company and the Representatives and are not necessarily related to the Company's assets, earnings, or book value or any other established criteria of value. Factors considered in determining the Offering price of the Shares included estimates of business potential, historical earnings, future prospects, gross proceeds to be raised, percentage of stock owned by officers and Directors on the date hereof, the type of business in which the Company engages, and an assessment of the Company's management. The foregoing factors were evaluated in light of the existing state of the securities market. LEGAL MATTERS The validity of the Securities offered hereby and certain other legal matters will be passed upon for the Company by O'Connor, Broude & Aronson, Bay Colony Corporate Center, 950 Winter Street, Suite 2300, Waltham, Massachusetts 02154. William M. Prifti, Esquire, Lynnfield Woods Office Park, 220 Broadway, Suite 204, Lynnfield, Massachusetts 01940, is acting as counsel for the Representatives in connection with certain legal matters related to the Offering. EXPERTS The financial statements of the Company as of May 31, 1996 and August 31, 1995 and for the nine months ended May 31, 1996 and for the periods from July 19, 1995 (inception) through August 31, 1995 and July 19, 1995 (inception) through May 31, 1996 appearing in this Prospectus and Registration Statement have been audited by BDO Seidman, LLP, independent certified public accountants, as set forth in their report thereon appearing elsewhere herein and in the Registration Statement and have been included herein in reliance upon such report given upon the authority of such firm as experts in accounting and auditing. ADDITIONAL INFORMATION The Company has filed with the Commission, 450 Fifth Street, N.W., Washington, D.C. 20549, http://www.sec.gov., a Registration Statement on Form SB-2 (the "Registration Statement") under the Act, with respect to the Securities offered hereby. This Prospectus does not contain all the information set forth in the Registration Statement and the exhibits thereto, as permitted by the Rules and Regulations of the Commission. For further information, reference is made to the Registration Statement and to the exhibits filed therewith. Statements contained in this Prospectus as to the contents of any contract or other document which has been filed as an exhibit to the Registration Statement are qualified by reference to such exhibits for a complete statement of their terms and conditions. The Registration Statement and exhibits may be inspected without charge at the offices of the Commission and copies of all or any part thereof may be obtained from the Commission's principal office at 450 Fifth Street, N.W., Washington D.C., or at certain of the regional offices of the Commission located at 7 World Trade Center, New York, New York 10048 and 500 West Madison Street, Suite 1400, Chicago, Illinois 60661, upon payment of the fees prescribed by the Commission. In addition, the Company has applied for inclusion on the American Stock Exchange. Reports and other information concerning the Company may be inspected at the American Stock Exchange, 86 Trinity Place, New York, New York 10006. 41 WEBSECURE, INC. (A DEVELOPMENT STAGE COMPANY) INDEX TO FINANCIAL STATEMENTS
PAGE ---- Report of Independent Certified Public Accountants F-2 Financial Statements: Balance Sheets as of May 31, 1996 and August 31, 1995 F-3 Statements of Operations for the nine months ended May 31, 1996, for the period from inception (July 19, 1995) to August 31, 1995 and for the cumulative period from inception (July 19, 1995) to May 31, 1996 F-4 Statements of Stockholders' Equity (Deficit) for the period from inception (July 19, 1995) to May 31, 1996 F-5 Statements of Cash Flows for the nine months ended May 31, 1996, for the period from inception (July 19, 1995) to August 31, 1995 and for the cumulative period from inception (July 19, 1995) to May 31, 1996 F-6 Notes to Financial Statements F-7
F-1 REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS To the Board of Directors and Stockholders of WEBSECURE, INC. Saugus, Massachusetts We have audited the accompanying balance sheets of WebSecure, Inc. (a Development Stage Company), as of May 31, 1996 and August 31, 1995, and the related statements of operations, stockholders' equity (deficit) and cash flows for the nine months ended May 31, 1996, the period from inception (July 19, 1995) to August 31, 1995 and for the cumulative period from inception (July 19, 1995) to May 31, 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 WebSecure, Inc. (a Development Stage Company) at May 31, 1996 and August 31, 1995 and the results of its operations and its cash flows for the nine months ended May 31, 1996, the period from inception (July 19, 1995) to August 31, 1995 and for the cumulative period from inception (July 19, 1995) to May 31, 1996, in conformity with generally accepted accounting principles. The Company is in the development stage, and as such, success of future operations is subject to a number of risks. The Company has incurred a cumulative net loss of $7,292,275 through May 31, 1996 and has been primarily engaged in product development. There is a substantial doubt about the Company's ability to continue as a going concern. The Company's ability to continue as a going concern is dependent upon the anticipated net proceeds from a proposed Initial Public Offering. These matters are further discussed in Note 1. The accompanying financial statements do not include any adjustments that might result from the outcome of this uncertainty. /S/ BDO SEIDMAN, LLP Boston, Massachusetts September 6, 1996 F-2 WEBSECURE, INC. (A DEVELOPMENT STAGE COMPANY) BALANCE SHEETS
MAY 31, AUGUST 31, 1996 1995 -------- -------- ASSETS Current: Accounts receivable $ 19,248 $ -- Inventories 10,295 -- Note receivable from related party (Note 3) 127,890 -- Due from related parties (Note 3) 789,661 3,866 Prepaid expenses and other current assets 19,020 10,000 -------- -------- Total current 966,114 13,866 -------- -------- Property and equipment: Computer equipment 285,484 -- Office equipment 266,035 -- Furniture and fixtures 137,726 -- Leasehold improvements 74,790 -- Software 13,809 5,989 -------- -------- 777,844 5,989 Less accumulated depreciation and amortization 138,008 -- -------- -------- Property and equipment, net 639,836 5,989 -------- -------- Deferred registration costs 224,060 -- Other assets 30,506 8,700 -------- -------- $ 1,860,516 $ 28,555 ============ ========= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable and accrued expenses (Note 4) $ 486,284 $ 9,838 Due to related parties (Note 3) 326,726 17,343 Note payable to related party (Note 3) 100,000 35,000 Current portion of capital lease obligation (Note 5) 61,199 -- -------- -------- Total current liabilities 974,209 62,181 Capital lease obligation, less current maturities (Note 5) 327,857 -- -------- -------- Total liabilities 1,302,066 62,181 -------- -------- Commitments and Contingencies (Notes 1, 5, 8 and 9) Stockholders' equity (deficit) (Notes 6 and 8): Preferred stock, $.01 par value; 1,000,000 shares authorized; no shares issued and outstanding -- -- Common stock, $.01 par value; 20,000,000 shares authorized; 2,105,000 shares issued and outstanding at May 31, 1996 21,050 -- Class B common stock, $.01 par value; 2,000,000 shares authorized; 625,000 shares issued and outstanding at May 31, 1996 6,250 -- Additional paid-in capital 7,827,025 -- Stock subscription receivable (3,600) -- Deficit accumulated during the development stage (7,292,275) (33,626) -------- -------- Total stockholders' equity (deficit) 558,450 (33,626) -------- -------- $ 1,860,516 $ 28,555 =========== ==========
See accompanying notes to financial statements. F-3 WEBSECURE, INC. (A DEVELOPMENT STAGE COMPANY) STATEMENTS OF OPERATIONS
PERIOD FROM CUMULATIVE NINE MONTHS INCEPTION FROM INCEPTION ENDED (JULY 19, 1995) (JULY 19, 1995) MAY 31, 1996 TO AUGUST 31, 1995 TO MAY 31, 1996 -------------- ---------------- --------------- Revenue: Product revenue $ 17,971 $ -- $ 17,971 Service revenue 23,801 -- 23,801 ------------ ------------ ----------- Total revenue 41,772 -- 41,772 ------------ ------------ ----------- Cost of revenue: Product revenue 13,628 -- 13,628 Service revenue 58,193 -- 58,193 ------------ ------------ ----------- Total cost of revenue 71,821 -- 71,821 ------------ ------------ ----------- Gross margin (30,049) -- (30,049) ------------ ------------ ----------- Operating expenses: Research and development 439,265 809 440,074 Selling and marketing 178,870 1,946 180,816 General and administrative (Note 3) 823,379 30,871 854,250 Charge for acquired research and development (Note 6) 5,760,000 -- 5,760,000 ------------ ------------ ----------- Total operating expenses 7,201,514 33,626 7,235,140 ------------ ------------ ----------- Loss from operations (7,231,563) (33,626) (7,265,189) Interest expense, net of interest income of $1,890 (27,086) -- (27,086) ------------ ------------ ----------- Net loss $ (7,258,649) $ (33,626) $ (7,292,275) ============== ============== ============== Net loss per common and common equivalent share $ (1.51) $ (.01) $ (1.52) ============== ============== ============== Shares used in computing net loss per common and common equivalent share 4,804,900 4,804,900 4,804,900 ============== ============== ==============
See accompanying notes to financial statements. F-4 WEBSECURE, INC. (A DEVELOPMENT STAGE COMPANY) STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
COMMON STOCK CLASS B COMMON STOCK ------------ --------------------- DEFICIT ACCUMULATED TOTAL ADDITIONAL DURING THE STOCKHOLDERS' NUMBER $.01 NUMBER $.01 PAID-IN STOCK DEVELOPMENT EQUITY OF SHARES PAR VALUE OF SHARES PAR VALUE CAPITAL SUBSCRIPTIONS STAGE (DEFICIT) --------- ------- ------- ------ -------- -------- -------- -------- Net loss from inception (July 19, 1995) to August 31, 1995 -- $ -- -- $ -- $ -- $ -- $ (33,626) $(33,626) --------- ------- ------- ------ -------- -------- -------- -------- Balance, August 31, 1995 -- -- -- -- -- -- (33,626) (33,626) Issuance of common stock: Founders 782,500 7,825 -- -- 6,500 (3,600) -- 10,725 For professional services 20,000 200 -- -- 79,800 -- -- 80,000 Private offering 500,000 5,000 -- -- 1,995,000 -- -- 2,000,000 Issuance of Class B common stock in connection with the acquisition of research and development (Note 6) -- -- 625,000 6,250 2,543,750 -- -- 2,550,000 Issuance of common stock in connection with the acquisition of research and development (Note 6) 802,500 8,025 -- -- 3,201,975 -- -- 3,210,000 Net loss -- -- -- -- -- -- (7,258,649) (7,258,649) --------- ------- ------- ------ -------- -------- -------- -------- Balance, May 31, 1996 2,105,000 $ 21,050 625,000 $ 6,250 $7,827,025 $ (3,600) $(7,292,275) $ 558,450 ========= ======== ======= ======== ========== ========== ============ ==========
See accompanying notes to financial statements. F-5 WEBSECURE, INC. (A DEVELOPMENT STAGE COMPANY) STATEMENTS OF CASH FLOWS
PERIOD FROM CUMULATIVE NINE MONTHS INCEPTION FROM INCEPTION ENDED (JULY 19, 1995) TO (JULY 19, 1995) TO MAY 31, 1996 AUGUST 31, 1995 MAY 31, 1996 ---------- ---------- ---------- Cash flows from operating activities: Net loss $(7,258,649) $ (33,626) $(7,292,275) Adjustments to reconcile net loss to net cash used in operating activities: Charge for acquired research and development 5,760,000 -- 5,760,000 Issuance of common stock for professional services 79,800 -- 79,800 Depreciation and amortization 138,008 -- 138,008 Changes in operating assets and liabilities: Accounts receivable (19,248) -- (19,248) Inventories (10,295) -- (10,295) Prepaid expenses and other current assets (9,020) (10,000) (19,020) Accounts payable and accrued expenses 476,446 9,838 486,284 ---------- ---------- ---------- Net cash used in operating activities (842,958) (33,788) (876,746) ---------- ---------- ---------- Cash flows from investing activities: Acquisition of property and equipment (771,855) (5,989) (777,844) Deferred registration costs (224,060) -- (224,060) Increase in other assets (21,806) (8,700) (30,506) ---------- ---------- ---------- Net cash used in investing activities (1,017,721) (14,689) (1,032,410) ---------- ---------- ---------- Cash flows from financing activities: Borrowings under capital lease 389,056 -- 389,056 Note receivable from related party (127,890) -- (127,890) Due from related parties (785,795) (3,866) (789,661) Due to related parties 309,383 17,343 326,726 Proceeds from issuance of common stock 2,010,925 -- 2,010,925 Proceeds from notes payable to related party 760,000 35,000 795,000 Payments of notes payable to related party (695,000) -- (695,000) ---------- ---------- ---------- Net cash provided by financing activities 1,860,679 48,477 1,909,156 ---------- ---------- ---------- Net change in cash -- -- -- Cash, beginning of period -- -- -- ---------- ---------- ---------- Cash, end of period $ -- $ -- $ -- =========== ============= ============ Supplemental disclosure of financing information: Cash paid for interest $ 20,840 $ 7,087 $ 27,927 Supplemental schedule of noncash investing and financing activities: Subscription receivable $ 3,600 $ -- $ 3,600
See accompanying notes to financial statements. F-6 WEBSECURE, INC. (A DEVELOPMENT STAGE COMPANY) NOTES TO FINANCIAL STATEMENTS 1. ORGANIZATION, BUSINESS AND PROPOSED INITIAL PUBLIC OFFERING WebSecure, Inc. (the "Company"), which is in the development stage, was originally incorporated as Netsafe Ltd. ("Netsafe") in Massachusetts on July 19, 1995. On September 12, 1995, Netsafe incorporated in Delaware. On December 21, 1995, Netsafe filed an amendment with the State of Delaware changing the name of the Company to WebSecure, Inc. The Company offers Internet access and support services for secure commercial transactions and communications over the Internet. The Company plans to provide complete solutions for businesses seeking to market and sell products and services over the Internet, including establishing (1) a commercial Web site domain, (2) electronic store design, (3) browsing and purchasing capabilities, and (4) transaction processing. WebSecure also resells SBT, a prepackaged accounting software program. The Company is in the development stage, and as such, success of future operations is subject to a number of risks similar to those of other companies in the same stage of development. Principal among these risks are the Company's limited operating history, history of operating losses, no assurance of successful operations, early state of market development, competition from substitute products or larger companies, rapid technological change, dependence on key personnel and the uncertainty of availability of additional financing. The Company has incurred a cumulative net loss of $7,292,275 through May 31, 1996 and has been primarily engaged in product development. The Company has funded these losses through the private placement of equity securities aggregating approximately $2.0 million, through a note payable to a related party and financing through a capital lease. There is substantial doubt about the Company's ability to continue as a going concern. The Company is dependent upon the anticipated net proceeds (after deducting the underwriters' discount and offering expenses, and assuming no exercise of the underwriters' over allotment option) of approximately $6,704,000 from a proposed Initial Public Offering ("IPO") to fund its operations for at least 12 months from the date of the Offering. Thereafter, the Company's continued operations and funding of research and development will depend upon cash flows from operations, if any, and the Company's ability to raise additional funds through equity or debt financings. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Deferred Registration Costs As of May 31, 1996, the Company has incurred registration costs of $224,060 in connection with the proposed IPO. These costs have been deferred and upon consummation of the proposed IPO, will be charged against the equity raised or expensed if the Offering is not successful. Inventories Inventories consisting of purchased software are stated at the lower of cost or market determined on the first-in, first-out method. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. F-7 WEBSECURE, INC. (A DEVELOPMENT STAGE COMPANY) NOTES TO FINANCIAL STATEMENTS - (CONTINUED) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED) Revenue Recognition The Company recognizes product revenue related to prepackaged software when shipped, as the Company has no subsequent obligations, and service revenue as the related services are performed. Cost of product revenue consists of costs to purchase the product, including the cost of the media on which it is delivered. Cost of service revenue consists primarily of consulting and support personnel salaries and related expenses. Property and Equipment Property and equipment is recorded at cost. Depreciation and amortization is computed using the straight-line method over the estimated useful lives of the related assets, as follows:
ESTIMATED ASSET CLASSIFICATION USEFUL LIFE - ------------------ ---------- Computer equipment 3 years Office equipment 5 years Furniture and fixtures 7 years Leasehold improvements Lease term Software 3 years
Research and Development Expenses for Software Products In accordance with Statement of Financial Accounting Standards ("SFAS") No. 86, "Accounting for the Costs of Computer Software To Be Sold, Leased or Otherwise Marketed," the Company will capitalize software development costs incurred after technological feasibility of the software development projects is established and the realizability of such capitalized costs through future operations is expected if such costs become material. To date, all of the Company's costs for research and development of software have been charged to operations as incurred, as the amount of software development costs incurred subsequent to the establishment of technological feasibility has been immaterial. Concentration of Credit Risk SFAS No. 105, "Disclosure of Information About Financial Instruments with Off-Balance-Sheet Risk and Financial Instruments with Concentrations of Credit Risk," requires disclosure of any significant off-balance-sheet and credit risk concentrations. The Company's accounts receivable balances are all domestic. The Company has not written off any of its accounts receivable to date. The Company had two significant customers in the nine months ended May 31, 1996 that represented 26% and 15% of the Company's total revenue, respectively. Both of these customers are related parties (see Note 3). Income Taxes The Company accounts for income taxes in accordance with SFAS No. 109, "Accounting for Income Taxes." Under SFAS No. 109, deferred tax assets or liabilities are computed based on the differences between the financial statement and income tax basis of assets and liabilities using the enacted tax rates. Deferred income tax expenses or credits are based on changes in the assets or liability from period to period. F-8 WEBSECURE, INC. (A DEVELOPMENT STAGE COMPANY) NOTES TO FINANCIAL STATEMENTS - (CONTINUED) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED) Financial Instruments The estimated fair value of the Company's financial instruments, which include accounts receivable, accounts payable and related party accounts approximate their carrying value. Computation of Net Loss per Common and Common Equivalent The net loss per common and common equivalent share is computed by dividing the net loss by the weighted average number of shares outstanding during each period presented, as adjusted for the effects of application of Securities and Exchange Commission Staff Accounting Bulletin No. 83 ("SAB No. 83"). Pursuant to SAB No. 83, all common stock and common stock equivalents issued within twelve months prior to the initial filing of the registration statement relating to the Company's anticipated IPO at a price less than the estimated IPO price have been treated as outstanding for all reported periods using the treasury stock method. The shares used in the computation also assumes that each share of outstanding Class B Common Stock has been converted into four shares of Common Stock (see Note 8). New Accounting Standard Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," issued by the Financial Accounting Standards Board ("FASB"), is effective for financial statements for fiscal years beginning after December 15, 1995. The new standard establishes new guidelines regarding when impairment losses on long-lived assets, which include plant and equipment and certain identifiable intangible assets and goodwill, should be recognized and how impairment losses should be measured. The Company does not expect the adoption of this standard to have a material effect on its financial position or results of operations. In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based Compensation." The Company has determined that it will continue to account for stock-based compensation for employees under Accounting Principles Board Opinion No. 25 and elect the disclosure-only alternative under SFAS No. 123. The Company will be required to disclose the pro forma net income or loss and per share amounts in the notes to the financial statements using the fair-value-based method beginning in the year ending August 31, 1997, with comparable disclosures for the year ended August 31, 1996. The Company has not determined the impact of these pro forma adjustments. 3. RELATED PARTIES TRANSACTIONS Discussed below are various related parties and transactions that occurred during the period from inception (July 19, 1995) through May 31, 1996. As of September 6, 1996, the Company does not have formal agreements in place with these related parties. Employee Resources, Inc. ("ERI") ERI is an employee leasing firm wholly owned by the Company's president. All of the individuals who work at the Company are employed by ERI. For the nine months ended May 31, 1996, approximately $560,000 was billed by ERI to the Company and charged to operations. The Company owed ERI approximately $237,000 and $17,000 as of May 31, 1996 and August 31, 1995, respectively, which is included in the amount due to related parties in the accompanying balance sheets. The amounts due to related parties do not bear interest and are due upon demand. F-9 WEBSECURE, INC. (A DEVELOPMENT STAGE COMPANY) NOTES TO FINANCIAL STATEMENTS - (CONTINUED) 3. RELATED PARTIES TRANSACTIONS -- (CONTINUED) Center for Business Planning, Ltd. ("CBP") CBP is a back room support company founded by the Company's president in May 1995. CBP provided research and development services to the Company in connection with developing the Company's products. CBP charged the Company a management fee for its services of approximately $74,000 for the nine months ended May 31, 1996 which was charged to operations. The Company owed CBP approximately $72,000 as of May 31, 1996, which is included in the amount due to related parties in the accompanying balance sheets. As of May 31, 1996, CBP and related entities held cash of approximately $790,000 on behalf of the Company, which is recorded as due from related parties in the May 31, 1996 balance sheet. Approximately $766,000 of this amount was paid by CBP to the Company in June 1996. The Company also charged CBP approximately $13,000 for subletting office space and equipment rental which was charged to operations. Centennial Technologies, Inc. ("Centennial") Centennial is a manufacturer of PCMCIA cards. The Company's president is a former director of Centennial, and the Company's CFO was also employed by Centennial. Centennial owns approximately 23% of the Company. Centennial and the Company have an informal agreement whereby Centennial will fund the Company through short-term notes payable as funds are needed. Centennial has also guaranteed the Company's obligation under a capital lease. For the nine months ended May 31, 1996, Centennial, from time to time, made loans to the Company totalling $795,000 for general operations, of which $695,000 was repaid. The Company owed Centennial $100,000 as of May 31, 1996, which is shown as note payable to related party in the accompanying May 31, 1996 balance sheet. The note payable to Centennial bears interest at 9% per annum and is due upon demand. Centennial interest expense for the nine months ended May 31, 1996 amounted to $11,500 of which $5,250 was unpaid and is included in amounts due to related parties in the accompanying May 31, 1996 balance sheet. Information Capture Corporation ("ICC") ICC is developing a data acceptance device which is being built for ERI. The Company's president is a 20% shareholder of ICC. ICC loaned the Company approximately $95,000 to purchase furniture which was repaid at May 31, 1996. For the nine months ended May 31, 1996, approximately $9,000 was billed from the Company to ICC and charged to operations for the sublet of office space and equipment rental, all of which was paid by May 31, 1996. Mediajet, Inc. ("Mediajet") Included in the accompanying balance sheet at May 31, 1996 is a note receivable of $127,890, including interest of $1,890, from Mediajet. Mediajet is owned by a former officer of the Company. The note bears interest at 9% per annum and is due upon demand. The note was paid to the Company in June 1996. 4. ACCOUNTS PAYABLE AND ACCRUED EXPENSES Accounts payable and accrued expenses consist of the following:
MAY 31, AUGUST 31, 1996 1995 --------- --------- Trade accounts payable $287,680 $3,052 Registration costs 170,000 -- Other accrued expenses 28,604 6,786 -------- ------ $486,284 $9,838 ======== ======
F-10 WEBSECURE, INC. (A DEVELOPMENT STAGE COMPANY) NOTES TO FINANCIAL STATEMENTS - (CONTINUED) 5. OBLIGATION UNDER CAPITAL LEASE The company has entered into a capital lease agreement for computer and office equipment. Future minimum lease payments under this capital lease are approximately as follows:
FISCAL YEAR AMOUNT ----------- -------- 1996 $ 27,000 1997 107,000 1998 107,000 1999 107,000 2000 107,000 Thereafter 36,000 --------- Total minimum lease payments 491,000 Less amount representing interest 101,944 --------- Present value of future lease payments 389,056 Less current portion of capital lease obligation 61,199 --------- Long-term portion $ 327,857 ==========
The related leased assets are included in property and equipment at a cost of $389,056 less accumulated amortization of $73,056 at May 31, 1996. 6. ACQUIRED RESEARCH AND DEVELOPMENT On March 29, 1996, the Company entered into a software license agreement with Manadarin Trading Company Limited, an unrelated Irish corporation, in exchange for 625,000 shares of the Company's Class B Common Stock. The value assigned to this transaction ($2,550,000) represents the estimated fair value of the stock issued based on its value in relation to other transactions occurring during the period. To bring these software products to technological feasibility, high-risk development and testing issues need to be resolved, which will require substantial additional effort and testing. As such, the entire value of the transaction was allocated to incomplete research and development projects that had not yet reached technological feasibility and was charged to expense at the date of the license agreement. On April 1, 1996, the Company entered into a software license agreement with International Software Development Limited, an unrelated British Virgin Islands corporation, for certain technology in exchange for 802,500 shares of the Company's Common Stock. The value assigned to this transaction ($3,210,000) represents the estimated fair value of the Common Stock issued as determined by recent sales of the Company's Common Stock to third parties. The Company expects to utilize this technology in connection with its existing technology. However, to bring this software product to technological feasibility and incorporate it into the Company's existing product, high-risk development and testing issues need to be resolved, which will require substantial additional effort and testing. Accordingly, the entire value of the transaction was allocated to incomplete research and development and was charged to expense at the date of the license agreement. F-11 WEBSECURE, INC. (A DEVELOPMENT STAGE COMPANY) NOTES TO FINANCIAL STATEMENTS - (CONTINUED) 7. INCOME TAXES The components of the Company's deferred tax asset (liability) are approximately as follows:
MAY 31, AUGUST 31, 1996 1995 ---------- ---------- Operating loss carryforwards $ 612,000 $ 12,000 Amortization of acquired research and development 1,313,000 -- Tax credit carryforwards 14,000 -- Depreciation (27,000) (1,000) --------- --------- 1,912,000 11,000 Less valuation allowance 1,912,000 11,000 --------- --------- $ -- $ -- ========== =========
The Company has incurred net losses since inception and expects to continue to operate at a loss for the foreseeable future. Accordingly, the Company has established a valuation allowance equal in amount to the deferred tax asset for all periods presented, as there is significant doubt about the realizability of the deferred tax assets. At May 31, 1996, the Company had net operating loss carryforwards for federal and state income tax purposes of approximately $1,519,000, which expire through 2010. The Company also has certain tax credits available to offset future federal and state income taxes, if any. Net operating loss carryforwards and credits are subject to review and possible adjustment by the Internal Revenue Service and may be limited in the event of certain cumulative changes in the ownership interests of significant stockholders over a three year period in excess of 50%. The Company may experience an additional change in ownership in excess of 50% upon completion of the proposed IPO. 8. STOCKHOLDERS' EQUITY (DEFICIT) Preferred Stock The Company is authorized to issue up to 1,000,000 shares of preferred stock, $.01 par value per share (the Preferred Stock). The Preferred Stock may be issued in one or more series, the terms of which may be determined at the time of issuance by the Board of Directors, without further action by stockholders, and may include voting rights (including the right to vote as a series on particular matters), preferences as to dividends and liquidation, conversion rights, redemption rights and sinking fund provisions. Common Stock As of May 31, 1996, the Company's authorized common stock consisted of 20,000,000 shares of Common Stock, $.01 par value per share; and 2,000,000 shares of Class B Common Stock, $.01 par value per share. During the nine months ended May 31, 1996, the Company sold 500,000 shares of Common Stock to certain investors for aggregate proceeds of $2,000,000 and issued 20,000 shares of Common Stock in exchange for professional services rendered. In addition, on April 1, 1996, the Company issued 802,500 shares of Common Stock to a British software company in connection with the acquisition of certain technology (see Note 6). F-12 WEBSECURE, INC. (A DEVELOPMENT STAGE COMPANY) NOTES TO FINANCIAL STATEMENTS - (CONTINUED) 8. STOCKHOLDERS' EQUITY (DEFICIT) -- (CONTINUED) Class B Common Stock The rights and privileges of the Class B Common Stock are as follows: VOTING Except as otherwise provided by law, the Class B Common Stockholders do not have voting rights. For actions required by law to be subject to a vote, each share of Class B Common Stock will entitle the holder to one vote. DIVIDENDS The Board of Directors may not declare or pay dividends to Class B Common Stockholders until all of the holders of unclassified Common Stock have received dividends equal to $10.00 per share in the aggregate, after which time the Class B Common Stockholders are entitled to share ratably with the holders of unclassified Common Stock in further declared and paid dividends, if any. LIQUIDATION In certain events, including liquidation, dissolution or winding up of the Company, the Class B Common Stockholders share ratably with the holders of shares of unclassified Common Stock in distributions up to a maximum of $1.00 per share, but only after holders of unclassified Common Stock have been paid an amount equal to $8.00 per share in the aggregate. CONVERSION Each share of Class B Common Stock shall convert automatically into four shares of the Company's Common Stock upon the occurrence of one of the following events: (i) the declaration of effectiveness by the Securities and Exchange Commission of a registration statement for a firm commitment underwriting of the Company's securities for gross proceeds equal to or greater than $5,000,000; or (ii) the sale of all or substantially all of the assets of the Company in a transaction under which the value of the Company is reasonably determined to be equal to or greater than $30,000,000. The conversion rate of the shares of Class B Common Stock shall be proportionally adjusted in the event of stock splits, stock dividends, recapitalization or stock reclassifications. 1996 Stock Option Plan In February 1996, the Company's Board of Directors and stockholders approved the 1996 Stock Option Plan (the Plan). The Plan allows for the issuance of up to 800,000 shares of Common Stock or options to purchase Common Stock under the Plan, and the Company has reserved all shares of Common Stock necessary for issuance under the Plan. Under the terms of the Plan, the Board of Directors may grant incentive stock options or nonqualified stock options to purchase shares of the Company's Common Stock. The exercise price of stock options granted under the Plan will be not less than the fair value of the Common Stock on the date of grant. The purchase price and vesting schedule applicable to each option grant are determined by the Board of Directors. Options generally vest annually over a four-year period and expire 10 years from the date of grant. 1996 Formula Stock Option Plan In February 1996, the Company's Board of Directors and stockholders approved the 1996 Formula Stock Option Plan (the Formula Plan). The Formula Plan allows for the issuance of up to 60,000 shares of Common Stock or options to purchase Common Stock. The Company has reserved all shares F-13 WEBSECURE, INC. (A DEVELOPMENT STAGE COMPANY) NOTES TO FINANCIAL STATEMENTS - (CONTINUED) 8. STOCKHOLDERS' EQUITY (DEFICIT) -- (CONTINUED) necessary for issuance under the Formula Plan. Under the terms of the Formula Plan, beginning on June 1, 1996, and annually thereafter on the business day immediately following the Company's annual meeting of the stockholders, options shall be granted without approval or discretion on the part of the Board, to nonemployee directors. Each nonemployee director who has not been a director on such date for at least one year will receive options to purchase 5,000 shares of Common Stock, which vest fully one year from the date of grant. Each nonemployee director who has been a director of the Company for at least one year as of such date will receive options to purchase 1,000 shares of Common Stock, which will vest fully on the date of grant. The exercise price of all options granted will be the fair market value of the Company's Common Stock on the date of grant, and the options will be exercisable subject to the individual's continued service as a director of the Company on such date. Options must be granted within 10 years from the effective date of the Formula Plan, and options granted cannot be exercised more than 10 years from the date of grant. The following is a summary of the stock option activity for all plans for the period from inception (July 19, 1995) to May 31, 1996:
1996 STOCK 1996 FORMULA STOCK OPTION PLAN OPTION PLAN ---------- ---------------- NUMBER EXERCISE NUMBER EXERCISE PRICE OF SHARES PRICE PER SHARE OF SHARES PER SHARE ------- ------- ------- ------ Outstanding, August 31, 1995 -- $ -- -- $ -- Granted 394,800 4.00 5,000 4.00 Terminated -- -- -- -- Exercised -- -- -- -- ------- ----- ------- -------- Outstanding, May 31, 1996 394,800 $ 4.00 5,000 $ 4.00 ======= ======= ======= ========= Exercisable, May 31, 1996 -- $ -- -- $ -- ======= ======= ======= =========
9. COMMITMENTS Operating Leases The Company leases its facilities under operating leases that expire through August 2000. The future minimum lease commitments at May 31, 1996 are approximately as follows:
YEAR ENDING AUGUST 31, AMOUNT - ---------------------- -------- 1996 $ 14,000 1997 58,000 1998 60,000 1999 63,000 2000 65,000 -------- $ 260,000 =========
F-14 WEBSECURE, INC. (A DEVELOPMENT STAGE COMPANY) NOTES TO FINANCIAL STATEMENTS - (CONTINUED) 9. COMMITMENTS -- (CONTINUED) Rent expense included in the accompanying statements of operations was approximately $28,000 for the nine months ended May 31, 1996 and for the period from inception (July 19, 1995) to May 31, 1996. Employment Agreements The Company has entered into employment agreements with certain executive officers which provide for bonus and severance benefits for a period of 12 months upon termination of employment under certain circumstances. The agreements also provide for minimum base annual compensation aggregating approximately $235,000 through April 1999. F-15 ================================================================================ NO DEALER, SALESMAN OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS IN CONNECTION WITH THE OFFERING MADE HEREBY, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY, OR ANY UNDERWRITER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, ANY OF THE SECURITIES OFFERED HEREBY IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH AN OFFER OR SOLICITATION IN SUCH JURISDICTION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATES AS OF WHICH SUCH INFORMATION IS FURNISHED. TABLE OF CONTENTS
PAGE ---- Prospectus Summary 3 Risk Factors 6 Use of Proceeds 15 Dilution 17 Capitalization 18 Dividend Policy 18 Selected Financial Data 19 Plan of Operations 20 Business 22 Management 29 Principal and Selling Stockholders 34 Certain Transactions 35 Description of Securities 36 Shares Eligible for Future Sale 39 Underwriting 40 Legal Matters 41 Experts 41 Additional Information 41 Financial Statements F-1
UNTIL ___ , 1996 (25 DAYS AFTER THE LATER OF THE EFFECTIVE DATE OF THE REGISTRATION STATEMENT OR THE FIRST DATE ON WHICH THE COMMON STOCK WAS OFFERED TO THE PUBLIC) ALL DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT PARTICIPATING IN THE DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS. ================================================================================ [LOGO) WEBSECURE, INC. 1,000,000 SHARES OF COMMON STOCK AND 1,000,000 REDEEMABLE COMMON STOCK PURCHASE WARRANTS ----------- PROSPECTUS ----------- COBURN & MEREDITH, INC. SHAMROCK PARTNERS, LTD. , 1996 ================================================================================ PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION The following is an itemization of all expenses (subject to future contingencies) incurred or expected to be incurred by the Company in connection with the issuance and distribution of the securities being offered hereby other than underwriting discounts and commissions (items marked with an asterisk (*) represent estimated expenses); Registration Fee $ 7,713.14 NASD Filing Fee $ 2,778.41 AMEX Listing Fee* $ 15,000.00 Blue Sky Filing Fees and Expenses* $ 5,000.00 Printing and Engraving Cost* $ 50,000.00 Transfer Agent Fees* $ 1,000.00 Legal Fees* $ Accounting Fees* $ 50,000.00 Miscellaneous* $ ------------ TOTAL* $ 430,000.00 ============
ITEM 14. INDEMNIFICATION OF OFFICERS AND DIRECTORS Delaware General Corporation Law, Section 102(b)(7), enables a corporation in its original certificate of incorporation or an amendment thereto validly approved by stockholders to eliminate or limit personal liability of members of its Board of Directors for violations of a director's fiduciary duty of care. However, the elimination or limitation shall not apply where there has been a breach of the duty of loyalty, failure to act in good faith, engaging in intentional misconduct or knowingly violating a law, paying a dividend or approving a stock repurchase which is deemed illegal or obtaining an improper personal benefit. The Company's Certificate of Incorporation includes the following language: "The personal liability of the Directors of the Corporation is hereby eliminated to the fullest extent permitted by paragraph (7) of Subsection (b) of Section 102 of the General Corporation Law of the State of Delaware as the same may be amended and supplemented." Delaware General Corporation Law, Section 145, permits a corporation organized under Delaware law to indemnify directors and officers with respect to any matter in which the director or officer acted in good faith and in a manner he reasonably believed to be not opposed to the best interests of the Company, and, with respect to any criminal action, had reasonable cause to believe his conduct was lawful. The Bylaws of the Company include the following provision: "Reference is made to Section 145 and any other relevant provisions of the General Corporation Law of the State of Delaware. Particular reference is made to the class of persons, hereinafter called "Indemnitees", who may be indemnified by a Delaware corporation pursuant to the provisions of such Section 145, namely, any person, or the heirs, executors, or administrators of such person, who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit, or proceeding, whether civil, criminal, administrative, or investigative, by reason of the fact that such person is or was a director, officer, employee, or agent of such corporation or is or was serving at the request of such corporation as a director, officer, employee, or agent of such corporation or is or was serving at the request of such corporation as a director, officer, employee, or agent of another corporation, partnership, joint venture, trust, or other enterprise. The Corporation shall, and is hereby obligated to, indemnify the II-1 Indemnitees, and each of them, in each and every situation where the Corporation is obligated to make such indemnification pursuant to the aforesaid statutory provisions. The Corporation shall indemnify the Indemnitees, and each of them, in each and every situation where, under the aforesaid statutory provisions, the Corporation is not obligated, but is nevertheless permitted or empowered, to make such indemnification, it being understood that, before making such indemnification with respect to any situation covered under this sentence, (i) the Corporation shall promptly make or cause to be made, by any of the methods referred to in Subsection (d) of such Section 145, a determination as to whether each Indemnitee acted in good faith and in a manner he reasonably believed to be in, or not opposed to, the best interests of the Corporation, and, in the case of any criminal action or proceeding, had no reasonable cause to believe that his conduct was unlawful, and (ii) that no such indemnification shall be made unless it is determined that such Indemnitee acted in good faith and in a manner he reasonably believed to be in, or not opposed to, the best interests of the Corporation, and, in the case of any criminal action or proceeding, had no reasonable cause to believe that his conduct was unlawful." Reference is made to "Underwriting" in the Prospectus for information relating to certain indemnification of the directors and officers of the Company by the Representative in connection with the Offering to which this Registration Statement relates. ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES Set forth below in chronological order is information regarding the numbers of shares of Common Stock sold by the Company since its inception, the consideration received by the Company for such shares, options and debt instruments and information relating to the section of the Securities Act of 1933, as amended (the "Securities Act"), or rule of the Securities and Exchange Commission under which exemption from registration was claimed. None of these securities was registered under the Act. Except as otherwise indicated, no sales of securities involved the use of an underwriter and no commissions were paid in connection with the sale of any securities. 1. From December 1995 through April 1996 the Company sold 500,000 shares of Common Stock to 27 investors at a price of $4.00 per share in a private offering. All of the investors were unaffiliated with the Company except for Centennial Technologies, Inc., which purchased 138,750 shares in the private offering and was also a co-founding stockholder of the Company. 2. In April 1996, the Company issued 625,000 shares of Class B Common Stock to MTCL in connection with the license of certain software programs. 3. In April 1996, the Company issued 802,500 shares of Common Stock to ISDL in connection with the Company's license of certain software. Each of the foregoing transactions was exempt from registration under the Act by virtue of the provisions of Section 4(2) and/or Section 3(b) of the Securities Act. Each purchaser of the securities described above has represented or will represent prior to the purchase of the securities that he understands that the securities acquired may not be sold or otherwise transferred absent registration under the Securities Act or the availability of an exemption from the registration requirements of the Securities Act, and each certificate evidencing the securities owned by each purchaser bears or will bear upon issuance a legend to that effect. ITEM 16. EXHIBITS (a) The following exhibits are filed herewith.
EXHIBIT NO. TITLE - ----------- ----- 1a -- Agreement among Underwriters between the Company, Coburn & Meredith, Inc. and Shamrock Partners, Ltd. (the "Representatives") 1b -- Form of Underwriting Agreement between the Company and the Representatives. 1c -- Form of Selected Dealers Agreement. II-2 3a -- Certificate of Incorporation of the Company, dated September 1995 with Amendments thereto dated September 1995, December 1995 and March 1996 and a Certificate of Correction dated June 1996. 3b -- Bylaws. 3c -- Agreement of Merger between the Company and WebSecure, Inc. 4a -- Included in Exhibits 3a and 3b. *4b -- Specimen Common Stock Certificate. 4c -- Form of Representative's Warrant Agreement with Form of Representative's Warrant attached thereto. *4d -- Form of Warrant Agreement between the Company and American Securities Transfer & Trust, Incorporated (includes Specimen Redeemable Warrant Certificate). 5 -- Opinion Letter of O'Connor, Broude & Aronson as to legality of shares being registered. 10a -- License Agreement with International Software Development Limited, dated April 1, 1996. 10b -- License Agreement with Manadarin Trading Company Limited, dated March 29, 1996. +10c -- 1996 Stock Option Plan. +10d -- 1996 Formula Stock Option Plan. +10e -- Employment Agreement with Robert Kuzara. 10f -- Form of Subscription Agreement dated November 27, 1995 between the Company and several private investors. 11 -- Computation of shares used in the computation of pro forma net loss per common and common equivalent share. 23a -- Consent of BDO Seidman, LLP. 23b -- Consent of O'Connor, Broude & Aronson (contained in Opinion filed as Exhibit 5). 27 -- Financial Data Schedule
- ---------- * To be filed by amendment. + Relates to Management Compensation. ITEM 17. UNDERTAKINGS (a) The undersigned Registrant hereby undertakes: (1) to file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement: (i) To include any prospectus required by Section 10(a)(3) of the Securities Act of 1933; (ii) To 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) To include any additional or changed material information on the plan of distribution. (2) That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be treated as a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the Offering. II-3 (b) The undersigned Registrant hereby undertakes to provide to the Representative at the closing specified in the Underwriting Agreement certificates in such denominations and registered in such names as required by the Representative to permit prompt delivery to each purchaser. (c) Insofar as indemnification for liabilities arising under the Securities Act of 1933 (the "Act") may be permitted to directors, officers, and controlling persons of the small business issuer pursuant to the foregoing provisions, or otherwise, the small business issuer has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the small business issuer of expenses incurred or paid by a director, officer, or controlling person of the small business issuer in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the small business 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 Act and will be governed by the final adjudication of such issue. (d) The small business issuer hereby undertakes that it will: (1) For determining any liability under the Act, treat the information omitted from the form of prospectus filed as part of a registration statement in reliance upon Rule 430A and contained in the form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Act as part of the registration statement as of the time it was declared effective. (2) For the purpose of determining any liability under the Act, treat each post-effective amendment that contains a form of prospectus as a new registration statement relating to the securities offered therein, and the offering of such securities at that time as the initial bona fide offering thereof. II-4 SIGNATURES IN ACCORDANCE WITH THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT CERTIFIES THAT IT HAS REASONABLE GROUNDS TO BELIEVE THAT IT MEETS ALL OF THE REQUIREMENTS FOR FILING ON FORM SB-2 AND HAS AUTHORIZED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, IN THE CITY OF SAUGUS, COMMONWEALTH OF MASSACHUSETTS ON SEPTEMBER 10, 1996. WEBSECURE, INC. By: /s/ ROBERT KUZARA ------------------------------------ ROBERT KUZARA PRESIDENT AND CHIEF EXECUTIVE OFFICER PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES AND ON THE DATES STATED.
NAME CAPACITY DATE /S/ JOHN J. SHIELDS Chairman of the Board of September 10, 1996 - ------------------------ Directors JOHN J. SHIELDS /s/ ROBERT KUZARA President, Chief Executive September 10, 1996 - ------------------------ Officer and Director ROBERT KUZARA (principal executive officer) /s/ MICHAEL APPE Director September 10, 1996 - ------------------------ MICHAEL APPE /s/ CAROLE OUELLETTE Chief Financial Officer, September 10, 1996 - ------------------------ Treasurer and Director CAROLE OUELLETTE (principal financial and accounting officer)
II-5 INDEX TO EXHIBITS
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT - -------- ----------------------- 1a -- Agreement among Underwriters between the Company, Coburn & Meredith, Inc. and Shamrock Partners, Ltd. (the "Representatives") 1b -- Form of Underwriting Agreement between the Company and the Representatives. 1c -- Form of Selected Dealers Agreement 3a -- Certificate of Incorporation of the Company, dated September 1995 with Amendments thereto dated September 1995, December 1995 and March 1996 and a Certificate of Correction dated June 1996 3b -- Bylaws 3c -- Agreement of Merger between the Company and WebSecure, Inc. 4a -- Included in Exhibits 3a and 3b *4b -- Specimen Common Stock Certificate 4c -- Form of Representative's Warrant Agreement with Form of Representative's Warrant attached thereto *4d -- Form of Warrant Agreement between the Company and American Securities Transfer & Trust, Incorporated (includes Specimen Redeemable Warrant Certificate) 5 -- Opinion Letter of O'Connor, Broude & Aronson as to legality of shares being registered 10a -- License Agreement with International Software Development Limited, dated April 1, 1996 10b -- License Agreement with Manadarin Trading Company Limited, dated March 29, 1996 +10c -- 1996 Stock Option Plan +10d -- 1996 Formula Stock Option Plan +10e -- Employment Agreement with Robert Kuzara 10f -- Form of Subscription Agreement dated November 27, 1995 between the Company and several private investors 11 -- Computation of shares used in the computation of pro forma net loss per common and common equivalent share 23a -- Consent of BDO Seidman, LLP 23b -- Consent of O'Connor, Broude & Aronson (contained in Opinion filed as Exhibit 5) 27 -- Financial Data Schedule
* To be filed by amendment. + Relates to Management Compensation. EX-1.A 2 AGREEMENT AMONG UNDERWRITERS WEBSECURE, INC. 1,000,000 SHARES OF COMMON STOCK AND 1,000,000 REDEEMABLE WARRANTS AGREEMENT AMONG UNDERWRITERS ---------------------------- , 19 Coburn & Meredith, Inc. 150 Trumbull Street Hartford, CT 06103 as Representative GENTLEMEN: We wish to confirm as follows the agreement among you, the undersigned and the other members of the Underwriting Group named in Schedule I to the Underwriting Agreement, as it is to be executed (all such parties being herein called the "Underwriters"), with respect to the purchase by the Underwriters severally from WebSecure, Inc. ("Company") of shares of Common Stock and Redeemable Warrant ("Securities") set forth in Schedule I to the Underwriting Agreement. The number of Securities to be purchased by each Underwriter from the Company shall be determined in accordance with Section 2 of the Underwriting Agreement. It is understood that changes may be made in those who are to be Underwriters and in the respective numbers of Securities to be purchased by them, but that the Underwriting Agreement will not be changed without our consent, except as provided herein, and in the Underwriting Agreement. The obligations of the Underwriters to purchase the number of Securities set opposite their respective names in Schedule I to the Underwriting Agreement, are herein called their "underwriting obligations." The number of Securities set opposite our name in said Schedule I, are herein called "our Securities." For purposes of this Agreement the following definitions shall be applicable: (a) "Manager's Concession" shall be the compensation to you for acting as Manager as provided in Paragraph 1 of not less than percent ( %) of the underwriting discount. The Manager's Concession shall include the right to a portion of the warrants to be issued pursuant to the Underwriting Agreement and, the right to the nonaccountable expenses to be paid pursuant to the Underwriting Agreement. (b) "Underwriting Group Concession" shall mean compensation to members of the Underwriting Group for assuming the underwriting risk and shall be not less than percent ( %) of the underwriting discount. (c) "Dealer's Concession" shall mean compensation to Dealers, who are members of the Selling Group and shall, as to Dealers who have executed an agreement with you, be not less than percent ( %) of the underwriting discount. (d) "Dealer's Reallowance Concession" shall mean the compensation allowed Dealers by Underwriters other than you and shall be one-half (1/2) of the Dealer's Concession. (e) It is contemplated that the underwriting discount will be ten percent (10%) of the offering price. You, in your absolute discretion, shall determine, within the foregoing limitations, the precise allocation of the underwriting discount and shall notify us of same at least twenty-four (24) hours prior to the execution of the Underwriting Agreement. 1. Authority and Compensation of Representative. We hereby authorize you, as our Representative and on our behalf, (a) to enter into an agreement with the Company substantially in the form attached hereto as Exhibit A ("Underwriting Agreement"), but with such changes therein as in your judgment are not materially adverse to the Underwriters, (b) to exercise all the authority and discretion vested in the Underwriters and in you by the provisions of the Underwriting Agreement, and (c) to take all such action as you, in your discretion, may deem necessary or advisable in order to carry out the provisions of the Underwriting Agreement and this Agreement and the sale and distribution of the Securities, provided, however, that the time within which the Registration Statement is required to become effective pursuant to the Underwriting Agreement will not be extended more than forty-eight (48) hours without the approval of a majority in interest of the Underwriters (including you). We authorize you, in executing the Underwriting Agreement on our behalf, to set forth in Schedule I of the Underwriting Agreement as our commitment to purchase the number of Securities (which shall not be substantially in excess of the number of Securities included in your invitation to participate unless we have agreed otherwise) included in a wire, telex, or similar means of communication transmitted by you to us at least twenty-four (24) hours prior to the commencement of the offering as our finalized underwriting participation. As our share of the compensation for your services hereunder, we will pay you, and we authorize you to charge to our account, a sum equal to the Manager's Concession. 2. Public Offering. A public offering of the Securities is to be made, as herein provided, as soon after the Registration Statement relating thereto shall become effective as in your judgment is advisable. The Securities shall be initially offered to the public at the public offering price of $______ per share and $______ per Redeemable Warrant. You will advise us by telegraph or telephone when the Securities shall be released for offering. We authorize you as Representative of the Underwriters, after the initial public offering, to vary the public offering price, in your sole discretion, by reason of changes in general market conditions or otherwise. The public offering price of the Securities at any time in effect is herein called the "Offering Price." We hereby agree to deliver all preliminary and final Prospectuses as required for compliance with the provisions of Rule 15c2-8 under the Securities Exchange Act of 1934 and Section 5(b) of the Securities Act of 1933. You have heretofore delivered to us such preliminary Prospectuses as have been requested by us, receipt of which is hereby acknowledged, and will deliver such final Prospectuses as will be requested by us. 3. Offering to Dealers and Group Sales. We authorize you to reserve for offering and sale, and on our behalf to sell, to institutions or other retail purchasers (such sales being herein called "Group Sales") and to dealers selected by you (such dealers being herein called the "Dealers") all or any part of our Securities as you may determine. Such sales of Securities, if any, shall be made (i) in the case of Group Sales, at the Offering Price, and (ii) in the case of sales to Dealers, at -the Offering Price less the Dealer's Concession. Any Group Sales shall be as nearly as practicable in proportion to the underwriting obligations of the respective Underwriters. Any sales to Dealers made for our account shall be as nearly as practicable in the ratio that the Securities reserved for our account for offering to Dealers bears to the aggregate of all Securities of all Underwriters, including you, so reserved. On any Group Sales or sales to Dealers made by you on our behalf, we shall be entitled to receive only the Underwriter's Concession. You agree to notify us not less than twenty-four (24) hours prior to the commencement of the public offering as to the number of Securities, if any, which we may retain for direct sale. Prior to the termination of this Agreement, you may reserve for offering and sale, as herein before provided, any Securities remaining unsold theretofore retained by us and we may, with your consent, retain any Securities remaining unsold theretofore reserved by you. Sales to Dealers shall be made under a Selected Dealers Agreement, attached hereto as Exhibit B and by this reference incorporated herein. We authorize you to determine the form and manner of any communications with Dealers, and to make such changes in the Selected Dealers Agreement, as you may deem appropriate. In the event that there shall be any such agreements with Dealers, you are authorized to act as managers thereunder, and we agree, in such event, to be governed by the terms and conditions of such agreements. Each Underwriter agrees that it will not offer any of the Securities for sale at a price below the Offering Price or allow any concession therefrom, 2 except as herein otherwise provided. We, as to our Securities, may enter into agreements with Dealers, but any Dealer's Reallowance Concession shall not exceed half of the Dealer's Concession. It is understood that any person to whom an offer may be made, as herein before provided, shall be a member of the National Association of Securities Dealers, Inc. ("NASD") or dealers or institutions with their principal place of business located outside of the United States, its territories or possessions, and who are not eligible for membership under Section 1 of the Bylaws of the NASD who agree to make no sales within the United States, its territories or possessions, or to persons who are nationals thereof, or residents therein, and, in making sales, to comply with the NASD's Rules of Fair Practice. We authorize you to determine the form and manner of any public advertisement of the Securities. Nothing in this Agreement contained shall be deemed to restrict our right, subject to the provisions of this Section 3, to offer our Securities prior to the effective date of the Registration Statement, provided, however, that any such offer shall be made in compliance with any applicable requirements of the Securities Act of 1933 and the Securities Exchange Act of 1934 and the rules and regulations of the Securities and Exchange Commission thereunder and of any applicable state securities laws. 4. Repurchases in the Open Market. Any Securities sold by us (otherwise than through you) which, prior to the termination of this Agreement, or such earlier date as you may determine, shall be contracted for or purchased in the open market by you on behalf of any Underwriter or Underwriters, shall be repurchased by us on demand at a price equal to the cost of such purchase plus commissions and taxes, if any, on redelivery. Any Securities delivered on such repurchase need not be the identical Securities originally sold by us. In lieu of delivery of such Securities to us, you may (i) sell such Securities in any manner for our account and charge us with the amount of any loss or expense, or credit us with the amount of any profit, less any expense, resulting from such sale, or (ii) charge our account . t with an amount not in excess of the concession to Dealers on such Securities. 5. Delivery and Payment. We agree to deliver to you, at or before 9:00 A.M., New York, New York Time, on the Closing Date referred to in the Underwriting Agreement, at your office, a certified or bank cashier's check payable to your order for the offering price of the Securities less Dealer's Concession of the Securities which we retained for direct sale by us, the proceeds of which check shall be delivered to you, in the manner provided in the Underwriting Agreement, to or for the account of the Company against delivery of certificates for such Securities to you for our account. You are authorized to accept such delivery and to give receipts therefor. You may advance funds for Securities which have been sold or reserved for sale to retail purchasers or Dealers for our account. If we fail (whether or not such failure shall constitute a default hereunder) to deliver to you, or you fail to receive, our check and/or payment for sales made by you for our account for the Securities which we have agreed to purchase, you, individually and not as Representative of the Underwriters, are authorized (but shall not be obligated) to make payment, in the manner provided in the Underwriting Agreement, to or for the account of the Company for such Securities for our account, but any such payment by you shall not relieve us of any of our obligations under the Underwriting Agreement or under this Agreement and we agree to repay you on demand the amount so advanced for our account. We also agree on demand to take up and pay for or to deliver to you funds sufficient to pay for at cost any Securities of the Company purchased by you for our account pursuant to the provisions of Section 9 hereof, and to deliver to you on demand any Securities sold by you for our account, pursuant to any provision of this Agreement. We authorize you to deliver our Securities, and any other Securities purchased by you for our account pursuant to the provisions of Section 9 hereof, against sales made by you for our account pursuant to any provision of this Agreement. Upon receipt by you of payment for the Securities sold by us and/or through you for our account, you will remit to us promptly an amount equal to the Underwriter's Concession on such Securities. You agree to cause to be delivered to us, as soon as practicable after the Closing Date referred to in the Underwriting Agreement, such part of our Securities purchased on such Closing Date as shall not have been sold or reserved for sale by your for our account. 3 In case any Securities reserved for sale in Group Sales or to Dealers shall not be purchased and paid for in due course as contemplated hereby, we agree to accept delivery when tendered by you of any Securities so reserved for our account and not so purchased and pay you the offering price less the Dealer's and Underwriter's Concessions. 6. Authority to Borrow. We authorize you to advance your funds for our account (charging current interest rates) and to arrange loans for our account for the purpose of carrying out this Agreement, and in connection therewith to execute and deliver any notes or other instruments, and to hold, or pledge as security therefor, all or any part of our Securities of the Company purchased hereunder for our account. Any lending bank is hereby authorized to accept your instructions as Representative in all matters relating to such loans. Any part of our Securities held by you, may be delivered to us for carrying purposes, and if so delivered, will be redelivered to you upon demand. 7. Allocation of Expense and Liability. We authorize you to charge our account with, and we agree to pay (a) all transfer taxes on sales made by you for our account, except as herein otherwise provided, and (b) our proportionate share (based on our underwriting obligations) of all expenses in excess of those reimbursed by the Company incurred by you in connection with the purchase, carrying and distribution, or proposed purchase and distribution, of the Securities and all other expenses arising under the terms of the Underwriting Agreement or this Agreement. Your determination of all such expenses and your allocation thereof shall be final and conclusive. Funds for our account at any time in your hands as our Representative may be held in your general funds without accountability for interest. As soon as practicable after the termination of this Agreement, the net credit or debit balance in our account, after proper charge and credit for all interim payments and receipts, shall be paid to or paid by us, provided, however, that you, in your discretion, may reserve from distribution an amount to cover possible additional expenses chargeable to the several Underwriters. 8. Liability for Future Claims. Neither any statement by you, as Representative of the Underwriters, of any credit or debit balance in our account nor any reservation from distribution to cover possible additional expenses relating to the Securities shall constitute any representation by you as to the existence or nonexistence of possible unforeseen expenses or liabilities of or charges against the several Underwriters. Notwithstanding the distribution of any net credit balance to us or the termination of this Agreement, or both, we shall be and remain liable for, and will pay on demand, (a) our proportionate share (based on our underwriting obligations) of all expenses and liabilities which may be incurred by, or for the accounts of the Underwriters, including any liability which may be incurred by the Underwriters or any of them, and (b) any transfer taxes paid after such settlement on account of any sale or transfer for our account. 9. Stabilization. We authorize you, until the termination of this Agreement, (a) to make purchases and sales of the Securities, in the open market or otherwise, for long or short account, and on such terms, and at such prices as you in your discretion may deem desirable, (b) in arranging for sales of Securities, to overallot, and (c) either before or after the termination of this Agreement, to cover any short position incurred pursuant to this Section 9; subject, however, to the applicable rules and regulations of the Securities and Exchange Commission under the Securities Exchange Act of 1934. All such purchases, sales and overallotments shall be made for the accounts of the several Underwriters as nearly as practicable in proportion to their respective underwriting obligations; provided, however, that our net position resulting from such purchases and sales and overallotments shall not at any time exceed, either for long or short account, fifteen percent (15%) of the number of Securities agreed to be purchased by us. If you engage in any stabilizing transactions as representative of the underwriters, you shall promptly notify us of that fact and in like manner you agree to promptly notify and file with us any stabilizing transaction in accordance with the requirements of Rule 17a-2(d) under the Securities Exchange Act of 1934. We agree to advise you from time to time, upon request, until the settlement of accounts hereunder, of the number of Securities at the time retained by us unsold, and we will upon request sell to you, for the accounts of one or more of the several Underwriters, such number of our unsold Securities as you may designate, at the Offering Price less such amount, not in excess of the concession to Dealers, as you may determine. 4 10. Open Market Transactions. We agree that, except with your consent and except as herein provided upon advice from you, we will not make purchases or sales on the open market or otherwise, or attempt to induce others to make purchases or sales, either before or after the purchase of the Securities, and prior to the completion (as defined in Rule 10b-6 of the Securities Exchange Act of 1934) of our participation in the distribution, we will otherwise comply with Rule 10b-6. Nothing in this Section 10 contained shall prohibit us from acting as broker or agent in the execution of unsolicited orders of customers for the purchase or sale of any securities of the Company. 11. Blue Sky. Prior to the initial offering by the Underwriters, you will inform us as to the states under the respective securities or Blue Sky laws of which it is believed that the Securities have been qualified or are exempt for sale, but you do not assume any responsibility or obligation as to the accuracy of such information or as to the right of any Underwriter or Dealer to sell the Securities in any jurisdiction. We will not sell any Securities in any other state or jurisdiction and we will not sell Securities in any state or jurisdiction unless we are qualified or licensed to sell securities in such state or jurisdiction. We authorize you, if you deem it unadvisable in arranging sales of Securities for our account hereunder, to sell any of our Securities to any particular Dealer, or other buyer, because of the securities or Blue Sky laws of any jurisdiction, to sell our Securities to one or more other Underwriters at the Offering Price less, in the case of a sale to any Dealer, such amount, not in excess of the concession to Dealers thereon, as you may determine. The transfer tax on any such sales among Underwriters shall be treated as an expense and charged to the respective accounts of the several Underwriters, in proportion to their respective underwriting obligations. 12. Default by Underwriters. Default by one or more Underwriters, in respect to their obligations under the Underwriting Agreement shall not release us from any of our obligations. In case of such default by one or more Underwriters, you are authorized to increase, pro rata, with the other nondefaulting Underwriters, the number of defaulted Securities which we shall be obligated to purchase from the Company, provided, however, that the aggregate amount of all such increases for all Underwriters shall not exceed ten percent (10%) of such Securities, and, if the aggregate number of the Securities not taken up by such defaulting Underwriters exceeds such ten percent (10%), you are further authorized, but shall not be obligated, to arrange for the purchase by other persons, who may include yourselves, of all or a portion of the Securities not taken up by such Underwriters. In the event any such increases or arrangements are made, the respective numbers of Securities to be purchased by the nondefaulting Underwriters and by any such other person or persons shall be taken as the basis for the underwriting obligations under this Agreement, but this shall not in any way affect the liability of any defaulting Underwriters to the other Underwriters for damages resulting from such default. In the event of default by one or more Underwriters in respect of their obligations under this Agreement to take up and pay for any Securities purchased by your for their respective accounts, pursuant to Section 9 hereof, or to deliver any such Securities sold or overallotted by you for their respective accounts pursuant to any provisions of this Agreement, and to the extent that arrangements shall not have been made by you for other persons to assume the obligations of such defaulting Underwriter or Underwriters, each nondefaulting Underwriter shall assume its proportionate share of the aforesaid obligations of each such defaulting Underwriter without relieving any such Underwriter of its liability therefor. 13. Termination of Agreement. Unless earlier terminated by you, the provisions of Sections 2, 3, 4, 6, 9 and 10 of this Agreement shall, except as otherwise provided therein, terminate thirty (30) full business days after the effective date of the Registration Statement herein referred to, but may be extended by you for an additional period or periods not exceeding thirty (30) full business days in the aggregate. You may, however, terminate this Agreement, or any provisions hereof, at any time by written or telegraphic notice to us. 14. General Position of the Representative. In taking action under this Agreement, you shall act only as agent of the several Underwriters. Your authority as Representative of the several Underwriters shall include the taking of such action as you may deem advisable in respect of all matters pertaining to any and all offers and sales of the Securities, including the right to make any modifications which you consider necessary or desirable in the arrangements with Dealers or others. You shall be under no liability for or in respect of the value of the Securities or the validity or the form thereof, the Registration Statement, the Prospectus, the Underwriting Agreement, or other instruments executed by the Company or others of any agreement on its or their part; nor shall you, as such 5 Representative or otherwise, be liable under any of the provisions hereof, or for any matters connected herewith, except for want of good faith, and except for any liability arising under the Securities Act of 1933; and no obligation not expressly assumed by you as such Representative herein shall be implied from this Agreement. In representing the Underwriters hereunder, you shall act as the representative of each of them respectively. Nothing herein contained shall constitute the several Underwriters partners with you or with each other, or render any Underwriter liable for the commitments of any other Underwriter, except as otherwise provided in Section 12 hereof. The commitments and liabilities of each of the several Underwriters are several in accordance with their respective underwriting obligations and are not joint. 15. Acknowledgment of Registration Statement, etc. We hereby confirm that we have examined the Registration Statement (including all amendments thereto) relating to the Securities as heretofore filed with the Securities and Exchange Commission, that we are familiar with the amendment(s) to the Registration Statement and the final form of Prospectus proposed to be filed, that we are willing to accept the responsibilities of an underwriter thereunder, and that we are willing to proceed as therein contemplated. We further confirm that the statements made under the heading "Underwriting" in such proposed final form of Prospectus are correct and we authorize you so to advise the Company on our behalf. We understand that the aforementioned documents are subject to further change and that we will be supplied with copies of any amendment or amendments to the Registration Statement and of any amended Prospectus promptly, if and when received by you, but the making of such changes and amendments shall not release us or affect our obligations hereunder or under the Underwriting Agreement. 16. Indemnification. Each Underwriter, including you, agrees to indemnify and hold harmless each other Underwriter and each person who controls any other Underwriter within the meaning of Section 15 of the Securities Act of 1933, as amended, to the extent of their several commitments under the Underwriting Agreement and upon the terms that such Underwriter agrees to indemnify and hold harmless the Company as set forth in Section 7 of the Underwriting Agreement. The Agreement contained in this Section 16 shall survive any termination of this Agreement Among Underwriters. 17. Capital Requirements. We confirm that our ratio of aggregate indebtedness to net capital is such that we may, in accordance with and pursuant to Rule 156-1, promulgated by the Securities and Exchange Commission under the Securities Exchange Act of 1934, agree to purchase the number of Securities we may be obligated to purchase under any provision of the Underwriting Agreement or this Agreement. 18. Miscellaneous. We have transmitted herewith a completed Underwriters' Questionnaire on the form thereof supplied by you. Any notice hereunder from you to us or from us to you shall be deemed to have been duly give if sent by registered mail, telegram, teletype, telex, telecopier, graphic scan, or other written form of telecommunication to us at our address as set forth in the Underwriting Agreement, or to you at the address set forth on the first page of this Agreement. You hereby confirm that you are registered as a broker-dealer with the United States Securities and Exchange Commission and that you are a member of the NASD and we confirm that we are either a member of the NASD or a foreign broker-dealer not eligible for membership under Section I of the Bylaws of the NASD, who agrees to make no sales within the United States, its territories or possessions, or to persons who are nationals thereof or residents therein, and, in making sales, to comply with the requirements of the NASD's Interpretation with Respect to Free Riding and Withholding, and with Sections 8, 24, and 25 to the extent applicable to foreign nonmember brokers or dealers, and Section 36 of the NASD's Rules of Fair Practice. We will comply with all applicable federal laws, the laws of the states or other jurisdictions concerned and the Rules and Regulations of the NASD, including, but not limited to, Section 24 of the Rules of Fair Practice. 6 This instrument may be signed by the Underwriters in various counterparts which together shall constitute one and the same agreement among all the Underwriters and shall become effective as between us at such time as you shall have confirmed same by returning an executed copy to us, and thereafter, as to us and the other Underwriters, upon execution by them of counterparts which are confirmed by you. In no event, however, shall we have any liability under this Agreement if the Underwriting Agreement is not executed. Please confirm that the foregoing correctly states the understanding between us by signing and returning to us a counterpart hereof. Very truly yours, ------------------------------------------ Attorney-in-Fact for the several Underwriters named in Schedule I to the Underwriting Agreement Confirmed as of the date first above written. COBURN & MEREDITH, INC. As Representative By ----------------------------- President 7 EX-1.B 3 FORM OF UNDERWRITING AGREEMENT WEBSECURE, INC. 1,000,000 SHARES OF COMMON STOCK AND 1,000,000 REDEEMABLE WARRANTS UNDERWRITING AGREEMENT ---------------------- , 1996 Coburn & Meredith, Inc. 150 Trumbull Street Hartford, CT 06103 as Representative DEAR SIRS: WebSecure, Inc. a Delaware corporation (the "Company"), proposes to issue and sell to the several Underwriters named in Schedule I hereto (the "Underwriters"), one million shares of common stock of the Company and one million redeemable warrant (the "Securities"). The Company hereby confirms the agreement made by it with respect to the purchase of the Securities by the Underwriter, which Securities are more fully described in the Registration Statement referred to below. Coburn & Meredith, Inc. is referred to herein as the "Underwriter" or the "Representative." You have advised the Company that the Underwriters desire to act on a firm commitment basis to publicly offer and sell the Securities for the Company and that you are authorized to execute this Agreement. The Company confirms the agreement made by it with respect to the relationship with the Underwriters as follows: 1. Filing of Registration Statement with S.E.C. and Definitions. A Registration Statement and Prospectus on Form SB-2 (File No.___) with respect to the Securities has been carefully and accurately prepared by the Company in conformity with the requirements of the Securities Act of 1933, as amended (the "Act"), and the published rules and regulations (the "Rules and Regulations") thereunder or under the Securities Exchange Act of 1934, as amended (the "Exchange Act") and has been filed with the Securities and Exchange Commission (the "Commission") and such other states that the Underwriter deems necessary in its discretion to so file to permit a public offering and trading thereunder. Such registration statement, including the prospectus, Part II, and all financial schedules and exhibits thereto, as amended at the time when it shall become effective, is herein referred to as the "Registration Statement," and the prospectus included as part of the Registration Statement on file with the Commission that discloses all the information that was omitted from the prospectus on the effective date pursuant to Rule 430 A of the Rules and Regulations with any changes contained in any prospectus filed with the Commission by the Company with the Underwriters consent after the effective date of the Registration Statement, is herein referred to as the "Final Prospectus." The prospectus included as part of the Registration Statement of the Company and in any amendments thereto prior to the effective date of the Registration Statement is referred to herein as a "Preliminary Prospectus." 2. Discount, Delivery, and Sale of the Securities (a) Subject to the terms and conditions of this Agreement, and on the basis of the representations, warranties, and agreements herein contained, the Company agrees to sell to, and the Underwriters agree to buy from the Company at a purchase price of $ per share and $ per Redeemable Warrant before any underwriter expense allowances, an aggregate of 1,000,000 shares of Common Stock, and 1,000,000 Redeemable Warrants on a firm commitment basis the "Initial Securities".. It is understood that the Underwriters propose to offer the Securities to be purchased hereunder to the public upon the terms and conditions set forth in the Registration Statement, after the Registration Statement becomes effective. (b) Delivery of the Securities against payment of the purchase price therefor by certified or official bank check or checks or wire transfer in next-day funds, payable to the order of the Company shall take place at the offices of the clearing broker for the Underwriter at New York City, within four (4) business days after the Securities are first traded (or such other place as may be designated by agreement between you and the Company) at 11:00 A.M., New York time or such time and date as you and the Company may agree upon in writing, such time and date of payment and delivery for the Securities being herein called the "Initial Closing Date." The Company will make the certificates for the shares of Common Stock and Redeemable Warrants to be purchased by the Underwriters hereunder available to the Underwriter for inspection and packaging at least two (2) full business days prior to the Initial Closing Date. The certificates shall be in such names and denominations as the Underwriter may request to the Company in writing at least two (2) full business days prior to any Closing Date. (c) In addition, subject to the terms and conditions of this Agreement and on the basis of the representations, warranties and agreements herein contained, the Company grants an option to the Underwriters to purchase up to an additional 150,000 shares of Common Stock and/or up to 150,000 additional Warrants as the case may be ("Option Securities") at the same terms as the Underwriters shall pay for the Initial Securities being sold by the Company pursuant to the provisions of Section 2(a) hereof. This option may be exercised from time to time, for the purpose of covering overallotments, within forty-five (45) days after (i) the effective date of the Registration Statement 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, upon written notice by the Underwriter setting forth the number of Option Securities as to which the Underwriter is exercising the option and the time and date at which such certificates are to be delivered. Such time and date shall be determined by the Underwriter but shall not be earlier than four (4) nor later than ten (10) full business days after the date of the exercise of said option. Nothing herein shall obligate the Underwriter to make any overallotment. At the option of the Company, the option Shares to be made available to the Representative may be provided by Centennial Technologies, Inc. in an amount not to exceed the amount available to the Representative from the Company. The purchase price and terms of payment if the option shares are purchased from Centennial Technologies, Inc. will be the same as described in the preceding paragraph, i.e. on the same terms, as if the shares were being purchased from the Company. The selling stockholder (Centennial Technologies, Inc.) covenants to pay all Federal and other taxes, if any, on the transfer and sale of the shares of Common stock being sold by it to the Representative. (d) Definitive certificates in negotiable form for the Securities to be purchased by the Underwriter hereunder will be delivered at the closing by the Company to the Underwriters against payment of the purchase price by the Underwriters by certified or bank cashier's checks or wire transfer in next day funds payable to the order of the Company. (e) The information set forth under "Underwriting" in any preliminary prospectus and Prospectus relating to the Securities and the information set forth in the last paragraph on the front cover page, under the last paragraph on page 2 concerning stabilization and over-allotment by the Underwriters, and (insofar as such information relates to the Underwriters) constitutes the only information furnished by the Underwriter to the Company for inclusion therein, and you represent and warrant to the Company that the statements made therein are correct. (f) On the Initial Closing Date, the Company shall issue and sell to the Representative, warrants (the "Representative's Warrants") at a purchase price of $.001 per Representative's Warrant, which shall entitle the holders thereof to purchase an aggregate of 100,000 shares of Common Stock and 100,000 Redeemable Warrants. The shares of common stock and redeemable warrants issuable upon the exercise of the Representative's Warrants are hereafter referred to as the "Representative's Securities" or "Representative's Warrants." The shares of common stock issuable upon exercise of the redeemable warrants are hereinafter referred to collectively as the "Warrant 2 Shares". 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 thirty percent (130%) of the initial public offering price of the Securities. The form of Representative's Warrant Certificate shall be substantially in the form filed as an Exhibit to the Registration Statement. Payment for the Representative's Warrants shall be made on the Initial Closing Date. 3. Representations and Warranties of the Company. (a) The Company represents and warrants to you as follows: (i) The Company has prepared and filed with the Commission a registration statement, and an amendment or amendments thereto, on Form SB-2 (No.___), including any related preliminary prospectus ("Preliminary Prospectus"), for the registration of the Securities, the Representative's Warrant and the Warrant Shares (sometimes referred to herein collectively as the "Registered Securities"), under 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 Company will promptly file a further amendment to said registration statement in the form heretofore delivered to the Underwriter and will not file any other amendment thereto to which the Underwriter shall have objected verbally or 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, any schedules, exhibits and all other documents filed as a part thereof or that may be 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 Rules and 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 Rules and Regulations, is hereinafter called the "Prospectus." (ii) Neither the Commission nor any state regulatory authority has issued any order preventing or suspending the use of any Prospectus or the Registration Statement and no proceeding for an order suspending the effectiveness of the Registration Statement or any of the Company's securities has been instituted or is pending or threatened. Each such Prospectus and/or any supplement thereto has conformed in all material respects with the requirements of the Act and the Rules and Regulations and on its date did not include any untrue statement of a material fact or omit to state a material fact necessary to make the statements therein not misleading, in light of the circumstances under which they were made; and when the Prospectus becomes legally effective and for twenty-five (25) days subsequent thereto (i) the Prospectus and/or any supplement thereto will contain all statements which are required to be stated therein by the Act and Rules and Regulations, and (ii) the Prospectus and/or any supplement thereto will not include 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 not misleading, in light of the circumstances under which they were made; provided, however, that no representations, warranties or agreements are made hereunder as to information contained in or omitted from the Prospectus in reliance upon, and in conformity with, the written information furnished to the Company by you as set forth in Section 2(e) above. (iii) The Company has been duly incorporated and is validly existing as a corporation in good standing under the laws of the state of its incorporation, with full power and authority (corporate and other) to own its properties and conduct its businesses as described in the Prospectus and is duly qualified to do business as a foreign corporation in good standing in all other jurisdictions in which the nature of its business or the character or location of its properties requires such qualification, except where the failure to so qualify would not have a material adverse effect on the business, properties or operations of the Company and the subsidiaries as a whole. (iv) The Company has full legal right, power and authority to authorize, issue, deliver and sell the Securities, the Option Securities and the Representative's Securities and to enter into this Agreement, the Representative's Warrant dated as of the initial closing date to be exercised and delivered by the Company to the Representative (the "Representative's Warrant Agreement"), and the Financial Advisory and Investment Banking Agreement dated as of the Initial Closing Date between the Company and the Representative (the "Consulting Agreement"), and to 3 consummate the transactions provided for in such agreements, and each of such agreements has been duly and properly authorized, and on the Initial Closing Date will be duly and properly executed and delivered by the Company. This Agreement constitutes and on the Initial Closing Date each of the Representative's Warrant Agreement and the Consulting Agreement will then constitute valid and binding agreements, enforceable in accordance with their respective terms (except as the enforceability thereof may be limited by bankruptcy or other similar laws affecting the rights of creditors generally or by general equitable principles and except as the enforcement of indemnification provisions may be limited by federal or state securities laws). (v) Except as disclosed in the Prospectus, the Company is not in violation of its respective certificate or articles of incorporation or bylaws or in default in the performance or observance of any material obligation, agreement, covenant or condition contained in any material bond, debenture, note or other evidence of indebtedness or in any material contract, indenture, mortgage, loan agreement, lease, joint venture, partnership or other agreement or instrument to which the Company is a party or by which it may be bound or is not in material violation of any law, order, rule, regulation, writ, injunction or decree of any governmental instrumentality or court, domestic or foreign; and the execution and delivery of this Agreement, the Representative's Warrant Agreement and the Consulting Agreement, and the consummation of the transactions contemplated therein and in the Prospectus and compliance with the terms of each such agreement will not conflict with, or result in a material breach of any of the terms, conditions or provisions of, or constitute a material default under, or result in the imposition of any material lien, charge or encumbrance upon any of the property or assets of the Company pursuant to, any material bond, debenture, note or other evidence of indebtedness or any material contract, indenture, mortgage, loan agreement, lease, joint venture, partnership or other agreement or instrument to which the Company is a party nor will such action result in the material violation by the Company of any of the provisions of its respective certificate or articles of incorporation or bylaws or any law, order, rule, regulation, writ, injunction, decree of any government, governmental instrumentality or court, domestic or foreign, except where such violation will not have a material adverse effect on the financial condition of the Company. (vi) The authorized, issued and outstanding capital stock of the Company is as set forth in the Prospectus and the Company will have the adjusted capitalization set forth therein on the Initial Closing Date; all of the shares of issued and outstanding capital stock of the Company set forth therein have been duly authorized, validly issued and are fully paid and nonassessable; the holders thereof do not have any rights of rescission with respect therefor and are not subject to personal liability for any obligations of the Company by reason of being stockholders under the laws of the State in which the Company is incorporated; none of such outstanding capital stock is subject to or was issued in violation of any preemptive or similar rights of any stockholder of the Company; and such capital stock (including the Securities, the Option Securities and the Representative's Securities) conforms in all material respects to all statements relating thereto contained in the Prospectus. (vii) 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 or as described in the Prospectus. The Securities, the Option Securities and the Representative's 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 respective descriptions thereof contained in the Prospectus; except for payment of the applicable purchase price paid upon exercise of the options or warrants, as the case may be 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, the Option Securities and the Representative's Securities has been duly and validly taken; and the certificates representing the Securities, the Option Securities and the Representative's Securities will be in due and proper form. Upon the issuance and delivery pursuant to the terms hereof of the Securities, the Option Securities and the Representative's Securities to be sold by the Company hereunder, the Underwriter will acquire good and marketable title to such Securities, Option Securities and Representative's Securities free and clear of any lien, charge, claim, encumbrance, pledge, security interest, defect or other restriction of any kind whatsoever other than restrictions as may be imposed under the securities laws. (viii) The Company has good and marketable title to all properties and assets described in the Prospectus as owned by it, free and clear of all liens, charges, encumbrances or restrictions, except such as are described or 4 referred to in the Prospectus or which are not materially significant or important in relation to its business or which have been incurred in the ordinary course of business; except as described in the Prospectus all of the leases and subleases under which the Company holds properties or assets as lessee or sublessee as described in the Prospectus are in full force and effect, and the Company is not in material default in respect of any of the terms or provisions of any of such leases or subleases, and no claim has been asserted by anyone adverse to the Company's rights as lessor, sublessor, lessee or sublessee under any of the leases or subleases mentioned above or affecting or questioning the Company's right to the continued possession of the leased or subleased premises or assets under any such lease or sublease; and the Company owns or leases all such properties as are necessary to its operations as now conducted and as contemplated to be conducted, except as otherwise stated in the Prospectus. (ix) The financial statements, together with related notes, set forth in the Prospectus fairly present the financial position and results of operations of the Company at the respective dates and for the respective periods to which they apply. Said statements and related notes have been prepared in accordance with generally accepted accounting principles applied on a basis which is consistent in all material respects during the periods involved but any stub period has not been audited by an independent accounting firm. There has been no material adverse change or material development involving a prospective change in the condition, financial or otherwise, or in the prospects, value, operation, properties, business or results of operations of the Company 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. (x) Subsequent to the respective dates as of which information is given in the Prospectus as it may be amended or supplemented, and except as described in the Prospectus, the Company has not, directly or indirectly, incurred any liabilities or obligations, direct or contingent, not in the ordinary course of business or entered into any transactions not in the ordinary course of business, which are material to the business of the Company as a whole and there has not been any change in the capital stock of, or any incurrence of long term debts by, the Company or any issuance of options, warrants or rights to purchase the capital stock of the Company or declaration or payment of any dividend on the capital stock of the Company or any material adverse change in the condition (financial or other), net worth or results of operations of the Company as a whole and the Company has not become a party to, any material litigation whether or not in the ordinary course of business. (xi) To the knowledge of the Company, there is no pending or threatened, action, suit or proceeding to which the Company is a party before or by any court or governmental agency or body, which might result in any material adverse change in the condition (financial or other), business or prospects of the Company as a whole or might materially and adversely affect the properties or assets of the Company as a whole nor are there any actions, suits or proceedings against the Company related to environmental matters or related to discrimination on the basis of age, sex, religion or race which might be expected to materially and adversely affect the conduct of the business, property, operations, financial condition or earnings of the Company as a whole; and no labor disturbance by the employees of the Company individually exists or is, to the knowledge of the Company, imminent which might be expected to materially and adversely affect the conduct of the business, property, operations, financial condition or earnings of the Company as a whole. (xii) Except as may be disclosed in the Prospectus, the Company has properly prepared and filed all necessary federal, state, local and foreign income and franchise tax returns, has paid all taxes shown as due thereon, has established adequate reserves for such taxes which are not yet due and payable, and does not have any tax deficiency or claims outstanding, proposed or assessed against it. (xiii) The Company has sufficient licenses, permits, right to use trade or service marks and other governmental authorizations currently required for the conduct of its business as now being conducted and as contemplated to be conducted and the Company is in all material respects complying therewith. Except as set forth in the Prospectus, the expiration of any such licenses, permits, or other governmental authorizations would not materially affect the Company's operations. To its knowledge, none of the activities or businesses of the Company are in material violation of, or cause the Company to materially violate any law, rule, regulations, or order of the United States, any state, county or locality, or of any agency or body of the United States or of any state, county or locality. 5 (xiv) The Company has not at any time (i) made any contributions to any candidate for political office in violation of law, or failed to disclose fully any such contribution, or (ii) made any payment to any state, federal or foreign governmental officer or official, or other person charged with similar public or quasipublic duties, other than payments required or allowed by applicable law. (xv) Except as set forth in the Prospectus the Company knows of no outstanding claims for services either in the nature of a finder's fee, brokerage fee or otherwise with respect to this financing for which the Company or the Underwriters may be responsible, or which may affect the Underwriter's compensation as determined by the National Association of Securities Dealers, Inc. ("NASD") except as otherwise disclosed in the Prospectus or known by the Underwriters. (xvi) The Company has its property adequately insured against loss or damage by fire and maintains such other insurance as is customarily maintained by companies in the same or similar business. (xvii) The Representative's Warrants herein described are duly and validly authorized and upon delivery to the Representative in accordance herewith will be duly issued and legal, valid and binding obligations of the Company, except as the enforceability thereof may be limited by bankruptcy or other similar laws affecting the rights of creditors generally or by equitable principles, and except as the enforcement of indemnification provisions may be limited by federal or state securities laws. The Representative's Securities issuable upon exercise of any of the Representative's Warrants have been duly authorized, and when issued upon payment of the exercise price therefor, will be validly issued, fully paid and nonassessable. (xviii) Except as set forth in the Prospectus, no default exists in the due performance and observance of any term, covenant or condition of any material license, contract, indenture, mortgage, installment sale agreement, lease, deed of trust, voting trust agreement, stockholders 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 is a party or by which the Company may be bound or to which the property or assets (tangible or intangible) of the Company is subject or affected. (xix) To the best of the Company's knowledge it has generally enjoyed a satisfactory employer-employee relationship with its employees and, to the best of its knowledge, is in substantial compliance in all material respects with all federal, state, local, and foreign laws and regulations respecting employment and employment practices, terms and conditions of employment and wages and hours. To the best of the Company's knowledge, there are no pending investigations involving the Company, by the U.S. Department of Labor, or any other governmental agency responsible for the enforcement of such federal, state, local, or foreign laws and regulations. To the best of the Company's knowledge, there is no unfair labor practice charge or complaint against the Company pending before the National Labor Relations Board or any strike, picketing, boycott, dispute, slowdown or stoppage pending or threatened against or to its knowledge involving the Company, or any predecessor entity, and none has ever occurred. To the best of the Company's knowledge, no representation question is pending respecting the employees of the Company, and no collective bargaining agreement or modification thereof is currently being negotiated by the Company. To the best of the Company's knowledge, no grievance or arbitration proceeding is pending or to its knowledge threatened under any expired or existing collective bargaining agreements of the Company. No labor dispute with the employees of the Company is pending, or, to its knowledge is imminent; and the Company is not aware of any pending or imminent labor disturbance by the employees of any of its principal suppliers, manufacturers or contractors which may result in any material adverse change in the condition, financial or otherwise, or in the earnings, business affairs, position, prospects, value, operation, properties, business or results of operations of the Company. (xx) Except as may be set forth in the Registration Statement, the Company does not maintain, sponsor or contribute 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(l) and 3(37), respectively, of 6 the Employee Retirement Income Security Act of 1974, as amended ("ERISA") ("ERISA Plans"). The Company does not maintain or contribute, 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 Internal Revenue Code (the "Code"), which could subject the Company to any tax penalty on prohibited transactions and which has not adequately been corrected. Each ERISA Plan is in compliance with all material reporting, disclosure and other requirements of the Code and ERISA as they relate to any such ERISA Plan. Determination letters have been received from the Internal Revenue Service with respect to each ERISA Plan which is intended to comply with Code Section 401 (a), stating that such ERISA Plan and the attendant trust are qualified thereunder. The Company has never completely or partially withdrawn from a "multiemployer plan." (xxi) None of the Company, or any of its employees, directors, stockholders, or affiliates (within the meaning of the Rules and Regulations) 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, Option Securities, Representative's Securities or otherwise. (xxii) None of the patents, patent applications, trademarks, service marks, trade names, copyrights, and licenses and rights to the foregoing presently owned or held by the Company, are in dispute or, to the best knowledge of the Company's management are in any conflict with the right of any other person or entity. The Company (i) except as disclosed in the Prospectus owns or has the right to use, 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 except as set forth in the Prospectus or otherwise disclosed to the Underwriter in writing, to the best knowledge of the Company's management is not obligated or under any liability whatsoever to make any material payments 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. (xxiii) Except as disclosed in the Prospectus the Company owns and has adequate right to use to the best knowledge of the Company's management 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") required for or incident to the development, manufacture, operation and sale of all products and services sold or proposed to be sold by the Company. The Company is not aware of any such development of similar or identical trade secrets or technical information by others. The Company has valid and binding confidentiality agreements with all of its officers, covering its intellectual property (subject to the equitable powers of any court), which agreements have remaining terms of at least two years from the effective date of the Registration Statement except where the failure to have such agreements would not materially and adversely effect the Company's business taken as a whole. The Company 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. (xxiv) BDO Seidman LLP, whose reports are 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. (xxv) The Company has agreed to execute and has also caused to be duly executed agreements pursuant to which each of the Company's officers and directors and shareholders and any person or entity deemed to be an affiliate of the Company pursuant to the Rules and Regulations has agreed not to, directly or indirectly, sell, assign, transfer, or otherwise 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 7 to Rule 144 of the Rules and Regulations or otherwise) for a period of not less than thirteen (13) months following such effective date without the prior written consent of the Underwriter. The Company will cause the Transfer Agent, as defined below, 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. (xxvi) The Registered Securities have been approved for listing on NASDAQ or an Exchange. (xxvii) Except as set forth in the Prospectus or disclosed in writing to the Underwriter (which writing specifically refers to this Section), no officer or director of the Company, holder of 5% or more of securities 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 (B) purchases from or sells or furnishes to the Company any goods or services, or (ii) a beneficiary interest in any contract or agreement to which the Company is a party or by which it may be bound or affected. Except as set forth in the Prospectus under "Certain Transactions" or disclosed in writing to the Underwriter (which writing specifically refers to this Section) there are no existing agreements, arrangements, understandings or transactions, or proposed agreements, arrangements, understandings or transactions, between or among the Company, and any officer, director, principal stockholder of the Company, or any partner, affiliate or associate of any of the foregoing persons or entities. (xxviii) Any certificate signed by any officer of the Company, and delivered to the Underwriter or to the Underwriter's counsel (as defined herein) shall be deemed a representation and warranty by the Company to the Underwriter as to the matters covered thereby. (xxix) Each of the minute books of the Company has been made available to the Underwriter and contains a complete summary of all meetings and actions of the directors and stockholders of the Company, since the time of its incorporation and reflect all transactions referred to in such minutes accurately in all respects. (xxx)As of the Initial Closing Date, the Company will enter into the Consulting Agreement substantially in the form filed as an Exhibit to the Registration Statement with respect to the rendering of consulting services by the Representative to the Company. (xxxi) Except and only to the extent described in the Prospectus or disclosed in writing to the Underwriter (which writing specifically refers to this Section), 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 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. Except as disclosed in the Prospectus, all rights so described or disclosed have been waived or have not been triggered with respect to the transactions contemplated by this Agreement, the Consulting Agreement and the Representative's Warrant Agreement (including the warrants issuable thereunder). (xxxii) The Company has not entered into any employment agreements with its executive officers, except as disclosed in the Prospectus. (xxxiii) 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 Registered Securities pursuant to the Prospectus and the Registration Statement, the issuance of the Underwriter's Warrants, the performance of this Agreement, the Representative's Warrant Agreement and the Consulting 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, the Option Securities and the Underwriter's Securities, except such as have been or may be obtained under the Act, otherwise or may be required under state securities or blue sky laws in connection with the Underwriter's purchase and distribution of the Securities, the Option Securities, the Representative's Securities and the Underwriter's Warrants to 8 be sold by the Company hereunder or may be required by the Rules of the National Association of Securities Dealer, Inc. ("NASD"). (xxxiv) 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 is a party or by which it may be bound or to which its assets, properties or businesses may be subject have been duly and validly authorized, executed and delivered by the Company and constitute the legal, valid and binding agreements of the Company, enforceable against the Company, in accordance with their respective 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. (xxxv) Within the past five (5) years, none of the Company's independent public accountants has brought to the attention of the Company's management any "material weakness" as defined in the Statement of Auditing Standard No. 60 in any of the Company's internal controls. 4. Covenants of the Company. The Company covenants and agrees with you that: (a) It will cooperate in all respects in making the Prospectus effective and will not at any time, whether before or after the effective date, file any amendment to or supplement to the Prospectus of which you shall not previously have been advised and furnished with a copy or to which you or your counsel shall have reasonably objected or which is not in material compliance with the Act and the Rules and Regulations or applicable state law. As soon as the Company is advised thereof, the Company will advise you, and confirm the advice in writing, of the receipt of any comments of the Commission or any state securities department, when the Registration Statement 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, of the effectiveness of any posteffective amendment to the Registration Statement or Prospectus, or the filing of any supplement to the Prospectus or any amended Prospectus, of any request made by the Commission or any state securities department for amendment of the Prospectus or for supplementing of the Prospectus or for additional information with respect thereto, of the issuance of any stop order suspending the effectiveness of the Prospectus or any order preventing or suspending the use of any Prospectus or any order suspending trading in the Common Stock of the Company, or of the suspension of the qualification of the Securities, the Option Securities or the Representatives Securities for offering in any jurisdiction, or of the institution of any proceedings for any such purposes, and will use its best efforts to prevent the issuance of any such order and, if issued, to obtain as soon as possible the lifting or dismissal thereof. The Company has caused to be delivered to you copies of such Prospectus, and the Company has consented and hereby consents to the use of such copies for the purposes permitted by law. The Company authorizes you and the dealers to use the Prospectus and such copies of the Prospectus in connection with the sale of the Securities, the Option Securities and the Representative's Securities for such period as in the opinion of your counsel and our counsel the use thereof is required to comply with the applicable provisions of the Act and the Rules and Regulations. The Company will prepare and file with the states, promptly upon your request, any such amendments or supplements to the Prospectus, and take any other action, as, in the opinion of your counsel, may be necessary or advisable in connection with the initial sale of the Securities, the Option Securities and the Underwriter's Securities and will use its best efforts to cause the same to become effective as promptly as possible. 9 The Company shall file the Prospectus (in form and substance satisfactory to the Underwriter) or transmit the Prospectus by a means reasonably calculated to result in filing with the Commission pursuant to rule 424(b)(1) or pursuant to Rule 424(b)(3) 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. In case of the happening, at any time within such period as a Prospectus is required under the Act to be delivered in connection with the initial sale of the Securities, the Option Securities and the Representative's Securities of any event of which the Company has knowledge and which materially affects the Company, or the securities thereof, and which should be set forth in an amendment of or a supplement to the Prospectus in order to make the statements therein not then misleading, in light of the circumstances existing at the time the Prospectus is required under the Act to be delivered, or in case it shall be necessary to amend or supplement the Prospectus to comply with the Act, the Rules and Regulations or any other law, the Company will forthwith prepare and furnish to you copies of such amended Prospectus or of such supplement to be attached to the Prospectus, in such quantities as you may reasonably request, in order that the Prospectus, as so amended or supplemented, will not 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 not misleading in light of the circumstances under which they are made. The preparation and furnishing of any such amendment or supplement to the Prospectus or supplement to be attached to the Prospectus shall be without expense to you. The Company will to the best of its ability comply with the Act, the Exchange Act and applicable state securities laws so as to permit the initial offer and sales of the Securities, the Option Securities and the Representatives Securities under the Act, the Rules and Regulations, and applicable state securities laws. (b) It will cooperate to qualify the Securities and the Option Securities and the Representative's Securities for initial sale under the securities laws of such jurisdictions as you may designate and will make such applications and furnish such information as may be required for that purpose, provided the Company shall not be required to qualify as a foreign corporation or a dealer in securities. The Company will, from time to time, prepare and file such statements and reports as are or may be required to continue such qualification in effect for so long as the Underwriter may reasonably request. (c) So long as any of the Securities, the Option Securities or the Representative's Securities remain outstanding in the hands of the public, the Company, at its expense, will annually furnish to its shareholders a report of its operations to include financial statements audited by independent public accountants, and will furnish to the Underwriter as soon as practicable after the end of each fiscal year, a balance sheet of the Company as at the end of such fiscal year, together with statements of operations, shareholders' equity, and changes in cash flow of the Company for such fiscal year, all in reasonable detail and accompanied by a copy of the certificate or report thereon of independent public accountants. (d) It will deliver to you at or before the Initial Closing Date three signed copies of the Registration Statement including all financial statements and exhibits filed therewith, whether or not incorporated by reference. The Company will deliver to you, from time to time until the effective date of the Prospectus, as many copies of the Prospectus as you may reasonably request. The Company will deliver to you on the effective date of the Prospectus and thereafter for so long as a Prospectus is required to be delivered under the Act and the Rules and Regulations as many copies of the Prospectus, in final form, or as thereafter amended or supplemented, as you may from time to time reasonably request. (e) The Company will apply the net proceeds from the sale of the Securities and the Option Securities substantially in the manner set forth under "Use of Proceeds" in the Prospectus. No portion of the proceeds shall be used, directly or indirectly, to acquire any securities issued by the Company, without the prior written consent of the Underwriter. 10 (f) As soon as it is practicable, but in any event not later than the first (lst) day of the fifteenth (15th) full calendar month following the effective date of the Registration Statement, the Company will make available to its security holders and the Underwriter an earnings statement (which need not be audited) covering a period of at least twelve (12) consecutive months beginning after the effective date of the Registration Statement, which shall satisfy the requirements of Section 11(a) of the Act and Rule 158(a) of the Rules and Regulations. (g) Non-Accountable Expense Allowance and other Costs and Expenses. The Company shall pay to the Underwriter at each closing date, and to be deducted from the purchase price for the Securities and the Option Securities, an amount equal to three percent (3%) of the gross proceeds received by the Company from the sale of the Securities and the Option Securities at such closing date less in the case of the Initial Closing Date, the sum of $50,000 previously paid by the Company. If the sale of the Securities by the Underwriter is not consummated for any reason not attributable to the Underwriter, or if (i) the Company withdraws the Registration Statement from the Commission or does not proceed with the public offering, or (ii) the representations in Section 3 hereof are not correct or the covenants cannot be complied with, or (iii) there has been a materially adverse change in the condition, prospects or obligations of the Company or a materially adverse change in stock market conditions from current conditions, all as determined by the Underwriter, then the Company shall reimburse the Underwriter for its out of pocket expenses including without limitation, its legal fees and disbursements all on an accountable basis but not to exceed $75,000 (less the $50,000 previously paid by the Company), and if any excess remains from the advance previously paid, such excess will be returned to the Company. Costs and Expenses. Subject to the provisions above the Company will pay all costs and expenses incident to the performance of this Agreement by the Company including, but not limited to, the fees and expenses of counsel to the Company and of the Company's accountants; the costs and expenses incident to the preparation, printing, filing and distribution under the Act of the Registration Statement and Prospectus (including the fee of the Commission, any securities exchange and the NASD in connection with the filing required by the NASD relating to the offering of the Securities contemplated hereby); all expenses, including fees of counsel, which shall be due and payable on the Closing Date in connection with the qualification of the Securities under the state securities or blue sky laws; the cost of furnishing to you copies of the Prospectus, this Agreement, the cost of printing the certificates representing the Securities and of preparing and photocopying the Underwriting Agreement and related Underwriting documents, the cost of three underwriter's bound volumes, any advertising costs and expenses, including but not limited to the Company's expenses on "road show" information meetings and presentations, prospectus memorabilia, issue and transfer taxes, if any. The Company will also pay all costs and expenses incident to the furnishing of any amended Prospectus of or any supplement to be attached to the Prospectus. (h) The Company shall not, without the Underwriter's prior written consent which shall not be unreasonably withheld, sell or offer to sell any shares of Common Stock for thirteen (13) months after the effective date including other equity securities or warrants or options to purchase any shares of Common Stock or equity securities except (i) in connection with acquisitions, (ii) pursuant to warrants and options outstanding immediately prior to or as a result of the Closing, or (iii) pursuant to options granted under Company's Stock Option Plan as described in the Prospectus (i) During a date five years after the date hereof, the Company will make available to its shareholders, as soon as practicable, and deliver to the Underwriter: (1) as soon as they are available, copies of all reports (financial or other) mailed to shareholders; (2) 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; (3) 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 prepared and released by or on behalf of the Company; and 11 (4) any additional information of a public nature concerning the Company (and any future subsidiaries) or its businesses which the Underwriter may request. During such five-year period, if the Company has active subsidiaries, the foregoing financial statements will be on a consolidated basis to the extent that the accounts of the Company and its subsidiaries are consolidated, and will be accompanied by similar financial statements for any significant subsidiary which is not so consolidated. (j) The Company will maintain a 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. (k) The Company will furnish to the Underwriter or on the Underwriter's order, without charge, at such place as the Underwriter may designate, copies of each Preliminary Prospectus, the Final 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 Underwriter may request. (1) Neither the Company nor any of its officers, directors, stockholders or any of its affiliates 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 of the Company's securities. (m) 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. (n) The Company shall cause the Securities to be listed on the American Stock Exchange for a period of five (5) years from the date hereof, use its best efforts to maintain the listing of the Securities to the extent they are outstanding. (o) As soon as practicable, (i) 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 30 days from the effective date of the Registration Statement, take all necessary and appropriate actions to be included in Standard and Poor's Corporation Descriptions and/or Moody's OTC Manual and to continue such inclusion for a period of not less than five years if the securities are not listed on the AMEX. (p) Until the completion of the distribution of the Securities, the Company shall not without the prior written consent of the Underwriter and its counsel which consent shall not be unreasonably withheld or delayed, 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. (q) Until the earlier of (i) five (5) years from the date hereof or (ii) the sale to the public of the Warrant Shares, the Company will not take any action or actions which may prevent or disqualify the Company's use of Form SB-2 (or other appropriate form) for the registration under the Act of the Warrant Shares and the Representative's Securities. (r) Commencing one year from the effective date of the registration statement, the Company agrees to pay the Underwriter a 5% solicitation fee for the exercise of the publicly-held warrants such solicitation being subject to applicable SEC and NASD Rules. 5. Conditions of the Underwriter's Obligations. The obligation of the Underwriters to offer and sell the Securities and the Option Securities is subject to the accuracy (as of the date hereof, and as of the Closing Dates) of 12 and compliance with the representations and warranties of the Company to the performance by it of its agreement and obligations hereunder and to the following additional conditions: (a) The Registration Statement shall have become effective as and when cleared by the Commission, and you shall have received notice thereof, on or prior to any closing date no stop order suspending the effectiveness of the Prospectus shall have been issued and no proceedings for that or similar purpose shall have been instituted or shall be pending, or, to your knowledge or to the knowledge of the Company, shall be contemplated by the Commission; any request on the part of the Commission for additional information shall have been complied with to the reasonable satisfaction of counsel to the Underwriter; and qualification, under the securities laws of such states as you may designate, of the issue and sale of the Securities upon the terms and conditions herein set forth or contemplated and containing no provision unacceptable to you shall have been secured, and no stop order shall be in effect denying or suspending effectiveness of such qualification nor shall any stop order proceedings with respect thereto be instituted or pending or threatened under such law. (b) On any closing date and, with respect to the letter referred to in subparagraph (iii), as of the date hereof, you shall have received: (i) the opinion, together with such number of signed or photostatic copies of such opinion as you may reasonably request, addressed to you by O'Connor, Broude & Aronson, Esqs., counsel for the Company, in form and substance reasonably satisfactory to the Underwriter and William M. Prifti, Esq., counsel to the Underwriter, dated each such closing date, to the effect that: (A) The Company has been duly incorporated and is a validly existing corporation in good standing under the laws of the jurisdiction in which it is incorporated and has all necessary corporate power and authority to carry on its business as described in the Prospectus. (B) The Company is qualified to do business in each jurisdiction in which conducting its business requires such qualification, except where the failure to be so qualified would not have a material adverse effect on the Company's business or assets. (C) The Company has the full corporate power and authority to enter into this Agreement, the Representative's Warrant Agreement and the Consulting Agreement and to consummate the transactions provided for therein and each such Agreement has been duly and validly authorized, executed and delivered by the Company. Each of this Agreement, the Consulting Agreement and the Representative's Warrant Agreement, assuming due 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, subject to bankruptcy, insolvency or similar laws governing the rights of creditors and to general equitable principles, and provided that no opinion need be given as to the enforceability of any indemnification or contribution provisions, and none of the Company's execution or delivery of this Agreement, the Consulting Agreement or 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 material breach or violation of any of the terms or provisions of, or constitutes or will constitute a material default under, or result in the creation or imposition of any material lien, charge, claim, encumbrance, pledge, security interest, defect or other restriction of any kind whatsoever upon, any property or assets (tangible or intangible) of the Company pursuant to the terms of (A) the articles of incorporation or by-laws of the Company, (B) to the knowledge of such counsel, any material license, contract, indenture, mortgage, deed of trust, voting trust agreement, stockholders' agreement, note, loan or credit agreement or any other agreement or instrument to which the Company is a party or by which it is or may be bound, or (C) to the knowledge of such counsel, any statute, judgment, decree, order, rule or regulation applicable to the Company, whether domestic or foreign. (D) The Company had authorized and outstanding capital stock as set forth in the Prospectus under the heading "Capitalization" as of the date set forth therein, and all of such issued and outstanding shares of capital stock have 13 been duly and validly authorized and issued, and to the knowledge of such counsel are fully paid and nonassessable, and to the knowledge of such counsel no stockholder of the Company is entitled to any preemptive rights to subscribe for, or purchase shares of the capital stock and to the knowledge of such counsel none of such securities were issued in violation of the preemptive rights of any holders of any securities of the Company. (E) To the knowledge of such counsel, 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 except as described in the Prospectus. The Common Stock, the Warrants and the Representative's Warrants each conforms in all material respects to the respective descriptions thereof contained in the Prospectus. The outstanding shares of Common Stock, the Redeemable Warrant and the Warrant Stock and the Representative's Warrant Stock, upon issuance and delivery and payment therefore in the manner described herein, the Warrant Agreement and the Representative Agreement, as the case may be, will be, duly authorized, validly issued, fully paid and nonassessable. There are no preemptive or other rights to subscribe for or to purchase, or any restriction upon the voting or transfer of, any shares of Common Stock pursuant to the Company's articles of incorporation, by-laws, other governing documents or any agreement or other instrument known to such counsel to which the Company is a party or by which it is bound. (F) The certificates representing the Securities comprising the Common Stock and Redeemable Warrants are in due and proper form and each of the Warrant Stock and the Representative's Warrant has been duly authorized and reserved for issuance and when issued and delivered in accordance with the respective terms of the Warrant Agreement and Representative's Warrant Agreement, respectively, will duly and validly issued, fully paid and nonassessable. (G) To the knowledge of such counsel, there are no claims, suits or other legal proceedings pending or threatened against the Company in any court or before or by any governmental body which might materially affect the business of the Company or the financial condition of the Company as a whole, except as set forth in or contemplated by the Prospectus. (H) Based on oral and/or written advice from the staff of the Commission, the Registration Statement has become effective and, to the knowledge of such counsel, no stop order suspending the effectiveness of the Prospectus is in effect and no proceedings for that purpose are pending before, or threatened by, federal or by a state securities administrator. (I) To the knowledge of such counsel, there are no legal or governmental proceedings, actions, arbitrations, investigations, inquiries or the like pending or threatened against the Company of a character required to be disclosed in the Prospectus which have not been so disclosed, questions the validity of the capital stock of the Company or this Agreement or the Representative's Warrant Agreement or might adversely affect the condition, financial or otherwise, or the prospects of the Company or which could adversely affect the Company's ability to perform any of its obligations under this Agreement, or the Representative's Warrant Agreement. (J) To such counsel's knowledge, there are no material agreements, contracts or other documents known to such counsel 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 and the Prospectus and filed as exhibits thereto, and to such counsel's knowledge (A) 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 is a party or by which it is bound, including any document to which the Company is a party or by which it is bound incorporated by reference into the Prospectus and any supplement or amendment thereto, are accurate in all material respects and fairly represent the information required to be shown by Form SB-2. (K) No consent, approval, order or authorization from any regulatory board, agency or instrumentality having jurisdiction over the Company, or its properties (other than registration under the Act or qualification under state or 14 foreign securities law or approval by the NASD) is required for the valid authorization, issuance, sale and delivery of the Securities, the Option Securities or the Representative's Warrant. (L) The statements in the Prospectus under "Risk Factors-Control by Existing Stockholders," "Management-Limitation of Liability" "Description of the Securities," 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. In addition, such counsel shall state that such counsel has participated in conferences with officials and other representatives of the Company, the Representatives, Underwriters' Counsel and the independent certified public accountants of the Company, at which such conferences the contents of the Registration Statement and Prospectus and related matters were discussed, and although they have not certified the accuracy or completeness of the statements contained in the Registration Statement or the Prospectus, nothing has come to the attention of such counsel which leads them to believe that, at the time the Registration Statement became effective and at all times subsequent thereto up to and on the Closing Date and on any later date on which Option Shares are to be purchased, the Registration Statement and any amendment or supplement, when such documents became effective or were filed with the Commission (other than the financial statements including the notes thereto and supporting schedules and other financial and statistical information derived therefrom, as to which such counsel need express no comment) 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, or at the Closing Date or any later date on which the Option Shares are to be purchased, as the case may be, the Prospectus and any amendment or supplement thereto (other than the financial statements including the notes thereto and other financial and statistical information derived therefrom, as to which such counsel need express no comment) contained any untrue statement of a material fact or omitted to state a material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading. Such opinion shall also cover such other matters incident to the transactions contemplated hereby and the offering Prospectus as you or counsel to the Underwriter shall reasonably request. In rendering such opinion, to the extent deemed reasonable by them, such counsel may rely upon certificates of any officer of the Company or public officials as to matters of fact of which the maker of such certificate has knowledge. (ii) a certificate, signed by the Chief Executive Officer and the Principal Financial or Accounting Officer of the Company dated the Closing Date, to the effect that with regard to the Company, each of the conditions set forth in Section 5(d) have been satisfied. (iii) a letter, addressed to the Underwriter and in form and substance satisfactory to the Underwriter in all respects (including the nonmaterial nature of the changes or decreases, if any, referred to in clause (D) below), BDO Seidman LLP, dated, respectively, as of the effective date of the Registration Statement and as of the Closing Date, as the case may be: (A) Confirming that they are independent public accountants with respect to the Company and its consolidated subsidiaries, if any, within the meaning of the Act and the applicable published Rules and Regulations. (B) Stating that, in their opinion, the financial statements, related notes and schedules of the Company and its consolidated subsidiaries, if any, included in the Registration Statement examined by them comply as to form in all material respects with the applicable accounting requirements of the Act and the published Rules and Regulations thereunder. (C) Stating that, with respect to the period from May 31, 1996, to a specified date (the specified date") not earlier than five (5) business days prior to the date of such letter, they have read the minutes of meetings of the stockholders and board of directors (and various committees thereof) of the Company and its consolidated subsidiaries, if any, for the period from May 31, 1996 through the specified date, and made inquiries of officers of the Company and its consolidated subsidiaries, if any, responsible for financial and accounting matters and, 15 especially as to whether there was any decrease in sales, income before extraordinary items or net income as compared with the corresponding period in the preceding year; or any change in the capital stock of the Company or any change in the longterm debt or any increase in the short-term bank borrowings or any decrease in net current assets or net assets of the Company or of any of its consolidated subsidiaries, if any, and further stating that while such procedures and inquiries do not constitute an examination made in accordance with generally accepted auditing standards, nothing came to their attention which caused them to believe that during the period from December 31, 1995, through the specified date there were any decreases as compared with the corresponding period in the preceding year in sales, income before extraordinary items or net income; or any change in the capital stock of the Company or consolidated subsidiary, if any, or any change in the longterm debt or any increase in the short-term bank borrowings (other than any increase in short-term bank borrowings in the ordinary course of business) of the Company or any consolidated subsidiary, if any, or any decrease in the net current assets or net assets of the Company or any consolidated subsidiary, if any; and (D) Stating that they have carried out certain specified procedures (specifically set forth in such letter or letters) as specified by the Underwriter (after consultations with BDO Seidman LLP, relating to such procedures), not constituting an audit, with respect to certain tables, statistics and other financial data in the Prospectus specified by the Underwriter and such financial data not included in the Prospectus but from which information in the Prospectus is derived, and which have been obtained from the general accounting records of the Company or consolidated subsidiaries, if any, or from such accounting records by analysis or computation, and having compared such financial data with the accounting records of the Company or the consolidated subsidiaries, if any, stating that they have found such financial data to agree with the accounting records of the Company. (c) All corporate proceedings and other legal matters relating to this Agreement, the Prospectus and other related matters shall be satisfactory to or approved by counsel to the Underwriter and you shall have received from O'Connor, Broude & Aronson, Esq., a law corporation, a signed opinion dated as of each closing date, with respect to the incorporation of the Company, the validity of the Securities, the form of the Prospectus, (other than the financial statements together with related notes and other financial and statistical data contained in the Prospectus or omitted therefrom, as to which such counsel need express no opinion), the execution of this Agreement and other related matters as you may reasonably require. (d) At each closing date, (i) the representations and warranties of the Company contained in this Agreement shall be true and correct in all material respects with the same effect as if made on and as of such closing date; (ii) the Prospectus and any amendments or supplements thereto shall contain all statements which are required to be stated therein in accordance with the Act and the Rules and Regulations and in all material respects conform to the requirements thereof, and neither the Prospectus nor any amendment or supplement thereto shall contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary, in light of the circumstances under which they were made, in order to make the statements therein not misleading; (iii) there shall have been since the respective dates as of which information is given no material adverse change in the business, properties or condition (financial or otherwise), results of operations, capital stock, longterm debt or general affairs of the Company from that set forth in the Prospectus, except changes which the Prospectus indicates might occur after the effective date of the Prospectus, and the Company shall not have incurred any material liabilities or material obligations, direct or contingent, or entered into any material transaction, contract or agreement not in the ordinary course of business other than as referred to in the Prospectus and which would be required to be set forth in the Prospectus; and (iv) except as set forth in the Prospectus, no action, suit or proceeding at law or in equity shall be pending or threatened against the Company which would be required to be set forth in the Prospectus, and no proceedings shall be pending or threatened against the Company or any subsidiary before or by any commission, board or administrative agency in the United States or elsewhere, wherein an unfavorable decision, ruling or finding would materially and adversely affect the business, property, condition (financial or otherwise), results of operations or general affairs of the Company. (e) On the Initial Closing Date, the Company shall have executed and delivered to the Underwriter, (i) the Representatives' Warrant Agreement substantially in the form filed as an Exhibit to the Registration Statement in final form and substance satisfactory to the Underwriter, and (ii) the Representative's Warrants in such denominations and to such designees as shall have been provided to the Company. 16 (f) On or before the Initial Closing Date, the Securities shall have been duly approved for listing on the American or any other Stock Exchange or on NASDAQ. . (g) On or before the Initial Closing Date, there shall have been delivered to the Underwriter all of the Lock-up Agreements required to be delivered pursuant to Section 3(a)(xxv) and 4(h), in form and substance satisfactory to the Underwriter and Underwriter's counsel. If any condition to the Underwriter's 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 Underwriter may terminate this Agreement or, if the Underwriter so elects, it may waive any such conditions which have not been fulfilled or extend the time for their fulfillment. 6. Conditions of the Company's Obligations. The obligation of the Company to sell and deliver the Securities is subject to the following: (a) The provisions regarding the effective date, as described in Section 10. (b) At the Initial Closing Date, no stop order suspending the effectiveness of the Prospectus shall have been issued under the Act or any proceedings therefor initiated or threatened by the Commission or by any state securities department. (c) Tender of payment by the Underwriter in accord with Section 2 hereof. 7. Indemnification. (a) The Company agrees to indemnify and hold harmless each Underwriter and its employees and each person, if any, who controls you within the meaning of the Act, against any losses, claims, damages or liabilities, joint or several (which shall, for any purposes of this Agreement, include, but not be limited to, all costs of defense and investigation and all attorneys' fees), to which each Underwriter or such controlling person may become subject, under the Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in the Prospectus, or any amendment or supplement thereto, or arise out of or are based upon the omission or alleged omission made in the Prospectus, or such amendment or supplement to state a material fact required to be stated therein or necessary to make the statements therein not misleading, which is in reliance upon and in conformity with written information furnished by the Company to you specifically for use in the preparation thereof, and provided further that the indemnity agreement contained in this subsection (a) shall not inure to the benefit of you with respect to any person asserting any such loss, claim, damage or liability who has purchased the Securities which are the subject thereof if you or any participants failed to send or give a copy of the Prospectus to such person at or prior to the written confirmation of the sale of such Securities to such person and except that, with respect to any untrue statement or omission or any alleged untrue statement or omission, made in any Pre-Effective Prospectus, the indemnity agreement contained in this subsection (a) shall not inure to the benefit of any Underwriter ( or to any person controlling any such underwriter) from whom the person asserting any such loss, claim, damage or liability purchased the securities concerned to the extent that such untrue statement or omission, or alleged untrue statement or omission, has been corrected in a later Pre-Effective Prospectus or in the Final Prospectus unless the Underwriter circulated a later Pre-Effective Prospectus or the Final Prospectus to such person (b) Each Underwriter will indemnify and hold harmless the Company, each of its directors, each of its officers, each person, if any, who controls the Company within the meaning of the Act against any losses, claims, damages or liabilities, joint or several (which shall, for all purposes of this Agreement, include, but not be limited to, all costs of defense and investigation and all attorneys' fees) to which the Company or any such director, officer or controlling person may become subject under the Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in the Prospectus, or any amendment or supplement thereto, or arise out of 17 or are based upon the omission or the alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, in each case to the extent, but only to the extent, that such untrue statement or alleged untrue statement or omission was made in the Prospectus, or such amendment or supplement, in reliance upon and in conformity with written information furnished to the Company by you specifically for use in the preparation thereof. This indemnity will be in addition to any liability which any Underwriter may otherwise have. (c) Promptly after receipt by an indemnified party under this Section of notice of the commencement of any action, such indemnified party will, if a claim in respect thereof is to be made against the indemnifying party under this Section, notify the indemnifying party of the commencement thereof, but the omission so to notify the indemnifying party will not relieve it from any liability which it may have to any indemnified party otherwise than under this Section. In case any such action is brought against any indemnified party, and it notifies the indemnifying party of the commencement thereof, the indemnifying party will be entitled to participate in, and, to the extent that it may wish, jointly with any other indemnifying party, similarly notified, to assume the defense thereof, subject to the provisions herein stated, with counsel satisfactory to such indemnified party, and after notice from the indemnifying party to such indemnified party of its election so to assume the defense thereof, the indemnifying party will not be liable to such indemnified party under this Section for any legal or other expenses subsequently incurred by such indemnified party in connection with the defense thereof other than reasonable costs of investigation. The indemnified party shall have the right to employ separate counsel in any such action and to participate in the defense thereof, but the fees and expenses of such counsel shall not be at the expense of the indemnifying party if the indemnifying party has assumed the defense of the action with counsel reasonably satisfactory to the indemnified party; provided that, if the indemnified party is you or a person who controls you, the fees and expenses of such counsel shall be at the expense of the indemnifying party if (i) the employment of such counsel has been specifically authorized in writing by the indemnifying party or (ii) the named parties to any such action (including any impleaded parties) include both you or such controlling person and the indemnifying party and you or such controlling person shall have been advised by such counsel that there is a conflict of interest which would prevent counsel for the indemnifying party from representing the indemnifying party and you or such controlling person (in which case the indemnifying party shall not have the right to assume the defense of such action on behalf of you or such controlling person, it being understood, however, that the indemnifying party shall not, in connection with any one such action or separate but substantially similar or related actions in the same jurisdiction or which are consolidated into the same jurisdiction arising out of the same general allegations or circumstances, be liable for the reasonable fees and expenses of more than one separate firm of attorneys for you and all such controlling persons, which firm shall be designated in writing by you). No settlement of any action against an indemnified party shall be made without the consent of the indemnified party, which shall not be unreasonably withheld in light of all factors of importance to such indemnified party. 8. Contribution. In order to provide for just and equitable contribution tinder the Act in any case in which (i) the indemnifying party makes a claim for indemnification pursuant to Section 7 hereof 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 Section 7 provide for indemnification in such case, or (ii) contribution under the Act may be required on the part of the Underwriters, then the Company and the Underwriters in the aggregate shall contribute to the aggregate losses, claims, damages, or liabilities to which they may be subject (which shall, for all purposes of this Agreement, include, but not be limited to, all costs of defense and investigation and all attorneys' fees) in either such case (after contribution from others) in such proportions that the Underwriters are responsible in the aggregate for that portion of such losses, claims, damages or liabilities determined by multiplying the total amount of such losses, claims, damages or liabilities times the difference between the public offering price and the commission to the Underwriter and dividing the product thereof by the public offering price, and the Company, if applicable, shall be responsible for that portion of such losses, claims, damages or liabilities times the commission to the Underwriters and dividing the product thereof by the public offering price; provided, however, that the Underwriters shall not be required to so contribute any amount in excess of the underwriting discount applicable to the Securities purchased by the Underwriters hereunder if such allocation is not permitted by applicable law, then the relative fault of the Company and the Underwriters in connection with the statements or omissions which resulted in 18 such damages and other relevant equitable considerations shall also be considered. No person guilty of a fraudulent misrepresentation (within the meaning of Section 12(2) of the Act) shall be entitled to contribution from any person who is not guilty of such fraudulent misrepresentation. The foregoing contribution agreement shall in no way affect the contribution liabilities of any person having liability under Section 12 of the Act other than the Company and the Underwriter. As used in this paragraph, the term "Underwriters" includes any person who controls the Underwriters within the meaning of Section 15 of the Act. If the full amount of the contribution specified in this paragraph is not permitted by law, then any Underwriter and each person who controls any Underwriter shall be entitled to contribution from the Company, to the full extent permitted by law. 9. Effective Date. This Agreement shall become effective at 10:00 a.m. New York time on the next full business day following the effective date of the Registration Statement, or at such other time after the effective date of the Prospectus as you in your discretion shall first commence the public offering of any of the Securities covered thereby, provided, however, that at all times the provisions of Sections 7, 8, 9 and 11 shall be effective. 10. Termination. (a) This Agreement, may be terminated at any time prior to the Closing Date by you if in your judgment it is impracticable to offer for sale or to enforce contracts made by you for the sale of the Securities agreed to be sold hereunder by reason of (i) the Company as a whole having sustained a material loss, whether or not insured, by reason of fire, earthquake, flood, accident or other calamity, or from any labor dispute or court or government action, order or decree, (ii) trading in securities of the Company having been suspended by a state securities administrator or by the Commission, (iii) material governmental restrictions having been imposed on trading in securities generally (not in force and effect on the date hereof) or trading on the New York Stock Exchange, American Stock Exchange, or in the over-the-counter market shall have been suspended, (iv) a banking moratorium having been declared by federal or New York State authorities, (v) an outbreak or escalation of hostilities or other national or international calamity having occurred, (vi) the passage by the Congress of the United States or by any state legislative body, of any act or measure, or the adoption of any orders, rules or regulations by any governmental body or any authoritative accounting institute or board, or any governmental executive, which is believed likely by you to have a material impact on the business, financial condition or financial statements of the Company; or (vii) any material adverse change having occurred, since the respective dates as of which information is given in the Prospectus, in the condition, financial or otherwise, of the Company as a whole, whether or not arising in the ordinary course of business, (viii) Robert Kuzara ceases to be employed by the Company in his present capacity; (ix) the Securities are not listed the American Stock Exchange or any other exchange or on NASDAQ. (b) If you elect to prevent this Agreement from becoming effective or to terminate this Agreement as provided in this Section 10 or in Section 9, the Company shall be promptly notified by you, by telephone or telegram, confirmed by letter. 11. Representations, Warrants and Agreements to Survive Delivery. The respective indemnities, agreements, representations, warranties and other statements of the Company (or its officers) and the Underwriter set forth in or made pursuant to this Agreement will remain in full force and effect, regardless of any investigation made by or on behalf of the Underwriter, the Company, or any of their officers or directors and will survive delivery of and payment for the Securities. 12. Notices. All communications hereunder will be in writing and, except as otherwise expressly provided herein, if sent to you, will be mailed, delivered or telephoned and confirmed to you at Coburn & Meredith, Inc., 150 Trumbull Street, Hartford, CT 06103, Attn: Barry Coburn, President; to the Company at 1711 Broadway, Saugus, MA 01906, Attn: Robert Kuzara, President. 13. Parties in Interest. This Agreement is made solely for the benefit of the Underwriter(s), and the Company, and their respective controlling persons, directors and officers, and their respective successors, assigns, executors and administrators. No other person shall acquire or have any right under or by virtue of this Agreement. 19 14. Headings. The Section headings in this Agreement have been inserted as a matter of convenience of reference and are not a part of this Agreement. 15. Applicable Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Connecticut, without giving effect to conflict of law principles. 16. Counterparts. This Agreement may be executed in any number of counterparts, each of which together shall constitute one and the same instrument. If the foregoing correctly sets forth the understanding between the Company and you, as Representative of the several underwriters, please so indicate in the space provided below for such purpose, whereupon this letter and your acceptance shall constitute a binding agreement between us. Very truly yours, WebSecure, Inc. By: --------------------------------- (Authorized Officer) Robert Kuzara, President Accepted as of the date first above written: Coburn & Meredith, Inc. As Representative of the several Underwriters By: -------------------------------------------- (Authorized Officer) Barry Coburn, President 20 EXHIBIT A SCHEDULE I UNDERWRITERS Shares of Underwriter Common Stock Redeemable Warrant - ----------- ------------ ------------------ Coburn & Meredith, Inc. Shamrock Partners, Ltd. --------- --------- TOTAL 1,000,000 1,000,000 - ----- 21 EX-1.C 4 FORM OF SELECTED DEALERS AGREEMENT EXHIBIT B A REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION BUT HAS NOT YET BECOME EFFECTIVE. NO OFFER TO BUY THE SECURITIES CAN BE ACCEPTED AND NO PART OF THE PURCHASE PRICE CAN BE RECEIVED UNTIL THE REGISTRATION STATEMENT HAS BECOME EFFECTIVE, AND ANY SUCH OFFER MAY BE WITHDRAWN OR REVOKED, WITHOUT OBLIGATION OR COMMITMENT OF ANY KIND, AT ANY TIME PRIOR TO NOTICE OF ITS ACCEPTANCE GIVEN AFTER THE EFFECTIVE DATE. YOUR EXECUTION HEREOF WELL INVOLVE NO OBLIGATION OR COMMITMENT OF ANY KIND UNTIL THE REGISTRATION STATEMENT HAS BECOME EFFECTIVE. WebSecure, Inc. SELECTED DEALERS AGREEMENT -------------------------- , 1996 Dear Sirs: 1. Coburn & Meredtih, Inc. named as the Underwriter ("Underwriter") in the enclosed preliminary Prospectus, proposes to offer on a firm commitment basis, subject to the terms and conditions and execution of the Underwriting Agreement, 1,000,000 Shares of Common Stock at $ per share and 1,000,000 Redeemable Warrants at $.20 per Warrant ("Securities") of the above Company. The Securities are more particularly described in the enclosed preliminary Prospectus, additional copies of which will be supplied in reasonable quantities upon request. Copies of the definitive Prospectus will be supplied after the effective date of the Registration Statement. 2. The Underwriter is soliciting offers to buy, upon the terms and conditions hereof, a part of the Securities from Selected Dealers, including you who are to act as principal and who are (i) registered with the Securities and Exchange Commission ("Commission") as broker-dealers under the Securities Exchange Act of 1934, as amended ("1934 Act"), and members in good standing with the National Association of Securities Dealers, Inc. ("NASD"), or (ii) dealers or institutions with their principal place of business located outside the United States, its territories and possessions who are not eligible for membership in the NASD and who agree to make no sales within the United States, its territories or possessions or to persons who are nationals thereof or residents therein and, in making sales, to comply with the NASD's Interpretation with Respect to FreeRiding and Withholding and with Sections 8, 24p 25, to the extent applicable to foreign nonmember brokers or dealers, and Section 36 of the NASD's Rules of Fair Practice. The Securities are to be offered at a public price of $ per share of Common Stock and $0.20 per Redeemable Warrant. Selected Dealers will be allowed a concession of not less than $ per share and $ per Redeemable Warrant, except as provided below. You will be notified of the precise amount of such concession prior to the effective date of the Registration Statement. You may reallow not in excess of $ per share and $ per Reedeemable Warrant to dealers who meet the requirements set forth in this Section 2. This offer is solicited subject to the issuance and delivery of the Securities and their acceptance by the Underwriter, to the approval of legal matters by counsel and to the terms and conditions as herein set forth. 3. Your offer to purchase may be revoked in whole or in part without obligation or commitment of any kind by you and any time prior to acceptance and no offer may be accepted by us and no sale can be made until after the registration statement covering the Securities has become effective with the Commission. Subject to the foregoing, upon execution by you of the Offer to Purchase below and the return of same to us, you shall be deemed to have offered to purchase the number of Securities set forth in your offer on the basis set forth in paragraph 2 above. Any oral notice by us of acceptance of your offer shall be immediately followed by written or telegraphic confirmation preceded or accompanied by a copy of the Prospectus. If a contractual commitment arises hereunder, all the terms of this Selected Dealers Agreement shall be applicable. We may also make available to you an allotment to purchase Securities, but such allotment shall be subject to modification or termination upon notice from us any time prior to an exchange of confirmations reflecting completed transactions. All references hereafter in this Agreement to the purchase and sale of Securities assume and are applicable only if contractual commitments to purchase are completed in accordance with the foregoing.. 4. You agree that in reoffering said Securities, if your offer is accepted after the effective date, you will make a bona fide public distribution of same. You will advise us upon request of Securities purchased by you remaining unsold and we shall have the right to repurchase such Securities upon demand at the public offering price without paying the concession with respect to any Securities so repurchased. Any of the Securities purchased by you pursuant to this Agreement are to be subject to the terms hereof. Securities shall not be offered or sold by you below the public offering price before the termination of this Agreement. 5. Payment for Securities which you purchase hereunder shall be made by you on or before five (5) business days after the date of each confirmation by certified or bank cashier's check payable to the Underwriter. Certificates for the Securities shall be delivered as soon as practicable after delivery instructions are received by the Underwriter. 6. A registration statement covering the offering has been filed with the Securities and Exchange Commission in respect to the Securities. You will be promptly advised when the registration statement becomes effective. Each Selected Dealer in selling Securities pursuant hereto agrees (which agreement shall also be for the benefit of the Company) that it will comply with the applicable requirements of the Securities Act of 1933 and of the Securities Exchange Act of 1934 and any applicable rules and regulations issued under said Acts. No person is authorized by the Company or by the Underwriter to give any information or to make any representations other than those contained in the Prospectus in connection with the sale of the Securities. Nothing contained herein shall render the Selected Dealers a member of the Underwriting Group or partners with the Underwriter or with one another. 7. You will be informed by us as to the states in which we have been advised by counsel the Securities have been qualified for sale or are exempt under the respective securities or blue sky laws of such states, but we have not assumed and will not assume any obligation or responsibility as to the right of any Selected Dealer to sell Securities in any state. You agree not to sell Securities in any other state or jurisdiction and to not sell Securities in any state or jurisdiction unless you are qualified or licensed to sell securities in such state or jurisdiction. 8. The Underwriter shall have full authority to take such action as it may deem advisable in respect of all matters pertaining to the offering or arising thereunder. The Underwriter shall not be under any liability to you, except such as may be incurred under the Securities Act of 1933 and the rules and regulations thereunder, except for lack of good faith and except for obligations assumed by us in this Agreement, and no obligation on our part shall be implied or inferred herefrom. 9. Selected Dealers will be governed by the conditions herein set forth until this Agreement is terminated. This Agreement will terminate when the offering is completed. Nothing herein contained shall be deemed a commitment on our part to sell you any Securities; such contractual commitment can only be made in accordance with the provisions of paragraph 3 hereof. 10. You represent that you are a member in good standing of the NASD and registered as a broker-dealer with the Commission, or that you are a foreign broker-dealer not eligible for membership under Section 1 of the Bylaws of the NASD who agrees to make no sales within the United States, its territories or possessions or to persons who are nationals thereof or residents therein and, in making sales, to comply with the NASD's interpretation with Respect to FreeRiding and Withholding and with Sections 8, 24, 25 to the extent applicable to foreign nonmember brokers and dealers, and Section 36 of the NASD's Rules of Fair Practice. Your attention is called to and you agree to comply with the following: (a) Article III, Section 1 of the Rules of Fair Practice of the NASD and the interpretations of said Section promulgated by the Board of Governors of the NASD including Section 24 and the interpretation with respect to "Free-Riding and Withholding;" (b) Section 10(b) of the 1934 Act and Rules 10b-6, 10b-10 of the general 2 rules and regulations promulgated under the 1934 Act; and (c) Rule 15c2-8 of the general rules and regulations promulgated under the 1934 Act requiring the distribution of a preliminary Prospectus to all persons reasonably expected to be purchasers of the Securities from you at least 48 hours prior to the time you expect to mail confirmations. You, as a member of the NASD, by signing this Agreement, acknowledge that you are familiar with the cited laws and rules and agree that you will not directly and/or indirectly violate any provisions of applicable law in connection with your participation in the distribution of the Securities. 11. In addition to compliance with the provisions of paragraph 10 hereof, you will not, until advised by us in writing or by wire that the entire offering has been distributed and closed, bid for or purchase Securities in the open market or otherwise make a market in the Securities or otherwise attempt to induce others to purchase the Securities in the open market. Nothing contained in this paragraph 11 shall, however, preclude you from acting as agent in the execution of unsolicited orders of customers in transactions effectuated for them through a market maker. 12. You understand that the Underwriter may in connection with the offering engage in stabilizing transactions. If the Underwriter contracts for or purchases in the open market in connection with such stabilization any Securities sold to you hereunder and not effectively placed by you, the Underwriter may charge you the Selected Dealer's concession originally allowed you on the Securities so purchased and you agree to pay such amount to us on demand. 13. By submitting an Offer to Purchase you confirm that you may, in accordance with Rule 156-1 adopted under the 1934 Act, agree to purchase the number of Securities you may become obligated to purchase under the provisions of this Agreement. 14. All communications from you should be directed to us at 150 Trumbull Street, Hartford, CT 06103 Attn: Henry Tow, (1-800-825-2244) and fax (860-522-4209). All communications from us to you shall be directed to the address to which this letter is mailed. Very truly yours, Coburn & Meredith, Inc. By ---------------------------------- (Authorized Officer) 3 OFFER TO PURCHASE The undersigned does hereby offer to purchase (subject to the right to revoke as set forth in paragraph 3) __________________* Securities in accordance with the terms and conditions set forth above. We hereby acknowledge receipt of the Prospectus referred to in the first paragraph thereof relating to such Securities. We further state that in purchasing such Securities we have relied upon such Prospectus and upon no other statement whatsoever, written or oral. - ---------------------------------------- By -------------------------------------- (Authorized Officer) *If a number appears here which does not correspond with what you wish to offer to purchase, you may change the number by crossing out the number, inserting a different number and initializing the change. 4 EX-3.A 5 CERTIFICATE OF INCORPORATION OF NETSAFE, INC. CERTIFICATE OF INCORPORATION OF NETSAFE, INC. FIRST: The name of the corporation is NetSafe, Inc. SECOND: The registered office of the corporation in the State of Delaware is located at 1209 Orange Street, Wilmington, New Castle County, Delaware 19801, and its registered agent is The Corporation Trust Company. THIRD: The purpose of the corporation and the nature and objects of the business to be transacted, promoted, and carried on are to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of Delaware. FOURTH: The total number of shares of stock which the corporation shall have authority to issue is one thousand shares of common stock with one cent ($0.01) par value. The number of authorized shares of any class or classes of stock may be increased or decreased by a vote of the majority of stockholders. FIFTH: Whenever a compromise or arrangement is proposed between this corporation and its creditors or any class of them and/or between this corporation and its creditors or any class of them and/or between this corporation and its stockholders or any class of them, any court of equitable jurisdiction within the State of Delaware may, on the application in a summary way of this corporation or any creditor or stockholder thereof or on the application of any receiver or receivers appointed for this corporation under the provisions of section 291 of Title 8 of the Delaware Code or on the application of trustees in dissolution or of any receiver or receivers appointed for this corporation, as the case may be, to basement in such a manner as the said Court directs. If a majority in number representing three-fourths in value of the creditors or class of creditors, and/or of the stockholders or class of stockholders of this corporation, as the case may be, agree to any compromise or arrangement and to any reorganization of this corporation as a consequence of such compromise or arrangement, the said compromise or arrangement and the said reorganization shall, if sanctioned by the court to which the said application has been made, be binding on all the creditors or class of creditors, and/or on all the stockholders or class of stockholders, of this corporation, as the case may be, and also on this corporation. SIXTH: To the fullest extent permitted by law, the corporation shall have the power to indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative by reason of the fact that he is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys' fees), liability, loss, judgment, fines and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit or proceeding if he acted in good faith and in a manner reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceedings, had no reasonable cause to believe his conduct was unlawful. The termination of any action, upon a plea of nolo contendere or equivalent, shall not, of itself, create a presumption that the person did not act in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, had reasonable cause to believe that his conduct was unlawful. Such indemnity shall inure to the benefit of the heirs, executors and administrators of any such person so indemnified pursuant to this Article. The right to indemnification under this Article shall be a contract right and shall include, with respect to directors and officers, the right to be paid by the corporation the expenses incurred in defending any such proceeding in advance of its disposition; provided however, that, if the Delaware General Corporation Law requires, the payment of such expenses incurred by a director or officer in advance of the final disposition of a proceeding shall be made only upon delivery to the corporation of an undertaking, by or on behalf of such director or officer, to repay all amounts so advanced if it shall ultimately be determined under this Article or otherwise. The corporation may, by action of its board of directors, pay such expenses incurred by employees and agents of the corporation upon such terms as the board of directors deems appropriate. Indemnification of, and advancement of expenses to, such person shall be mandatory to the extent that applicable law provides that the corporation may authorize such indemnification and advancement of expenses. such indemnification and advancement of expenses shall be in addition to any other rights to which those seeking indemnification and advancement of expenses may be entitled under any law, Bylaw, agreement, vote of stockholders, or otherwise. The corporation may, to the fullest extent permitted by applicable law, at any time without further stockholder approval, purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the corporation or is or was serving at the request of the corporation as a director, officer, employee or agent of the corporation or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against any liability asserted against such person and incurred by such person in any such capacity, or arising out of such person's status as such, whether or not the corporation would have the power to indemnify such person against such liability under applicable law. Any repeal or amendment of this Article by the stockholders of the corporation or by changes in applicable law shall, to the extent permitted by applicable law, be prospective only, and shall not adversely affect any right to indemnification or advancement of expenses of a director or officer of the corporation existing at the time of such repeal or amendment. In addition to the foregoing, the right to indemnification and advancement of expenses shall be to the fullest extent permitted by the General Corporation Law of the State of Delaware or any other applicable law and all amendments to such laws as hereafter enacted from time to time. SEVENTH: No director of the corporation shall have any personal liability to the corporation or to any of its stockholders for monetary damages for breach of fiduciary duty as a -2- director; provided, however, that this provision eliminating such personal liability of a director shall not eliminate or limit the liability of a director (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 ss.174 of the General Corporation Law of Delaware, or (iv) for any transaction from which the director derived an improper personal benefit. If the Delaware General Corporation Law is amended to authorize corporate action further eliminating or limited the personal liability of directors, then the liability of a director of the corporation shall be eliminated or limited to the fullest extent permitted by the Delaware General Corporation Law as so amended. EIGHT: The name and address of the incorporator is Judith T. Kaiser, 1310 King Street, Wilmington, Delaware 19801. NINTH: The Board of Directors shall have the power to make, add to, delete from, alter, and repeal the By-Laws. TENTH: The corporation reserves the right to amend, alter, change, or repeal any provision contained in this certificate of incorporation in the manner now or hereafter prescribed by law and all rights conferred on officers, directors, and stockholders herein are granted subject to this reservation. ELEVENTH: The election of directors need not be by written ballot. TWELFTH: No holder of shares of the corporation of any class or series shall have any preemptive right to subscribe for, purchase, or receive any shares of the corporation of any class or series now or hereafter authorized, or any options or warrants for such shares, or any securities convertible into or exchangeable for such shares, which may at any time be issued, sold, or offered for sale by the corporation. Cumulative voting by the stockholders of the corporation at any election of directors of the corporation is hereby prohibited. THE UNDERSIGNED INCORPORATOR, for the purposes of forming a corporation, in pursuance of an act of the legislature of the State of Delaware entitled "An Act Providing a General Corporation Law" (approved March 10, 1899) and any acts amendatory thereof and supplemental thereto, does make and file this Certificate of Incorporation, hereby declaring and certifying that the facts herein stated are true and accordingly has hereunto set her hand and seal this __ day of September, 1995. --------------------------------- INCORPORATOR -3- CERTIFICATE OF AMENDMENT OF CERTIFICATE OF INCORPORATION OF NETSAFE, INC. Netsafe, Inc., (the "Corporation") 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 Certificate of Incorporation of NetSafe, Inc. is amended by amending Article First thereof to read in its entirety as follows: "FIRST: The name of the corporation is Netsafe, Inc." and by amending Article Fourth thereof to read in its entirety as follows: "FOURTH: The total number of shares of stock which the corporation shall have authority to issue is two million (2,000,000) shares of common stock with one cent ($0.01) par value. The number of authorized shares of any class or classes of stock may be increased or decreased by a vote of the majority of stockholders." SECOND: That prior to the issuance of stock said amendment was duly adopted in accordance with the provisions of ss.241 of the General Corporation Law of the State of Delaware. THIRD: That the capital of the Corporation shall not be reduced under or by any reason of said amendment. IN WITNESS WHEREOF, said NetSafe, Inc. has caused this Certificate to be signed by Judith T. Kaiser, its Incorporator this 18th day of September 1995. NETSAFE, INC. By:___________________________ Judith T. Kaiser Incorporator CERTIFICATE OF AMENDMENT OF CERTIFICATE OF INCORPORATION OF NETSAFE, INC. (Pursuant to Section 242) ******* NETSAFE, INC. (the "Corporation"), a corporation organized and existing under and by virtue of the General Corporation Law of the State of Delaware, DOES HEREBY CERTIFY: FIRST: That by written consent dated December 15, 1995, all of the directors and a majority of the stockholders of NETSAFE, INC., adopted the following resolution amending the Certificate of Incorporation of the Corporation: RESOLVED: That Article 1 of the Certificate of Incorporation be, and hereby is, deleted in its entirety and the following be, and hereby is, inserted in place thereof: "1. The name of the Corporation is WEBSECURE, INC." IN WITNESS WHEREOF, the said NETSAFE, INC. has caused its corporate seal to be hereunto affixed and this Certificate of Amendment to be signed by Robert Kuzara, its President and Andrew D. Myers, its Assistant Secretary this _____ day of December, 1995. --------------------------- Robert Kuzara President - ------------------------------ Andrew D. Myers Assistant Secretary CERTIFICATE OF AMENDMENT OF CERTIFICATE OF INCORPORATION OF WEBSECURE, INC. ******** WEBSECURE, 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 by a consent of a majority of the stockholders and the sole director of WEBSECURE, INC.,dated March 22, 1996, the following resolution amending the Certificate of Incorporation of said corporation was adopted: RESOLVED: That the Certificate of Incorporation of WebSecure, Inc. (the "Corporation") be amended (the "Amendment") by change of the article thereof numbered "4" so that, as amended, said Article 4 shall be, and read, in its entirety, as follows: "4. The total number of shares of stock which the Corporation shall have authority to issue is twenty three million (23,000,000), twenty million (20,000,000) shares of which shall be Common Stock, of the par value of $.01 per share, two million (2,000,000) shares of which shall be Series B Common Stock, of the par value of $.01 per share, and one million (1,000,000) shares of which shall be Preferred Stock, of the par value $.01 per share, amounting in the aggregate to Two Hundred Thirty Thousand and 00/100 Dollars ($230,000.00). The rights and preferences of the Series B Common Stock shall be as set forth in the form attached hereto as Exhibit A. Additional designations and powers, preferences and rights and qualifications, limitations or restrictions thereof of the Common Stock and Preferred Stock shall be determined by the Board of Directors of the Corporation from time to time." SECOND: That said amendment was duly adopted in accordance with the provisions of Section 242 of the General Corporation Law of the State of Delaware. IN WITNESS WHEREOF, said WEBSECURE, INC., has caused this Certificate of Amendment to be signed by Robert Kuzara, its President and Andrew D. Myers, its Assistant Secretary this ______ day of March, 1996. ----------------------------------- Robert Kuzara President - --------------------------------- Andrew D. Myers Assistant Secretary CERTIFICATE OF CORRECTION FILED TO CORRECT A CERTAIN CERTIFICATE OF AMENDMENT OF WEBSECURE, INC. FILED IN THE OFFICE OF THE SECRETARY OF STATE OF DELAWARE ON MARCH 29, 1996 WEBSECURE, INC. [Pursuant to Section 103] WEBSECURE, INC. (the "Corporation"), a corporation organized and existing under and by virtue of the General Corporation Law of the State of Delaware, DOES HEREBY CERTIFY: 1. The name of the corporation is WEBSECURE, INC. 2. That a Certificate of Amendment of Certificate of Incorporation was filed by the Secretary of State of Delaware on March 29, 1996, and that said Certificate requires correction as permitted by Section 103 of the General Corporation Law of the State of Delaware. 3. The correction of said Certificate is the Article "FIRST" of the Certificate of Amendment be, and hereby is, deleted in its entirety and the following be, and hereby is, inserted in place thereof: FIRST: That by a consent of a majority of the stockholders and the sole director of WEBSECURE, INC., dated March 22, 1996, the following resolution amending the Certificate of Incorporation of said corporation was adopted: RESOLVED: That the Certificate of Incorporation of WebSecure, Inc. (the "Corporation") be amended (the "Amendment") by change of the article thereof numbered "4" so that, as amended, said Article 4 shall be, and read, in its entirety, as follows: "4. The total number of shares of stock which the Corporation shall have the authority to issue is twenty three million (23,000,000) shares, twenty two million (22,000,000) shares of which shall be Common Stock, of the par value of $.01 per share, two million (2,000,000) shares of which shall be designated as Class B Common Stock, of the par value of $.01 per share, and one million (1,000,000) shares of which shall be Preferred Stock, of the par value of $.01 per share, amounting in the aggregate to Two Hundred Thirty Thousand and 00/100 Dollars ($230,000.00). The rights and preferences of the Class B Common Stock shall be as set forth in the form attached hereto as Exhibit A. Additional designations and powers, preferences and rights and qualifications, limitations or restrictions thereof of the Common Stock and Preferred Stock shall be determined by the Board of Directors of the Corporation from time to time." IN WITNESS WHEREOF, the said WEBSECURE, INC. has caused its corporate seal to be hereunto affixed and this Certificate of Correction to be signed by Andrew D. Myers, its Assistant Secretary, this 14th day of June, 1996. WEBSECURE, INC. By: ________________________________ Andrew D. Myers Assistant Secretary EX-3.B 6 BYLAWS BY-LAWS OF WEBSECURE, INC. Section 1. Annual Meeting. The annual meeting of the stockholders of WebSecure, Inc. (the "Corporation") for the election of directors and for the transaction of such other business as may come before the meeting shall be on such date and at such time as shall be designated by the Board of Directors. Section 2. Special Meetings. Special meetings of the stockholders, unless otherwise prescribed by statute, may be called at any time by the Board or the President and shall be called by the President or Secretary at the request in writing of stockholders of record owning at least fifty percentum of the shares of stock of the Corporation outstanding and entitled to vote. Section 3. Notice of Meetings. Notice of the place, date and time of the holding of each annual and special meeting of the stockholders and, in the case of a special meeting, the purpose or purposes thereof, shall be given personally or by mail in a postage prepaid envelope to each stockholder entitled to vote at such meeting, not less than ten nor more than sixty days before the date of such meeting, and, if mailed, shall be directed to such stockholder at his address as it appears on the records of the Corporation, unless he shall have filed with the Secretary of the Corporation a written request that notices to him be mailed to some other address in which case it shall be directed to him at such other address. Notice of any meeting of stockholders shall not be required to be given to any stockholder who shall attend such meeting in person or by proxy and shall not, at the beginning of such meeting, object to the transaction of any business because the meeting is not lawfully called or convened, or who shall, either before or after the meeting, submit a signed waiver of notice, in person or by proxy. Unless the Board of Directors shall fix, after the adjournment, a new record date for an adjourned meeting, notice of such adjourned meeting need not be given if the time and place to which the meeting shall be adjourned were announced at the meeting at which the adjournment is taken. At the adjourned meeting, the Corporation may transact any business which might have been transacted at the original meeting. If the adjournment is for more than thirty days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting. Section 4. Place of Meetings. Meetings of the stockholders may be held at such place, within or without the State of Delaware as the Board of Directors or the officer calling the same shall specify in the notice of such meeting, or in a duly executed waiver of notice thereof. Section 5. Quorum. At all meetings of the stockholders the holders of a majority of the votes of the shares of stock of the Corporation issued and outstanding and entitled to vote shall be present in person or by proxy to constitute a quorum for the transaction of any business, except when stockholders are required to vote by class, in which event a majority of the issued and outstanding shares of the appropriate class shall be present in person or by proxy, or except as otherwise provided by statute or in the Certificate of Incorporation. In the absence of a quorum, the holders of a majority of the shares of stock present in person or by proxy and entitled to vote, or if no stockholder entitled to vote is present, then any officer of the Corporation may adjourn the meeting from time to time. At any such adjourned meeting at which a quorum may be present any business may be transacted which might have been transacted at the meeting as originally called. Section 6. Organization. At each meeting of the stockholders, the President, or in his absence or inability to act, any person chosen by a majority of those stockholders present, in person or by proxy and entitled to vote, shall act as chairman of the meeting. The Secretary, or in his absence or inability to act, any person appointed by the chairman of the meeting, shall act as secretary of the meeting and keep the minutes thereof. Section 7. Order of Business. The order of business at all meetings of the stockholders shall be as determined by the chairman of the meeting. Section 8. Voting. Except as otherwise provided by statute, by the Certificate of Incorporation, or by any certificate duly filed in the State of Delaware pursuant to Section 151 of the Delaware General Corporation Law, each holder of record of shares of stock of the Corporation having voting power shall be entitled at each meeting of the stockholders to one vote for every share of such stock standing in his name on the record of stockholders of the Corporation on the date fixed by the Board of Directors as the record date for the determination of the stockholders who shall be entitled to notice of and to vote at such meeting; or if such record date shall not have been so fixed, then at the close of business on the day next preceding the date on which notice thereof shall be given, or if notice is waived, at the close of business on the day next preceding the day on which the meeting is held; or each stockholder entitled to vote at any meeting of stockholders may authorize another person or persons to act for him by a proxy signed by such stockholder or his attorney-in-fact. Any such proxy shall be delivered to the secretary of such meeting at or prior to the time designated in the order of business for so delivering such proxies. No proxy shall be valid after the expiration of three years from the date thereof, unless otherwise provided in the proxy. Every proxy shall be revocable at the pleasure of the stockholder executing it, except in those cases where an irrevocable proxy is permitted by law. Except as otherwise provided by statute, these By-Laws, or the Certificate of Incorporation, any corporate action to be taken by vote of the stockholders shall be authorized by a majority of the total votes, or when stockholders are required to vote by class by a majority of the votes of the appropriate class, cast at a meeting of stockholders by the holders of shares present in person or represented by proxy and entitled to vote on such action. Unless required by statute, or determined by the chairman of the meeting to be advisable, the vote on any question need not be by written ballot. On a vote by written ballot, each ballot shall be signed by the stockholder voting, or by his proxy, if there be such proxy, and shall state the number of shares voted. Section 9. List of Stockholders. The officer who has charge of the stock ledger of the Corporation shall prepare and make, at least ten days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane -2- to the meeting, during ordinary business hours, for a period at least ten days prior to the meeting either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or if not so specified, at the place where the meeting is to be held. The list shall also be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder who is present. Section 10. Inspectors. The Board of Directors may, in advance of any meeting of stockholders, appoint one or more inspectors to act at such meeting or any adjournment thereof. If the inspectors shall not be so appointed or if any of them fail to appear or act, the chairman of the meeting may, and on the request of any stockholder entitled to vote thereat shall appoint inspectors. Each inspector, before entering upon the discharge of his duties, shall take and sign an oath faithfully to execute the duties of inspector at such meeting with strict impartiality and according to the best of his ability. The inspectors shall determine, in number of shares represented at the meeting, the existence of a quorum, the validity and effect of proxies, and shall receive votes, ballots or consents, hear and determine all challenges and questions arising in connection with the right to vote, count and tabulate all votes, ballots or consents, determine the result, and do such acts as are proper to conduct the election or vote with fairness to all stockholders. On request of the chairman of the meeting of any stockholder entitled to vote thereat, the inspectors shall make a report in writing of any challenge, request or matter determined by them and shall execute a certificate of any fact found by them. No director or candidate for the office of director shall act as inspector of an election of directors. Inspectors need not be stockholders. Section 11. Consent of Stockholders in Lieu of Meeting. Whenever the vote of stockholder at a meeting thereof is required or permitted to be taken for or in connection with any corporate action, the meeting and vote of stockholders can be dispensed with: (1) if all of the stockholders who would have been entitled to vote upon the action if such meeting were held shall consent in writing to such corporate action being taken; or (2) unless the Certificate of Incorporation provides otherwise, with the written consent of the holders of not less than the minimum percentage of the total vote required by statute for the proposed corporate action, and provided that prompt notice must be given to all stockholders not signing such written consent of the taking of corporate action without a meeting and by less than unanimous written consent. ARTICLE II BOARD OF DIRECTORS Section 1. General Powers. The business and affairs of the Corporation shall be managed by the Board of Directors. The Board of Directors may exercise all such authority and powers of the Corporation and do all such lawful acts and things as are not by statute or the Certificate of Incorporation directed or required to be exercised or done by the stockholders. Section 2. Number, Qualifications, Election, and Term of Office. The number of directors of the Corporation shall be four (4), but, by vote of a majority of the entire Board or amendment of these By-Laws, the number thereof may be increased or decreased as may be so provided, subject to the provisions of Section 11 of this Article II. All of the directors shall be of full age. Directors need not be stockholders. Except as otherwise provided by statute or these By-Laws, the directors shall be elected at the annual meeting of the stockholders for the election of -3- directors at which a quorum is present, and the persons receiving a plurality of the votes cast at such election shall be elected. Each director shall hold office until the next annual meeting of the stockholders and until his successor shall have been duly elected and qualified or until his death, or until he shall have resigned, or have been removed, as hereinafter provided in these By-Laws, or as otherwise provided by statute or the Certificate of Incorporation. Section 3. Place of Meeting. Meetings of the Board of Directors may be held at such place, within or without the State of Delaware, as the Board of Directors may from time to time determine or shall be specified in the notice or waiver of notice of such meeting. Section 4. First Meeting. The Board of Directors shall meet for the purpose of organization, the election of officers, and the transaction of other business, as soon as practicable after each annual meeting of the stockholders, on the same day and at the same place where such annual meeting shall be held. Notice of such meeting need not be given. Such meeting may be held at any other time or place (within or without the State of Delaware) which shall be specified in a notice thereof given as hereinafter provided in Section 7 of this Article II. Section 5. Regular Meetings. Regular meetings of the Board of Directors shall be held quarterly at such place as the Board of Directors may from time to time determine. If any day fixed for a regular meeting shall be a legal holiday at the place where the meeting is to be held, then the meeting which would otherwise be held on that day shall be held at the same hour on the next succeeding business day. Notice of regular meetings of the Board of Directors need not be given except as otherwise required by statute or these By-Laws. Section 6. Special Meetings. Special meetings of the Board of Directors may be called by one or more directors of the Corporation or by the President. Section 7. Notice of Meetings. Notice of each special meeting of the Board of Directors (and of each regular meeting for which notice shall be required) shall be given by the Secretary as hereinafter provided in this Section 7, in which notice shall be stated the time and place of the meeting. Notice of each such meeting shall be delivered to each director either personally or by telephone, telegraph cable or wireless, at least twenty-four hours before the time at which such meeting is to be held or by first-class mail, postage prepaid, addressed to him at his residence, or usual place of business, at least three days before the day on which such meeting is to be held. Notice of any such meeting need not be given to any director who shall, either before or after the meeting, submit a signed waiver of notice or who shall attend such meeting without protesting, prior to or at its commencement, the lack of notice to him. Except as otherwise specifically required by these By-Laws, a notice or waiver of notice of any regular or special meeting need not state the purpose of such meeting. Section 8. Quorum and Manner of Acting. A majority of the entire Board of Directors shall be present in person at any meeting of the Board of Directors in order to constitute a quorum for the transaction of business at such meeting, and, except as otherwise expressly required by statute or the Certificate of Incorporation, the act of a majority of the directors present at any meeting at which a quorum is present shall be the act of the Board of Directors. In the absence of a quorum at any meeting of the Board of Directors, a majority of the directors present thereat, or if no director -4- be present, the Secretary, may adjourn such meeting to another time and place, or such meeting, unless it be the first meeting of Board of Directors, need not be held. At any adjourned meeting at which a quorum is present, any business may be transacted which might have been transacted at the meeting as originally called. Except as provided in Article III of these By-Laws, the directors shall act only as a Board and the individual directors shall have no power as such. Section 9. Organization. At each meeting of the Board of Directors, the President, or, in his absence or inability to act, another director chosen by a majority of the directors present shall act as chairman of the meeting and preside thereat. The Secretary (or, in his absence or inability to act, any person appointed by the chairman) shall act as secretary of the meeting and keep the minutes thereof. Section 10. Resignations. Any director of the Corporation may resign at any time by giving written notice of his resignation to the Board of Directors or the President or the Secretary. Any such resignation shall take effect at the time specified therein or, if the time when it shall become effective shall not be specified therein, immediately upon its receipt; and, unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective. Section 11. Vacancies. Vacancies may be filled by a majority of the directors then in office, though less than a quorum, or by a sole remaining director, and the directors so chosen shall hold office until the next annual election and until their successors are duly elected and shall qualify, unless sooner displaced. If there are not directors in office, then an election of directors may be held in the manner provided by statute. If, at the time of filling any vacancy or any newly created directorship, the directors then in office shall constitute less than a majority of the whole Board (as constituted immediately prior to any such increase), the Court of Chancery may, upon application of any stockholder or holders of at least ten percent of the votes of the shares at the time outstanding having the right to vote for such directors, summarily order an election to be held to fill any such vacancies or newly created directorships, or to replace the directors chosen by the directors then in office. Except as otherwise provided in these By-Laws, when one or more directors shall resign from the Board of Directors, effective at a future date, a majority of the directors then in office, including those who have so resigned, shall have the power to fill such vacancy or vacancies, the vote thereon to take effect when such resignation or resignations shall become effective, and each director so chosen shall hold office as provided in this section in the filling of other vacancies. Section 12. Removal of Directors. Except as otherwise provided in the Certificate of Incorporation or in these By-Laws, any director my be removed, either with or without cause, at any time, by the affirmative vote of a majority of the votes of the issued and outstanding stock entitled to vote for the election of directors of the Corporation given at a special meeting of the stockholders called and held for the purpose; and the vacancy in the Board of Directors caused by an such removal may be filled by such stockholders at such meeting, or, if the stockholders shall fail to fill such vacancy, as in these By-Laws provided. Section 13. Compensation. The Board of Directors shall have authority to fix the compensation, including fees and reimbursement of expenses, of directors for services to the Corporation in any capacity, provided no such payment shall preclude any director from serving the Corporation in any other capacity and receiving compensation therefor. -5- Section 14. Action Without Meeting. Any action required or permitted to be taken at any meeting of the Board of Directors or of any committee thereof may be taken without a meeting if all members of the Board of Directors or committee, as the case may be, consent thereto in writing, and the writing or writings are filed with the minutes of proceedings of the Board of Directors or committee. ARTICLE III OFFICERS Section 1. Number and Qualifications. The officers of the Corporation shall be the President, Secretary, and Treasurer. Any two or more offices may be held by the same person. Such officers shall be elected from time to time by the Board of Directors, each to hold office until the meeting of the Board of Directors following the next annual meeting of the stockholders, or until his successor shall have been duly elected and shall have qualified, or until his death, or until he shall have resigned, or have been removed, as hereinafter provided in these By-Laws. The Board of Directors may from time to time elect, or the President may appoint, such other officers (including one or more Assistant Vice Presidents, Assistant Secretaries, and Assistant Treasurers), and such agents, as may be necessary or desirable for the business of the Corporation. Such other officers and agents shall have such duties and shall hold their offices for such terms as may be prescribed by the Board of Directors or by the appointing authority. Section 2. Resignations. Any officer of the Corporation may resign at any time by giving written notice of his resignation to the Board of Directors, the President or the Secretary. Any such resignation shall take effect at the time specified therein or, if the time when it shall become effective shall not be specified therein, immediately upon its receipt; and unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective. Section 3. Removal. Any officer or agent of the Corporation may be removed, either with or without cause, at any time, by the vote of the majority of the entire Board of Directors at any meeting of the Board of Directors, or, except in the case of an officer or agent elected or appointed by the Board of Directors, by the President. Such removal shall be without prejudice to the contractual rights, if any, of the person so removed. Section 4. Vacancies. A vacancy in any office, whether arising from death, resignation, removal or any other cause, may be filled for the unexpired portion of the term of the office which shall be vacant, in the manner prescribed in these By-Laws for the regular election or appointment of such office. Section 5. Officers' Bonds or Other Security. If required by the Board of Directors, any officer of the Corporation shall give a bond or other security for the faithful performance of his duties, in such amount and with such surety or sureties as the Board of Directors may require. Section 6. Compensation. The compensation of the officers of the Corporation for their services as such officers shall be fixed from time to time by the Board of Directors; provided, however, that the Board of Directors may delegate to the President the power to fix the compensation of officers and agents appointed by the President. An officer of the Corporation shall not be -6- prevented from receiving compensation by reason of the fact that he is also a director of the Corporation. Section 7. President. The President shall be the Chief Executive Officer of the Corporation and shall have the general and active management of the business of the Corporation and general and active supervision and direction over the other officers, agents and employees and shall see that their duties are properly performed. He shall, if present, preside at each meeting of the stockholders and of the Board of Directors and shall be an ex-officio member of all committees of the Board of Directors. He shall perform all duties incident to the office of President and Chief Executive Officer and such other duties as may from time to time be assigned to him by the Board of Directors. Section 8. Secretary. The Secretary shall: (a) Keep or cause to be kept in one or more books provided for that purpose, the minutes of the meetings of the Board of Directors, the committees of the Board of Directors and the stockholders; (b) See that all notices are duly given in accordance with the provisions of these By-Laws and as required by law; (c) Be custodian of the records and the seal of the Corporation and affix and attest the seal to all stock certificates of the Corporation (unless the seal of the Corporation on such certificates shall be a facsimile, as hereinafter provided) and affix and attest the seal to all other documents to be executed on behalf of the Corporation under its seal; (d) See that the books, reports, statements, certificates and other documents and records required by law to be kept and filed are properly kept and filed; and (e) In general, perform all the duties incident to the office of Secretary and such other duties as from time to time may be assigned to him by the Board of Directors or the President. Section 9. Treasurer. The Treasurer shall be the chief financial officer of the Corporation and shall exercise general supervision over the receipt, custody, and disbursements of Corporate funds. He shall have such further powers and duties as may be conferred upon him from time to time by the President or the Board of Directors. ARTICLE IV INDEMNIFICATION The Corporation, by action of the Board of Directors, may, to the fullest extent permitted by the General Corporation Law of Delaware, indemnify any and all persons who it shall have power to indemnify against any and all of the expenses, liabilities or other matters. -7- ARTICLE V FISCAL YEAR The fiscal year of the Corporation shall begin on the first day of January of each year and end on the last day of December of each year. ARTICLE VI SEAL The Board of Directors shall provide a corporate seal, which shall be in the form of the name of the Corporation and the words and figures "Corporate Seal 1995, Delaware". These By-Laws may be amended or repealed, or new By-Laws may be adopted, (1) at any annual or special meeting of the stockholders, by a majority of the total votes of the stockholders, present or in person or represented by proxy and entitled to vote on such action; provided, however, that the notice of such meeting shall have been given as provided in these By-Laws, which notice shall mention that amendment or repeal of these By-Laws, or the adoption of new By-Laws, is one of the purposes of such meeting; (2) by written consent of the stockholders pursuant to Section 11 of Article I; or (3) by action of the Board of Directors. I, the undersigned, Secretary of the Corporation, do hereby certify that the foregoing is a true complete, and accurate copy of the By-Laws of WebSecure, Inc., duly adopted by unanimous written consent of the Board of Directors and I do further certify that these By-Laws have not since been altered, amended, repealed, or rescinded and are now in full force and effect. _______________________________ Harry G. Mitchell Secretary BY-LAWS OF NETSAFE, INC. ARTICLE I MEETINGS OF STOCKHOLDERS Section 1. Annual Meeting. The annual meeting of the stockholders of Netsafe, Inc. (the "Corporation") for the election of directors and for the transaction of such other business as may come before the meeting shall be on such date and at such time as shall be designated by the Board of Directors. Section 2. Special Meetings. Special meetings of the stockholders, unless otherwise prescribed by statute, may be called at any time by the Board or the President and shall be called by the President or Secretary at the request in writing of stockholders of record owning at least fifty percentum of the shares of stock of the Corporation outstanding and entitled to vote. Section 3. Notice of Meetings. Notice of the place, date and time of the holding of each annual and special meeting of the stockholders and, in the case of a special meeting, the purpose or purposes thereof, shall be given personally or by mail in a postage prepaid envelope to each stockholder entitled to vote at such meeting, not less than ten nor more than sixty days before the date of such meeting, and, if mailed, shall be directed to such stockholder at his address as it appears on the records of the Corporation, unless he shall have filed with the Secretary of the Corporation a written request that notices to him be mailed to some other address, in which case it shall be directed to him at such other address. Notice of any meeting of stockholders shall not be required to be given to any stockholder who shall attend such meeting in person or by proxy and shall not, at the beginning of such meeting, object to the transaction of any business because the meeting is not lawfully called or convened, or who shall, either before or after the meeting, submit a signed waiver of notice, in person or by proxy. Unless the Board of Directors shall fix, after the adjournment, a new record date for an adjourned meeting, notice of such adjourned meeting need not be given if the time and place to which the meeting shall be adjourned were announced at the meeting at which the adjournment is taken. At the adjourned meeting, the Corporation may transact any business which might have been transacted at the original meeting. If the adjournment is for more than thirty days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting. Section 4. Place of Meetings. Meetings of the stockholders may be held at such place, within or without the State of Delaware, 1 as the Board of Directors or the officer calling the same shall specify in the notice of such meeting, or in a duly executed waiver of notice thereof. Section 5. Quorum. At all meetings of the stockholders the holders of a majority of the votes of the shares of stock of the Corporation issued and outstanding and entitled to vote shall be present in person or by proxy to constitute a quorum for the transaction of any business, except when stockholders are required to vote by class, in which event a majority of the issued and outstanding shares of the appropriate class shall be present in person or by proxy, or except as otherwise provided by statute or in the Certificate of Incorporation. In the absence of a quorum, the holders of a majority of the shares of stock present in person or by proxy and entitled to vote, or if no stockholder entitled to vote is present, then any officer of the Corporation may adjourn the meeting from time to time. At any such adjourned meeting at which a quorum may be present any business may be transacted which might have been transacted at the meeting as originally called. Section 6. Organization. At each meeting of the stockholders, the President, or in his absence or inability to act, any person chosen by a majority of those stockholders present, in person or by proxy and entitled to vote, shall act as chairman of the meeting. The Secretary, or in his absence or inability to act, any person appointed by the chairman of the meeting, shall act as secretary of the meeting and keep the minutes thereof. Section 7. Order of Business. The order of business at all meetings of the stockholders shall be as determined by the chairman of the meeting. Section 8. Voting. Except as otherwise provided by statute, by the Certificate of Incorporation, or by any certificate duly filed in the State of Delaware pursuant to Section 151 of the Delaware General Corporation Law, each holder of record of shares of stock of the Corporation having voting power shall be entitled at each meeting of the stockholders to one vote for every share of such stock standing in his name on the record of stockholders of the Corporation on the date fixed by the Board of Directors as the record date for the determination of the stockholders who shall be entitled to notice of and to vote at such meeting; or if such record date shall not have been so fixed, then at the close of business on the day next preceding the date on which notice thereof shall be given, or if notice is waived, at the close of business on the day next preceding the day on which the meeting is held; or each stockholder entitled to vote at any meeting of stockholders may authorize another person or persons to act for him by a proxy signed by such stockholder or his attorney-in-fact. Any such proxy shall be delivered to the secretary of such meeting at or prior to the time designated in the order of business for so delivering such proxies. No proxy shall be valid after the expiration of three 2 years from the date thereof, unless otherwise provided in the proxy. Every proxy shall be revocable at the pleasure of the stockholder executing it, except in those cases where an irrevocable proxy is permitted by law. Except as otherwise provided by statute, these by-laws, or the Certificate of Incorporation, any corporate action to be taken by vote of the stockholders shall be authorized by a majority of the total votes, or when stockholders are required to vote by class by a majority of the votes of the appropriate class, cast at a meeting of stockholders by the holders of shares present in person or represented by proxy and entitled to vote on such action. Unless required by statute, or determined by the chairman of the meeting to be advisable, the vote on any question need not be by written ballot. On a vote by written ballot, each ballot shall be signed by the stockholder voting, or by his proxy, if there be such proxy, and shall state the number of shares voted. Section 9. List of Stockholders. The officer who has charge of the stock ledger of the Corporation shall prepare and make, at least ten days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten days prior to the meeting either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or if not so specified, at the place where the meeting is to be held. The list shall also be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder who is present. Section 10. Inspectors. The Board of Directors may, in advance of any meeting of stockholders, appoint one or more inspectors to act at such meeting or any adjournment thereof. If the inspectors shall not be so appointed or if any of them fail to appear or act, the chairman of the meeting may, and on the request of any stockholder entitled to vote thereat shall appoint inspectors. Each inspector, before entering upon the discharge of his duties, shall take and sign an oath faithfully to execute the duties of inspector at such meeting with strict impartiality and according to the best of his ability. The inspectors shall determine, in number of shares represented at the meeting, the existence of a quorum, the validity and effect of proxies, and shall receive votes, ballots or consents, hear and determine all challenges and questions arising in connection with the right to vote, count and tabulate all votes, ballots or consents, determine the result, and do such acts as are proper to conduct the election or vote with fairness to all stockholders. On request of the chairman of the meeting of any stockholder entitled to vote thereat, the inspectors shall make a report in writing of any 3 challenge, request or matter determined by them and shall execute a certificate of any fact found by them. No director or candidate for the office of director shall act as inspector of an election of directors. Inspectors need not be stockholders. Section 11. Consent of Stockholders in Lieu of Meeting. Whenever the vote of stockholders at a meeting thereof is required or permitted to be taken for or in connection with any corporate action, the meeting and vote of stockholders can be dispensed with: (1) if all of the stockholders who would have been entitled to vote upon the action if such meeting were held shall consent in writing to such corporate action being taken; or (2) unless the Certificate of Incorporation provides otherwise, with the written consent of the holders of not less than the minimum percentage of the total vote required by statute for the proposed corporate action, and provided that prompt notice must be given to all stockholders not signing such written consent of the taking of corporate action without a meeting and by less than unanimous written consent. ARTICLE II BOARD OF DIRECTORS Section 1. General Powers. The business and affairs of the Corporation shall be managed by the Board of Directors. The Board of Directors may exercise all such authority and powers of the Corporation and do all such lawful acts and things as are not by statute or the Certificate of Incorporation directed or required to be exercised or done by the stockholders. Section 2. Number. Qualifications. Election and Term of Office. The number of directors of the Corporation shall be four (4), but, by vote of a majority of the entire Board or amendment of these By-Laws, the number thereof may be increased or decreased as may be so provided, subject to the provisions of Section 11 of this Article II. All of the directors shall be of full age. Directors need not be stockholders. Except as otherwise provided by statute or these By-Laws, the directors shall be elected at the annual meeting of the stockholders for the election of directors at which a quorum is present, and the persons receiving a plurality of the votes cast at such election shall be elected. Each director shall hold office until the next annual meeting of the stockholders and until his successor shall have been duly elected and qualified or until his death, or until he shall have resigned, or have been removed, as hereinafter provided in these By-Laws, or as otherwise provided by statute or the Certificate of Incorporation. Section 3. Place of Meeting. Meetings of the Board of Directors may be held at such place, within or without the State of Delaware, as the Board of Directors may from time to time determine or shall be specified in the notice or waiver of notice of such meeting. 4 Section 4. First Meeting. The Board of Directors shall meet for the purpose of organization, the election of officers, and the transaction of other business, as soon as practicable after each annual meeting of the stockholders, on the same day and at the same place where such annual meeting shall be held. Notice of such meeting need not be given. Such meeting may be held at any other time or place (within or without the State of Delaware) which shall be specified in a notice thereof given as hereinafter provided in Section 7 of this Article II. Section 5. Regular Meetings. Regular meetings of the Board of Directors shall be held quarterly at such place as the Board of Directors may from time to time determine. If any day fixed for a regular meeting shall be a legal holiday at the place where the meeting is to be held, then the meeting which would otherwise be held on that day shall be held at the same hour on the next succeeding business day. Notice of regular meetings of the Board of Directors need not be given except as otherwise required by statute or these By-Laws. Section 6. Special Meetings. Special meetings of the Board of Directors may be called by one or more directors of the Corporation or by the President. Section 7. Notice of Meetings. Notice of each special meeting of the Board of Directors (and of each regular meeting for which notice shall be required) shall be given by the Secretary as hereinafter provided in this Section 7, in which notice shall be stated the time and place of the meeting. Notice of each such meeting shall be delivered to each director either personally or by telephone, telegraph cable or wireless, at least twenty-four hours before the time at which such meeting is to be held or by first class mail, postage prepaid, addressed to him at his residence, or usual place of business, at least three days before the day on which such meeting is to be held. Notice of any such meeting need not be given to any director who shall, either before or after the meeting, submit a signed waiver of notice or who shall attend such meeting without protesting, prior to or at its commencement, the lack of notice to him. Except as otherwise specifically required by these By-Laws, a notice or waiver of notice of any regular or special meeting need not state the purpose of such meeting. Section 8. Quorum and Manner of Acting. A majority of the entire Board of Directors shall be present in person at any meeting of the Board of Directors in order to constitute a quorum for the transaction of business at such meeting, and, except as otherwise expressly required by statute or the Certificate of Incorporation, the act of a majority of the directors present at any meeting at which a quorum is present shall be the act of the Board of Directors. In the absence of a quorum at any meeting of the Board of Directors, a majority of the directors present thereat, or if no director be present, the Secretary, may adjourn such meeting to 5 another time and place, or such meeting, unless it be the first meeting of the Board of Directors, need not be held. At any adjourned meeting at which a quorum is present, any business may be transacted which might have been transacted at the meeting as originally called. Except as provided in Article III of these ByLaws, the directors shall act only as a Board and the individual directors shall have no power as such. Section 9. Organization. At each meeting of the Board of Directors, the President, or, in his absence or inability to act, another director chosen by a majority of the directors present shall act as chairman of the meeting and preside thereat. The Secretary (or, in his absence or inability to act, any person appointed by the chairman) shall act as secretary of the meeting and keep the minutes thereof. Section 10. Resignations. Any director of the Corporation may resign at any time by giving written notice of his resignation to the Board of Directors or the President or the Secretary. Any such resignation shall take effect at the time specified therein or, if the time when it shall become effective shall not be specified therein, immediately upon its receipt; and, unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective. Section 11. Vacancies. Vacancies may be filled by a majority of the directors then in office, though less than a quorum, or by a sole remaining director, and the directors so chosen shall hold office until the next annual election and until their successors are duly elected and shall qualify, unless sooner displaced. If there are no directors in office, then an election of directors may be held in the manner provided by statute. If, at the time of filling any vacancy or any newly created directorship, the directors then in office shall constitute less than a majority of the whole Board (as constituted immediately prior to any such increase), the Court of Chancery may, upon application of any stockholder or holders of at least ten percent of the votes of the shares at the time outstanding having the right to vote for such directors, summarily order an election to be held to fill any such vacancies or newly created directorships, or to replace the directors chosen by the directors then in office. Except as otherwise provided in these By-Laws, when one or more directors shall resign from the Board of Directors, effective at a future date, a majority of the directors then in office, including those who have so resigned, shall have the power to fill such vacancy or vacancies, the vote thereon to take effect when such resignation or resignations shall become effective, and each director so chosen shall hold office as provided in this section in the filling of other vacancies. Section 12. Removal of Directors. Except as otherwise provided in the Certificate of Incorporation or in these By-Laws, 6 any director may be removed, either with or without cause, at any time, by the affirmative vote of a majority of the votes of the issued and outstanding stock entitled to vote for the election of directors of the Corporation given at a special meeting of the stockholders called and held for the purpose; and the vacancy in the Board of Directors caused by any such removal may be filled by such stockholders at such meeting, or, if the stockholders shall fail to fill such vacancy, as in these By-Laws provided. Section 13. Compensation. The Board of Directors shall have authority to fix the compensation, including fees and reimbursement of expenses, of directors for services to the Corporation in any capacity, provided no such payment shall preclude any director from serving the Corporation in any other capacity and receiving compensation therefor. Section 14. Action Without Meeting Any action required or permitted to be taken at any meeting of the Board of Directors or of any committee thereof may be taken without a meeting if all members of the Board of Directors or committee, as the case may be, consent thereto in writing, and the writing or writings are filed with the minutes of proceedings of the Board of Directors or committee. ARTICLE III OFFICERS Section 1. Number and Qualifications. The officers of the Corporation shall be the President, Secretary, and Treasurer. Any two or more offices may be held by the same person. Such officers shall be elected from time to time by the Board of Directors, each to hold office until the meeting of the Board of Directors following the next annual meeting of the stockholders, or until his successor shall have been duly elected and shall have qualified, or until his death, or until he shall have resigned, or have been removed, as hereinafter provided in these By-Laws. The Board of Directors may from time to time elect, or the President may appoint, such other officers (including one or more Assistant Vice Presidents, Assistant Secretaries, and Assistant Treasurers), and such agents, as may be necessary or desirable for the business of the Corporation. Such other officers and agents shall have such duties and shall hold their offices for such terms as may be prescribed by the Board of Directors or by the appointing authority. Section 2. Resignations. Any officer of the Corporation may resign at any time by giving written notice of his resignation to the Board of Directors, the President or the Secretary. Any such resignation shall take effect at the time specified therein or, if the time when it shall become effective shall not be specified therein, immediately upon its receipt; and unless otherwise 7 specified therein, the acceptance of such resignation shall not be necessary to make it effective. Section 3. Removal. Any officer or agent of the Corporation may be removed, either with or without cause, at any time, by the vote of the majority of the entire Board of Directors at any meeting of the Board of Directors, or, except in the case of an officer or agent elected or appointed by the Board of Directors, by the President. Such removal shall be without prejudice to the contractual rights, if any, of the person so removed. Section 4. Vacancies. A vacancy in any office, whether arising from death, resignation, removal or any other cause, may be filled for the unexpired portion of the term of the office which shall be vacant, in the manner prescribed in these By-Laws for the regular election or appointment of such office. Section S. Officers' Bonds or Other Security. If required by the Board of Directors, any officer of the Corporation shall give a bond or other security for the faithful performance of his duties, in such amount and with such surety or sureties as the Board of Directors may require. Section 6. Compensation. The compensation of the officers of the Corporation for their services as such officers shall be fixed from time to time by the Board of Directors; provided, however, that the Board of Directors may delegate to the President the power to fix the compensation of officers and agents appointed by the President. An officer of the Corporation shall not be prevented from receiving compensation by reason of the fact that he is also a director of the Corporation. Section 7. President. The President shall be the Chief Executive Officer of the Corporation and shall have the general and active management of the business of the Corporation and general and active supervision and direction over the other officers, agents and employees and shall see that their duties are properly performed. He shall, if present, preside at each meeting of the stockholders and of the Board of Directors and shall be an exofficio member of all committees of the Board of Directors. He shall perform all duties incident to the office of President and Chief Executive Officer and such other duties as may from time to time be assigned to him by the Board of Directors. Section 8. Secretary. The Secretary shall: (a) Keep or cause to be kept in one or more books provided for that purpose, the minutes of the meetings of the Board of Directors, the committees of the Board of Directors and the stockholders; 8 (b) See that all notices are duly given in accordance with the provisions of these By-Laws and as required by law; (c) Be custodian of the records and the seal of the Corporation and affix and attest the seal to all stock certificates of the Corporation (unless the seal of the Corporation on such certificates shall be a facsimile, as hereinafter provided) and affix and attest the seal to all other documents to be executed on behalf of the Corporation under its seal; (d) See that the books, reports, statements, certificates and other documents and records required by law to be kept and filed are properly kept and filed; and (e) In general, perform all the duties incident to the office of Secretary and such other duties as from time to time may be assigned to him by the Board of Directors or the President. Section 9. Treasurer. The Treasurer shall be the chief financial officer of the Corporation and shall exercise general supervision over the receipt, custody, and disbursements of Corporate funds. He shall have such further powers and duties as may be conferred upon him from time to time by the President or the Board of Directors. ARTICLE IV INDEMNIFICATION The Corporation, by action of the Board of Directors, may, to the fullest extent permitted by the General Corporation Law of Delaware, indemnify any and all persons who it shall have power to indemnify against any and all of the expenses, liabilities or other matters. ARTICLE V FISCAL YEAR The fiscal year of the Corporation shall begin on the first day of January of each year and end on the last day of December of each year. ARTICLE VI SEAL The Board of Directors shall provide a corporate seal, which shall be in the form of the name of the Corporation and the words and figures "Corporate Seal 1995, Delaware". 9 ARTICLE VII AMENDMENTS These By-Laws may be amended or repealed, or new By-Laws may be adopted, (1) at any annual or special meeting of the stockholders, by a majority of the total votes of the stockholders, present or in person or represented by proxy and entitled to vote on such action; provided, however, that the notice of such meeting shall have been given as provided in these By-Laws, which notice shall mention that amendment or repeal of these By-Laws, or the adoption of new By-Laws, is one of the purposes of such meeting; (2) by written consent of the stockholders pursuant to Section 11 of Article I; or (3) by action of the Board of Directors. I, the undersigned, Secretary of the Corporation, do hereby certify that the foregoing is a true, complete, and accurate copy of the By-laws of Netsafe, Inc., duly adopted by unanimous written consent of the Board of Directors and I do further certify that these By-laws have not since been altered, amended, repealed, or rescinded, and are now in full force and effect. /s/Harry G. Mitchell ------------------------ Harry G. Mitchell Secretary EX-99.3.C 7 AGREEMENT OF MERGER AGREEMENT OF MERGER THIS AGREEMENT OF MERGER ("Merger Agreement"), dated as of June 14, 1996 is between WebSecure, Ltd., a Massachusetts corporation ("WebSecure of Massachusetts") and WebSecure, Inc., Delaware corporation ("WebSecure of Delaware"). WebSecure of Massachusetts and WebSecure of Delaware are hereafter sometimes collectively referred to as the "Constituent Corporation." WHEREAS, WebSecure of Massachusetts is a corporation duly organized and existing under the laws of the Commonwealth of Massachusetts; WHEREAS, WebSecure of Delaware is a corporation duly organized and existing under the laws of the State of Delaware; WHEREAS, on the date of this Merger Agreement, WebSecure of Massachusetts has authority to issue two hundred thousand (200,000) shares of Common Stock, $.01 par value per share, two hundred thousand (200,000) shares of which are issued and outstanding; WHEREAS, on the date of this Merger Agreement, WebSecure of Delaware has authority to issue twenty two million (22,000,000) shares of Common Stock, $.01 par value per share ("WebSecure of Delaware Common Stock"), of which 1,163,750 shares are issued and outstanding, and of which two million (2,000,000) shares are Class B Common Stock, $.01 par value per share, of which one million (1,000,000) shares are issued and outstanding, and one million (1,000,000) shares of Preferred Stock, of which no shares are issued and outstanding; WHEREAS, the respective Boards of Directors of WebSecure of Massachusetts and WebSecure of Delaware have determined that it is advisable and in the best interests of each of such corporations to merge in a tax-free reorganization with and into WebSecure of Delaware upon the terms and subject to the conditions of this Merger Agreement; and WHEREAS, the respective Boards of Directors of WebSecure of Massachusetts and WebSecure of Delaware have, by resolutions duly adopted, approved this Merger Agreement, and the shareholders of WebSecure of Massachusetts have duly approved this Merger Agreement, by unanimous written consent dated March 26, 1996 and the shareholders of WebSecure of Delaware have, by majority consent dated March 26, 1996, duly approved this Merger Agreement; NOW, THEREFORE, in consideration of the mutual agreements and covenants set forth herein, WebSecure of Massachusetts and WebSecure of Delaware hereby agree as follows: 1. Merger. WebSecure of Massachusetts will be merged with and into WebSecure of Delaware (the "Merger"), and WebSecure of Delaware shall be the surviving corporation (hereinafter sometimes referred to as the "Surviving Corporation"). The merger shall become effective upon the time and date of filing of such documents as may be required under applicable law ("Effective Time"). 2. Governing Documents. The Certificate of Incorporation and the Bylaws of WebSecure of Delaware as in effect immediately prior to the Effective Time, shall be the Certificate of Incorporation and the Bylaws of the Surviving Corporation without change or amendment until thereafter amended in accordance with the provisions thereof and applicable laws. 3. Succession. At the Effective Time, the separate corporate existence of WebSecure of Massachusetts shall cease, and WebSecure of Delaware shall possess all the rights, privileges, powers and franchises of a public and private nature and be subject to all the restrictions, disabilities and duties of WebSecure of Massachusetts; and all and singular, the rights, privileges, powers and franchises of WebSecure of Massachusetts and all property, real, personal and mixed, and all debts due to WebSecure of Massachusetts on whatever account, as well as for share subscriptions and all other things in action or belonging to WebSecure of Massachusetts shall be vested in the Surviving Corporation; and all property, rights, privileges, powers and franchises, and all and every other interest shall be thereafter as effectually the property of the Surviving Corporation as they were of WebSecure of Massachusetts, and the title to any real estate vested by deed or otherwise, under the laws of the State of Delaware, in WebSecure of Massachusetts shall not revert or be in any way impaired by reason of the General Corporation Law of the State of Delaware; but all rights of creditors and all liens upon any property of WebSecure of Massachusetts shall be preserved unimpaired; and all debts, liabilities and duties of WebSecure of Massachusetts shall thenceforth attach to the Surviving Corporation and may be enforced against it to the same extent as if such debts, liabilities and duties had been incurred or contracted by it. All corporate acts, plans, policies, agreements, arrangements, approvals and authorizations of WebSecure of Massachusetts, its shareholders, Board of Directors and committees thereof, officers and agents which were valid and effective immediately prior to the Effective Time, shall be taken for all purposes as the acts, plans, policies, agreements, arrangements, approvals and authorizations of WebSecure of Delaware and shall be as effective and binding thereon as the same were with respect to WebSecure of Massachusetts. 4. Further Assurances. From time to time, as and when required by WebSecure of Delaware or by its successors and assigns, there shall be executed and delivered on behalf of WebSecure of Massachusetts such deeds and other instruments, and there shall be taken or caused to be taken by it all such further and other action, as shall be appropriate or necessary in order to vest, perfect or confirm, of record or otherwise, in WebSecure of Delaware the title to and possession of all property, interest, assets, rights, privileges, immunities, powers, franchises and authority of WebSecure of Massachusetts and otherwise to carry out the purposes of this Merger Agreement, and the officers and directors of WebSecure of Delaware are fully authorized in the name and on behalf of WebSecure of Massachusetts to take any and all such action and to execute and deliver any and all deeds and other instruments. 5. Conversion of Shares. At the Effective Time, by virtue of the Merger and without any action on the part of the holder thereof: (a) Each of the 200,000 shares of WebSecure of Massachusetts Common Stock issued and outstanding immediately prior to the Effective Time shall be cancelled; -2- -3- (b) Each of the shares of WebSecure of Delaware Common Stock issued and outstanding prior to the Merger shall remain issued and outstanding as shares of WebSecure of Delaware. 6. Stock Certificates. At and after the Effective Time, all of the outstanding certificates which immediately prior to the Effective Time represented shares of WebSecure of Massachusetts Common Stock shall be presented to WebSecure of Delaware to be cancelled. All certificates representing shares of WebSecure of Delaware outstanding immediately prior to the Effective Time shall remain issued and outstanding following the Effective Time and the registered holders of WebSecure of Delaware for all purposes. 7. Employee Benefit Plans. As of the Effective Time, WebSecure of Delaware hereby assumes all obligations of WebSecure of Massachusetts under all employee benefit plans in effect, if any, as of the Effective Time or with respect to which employee rights or accrued benefits are outstanding, if any, as of the Effective Time. 8. Amendment. Subject to applicable law, this Merger Agreement may be amended, modified or supplemented by written agreement of the parties hereto at any time prior to the Effective Time with respect to any of the terms contained herein. 9. Abandonment. At any time prior to the Effective Time, this Merger Agreement may be terminated and the Merger may be abandoned by the Board of Directors of either of WebSecure of Massachusetts or WebSecure of Delaware, or either of them, notwithstanding approval of this Merger Agreement by the stockholders of any of said corporations if circumstances arise which, in the opinion of the Board of Directors of WebSecure of Massachusetts or WebSecure of Delaware make the Merger inadvisable. 10. Counterparts. In order to facilitate the filing and recording of this Merger Agreement, the same may be executed in two or more counterparts, each of which shall be deemed to be an original and the same agreement. [THIS SPACE INTENTIONALLY LEFT BLANK.] -4- IN WITNESS WHEREOF, WebSecure of Massachusetts and WebSecure of Delaware have caused this Merger Agreement to be signed by their respective duly authorized officers as of the date first above written. WebSecure, Ltd. a Massachusetts corporation By: ------------------------------- Robert Kuzara, President WITNESS: - ----------------------------------- Andrew D. Myers, Assistant Clerk WebSecure, Inc. a Delaware corporation By: --------------------------------- Robert Kuzara, President WITNESS: - ------------------------------------ Andrew D. Myers, Assistant Secretary -5- EX-99.4.C 8 FORM OF REPRESENTATIVE'S WARRANT THIS WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE "ACT") OR ANY STATE SECURITIES LAWS AND MAY NOT BE OFFERED, SOLD, TRANSFERRED, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF ANY EFFECTIVE REGISTRATION STATEMENT AS TO SUCH SECURITIES FILED UNDER THE ACT, OR AN EXEMPTION FROM REGISTRATION, AND COMPLIANCE WITH APPLICABLE STATE SECURITIES LAWS. THE ISSUER MAY REQUIRE AN OPINION OF COUNSEL SATISFACTORY TO THE ISSUER HEREOF THAT SUCH REGISTRATION IS NOT REQUIRED AND THAT SUCH LAWS ARE COMPLIED WITH. VOID AFTER 3:30 P.M., EASTERN TIME, ON , 2001. REPRESENTATIVE'S WARRANT TO PURCHASE COMMON STOCK AND REDEEMABLE WARRANTS WEBSECURE, INC. This is to Certify That, FOR VALUE RECEIVED, Coburn & Meredith, Inc. (the "Holder") is entitled to purchase, subject to the provisions of this Warrant, from WebSecure, Inc. ("Company"), a Delaware corporation, at any time on or after __________, 1997, and not later than 3:30 p.m., Eastern Time, on ________, 2001, _______ shares of Common Stock and _________ Redeemable Warrants of the Company ("Securities") exercisable at a purchase price for the Securities which is 130% of the public offering price and in the case of the shares of Common Stock, at $_____ per share and, in the case of the Redeemable Warrants, at $_____ per Redeemable Warrant .The number of Securities to be received upon the exercise of this Warrant and the price to be paid for the Securities may be adjusted from time to time as hereinafter set forth. The purchase price of a Security in effect at any time and as adjusted from time to time is hereinafter sometimes referred to as the "Exercise Price." This Warrant is or may be one of a series of Warrants identical in form issued by the Company to purchase an aggregate of 100,000 Shares of Common Stock and 100,000 Redeemable Warrants. The Securities, as adjusted from time to time, underlying the Warrants are hereinafter sometimes referred to as "Warrant Securities". The Securities issuable upon the exercise hereof are in all respects identical to the securities being purchased by the Underwriter for resale to the public pursuant to the terms and conditions of the Underwriting Agreement entered into on this date between the Company and Holder, except that the Exercise Price per share of Common Stock to be acquired upon the exercise of the Redeemable Warrants issuable to Holder pursuant hereto shall be $________ per share. (a) Exercise of Warrant. Subject to the provisions of Section (g) hereof, this Warrant may be exercised in whole or in part at anytime or from time to time on or after __________, 1997, but not later than 3:30 p.m., Eastern Time on _________, 2001, or if ________, 2001, is a day on which banking institutions are authorized by law to close, then on the next succeeding day which shall not be such a day, by presentation and surrender hereof to the Company or at the office of its stock transfer agent, if any, with the Purchase Form annexed hereto duly executed and accompanied by payment of the Exercise Price for the number of shares of Common Stock or Redeemable Warrants, as the case may be as specified in such Form, together with all federal and state taxes applicable upon such exercise. The Company agrees to provide notice to the Holder that any tender offer is being made for the Securities no later than the day the Company becomes aware that any tender offer is being made for the Securities. If this Warrant should be exercised in part only, the Company shall, upon surrender of this Warrant for cancellation, execute and deliver a new Warrant evidencing the right of the Holder to purchase the balance of the shares purchasable hereunder along with any additional Redeemable Warrants not exercised. Upon receipt by the Company of this Warrant at the office of the Company or at the office of the Company's stock transfer agent, in proper form for exercise and accompanied by the total Exercise Price, the Holder shall be deemed to be the holder of record of the Securities issuable upon such exercise, notwithstanding that the stock transfer books of the Company shall then be closed or that certificates representing such Securities shall not then be actually delivered to the Holder. (b) Reservation of Securities. The Company hereby agrees that at all times there shall be reserved for issuance and/or delivery upon exercise of this Warrant such number of shares of Securities as shall be required for issuance or delivery upon exercise of this Warrant. The Company covenants and agrees that, upon exercise of the Warrants and payment of the Exercise Price therefor, all Securities 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 Securities 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. (c) Fractional Shares. No fractional shares or scrip representing fractional shares shall be issued upon the exercise of this Warrant. With respect to any fraction of a share called for upon any exercise hereof, the Company shall pay to the Holder an amount in cash equal to such fraction multiplied by the current market value of such fractional share, determined as follows: (1) If the Securities are listed on a national securities exchange or admitted to unlisted trading privileges on such exchange, the current value shall be the last reported sale price of the Common Stock on such exchange on the last business day prior to the date of exercise of this Warrant or if no such sale is made on such day, the average of the closing bid and asked prices for such day on such exchange; or (2) If the Securities are not so listed or admitted to unlisted trading privileges, the current value shall be the mean of the last reported bid and asked prices reported by the National Association of Securities Dealers Automated Quotation System (or, if not so quoted on NASDAQ or by the National Quotation Bureau, Inc.) on the last business day prior to the date of the exercise of this Warrant; or (3) If the Securities are not so listed or admitted to unlisted trading privileges and bid and asked prices are not so reported, the current value shall be an amount, not less than book value, determined in such reasonable manner as may be prescribed by the Board of Directors of the Company, such determination to be final and binding on the Holder. (d) Exchange, Assignment or Loss of Warrant. This Warrant is exchangeable, without expense, at the option of the Holder, upon presentation and surrender hereof to the Company or at the office of its stock transfer agent, if any, for other Warrants of different denominations entitling the Holder thereof to purchase (under the same terms and conditions as provided by this Warrant) in the aggregate the same number of Securities purchasable hereunder. This Warrant may not be sold, transferred, assigned, or hypothecated until after one year from the effective date of the registration statement except that it may be (i) assigned in whole or in part to the officers of the "Underwriter(s)", and (ii)transferred to any successor to the business of the "Underwriter(s)." Any such assignment shall be made by surrender of this Warrant to the Company, or at the office of its stock transfer agent, if any, with the Assignment Form annexed hereto duly executed and with funds sufficient to pay any transfer tax; whereupon the Company shall, without charge, execute and deliver a new Warrant in the name of the assignee named in-such instrument of assignment, and this Warrant shall promptly be canceled. This Warrant may be divided or combined with other Warrants which carry the same rights upon presentation hereof at the office of the Company or at the office of its stock transfer agent, if any, together with a written notice specifying the names and denominations in which new Warrants are to be issued and signed by the Holder hereof. The term "Warrant" as used herein includes any Warrants issued in substitution for or replacement of this Warrant, or into which this Warrant may be divided or exchanged. Upon receipt by the Company of evidence satisfactory to it of the loss, theft, destruction or mutilation of this Warrant, and (in the case of loss, theft or destruction) of reasonably satisfactory indemnification, and upon 2 surrender and cancellation of this Warrant, if mutilated, the Company will execute and deliver a new Warrant of like tenor and date. Any such new Warrant executed and delivered shall constitute an additional contractual obligation on the part of the Company, whether or not the Warrant so lost, stolen, destroyed, or mutilated shall be at any time enforceable by anyone. (e) Rights of the Holder. The Holder shall not, by virtue hereof, be entitled to any rights of a stockholder in the Company, either at law or equity, and the rights of the Holder are limited to those expressed in the Warrant and are not enforceable against the Company except to the extent set forth herein. (f) Notices to Warrant Holders. So long as this Warrant shall be outstanding and unexercised (i) if the Company shall pay any dividend exclusive of a cash dividend, or make any distribution upon the Common Stock, or (ii) if the Company shall offer to the holders of Common Stock for subscription or purchase by them any shares of stock of any class or any other rights, or (iii) if any capital reorganization of the Company, reclassification of the capital stock of the Company, consolidation or merger of the Company with or into another corporation, sale, lease or transfer of all or substantially all of the property and assets of the Company to another corporation, or voluntary or involuntary dissolution, liquidation or winding up of the Company shall be effected, then, in any such case, the Company shall cause to be delivered to the Holder, at least ten (10) days prior to the date specified in (x) or (y) below, as the case may be, a notice containing a brief description of the proposed action and stating the date on which (x) a record is to be taken for the purpose of such dividend, distribution or rights, or (y) such reclassification, reorganization, consolidation, merger, conveyance, lease, dissolution, liquidation or winding up is to take place and the date, if any, is to be fixed, as of which the holders of Common Stock of record shall be entitled to exchange their shares of Common Stock for equivalent securities or other property deliverable upon such reclassification, reorganization, consolidation, merger, conveyance, dissolution, liquidation or winding up. (g) Adjustment of Exercise Price and Number of Shares of Common Stock Deliverable. (A)(i) Except as hereinafter provided, in the event the Company shall, at any time or from time to time after the date hereof, issue any shares of Common Stock as a stock dividend to the holders of Common Stock, or subdivide or combine the outstanding shares of Common Stock into a greater or lesser number of shares (any such issuance, subdivision or combination being herein call a "Change of Shares"), then, and thereafter upon each further Change of Shares, the Exercise Price of the Common Stock issuable upon the exercise of the Warrant and the Redeemable Warrant in effect immediately prior to such Change of Shares shall be changed to a price (including any applicable fraction of a cent to the nearest cent) determined by dividing (i) the sum of (a) the total number of shares of Common Stock outstanding immediately prior to such Change of Shares, multiplied by the Exercise Price in effect immediately prior to such Change of Shares, and (b) the consideration, if any, received by the Company upon such issuance, subdivision or combination by (ii) the total number of shares of Common Stock outstanding immediately after such Change of Shares; provided, however, that in no event shall the Exercise Price be adjusted pursuant to this computation to an amount in excess of the Exercise Price in effect immediately prior to such computation, except in the case of a combination of outstanding shares of Common Stock. For the purposes of any adjustment to be made in accordance with this Section (g) the following provisions shall be applicable: (I) Shares of Common Stock issuable by way of dividend or other distribution on any capital stock of the Company shall be deemed to have been issued immediately after the opening of business on the day following the record date for the determination of shareholders entitled to receive such dividend or other distribution and shall be deemed to have been issued without consideration. (II) The number of shares of Common Stock at any one time outstanding shall not be deemed to include the number of shares issuable (subject to readjustment upon the actual issuance thereof) upon the exercise of options, rights or warrants and upon the conversion or exchange of convertible or exchangeable securities. (ii) Upon each adjustment of the Exercise Price pursuant to this Section (g), the number of shares of Common Stock and Redeemable Warrants purchasable upon the exercise of each Warrant shall be the number derived by 3 multiplying the number of shares of Common Stock and Redeemable Warrants purchasable immediately prior to such adjustment by the Exercise Price in effect prior to such adjustment and dividing the product so obtained by the applicable adjusted Exercise Price. (B) In case of any reclassification or change of outstanding Securities issuable upon exercise of the Warrants (other than a change in par value, or from par value to no par value, or from no par value to par value or as a result of a subdivision or combination), or in case of any consolidation or merger of the Company with or into another corporation other than a merger with a "Subsidiary" (which shall mean any corporation or corporations, as the case may be, of which capital stock having ordinary power to elect a majority of the Board of Directors of such corporation (regardless of whether or not at the time capital stock of any other class or classes of such corporation shall have or may have voting power by reason of the happening of any contingency) is at the time directly or indirectly owned by the Company or by one or more Subsidiaries) or by the Company and one or more Subsidiaries in which merger the Company is the continuing corporation and which does not result in any reclassification or change of the then outstanding shares of Common Stock or other capital stock issuable upon exercise of the Warrants (other than a change in par value, or from par value to no par value, or from no par value to par value or as a result of subdivision or combination) or in case of any sale or conveyance to another corporation of the property of the Company as an entirety or substantially as an entirety, then, as a condition of such reclassification, change, consolidation, merger, sale or conveyance, the Company, or such successor or purchasing corporation, as the case may be, shall make lawful and adequate provision whereby the Holder of each Warrant then outstanding shall have the right thereafter to receive on exercise of such Warrant the kind and amount of securities and property receivable upon such reclassification, change, consolidation, merger, sale or conveyance by a holder of the number of securities issuable upon exercise of such Warrant immediately prior to such reclassification, change, consolidation, merger, sale or conveyance and shall forthwith file at the principal office of the Company a statement signed by its President or a Vice President and by its Treasurer or an Assistant Treasurer or its Secretary or an Assistant Secretary evidencing such provision. Such provisions shall include provision for adjustments which shall be as nearly equivalent as may be practicable to the adjustments provided for in Section (g)(A). The above provisions of this Section (g)(B) shall similarly apply to successive reclassifications and changes of shares of Common Stock and to successive consolidations, mergers, sales or conveyances. (C) Irrespective of any adjustments or changes in the Exercise Price or the number of Securities purchasable upon exercise of the Warrants, the Warrant Certificates theretofore and thereafter issued shall, unless the Company shall exercise its option to issue new Warrant Certificates pursuant hereto, continue to express the Exercise Price per share and the number of shares purchasable thereunder as the Exercise Price per share and the number of shares purchasable thereunder as expressed in the Warrant Certificates when the same were originally issued. (D) After each adjustment of the Exercise Price pursuant to this Section (g), the Company will promptly prepare a certificate signed by the Chairman or President, and by the Treasurer or an Assistant Treasurer or the Secretary or an Assistant Secretary, of the Company setting forth: (i) the Exercise Price as so adjusted, (ii) the number of Securities purchasable upon exercise of each Warrant, after such adjustment, and (iii' a brief statement of the facts accounting for such adjustment. The Company will promptly file such certificate in the Company's minute books and cause a brief summary thereof to be sent by ordinary first class mail to each Holder at his last address as it shall appear on the registry books of the Company. No failure to mail such notice nor any defect therein or in the mailing thereof shall affect the validity thereof except as to the holder to whom the Company failed to mail such notice, or except as to the holder whose notice was defective. The affidavit of an officer or the Secretary or an Assistant Secretary of the Company that such notice has been mailed shall, in the absence of fraud, be prima facie evidence of the facts stated therein. (E) No adjustment of the Exercise Price shall be made as a result of or in connection with the issuance or sale of Securities if the amount of said adjustment shall be less than $.10, 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 that shall amount, together with any adjustment so carried 4 forward, to at least $.10. In addition, Holders shall not be entitled to cash dividends paid by the Company prior to the exercise of any Warrant or Warrants held by them. (F) In the event that the Company shall at any time prior to the exercise of all Warrants declare a dividend consisting solely of shares of Common Stock or otherwise distribute to its stockholders any assets, property, rights, evidences of indebtedness, the Holders of the unexercised Warrants shall thereafter be entitled, in addition to the Securities or other securities and property receivable upon the exercise thereof, to receive, upon the exercise of such Warrants, the same property, assets, rights, evidences of indebtedness, that they would have been entitled to receive at the time of such dividend or distribution as if the Warrants had been exercised immediately prior to such dividend or distribution. At the time of any such dividend or distribution, the Company shall make appropriate reserves to ensure the timely performance of the provisions of this Section (g). (h) Piggyback Registration. If, at any time commencing one year from the effective date of the registration statement and expiring four (4) years thereafter, the Company proposes to register any of its securities under the Securities Act of 1933, as amended (the "Act") (other than in connection with a merger or pursuant to Form S-8, S-4 or other comparable registration statement) it will give written notice by registered mail, at least thirty (30) days prior to the filing of each such registration statement, to the Holders and to all other Holders of the Warrants and/or the Warrant Securities of its intention to do so. If the Holder or other Holders of the Warrants and/or Warrant Securities notify 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 each of the Underwriter and such Holders of the Warrants and/or Warrant Securities the opportunity to have any such Warrant Securities registered under such registration statement. Notwithstanding the provisions of this Section, the Company shall have the right at any time after it shall have given written notice pursuant to this Section (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. (i) Demand Registration. (1) At any time commencing one year from the effective date of the registration statement and expiring four (4) 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 (i) 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 Underwriter 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. (2) The Company covenants and agrees to give written notice of any registration request under this Section (i) 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. (3) In addition to the registration rights under this Section (i) at any time commencing one year after the effective date of the registration statement and expiring four (4) years thereafter, the Holders of Representative's 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 such Holders of its Warrant Securities; provided, however, that 5 the provisions of Section (i)(2) 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. (j) Covenants of the Company With Respect to Registration. In connection with any registration under Section (h) or (i) hereof, the Company covenants and agrees as follows: (i) The Company shall use its best efforts to file a registration statement within sixty (60) 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. (ii) 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 (h), (i) and (j) hereof including, without limitation, the Company's legal and accounting fees, printing expenses, blue sky fees and expenses. If the Company shall fail to comply with the provisions of Section (j)(i), the Company shall, in addition to any other equitable or other relief available to the Holder(s), extend the Exercise Period by such number of days as shall equal the delay caused by the Company's failure. (iii) 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 are reasonably requested by the Holder(s), provided that the Company shall not be obligated to execute or file any general consent to service of process to qualify as a foreign corporation to do business under the laws of any such jurisdiction. (iv) 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"), from and 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 has agreed to indemnify the Underwriter contained in Section 7 of the Underwriting Agreement relating to the offering. (v) 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 with the same effect as the provisions contained in Section 7 of the Underwriting Agreement pursuant to which the Underwriter has agreed to indemnify the Company. (vi) The Holder(s) may exercise their Warrants prior to the initial filing of any registration statement or the effectiveness thereof. (vii)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 (i) hereof, or permit any other registration statement to be or remain effective during the effectiveness of a registration statement filed pursuant to Section (i) hereof, other than a secondary offering of equity securities of the Company, without the prior written consent of the Holders of the 6 Warrants and Warrant Securities representing a Majority of such securities (assuming an exercise of all the Warrants underlying the Warrants). (viii) 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 (x) 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 (y) 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 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. (ix) 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. (x) The Company shall deliver promptly to each Holder participating in the offering requesting the correspondence and memoranda described below and to the managing underwriters, 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 National Association of Securities Dealers, Inc. ("NASD") or an Exchange. 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 reasonable extent and at such reasonable times and as often as any such Holder or underwriter shall reasonably request. (xi) The Company shall enter into an underwriting agreement with the managing underwriters, which may be the Underwriter. Such agreement shall be satisfactory in form and substance to the Company, and such managing underwriters, 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; provided however, that no Holder shall be required to make any representations, warranties or covenants or grant any indemnity to which it shall object in any such underwriting agreement. 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 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. (xii) For purposes of this Agreement, the term " Majority" in reference to the Holders of Warrants or Warrant Securities, shall mean in excess of fifty (50%) of the then outstanding Warrants and 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 or (ii) have not been resold to the public pursuant to a registration statement filed with the Commission under the Act. (k) Conditions of Company's Obligations. The Company's obligation under Section j hereof shall be conditioned as to each such public offering, upon a timely receipt by the Company in writing of: 7 (A) Information as to the terms of such public offering furnished by or on behalf of the Holders making a public distribution of their Warrant Securities; and (B) Such other information as the Company may reasonably require from such Holder, or any underwriter for any of them, for inclusion in such registration statement or offering statement or post-effective amendment. (C) An agreement by the Holder to sell his Warrants and Warrant Securities on the basis provided in the Underwriting Agreement. (1) Continuing Effect of Agreement. The Company's agreements with respect to the Warrant Securities in this Warrant will continue in effect regardless of the exercise or surrender of this Warrant. (m) Notices. Any notices or certificates by the Company to the Holder and by the Holder to the Company shall be deemed delivered if in writing and delivered personally or sent by certified mail, to the Holder, addressed to him or sent to, Coburn & Meredith, Inc. 150 Trumbull Street, Hartford, CT 06103, or, if the Holder has designated, by notice in writing to the Company, any other address, to such other address, and, if to the Company, addressed to it at 1711 Broadway, Saugus, MA 01906. The Company may change its address by written notice to Coburn & Meredith, Inc. (n) Limited Transferability. This Warrant Certificate and the Warrant may not be sold, transferred, assigned or hypothecated for a one-year period after the effective date of the Registration Statement except to underwriters of the Offering referred to in the Underwriting Agreement or to individuals who are either partners or officers of such an underwriter or by will or by operation of law. The Warrant may be divided or combined, upon request to the Company by the Warrant holder, into a certificate or certificates evidencing the same aggregate number of Warrants. The Warrant may not be offered, sold, transferred, pledged or hypothecated in the absence of any effective registration statement as to such Warrant filed under the Act, or an exemption from the requirement of such registration, and compliance with the applicable federal and state securities laws. The Company may require an opinion of counsel satisfactory to the Company that such registration is not required and that such laws are complied with. The Company may treat the registered holder of this Warrant as he or it appears on the Company's book at any time as the Holder for all purposes. The Company shall permit the Holder or his duly authorized attorney, upon written request during ordinary business hours, to inspect and copy or make extracts from its books showing the registered holders of Warrants. (o) Transfer to Comply With the Securities Act of 1933. The Company may cause the following legend, or one similar thereto, to be set forth on the Warrants and on each certificate representing Warrant Securities, or any other security issued or issuable upon exercise of this Warrant not theretofore distributed to the public or sold to underwriters for distribution to the public pursuant to Sections (h) or (i) hereof; unless counsel satisfactory to the Company is of the opinion as to any such certificate that such legend, or one similar thereto, is unnecessary: "The warrants represented by this certificate are restricted securities and may not be offered for sale, sold OR otherwise transferred unless an opinion of counsel satisfactory to the Company is obtained stating that such offer , sale or transfer is in compliance wrath state and federal securities law. (p) Applicable Law. This Warrant shall be governed by, and construed in accordance with, the laws of the State of Connecticut, without giving effect to conflict of law principles. (q) Assignability. This Warrant may not be amended except in a writing signed by each Holder and the Company. 8 (r) Survival of Indemnification Provisions. The indemnification provisions of this Warrant shall survive until __________, 2004. WebSecure, Inc. a Delaware corporation By ------------------------------- Robert Kuzara, President Date: -------------------------------- Attest: - -------------------------------------- , Secretary --------------------------------- Coburn & Meredith, Inc. 9 PURCHASE FORM Dated____________________19___ The undersigned hereby irrevocably elects to exercise the Warrant to the extent of purchasing ________ shares of Common Stock and Redeemable Warrants and hereby makes payment of $_______ in payment of the actual exercise price thereof. ________ INSTRUCTIONS FOR REGISTRATION OF SECURITIES Name ---------------------------------------------------------------------------- (please typewrite or print in block letters) Address ------------------------------------------------------------------------- Signature ----------------------------------------------------------------------- ASSIGNMENT FORM FOR VALUE RECEIVED, ------------------------------------------------------------- hereby sells, assigns and transfers unto Name ---------------------------------------------------------------------------- (please typewrite or print in block letters) Address ------------------------------------------------------------------------- the right to purchase ______ shares of Common Stock and ____ Redeemable Warrants as represented by this Warrant to the extent of______ shares of Common Stock and _____ Redeemable Warrants as to which such right is exercisable and does hereby irrevocably constitute and appoint, --------------------------------------------- attorney, to transfer the same on the books of the Company with full power of substitution in the premises. Signature ----------------------------------------------------------------------- Dated:________ _____ 19 10 EX-5 9 OPINION LETTER OF O'CONNOR, BROUDE & ARONSON O'CONNOR, BROUDE & ARONSON ATTORNEYS AT LAW THE BAY COLONY CORPORATE CENTER ROUTE 128 AND WINTER STREET 950 WINTER STREET, SUITE 2300 WALTHAM, MASSACHUSETTS 02154 FACSIMILE: 617-890-9261 ------- 617-890-6600 September 10, 1996 Board of Directors of WebSecure, Inc. Re: WebSecure, Inc. --------------- Gentlemen: This firm has represented WebSecure, Inc., a Delaware corporation (hereinafter called the "Corporation"), in connection with the proposed public offering described below. In our capacity as special counsel to the Corporation, we are familiar with the Certificate of Incorporation, as amended, and the Bylaws of the Corporation. We are also familiar with the corporate proceedings taken by the Corporation in connection with the preparation and filing of a Registration Statement on Form SB-2 and amendments thereto covering (1) a public offering of (a) 1,000,000 shares of Common Stock, $.01 par value ("Common Stock"), and 1,000,000 redeemable common stock purchase warrants ("Redeemable Warrants") to be sold by Underwriters (the "Underwriters") for whom Coburn & Meredith, Inc. and Shamrock Partners, Ltd. are acting as the representatives (the "Representatives") and (b) up to 150,000 shares of Common Stock and/or up to 150,000 Redeemable Warrants which may be sold by the Underwriters to cover over-allotments; and (2) a five-year warrant to be sold to the Representatives to purchase up to 100,000 shares of Common Stock and/or 100,000 Redeemable Warrants (the "Representatives' Warrants"). Based upon the foregoing, we are of the opinion that: 1. The Corporation is duly organized and validly existing under the laws of the State of Delaware. 2. (a) The 1,000,000 shares of Common Stock, the 1,000,000 Redeemable Warrants, and the 150,000 shares of Common Stock and/or 150,000 Redeemable Warrants which may be sold by the Underwriters to cover over-allotments, (b) the Representatives' Warrants and (c) the Common Stock underlying the Redeemable Warrants and the Representatives' Warrants have been duly O'CONNOR, BROUDE & ARONSON Board of Directors of WebSecure, Inc. September 10, 1996 Page 2 authorized, and upon the sale thereof as described in the Registration Statement, such securities will be legally issued and the shares of Common Stock sold by the Underwriters will be fully paid and non-assessable. 3. The shares of Common Stock issuable upon the exercise of the Redeemable Warrants (including the Redeemable Warrants subject to the Representatives' Warrants), when issued upon the exercise of the Redeemable Warrants and the Representatives' Warrants will be fully paid and non-assessable. This opinion is provided solely for the benefit of the addressee hereof and is not to be relied upon by any other person or party. Nevertheless, we hereby consent to the use of this opinion and to all references to our firm in or made part of the Registration Statement and any amendments thereto. Very truly yours, O'CONNOR, BROUDE & ARONSON By: /s/Paul D. Broude ------------------------------------ Paul D. Broude PDB:ADM:jac c: John Shields, Chairman of the Board EX-10.A 10 LICENSE AGREEMENT WITH INTERNATIONAL INTERNATIONAL SOFTWARE DEVELOPMENT LIMITED ------------------------------------------ SOFTWARE LICENSE FOR ENCRYPTION SOFTWARE FOR TRANSACTIONS ON THE INTERNET ------------------------------------------------------------------------- Date: April 1, 1996 1.0 PARTIES 1.1 LICENSOR: INTERNATIONAL SOFTWARE DEVELOPMENT LIMITED whose principal place of business is at P.O. Box 36, Westaway Chambers, Don Street, St. Helier, Jersey, Channel Islands (Electronic mail address: westwind@atlas.co.uk) 1.2. LICENSEE: WEBSECURE, INC. of 1711 Broadway, Corporate Center North, Saugus, Massachusetts 01906 2.0 COMMERCIAL TERMS The following terms shall have the following meanings respectively in this License: 2.1 "COMMENCEMENT DATE" The 1st day of April, 1996. 2.2 "CONDITIONS" The conditions on the following pages which are incorporated in this License in their entirety. 2.3 "EXPIRATION DATE" The 1st day of April, 2006. 3.0 GRANT In consideration of and subject to the agreements and obligations on the part of the Licensee contained in the following Conditions, the Licensor hereby grants to the Licensee an exclusive, transferable, royalty-free right and license to market, use, sell, distribute, relicense or sublicense the Intellectual Property, together with any enhancements, improvements, and/or modifications in the whole of the continents of North America and South America. The Licensee is hereby licensed to use all intellectual property rights including trade names, patents, source codes, design rights, trademarks and copyrights. The License granted herein is not revocable by the Licensor. THE CONDITIONS -------------- 4.0 DEFINITIONS The following further terms shall have the following meanings respectively in this License: 4.1 "Business" Supplying the System to Suppliers and to Customers. 4.2 "Codes" Encryption codes used as part of the System. 4.3 "Customer" A person or entity who or which makes an Order at any time during the Term. 4.4 "Intellectual Property" All or any of the following: 4.4.1 "Trade Names" "NetSafe Titan", "Netitan", "ISD", "Websafe", "Digisig", "Titan", "Verisale" and/or any other name or invented word or words used by the Licensor to identify the Software and/or the System from time to time. 4.4.2 "Copyright" All copyright in any such Trade Names, the Software, the Codes and the contents of any manual instructions and/or written descriptions of or user's guide to any of the Intellectual Property issued by the Licensor from time to time. 4.4.3 "Design Rights" All design rights of any kind in respect of any design or graphics in the Software or used in or displayed on or in association with any written or other material issued by the Licensor from time to time in connection with any of the Intellectual Property. 4.4.4 "Know-How" All know-how arising from devised and developed for and associated with the use of the Software and the operation of the System. 4.4.5 "Mark" The Trade Names and/or any logo colors or legend associated with the same as amended by the Licensor from time to time. 4.4.6 "Software" The software and computer programs devised and developed by the Licensor from time to time to create, -2- maintain, extend and enhance the System including the Codes. 4.5 "Internet" The network of communicating computers around the world including (among other designations) the World Wide Web. 4.6 "Item" Any product and/or service made or to be made available to any person or entity by the Licensee or through its services or agency and advertised or promoted on the Internet. 4.7 "Order" Any order via the Internet from a Customer to a Supplier for the supply of any item. 4.8 "Supplier" A merchant who supplies or intends to supply any item over the Internet. 4.9 "System" The system of transferring an Order and payment and other details of a Customer via the Internet in encrypted form using the Software and the Know-How. 4.10 "Term" Commencement Date through Expiration Date. 4.11 "Territory" The whole of the continents of North America and South America. 5.0 RECITALS 5.1 The Licensor has devised and developed the Know-How, the Software and the System. 5.2 The System provides the means whereby a Customer may place an Order via the Internet with a Supplier and may furnish to such Supplier in encrypted form details of how the Supplier can obtain payment from the Customer for the supply by or through the Supplier of an Item to the Customer in response to that Order. 5.3 The Software and the System have been devised and developed by the Licensor to facilitate commercial transactions on the Internet without the necessity for the Customer (as a matter of prudence) to furnish payment details to a Supplier separately off the Internet. 6.0 LICENSOR'S OBLIGATIONS -3- In consideration of payment by the Licensee as provided in a Stock Purchase Agreement of even date herewith, the Licensor hereby agrees with the Licensee as follows: 6.1 to supply, maintain and support the System to the Licensee under the terms of this License. 6.2 to update the System whenever it is revised or improved by the Licensor and to maintain all updated versions of the System so that they are compatible with all prior versions. 6.3 to respond promptly to any request by the Licensee for improvement of the System. 6.4 to investigate promptly any complaints concerning the operation of the System or reports that it has been compromised in any way. 6.5 to make substantial progress in identifying and correcting a defect of the System within thirty (30) days of notification by the Licensee and then by applying diligent efforts toward such correction. 6.6 to notify promptly the Licensee of any breach of security which comes to its knowledge and which in its opinion is likely to compromise the System. 6.7 not to license any other person or entity to supply the System to any Supplier which intends to use the System in North America or South America. 6.8 not to reveal to any person or entity the confidential operational methods in the Software, System, "Know-How" or any Intellectual Property. 6.9 to use all necessary measures to maintain and protect the confidentiality of the Software, System, Know-How and Intellectual Property from infringement, disclosure or compromise in any way. 6.10 to keep confidential all information concerning any transaction using the System between any result of any problems in the course of any such transaction. 6.11 to confer with the Licensee and use all reasonable endeavors to agree on a common policy towards dangerous, pornographic or offensive material offered by any Supplier over the Internet. 6.12 to indemnify the Licensee from any liability incurred to any third party for any use by the Licensee of any of the Intellectual Property in accordance with this License. 6.13 At the Licensee's sole option to: -4- 6.13.A indemnify and hold harmless the Licensee and its subsidiaries or affiliates under its control, and its directors, officers, employees and agents, against any and all losses, liabilities, judgments, awards and costs (including legal fees and expenses) arising out of or related to any claim that the Licensee's use or possession of the Intellectual Property, or the license granted hereunder, infringes or violates the copyright, trade secret or other proprietary right of any third party. The Licensor shall defend and settle at its own expense all suits or proceedings arising out of the foregoing; or 6.13.B recognize the hereby expressly acknowledged and granted Licensee's right, but not obligation, to initiate or defend any action arising out of or related to any claim that the Licensee's use or possession of the Intellectual Property, or the license granted hereunder, infringes or violates the copyright, trade secret or other proprietary right of any third party. The Licensor shall provide for all costs and expenses, including legal fees and expenses, of all suits or proceedings arising out of the foregoing as such costs and expenses are incurred. 7.0 LICENSEE'S OBLIGATIONS In consideration of the grant of this License by the Licensor and its agreements set out above the Licensee hereby agrees with the Licensor as follows: 7.1 to confer with the Licensor and use all reasonable endeavors to agree on a common policy towards dangerous pornographic or offensive material offered by any Supplier over the Internet. 7.2 to reasonably promote the Business and the availability of the System to assist each Supplier to offer items for sale over the Internet and each Customer to pay for each Order. 7.3 to use reasonable efforts not to cause or permit anything which may damage or endanger the Intellectual Property in any way or any other intellectual property of the Licensor or the title of the Licensor to it or any of it. 7.4 to issue a standard form of user license to each Supplier and to publish on the Internet the standard form of license to use the System on the part of each Customer. 7.5 not to indicate or imply to Customers that the Licensor is responsible for the supply or quality of any Item. 8.0 GENERAL -5- It is further agreed between the Parties as follows: 8.1 If at any time during the Term the Licensee discovers or conceives any actual or potential improvements to or development of the Know-How the Software and/or the System, the property in any such improvement or development and the right to apply for any relevant protection belongs to the Licensee. 8.2 If any provision of this License is declared by any judicial or other competent authority in any jurisdiction to be void, voidable, illegal or otherwise unenforceable or indications of the same are received by either of the Parties from any such competent authority: 8.2.1 the Parties shall amend that provision in such reasonable manner as achieves the intentions of the Parties without illegality or other grounds for unenforceability; or 8.2.2 sever the provision from this License in whole or in part. 8.2.3 the remaining provisions of this License shall remain in full force and effect unless the Licensee decides that the result of any such declaration is to defeat the original intention of the Parties in which event the Licensee shall be at liberty to terminate this License upon written notice. 8.3 Any notice to be served by any of the Parties upon any other shall be sent by: 8.3.1 pre-paid first-class registered air mail (return receipt requested); or 8.3.2 by fax. and shall be deemed to have been received by the addressee at the address written above within five (5) business days of posting or 24 hours if sent by fax to the addressee. 8.4 Each of the Parties shall promptly notify the other of any change of its address or fax number. 8.5 None of the Parties shall deliberately disconnect its fax at any time except for essential servicing and repairs. 8.6 This License supersedes any prior agreement or arrangement between the Parties which is hereby cancelled. -6- 8.7 The License contains the complete agreement between the Parties. This License may not be modified or amended except in writing, signed by duly authorized representatives of each party and such writing must reflect the intention that it be considered as an amendment. 8.8 The neuter singular used throughout this License shall include all genders and the plural. 8.9 This License shall enure for the benefit of and shall bind the successors in title of the Parties. 8.10 The Parties are not partners or joint venturers in any way. 8.11 Neither Party is able to act as the agent of the other Party except as expressly authorized in this License. 8.12 Neither Party is able to pledge the credit of the other Party in any way. 8.13 This License and any rights under it are capable of being granted, assigned, charged or otherwise dealt with or disposed of by the Licensee without the consent of any third party. 8.14 No exercise of any rights under this License by any of the Parties shall restrict or prejudice the exercise of any other right granted to or reserved by it under this License or otherwise available to it. 8.15 The obligations of the Licensor in this License shall survive the expiration or termination of this License to the extent necessary to fulfill its agreements and liabilities to the Licensee under this License. 8.16 The failure by the Licensee to enforce at any time any of the terms and conditions of this License (including any agreements and obligations on the part of the Licensor under this License or otherwise) shall not be a waiver of any of them or of its right subsequently to enforce all or any such terms and conditions. 8.17 Each of the Parties shall pay its own costs and expenses incurred by it in connection with the preparation and exchange of this License. 8.18 In the event of the failure of any part of the System at any time as a result of which the Licensee suffers any proven loss or damage the Licensor shall: 8.18.1 be liable to reimburse the Licensee for the administrative costs and expenses of tracing any Order lost by such failure; and -7- 8.18.2 indemnify or recompense the Licensee for any such loss or damage or any legal or other expenses incurred by the Licensee in pursuing or defending any claim by any Customer or other person. 8.19 This License shall be governed by the laws of the Commonwealth of Massachusetts, United States of America, excluding its choice of law rules, in every particular including formation and interpretation. In any legal action relating to this Agreement, the Licensor agrees to the exercise of jurisdiction over it by a federal court of the Commonwealth of Massachusetts or a state court of the Commonwealth of Massachusetts. The Licensor also agrees to the forum selection of the Licensee. 8.20 The parties acknowledge that a remedy at law for any breach or threatened breach of this License would be inadequate and, therefore, agree that the terms of this License shall be enforceable by injunctive relief in case of any breach or threatened breach. Signed for and on behalf of International Software Development Limited ----------------------------- Authorized Signatory Signed for and on behalf of Websecure, Inc. ----------------------------- Authorized Signatory -8- EX-10.B 11 LICENSE AGREEMENT WITH MANADARIN MANADARIN TRADING COMPANY LIMITED SOFTWARE LICENSE AGREEMENT This SOFTWARE LICENSE AGREEMENT shall be dated as of March 29, 1996. 1.0 PARTIES 1.1 LICENSOR: MANADARIN TRADING COMPANY LIMITED, an Irish corporation with its principal place of business at 2 Calwilliam Terrace, Dublin 2, Republic of Ireland. 1.2. LICENSEE: WEBSECURE, INC., a Delaware corporation with a place of business at 1711 Broadway, Corporate Center North, Saugus, Massachusetts 01906, United States of America. 2.0 TERMS The following terms shall have the following meanings respectively in this License: 2.1 "COMMENCEMENT DATE" The 29th day of March, 1996 2.2 "CONDITIONS" The conditions on the following pages which are incorporated in this License in their entirety. 2.3 "EXPIRATION DATE" The 29th day of March, 2006. 2.4 "INTELLECTUAL PROPERTY" All or any of the following: 2.4.1 "Copyright" All copyright in any such Trade Names, the Software, the Codes and the contents of any manual instructions and/or written descriptions of or user's guide to any of the Intellectual Property issued by the Licensor from time to time. 2.4.2 "Design Rights" All design rights of any kind in respect of any design or graphics in the Software or used in or displayed on or in association with any written or other material issued by the Licensor from time to time in connection with any of the Intellectual Property. 2.4.3 "Know-How" All know-how arising from, devised and developed for and associated with the use of the Software. 2.4.4 "Mark" The Trade Names and/or any logo colors or legend associated with the same as amended by the Licensor from time to time. 2.4.5 "Software" The software and computer programs identified as RIGHTWEB (also presented as RightWeb), ASTROWEB (also presented as AstroWeb), WEBELAN (also presented as WebElan) and all future versions of said Software devised and developed by the Licensor from time to time. 2.4.6 "Trade Names" "RIGHTWEB," "RightWeb," "WEBELAN," "WebElan," "ASTROWEB," "AstroWeb" and/or any other name or invented word or words used by the Licensor to identify the Software and/or the Software from time to time. 2.5 "TERM" The Commencement Date through Expiration Date. 3.0 GRANT In consideration of and subject to the agreements and obligations on the part of the Licensee contained in the following Conditions, the Licensor hereby grants to the Licensee an exclusive, worldwide, transferable, royalty-free right and license to market, use, sell, distribute, relicense or sublicense the Software, Trade Names and Intellectual Property, together with any enhancements, improvements, and/or modifications. The Licensee is hereby licensed to use the Software, Trade Names and all Intellectual Property rights relating thereto including the Know-How, patents, source codes, Design Rights, Marks and Copyrights. The License granted herein is not revocable by the Licensor. 4.0 LICENSOR'S OBLIGATIONS In consideration of payment by the Licensee as provided in a Stock Issuance Agreement of even date herewith, the Licensor hereby agrees with the Licensee as follows: 4.1 to update the Software whenever it is revised or improved by the Licensor and to maintain all updated versions of the Software. 4.2 to investigate promptly any complaints concerning the operation of the Software or reports that it has been compromised in any way. -2- 4.3 to make substantial progress in identifying and correcting a defect of the Software within thirty (30) days of notification by the Licensee and then by applying diligent efforts toward such correction. 4.4 to promptly notify the Licensee of any breach of security which comes to its knowledge and which in its opinion is likely to compromise the Software. 4.5 not to license or supply the Software to any other person or entity. 4.6 not to reveal to any person or entity the confidential operational methods in the Software or any Intellectual Property. 4.7 to use all necessary measures to maintain and protect the confidentiality of the Software, Know-How and Intellectual Property from infringement, disclosure or compromise in any way. 4.8 to keep confidential all information concerning any transaction using the Software between any result of any problems in the course of any such transaction. 4.9 to indemnify the Licensee from any liability incurred to any third party for any use by the Licensee of any of the Intellectual Property in accordance with this License. 4.10 At the Licensee's sole option to: 4.10.A indemnify and hold harmless the Licensee and its subsidiaries or affiliates under its control, and its directors, officers, employees and agents, against any and all losses, liabilities, judgments, awards and costs (including legal fees and expenses) arising out of or related to any claim that the Licensee's use or possession of the Intellectual Property, or the license granted hereunder, infringes or violates the copyright, trade secret or other proprietary right of any third party. The Licensor shall defend and settle at its own expense all suits or proceedings arising out of the foregoing; or 4.10.B recognize the hereby expressly acknowledged and granted Licensee's right, but not obligation, to initiate or defend any action arising out of or related to any claim that the Licensee's use or possession of the Intellectual Property, or the license granted hereunder, infringes or violates the copyright, trade secret or other proprietary right of any third party. The Licensor shall provide for all costs and expenses, including legal fees and expenses, of all suits or proceedings arising out of the foregoing as such costs and expenses are incurred. -3- 5.0 LICENSEE'S OBLIGATIONS In consideration of the grant of this License by the Licensor and its agreements set out above, the Licensee hereby agrees with the Licensor to use reasonable efforts not to cause or permit anything which may damage or endanger the Intellectual Property in any way or any other intellectual property of the Licensor or the title of the Licensor to it or any of it. 6.0 GENERAL It is further agreed between the Parties as follows: 6.1 The Licensor has devised and developed the Software and Intellectual Property. 6.2 If at any time during the Term the Licensee discovers or conceives any actual or potential improvements to or development of the Intellectual Property, the property in any such improvement or development and the right to apply for any relevant protection belongs to the Licensee. 6.2 If any provision of this License is declared by any judicial or other competent authority in any jurisdiction to be void, voidable, illegal or otherwise unenforceable or indications of the same are received by either of the Parties from any such competent authority: 6.2.1 the Parties shall amend that provision in such reasonable manner as achieves the intentions of the Parties without illegality or other grounds for unenforceability; or 6.2.2 sever the provision from this License in whole or in part. 6.2.3 the remaining provisions of this License shall remain in full force and effect unless the Licensee decides that the result of any such declaration is to defeat the original intention of the Parties in which event the Licensee shall be at liberty to terminate this License upon written notice. 6.3 Any notice to be served by any of the Parties upon any other shall be sent by: 6.3.1 pre-paid first-class registered air mail (return receipt requested); or 6.3.2 by fax and shall be deemed to have been received by the addressee at the address written above within five (5) business days of posting or 24 hours if sent by fax to the addressee. -4- 6.4 Each of the Parties shall promptly notify the other of any change of its address or fax number. 6.5 None of the Parties shall deliberately disconnect its fax at any time except for essential servicing and repairs. 6.6 This License supersedes any prior agreement or arrangement between the Parties which is hereby cancelled. 6.7 The License contains the complete agreement between the Parties. This License may not be modified or amended except in writing, signed by duly authorized representatives of each party and such writing must reflect the intention that it be considered as an amendment. 6.8 The neuter singular used throughout this License shall include all genders and the plural. 6.9 This License shall enure for the benefit of and shall bind the successors in title of the Parties. 6.10 The Parties are not partners or joint venturers in any way. 6.11 Neither Party is able to act as the agent of the other Party except as expressly authorized in this License. 6.12 Neither Party is able to pledge the credit of the other Party in any way. 6.13 This License and any rights under it are capable of being granted, assigned, charged or otherwise dealt with or disposed of by the Licensee without the consent of any third party. 6.14 No exercise of any rights under this License by any of the Parties shall restrict or prejudice the exercise of any other right granted to or reserved by it under this License or otherwise available to it. 6.15 The obligations of the Licensor in this License shall survive the expiration or termination of this License to the extent necessary to fulfill its agreements and liabilities to the Licensee under this License. 6.16 The failure by the Licensee to enforce at any time any of the terms and conditions of this License (including any agreements and obligations on the part of the Licensor under this License or otherwise) shall not be a waiver of any of them or of its right subsequently to enforce all or any such terms and conditions. -5- 6.17 Each of the Parties shall pay its own costs and expenses incurred by it in connection with the preparation and exchange of this License. 6.18 In the event of the failure of any part of the Software at any time as a result of which the Licensee suffers any proven loss or damage the Licensor shall: 6.18.1 be liable to reimburse the Licensee for the administrative costs and expenses of such failure; and 6.18.2 indemnify or recompense the Licensee for any such loss or damage or any legal or other expenses incurred by the Licensee in pursuing or defending any claim related to the failure of the Software. 6.19 This License shall be governed by the laws of the Commonwealth of Massachusetts, United States of America, excluding its choice of law rules, in every particular including formation and interpretation. In any legal action relating to this Agreement, the Licensor agrees to the exercise of jurisdiction over it by a federal court of the Commonwealth of Massachusetts or a state court of the Commonwealth of Massachusetts. The Licensor also agrees to the forum selection of the Licensee. 6.20 The parties acknowledge that a remedy at law for any breach or threatened breach of this License would be inadequate and, therefore, agree that the terms of this License shall be enforceable by injunctive relief in case of any breach or threatened breach. Signed for and on behalf of Manadarin Trading Company Limited ------------------------------------ Authorized Signatory Signed for and on behalf of Websecure, Inc. ------------------------------------ Authorized Signatory -6- EX-99.10C 12 1996 STOCK OPTION PLAN WEBSECURE, INC. 1996 STOCK OPTION PLAN ARTICLE I PURPOSE OF THE PLAN The purpose of this Plan is to encourage and enable employees, consultants, directors and others who are in a position to make significant contributions to the success of WEBSECURE, INC. and of its affiliated corporations upon whose judgment, initiative and efforts the Corporation depends for the successful conduct of its business, to acquire a closer identification of their interests with those of the Corporation by providing them with opportunities to purchase stock in the Corporation pursuant to options granted hereunder, thereby stimulating their efforts on behalf of the Corporation and strengthening their desire to remain involved with the Corporation. Any employee, consultant or advisor designated to participate in the Plan is referred to as a "Participant." ARTICLE II DEFINITIONS 2.1 "Affiliated Corporation" means any stock corporation of which a majority of the voting common or capital stock is owned directly or indirectly by the Corporation. 2.2 "Award" means an Option granted under Article V. 2.3 "Board" means the Board of Directors of the Corporation or, if one or more has been appointed, a Committee of the Board of Directors of the Corporation. 2.4 "Code" means the Internal Revenue Code of 1986, as amended from time to time. 2.5 "Committee" means a Committee of not less than two members of the Board appointed by the Board to administer the Plan. 2.6 "Corporation" means WEBSECURE, INC., a Delaware corporation, or its successor. 2.7 "Employee" means any person who is a regular full-time or part-time employee of the Corporation or an Affiliated Corporation on or after February 12, 1996. 2.8 "Incentive Stock Option" ("ISO") means an option which qualifies as an incentive stock option as defined in Section 422 of the Code, as amended. 2.9 "Non-Qualified Option" means any option not intended to qualify as an Incentive Stock Option. 2.10 "Option" means an Incentive Stock Option or Non-Qualified Option granted by the Board under Article V of this Plan in the form of a right to purchase Stock evidenced by an instrument containing such provisions as the Board may establish. Except as otherwise expressly provided with respect to an Option grant, no Option granted pursuant to the Plan shall be an Incentive Stock Option. 2.11 "Participant" means a person selected by the Committee to receive an award under the Plan. 2.12 "Plan" means this 1996 Stock Option Plan. 2.13 "Reporting Person" means a person subject to Section 16 of the Securities Exchange Act of 1934 or any successor provision. 2.14 "Restricted Period" means the period of time selected by the Committee during which an award may be forfeited by the person. 2.15 "Stock" means the Common Stock, $.01 par value per share, of the Corporation or any successor, including any adjustments in the event of changes in capital structure of the type described in Article XI. -2- ARTICLE III ADMINISTRATION OF THE PLAN 3.1 Administration by Board. This Plan shall be administered by the Board of Directors of the Corporation. The Board may, from time to time, delegate any of its functions under this Plan to one or more Committees. All references in this Plan to the Board shall also include the Committee or Committees, if one or more have been appointed by the Board. From time to time the Board may increase the size of the Committee or Committees and appoint additional members thereto, remove members (with or without cause) and appoint new members in substitution therefor, fill vacancies however caused, or remove all members of the Committee or Committees and thereafter directly administer the Plan. No member of the Board or a Committee shall be liable for any action or determination made in good faith with respect to the Plan or any options granted hereunder. If a Committee is appointed by the Board, a majority of the members of the Committee shall constitute a quorum, and all determinations of the Committee under the Plan may be made without notice or meeting of the Committee by a writing signed by a majority of Committee members. On or after registration of the Stock under the Securities Exchange Act of 1934, as amended, the Board shall delegate the power to select directors and officers to receive Awards under the Plan, and the timing, pricing and amount of such Awards to a Committee, all members of which shall be "disinterested persons" within the meaning of Rule 16b-3 under that Act. 3.2 Powers. The Board of Directors and/or any Committee appointed by the Board shall have full and final authority to operate, manage and administer the Plan on behalf of the Corporation. This authority includes, but is not limited to: (a) The power to grant Awards conditionally or unconditionally, -3- (b) The power to prescribe the form or forms of any instruments evidencing Awards granted under this Plan, (c) The power to interpret the Plan, (d) The power to provide regulations for the operation of the incentive features of the Plan, and otherwise to prescribe and rescind regulations for interpretation, management and administration of the Plan, (e) The power to delegate responsibility for Plan operation, management and administration on such terms, consistent with the Plan, as the Board may establish, (f) The power to delegate to other persons the responsibility of performing ministerial acts in furtherance of the Plan's purpose, and (g) The power to engage the services of persons, companies, or organizations in furtherance of the Plan's purpose, including but not limited to, banks, insurance companies, brokerage firms and consultants. 3.3 Additional Powers. In addition, as to each Option to buy Stock of the Corporation, the Board shall have full and final authority in its discretion: (a) to determine the number of shares of Stock subject to each Option; (b) to determine the time or times at which Options will be granted; (c) to determine the option price of the shares of Stock subject to each Option, which price shall be not less than the minimum price specified in Article V of this Plan; (d) to determine the time or times when each Option shall become exercisable and the duration of the exercise period (including the acceleration of any exercise period), which shall not exceed the maximum period specified in Article V; (e) to determine whether each Option granted shall be an Incentive Stock Option or a Non-qualified Option; and (f) to waive compliance by a Participant with any obligation to be performed by him under an Option, to waive any condition or provision of an Option, and to amend or cancel -4- any Option (and if an Option is cancelled, to grant a new Option on such terms as the Board may specify), except that the Board may not take any action with respect to an outstanding option that would adversely affect the rights of the Participant under such Option without such Participant's consent. Nothing in the preceding sentence shall be construed as limiting the power of the Board to make adjustments required by Article XI. In no event may the Company grant an Employee any Incentive Stock Option that is first exercisable during any one calendar year to the extent the aggregate fair market value of the Stock (determined at the time the options are granted) exceeds $100,000 (under all stock option plans of the Corporation and any Affiliated Corporation); provided, however, that this paragraph shall have no force and effect if its inclusion in the Plan is not necessary for Incentive Stock Options issued under the Plan to qualify as such pursuant to Section 422(d)(1) of the Code. ARTICLE IV ELIGIBILITY 4.1 Eligible Employees. All Employees (including Directors who are Employees) are eligible to be granted Incentive Stock Option and Non-Qualified Option Awards under this Plan. 4.2 Consultants, Directors and other Non-Employees. Any Consultant, Director (whether or not an Employee) and any other Non-Employee is eligible to be granted Non-Qualified Option Awards under the Plan, provided the person has not irrevocably elected to be ineligible to participate in the Plan. 4.3 Relevant Factors. In selecting individual Employees, Consultants, Directors and other Non-Employees to whom Awards shall be granted, the Board shall weigh such factors as are relevant to accomplish the purpose of the Plan as stated in Article I. An individual who has been granted an Award may be granted one or more additional Awards, if the Board so determines. The -5- granting of an Award to any individual shall neither entitle that individual to, nor disqualify him from, participation in any other grant of Awards. ARTICLE V Stock Option Awards 5.1 Number of Shares. Subject to the provisions of Article XI of this Plan, the aggregate number of shares of Stock for which options may be granted under this Plan shall not exceed eight hundred thousand (800,000) shares. The shares to be delivered upon exercise of Options under this Plan shall be made available, at the discretion of the Board, either from authorized but unissued shares or from previously issued and reacquired shares of Stock held by the Corporation as treasury shares, including shares purchased in the open market. Stock issuable upon exercise of an option granted under the Plan may be subject to such restrictions on transfer, repurchase rights or other restrictions as shall be determined by the Board of Directors. 5.2 Effect of Expiration, Termination or Surrender. If an Option under this Plan shall expire or terminate unexercised as to any shares covered thereby, or shall cease for any reason to be exercisable in whole or in part, or if the Company shall reacquire any unvested shares issued pursuant to Options under the Plan, such shares shall thereafter be available for the granting of other Options under this Plan. 5.3 Term of Options. The full term of each Option granted hereunder shall be for such period as the Board shall determine. In the case of Incentive Stock Options granted hereunder, the term shall not exceed ten (10) years from the date of granting thereof. Each Option shall be subject to earlier termination as provided in Sections 6.3 and 6.4. Notwithstanding the foregoing, the term of options intended to qualify as "Incentive Stock Options" shall not exceed five (5) years from the -6- date of granting hereof if such option is granted to any employee who at the time such option is granted owns more than ten percent (10%) of the total combined voting power of all classes of stock of the Company. 5.4 Option Price. The Option price shall be determined by the Board at the time any Option is granted. In the case of Incentive Stock Options, the exercise price shall not be less than one hundred percent (100%) of the fair market value of the shares covered thereby at the time the Incentive Stock Option is granted (but in no event less than par value), provided that no Incentive Stock Option shall be granted hereunder to any Employee if at the time of grant the Employee, directly or indirectly, owns Stock possessing more than ten percent (10%) of the combined voting power of all classes of stock of the Corporation and its Affiliated Corporations unless the Incentive Stock Option price equals not less than one hundred ten percent (110%) of the fair market value of the shares covered thereby at the time the Incentive Stock Option is granted. 5.5 Fair Market Value. If, at the time an Option is granted under the Plan, the Corporation's Stock is publicly traded, "fair market value" shall be determined as of the last business day for which the prices or quotes discussed in this sentence are available prior to the date such Option is granted and shall mean (i) the average (on that date) of the high and low sales prices of the Stock on the principal national securities exchange on which the Stock is traded, if the Stock is then traded on a national securities exchange; or (ii) the last reported sale price (on that date) of the Stock on the NASDAQ National Market List, if the Stock is not then traded on a national securities exchange; or (iii) the closing bid price (or average of bid prices) last quoted (on that date) by an established quotation service for over-the-counter securities, if the Stock is not reported on the NASDAQ National Market List. However, if the Stock is not publicly traded at the time an Option is granted under the Plan, "fair market value" shall be deemed to be the fair value of the Stock as -7- determined by the Board after taking into consideration all factors which it deems appropriate, including, without limitation, recent sale and offer prices of the Stock in private transactions negotiated at arm's length. 5.6 Non-Transferability of Options. No Option granted under this Plan shall be transferable by the grantee otherwise than by will or the laws of descent and distribution, and such Option may be exercised during the grantee's lifetime only by the grantee. 5.7 Foreign Nationals. Awards may be granted to Participants who are foreign nationals or employed outside the United States on such terms and conditions different from those specified in the Plan as the Committee considers necessary or advisable to achieve the purposes of the Plan or comply with applicable laws. ARTICLE VI EXERCISE OF OPTION 6.1 Exercise. Each Option granted under this Plan shall be exercisable on such date or dates and during such period and for such number of shares as shall be determined pursuant to the provisions of the instrument evidencing such Option. The Board shall have the right to accelerate the date of exercise of any option, provided that, the Board shall not accelerate the exercise date of any Incentive Stock Option granted if such acceleration would violate the annual vesting limitation contained in Section 422(d)(1) of the Code. 6.2 Notice of Exercise. A person electing to exercise an Option shall give written notice to the Corporation of such election and of the number of shares he or she has elected to purchase and shall at the time of exercise tender the full purchase price of the shares he or she has elected to purchase. The purchase price can be paid partly or completely in shares of the Corporation's stock valued at Fair Market Value as defined in Section 5.5 hereof, or by any such other lawful -8- consideration as the Board may determine. Until such person has been issued a certificate or certificates for the shares so purchased and has fully paid the purchase price for such shares, he or she shall possess no rights of a record holder with respect to any of such shares. In the event that the Corporation elects to receive payment for such shares by means of a promissory note, such note, if issued to an officer, director or holder of 5% or more of the Company's outstanding Common Stock, shall provide for payment of interest at a rate no less than the interest rate then payable by the Company to its principal commercial lender, or if the Company has no loan outstanding to a commercial lender, then the interest rate payable shall equal the prevailing prime rate of interest then charged by commercial banks headquartered in Massachusetts (as determined by the Board of Directors in its reasonable discretion) plus two percent (2%). 6.3 Option Unaffected by Change in Duties. No Incentive Stock Option (and, unless otherwise determined by the Board of Directors, no Non-Qualified Option granted to a person who is, on the date of the grant, an Employee of the Corporation or an Affiliated Corporation) shall be affected by any change of duties or position of the optionee (including transfer to or from an Affiliated Corporation), so long as he or she continues to be an Employee. Employment shall be considered as continuing uninterrupted during any bona fide leave of absence (such as those attributable to illness, military obligations or governmental service) provided that the period of such leave does not exceed ninety (90) days or, if longer, any period during which such optionee's right to reemployment is guaranteed by statute. A bona fide leave of absence with the written approval of the Board shall not be considered an interruption of employment under the Plan, provided that such written approval contractually obligates the Corporation or any Affiliated Corporation to continue the employment of the optionee after the approved period of absence. -9- If the optionee shall cease to be an Employee for any reason other than death, such Option shall thereafter be exercisable only to the extent of the purchase rights, if any, which have accrued as of the date of such cessation; provided that (i) the Board may provide in the instrument evidencing any Option that the Board may in its absolute discretion, upon any such cessation of employment, determine (but be under no obligation to determine) that such accrued purchase rights shall be deemed to include additional shares covered by such Option; and (ii) unless the Board shall otherwise provide in the instrument evidencing any Option, upon any such cessation of employment, such remaining rights to purchase shall in any event terminate upon the earlier of (A) the expiration of the original term of the Option; or (B) where such cessation of employment is on account of disability, the expiration of one year from the date of such cessation of employment and, otherwise, the expiration of three months from such date. For purposes of the Plan, the term "disability" shall mean "permanent and total disability" as defined in Section 22(e)(3) of the Code. In the case of a Participant who is not an employee, provisions relating to the exercisability of an Option following termination of service shall be specified in the award. If not so specified, all Options held by such Participant shall terminate on termination of service to the Corporation. 6.4 Death of Optionee. Should an optionee die while in possession of the legal right to exercise an Option or Options under this Plan, such persons as shall have acquired, by will or by the laws of descent and distribution, the right to exercise any Options theretofore granted, may, unless otherwise provided by the Board in any instrument evidencing any Option, exercise such Options at any time prior to one year from the date of death; provided, that such Option or Options shall expire in all events no later than the last day of the original term of such Option; provided, further, that any such exercise shall be limited to the purchase rights which have accrued as of the date when the optionee ceased to be an Employee, whether by death or otherwise, unless the Board provides -10- in the instrument evidencing such Option that, in the discretion of the Board, additional shares covered by such Option may become subject to purchase immediately upon the death of the optionee. ARTICLE VII REPORTING PERSON LIMITATIONS To the extent required to qualify for the exemption provided by Rule 16b-3 under the Securities Exchange Act of 1934, and any successor provision, at least six months must elapse from the date of acquisition of an Option by a Reporting Person to the date of disposition of such Option (other than upon exercise) or its underlying Common Stock. ARTICLE VIII TERMS AND CONDITIONS OF OPTIONS Options shall be evidenced by instruments (which need not be identical) in such forms as the Board may from time to time approve. Such instruments shall conform to the terms and conditions set forth in Articles V and VI hereof and may contain such other provisions as the Board deems advisable which are not inconsistent with the Plan, including restrictions applicable to shares of Stock issuable upon exercise of Options. In granting any Non-Qualified Option, the Board may specify that such Non-Qualified Option shall be subject to the restrictions set forth herein with respect to Incentive Stock Options, or to such other termination and cancellation provisions as the Board may determine. The Board may from time to time confer authority and responsibility on one or more of its own members and/or one or more officers of the Corporation to execute and deliver such instruments. The proper officers of the Corporation are authorized and directed to take any and all action necessary or advisable from time to time to carry out the terms of such instruments. -11- ARTICLE IX BENEFIT PLANS Awards under the Plan are discretionary and are not a part of regular salary. Awards may not be used in determining the amount of compensation for any purpose under the benefit plans of the Corporation, or an Affiliated Corporation, except as the Board may from time to time expressly provide. Neither the Plan, an Option or any instrument evidencing an Option confers upon any Participant any right to continue as an employee of, or consultant or advisor to, the Company or an Affiliated Corporation or affect the right of the Corporation or any Affiliated Corporation to terminate them at any time. Except as specifically provided by the Board in any particular case, the loss of existing or potential profits granted under this Plan shall not constitute an element of damages in the event of termination of the relationship of a Participant even if the termination is in violation of an obligation of the Corporation to the Participant by contract or otherwise. ARTICLE X AMENDMENT, SUSPENSION OR TERMINATION OF THE PLAN The Board may suspend the Plan or any part thereof at any time or may terminate the Plan in its entirety. Awards shall not be granted after Plan termination. The Board may also amend the Plan from time to time, except that amendments which affect the following subjects must be approved by stockholders of the Corporation: (a) Except as provided in Article XI relative to capital changes, the number of shares as to which Options may be granted pursuant to Article V; (b) The maximum term of Options granted; (c) The minimum price at which Options may be granted; (d) The term of the Plan; and -12- (e) The requirements as to eligibility for participation in the Plan. Awards granted prior to suspension or termination of the Plan may not be cancelled solely because of such suspension or termination, except with the consent of the grantee of the Award. ARTICLE XI CHANGES IN CAPITAL STRUCTURE The instruments evidencing Options granted hereunder shall be subject to adjustment in the event of changes in the outstanding Stock of the Corporation by reason of Stock dividends, Stock splits, recapitalizations, reorganizations, mergers, consolidations, combinations, exchanges or other relevant changes in capitalization occurring after the date of an Award to the same extent as would affect an actual share of Stock issued and outstanding on the effective date of such change. Such adjustment to outstanding Options shall be made without change in the total price applicable to the unexercised portion of such options, and a corresponding adjustment in the applicable option price per share shall be made. In the event of any such change, the aggregate number and classes of shares for which Options may thereafter be granted under Section 5.1 of this Plan may be appropriately adjusted as determined by the Board so as to reflect such change. Notwithstanding the foregoing, any adjustments made pursuant to this Article XI with respect to Incentive Stock Options shall be made only after the Board, after consulting with counsel for the Corporation, determines whether such adjustments would constitute a "modification" of such Incentive Stock Options (as that term is defined in Section 424 of the Code) or would cause any adverse tax consequences for the holders of such Incentive Stock Options. If the Board determines that such adjustments made with respect to Incentive Stock Options would constitute a modification of such Incentive Stock Options, it may refrain from making such adjustments. -13- In the event of the proposed dissolution or liquidation of the Corporation, each Option will terminate immediately prior to the consummation of such proposed action or at such other time and subject to such other conditions as the Board shall determine. Except as expressly provided herein, no issuance by the Corporation of shares of stock of any class, or securities convertible into shares of stock of any class, shall affect, and no adjustment by reason thereof shall be made with respect to, the number or price of shares subject to Options. No adjustments shall be made for dividends paid in cash or in property other than securities of the Corporation. No fractional shares shall be issued under the Plan and the optionee shall receive from the Corporation cash in lieu of such fractional shares. ARTICLE XII EFFECTIVE DATE AND TERM OF THE PLAN The Plan shall become effective on February 12, 1996. The Plan shall continue until such time as it may be terminated by action of the Board or the Committee; provided, however, that no Options may be granted under this Plan on or after the tenth anniversary of the effective date hereof. ARTICLE XIII CONVERSION OF ISOS INTO NON-QUALIFIED OPTIONS; TERMINATION OF ISOS The Board, at the written request of any optionee, may in its discretion take such actions as may be necessary to convert such optionee's Incentive Stock Options, that have not been exercised on the date of conversion, into Non-Qualified Options at any time prior to the expiration of such Incentive Stock Options, regardless of whether the optionee is an employee of the Corporation or an Affiliated Corporation at the time of such conversion. Such actions may include, but not be -14- limited to, extending the exercise period or reducing the exercise price of such Options. At the time of such conversion, the Board or the Committee (with the consent of the optionee) may impose such conditions on the exercise of the resulting Non-Qualified Options as the Board or the Committee in its discretion may determine, provided that such conditions shall not be inconsistent with the Plan. Nothing in the Plan shall be deemed to give any optionee the right to have such optionee's Incentive Stock Options converted into Non-Qualified Options, and no such conversion shall occur until and unless the Board or the Committee takes appropriate action. The Board, with the optionee's consent, may also terminate any portion of any Incentive Stock Option that has not been exercised at the time of such termination. ARTICLE XIV APPLICATION OF FUNDS The proceeds received by the Corporation from the sale of shares pursuant to Options granted under the Plan shall be used for general corporate purposes. ARTICLE XV GOVERNMENTAL REGULATION The Corporation's obligation to sell and deliver shares of Stock under this Plan is subject to the approval of any governmental authority required in connection with the authorization, issuance or sale of such shares. ARTICLE XVI WITHHOLDING OF ADDITIONAL INCOME TAXES Upon the exercise of a Non-Qualified Option or the making of a Disqualifying Disposition (as defined in Article XVII) the Corporation, in accordance with Section 3402(a) of the Code, may require the optionee to pay additional withholding taxes in respect of the amount that is considered -15- compensation includible in such person's gross income. The Board in its discretion may condition the exercise of an Option on the payment of such additional withholding taxes. ARTICLE XVII NOTICE TO COMPANY OF DISQUALIFYING DISPOSITION Each employee who receives an Incentive Stock Option must agree to notify the Corporation in writing immediately after the employee makes a Disqualifying Disposition of any Stock acquired pursuant to the exercise of an Incentive Stock Option. A Disqualifying Disposition is any disposition (including any sale) of such Stock before the later of (a) two years after the date the employee was granted the Incentive Stock Option or (b) one year after the date the employee acquired Stock by exercising the Incentive Stock Option. If the employee has died before such stock is sold, these holding period requirements do not apply and no Disqualifying Disposition can occur thereafter. ARTICLE XVIII GOVERNING LAW; CONSTRUCTION The validity and construction of the Plan and the instruments evidencing Options shall be governed by the laws of the Commonwealth of Massachusetts (without regard to the conflict of law principles thereof). In construing this Plan, the singular shall include the plural and the masculine gender shall include the feminine and neuter, unless the context otherwise requires. -16- EX-99.10D 13 1996 FORMULA STOCK OPTION PLAN WEBSECURE, INC. 1996 FORMULA STOCK OPTION PLAN ARTICLE I PURPOSE OF THE PLAN The purpose of this Plan is to encourage and enable non-employee Directors who are in a position to make significant contributions to the success of WEBSECURE, INC. and of its affiliated corporations upon whose judgment, initiative and efforts the Corporation depends for the successful conduct of its business, to acquire a closer identification of their interests with those of the Corporation by providing them with opportunities to purchase stock in the Corporation pursuant to options granted hereunder, thereby stimulating their efforts on behalf of the Corporation and strengthening their desire to remain involved with the Corporation. Any non-employee Director designated to participate in the Plan is referred to as a "Participant." ARTICLE II DEFINITIONS 2.1 "Affiliated Corporation" means any stock corporation of which a majority of the voting common or capital stock is owned directly or indirectly by the Corporation. 2.2 "Award" means an Option granted under Article V. 2.3 "Board" means the Board of Directors of the Corporation or, if one or more has been appointed, a Committee of the Board of Directors of the Corporation. 2.4 "Code" means the Internal Revenue Code of 1986, as amended from time to time. 2.5 "Committee" means a Committee of not less than two members of the Board appointed by the Board to administer the Plan. 2.6 "Corporation" means WEBSECURE, INC. a Delaware corporation. 2.7 "Non-Employee" means any person who, on or after February 12, 1996, is not a regular full-time or part-time employee of the Corporation or an Affiliated Corporation or any person who is not an employee of an employee leasing company under contract with the Corporation who performs services to the Corporation or an Affiliated Corporation of the type and character normally performed by employees on a regular full-time or part-time basis. 2.8 "Non-Qualified Option" means any option not intended to qualify as an Incentive Stock Option. 2.9 "Option" means a Non-Qualified Option granted by the Board under Article V of this Plan in the form of a right to purchase Stock evidenced by an instrument containing such provisions as the Board may establish. 2.10 "Participant" means a person who is to receive an award under the Plan. 2.11 "Plan" means this 1996 Formula Stock Option Plan. 2.12 "Reporting Person" means a person subject to Section 16 of the Securities Exchange Act of 1934 or any successor provision. 2.13 "Restricted Period" means the period of time selected by the Committee during which an award may be forfeited by the person. 2.14 "Stock" means the Common Stock, $.01 par value, of the Corporation or any successor, including any adjustments in the event of changes in capital structure of the type described in Article XI. ARTICLE III ADMINISTRATION OF THE PLAN 3.1 Administration by Board. This Plan may be administered by the Board of Directors or by a committee of the Board of Directors of the Corporation. If a committee administers this -2- Plan, the Board may, from time to time, increase the size of the Committee or committees and appoint additional members thereto, remove members (with or without cause) and appoint new members in substitution therefor, fill vacancies however caused, or remove all members of the Committee or committees and thereafter directly administer the Plan. No member of the Board or a committee shall be liable for any action or determination made in good faith with respect to the Plan or any options granted hereunder. 3.2 Powers. The Board of Directors and/or any committee appointed by the Board shall have full and final authority to operate, manage and administer the Plan on behalf of the Corporation. This authority includes, but is not limited to: (a) The power to grant Awards conditionally or unconditionally, (b) The power to prescribe the form or forms of any instruments evidencing Awards granted under this Plan, (c) The power to interpret the Plan, (d) The power to delegate responsibility for Plan operation, management and administration on such terms, consistent with the Plan, as the Board may establish, (e) The power to delegate to other persons the responsibility of performing ministerial acts in furtherance of the Plan's purpose, and (f) The power to engage the services of persons, companies, or organizations in furtherance of the Plan's purpose, including but not limited to, banks, insurance companies, brokerage firms and consultants. -3- ARTICLE IV Eligibility 4.1 Eligible Persons. All non-employee Directors are eligible to be granted Non-Qualified Option Awards under this Plan provided the person has not irrevocably elected to be ineligible to participate in the Plan. ARTICLE V STOCK OPTION AWARDS 5.1 Number of Shares. Subject to the provisions of Article XI of this Plan, the aggregate number of shares of Stock for which Options may be granted under this Plan shall not exceed sixty thousand (60,000) shares. Options shall be granted under this Plan, without approval or discretion on the part of the Board, to non-employee Directors as follows: Effective June 1, 1996, the Corporation shall grant to each of its non-employee Directors who has not otherwise received options under any discretionary stock option plan of the Company, on the date he or she becomes a Director, options to purchase a total of 5,000 shares of Stock. The exercise price of options granted to non-employee Directors shall be the fair market value of the shares of Stock on the date of the grant and said options shall vest completely and be exercisable one year from the date of the grant, subject to the Director's continued service as a Director on such date. Effective June 1, 1996, the Corporation shall grant to each of its non-employee Directors who has served as a Director of the Corporation for at least one full year, options to purchase a total of 1,000 shares of Stock on the first business day immediately following the Corporation's annual meeting of shareholders. The exercise price of such options will be the fair market value of the shares of Stock on the date of the grant. Said options shall vest completely and be exercisable immediately on the date of the grant. The options shall be granted to a non-employee Director only -4- if the Director is a Director on the date of the grant and has attended, during the Corporation's fiscal year immediately preceding the grant, at least 75% of meetings of the Board of Directors and the Committees on which the Director has served. The shares to be delivered upon exercise of Options under this Plan shall be made available, at the discretion of the Board, either from authorized but unissued shares or from previously issued and reacquired shares of Stock held by the Corporation as treasury shares, including shares purchased in the open market. Stock issuable upon exercise of an option granted under the Plan may be subject to such restrictions on transfer or repurchase rights as shall be determined by the Board of Directors. 5.2 Effect of Expiration, Termination or Surrender. If an Option under this Plan shall expire or terminate unexercised as to any shares covered thereby, or shall cease for any reason to be exercisable in whole or in part, or if the Corporation shall reacquire any unvested shares issued pursuant to Options under the Plan, such shares shall thereafter be available for the granting of other Options under this Plan. 5.3 Term of Options. Each Option granted hereunder shall be for a term five (5) years from the date of granting thereof. Each Option shall be subject to earlier termination as provided in Sections 6.3 and 6.4. 5.4 Fair Market Value. If, at the time an Option is granted under the Plan, the Corporation's Stock is publicly traded, "fair market value" shall be determined as of the last business day for which the prices or quotes discussed in this sentence are available prior to the date such Option is granted and shall mean (i) the average (on that date) of the high and low prices of the Stock on the principal national securities exchange on which the Stock is traded, if the Stock is then traded on a national securities exchange; or (ii) the last reported sale price (on that date) of the Stock on the -5- NASDAQ National Market List, if the Stock is not then traded on a national securities exchange; or (iii) the average of the bid and asked prices last quoted (on that date) by an established quotation service for over-the-counter securities, if the Stock is not reported on the NASDAQ National Market List. However, if the Stock is not publicly traded at the time an Option is granted under the Plan, "fair market value" shall be deemed to be the fair value of the Stock as determined by the Board after taking into consideration all factors which it deems appropriate, including, without limitation, recent sale and offer prices of the Stock in private transactions negotiated at arm's length. 5.5 Non-Transferability of Options. No Option granted under this Plan shall be transferable by the grantee otherwise than by will or the laws of descent and distribution, and such Option may be exercised during the grantee's lifetime only by the grantee. 5.6 Foreign Nationals. Awards may be granted to Participants who are foreign nationals or employed outside the United States on such terms and conditions different from those specified in the Plan as the Committee considers necessary or advisable to achieve the purposes of the Plan or comply with applicable laws. ARTICLE VI EXERCISE OF OPTION 6.1 Exercise. Each Option granted under this Plan shall be exercisable on such date or dates and during such period and for such number of shares as shall be determined pursuant to the provisions of the instrument evidencing such Option. The Board shall have the right to accelerate the date of exercise of any option. 6.2 Notice of Exercise. A person electing to exercise an Option shall give written notice to the Corporation of such election and of the number of shares he or she has elected to purchase and shall at the time of exercise tender the full purchase price of the shares he or she has elected to -6- purchase. The purchase price can be paid partly or completely in shares of the Corporation's stock valued at Fair Market Value as defined in Section 5.4 hereof, or by any such other lawful consideration as the Board may determine. Until such person has been issued a certificate or certificates for the shares so purchased and has fully paid the purchase price for such shares, he or she shall possess no rights of a record holder with respect to any of such shares. If the Corporation elects to receive payment for such shares by means of a promissory note, such note, if issued to an officer, director or holder of 5% or more of the Corporation's outstanding Common Stock, shall provide for payment of interest at a rate no less than the interest rate then payable by the Corporation to its principal commercial lender, or if the Corporation has no loan outstanding to a commercial lender, then the interest rate payable shall equal the prevailing prime rate of interest then charged by commercial banks headquartered in Massachusetts (as determined by the Board of Directors in its reasonable discretion) plus two percent. 6.3 Option Unaffected by Certain Changes. A Director's term shall be considered as continuing uninterrupted during any bona fide leave of absence (such as those attributable to illness, military obligations or governmental service) provided that the period of such leave does not exceed 90 days or, if longer, any period during which such optionee's right to reemployment is guaranteed by statute. A bona fide leave of absence with the written approval of the Board shall not be considered an interruption of service under the Plan. If the optionee shall cease to be a Director for any reason other than death, such Option shall thereafter be exercisable only to the extent of the purchase rights, if any, which have accrued as of the date of such cessation; provided that upon any such cessation of service, such remaining rights to purchase shall in any event terminate upon the expiration of the original term of the Option. -7- 6.4 Death of Optionee. Should an optionee die while in possession of the legal right to exercise an Option or Options under this Plan, such persons as shall have acquired, by will or by the laws of descent and distribution, the right to exercise any Options theretofore granted, may, unless otherwise provided by the Board in any instrument evidencing any Option, exercise such Options until the expiration of the original term of the Options, provided, further, that any such exercise shall be limited to the purchase rights that have accrued as of the date when the optionee ceased to be a Director whether by death or otherwise. ARTICLE VII REPORTING PERSON LIMITATIONS To the extent required to qualify for the exemption provided by Rule 16b-3 under the Securities Exchange Act of 1934, and any successor provision, at least six months must elapse from the date of acquisition of an Option by a Reporting Person to the date of disposition of such Option (other than upon exercise) or its underlying Common Stock. ARTICLE VIII TERMS AND CONDITIONS OF OPTIONS Options shall be evidenced by instruments (which need not be identical) in such forms as the Board may from time to time approve. Such instruments shall conform to the terms and conditions set forth in Articles V and VI hereof and may contain such other provisions as the Board deems advisable that are not inconsistent with the Plan, including restrictions applicable to shares of Stock issuable upon exercise of Options. In granting any Non-Qualified Option, the Board may specify that such Non-Qualified Option shall be subject to such other termination and cancellation provisions as the Board may determine. The Board may from time to time confer authority and responsibility on one or more of its own members and/or one or more officers of the Corporation to -8- execute and deliver such instruments. The proper officers of the Corporation are authorized and directed to take any and all action necessary or advisable from time to time to carry out the terms of such instruments. ARTICLE IX BENEFIT PLANS Awards under the Plan are not discretionary. Awards may not be used in determining the amount of compensation for any purpose under the benefit plans of the Corporation, or an Affiliated Corporation, except as the Board may from time to time expressly provide. Neither the Plan, an Option or any instrument evidencing an Option confers upon any Participant any right to continue as a Director of, or consultant or advisor to, the Corporation or an Affiliated Corporation. Except as specifically provided by the Board in any particular case, the loss of existing or potential profits granted under this Plan shall not constitute an element of damages in the event of termination of the relationship of a Participant even if the termination is in violation of an obligation of the Corporation to the Participant by contract or otherwise. ARTICLE X AMENDMENT, SUSPENSION OR TERMINATION OF THE PLAN The Board may suspend the Plan or any part thereof at any time or may terminate the Plan in its entirety. Awards shall not be granted after Plan termination. The Plan may not be amended more than once every six months, unless such changes are necessary to comport with changes in the Code, the Employee Retirement Income Security Act, or the rules thereunder. Subject to the foregoing, the Board may also amend the Plan from time to time, except that amendments that affect the following subjects must be approved by stockholders of the Corporation: -9- (a) Except as provided in Article XI relative to capital changes, the number of shares as to which Options may be granted pursuant to Article V; (b) The maximum term of Options granted; (c) The minimum price at which Options may be granted; (d) The term of the Plan; and (e) The requirements as to eligibility for participation in the Plan. Awards granted prior to suspension or termination of the Plan may not be cancelled solely because of such suspension or termination, except with the consent of the grantee of the Award. ARTICLE XI CHANGES IN CAPITAL STRUCTURE The instruments evidencing Options granted hereunder shall be subject to adjustment in the event of changes in the outstanding Stock of the Corporation by reason of stock dividends, Stock splits, recapitalizations, reorganizations, mergers, consolidations, combinations, exchanges or other relevant changes in capitalization occurring after the date of an Award to the same extent as would affect an actual share of Stock issued and outstanding on the effective date of such change. Such adjustment to outstanding Options shall be made without change in the total price applicable to the unexercised portion of such options, and a corresponding adjustment in the applicable option price per share shall be made. In the event of any such change, the aggregate number and classes of shares for which Options may thereafter be granted under Section 5.1 of this Plan may be appropriately adjusted as determined by the Board so as to reflect such change. In the event of the proposed dissolution or liquidation of the Corporation, each Option will terminate immediately prior to the consummation of such proposed action or at such other time and subject to such other conditions as the Board shall determine. -10- Except as expressly provided herein, no issuance by the Corporation of shares of stock of any class, or securities convertible into shares of stock of any class, shall affect, and no adjustment by reason thereof shall be made with respect to, the number or price of shares subject to Options. No adjustments shall be made for dividends paid in cash or in property other than securities of the Corporation. No fractional shares shall be issued under the Plan and the optionee shall receive from the Corporation cash in lieu of such fractional shares. ARTICLE XII EFFECTIVE DATE AND TERM OF THE PLAN The Plan shall become effective on February 12, 1996. The Plan shall continue until such time as it may be terminated by action of the Board or the Committee; provided, however, that no Options may be granted under this Plan on or after the tenth anniversary of the effective date hereof. ARTICLE XIII APPLICATION OF FUNDS The proceeds received by the Corporation from the sale of shares pursuant to Options granted under the Plan shall be used for general corporate purposes. ARTICLE XIV GOVERNMENTAL REGULATION The Corporation's obligation to sell and deliver shares of Stock under this Plan is subject to the approval of any governmental authority required in connection with the authorization, issuance or sale of such shares. ARTICLE XV WITHHOLDING OF ADDITIONAL INCOME TAXES -11- Upon the exercise of a Non-Qualified Option the Corporation, in accordance with Section 3402(a) of the Code, may require the optionee to pay additional withholding taxes in respect of the amount that is considered compensation includible in such person's gross income. The Board in its discretion may condition the exercise of an Option on the payment of such additional withholding taxes. ARTICLE XVI GOVERNING LAW; CONSTRUCTION The validity and construction of the Plan and the instruments evidencing Options shall be governed by the internal laws of the Commonwealth of Massachusetts (without regard to the conflict of law principles thereof). In construing this Plan, the singular shall include the plural and the masculine gender shall include the feminine and neuter, unless the context otherwise requires. -12- EX-10.E 14 EMPLOYMENT AGREEMENT WITH ROBERT KUZARA KEY EMPLOYEE AGREEMENT To: Robert Kuzara As of April 1, 1996 19 Smith Farm Trail Lynnfield, Massachusetts 01940 The undersigned, WebSecure, Inc., a Delaware corporation (the "Company"), hereby agrees with you as follows: 1. POSITION AND RESPONSIBILITIES. 1.1 You shall serve as President and Chief Executive Officer for the Company, and shall perform the duties customarily associated with such capacity from time to time and at such place or places as are appropriate and necessary in connection with such employment. 1.2 You will, to the best of your ability, devote your full time and best efforts to the performance of your duties hereunder and the business and affairs of the Company. You agree to perform such executive duties as may be assigned to you by or on authority of the Company's Board of Directors from time to time. After receipt of notice of termination of your employment hereunder pursuant to Section 2, you shall continue to be available to the Company for up to twenty (20) hours per week for a period of up to four (4) weeks to assist in any necessary transition, with your compensation for that period based on terms mutually acceptable to you and the Company. 1.3 You will duly, punctually and faithfully perform and observe any and all rules and regulations which the Company may now or shall hereafter establish governing the conduct of its business. 2. TERM OF EMPLOYMENT. 2.1 The term (the "Term") of this Agreement shall be for the period of years set forth on Exhibit A annexed hereto commencing with the effective date hereof. Thereafter, this Agreement shall be automatically renewed for successive periods of one (1) year, unless the Company or you shall give the other not less than three (3) months prior written notice of non-renewal. Your employment with the Company may be terminated at any time only as provided in Section 2.2. 2.2 The Company shall have the right, on written notice to you, to terminate your employment: (a) immediately at any time for cause; or (b) at any time without cause provided the Company shall pay you severance payments set forth in Section 2.4, herein or (c) or by not renewing this Agreement pursuant to Section 2.1 hereof. 2.3 For purposes of Section 2.2, the term "cause" shall mean: (a) Your intentional failure or refusal to substantially perform the services specified herein other than any such failure resulting from your incapacity due to physical disability; (b) conviction of a felony; (c) fraud or embezzlement involving the assets of the Company, its customers, suppliers or affiliates; provided, however, that prior to any such termination, you have had a reasonable opportunity to be heard thereon. Further, any dispute, controversy, or claim arising out of, in connection with, or in relation to this definition of "cause" shall be settled by arbitration in Boston, Massachusetts, pursuant to the rules then in effect of the American Arbitration Association. Any award or determination shall be final, binding, and conclusive upon the parties, and a judgment rendered may be entered in any court having jurisdiction thereof. 2.4 If at any time (i) the Company or a substantial portion of the Company is acquired without your consent, (ii) your employment is terminated without cause, (iii) your salary is reduced without your consent, (iv) there is a substantial change in your position or authority within the Company without your consent, or (v) there is a change of your principle place of employment from the greater Boston, Massachusetts area without your consent, then (i) the Company shall be obligated to pay to you within thirty (30) days of the date of your termination, as severance pay, an amount equal to your Base Salary (as set forth on Exhibit A hereto) that would have been due to you during the remainder of the Term, less applicable taxes, other required withholdings and any amounts you may owe to the Company and (ii) all unvested stock options held by you shall vest within thirty (30) days of the date of your termination. 2.5 You shall have the right to terminate this Agreement for any reason upon not less than ninety (90) days prior written notice to the Company. -2- 3. COMPENSATION. You shall receive the compensation and benefits set forth on Exhibit A hereto ("Compensation") for all services to be rendered by you hereunder and for your transfer of property rights pursuant to an agreement relating to proprietary information and inventions of even date herewith attached hereto as Exhibit C between you and the Company (the "Proprietary Information and Inventions Agreement"). 4. OTHER ACTIVITIES DURING EMPLOYMENT. 4.1 Except for any outside employments and directorships currently held by you as listed on Exhibit B hereto, and except with the prior written consent of the Company's Board of Directors, you will not during the term of this Agreement undertake or engage in any other employment, occupation or business enterprise other than one in which you are an inactive investor. 4.2 You hereby agree that, except as disclosed on Exhibit B hereto, during your employment hereunder, you will not, directly or indirectly, engage (a) individually, (b) as an officer, (c) as a director, (d) as an employee, (e) as a consultant, (f) as an advisor, (g) as an agent (whether a salesperson or otherwise), (h) as a broker, or (i) as a partner, coventurer, stockholder or other proprietor owning directly or indirectly more than five percent (5%) interest in any firm, corporation, partnership, trust, association, or other organization which is engaged in any line of business engaged in or under demonstrable development by the Company (such firm, corporation, partnership, trust, association, or other organization being hereinafter referred to as a "Prohibited Enterprise"). Except as may be shown on Exhibit C hereto, you hereby represent that you are not engaged in any of the foregoing capacities (a) through (i) in any Prohibited Enterprise. 5. FORMER EMPLOYERS. 5.1 You represent and warrant that your employment by the Company will not conflict with and will not be constrained by any prior or current employment, consulting agreement or relationship whether oral or written. You represent and warrant that you do not possess confidential information arising out of any such employment, consulting agreement or relationship which, in your best judgment, would be utilized in connection with your employment by the Company in the absence of Section 5.2. 5.2 If, in spite of the second sentence of Section 5.1, you should find that confidential information belonging to any other person or entity might be usable in connection with the Company's business, you will not intentionally disclose to the Company or use on behalf of the Company any confidential information belonging to any of your former employers; but during your employment by the Company you will use in the performance of your duties all information which is generally known and used by persons with training and experience comparable to your own all information which is common knowledge in the industry or otherwise legally in the public domain. 6. PROPRIETARY INFORMATION AND INVENTIONS. You agree to execute, deliver and be bound by the provisions of the Proprietary Information and Inventions Agreement. -3- 7. POST-EMPLOYMENT ACTIVITIES. 7.1 For a period of one (1) year after your termination with cause or the expiration of your employment with the Company hereunder, absent the Company's prior written approval, you will not directly or indirectly engage in activities similar or reasonably related to those in which you shall have engaged hereunder during the one (1) year immediately preceding termination or expiration, nor render services similar or reasonably related to those which you shall have rendered hereunder during such one (1) year to any person or entity whether now existing or hereafter established which directly competes with (or proposes or plans to directly compete with) the Company ("Direct Competitor") in any line of business engaged in or under development by the Company. Nor shall you entice, induce or encourage any of the Company's other employees to engage in any activity which, were it done by you, would violate any provision of the Proprietary Information and Inventions Agreement or this Section 7. As used in this Section 7.1, the term "any line of business engaged in or under development by the Company" shall be applied as at the date of termination of your employment, or, if later, as at the date of termination of any post-employment consulting arrangement. 7.2 For a period of one (1) year after the termination of your employment with the Company, the provisions of Section 4.2 shall be applicable to you and you shall comply therewith. As applied to such one (1) year post-employment period, the term "any other line of business engaged in or under development by the Company," as used in Section 4.2, shall be applied as at the date of termination of your employment with the Company or, if later, as at the date of termination of any post-employment consulting arrangement with the Company. 7.3 No provision of this Agreement shall be construed to preclude you from performing the same services which the Company hereby retains you to perform for any person or entity which is not a Direct Competitor of the Company upon the expiration or termination of your employment (or any post-employment consulting arrangement) so long as you do not thereby violate any term of the Proprietary Information and Inventions Agreement. 8. REMEDIES. Your obligations under the Proprietary Information and Inventions Agreement and the provisions of Sections 6, 7, 8 and 9 of this Agreement (as modified by Section 10, if applicable) shall survive the expiration or termination of your employment (whether through your resignation or otherwise) with the Company. You acknowledge that a remedy at law for any breach or threatened breach by you of the provisions of the Proprietary Information and Inventions Agreement or Section 7 would be inadequate and you therefore agree that the Company shall be entitled to such injunctive relief in case of any such breach or threatened breach. 9. ASSIGNMENT. This Agreement and the rights and obligations of the parties hereto shall bind and inure to the benefit of any successor or successors of the Company by reorganization, merger or consolidation and any assignee of all or substantially all of its business and properties, but, except as to any such successor or assignee of the Company, neither this Agreement nor any rights or benefits hereunder may be assigned by the Company or by you, except by operation of law. -4- 10. INTERPRETATION. IT IS THE INTENT OF THE PARTIES THAT in case any one or more of the provisions contained in this Agreement shall, for any reason, be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect the other provisions of this Agreement, and this Agreement shall be construed as if such invalid, illegal or unenforceable provision had never been contained herein. MOREOVER, IT IS THE INTENT OF THE PARTIES THAT in case any one or more of the provisions contained in this Agreement shall for any reason be held to be excessively broad as to duration, geographical scope, activity or subject, such provision shall be construed by limiting and reducing it as determined by a court of competent jurisdiction, so as to be enforceable to the extent compatible with applicable law. 11. NOTICES. Any notice which the Company is required to or may desire to give you shall be given by personal delivery or registered or certified mail, return receipt requested, addressed to you at your address of record with the Company, or at such other place as you may from time to time designate in writing. Any notice which you are required or may desire to give to the Company hereunder shall be given by personal delivery or by registered or certified mail, return receipt requested, addressed to the Company at its principal office, or at such other office as the Company may from time to time designate in writing. The date of personal delivery or the date of mailing any notice under this Section 11 shall be deemed to be the date of delivery thereof. 12. WAIVERS. If either party should waive any breach of any provision of this Agreement, such party shall not thereby be deemed to have waived any preceding or succeeding breach of the same or any other provision of this Agreement. 13. COMPLETE AGREEMENT; AMENDMENTS. The foregoing including Exhibits A, B and C hereto, is the entire agreement of the parties with respect to the subject matter hereof, superseding any previous oral or written communications, representations, understandings, or agreements with the Company or any officer or representative thereof. Any amendment to this Agreement or waiver by the Company of any right hereunder shall be effective only if evidenced by a written instrument executed by the parties hereto, upon authorization of the Company's Board of Directors. 14. HEADINGS. The headings of the Sections hereof are inserted for convenience only and shall not be deemed to constitute a part hereof nor to affect the meaning of this Agreement. 15. COUNTERPARTS. This Agreement may be signed in two counterparts, each of which shall be deemed an original and both of which shall together constitute one agreement. 16. GOVERNING LAW. This Agreement shall be governed by and construed under Massachusetts law. If you are in agreement with the foregoing, please sign your name below and also at the bottom of the Proprietary Information and Inventions Agreement, whereupon this Agreement shall become binding in accordance with its terms. Please then return this Agreement to the Company. -5- (You may retain for your records the accompanying counterpart of this Agreement enclosed herewith). Very truly yours, WEBSECURE, INC. By: ----------------------------------------- Carole Ouellette, Chief Financial Officer Accepted and Agreed: - ------------------------------------ Robert Kuzara -6- EXHIBIT A EMPLOYMENT TERM, COMPENSATION AND BENEFITS OF ROBERT KUZARA 1. TERM. The term of the Agreement to which this Exhibit A is annexed and incorporated shall be until April 4, 1999. 2. COMPENSATION. (a) Base Salary. our Base Salary shall be $150,000 per annum, payable in accordance with the Company's payroll policies. (b) Bonuses. You shall be entitled to participate in the Bonus Plan established by the Board of Directors for the President of the Company, as attached to this Agreement such bonuses as may be determined by the Company's Board of Directors. 3. VACATION. You shall be entitled to all legal and religious holidays, and four (4) weeks paid vacation per annum. 4. INSURANCE AND BENEFITS. You shall be eligible for participation in any health or other group insurance plan which may be established by the Company or which the Company is required to maintain by law. You shall also be eligible to receive any other benefits which are provided to any of the executive officers of the Company. 5. STOCK OPTIONS. You shall be entitled to Stock Options as determined by the Board of Directors. -7- EXHIBIT B OUTSIDE EMPLOYMENTS AND DIRECTORSHIPS OF ROBERT KUZARA Employee Resources, Inc. - Director and Officer Business Solutions, Inc. - Director and Officer B-1 EXHIBIT C ----------------- PROPRIETARY INFORMATION AND INVENTIONS AGREEMENT ----------------- To: WebSecure, Inc. As of April 1, 1996 1711 Broadway Corporate Center North Saugus, Massachusetts 01906 The undersigned, in consideration of and as a condition of my employment or continued employment by you and/or by companies which you own, control, or are affiliated with or their successors in business (collectively, the "Company"), hereby agrees as follows: 1. CONFIDENTIALITY. I agree to keep confidential, except as the Company may otherwise consent in writing, and, except for the Company's benefit, not to disclose or make any use of at any time either during or subsequent to my employment, any Inventions (as hereinafter defined), trade secrets, confidential information, knowledge, data or other information of the Company relating to products, processes, know-how, designs, formulas, test data, customer lists, business plans, marketing plans and strategies, pricing strategies, or other subject matter pertaining to any business of the Company or any of its affiliates, which I may produce, obtain, or otherwise acquire during the course of my employment, except as herein provided. I further agree not to deliver, reproduce or in any way allow any such trade secrets, confidential information, knowledge, data or other information, or any documentation relating thereto, to be delivered to or used by any third parties without specific direction or consent of a duly authorized representative of the Company. 2. CONFLICTING EMPLOYMENT; RETURN OF CONFIDENTIAL MATERIAL. I agree that during my employment with the Company I will not engage in any other employment, occupation, consulting or other activity relating to the business in which the Company is now or may hereafter become engaged, or which would otherwise conflict with my obligations to the Company. In the event my employment with the Company terminates for any reason whatsoever, I agree to promptly surrender and deliver to the Company all records, materials, equipment, drawings, documents and data which I may obtain or produce during the course of my employment, and I will not take with me any description containing or pertaining to any confidential information, knowledge or data of the Company which I may produce or obtain during the course of my employment. C-1 3. ASSIGNMENT OF INVENTIONS. 3.1 I hereby acknowledge and agree that the Company is the owner of all Inventions. In order to protect the Company's rights to such Inventions, by executing this Agreement I hereby irrevocably assign to the Company all my right, title and interest in and to all Inventions to the Company. 3.2 For purposes of this Agreement, "Inventions" shall mean all discoveries, processes, designs, technologies, devices, or improvements in any of the foregoing or other ideas, whether or not patentable and whether or not reduced to practice, made or conceived by me (whether solely or jointly with others) during the period of my employment with the Company which relate in any manner to the actual or demonstrably anticipated business, work, or research and development of the Company, or result from or are suggested by any task assigned to me or any work performed by me for or on behalf of the Company. 3.3 Any discovery, process, design, technology, device, or improvement in any of the foregoing or other ideas, whether or not patentable and whether or not reduced to practice, made or conceived by me (whether solely or jointly with others) which I develop entirely on my own time not using any of the Company's equipment, supplies, facilities, or trade secret information ("Personal Invention") is excluded from this Agreement provided such Personal Invention (a) does not relate to the actual or demonstrably anticipated business, research and development of the Company, and (b) does not result, directly or indirectly, from any work performed by me for the Company. 4. Disclosure of Inventions. I agree that in connection with any Invention, I will promptly disclose such Invention to my immediate superior at the Company in order to permit the Company to enforce its property rights to such Invention in accordance with this Agreement. My disclosure shall be received in confidence by the Company. 5. PATENTS AND COPYRIGHTS; EXECUTION OF DOCUMENTS. 5.1 Upon request, I agree to assist the Company or its nominee (at its expense) during and at any time subsequent to my employment in every reasonable way to obtain for its own benefit patents and copyrights for Inventions in any and all countries. Such patents and copyrights shall be and remain the sole and exclusive property of the Company or its nominee. I agree to perform such lawful acts as the Company deems to be necessary to allow it to exercise all right, title and interest in and to such patents and copyrights. 5.2 In connection with this Agreement, I agree to execute, acknowledge and deliver to the Company or its nominee upon request and at its expense all documents, including assignments of title, patent or copyright applications, assignments of such applications, assignments of patents or copyrights upon issuance, as the Company may determine necessary or desirable to C-2 protect the Company's or its nominee's interest in Inventions, and/or to use in obtaining patents or copyrights in any and all countries and to vest title thereto in the Company or its nominee to any of the foregoing. 6. MAINTENANCE OF RECORDS. I agree to keep and maintain adequate and current written records of all Inventions made by me (in the form of notes, sketches, drawings and other records as may be specified by the Company), which records shall be available to and remain the sole property of the Company at all times. 7. PRIOR INVENTIONS. It is understood that all Personal Inventions, if any, whether patented or unpatented, which I made prior to my employment by the Company, are excluded from this Agreement. To preclude any possible uncertainty, I have set forth on Schedule A attached hereto a complete list of all of my prior Personal Inventions, including numbers of all patents and patent applications and a brief description of all unpatented Personal Inventions which are not the property of a previous employer. I represent and covenant that the list is complete and that, if no items are on the list, I have no such prior Personal Inventions. I agree to notify the Company in writing before I make any disclosure or perform any work on behalf of the Company which appears to threaten or conflict with proprietary rights I claim in any Personal Invention. In the event of my failure to give such notice, I agree that I will make no claim against the Company with respect to any such Personal Invention. 8. OTHER OBLIGATIONS. I acknowledge that the Company from time to time may have agreements with other persons or with the U.S. Government or agencies thereof, which impose obligations or restrictions on the Company regarding Inventions made during the course of work thereunder or regarding the confidential nature of such work. I agree to be bound by all such obligations and restrictions and to take all action necessary to discharge the Company's obligations. 9. TRADE SECRETS OF OTHERS. I represent that my performance of all the terms of this Agreement and my position as an employee of the Company do not and will not breach any agreement to keep confidential proprietary information, knowledge or data acquired by me in confidence or in trust prior to my employment with the Company, and I will not disclose to the Company, or induce the Company to use, any confidential or proprietary information or material belonging to any previous employer or others. I agree not to enter into any agreement either written or oral in conflict herewith. 10. MODIFICATION. I agree that any subsequent change or changes in my employment duties, salary or compensation or, if applicable, in any Employment Agreement between the Company and me, shall not affect the validity or scope of this Agreement. 11. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon my heirs, executors, administrators or other legal representatives and is for the benefit of the Company, its successors and assigns. C-3 12. INTERPRETATION. IT IS THE INTENT OF THE PARTIES THAT in case any one or more of the provisions contained in this Agreement shall, for any reason, be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect the other provisions of this Agreement, and this Agreement shall be construed as if such invalid, illegal or unenforceable provision had never been contained herein. MOREOVER, IT IS THE INTENT OF THE PARTIES THAT in case any one or more of the provisions contained in this Agreement shall for any reason be held to be excessively broad as to duration, geographical scope, activity or subject, such provision shall be construed by limiting and reducing it in accordance with a judgment of a court of competent jurisdiction, so as to be enforceable to the extent compatible with applicable law. 13. WAIVERS. If either party should waive any breach of any provision of this Agreement, he or it shall not thereby be deemed to have waived any preceding or succeeding breach of the same or any other provision of this Agreement. 14. COMPLETE AGREEMENT, AMENDMENTS. I acknowledge receipt of this Agreement, and agree that with respect to the subject matter thereof it is my entire agreement with the Company, superseding any previous oral or written communications, representations, understandings, or agreements with the Company or any officer or representative thereof. Any amendment to this Agreement or waiver by either party of any right hereunder shall be effective only if evidenced by a written instrument executed by the parties hereto, and, in the case of the Company, upon written authorization of the Company's Board of Directors. 15. HEADINGS. The headings of the sections hereof are inserted for convenience only and shall not be deemed to constitute a part hereof nor to affect the meaning thereof. 16. COUNTERPARTS. This Agreement may be signed in two counterparts, each of which shall be deemed an original and both of which shall together constitute one agreement. [THIS SPACE INTENTIONALLY LEFT BLANK] C-4 17. GOVERNING LAW. This Agreement shall be governed and construed under Massachusetts law. --------------------------------- Robert Kuzara Accepted and Agreed: WEBSECURE, INC. By: - -------------------------------------------- Carole Ouellette, Chief Financial Officer C-5 SCHEDULE A LIST OF PRIOR INVENTIONS Identifying Number of patents and patent applications Title Date or Brief Description of unpatented personal invention - ----- ---- ----------------------------------------------------- C-6 EX-99.10F 15 FORM OF SUBSCRIPTION AGREEMENT NAME OF OFFEREE: ----------------- NETSAFE(TM), INC. LIMITED OFFERING FOR ACCREDITED INVESTORS ONLY SUBSCRIPTION AGREEMENT NOVEMBER 27, 1995 INSTRUCTIONS ------------ 1. Fill in missing information on page 1 and in Sections 6.1 and 6.2. 2. Complete and sign the Subscription Agreement in Section 6.2. 3. Return the Subscription Agreement to O'Connor, Broude & Aronson, 950 Winter Street, Suite 2300, Waltham, Massachusetts 02154, Attention: Andrew D. Myers, Esquire. SUBSCRIPTION AGREEMENT Limited Offering of up to 500,000 Shares of Common Stock, $.01 par value per share, at $4.00 per Share, of Netsafe, Inc. (a) Number of Shares subscribed for ________ (b) Total Subscription Price (multiply (a) by $4.00 per Share) $_______ THE UNDERSIGNED ("Subscriber") hereby subscribes for the number of shares of Common Stock, $.01 par value per share (the "Shares"), offered by Netsafe, Inc., a Delaware corporation (the "Company"), set forth in (a) above. The Subscriber hereby agrees to pay the amount set forth in (b) above upon execution of this Agreement, subject to and in accordance with the following terms, conditions, and investment risks. SECTION 1. SUBSCRIPTION FOR SHARES 1.1 Subscriber hereby deposits with O'Connor, Broude & Aronson, as escrow agent for Netsafe, Inc.,the amount set forth in (b) above via wire transfer, certified or bank check to Cambridge Trust Company, Cambridge, Massachusetts, ABA #011300595, Account #57-240-3-01, for credit to or drawn to the order of "O'Connor, Broude & Aronson - Client Fund Account for Netsafe, Inc." Upon acceptance of this Agreement, the Company may immediately use the funds deposited for working capital and general corporate purposes. Should this Agreement not be accepted by the Company, the funds shall be promptly returned to the Subscriber without interest thereon. 1.2 The Company shall deliver to the Subscriber a stock certificate representing the Shares of Common Stock purchased by Subscriber hereunder, registered in the Subscriber's name promptly following acceptance of this Subscription Agreement by the Company. The Shares issued hereunder, when delivered to the Subscriber in accordance with the terms hereof, shall be duly authorized by appropriate corporate action and shall constitute validly issued and outstanding securities of the Company. 1.3 Subscriber hereby understands and agrees that the Company reserves the right to reject this subscription for the Shares, as a whole or in part, if in the Company's judgment it deems such action to be in the best interest of the Company. In the event of rejection of this Subscription, -1- said payment will promptly be returned to Subscriber without interest or deduction, and to the extent applicable, this Subscription Agreement shall have no force or effect. 1.4 Subscriber agrees that he will not transfer or assign this Subscription Agreement or any of Subscriber's interest herein. Subscriber may not cancel, terminate or revoke this Subscription Agreement, and this Subscription Agreement will be binding upon Subscriber's successors and assigns. 1.5 The Subscriber undertakes to execute and deliver to the Company within ten (10) days after receipt of the Company's request therefor, such further designations, powers of attorney and other instruments as the Company deems necessary or appropriate to carry out the provisions of this Agreement. 1.6 The Subscriber acknowledges that the Shares are being sold to him pursuant to exemptions from the registration provisions of the Act and the securities laws of the state of his legal residence, in reliance upon the representations made by the Subscriber herein. THE SUBSCRIBER UNDERSTANDS THAT AN INVESTMENT IN THE SECURITIES OF THE COMPANY INVOLVES A HIGH DEGREE OF RISK AND HE HAS CAREFULLY CONSIDERED THE IMPACT OF THE RISKS IDENTIFIED UNDER "RISK FACTORS" IN THE ACCOMPANYING CONFIDENTIAL LIMITED OFFERING MEMORANDUM. SECTION 2. REPRESENTATIONS, WARRANTIES, ACKNOWLEDGEMENTS AND COVENANTS OF SUBSCRIBERS The Subscriber acknowledges that the Company is offering the Shares in reliance upon the representations, warranties, covenants and other information presented by the Subscriber herein. The Subscriber undertakes to notify the Company immediately of any changes in any of the representations, warranties, and other information contained herein. In order to induce the Company to accept the subscription made hereby, the Subscriber hereby represents, warrants, acknowledges and covenants to the Company as follows: 2.1 Sophistication. The Subscriber acknowledges that he or she has prior investment experience, including investment in non-listed and non-registered securities, or that he or she has employed the services of an investment advisor, attorney or accountant to read all of the documents furnished or made available by the Company both to him or her and to all other prospective subscribers in connection with this Limited Offering and to evaluate the merits and risks of such an investment on his or her behalf. 2.2 Access to Information. The Subscriber acknowledges that he and his representatives, if any, have reviewed the Company's Confidential Limited Offering Memorandum, dated November -2- 27, 1995 (the "Memorandum"), and have been given access through meetings with representatives of the Company to current and other information about the Company as well as an opportunity to ask questions of the Company's officers and directors about the information to which he and his representatives have been given access. The Subscriber understands all of the risk factors related to the purchase of the Shares, including those described under "Risk Factors" in the Memorandum. The Subscriber or his legal counsel or investment advisor has been given a full opportunity to ask questions of, and to receive answers from, the Company and its officers and directors concerning the terms and conditions of the offering and the business of the Company and to obtain additional information necessary to verify the accuracy of the information concerning the Company, or such other information as he or his legal counsel or investment advisor desired in order to evaluate an investment in the Shares, and all such questions have been answered to the full satisfaction of the undersigned. 2.3 Investment Representation. The Subscriber represents that he is acquiring the securities hereunder for his own account and not with a view to reselling or otherwise distributing such securities in violation of any federal securities laws and understands and agrees that the securities to be issued hereunder are restricted on transfer and must be held unless they are registered under the Securities Act or an exemption from registration is available, and the Company has received an opinion of counsel, in form and substance satisfactory to it, to such effect. 2.4 Authority. The Subscriber represents that he has full legal power and authority to enter into this Subscription Agreement and to purchase the Shares. 2.5 Decision to Invest. In making his decision to purchase the Shares herein subscribed for, the Subscriber has relied solely upon the information about the Company provided to him and upon independent investigations made by him or his legal counsel or investment advisor. He is not relying on any representations or warranties from the Company or any of its officers, directors, affiliates, employees or agents other than the information provided by the Company to him in this offering. 2.6 Unregistered Securities. The Subscriber understands that the Shares have not been registered under the Securities Act of 1933, as amended (the "Act"), in reliance upon specific exemptions from registration thereunder, and understands that it is not anticipated that there will be any market for resale of the Shares and that it may not be possible for the undersigned to liquidate an investment in the Shares on an emergency basis. 2.7 No State Review. The Subscriber acknowledges that the Shares are being sold pursuant to exemptions from the registration requirements of the state indicated as the Subscriber's state of residence, that no securities commission or regulatory authority has approved, passed upon, or endorsed the merits of this Offering, nor is it intended that any such agency will do so. Any representation to the contrary is unlawful. -3- 2.8 State Residence Status. The Subscriber represents that he is a resident and domiciliary (not a temporary or transient resident) of the state, county, and country set forth below, has no present intention to become a resident of any other jurisdiction, and all communications, written or oral, concerning the Shares have been directed to the Subscriber in, and received by him in, such state jurisdiction. 2.9 No Representation on Company's Results of Operations. There has never been represented, guaranteed, or warranted to the Subscriber by any broker, the Company, its officers, directors or agents, or employees or any other person, expressly or by implication the level of future revenues or profitability of the Company 2.10 Non-Transferability of the Shares. The Subscriber recognizes that the Shares cannot be sold or otherwise transferred without registration under the the Act and any applicable state laws or an opinion of counsel, concurred in by counsel for the Company, has been delivered to the effect that registration of such securities is not required because of exemptions therefrom. The Subscriber further recognizes: (i) that restrictive legends will appear on the certificates or other documents evidencing the securities stating that the securities have not been registered under the Act or any state securities or "blue sky" laws and setting forth the restrictions on the sale and transfer of the securities; (ii) that the Company's transfer agent will be given stop transfer orders and other instructions, or notations will be made in the appropriate Company records, concerning these restrictions; and (iii) that there are no buy back rights for the Company or for subscribers for the Shares. These restrictions shall obligate all successors in the interest to such Shares. In addition, Subscriber agrees that he or she will not transfer, pledge, hypothecate or assign the Shares for a period of nine months following an initial public offering of Common Stock of the Company. Subscriber agrees to sign any lock-up or similar letter required by a managing underwriter of such initial public offering, if any, to further evidence such agreement. 2.11 Accredited Investor. The Subscriber acknowledges that he or she must be an Accredited Investor, as described herein, to qualify for the purchase of the shares of Common Stock, and that he or she must be able to bear the economic risk of this investment. 2.12 No Public Market for Shares. The Subscriber understands that no public market for the Company's Common Stock exists, that no public market may ever develop for the Common Stock, and that the Shares may never qualify for an exemption from registration under the Securities Laws. The Subscriber understands and hereby acknowledges that the Company is under no obligation to register the Shares under the Securities Laws, or to take any action to qualify the Shares under any exemption from registration under the Securities Laws. SECTION 3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY The Company hereby represents and warrants to the Subscribers that as of the date hereof, except as otherwise set forth herein: -4- 3.1 Organization and Corporate Power. The Company is a Company duly organized, validly existing and in good standing under the laws of the State of Delaware, and is qualified to do business as a foreign Company in each jurisdiction in which such qualification is required, except where failure so to qualify would not have a material adverse effect on the Company. The Company has all required corporate power and authority to own its property, to carry on its business as presently conducted or contemplated, to enter into and perform this Agreement and generally to carry out the transactions contemplated hereby. 3.2 Capitalization. As of the date of this Agreement, the authorized capital stock of the Company consists of 2,000,000 shares of Common Stock, $.01 par value per share, 807,500 of which are issued and outstanding. Two former employees of the Company have advised the Company that they believe they have rights of ownership to an additional 70,000 shares of the Company's Common Stock in the aggregate. The Company disputes these claims and believes them to be without merit. The Company is currently engaged in discussions with these employees to resolve this dispute and cannot currently predict the outcome of such discussions. A resolution of these claims could result in the issuance of up to or in excess of 70,000 shares, which would result in additional dilution to Subscriber. 3.3 Authorization. This Agreement, and all documents and instruments executed pursuant hereto, are legal, valid and binding obligations of the Company, enforceable in accordance with their terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium and other laws applicable to creditors' rights and remedies and to the exercise of judicial discretion in accordance with general principles of equity. The execution, delivery and performance of this Agreement and the issuance of the shares of Common Stock have been duly authorized by all necessary corporate or other action of the Company. SECTION 4. RISK FACTORS. The Shares offered hereby involves a high degree of risk. Subscribers should carefully consider the information presented under "Risk Factors" in the Memorandum. SECTION 5. MISCELLANEOUS PROVISIONS 5.1 Definition of Common Stock. As used in this Agreement, the term "Common Stock" shall mean and include the Company's authorized Common Stock, $.01 par value per share. 5.2 Use of Speech. All pronouns contained herein and any variations thereof, shall be deemed to refer to the masculine, feminine or neuter, singular or plural, as the identity of the parties may require. 5.3 Waiver. No waiver of any right under this Agreement shall be deemed effective unless contained in a writing signed by the party charged with such waiver, and no waiver of any right arising from any breach or failure to perform shall be deemed to be a waiver of any future such right or of any other right arising under this Agreement. -5- 5.4 Entire Agreement; Modification. This Agreement constitutes the entire agreement between the parties and supersedes any prior understanding or agreements concerning the subject matter hereof. This Agreement may not be amended, modified, or terminated except by a written instrument signed by the Company. 5.5 Severability. The invalidity or unenforceability of any provision hereof shall in no way affect the validity or enforceability of any other provision. 5.6 Governing Law. This Agreement shall be deemed to have been made and defined in the Commonwealth of Massachusetts and the validity and interpretation hereof and thereof and the performance hereunder and thereunder shall be governed by and construed in accordance with the laws of the Commonwealth of Massachusetts (without regard to the conflict of law principles thereof). Subscriber agrees that any disputes arising with respect to or in connection with this Agreement shall be finally decided in accordance with the rules of arbitration. 5.7 Notices. All notices, requests, and communications related to this Agreement will be deemed given if and when delivered personally or sent by registered or certified mail, return receipt requested, postage prepaid, to the Company at Netsafe, Inc., 1711 Broadway, Corporate Center North, Saugus, Massachusetts 01906, with a copy to Andrew D. Myers, Esquire, O'Connor, Broude & Aronson, 950 Winter Street, Suite 2300, Waltham, Massachusetts 02154, and to the Subscriber at the address set forth below, or, as to each of the foregoing, at such other address as shall be designated by the addressee in a written notice to the other parties complying as to delivery with the terms of this Section 5.7 Notwithstanding anything to the contrary contained in this Agreement, all notices, requests, demands and other communications shall be effective when received. 5.8 Binding Effect. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective legal representatives and successors. 5.9 Headings. Headings contained in this Agreement are only as a matter of convenience and in no way define, limit, extend, or describe the scope of this Agreement or the intent of any provisions hereof. 5.10 Unenforceability. If any provision of this Agreement is or becomes or is deemed invalid, illegal, or unenforceable in any jurisdiction, to the maximum extent permissible, such provision shall be deemed amended to conform to applicable laws so as to be materially altering the intention of the parties, it shall be stricken and the remainder of this Agreement shall remain in full force and effect. 5.11 Assignment. The Subscriber may not assign this Agreement or its rights hereunder without the Company's written consent. -6- 5.12 Multiple Subscribers. If more than one person is signing this Agreement, each representation, warranty, and undertaking stated herein shall be the joint and several representation, warranty, and undertaking of each such person. The Subscribers understand the meaning and legal consequences of the representations and warranties contained in this Agreement. 5.13 Indemnification. Subscriber hereby agrees to indemnify and hold harmless the Company, its officers, directors, shareholders, employees, agents, and attorneys against any and all losses, claims, demands, liabilities, and expenses (including reasonable legal or other expenses, including reasonable attorneys' fees) incurred by each such person in connection with defending or investigating any such claims or liabilities, whether or not resulting in any liability to such person, to which any such indemnified party may become subject under the Securities Act, under any other statute, at common law or otherwise, insofar as such losses, claims, demands, liabilities and expenses (a) arise out of or are based upon any untrue statement or alleged untrue statement of a material fact made by Subscriber and contained in this Subscription Agreement, or (b) arise out of or are based upon any breach of any representation, warranty, or agreement made by Subscriber contained herein. 5.14 Counterparts. This Agreement may be executed simultaneously in any number of counterparts, each of which when so executed and delivered shall be taken to be an original; but such counterparts shall together constitute but one and the same document. 5.15 Acceptance of Subscription. The Company may accept this Subscription Agreement at any time for all or any portion of the Shares subscribed for by executing a copy hereof as provided and notifying Subscriber within a reasonable time thereafter. [THIS SPACE INTENTIONALLY LEFT BLANK] -7- SECTION 6. SUBSCRIPTION. 6.1 Accredited Investor Status. Please indicate whether you fit within any of the following definitions of an "accredited investor:" ____ Any natural person whose net worth, or joint net worth, with that person's spouse, at the time of his purchase exceeds $1,000,000; ____ Any natural person who had an individual income in excess of $200,000 in each of the two most recent years (or $300,000 jointly with his spouse) and who reasonably expects an income in excess of $200,000 (or $300,000 jointly with his spouse) in the current year; ____ Any corporation, partnership, or business trust not formed for the specific purpose of making the investment and having assets in excess of $5,000,000; ____ Any trust with total assets in excess of $5,000,000, not formed for the specific purpose of acquiring the securities offered, whose purchase is directed by a sophisticated person; ____ Any entity in which all of the equity owners are accredited investors; ____ Any bank, savings and loan association, broker, dealer, insurance company, investment company, business development company, or small business investment company; ____ Any employee benefit plan with assets greater than $5,000,000 or where the investment decision is made by a bank, savings and loan association, insurance company, or registered investment advisor; ____ Any self-directed employee benefit plan if the investment decisions are made solely by accredited investors; or ____ None of the above (please indicate). [THIS SPACE INTENTIONALLY LEFT BLANK] -8- 6.2. Subscription. Your signature below on this page evidences your agreement to be bound by the Subscription Agreement, and indicates your assent to the following statements: 1. The undersigned represents that (a) the information contained in this Subscription Agreement is complete and accurate and (b) that the undersigned will notify the Company's counsel, O'Connor, Broude & Aronson, (617) 890-6600, Attention: Andrew D. Myers, Esquire, immediately if any material change in any of this information occurs before the acceptance of the undersigned subscription and will promptly send written confirmation of such change; and 2. The undersigned hereby certifies that he or she has read and understands the Subscription Agreement. The undersigned also acknowledges that he or she has received a copy of the Memorandum. ------------------------------------ Date ------------------------------------ Signature ------------------------------------ Name (Please Type or Print) INDIVIDUAL: - ------------------------------- ------------------------------------ Print Name of Individual Social Security Number - ------------------------------- ------------------------------------ Signature of Individual Number and Street - ------------------------------- ------------------------------------ Date: City and State Manner in which Shares are to be held: ____ Individual Ownership ____ Joint Tenant with Right of Survivorship ____ Community Property ____ Separate Property ____ Partnership ____ Trust or Other (please indicate) -9- CORPORATE OR OTHER ENTITY: By: - --------------------------------- -------------------------------- Print Name of Entity Signature - --------------------------------- -------------------------------- Federal ID Number Print Name and Title of Signatory - --------------------------------- -------------------------------- Date: Number and Street -------------------------------- City and State NOTE: PLEASE SIGN AND RETURN BOTH COPIES OF THIS PAGE. ****************************** By signing below the undersigned accepts the foregoing subscription and agrees to be bound by its terms. NETSAFE, INC. Date: , 199_ By: ------------------------------- Robert Kuzara, President -10- CORPORATE OR OTHER ENTITY: By: - ------------------------------ ------------------------------- Print Name of Entity Signature - ------------------------------ ------------------------------- Federal ID Number Print Name and Title of Signatory - ------------------------------ ------------------------------- Date: Number and Street ------------------------------- City and State NOTE: PLEASE SIGN AND RETURN BOTH COPIES OF THIS PAGE. ****************************** By signing below the undersigned accepts the foregoing subscription and agrees to be bound by its terms. NETSAFE, INC. Date: , 199_ By: -------------------------------- Robert Kuzara, President -11- EX-11 16 COMPUTATION OF SHARES Exhibit 11 WebSecure, Inc. Computation of Shares Used in Computing Net Loss Per Common and Common Equivalent Shares The following table presents information used in calculating the net loss per common and common equivalent shares:
Period from Cumulative Nine Months Inception from Inception Ended (July 19, 1995) to (July 19, 1995) May 31, 1996 August 31, 1995 to May 31, 1996 - -------------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------------- Weighted average number of shares of common stock outstanding, as adjusted for application of SAB No. 83(a): Founders 782,500 782,500 782,500 For professional services 20,000 20,000 20,000 Private offering 500,000 500,000 500,000 Issurance of common stock in connection with the acquisition of research and development 802,500 802,500 802,500 Common stock equivalents: Assumed exercise of stock options calculated under the treasury stock method 199,900 199,900 199,900 Convertible securities: Conversion of 625 000 shares of Class B common stock to common stock 2,500,000 2,500,000 2,500,000 - -------------------------------------------------------------------------------------------------------------------------- Shares used in computing loss per share of common and common equivalent shares 4,804,900 4,804,900 4,804,900 - -------------------------------------------------------------------------------------------------------------------------- Net loss applicable to common and common equivalent shares $(7,258,649) $(33,626) $(7,292,275) Net loss per share of common and common equivalent shares $ (1.51) $(.01) $(1.52) - -------------------------------------------------------------------------------------------------------------------------- - ------------------------------- (a) Pursuant to Securities and Exchange Commission Staff Accounting Bulletin No. 83 ("SAB No. 83"), common stock and common equivalent share issued within one year of the initial public offering at a price less than the initial public offering price is treated as outstanding for all periods presented.
EX-23.A 17 CONSENT OF BDO SEIDMAN, LLP CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS We hereby consent to the use in the Prospectus, constituting part of this Registration Statement, of our report dated September 6, 1996 on the financial statements of WebSecure, Inc. as of May 31, 1996 and August 31, 1995 and for the nine months ended May 31, 1996, and the period from inception (July 19, 1995) to August 31, 1995 and for the period from inception to May 31, 1996. We also consent to the reference to us under the caption "Experts" in said prospectus. /s/ BDO Seidman, LLP Boston, Massachusetts September 6, 1996 EX-27 18 FINANCIAL DATA SCHEDULE
5 9-MOS AUG-31-1996 MAY-31-1996 0 0 19,248 0 10,295 966,114 777,844 (138,008) 1,860,516 974,209 0 0 0 27,300 531,150 1,860,516 41,772 41,772 71,821 7,273,335 0 0 27,086 (7,258,649) 0 (7,258,649) 0 0 0 (7,258,649) (1.51) (1.51)
-----END PRIVACY-ENHANCED MESSAGE-----