-----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, VXRV4J9JicjK5m5FvTZcocQqsXBrG+8b5ZtkRyij6nsPT3neoFl9KotlvwXOvhqS CsigMd7+qf9MucJF+wK8AQ== 0000903893-96-000874.txt : 19961028 0000903893-96-000874.hdr.sgml : 19961028 ACCESSION NUMBER: 0000903893-96-000874 CONFORMED SUBMISSION TYPE: SB-2/A PUBLIC DOCUMENT COUNT: 11 FILED AS OF DATE: 19961025 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: WEBSECURE INC CENTRAL INDEX KEY: 0001003504 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMPUTER PROCESSING & DATA PREPARATION [7374] IRS NUMBER: 043296069 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SB-2/A SEC ACT: 1933 Act SEC FILE NUMBER: 333-11751 FILM NUMBER: 96648028 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/A 1 AMENDMENT NO.1 TO SB-2 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 25, 1996 REGISTRATION NO. 333-11751 ================================================================================ SECURITIES AND EXCHANGE COMMISSION 7 WORLD TRADE CENTER NEW YORK, NEW YORK 10048 _______________ AMENDMENT NO. 1 TO Form SB-2 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 _______________ WEBSECURE, INC. (EXACT NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER) _______________ DELAWARE 04-3296069 (STATE OR OTHER 7374 (I.R.S. EMPLOYER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL IDENTIFICATION NO.) INCORPORATION OR CLASSIFICATION CODE NUMBER) ORGANIZATION) _______________ ROBERT KUZARA, CHIEF EXECUTIVE OFFICER 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 _______________ If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of earlier effective registration statement for the same offering. [ ] If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] 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] _______________ 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 Management -- Directors and Persons ............................................. 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 Management -- Limitation on Officers' and for Securities Act Liabilities ...................... 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
SUBJECT TO COMPLETION, DATED OCTOBER 24, 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 $6.00 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 National Association of Securities Dealers Automated Quotation System -- Small-Cap Market ("NASDAQ") and The Boston Stock Exchange (the "BSE") under the symbols "WEBS" and "WEBS.W", 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 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 $480,000, 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 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. 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 TRANSACTIONS MAY BE EFFECTED ON NASDAQ, THE BSE, 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 in Massachusetts on July 19, 1995 and was reincorporated under Delaware law on September 12, 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 NASDAQ and BSE Symbols(3): Common Stock .......... WEBS Redeemable Warrants ... WEBS.W ______________ (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 402,200 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 FISCAL YEAR INCEPTION INCEPTION ENDED (JULY 19, 1995) TO (JULY 19, 1995) TO AUGUST 31, 1996 AUGUST 31, 1995 AUGUST 31, 1996 --------------- --------------- --------------- STATEMENT OF OPERATIONS DATA: Revenue ................................................... $ 97,255 $ -- $ 97,255 Loss from operations ...................................... (7,877,804) (33,626) (7,911,430) Net loss .................................................. (7,924,014) (33,626) (7,957,640) Net loss per common and common equivalent share(1) ........ (1.65) (0.01) (1.66) Shares used in computing net loss per common and common equivalent share(1) ..................................... 4,805,050 4,805,050 4,805,050
AUGUST 31, 1996 --------------- ACTUAL AS ADJUSTED(2) ------ -------------- BALANCE SHEET DATA: Current assets ............................................ $ 106,976 $ 6,088,976 Total assets .............................................. 1,745,948 7,303,888 Working capital (deficiency) .............................. (1,441,857) 5,636,203 Total liabilities ......................................... 1,849,263 753,203 Stockholders' equity (capital deficit) .................... (103,315) 6,550,685
______________ (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 $6,654,000 from the sale of the Securities offered hereby on the initial application of such proceeds to reduce certain indebtedness. See "RISK FACTORS -- Substantial Options and Warrants Reserved," "USE OF PROCEEDS" 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 fiscal year ended August 31, 1996, the period from inception (July 19, 1995) to August 31, 1995 and for the cumulative period from inception (July 19, 1995) to August 31, 1996 states that the Company incurred a cumulative net loss of $7,957,640 through August 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 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 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 8 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 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 9 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 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. The Company anticipates that it may seek to secure loan financing as business and economic conditions warrant. If additional funds are raised through the issuance of debt, the Company will be subject to certain risks associated with debt 10 financing, including those attributable to interest rate fluctuations and insufficient cash flow. No assurance can be given that additional financing will be available when needed on terms favorable to the Company or at all. Substantially all of the Company's assets have been pledged as security for the Company's obligations under an equipment lease agreement. The presence of a first priority security interest in the Company's assets could have the effect of impeding the Company's attempts to procure additional financing when needed. 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 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 11 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 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." 12 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 407,200 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; Speculative Investment. Purchasers of the Redeemable Warrants will have the right to exercise them to purchase shares of Common Stock only if 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 13 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. No assurance can be given that the per share market price of the Common Stock will ever increase to exceed the exercise price of the Redeemable Warrants. Therefore, it may never become economically justifiable to exercise the Redeemable Warrants prior to the expiration of the Redeemable Warrants on . The failure of the per share market price of the Common Stock to increase to exceed the exercise price of the Redeemable Warrants will, eventually, cause the Redeemable Warrants to have no economic value. Because of the speculative nature of the Securities, an investment in the Securities should only be considered by those who can bear the risk of a loss of their entire investment. 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 $750,000 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 $6,654,000 ($6,680,100 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 ............................................... 750,000 Working Capital and General Corporate Purposes .......................... 904,000 ---------- $6,654,000 ==========
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 $750,000 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 October 22, 1996, the principal balance on these notes was approximately $700,000. See "PRINCIPAL AND SELLING STOCKHOLDERS" and "CERTAIN TRANSACTIONS." WORKING CAPITAL AND GENERAL CORPORATE PURPOSES Approximately $904,000 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. The Company may deposit up to $600,000 allocated to working capital and general corporate purposes as collateral to secure payment under a capital lease agreement with a commercial bank. As of October 22, 1996, the Company had approximately $600,000 outstanding under this agreement. See "PLAN OF OPERATION - -- Liquidity and Capital Resources." 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 August 31, 1996, the net tangible book value of the Company was approximately ($527,375), or ($.11) 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 August 31, 1996. After giving effect to the receipt of the net proceeds (estimated to be approximately $6,654,000) from the sale of the Securities offered hereby, the pro forma net tangible book value of the Company at August 31, 1996, would have been approximately $6,550,685 or $1.17 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 $7.03 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 August 31, 1996 . ($ .11) Increase in net tangible book value per share of Common Stock(1) ........... 1.28 ---- Pro forma net tangible book value per share of Common Stock after Offering(2) ............................................................... $ 1.17 ====== Dilution of net tangible book value per share of Common Stock to new investors ................................................................. $ 7.03 ======
____________ (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 402,200 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% 7,854,325 50.0% $1.71 --------- ---- --------- ---- TOTAL ................................. 5,605,000 100.0% $15,854,325 100.0% ========= ===== =========== =====
_____________ (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 August 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."
AUGUST 31, 1996 PRO FORMA ACTUAL AS ADJUSTED Capital lease obligations, net of current .................... $ 300,430 $ 300,430 ----------- ----------- 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 14,452,275 Accumulated deficit .......................................... (7,957,640) (7,957,640) ---------- ---------- Total stockholders' equity (capital deficit) ............... (103,315) 6,550,685 ---------- ---------- TOTAL CAPITALIZATION ......................................... $ 197,115 $ 6,851,115 =========== ===========
_____________ (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 402,200 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 August 31, 1996 and the balance sheet at August 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 FISCAL YEAR INCEPTION FROM INCEPTION ENDED (JULY 19, 1995)TO (JULY 19, 1995)TO AUGUST 31, 1996 AUGUST 31, 1995 AUGUST 31, 1996 ---------------- ---------------- --------------- STATEMENT OF OPERATIONS DATA: Revenues: Services .............................................. $ 78,833 $ -- $ 78,833 ----------- ------------ ----------- Products .............................................. 18,422 -- 18,422 ----------- ------------ ----------- Total revenues ...................................... 97,255 -- 97,255 ----------- ------------ ----------- Cost of revenues: Services .............................................. 177,469 -- 177,469 Products .............................................. 15,971 -- 15,971 ----------- ------------ ----------- Total cost of revenues ............................. 193,440 -- 193,440 ----------- ------------ ----------- Gross margin ....................................... (96,185) -- (96,185) ----------- ------------ ----------- Operating expenses: Research and development .............................. 577,439 809 578,248 Selling and marketing ................................. 298,680 1,946 300,626 General and administrative ............................ 1,145,500 30,871 1,176,371 Charge for acquired research and development .......... 5,760,000 -- 5,760,000 ----------- ------------ ----------- Total operating expenses ........................... 7,781,619 33,626 7,815,245 ----------- ------------ ----------- Loss from operations ............................... (7,877,804) (33,626) (7,911,430) Interest expense, net ................................... (46,210) -- (46,210) ----------- ------------ ----------- Net loss ........................................... $(7,924,014) $ (33,626) $(7,957,640) =========== ============ =========== Net loss per common and common equivalent share(1) .......................................... $ (1.65) $ (.01) $ (1.66) =========== ============ =========== Shares used in computing net loss per common and common equivalent share(1) ..................... 4,805,050 4,805,050 4,805,050 =========== ============ ===========
AUGUST 31, 1996 --------------- ACTUAL AS ADJUSTED(2) ------ -------------- BALANCE SHEET DATA: Current assets $ 106,976 $ 6,088,976 Total assets 1,745,948 7,303,888 Working capital (deficiency) (1,441,857) 5,636,203 Total liabilities 1,849,263 753,203 Stockholders' equity (capital deficit) (103,315) 6,550,685
(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 $6,654,000 from the sale of the Securities offered hereby and the initial application thereof. See "RISK FACTORS -- Substantial Options and Warrants Reserved," "USE OF PROCEEDS" 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 establishing (i) a commercial Web site domain, (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. The Company also resells SBT, a prepackaged accounting software program. 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 August 31, 1996 relate to the Company's initial organization, establishment of infrastructure and provision of 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 August 31, 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 $1,176,371 for the period from inception to August 31, 1996. Approximately $1,007,000 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 August 31, 1996 was ($1,441,857). The Company has two capital lease agreements which are secured by fixed assets and guaranteed by Centennial. The outstanding balance as of August 31, 1996 for one of these agreements, was approximately $372,000, bears interest at the rate of 10.35% per annum and matures in December 2000. In September 1996, the Company entered into the second capital lease agreement under which it may borrow up to $1,000,000. As of October 22, 1996, the Company had drawn $600,000 against this lease agreement. This amount bears interest at the rate of 10.5% per annum and matures in September 2001. The Company has agreed to deposit as collateral a portion of the proceeds from the Offering equal to the amount outstanding under this agreement. See "USE OF PROCEEDS" and "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 establishing (i) a commercial Web site domain, (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. The Company also resells SBT, a prepackaged accounting software program. 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 believes that its commercial host services will 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. Management of the Company believes that 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. The Company has designed links within customers' Web sites that contain order forms. When a user visits the link containing such forms, software can 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 may 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 can 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 may 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. PERSONNEL As of August 31, 1996, the Company had 24 full-time personnel that were leased from ERI, of which three were executive officers (one of which is also involved with sales and marketing), eight were involved with sales and marketing functions, six were involved with research and product development, three were involved with administration and four were involved with operations and 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 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 subleases approximately 2,000 square feet of this space 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 ......................... 58 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 Michael Appe ............................ 45 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. Since July 1995, Dr. Blocher has 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. As part of his employment agreement with the Company, Mr. Blocher has agreed to devote a minimum of 40 hours per week to the business of the Company. Dr. Blocher has a Ph.D. in computer science from Boston University and a Masters in Mathematics from Boston University. 29 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 $132,000 $0 $7,500 (1) For the period from inception (July 19, 1995) to August 31, 1996. (2) Mr. Kuzara received a monthly car allowance of $1,000 per month from August 1995 through May 1996.
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. 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 30 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. In October 1996, the Company entered into an employment and non-competition agreement with Mr. Blocher, the Company's Chief Technical Officer, that expires on October 1, 1999 (the "Blocher Employment Agreement"). The Blocher Employment Agreement provides for an annual salary of $102,000 plus bonuses as may be determined by the Company's Board of Directors. Mr. Blocher is entitled to receive benefits offered to other executive officers of the Company as well as severance benefits equal to 150% of his 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) his employment is terminated without cause (as defined below); (iii) his salary is reduced without his consent; (iv) there is a change in his principal place of employment from the greater Boston, Massachusetts area without his consent or (v) his employment agreement is not renewed wihout his consent. The Blocher Employment Agreement provides that "cause" includes (i) the material and repetitive failure or refusal to 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 Blocher Employment Agreement contains a provision prohibiting Mr. Blocher from competing with the Company for a six-month 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. 31 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. 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 402,200 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 4/01/01 President and Chief Executive Officer Carole Ouellette................................. 17,500 $4.00 4/01/01 Chief Financial Officer William Blocher.................................. 50,000 $4.00 2/12/01 Chief Technical Officer
32 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 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) --------------------------------------- ------------ -------- ----------- International Software Development Limited ............... 802,500 17.4% 14.3% 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 0 0 All Officers and Directors as a Group(1)(3)(5)(6)(7)(8)(9) ............................. 240,000 5.2 4.3
___________ (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 April 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 April 1997. (9) Does not include options to purchase 50,000 shares of Common Stock at $4.00 per share issuable upon exercise of stock options held by Mr. Blocher that vest beginning in April 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"), ERI and Cauldron Corp. ERI is and Cauldron Corp. was, until July 1996, owned by Mr. Kuzara, the Company's President and Chief Executive Officer and a member of the Board of Directors. Until October 1996, the Company's services had 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. The Company currently charges these companies fees at the Company's standard rates. 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 9.0% per annum and are due on demand. As of October 22, 1996, approximately $700,000 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. The Company also purchased $371,500 of computer equipment from Centennial during 1996. See "Use of Proceeds". 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% of the Company's outstanding Common Stock. If the Underwriters' overallotment option is exercised, Centennial will sell up to 150,000 shares of its Common Stock in connection with this Offering. See "RISK FACTORS - Benefit to Affiliates" and "PRINCIPAL STOCKHOLDERS." All of the Company's employees are leased by ERI, an employee leasing firm wholly owned by Mr. Kuzara. For the year ended August 31, 1996, approximately $1,007,000 was billed by ERI to the Company. The Company owed ERI approximately $99,000 as of August 31, 1996 which is included in the amount due to related parties in the balance sheet within the attached financial statements. ERI and an affiliate also owed the Company approximately $46,000, which is included in the amounts due from related parties in the accompanying August 31, 1996 balance sheet within the attached financial statements. The amounts due to and due from related parties do not bear interest and are due on demand. The Company also charges ERI approximately $2,000 per month for subletting office space and equipment rental. 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 developing the Company's products. CBP charged the Company a management fee for its services. For the year ended August 31, 1996, approximately $74,000 was billed from CBP to the Company. The Company also charged CBP approximately $15,000 for subletting office space and equipment rental which was charged to operations. CBP ceased operations as of June of 1996, at which time two former CBP employees joined the Company. Information Capture Corporation ("ICC") is developing a data acceptance device which is being built for ERI. Mr. Kuzara owned twenty percent (20%) of the outstanding Common Stock of ICC, which he sold in August 1996. For the year ended August 31, 1996, the Company billed approximately $14,000 to ICC for the sublet of office space and equipment rental, all of which was paid as of August 31, 1996. 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 37 stockholders of record (not including holders of Class B Common Stock). 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 March 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 ________, 1997 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 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 August 31, 1996 and for the year ended August 31, 1996 and for the periods from July 19, 1995 (inception) through August 31, 1995 and July 19, 1995 (inception) through August 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 Sheet as of August 31, 1996 ................................................. F-3 Statements of Operations for the year ended August 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 August 31, 1996 ...................................... F-4 Statements of Capital Deficit for the period from inception (July 19, 1995) to August 31, 1996 ...................................................... F-5 Statements of Cash Flows for the year ended August 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 August 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 sheet of WebSecure, Inc. (a Development Stage Company), as of August 31, 1996, and the related statements of operations, capital deficit and cash flows for the year ended August 31, 1996, the period from inception (July 19, 1995) to August 31, 1995 and for the cumulative period from inception (July 19, 1995) to August 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 August 31, 1996 and the results of its operations and its cash flows for the year ended August 31, 1996, the period from inception (July 19, 1995) to August 31, 1995 and for the cumulative period from inception (July 19, 1995) to August 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 $7,957,640 through August 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. BDO SEIDMAN, LLP Boston, Massachusetts October 11, 1996 F-2 WEBSECURE, INC. (A DEVELOPMENT STAGE COMPANY) BALANCE SHEET
AUGUST 31, 1996 ---- ASSETS Current: Cash $ 12,832 Accounts receivable 21,797 Inventories 5,971 Due from related parties (Note 3) 59,776 Prepaid expenses and other 6,600 ----- Total current 106,976 ------- Property and equipment: Computer equipment 833,721 Office equipment 300,646 Furniture and fixtures 137,726 Leasehold improvements 82,621 Software 16,149 ------ 1,370,863 Less accumulated depreciation and amortization 197,466 ------- Property and equipment, net 1,173,397 --------- Deferred registration costs 424,060 Other assets 41,515 ------ $ 1,745,948 =========== LIABILITIES AND CAPITAL DEFICIT Current liabilities: Accounts payable and accrued expenses (Note 4) $ 679,435 Due to related parties (Note 3) 125,635 Note payable to related party (Note 3) 672,000 Current portion of capital lease obligation (Note 5) 71,763 ------ Total current liabilities 1,548,833 Capital lease obligation, less current maturities (Note 5) 300,430 ------- Total liabilities 1,849,263 --------- Commitments and contingencies (Notes 1, 5, 8 and 9) Capital 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 August 31, 1996 21,050 Class B common stock, $.01 par value; 2,000,000 shares authorized; 625,000 shares issued and outstanding at August 31, 1996 6,250 Additional paid-in capital 7,827,025 Deficit accumulated during the development stage (7,957,640) ---------- Total capital deficit (103,315) -------- $ 1,745,948 ===========
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) AUGUST 31, 1996 TO AUGUST 31, 1995 TO AUGUST 31, 1996 --------------- ------------------ ------------------ Revenues: Service revenue $ 78,833 $ -- $ 78,833 Product revenue 18,422 -- 18,422 ------ --------- ------ Total revenue 97,255 -- 97,255 ------ --------- ------ Cost of revenue: Service revenue 177,469 -- 177,469 Product revenue 15,971 -- 15,971 ------ --------- ------ Total cost of revenues 193,440 -- 193,440 ------- --------- ------- Gross margin (96,185) -- (96,185) ------- --------- ------- Operating expenses: Research and development 577,439 809 578,248 Selling and marketing 298,680 1,946 300,626 General and administrative (Note 3) 1,145,500 30,871 1,176,371 Charge for acquired research and development (Note 6) 5,760,000 -- 5,760,000 --------- --------- --------- Total operating expenses 7,781,619 33,626 7,815,245 --------- ------ --------- Loss from operations (7,877,804) (33,626) (7,911,430) Interest expense, net of interest income of $1,890 (46,210) -- (46,210) ------- --------- ------- Net loss $(7,924,014) $ (33,626) $(7,957,640) =========== ========== =========== Net loss per common and common equivalent share $ (1.65) $ (.01) $ (1.66) =========== ========== =========== Shares used in computing net loss per common and common equivalent share 4,805,050 4,805,050 4,805,050 ========= ========= =========
See accompanying notes to financial statements. F-4 WEBSECURE, INC. (A DEVELOPMENT STAGE COMPANY) STATEMENTS OF CAPITAL DEFICIT
COMMON STOCK CLASS B COMMON STOCK ------------ -------------------- DEFICIT ACCUMULATED ADDITIONAL DURING THE TOTAL NUMBER $.01 NUMBER $.01 PAID-IN REDEVELOPMENT CAPITAL OF SHARES PAR VALUE OF SHARES PAR VALUE CAPITAL 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 -- 14,325 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 -- -- -- -- -- (7,924,014) (7,924,014) ------- ------- -------- ------- ---------- ----------- ------------ Balance, August 31, 1996 2,105,000 $21,050 625,000 $6,250 $7,827,025 $(7,957,640) $ (103,315) ========= ======= ======= ====== ========== =========== ===========
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 AUGUST 31, 1996 AUGUST 31, 1995 AUGUST 31, 1996 --------------- --------------- ---------------- Cash flows from operating activities: Net loss $(7,924,014) $(33,626) $(7,957,640) 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 197,466 -- 197,466 Changes in operating assets and liabilities: Accounts receivable (21,797) -- (21,797) Inventories (5,971) -- (5,971) Prepaid expenses and other 3,400 (10,000) (6,600) Accounts payable and accrued expenses 669,597 9,838 679,435 ------- ----- ------- Net cash used in operating activities (1,241,519) (33,788) (1,275,307) ---------- ------- ---------- Cash flows from investing activities: Acquisition of property and equipment (1,364,874) (5,989) (1,370,863) Deferred registration costs (424,060) -- (424,060) Increase in other assets (32,815) (8,700) (41,515) ------- ------ ------- Net cash used in investing activities (1,821,749) (14,689) (1,836,438) ---------- ------- ---------- Cash flows from financing activities: Borrowings under capital lease 389,056 -- 389,056 Principal payments on capital lease (16,863) -- (16,863) Due from related parties (55,910) (3,866) (59,776) Due to related parties 108,292 17,343 125,635 Proceeds from issuance of common stock 2,014,525 -- 2,014,525 Proceeds from notes payable to related party 1,460,000 35,000 1,495,000 Payments of notes payable to related party (823,000) -- (823,000) -------- -------- Net cash provided by financing activities 3,076,100 48,477 3,124,577 --------- ------ --------- Net increase in cash 12,832 -- 12,832 Cash, beginning of period -- -- -- ---------- -------- --------- Cash, end of period $ 12,832 $ -- $ 12,832 =========== ======== ========= Supplemental disclosure of financing information: Cash paid for interest $ 33,649 $ 7,087 $ 40,736
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 $7,957,640 through August 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 $6,654,000 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 August 31, 1996, the Company has incurred registration costs of $424,060 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. Although collateral is not required, the Company periodically reviews its accounts and provides estimated reserves for potential credit losses. Services to related parties for the year ended August 31, 1996 represented approximately 41% of the Company's total revenue (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 SHARE 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 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. 3. RELATED PARTIES TRANSACTIONS Discussed below are various related parties and transactions that occurred during the period from inception (July 19, 1995) through August 31, 1996. As of October 11, 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 year ended August 31, 1996, approximately $1,007,000 was billed by ERI to the Company and charged to operations. The Company owed ERI approximately $99,000 as of August 31, 1996, which is included in the amount due to related parties in the accompanying balance sheets. ERI and an affiliate also owed the Company approximately $46,000, which is included in the amounts due from related parties in the accompanying August 31, 1996 balance sheet. The amounts due to and due from 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 was 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 year ended August 31, 1996 which was charged to operations. The Company also charged CBP approximately $15,000 for subletting office space and equipment rental which was charged to operations. CBP ceased operations in June of 1996. 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. To date, Centennial has made loans to the Company totalling $1,495,000 for general operations, of which $823,000 was repaid. The Company owed Centennial $672,000 as of August 31, 1996, which is shown as note payable to related party in the accompanying balance sheet. The note payable to Centennial bears interest at 9% per annum and is due upon demand. Centennial interest expense for the year ended August 31, 1996 amounted to $20,700 of which $14,500 was unpaid and is included in amounts due to related parties in the accompanying August 31, 1996 balance sheet. The Company also purchased $371,500 of computer equipment from Centennial during the year ended August 31, 1996. 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. For the year ended August 31, 1996, approximately $14,000 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 at August 31, 1996. 4. ACCOUNTS PAYABLE AND ACCRUED EXPENSES Accounts payable and accrued expenses consist of the following:
AUGUST 31, 1996 ---- Trade accounts payable $132,133 Registration costs 423,206 Payroll and vacation 99,537 Other accrued expenses 24,559 ------ $679,435 ========
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 ----------- ------ 1997 107,000 1998 107,000 1999 107,000 2000 107,000 Thereafter 36,000 ------ Total minimum lease payments 464,000 Less amount representing interest 91,807 ------ Present value of future lease payments 372,193 Less current portion of capital lease obligation 71,763 ------ Long-term portion $300,430 ========
The related leased assets are included in property and equipment at a cost of approximately $389,000 less accumulated amortization of $83,000 at August 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:
AUGUST 31, 1996 ---- Operating loss carryforwards $ 824,000 Amortization of acquired research and development 2,319,000 Tax credit carryforwards 6,000 Depreciation (36,000) ------- 3,113,000 Less valuation allowance 3,113,000 --------- $ -- ==========
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, as there is significant doubt about the realizability of the deferred tax assets. At August 31, 1996, the Company had net operating loss carryforwards for federal and state income tax purposes of approximately $2,046,000, which expire through 2011. 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 August 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 year ended August 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 August 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 374,400 4.00 5,000 4.00 Terminated -- -- -- -- Exercised -- -- -- -- -------- ----- ----- ----- Outstanding, August 31, 1996 374,400 $4.00 5,000 $4.00 ======= ===== ===== ===== Exercisable, August 31, 1996 -- $ -- -- $ -- ======= ===== ===== =====
Subsequent to August 31, 1996, the Company granted an additional 27,800 options under the 1996 Stock Option Plan at an exercise price of $4.00 per share. 9. COMMITMENTS Operating Leases The Company leases its facilities under operating leases that expire through August 2000. The future minimum lease commitments at August 31, 1996 are approximately as follows:
YEAR ENDING AUGUST 31, AMOUNT ---------------------- ------ 1997 58,000 1998 60,000 1999 63,000 2000 65,000 ---- ------ $246,000 ========
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 $95,000 for the year ended August 31, 1996 and for the period from inception (July 19, 1995) to August 31, 1996. Employment Agreements The Company has entered into employment agreements with three executive officers which provide for bonus and severance benefits for up to twelve months upon termination of employment under certain circumstances. The agreements also provide for minimum base annual compensation aggregating approximately $337,000 through 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 24. 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 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. II-1 ITEM 25. 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 NASDAQ Listing Fee* $ 10,000.00 Boston Stock Exchange Listing Fee* $ 5,000.00 Blue Sky Filing Fees and Expenses* $ 5,000.00 Printing and Engraving Cost* $ 50,000.00 Transfer Agent Fees* $ 1,000.00 Legal Fees* $ 250,000.00 Accounting Fees* $ 50,000.00 Miscellaneous* $ 99,508.45 ------------- TOTAL* $ 481,000.00 ============= ITEM 26. 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. The following is a list of investors in the offering: Number Name of Shares ---- --------- George and Margaret Asprakis, JTRWOS 12,500 Joyce M. Byrwa 7,000 Centennial Technologies 138,750 Richard C. Crown 5,000 John DiRico 12,500 Helmut F. Gfatter 20,000 Catherine F. Giblin 37,500 Frances E. Hills 6,250 Geoffiey O. Hills 6,250 G. David Hopper Living Trust 5,000 Richard Lewin 13,000 Dennis M. and Janet M. Miller, JTWROS 16,250 David and Ester Mann, JTWROS 12,500 Bryan L. Omey 2,500 Arthur C. Reichstetter 50,000 Sac and Co. 6,250 Marie Senecal-Trembley 10,000 Sigler and Co., NES Limited 18,750 Sigler and Co., Q Settlement 12,500 Sigler and Co., Valleydale Investments 25,000 Joseph L. Sirois, Jr. 7,500 II-2 Number Name of Shares ---- --------- Stuart and Diane Sklar 7,500 Adele Wasserstrom 25,000 Joseph Wasserstrom 25,000 Mark Zyndorf 12,500 Sam Zyndorf 5,000 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 27. 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. *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. 10g -- Promissory Note dated October 1, 1996 to KeyCorp Leasing Ltd. 10h -- Master Equipment Lease Agreement dated as of December 21, 1995 with KeyCorp Leasing Ltd. 10i -- Form of Lock-up Agreement. +10j -- Employment Agreement with William Blocher. II-3 +10k -- Employment Agreement with Carole Ouellette. 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 - ----------- * Filed with the Commission on September 11, 1996. + Relates to Management Compensation.
ITEM 28. 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. (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 AMENDMENT NO. 1 TO THE REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, IN THE CITY OF SAUGUS, COMMONWEALTH OF MASSACHUSETTS ON OCTOBER 23, 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 AMENDMENT NO. 1 TO THE 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 OCTOBER 23, 1996 - --------------------------- DIRECTORS JOHN J. SHIELDS /S/ ROBERT KUZARA PRESIDENT, CHIEF EXECUTIVE OCTOBER 23, 1996 - --------------------------- OFFICER AND DIRECTOR ROBERT KUZARA (PRINCIPAL EXECUTIVE OFFICER) /S/ MICHAEL APPE DIRECTOR OCTOBER 23, 1996 - --------------------------- MICHAEL APPE /S/ CAROLE OUELLETTE CHIEF FINANCIAL OFFICER, OCTOBER 23, 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 10g -- Promissory Note dated October 1, 1996 to KeyCorp Leasing Ltd. 10h -- Master Equipment Lease Agreement with KeyCorp Leasing Ltd., dated as of December 21, 1995, and Promissory Note dated October 1, 1996. 10i -- Form of Lock-up Agreement +10j -- Employment Agreement with William Blocher +10k -- Employment Agreement with Carole Ouellette 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 - ---------- * Filed with the Commission on September 11, 1996. + Relates to Management Compensation.
EX-4.B 2 SPECIMEN STOCK CERTIFICATE EXHIBIT 4b {LOGO} Number WEBSECURE, INC. SHARES WS INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE SEE REVERSE COMMON STOCK, $.01 PAR VALUE FOR CERTAIN DEFINITIONS THIS IS TO CERTIFY CUSIP 947 683 108 IS THE OWNER OF FULLY PAID AND NON-ASSESSABLE SHARES OF COMMON STOCK OF THE PAR VALUE OF ONE CENT ($.01) EACH OF WEBSECURE, INC. (Hereinafter called the "Corporation"), transferable on the books of the Corporation by the holder in person or by duly authorized attorney upon surrender of this certificate properly endorsed or assigned. This certificate and the shares of Common Stock represented hereby are subject to the laws of The State of Delaware and to the Certificate of Incorporation and By-Laws of the Corporation as now in effect or hereafter amended. This certificate is not valid unless countersigned and registered by the Transfer Agent and Registrar. WITNESS the facsimile seal of the Corporation and the facsimile signatures of its duly authorized officers. Dated: /S/ Carol Ouellette /S/ Robert Kuzara TREASURER WEBSECURE, INC. PRESIDENT CORPORATE SEAL 1995 DELAWARE COUNTERSIGNED AND REGISTERED: AMERICAN STOCK TRANSFER & TRUST COMPANY TRANSFER AGENT AND REGISTRAR BY AUTHORIZED SIGNATURE WEBSECURE, INC. THE CORPORATION IS AUTHORIZED TO ISSUE MORE THAN ONE CLASS AND SERIES OF STOCK. THE CORPORATION WILL FURNISH TO THE HOLDER UPON REQUEST AND WITHOUT CHARGE THE PREFERENCES, POWERS, QUALIFICATIONS AND RIGHTS OF EACH CLASS OF STOCK OR SERIES THEREOF. The following abbreviations, when used in the inspection on the face of this Certificate, shall be construed as though they were written out in full according to applicable laws or regulations: TEN COM - as tenants in common UNIF GIFT MIN ACT-____ Custodian _____ TEN ENT - as tenants by the entireties (Cust) (Minor) JT TEN - as joint tenants with right of under Uniform Gifts to Minors survivorship and not as tenants Act ________________ in common (State) COM PROP - as community property Additional abbreviations may also be used though not in the above list. For value received,______________________hereby sell, assign and transfer unto PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER OF ASSIGNEE [ ] - -------------------------------------------------------------------------------- (PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------shares of the Capital stock represented by the within Certificate, and do hereby irrevocably constitute and appoint - ------------------------------------------------------------------------Attorney to transfer the said stock on the books of the within named Corporation with full power of substitution in the premises. Dated __________________________________ - -------------------------------------------------------------------------------- NOTICE: THE SIGNATURE TO THIS AGREEMENT MUST CORRESPOND WITH THE NAME AS WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR, WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATEVER. SIGNATURE(S) GUARANTEED: THE SIGNATURE(S) MUST BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION (BANKS, STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH MEMBERSHIP IN AN APPROVED SIGNATURE GUARENTEE MEDALLION PROGRAM). EX-4.D 3 FORM OF WARRANT AGREEMENT EXHIBIT 4d FORM OF WARRANT AGREEMENT WebSecure, Inc., a Delaware corporation (the "Company"), and American Securities Transfer & Trust, Inc. ("AST"), 1825 Lawrence Street, Suite 444, Denver, Colorado 80202, a Colorado corporation (the "Warrant Agent"), agree as follows: 1. PURPOSE. The Company proposes to publicly offer and issue up to 1,000,000 shares of its Common Stock, $.01 par value per Share (the "Shares"), and 1,000,000 Redeemable Common Stock Purchase Warrants (the "Warrants"). 2. WARRANTS. Each Warrant will entitle the registered holder of a Warrant (the "Warrant Holder") to purchase from the Company one (1) Share at $9.60 per Share (the "Exercise Price"). A Warrant Holder may exercise all or any number of Warrants resulting in the purchase of a whole number of Shares. 3. EXERCISE PERIOD. The Warrants may be exercised at any time during the period commencing _________, 1997 and ending at 5:00 p.m., New York City time on ________, 1999 (the "Expiration Date") except as changed by Section 13 of this Agreement. If such date shall in the State of New York be a holiday or a day on which banks are authorized to close, then the Expiration Date shall mean 5:00 p.m. (New York City time) the next following day which in the State of New York is not a holiday or a day on which banks are authorized to close. After the Expiration Date, any unexercised warrants will be void and all rights of Warrant Holders shall cease. 4. DETACHABILITY. The Shares and Warrants are immediately separate. 5. REDEMPTION OF WARRANTS. a. Redemption; Redemption Price. Commencing ___________, 1997, the Company may, at its option, redeem the outstanding Warrants, in whole or in part, upon not less than 30 days' prior written notice (the "Notice of Redemption"), at a price of $.20 per Warrant (the "Redemption Price"), if the average closing bid price of the Company's Common Stock equals or exceeds $12.00 per share for ten (10) consecutive trading days within the twenty (20) day period preceding the date of such notice. If the Company shall determine to redeem less than all of the Warrants then outstanding, then the Warrant Agent shall determine the Warrants to be redeemed by such manner or method as it shall deem fair and appropriate, whether by lot or otherwise. b. Notice of Redemption. The Company shall give notice to the Warrant Agent of any redemption in sufficient time so that the Warrant Agent shall give the Notice of Redemption to all Holders of Warrant Certificates to be redeemed at least thirty (30) days prior to the date established for such redemption (the "Redemption Date"). Each Notice of Redemption shall: (a) specify the Redemption Date and the Redemption Price; (b) state that payment of the Redemption Price will be made by the Warrant Agent upon presentation and surrender to the Warrant Agent at its principal office of the Warrant Certificates representing the Warrants being redeemed; (c) state that the rights to exercise the Warrants shall terminate at 5:00 p.m. New York City time, on the fifth business day preceding the Redemption Date; and (d) if less than all of the Warrants then outstanding are being redeemed, specify the serial numbers or portions of the Warrants to be redeemed. c. Payment of Redemption Price. On or prior to the opening of business on the Redemption Date, the Company will deposit with the Warrant Agent cash, or an irrevocable letter of credit issued by a national or state bank and in form reasonably satisfactory to the Warrant Agent, sufficient in amount to purchase all of the Warrants stated in the Notice of Redemption to be redeemed. Payment of the Redemption Price shall be made by the Warrant Agent upon presentation and surrender of the Warrant Certificates representing such Warrants to the Warrant Agent at its principal office. If the Notice of Redemption shall have been duly given and if the Company shall have duly deposited with the Warrant Agent the cash or irrevocable letter of credit required by this Section 4c, then any Warrants not exercised by 5:00 p.m., New York City time, on the Redemption Date shall no longer be deemed to be outstanding, and all rights with respect to such Warrants shall from and after such time and date cease and terminate, except only for the right of the Holders thereof to receive the Redemption Price, without interest. 6. CERTIFICATES. The Warrant Certificates shall be in registered form only and shall be substantially in the form set forth in Exhibit A attached to this Agreement. Warrant Certificates shall be signed by, or shall bear the facsimile signature of, the President or a Vice President of the Company and the Treasurer or an Assistant Treasurer of the Company and shall bear a facsimile of the Company's corporate seal. If any person, whose facsimile signature has been placed upon any Warrant Certificate as the signature of an officer of the Company, shall have ceased to be such officer before such Warrant Certificate is countersigned, issued and delivered, such Warrant Certificate shall be countersigned, issued and delivered with the same effect as if such person had not ceased to be such officer. Any Warrant Certificate may be signed by, or made to bear the facsimile signature of, any person who at the actual date of the preparation of such Warrant Certificate shall be a proper officer of the Company to sign such Warrant Certificate even though such person was not such an officer upon the date of this Agreement. 7. COUNTERSIGNING. Warrant Certificates shall be manually countersigned by the Warrant Agent and shall not be valid for any purpose unless so countersigned. The Warrant Agent hereby is authorized to countersign and deliver to, or in accordance with the instructions of, any Warrant Holder any Warrant Certificate which is properly issued. -2- 8. REGISTRATION OF TRANSFERS AND EXCHANGES. a. Warrant Certificates may be exchanged for other Warrant Certificates representing an equal aggregate number of Warrants or may be transferred in whole or in part. The Warrant Agent shall from time to time register the transfer of any outstanding Warrant Certificate upon records maintained by the Warrant Agent for such purpose upon surrender of such Warrant Certificate to the Warrant Agent for transfer, accompanied by appropriate instruments of transfer in form satisfactory to the Company and the Warrant Agent and duly executed by the Warrant Holder or a duly authorized attorney. Upon any such registration of transfer, a new Warrant Certificate shall be issued in the name of and to the transferee and the surrendered Warrant Certificate shall be cancelled. b. With respect to any Warrant Certificates presented for registration of transfer, or for exchange or exercise, the subscription or exercise form, as the case may be, on the reverse thereof shall be duly endorsed or be accompanied by a written instrument or instruments of transfer and subscription, in form satisfactory to the Company and the Warrant Agent, duly executed by the Warrant Holder thereof or his attorney duly authorized in writing. 9. EXERCISE OF WARRANTS. a. Any one Warrant or any multiple of one Warrant evidenced by any Warrant Certificate may be exercised upon any single occasion on or after the Exercise Date, and on or before the Expiration Date. A Warrant shall be exercised by the Warrant Holder by surrendering to the Warrant Agent the Warrant Certificate evidencing such Warrant with the exercise form on the reverse of such Warrant Certificate duly completed and executed and delivering to the Warrant Agent, by good check or bank draft payable to the order of the Company, the Exercise Price for each Share to be purchased. b. Upon receipt of a Warrant Certificate with the exercise form thereon duly executed together with payment in full of the Exercise Price for the Shares for which Warrants are then being exercised, the Warrant Agent shall requisition from any transfer agent for the Shares, and upon receipt shall make delivery of, certificates evidencing the total number of whole Shares for which Warrants are then being exercised in such names and denominations as are required for delivery to, or in accordance with the instructions of, the Warrant Holder. Such certificates for the Shares shall be deemed to be issued, and the person to whom such Shares are issued of record shall be deemed to have become a holder of record of such Shares, as of the date of the surrender of such Warrant Certificate and payment of the Exercise Price, whichever shall last occur, provided that if the books of the Company with respect to the Shares shall be closed as of such date the Shares shall be deemed to be issued, and the person to whom such Shares are issued of record shall be deemed to have become a record holder of such Shares, as of the date on which such books -3- shall next be open (whether before, on or after the Expiration Date) but at the Exercise Price, whichever shall have last occurred, to the Warrant Agent. c. If less than all the Warrants evidenced by a Warrant Certificate are exercised upon a single occasion, a new Warrant Certificate for the balance of the Warrants not so exercised shall be issued and delivered to, or in accordance with, transfer instructions properly given by the Warrant Holder until the Expiration Date. d. All Warrant Certificates surrendered upon exercise of Warrants shall be cancelled. e. Upon the exercise, or conversion of any Warrant, the Warrant Agent shall promptly deposit the payment therefor into an escrow account established by mutual agreement of the Company and the Warrant Agent at a federally insured commercial bank. All funds deposited in the escrow account will be disbursed on a weekly basis to the Company once they have been determined by the Warrant Agent to be collected funds. Once the funds are determined to be collected, the Warrant Agent shall cause the share certificate(s) representing the exercised Warrants to be issued. f. Expenses incurred by American Securities Transfer & Trust, Inc. while acting in the capacity as Warrant Agent will be paid by the Company. These expenses, including delivery of Share certificates to the shareholder, will be deducted from the exercise fee submitted prior to distribution of funds to the Company. A detailed accounting statement relating to the number of shares exercised, names of registered Warrant holder and the net amount of exercised funds remitted will be given to the Company with the payment of each exercise amount. g. At the time of exercise of the Warrant(s), the transfer fee is to be paid by the Company. h. The Company covenants that if any securities to be reserved for the purpose of exercise of Warrants hereunder require registration with, or approval of, any governmental authority under any federal securities law before such securities may be validly issued or delivered upon such exercise, then the Company will file a registration statement under the federal securities laws or a post effective amendment, use its best efforts to cause the same to become effective and use its best efforts to keep such registration statement current while any of the Warrants are outstanding and deliver a prospectus which complies with Section 10(a)(3) of the Securities Act of 1933, as amended (the "Act"), to the Registered Holder exercising the Warrant (except, if in the opinion of counsel to the Company, such registration is not required under the federal securities laws or if the Company receives a letter from the staff of the Securities and Exchange Commission stating that it would not take any enforcement action if such registration is not effected). The Company will use its best efforts to obtain appropriate approvals or registrations under state "blue sky" securities laws. With -4- respect to any such securities, however, Warrants may not be exercised by, or shares of Common Stock issued to, any Registered Holder in any state in which such exercise would be unlawful. 10. TAXES. The Company will pay all taxes attributable to the initial issuance of Shares upon exercise of Warrants. The Company shall not, however, be required to pay any tax which may be payable in respect to any transfer involved in any issue of Warrant Certificates or in the issue of any certificates of Shares in the name other than that of the Warrant Holder upon the exercise of any Warrant. 11. MUTILATED OR MISSING WARRANT CERTIFICATES. If any Warrant Certificate is mutilated, lost, stolen or destroyed, the Company and the Warrant Agent may, on such terms as to indemnity or otherwise as they may in their discretion impose (which shall, in the case of a mutilated Warrant Certificate, include the surrender thereof), and upon receipt of evidence satisfactory to the Company and the Warrant Agent of such mutilation, loss, theft or destruction, issue a substitute Warrant Certificate of like denomination and tenor as the Warrant Certificate so mutilated, lost, stolen or destroyed. Applicants for substitute Warrant Certificates shall comply with such other reasonable regulations and pay any reasonable charges as the Company or the Warrant Agent may prescribe. 12. RESERVATION OF SHARES. For the purpose of enabling the Company to satisfy all obligations to issue Shares upon exercise of Warrants, the Company will at all times reserve and keep available free from preemptive rights, out of the aggregate of its authorized but unissued Shares, the full number of Shares which may be issued upon the exercise of Warrants, which will upon issue be fully paid and nonassessable by the Company and free from all taxes, liens, charges and security interests with respect to the issue thereof. 13. GOVERNMENTAL RESTRICTIONS. If any Shares issuable upon the exercise of Warrants require registration or approval of any governmental authority, the Company will endeavor to secure such registration or approval; provided, that in no event shall such Shares be issued, and the Company shall have the authority to suspend the exercise of all Warrants, until such registration or approval shall have been obtained; but all Warrants, the exercise of which is requested during any such suspension, shall be exercisable at the Exercise Price. If any such period of suspension continues past the Expiration Date, all Warrants, the exercise of which has been requested on or prior to the Expiration Date, shall be exercisable upon the removal of such suspension until the close of business on the business day immediately following the expiration of such suspension. 14. ADJUSTMENTS. If prior to the exercise of any Warrants the Company shall have effected one or more stock split-ups, stock dividends or other increases or reductions of the number of shares of its $.01 par value Common Stock outstanding without receiving compensation therefor in money, services or property, the number of Shares subject to the Warrant granted shall, (i) if a net increase shall have been effected in the number of outstanding shares of the Company's shares of Common Stock, be proportionately increased, and the cash consideration payable per share shall be proportionately reduced, and, (ii) if a net reduction shall have been effected in the number of -5- outstanding shares of the Company's Common Stock, be proportionately reduced and the cash consideration payable per share be proportionately increased. 15. NOTICE TO WARRANT HOLDERS. Upon any adjustment as described in Section 14, the Company within twenty (20) days thereafter shall (i) cause to be filed with the Warrant Agent a certificate signed by a Company officer setting forth the details of such adjustment, the method of calculation and the facts upon which such calculation is based, which certificate shall be conclusive evidence of the correctness of the matters set forth therein, and (ii) cause written notice of such adjustments to be given to each Warrant Holder as of the record date applicable to such adjustment. Also, if the Company proposes to enter into any reorganization, reclassification, sale of substantially all of its assets, consolidation, merger, dissolution, liquidation or winding up, the Company shall give notice of such fact at least twenty (20) days prior to such action to all Warrant Holders, which notice shall set forth such facts as indicate the effect of such action (to the extent such effect may be known at the date of such notice) on the Exercise Price and the kind and amount of the Shares or other securities and property deliverable upon exercise of the Warrants. Without limiting the obligation of the Company hereunder to provide notice to each Warrant Holder, failure of the Company to give notice shall not invalidate corporate action taken by the Company. 16. NO FRACTIONAL WARRANTS OR SHARES. The Company shall not be required to issue fractions of Warrants upon the reissue of Warrants, any adjustments as described in Section 14 or otherwise; but the Company in lieu of issuing any such fractional interest, shall round up or down to the nearest full Warrant. If the total Warrants surrendered by exercise would result in the issuance of a fractional share, the Company shall not be required to issue a fractional share but rather the aggregate number of shares issuable will be rounded up or down to the nearest full share. 17. RIGHTS OF WARRANT HOLDERS. No Warrant Holder, as such, shall have any rights of a shareholder of the Company, either at law or equity, and the rights of the Warrant Holders, as such, are limited to those rights expressly provided in this Agreement or in the Warrant Certificates. The Company and the Warrant Agent may treat the registered Warrant Holder in respect of any Warrant Certificate as the absolute owner thereof (notwithstanding any notations of ownership or writing thereon made by anyone other than the Company or the Warrant Agent) for all purposes notwithstanding any notice to the contrary. 18. WARRANT AGENT. The Company hereby appoints the Warrant Agent to act as the agent of the Company and the Warrant Agent hereby accepts such appointment upon the following terms and conditions by all of which the Company and every Warrant Holder, by acceptance of his Warrants, shall be bound: a. Statements contained in this Agreement and in the Warrant Certificates shall be taken as statements of the Company. The Warrant Agent assumes no responsibility for the correctness of any of the same except such as describes the Warrant Agent or for action taken or to be taken by the Warrant Agent. -6- b. The Warrant Agent shall not be responsible for any failure of the Company to comply with any of the Company's covenants contained in this Agreement or in the Warrant Certificates. c. The Warrant Agent may consult at any time with counsel satisfactory to it (who may be counsel for the Company) and the Warrant Agent shall incur no liability or responsibility to the Company or to any Warrant Holder in respect of any action taken, suffered or omitted by it hereunder in good faith and in accordance with the opinion or the advice of such counsel, provided the Warrant Agent shall have exercised reasonable care in the selection and continued employment of such counsel. d. The Warrant Agent shall incur no liability or responsibility to the Company or to any Warrant Holder for any action taken in reliance upon any notice, resolution, waiver, consent, order, certificate or other paper, document or instrument believed by it to be genuine and to have been signed, sent or presented by the proper party or parties. e. The Company agrees to pay to the Warrant Agent reasonable compensation for all services rendered by the Warrant Agent in the execution of this Agreement, to reimburse the Warrant Agent for all expenses, taxes and governmental charges and all other charges of any kind or nature incurred by the Warrant Agent in the execution of this Agreement and to indemnify the Warrant Agent and save it harmless against any and all liabilities, including judgments, costs and counsel fees, for this Agreement except as a result of the Warrant Agent's negligence or bad faith. f. The Warrant Agent shall be under no obligation to institute any action, suit or legal proceeding or to take any other action likely to involve expense unless the Company or one or more Warrant Holders shall furnish the Warrant Agent with reasonable security and indemnity for any costs and expenses which may be incurred in connection with such action, suit or legal proceeding, but this provision shall not affect the power of the Warrant Agent to take such action as the Warrant Agent may consider proper, whether with or without any such security or indemnity. All rights of action under this Agreement or under any of the Warrants may be enforced by the Warrant Agent without the possession of any of the Warrant Certificates or the production thereof at any trial or other proceeding relative thereto, and any such action, suit or proceeding instituted by the Warrant Agent shall be brought in its name as Warrant Agent, and any recovery of judgment shall be for the ratable benefit of the Warrant Holders as their respective rights or interests may appear. g. The Warrant Agent and any shareholder, director, officer or employee of the Warrant Agent may buy, sell or deal in any of the Warrants or other securities of the Company or become pecuniarily interested in any transaction in which the Company may be interested, or contract with or lend money to the Company or otherwise act as fully and freely as though it were not Warrant Agent under this Agreement. Nothing herein shall preclude -7- the Warrant Agent from acting in any other capacity for the Company or for any other legal entity. 19. SUCCESSOR WARRANT AGENT. Any corporation into which the Warrant Agent may be merged or converted or with which it may be consolidated, or any corporation resulting from any merger, conversion or consolidation to which the Warrant Agent shall be a party, or any corporation succeeding to the corporate trust business of the Warrant Agent, shall be the successor to the Warrant Agent hereunder without the execution or filing of any paper or any further act of a party or the parties hereto. In any such event or if the name of the Warrant Agent is changed, the Warrant Agent or such successor may adopt the countersignature of the original Warrant Agent and may countersign such Warrant Certificates either in the name of the predecessor Warrant Agent or in the name of the successor Warrant Agent. 20. CHANGE OF WARRANT AGENT. The Warrant Agent may resign or be discharged by the Company from its duties under this Agreement by the Warrant Agent or the Company, as the case may be, giving notice in writing to the other, and by giving a date when such resignation or discharge shall take effect, which notice shall be sent at least thirty (30) days prior to the date so specified. If the Warrant Agent shall resign, be discharged or shall otherwise become incapable of acting, the Company shall appoint a successor to the Warrant Agent. If the Company shall fail to make such appointment within a period of thirty (30) days after it has been notified in writing of such resignation or incapacity by the resigning or incapacitated Warrant Agent or by any Warrant Holder or after discharging the Warrant Agent, then any Warrant Holder may apply to the District Court for Denver County, Colorado, for the appointment of a successor to the Warrant Agent. Pending appointment of a successor to the Warrant Agent, either by the Company or by such Court, the duties of the Warrant Agent shall be carried out by the Company. Any successor Warrant Agent, whether appointed by the Company or by such Court, shall be a bank or a trust company, in good standing, organized under the laws of the State of Colorado or the State of New York or of the United States of America, having its principal office in Denver, Colorado or New York, New York and having at the time of its appointment as Warrant Agent, a combined capital and surplus of at least four million dollars. After appointment, the successor Warrant Agent shall be vested with the same powers, rights, duties and responsibilities as if it had been originally named as Warrant Agent without further act or deed and the former Warrant Agent shall deliver and transfer to the successor Warrant Agent any property at the time held by it thereunder, and execute and deliver any further assurance, conveyance, act or deed necessary for effecting the delivery or transfer. Failure to give any notice provided for in this section, however, or any defect therein, shall not affect the legality or validity of the resignation or removal of the Warrant Agent or the appointment of the successor Warrant Agent, as the case may be. 21. NOTICES. Any notice or demand authorized by this Agreement to be given or made by the Warrant Agent or by any Warrant Holder to or on the Company shall be sufficiently given or made if sent by mail, first class, certified or registered, postage prepaid, addressed (until another address is filed in writing by the Company with the Warrant Agent), as follows: -8- WebSecure, Inc. 1711 Broadway Saugus, Massachusetts 01906 Any notice or demand authorized by this Agreement to be given or made by any Warrant Holder or by the Company to or on the Warrant Agent shall be sufficiently given or made if sent by mail, first class, certified or registered, postage prepaid, addressed (until another address is filed in writing by the Warrant Agent with the Company), as follows: American Securities Transfer & Trust, Inc. 1825 Lawrence Street, Suite 444 Denver, Colorado 80202 Any distribution, notice or demand required or authorized by this Agreement to be given or made by the Company or the Warrant Agent to or on the Warrant Holders shall be sufficiently given or made if sent by mail, first class, certified or registered, postage prepaid, addressed to the Warrant Holders at their last known addresses as they shall appear on the registration books for the Warrant Certificates maintained by the Warrant Agent. 22. SUPPLEMENTS AND AMENDMENTS. The Company and the Warrant Agent may from time to time supplement or amend this Agreement without the approval of any Warrant Holders or the representatives of the underwriters in the Company's initial public offering in order to cure any ambiguity or to correct or supplement any provision contained herein which may be defective or inconsistent with any other provisions herein, or to make any other provisions in regard to matters or questions arising hereunder which the Company and the Warrant Agent may deem necessary or desirable. 23. SUCCESSORS. All the covenants and provisions of this Agreement by or for the benefit of the Company or the Warrant Agent shall bind and inure to the benefit of their respective successors and assigns hereunder. 24. TERMINATION. This Agreement shall terminate at the close of business on the Expiration Date or such earlier date upon which all Warrants have been exercised; provided, however, that if exercise of the Warrants is suspended pursuant to Section 13 and such suspension continues past the Expiration Date, this Agreement shall terminate at the close of business on the business day immediately following the expiration of such suspension. The provisions of Section 18 shall survive such termination. 25. GOVERNING LAW. This Agreement and each Warrant Certificate issued hereunder shall be deemed to be a contract made under the laws of the State of Colorado and for all purposes shall be construed in accordance with the laws of said State. -9- 26. BENEFITS OF THIS AGREEMENT. Nothing in this Agreement shall be construed to give any person or corporation other than the Company, the Warrant Agent and the Warrant Holders any legal or equitable right, remedy or claim under this Agreement; but this Agreement shall be for the sole and exclusive benefit of the Company, the Warrant Agent and the Warrant Holders. 27. COUNTERPARTS. This Agreement may be executed in any number of counterparts, each of such counterparts shall for all purposes be deemed to be an original and all such counterparts shall together constitute but one and the same instrument. [THIS SPACE INTENTIONALLY LEFT BLANK] -10- IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the day and year indicated below. Date:_________________________ WEBSECURE, INC., a Delaware corporation By:_________________________________ Robert Kuzara, President SEAL ATTEST: - ------------------------------ , Secretary AMERICAN SECURITIES TRANSFER & TRUST, INC., a Colorado corporation By:_________________________________ Gregory D. Tubbs, Vice President SEAL ATTEST: - ------------------------------ -11- EXHIBIT A NO. ________ VOID AFTER ____________, 1999 _______ WARRANTS FORM OF REDEEMABLE WARRANT CERTIFICATE TO PURCHASE ONE SHARE OF COMMON STOCK WEBSECURE, INC. CUSIP 947683116 -------------- THIS CERTIFIES THAT, FOR VALUE RECEIVED _______________________________ or registered assigns (the "Registered Holder") is the owner of the number of Redeemable Warrants (the "Warrants") specified above. One (1) Warrant initially entitles the Registered Holder to purchase, subject to the terms and conditions set forth in this Certificate and the Warrant Agreement (as hereinafter defined), one (1) fully paid and nonassessable share of Common Stock, $.01 par value, of WebSecure, Inc., a Delaware corporation (the "Company"), at any time between _____________, 1997 (the "Initial Warrant Exercise Date"), and the Expiration Date (as hereinafter defined) upon the presentation and surrender of this Warrant Certificate with the Subscription Form on the reverse hereof duly executed, at the corporate office of American Securities Transfer & Trust, Inc., 1825 Lawrence Street, Suite 444, Denver, Colorado 80202, as Warrant Agent, or its successor (the "Warrant Agent"), accompanied by payment of $9.60 per share, subject to adjustment (the "Purchase Price"), in lawful money of the United States of America by check made payable to the Warrant Agent for the account of the Company. This Warrant Certificate and each Warrant represented hereby are issued pursuant to and are subject in all respects to the terms and conditions set forth in the Warrant Agreement (the "Warrant Agreement"), dated _________________, 1996, by and between the Company and the Warrant Agent. In the event of certain contingencies provided for in the Warrant Agreement, the Purchase Price and the number of shares of Common Stock subject to purchase upon the exercise of each Warrant represented hereby are subject to modification or adjustment. Each Warrant represented hereby is exercisable at the option of the Registered Holder, but no fractional interests will be issued. In the case of the exercise of less than all the Warrants represented hereby, the Company shall cancel this Warrant Certificate upon the surrender hereof and shall execute and deliver a new Warrant Certificate or Warrant Certificates of like tenor, which the Warrant Agent shall countersign, for the balance of such Warrants. A-1 The term "Expiration Date" shall mean 5:00 p.m. (New York time) on _______________, 1999. If such date shall in the State of New York be a holiday or a day on which banks are authorized to close, then the Expiration Date shall mean 5:00 p.m. (New York time) the next following day which in the State of New York is not a holiday or a day on which banks are authorized to close. The Company shall not be obligated to deliver any securities pursuant to the exercise of this Warrant unless a registration statement under the Securities Act of 1933, as amended (the "Act"), with respect to such securities is effective or an exemption thereunder is available. The Company has covenanted and agreed that it will file a registration statement under the federal securities laws, use its best efforts to cause the same to become effective, to keep such registration statement current, if required under the Act, while any of the Warrants are outstanding, and deliver a prospectus which complies with Section 10(a)(3) of the Act to the Registered Holder exercising this Warrant. This Warrant shall not be exercisable by a Registered Holder in any state where such exercise would be unlawful. This Warrant Certificate is exchangeable, upon the surrender hereof by the Registered Holder at the corporate office of the Warrant Agent, for a new Warrant Certificate or Warrant Certificates of like tenor representing an equal aggregate number of Warrants, each of such new Warrant Certificates to represent such number of Warrants as shall be designated by such Registered Holder at the time of such surrender. Upon due presentment and payment of any tax or other charge imposed in connection therewith or incident thereto, for registration of transfer of this Warrant Certificate at such office, a new Warrant Certificate or Warrant Certificates representing an equal aggregate number of Warrants will be issued to the transferee in exchange therefor, subject to the limitations provided in the Warrant Agreement. Prior to the exercise of any Warrant represented hereby, the Registered Holder shall not be entitled to any rights of a stockholder of the Company, including, without limitation, the right to vote or to receive dividends or other distributions, and shall not be entitled to receive any notice of any proceedings of the Company, except as provided in the Warrant Agreement. Subject to the provisions of the Warrant Agreement, commencing ____________, 1997, this Warrant may be redeemed at the option of the Company in whole or in part upon not less than 30 days' prior written notice (the "Notice of Redemption"), at a price of $.20 per Warrant (the "Redemption Price"), if the average of the high and low sales prices of the Company's Common Stock equals or exceeds $12.00 per share (the "Notice Price") for ten (10) consecutive trading days within the twenty (20) day period preceding the date of such notice. The Notice of Redemption shall be given not later than the thirtieth day before the date fixed for redemption, all as provided in the Warrant Agreement. On and after the date fixed for redemption, the Registered Holder shall have no rights with respect to the Warrants except to receive the $.20 per Warrant upon surrender of this Warrant Certificate. A-2 Under certain circumstances, Coburn & Meredith, Inc. and Shamrock Partners, Ltd. shall be entitled to receive an aggregate of five percent (5%) of the Purchase Price of the Warrants represented hereby. Prior to due presentment for registration of transfer hereof, the Company and the Warrant Agent may deem and treat the Registered Holder as the absolute owner hereof and of each Warrant represented hereby (notwithstanding any notations of ownership or writing hereon made by anyone other than a duly authorized officer of the Company or the Warrant Agent) for all purposes and shall not be affected by any notice to the contrary, except as provided in the Warrant Agreement. This Warrant Certificate shall be governed by and construed in accordance with the laws of the State of Colorado without giving effect to its conflict of law principles. This Warrant Certificate is not valid unless countersigned by the Warrant Agent. IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to be duly executed, manually or in facsimile by two of its officers thereunto duly authorized and a facsimile of its corporate seal to be imprinted hereon. Dated:___________________, 1996 WEBSECURE, INC. [SEAL] By:_________________________________ Robert Kuzara, President By:_________________________________ Carole Ouellette, Treasurer COUNTERSIGNED: AMERICAN SECURITIES TRANSFER & TRUST, INC., as Warrant Agent By:___________________________________ Gregory D. Tubbs, Vice President A-3 SUBSCRIPTION FORM ----------------- To Be Executed by the Registered Holder in Order to Exercise Warrants The undersigned Registered Holder hereby irrevocably elects to exercise ____________ Warrants represented by this Warrant Certificate, and to purchase the securities issuable upon the exercise of such Warrants, and requests that certificates for such securities shall be issued in name of PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER ________________________ ________________________ ________________________ ________________________ (please print or type name and address) and be delivered to ________________________ ________________________ ________________________ ________________________ (please print or type name and address) and if such number of Warrants shall not be all the Warrants evidenced by this Warrant Certificate, that a new Warrant Certificate for the balance of such Warrants be registered in the name of, and delivered to, the Registered Holder at the address stated below. A-4 IMPORTANT: PLEASE COMPLETE THE FOLLOWING: 1. The exercise of this Warrant was solicited by Coburn & [ ] Meredith, Inc. or Shamrock Partners, Ltd. 2. The exercise of this Warrant was solicited by [ ] ----------------------------------- 3. The exercise of this Warrant was not solicited [ ] Dated:_____________________________ ___________________________________ Name ----------------------------------- Number and Street ----------------------------------- City/Town/State/Zip ----------------------------------- Social Security or Taxpayer Identification Number ----------------------------------- Signature Guaranteed ----------------------------------- A-5 ASSIGNMENT To Be Executed by the Registered Holder in Order to Assign Warrants FOR VALUE RECEIVED, __________________________________, hereby sells, assigns, and transfers unto PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER ________________________ ________________________ ________________________ ________________________ (please print or type name and address) __________________________________ of the Warrants represented by this Warrant Certificate, and hereby irrevocably constitutes and appoints _________________________________, Attorney to transfer this Warrant Certificate on the books of the Company, with full power of substitution in the premises. Dated:_________________________ ____________________________________ Signature Guaranteed ------------------------------------ THE SIGNATURE TO THE ASSIGNMENT OR THE SUBSCRIPTION FORM MUST CORRESPOND TO THE NAME AS WRITTEN UPON THE FACE OF THIS WARRANT CERTIFICATE IN EVERY PARTICULAR, WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATSOEVER AND MUST BE GUARANTEED BY A COMMERCIAL BANK OR TRUST COMPANY OR A MEMBER FIRM OF THE CONTINENTAL STOCK EXCHANGE, NEW YORK STOCK EXCHANGE, PACIFIC STOCK EXCHANGE, MIDWEST STOCK EXCHANGE OR BOSTON STOCK EXCHANGE. A-6 EX-10.G 4 PROMISSORY NOTE EXHIBIT 10g PROMISSORY NOTE U.S. $600,00.00 Date: October 1, 1996 FOR VALUE RECEIVED, WEBSECURE, INC., a Delaware corporation ("Maker"), promises to pay to the order of KEYCORP LEASING LTD., a Delaware corporation ("Holder"), the sum of SIX HUNDRED THOUSAND DOLLARS ($600,00.00) in lawful money of the United States of America (the "Principal"), with interest thereon as hereafter provided ("Interest"), to be paid in the manner set forth herein. 1. Interest Rate: Place of Payment. Interest on the balance of the Principal outstanding on this Promissory Note shall accrue from the date of this Promissory Note and shall be due and payable at a fixed rate of ten and thirty-eight hundredths per annum (the "Interest Rate"). Interest shall be calculated on the basis of a 360-day year consisting of twelve 30-day months. Payment of the Principal and Interest hereunder shall be made to Holder at P.O. Box 1865, Albany, New York 12201-1865, or at such other place as Holder may designate from time to time in writing. Holder reserves the right to require payment on this Promissory Note to be made by wired federal funds or other immediately available funds. 2. Repayment Terms. The Principal and Interest shall be due and payable in 60 (sixty) consecutive monthly installments payable in arrears, each in an amount equal to $12,860.70, on the_____ day of each month beginning_______, 1996 to and including__________, 2001. In addition, Maker will pay a late payment charge of five percent (5%) of any payment due hereunder that is not paid on or before the date due hereunder. 3. Security Agreement. This Promissory Note is executed pursuant to that certain security agreement (the "Security Agreement") dated as of September 24, 1996 between Maker and Holder. Capitalized terms used herein without definition shall have the meaning given them in the Security Agreement. 4. Security. Payment of the Principal and Interest hereunder, and the performance and observance by Maker of all agreements, covenants and provisions contained herein, is secured by the grant by Maker to Holder of a first priority security interest in the Collateral. 5. Prepayment. EXCEPT AS CONTEMPLATED BY CLAUSE (3) OF SECTION 10 OF THE SECURITY AGREEMENT, MAKER MAY NOT PREPAY, IN WHOLE OR IN PART, THE PRINCIPAL OUTSTANDING HEREUNDER; PROVIDED, HOWEVER, THAT MAKER MAY PREPAY, IN WHOLE BUT NOT IN PART, THE PRINCIPAL OUTSTANDING HEREUNDER BY PAYING TO HOLDER SUCH OUTSTANDING PRINCIPAL, TOGETHER WITH ALL ACCRUED AND UNPAID INTEREST THEREON, PLUS A PREPAYMENT PREMIUM ("PREPAYMENT PREMIUM") EQUAL TO FIVE PERCENT (5%) OF SUCH OUTSTANDING PRINCIPAL. 6. Transfer or Assignment. Holder may at any time assign or otherwise transfer or negotiate this Promissory Note in whole or in part, without any notice to Maker. The rights and obligations of Maker may not be assigned or delegated. 7. Application of Payments. Prior to an Event of Default, each payment received on this Promissory Note shall be applied first to all costs of collection, then to unpaid late payment charges (if any) and Prepayment Premium (if any) hereunder, then to Interest as of the payment due date and the balance, if any, to the outstanding Principal as of the date received. Upon the occurrence, and during the continuance, of an Event of Default, any payments in respect of the Secured Obligations and any proceeds of the Collateral when received by Holder In cash or its equivalent, will be applied first to costs of collection and, thereafter, in reduction of the Secured Obligations in such order and manner as Holder may direct in its sole discretion, and Maker irrevocably waives the right to direct the application of such payments and proceeds and acknowledges and agrees that Holder shall have the continuing and exclusive right to apply any and all such payments and proceeds in the Holder's sole discretion, notwithstanding any entry to the contrary upon any of its books and records. 8. Events of Default. (a) The occurrence of any of the following events shall constitute and be an event of default hereunder (an "Event of Default"): (1) Maker fails to make any installment of the Principal or Interest, or any other payment due and owing, under this Promissory Note within five (5) days after the same becomes due and payable; or (2) Maker fails to perform any other obligation required to be performed by Maker under this Promissory Note or any of the other Loan Documents for ten (10) days after written notice from Holder of such failure; or (3) any representation, warranty or other statement by or on behalf of Maker in connection with this Promissory Note is false or misleading in any material respect; or (4) an event of default has occurred and is continuing under the Security Agreement. (b) Notwithstanding anything to the contrary contained herein, upon the occurrence of an Event of Default: (i) Holder shall have the right to cause the entire outstanding balance of the Principal, together with all accrued and unpaid Interest thereon, to become immediately due and payable without notice or demand which amounts shall, together with all other sums due hereunder, accrue interest from such acceleration until the date of actual payment at the Late Payment Rate (provided, however, that should there occur a Default and if a voluntary or involuntary petition under the United States Bankruptcy Code is filed by or against Maker while such Default remains uncured, the entire outstanding balance of the Principal automatically shall be accelerated and due and payable and interest thereon at the Late Payment Rate automatically shall apply as of the date of the first occurrence of the Default, without any notice, demand or action of any type on the part of Holder (including any action evidencing the acceleration or imposition of the Late Payment Rate). The fact that Holder has, prior to the filing of the voluntary or involuntary petition under the United States Bankruptcy Code, acted in a manner which is inconsistent with the acceleration and imposition of the Late Payment Rate shall not constitute a waiver of this provision or estop Holder from asserting or enforcing Holder's rights hereunder), (ii) Maker shall pay on demand all costs and expenses of Holder with respect to the enforcement of its rights and remedies hereunder and under the Security Agreement, including, without limitation, reasonable attorneys' fees, and (iii) Holder shall have the right to exercise any and all remedies available to it hereunder and under the Security Agreement. The remedies of Holder provided herein and in the Security Agreement shall be cumulative and concurrent and may be pursued singly, successively or concurrently at the sole discretion of Holder and may be exercised as often as occasion therefor shall occur. The failure to exercise, or any delay In the exercise of, any right or remedy shall In no event be construed as a waiver, release or exhaustion of any such remedies. 9. Collection Costs. In addition to the Principal, Interest, Prepayment Premium (if any), and late payment charges (if any), Holder shall be entitled to collect all costs and expenses of collection, including, without limitation, reasonable attorneys' fees, incurred in connection with the protection or realization of the Collateral or in connection with Holder's collection efforts, whether or not suit on this Promissory Note or any foreclosure proceeding is filed. All such costs and expenses shall be payable on demand and, until paid, shall be Secured Obligations secured by the security interest granted under the Security Agreement and all other collateral, if any, held by Holder as security for Maker's obligations under this Promissory Note. 10. Binding Agreement: Governing Law. This Promissory Note is delivered in, and shall be interpreted and construed in accordance with, the internal laws of the State of New York (without regard to the conflict of laws principles of such state). The provisions of this Promissory Note shall be binding upon, and shall inure to the benefit of, the parties hereto and their respective successors and assigns. 11. More than One Signer. If more than one person or entity signs this Promissory Note as a Maker, the obligations contained herein shall be deemed joint and several and all references to "Maker" shall apply both jointly and severally. 2 12. General. Maker represents and warrants that this Promissory Note evidences a loan for business or commercial purposes. By signing this Promissory Note, Maker agrees to be legally bound to all terms and conditions contained herein. 13. Waiver. MAKER AND ALL ENDORSERS, SURETIES, AND GUARANTORS HEREOF HEREBY JOINTLY AND SEVERALLY WAIVE PRESENTMENT FOR PAYMENT, DEMAND, NOTICE OF NON-PAYMENT OR DISHONOR, NOTICE OF PROTEST AND PROTEST OF THIS PROMISSORY NOTE. MAKER HEREBY WAIVES THE RIGHT TO TRIAL BY JURY IN ANY LITIGATION IN ANY COURT WITH RESPECT TO, IN CONNECTION WITH OR ARISING OUT OF, THIS PROMISSORY NOTE OR ANY DOCUMENT DELIVERED IN CONNECTION WITH THIS PROMISSORY NOTE. 14. Usury: Partial Invalidity. (a) At no time shall the Interest Rate (or the Late Payment Rate or other amounts paid or collected hereunder) exceed the highest rate allowed by applicable law for this type of loan. Should Holder ever collect interest at a rate that exceeds the such applicable legal limit, such excess will be credited to the Principal. If the amount of the credit exceeds the balance of the Principal then outstanding on this Promissory Note, such excess will be returned to Maker; and the effective rate of interest automatically shall be reduced to the maximum lawful contract rate allowed under Applicable Law as now or hereafter construed by the courts having jurisdiction thereof. Notwithstanding the foregoing, if any applicable state law is amended or the law of the United States of America preempts any applicable state law, so that it becomes lawful for Holder to receive a greater per annum interest rate than is presently allowed by law, the Maker agrees that, on the effective date of such amendment or preemption, as the case may be, the lawful maximum hereunder shall be increased to the maximum Interest rate per annum allowed by the amended state law or the law of the United States of America (but not In excess of the Interest Rate, or, if applicable, the Late Payment Rate provided for herein). All calculations of the rate of interest contracted for, charged or received under this Note or the Security Agreement which are made for the purpose of determining whether such rate exceeds the maximum lawful contract rate, shall be made, to the extent permitted by Applicable Law, by amortizing, prorating, allocating and spreading in equal parts during the period of the full stated term of the indebtedness evidenced hereby, all interest at any time contracted for, charged or received from the Maker or otherwise by Holder in connection with the Secured Obligations. (b) Whenever possible, each provision of this Promissory Note shall be interpreted In such manner as to be effective and valid under applicable law, but if any provision of this Promissory Note shall be prohibited by or invalid under the laws of any jurisdiction, such provision, as to such jurisdiction, shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Promissory Note in any other jurisdiction. 15. Notices. All notices and other communications under this Promissory Note shall be in writing and shall be addressed: (i) if to Maker, 1711 Broadway, Corporate Center North, Saugus, MA 01906; and (ii) if to Holder, KeyCorp Leasing Ltd., 54 State Street, Albany, New York 12207, Attention: Business Coordinator, or such other address as either party hereto shall communicate to the other party at its address specified above. All such notices and other communications shall be deemed to have been duly given if delivered by hand, overnight courier or if sent by certified mail, return receipt requested, to the party to whom such notice is intended to be given, and shall be effective upon receipt. 3 IN WITNESS WHEREOF, Maker, intending to be legally bound, has caused this Promissory Note to be duly executed on the day and year first above written. MAKER: WEBSECURE, INC. By: -------------------------------- Name: Title: STATE OF ) ) ss.: COUNTY OF ) On this 2nd day of October , 1996 , before me the subscriber personally appeared Robert Kuzara , who being by me duly sworn, did depose and say; that he/she resides at 19 Smith Farm Trail, Lynnfield, MA 01940 : that he/she is a President / CEO of WebSecure, Inc. , the corporation described in an which executed the foregoing instrument; and that he signed his name thereto by order of the Board of Directors of said corporation. - ---------------------------- NOTARY PUBLIC My commission Expires: Jan. 20, 2000 4 EXHIBIT A COLLATERAL. "Collateral" shall include the property described herein or in any attachment hereto and all replacements, accessions, substitutions, additions, products and proceeds thereof, whether now owned by Borrower or hereafter acquired. A. DESCRIPTION OF COLLATERAL. All of Borrower's presently owned or hereafter acquired (1) accounts receivable, accounts, chattel paper, documents, contract rights, instruments, general intangibles, and all right, title and interest in sold, leased, or furnished goods giving rise thereto (including, without limitation, all rights (a) of stoppage in transit, (b) of reclamation, and (c) in returned or repossessed goods), (2) inventory (including, without limitation, all goods that are (a) raw materials, (b) work in process, (c) materials used or consumed in the ordinary course of Borrower's business or (d) in the ordinary course of Borrower's business, held for sale or lease or furnished or to be furnished under contracts of service), and (3) equipment, including, without limitation, (a) all machinery, office furniture and furnishing, tools, dies, jigs, and molds, (b) all goods used or bought for use primarily in Borrower's business, (c) all goods that are not consumer goods or farm products. B. OTHER COLLATERAL. Collateral shall include all property, including but not limited to deposit balances, securities and dividends, which now or hereafter may be pledged, hypothecated or otherwise encumbered in favor of KCL by the Borrower, or be in the possession of KCL, its parents, subsidiaries or affiliates. C. LOCATION OF COLLATERAL. Collateral or records concerning same, shall be kept at 1711 Broadway, Corporate Center North, Saugus, MA 01906. EX-10.H 5 EQUIPMENT LEASE AGREEMENT EXHIBIT 10h MASTER EQUIPMENT LEASE AGREEMENT THIS MASTER EQUIPMENT LEASE AGREEMENT dated as of December 21, 1995 is made by and between KEYCORP LEASING LTD., a Delaware corporation with its principal place of business at 54 State Street, Albany, New York 12207 ("Lessor"), and WEBSECURE, INC., a Massachusetts corporation having its principal place of business at 171 I Broadway, Saugus, MA 01906 ("Lessee"). TERMS AND CONDITIONS OF LEASE 1. LEASE. Lessor hereby leases to Lessee, and Lessee hereby leases from Lessor, the Equipment, subject to and upon the terms and conditions set forth herein. Each Equipment Schedule shall constitute a separate and enforceable lease incorporating all the terms and conditions of this Master Equipment Lease Agreement as if such terms and conditions were set forth in full in such Equipment Schedule. In the event that any term or condition of any Equipment Schedule conflicts with or is inconsistent with any term or condition of this Master Equipment Lease Agreement, the terms and conditions of the Equipment Schedule shall govern. 2. DISCLAIMER OF WARRANTIES. LESSOR MAKES NO (AND SHALL NOT BE DEEMED TO HAVE MADE ANY) WARRANTIES. EXPRESS OR IMPLIED, AS TO ANY MATTER WHATSOEVER INCLUDING, WITHOUT LIMITATION, THE DESIGN, OPERATION OR CONDITION OF, OR THE QUALITY OF THE MATERIAL, EQUIPMENT OR WORKMANSHIP IN, THE EQUIPMENT. ITS MERCHANTABILITY OR ITS FITNESS FOR ANY PARTICULAR PURPOSE. THE STATE OF TITLE THERETO OR ANY COMPONENT THERETO. THE ABSENCE OF LATENT OR OTHER DEFECTS (WHETHER OR NOT DISCOVERABLE). AND LESSOR HEREBY DISCLAIMS THE SAME: IT BEING UNDERSTOOD THAT THE EQUIPMENT IS LEASED TO LESSEE "AS IS" AND ALL SUCH RISKS. IF ANY. ARE TO BE BORNE BY LESSEE. NO DEFECT IN, OR UNFITNESS OF, THE EQUIPMENT, OR ANY OF THE OTHER FOREGOING MATTERS, SHALL RELIEVE LESSEE OF THE OBLIGATION TO PAY RENT OR OF ANY OTHER OBLIGATION HEREUNDER. LESSEE HAS MADE THE SELECTION OF THE EQUIPMENT FROM THE SUPPLIER BASED ON ITS OWN JUDGMENT AND EXPRESSLY DISCLAIMS ANY RELIANCE UPON ANY STATEMENTS OR REPRESENTATIONS MADE BY LESSOR. LESSOR IS NOT RESPONSIBLE FOR ANY REPAIRS, SERVICE, MAINTENANCE OR DEFECT IN THE EQUIPMENT OR THE OPERATION THEREOF. IN NO EVENT SHALL LESSOR BE LIABLE FOR ANY INDIRECT, SPECIAL OR CONSEQUENTIAL DAMAGES (WHETHER UNDER THE UCC OR OTHERWISE), INCLUDING, WITHOUT LIMITATION, ANY LOSS, COST OR DAMAGE TO LESSEE OR OTHERS ARISING FROM ANY OF THE FOREGOING MATTERS, INCLUDING, WITHOUT LIMITATION, DEFECTS, NEGLIGENCE, DELAYS, FAILURE OF DELIVERY OR NON-PERFORMANCE OF THE EQUIPMENT. ANY WARRANTY BY THE SUPPLIER IS HEREBY ASSIGNED TO LESSEE BY LESSOR WITHOUT RECOURSE. SUCH WARRANTY SHALL NOT RELEASE LESSEE FROM ITS OBLIGATION TO LESSOR TO PAY RENT, TO PERFORM ALL OTHER OBLIGATIONS HEREUNDER AND TO KEEP, MAINTAIN AND SURRENDER THE EQUIPMENT IN THE CONDITION REQUIRED BY SECTIONS 12 AND 13 HEREOF. Lessee's execution and delivery of a Certificate of Acceptance shall be conclusive evidence as between Lessor and Lessee that the Items of Equipment described therein are in all of the foregoing respects satisfactory to Lessee, and Lessee shall not assert any claim of any nature whatsoever against Lessor based on any of the foregoing matters; provided, however, that nothing contained herein shall in any way bar, reduce or defeat any claim that Lessee may have against the Supplier or any other person (other than Lessor). 3. NON-CANCELABLE LEASE. THIS LEASE IS A NET LEASE AND LESSEE'S OBLIGATION TO PAY RENT AND PERFORM ITS OBLIGATIONS HEREUNDER ARE ABSOLUTE, IRREVOCABLE AND UNCONDITIONAL UNDER ANY AND ALL CIRCUMSTANCES WHATSOEVER AND SHALL NOT BE SUBJECT TO ANY RIGHT OF SET OFF, COUNTERCLAIM, DEDUCTION, DEFENSE OR OTHER RIGHT WHICH LESSEE MAY HAVE AGAINST THE SUPPLIER, LESSOR OR ANY OTHER PARTY. LESSEE SHALL HAVE NO RIGHT TO TERMINATE (EXCEPT AS EXPRESSLY PROVIDED HEREIN) OR CANCEL THIS LEASE OR TO BE RELEASED OR DISCHARGED FROM ITS OBLIGATION HEREUNDER FOR ANY REASON WHATSOEVER, INCLUDING, WITHOUT LIMITATION, DEFECTS IN, DESTRUCTION OF, DAMAGE TO OR INTERFERENCE WITH ANY USE OF THE EQUIPMENT (FOR ANY REASON WHATSOEVER, INCLUDING, WITHOUT LIMITATION, WAR, ACT OF GOD, STRIKE OR GOVERNMENTAL REGULATION), THE INVALIDITY, ILLEGALITY OR UNENFORCEABILITY (OR ANY ALLEGATION THEREOF) OF THIS LEASE OR ANY PROVISION HEREOF, OR ANY OTHER OCCURRENCE WHATSOEVER, WHETHER SIMILAR OR DISSIMILAR TO THE FOREGOING, WHETHER FORESEEN OR UNFORESEEN. Page 1 4. Definitions. Unless the context otherwise requires, as used in this Lease, the following terms shall have the respective meanings indicated below and shall be equally applicable to both the singular and the plural forms thereof: (a) "APPLICABLE Law" shall mean all applicable Federal, state, local and foreign laws (including, without limitation, any Environmental Law, industrial hygiene and occupational safety or similar laws), ordinances, judgments, decrees, injunctions, writs and orders of any Governmental Authority and rules, regulations, orders, licenses and permits of any Governmental Authority. (b) "Appraisal Procedure" shall mean the following procedure for obtaining an appraisal of the Fair Market Sales Value or the Fair Market Rental Value. Lessor shall provide Lessee with the names of three independent Appraisers. Within ten (10) business days thereafter, Lessee shall select one of such Appraisers to perform the appraisal. The selected Appraisal shall be instructed to perform its appraisal based upon the assurnptions specified in the definition of Fair Market Sales Value or Fair Market Rental Value, as applicable, and shall complete its appraisal within twenty (20) business days after such selection. Any such appraisal shall be final, binding and conclusive on Lessee and Lessor and shall have the legal effect of an arbitration award. Lessee shall pay the fees and expenses of the selected Appraiser. (c) "Appraiser" shall mean a person engaged in the business of appraising property who has at least ten years' experience in appraising property similar to the Equipment. (d) "Authorized Signer" shall mean those officers of Lessee, set forth on an incumbency certificate (in form and substance satisfactory to Lessor) delivered by Lessee to Lessor, who are authorized and empowered to execute this Lease, the Equipment Schedules and all other documents the execution of which is contemplated hereby. (e) "Certificate of Acceptance" shall mean a certificate of acceptance, in form and substance satisfactory to Lessor, executed and delivered by Lessee in accordance with Section 7 hereof indicating, among other things, that the Equipment described therein has been accepted by Lessee for all purposes of this Lease. (f) "Default" shall mean any event or condition which, with the passage of time or the giving of notice, or both, would constitute an Event of Default. (g) "Environmental Law" shall mean any federal, state, or local statute, law, ordinance, code, rule, regulation, or order or decree regulating, relating to or imposing liability upon a person in connection with the use, release or disposal of any hazardous, toxic or dangerous substance, waste, or material as same may relate to the Equipment or its operation. (h) ""Equipment" shall mean an item or items of personal property designated from time to time by Lessee which are described on an Equipment Schedule and which are being or will be leased by Lessee pursuant to this Lease, together with all replacement parts, additions and accessories incorporated therein or affixed thereto. (i) "Equipment Group" shall consist of all Items of Equipment listed on a particular Equipment Schedule. j) "Equipment Location" shall mean the location of the Equipment, as set forth on an Equipment Schedule, or such other location (approved by Lessor) as Lessee shall from time to time specify in writing. (k) "Equipment Schedule" shall mean each equipment lease schedule from time to time executed by Lessor and Lessee with respect to an Equipment Group, pursuant to and incorporating by reference all of the terms and conditions of this Master Equipment Lease Agreement. (I) "Event of Default" shall have the meaning specified in Section 22 hereof. (m) "Fair Market Rental Value" or "Fair Market Sale Value" shall mean the value of each Item of Equipment for lease or sale, unless otherwise specified herein as determined between Lessor and Lessee, or, if Lessor and Lessee are unable to agree, pursuant to the Appraisal Procedure, which would be obtained in an arms-length transaction between an informed and willing lessor or seller (under no compulsion to lease or sell) and an informed and willing lessee or buyer (under no compulsion to lease or purchase). In determining the Fair Market Rental Value or Fair Market Sale Value of the Equipment, (a) such Fair Market Rental Value or Fair Market Sale Value shall be calculated on the assumption that the Equipment is in the condition and repair required by Sections 12 and 13 hereof, and (b) there shall be excluded from the calculation thereof the value of any upgrades and attachments made pursuant to Section 14 hereof in which the Lessor does not own an interest; provided, however, that, unless otherwise provided in such Section 22, for purposes of Section 22 of the Lease, Fair Market Sale Value of the Equipment shall be determined based upon the actual facts and circumstances then prevailing without regard to the assumptions in clause (a) above. (n) "Governmental Action" shall mean all authorizations, consents, approvals, waivers, filings and declarations of any Governmental Authority, including, without limitation, those environmental and operating permits required for the ownership, lease, use and operation of the Equipment. (o) "Governmental Authority" shall mean any foreign, Federal, state, county, municipal or other governmental authority, agency, board or court. (p) "Guarantor" shall mean any guarantor of Lessee's obligations hereunder. (q) "Item of Equipment" shall mean each item of the Equipment. (r) "Late Payment Rate" shall mean an annual interest rate equal to the lesser of 18% or the maximum interest rate permitted by Applicable Law. (s) "Lease", "hereof", "herein" and "hereunder" shall mean, with respect to an Equipment Group, this Master Equipment Lease Agreement and the Equipment Schedule on which such Equipment Group is described, including all addenda attached thereto and made a part thereof. (t) "Lien" shall mean all mortgages, pledges, security interests, liens, encumbrances, claims or other charges of any kind whatsoever. Page 2 (u) "Purchase Agreement" shall mean any purchase agreement or other contract entered into between the Supplier and Lessee for the acquisition of the Equipment to be leased hereunder. (v) "Related Equipment Schedule" shall have the meaning set forth in Section 27 hereof. (w) "Renewal Notice" shall have the meaning set forth in Section 32 hereof. (x) "Return Notice" shall have the meaning set forth in Section 13 hereof. (y) "Rent" shall mean the periodic rental payments due hereunder for the leasing of the Equipment, as set forth on the Equipment Schedules, and, where the context hereof requires, all such additional amounts as may from time to time be payable under any provision of this Lease. (z) "Rent Commencement Date" shall mean, with respect to an Equipment Group, the date on which Lessor disburses funds for the purchase of such Equipment Group, as determined by Lessor in its sole discretion. (aa) "Rent Payment Date" with respect to an Equipment Group, shall have the meaning set forth in the Equipment Schedule associated therewith. (ab) "Stipulated Loss Value" shall mean, as of any Rent Payment Date and with respect to an Item of Equipment, the amount determined by multiplying the Total Cost for such Item of Equipment by the percentage specified in the applicable Stipulated Loss Value Supplement opposite such Rent Payment Date. (ac) "Stipulated Loss Value Supplement" with respect to an Equipment Group, shall have the meaning set forth in the Equipment Schedule associated therewith. (ad) "Supplier" shall mean the manufacturer or the vendor of the Equipment, as set forth on each Equipment Schedule. (ae) "Term" shall mean the Initial Term, as defined in Section 8 hereof, and any Renewal Term, as defined in Section 8 hereof. (af) "Total Cost" shall mean, with respect to an Item of Equipment, (1) the acquisition cost of such Item of Equipment (including Lessor's capitalized costs), as set forth on the Equipment Schedule on which such Item of Equipment is described, or (2) if no such acquisition cost is specified, the Supplier's invoice price for such Item of Equipment plus Lessor's capitalized costs, or (3) if no such acquisition cost is specified and no such invoice price is obtainable, an allocated price for such Item of Equipment based on the Total Cost of all Items of Equipment set forth on the Equipment Schedule on which such Item of Equipment is described, as determined by Lessor in its sole discretion. 5. Supplier Not an Agent. LESSEE UNDERSTANDS AND AGREES THAT (i) NEITHER THE SUPPLIER, NOR ANY SALES REPRESENTATIVE OR OTHER AGENT OF THE SUPPLIER, IS (I ) AN AGENT OF LESSOR OR (2) AUTHORIZED TO MAKE OR ALTER ANY TERM OR CONDITION OF THIS LEASE, AND (ii) NO SUCH WAIVER OR ALTERATION SHALL VARY THE TERMS OF THIS LEASE UNLESS EXPRESSLY SET FORTH HEREIN. 6. Ordering Equipment. Lessee has selected and ordered the Equipment from the Supplier and, if appropriate, has entered into a Purchase Agreement with respect thereto. Lessor shall accept an assignment from Lessee of Lessee's rights, but none of Lessee's obligations, under any such Purchase Agreement. Lessee shall arrange for delivery of the Equipment so that it can be accepted in accordance with Section 7 hereof. If an Item of Equipment is subject to an existing Purchase Agreement between Lessee and the Supplier, Lessee warrants that such Item of Equipment has not been delivered to Lessee as of the date of the Equipment Schedule applicable thereto. If Lessee causes the Equipment to be modified or altered, or requests any additions thereto prior to the Rent Commencement Date, Lessee (i) acknowledges that any such modification, alteration or addition to an Item of Equipment may affect the Total Cost, taxes, purchase and renewal options, if any, Stipulated Loss Value and Rent with respect to such Item of Equipment, and (ii) hereby authorizes Lessor to adjust such Total Cost, taxes, purchase and renewal options, if any, Stipulated Loss Value and Rent as appropriate. Lessee hereby authorizes Lessor to complete each Equipment Schedule with the serial numbers and other identification data of the Equipment Group associated therewith, as such data is received by Lessor. 7. Delivery and Acceptance. Upon acceptance for lease by Lessee of any Equipment delivered to Lessee and described in any Equipment Schedule, Lessee shall execute and Deliver to Lessor a Certificate of Acceptance. LESSOR SHALL HAVE NO OBLIGATION TO ADVANCE FUNDS FOR THE PURCHASE OF THE EQUIPMENT UNLESS AND UNTIL LESSOR SHALL HAVE RECEIVED A CERTIFICATE OF ACCEPTANCE RELATING THERETO EXECUTED BY LESSEE. Such Certificate of Acceptance shall constitute Lessee's acknowledgment that such Equipment (a) was received by Lessee, (b) is satisfactory to Lessee in all respects and is acceptable to Lessee for lease hereunder, (c) is suitable for Lessee's purposes, (d) is in good order, repair and condition, (e) has been installed and operates properly, and (f) is subject to all of the terms and conditions of this Lease (including, without limitation, Section 2 hereof). 8. Term: Survival. With respect to any Item of Equipment, unless otherwise specified thereon, the initial term of this Lease (the "Initial Term") shall commence on the date on which such Item of Equipment is delivered to Lessee, and, unless earlier terminated as provided herein, shall expire on the final Rent Payment Date for such Item of Equipment. With respect to an Item of Equipment, any renewal term of this Lease (individually, a "Renewal Term"), as contemplated hereby, shall commence immediately upon the expiration of the Initial Term or any prior Renewal Tenn, as the case may be, and, unless earlier terminated as provided herein, shall expire on the date on which the final payment of Rent is due and paid hereunder. All obligations of Page 3 Lessee hereunder shall survive the expiration, cancellation or other termination of the Term hereof. 9. Rent. With respect to Each Item of Equipment, Lessee shall pay the Rent set forth on the Equipment Schedule applicable to such Item of Equipment, commencing on the Rent Commencement Date, and, unless otherwise set forth on such Equipment Schedule, on the same day of each payment period thereafter for the balance of the Term. Rent shall be due whether or not Lessee has received any notice that such payments are due. All Rent shall be paid to Lessor at its address set forth on the Equipment Schedule, or as otherwise directed by Lessor in writing. 10. Location: Inspection: Labels. The Equipment shall be delivered to the Equipment Location and shall not be removed therefrom without Lessor's prior written consent. Lessor shall have the right to enter upon the Equipment Location and inspect the Equipment at any reasonable time. Lessor may, without notice to Lessee, remove the Equipment if the Equipment is, in the opinion of Lessor, being used beyond its capacity or is in any manner improperly cared for, abused or misused. At Lessor's request, Lessee shall affix labels stating that the Equipment is owned by Lessor permanently in a prominent place on the Equipment and shall keep such labels in good repair and condition. 11. Use: Alterations. Lessee shall use the Equipment lawfully and only in the manner for which it was designed and intended and so as to subject it only to ordinary wear and tear. Lessee shall comply with all Applicable Law. Lessee shall immediately notify Lessor in writing of any existing, pending or threatened investigation, inquiry, claim or action by any Governmental Authority in connection with any Applicable Law or Governmental Action which could adversely affect the Equipment or this Lease. Lessee, at its own expense, shall make such alterations, additions or modifications or irnprovements to the Equipment as may be required from time to time to meet the requirements of Applicable Law or Governmental Action. Except as otherwise permitted herein, Lessee shall not make any alterations, additions, modifications or improvements to the Equipment without Lessor's prior written consent. 12. Repairs and Maintenance~ Lessee, at Lessee's own cost and expense, shall (a) keep the Equipment in good repair, good operating condition and working order and in compliance with the manufacturer's specifications, and (b) enter into and keep in full force and effect during the Term hereof a maintenance agreement with the manufacturer of the Equipment, or a manufacturer- approved maintenance organization, to maintain, service and repair the Equipment so as to keep the Equipment in as good operating condition and working order as it was when it first became subject to this Lease and in compliance with the manufacturer's specifications. Upon Lessor's request, Lessee shall furnish Lessor with an executed copy of any such maintenance agreement. An alternate source of maintenance may be used by Lessee with Lessor's prior written consent. Lessee, at its own cost and expense and within a reasonable period of time, shall replace any part of any Item of Equipment that becomes worn out, lost, stolen, destroyed, or otherwise rendered permanently unfit or unavailable for use (whether or not such replacement is covered by the aforesaid maintenance agreement), with a replacement part of the same manufacture, value, remaining useful life and utility as the replaced part immediately preceding the replacement (assuming that such replaced part is in the condition required by this Lease).Such replacement part shall be free and clear of all Liens. Notwithstanding the foregoing, this paragraph shall not apply to any Loss or Damage (as defined in Section 16 hereof) of any Item of Equipment. 13. Return of Equipment. Upon the expiration (subject to Section 32 hereof and except as otherwise provided in an Equipment Schedule) or earlier termination of this Lease, Lessee, at its sole expense, shall return the Equipment to Lessor by delivering such Equipment F.A.S. or F.O.B. to such location on such carrier (packed for shipping) as Lessor shall specify. Lessee agrees that the Equipment, when returned, shall be in the condition required by Section 12 hereof. All components of the Equipment shall have been properly serviced, following the manufacturer's written operating and servicing procedures, such that the Equipment is eligible for a manufacturer's's standard, full service maintenance contract without Lessor's incurring any expense to repair or rehabilitate the Equipment. If, in the opinion of Lessor, any Item of Equipment fails to meet the standards set forth above, Lessee agrees to pay on demand all costs and expenses incurred in connection with repairing such Item of Equipment and restoring it so as to meet such standards, assembling and delivering such Item of Equipment. Lessee shall give Lessor ninety (90) days written notice (the "Return Notice") that Lessee is returning the Equipment as provided for above. If Lessee fails to return any Item of Equipment as required hereunder, then, all of Lessee's obligations under this Lease (including, without limitation, Lessee's obligation to pay Rent for such Item of Equipment at the rental then applicable under this Lease) shall continue in full force and effect until such Item of Equipment shall have been returned in the condition required hereunder. 14. Equipment Upgrades/Attachments. In addition to the requirements of Section 11 hereof, Lessee, at its own expense, may from time to time add or install upgrades or attachments to the Equipment during the Term; provided. that such upgrades or attachments (a) are readily removable without causing material damage to the Equipment, (b) do not materially adversely affect the Fair Market Sale Value, the Fair Market Rental Value, residual value, productive capacity, utility or remaining useful life of the Equipment, and (c) do not cause such Equipment to become "limited use property" within the meaning of Revenue Procedure 76-30, 1976-2 C.B. 647 (or such other successor tax provision), as of the applicable delivery date or the time of such upgrade or attachment. Any such upgrades or attachments which are not required by Section 11 hereof and which can be removed without Page 4 causing damage to or adversely affecting the condition of the Equipment, or reducing the Fair Market Sale Value, the Fair Market Rental Value, residual value, productive capacity, utility or remaining useful life of the Equipment shall remain the property of Lessee; and upon the expiration or earlier termination of this Lease and provided that no Event of Default exists, Lessee may, at its option, remove any such upgrades or attachments and, upon such removal, shall restore the Equipment to the condition required hereunder. 15. Sublease and Assignment. (a) WITHOUT LESSOR'S PRIOR WRITTEN CONSENT, LESSEE SHALL NOT (i) ASSIGN, TRANSFER, PLEDGE, HYPOTHECATE OR OTHERWISE DISPOSE OF THIS LEASE, THE EQUIPMENT OR ANY INTEREST THEREIN, OR (ii) SUBLET OR LEND THE EQUIPMENT TO, OR PERMIT THE EQUIPMENT TO BE USED BY, ANYONE OTHER THAN LESSEE OR LESSEE'S QUALIFIED EMPLOYEES. (b) Lessor, at any time with or without notice to Lessee, may sell, transfer, assign and/or grant a security interest in this Lease, any Equipment Schedule or any Item of Equipment. In any such event, any such purchaser, transferee, assignee or secured party shall have and may exercise all of Lessor's rights hereunder with respect to the items to which any such sale, transfer, assignment and/or security interest relates, and LESSEE SHALL NOT ASSERT AGAINST ANY SUCH PURCHASER, TRANSFEREE, ASSIGNEE OR SECURED PARTY ANY DEFENSE, COUNTERCLAIM OR OFFSET THAT LESSEE MAY HAVE AGAINST LESSOR. Lessee acknowledges that no such sale, transfer, assignment and/or security interest will materially change Lessee's duties hereunder or materially increase its burdens or risks hereunder. Lessee agrees that upon written notice to Lessee of any such sale, transfer, assignment and/or security interest, Lessee shall acknowledge receipt thereof in writing and shall comply with the directions and demands of Lessor's successor or assign. 16. Loss of or Damage to Equipment. (a) Lessee shall bear the entire risk of loss, theft, destruction, disappearance of or damage to any and all Items of Equipment ("Loss or Damage") from any cause whatsoever during the Term hereof until the Equipment is returned to Lessor in accordance with Section 13 hereof. No Loss or Damage shall relieve Lessee of the obligation to pay Rent or of any other obligation under this Lease. (b) In the event of Loss or Damage to any Item of Equipment, Lessee, at the option of Lessor, shall within thirty (30) days following such Loss or Damage: (I ) place such Item of Equipment in good condition and repair, in accordance with the terms hereof; (2) replace such Item of Equipment with replacement equipment (acceptable to Lessor) in as good condition and repair, and with the same value, remaining useful economic life and utility, as such replaced Item of Equipment immediately preceding the Loss or Damage (assuming that such replaced Item of Equipment is the condition required by this Lease), which replacement equipment shall be free and clear of all Liens; or (3) pay to Lessor the sum of (i) all Rent due and owing hereunder with respect to such Item of Equipment (at the time of such payment) plus (ii) the Stipulated Loss Value as of the Rent Payment Date next following the date of such Loss or Damage with respect to such Item of Equipment, as set forth on the Schedule applicable thereto. Upon Lessor's receipt of the payment required under subsection (3) above, Lessee shall be entitled to Lessor's interest in such Item of Equipment, in its then condition and location, "as is" and "where is", without any warranties, express or implied. If Lessee replaces the Item of Equipment pursuant to subsection (b) above, title to such replacement equipment shall immediately (and without further act) vest in Lessor and thereupon shall be deemed to constitute Items of Equipment and be fully subject to this Lease as if originally leased hereunder. If Lessee fails to either restore or replace the Item of Equipment pursuant to subsection (I) or (2) above, respectively, Lessee shall make the payment under subsection (3) above. 17. Insurance. (a) Lessee, at all times during the Term hereof (until the Equipment shall have been returned to Lessor) and at Lessee's own cost and expense, shall maintain (I) insurance against all risks of physical loss or damage to the Equipment (including theft and collision for Equipment consisting of motor vehicles) in an amount not less than the full replacement value thereof or the Stipulated Loss Value thereof, whichever is greater, and (2) comprehensive public liability insurance including blanket contractual liability for personal and bodily injury and property damage in an amount satisfactory to Lessor. (b) All insurance policies required hereunder shall (I) require 30 days' prior written notice of cancellation or material change in coverage to Lessor (any such cancellation or change, as applicable, not being effective until the thirtieth (30th) day after the giving of such notice); (2) name Lessor as an additional insured under the public liability policies and name Lessor as sole loss payee under the property insurance policies; (3) not require contributions from other policies held by Lessor; (4) waive any right of subrogation against Lessor; (5) in respect of any liability of any of Lessor, except for the insurers' salvage rights in the event of a Loss or Damage, waive the right of such insurers to set-off, to counterclaim or to any other deduction, whether by attachment or otherwise, to the extent of any monies due Lessor under such policies; (6) not require that Lessor pay or be liable for any premiums with respect to such insurance covered thereby; (7) be in full force and effect throughout any geographical areas at any time traversed by any Item of Equipment; and (8) contain breach of warranty provisions providing that, in respect of the interests of Lessor in such policies, the insurance shall not be invalidated by any action or inaction of Lessee or any other person (other than Lessor) and shall insure Lessor regardless of any breach or violation of any warranty, declaration or condition contained in such policies by Lessee or by any other person (other than Lessor). Prior to the first date of delivery of any Item of Equipment hereunder, and thereafter not less than 15 days prior to the expiration dates of the expiring policies theretofore delivered pursuant to this Section, Lessee shall deliver to Lessor a duplicate original of all policies (or in the case of blanket policies, certificates thereof issued by the insurers thereunder) for the insurance maintained pursuant to this Section. Page 5 18. General Tax Indemnification. Lessee shall pay when due and shall indemnify and hold Lessor harmless from and against (on an after-tax basis) any and all taxes, fees, withholdings, levies, imposts, duties, assessments and charges of any kind and nature (together with interest ad penalties thereon) (including, without limitation, sales, use, gross receipts, personal property, ad valorem, business and occupational, franchise, value added, leasing, leasing use, documentary, stamp or other taxes) imposed upon or against Lessor, Lessor's assigns, Lessee or any Item of Equipment by any Governmental Authority with respect to any Item of Equipment or the manufacturing, ordering, sale, purchase, shipment, delivery, acceptance or rejection, ownership, titling, registration, leasing, subleasing, possession, use, operation, removal, return or other dispossession thereof or upon the rents, receipts or earnings arising therefrom or upon or with respect to this Lease, excepting only all Federal, state and local taxes on or measured by Lessor's net income (other than income tax resulting from making any alterations, improvements, modifications, additions, upgrades, attachments, replacements or substitutions by Lessee). Whenever this Lease terminates as to any Item of Equipment, Lessee shall, upon written request by Lessor, advance to Lessor the amount determined by Lessor to be the personal property or other taxes on said item which are not yet payable, but for which Lessee is responsible, provided Lessor provides Lessee with copies of tax bills supporting Lessor's request. 19. Lessor's Right to Perform for Lessee. If Lessee fails to perform or comply with any of its obligations contained herein, Lessor may (but shall not be obligated to do so) itself perform or comply with such obligations, and the amount of the reasonable costs and expenses of Lessor incurred in connection with such performance or compliance, together with interest on such amount at the Late Payment Rate, shall be payable by Lessee to Lessor upon demand. No such performance or compliance by Lessor shall be deemed a waiver of the rights and remedies of Lessor or any assignee of Lessor against Lessee hereunder or be deemed to cure the default of Lessee hereunder. 20. Delinquent Payments: Interest. If Lessee fails to pay any Rent or other sums under this Lease when the same becomes due, Lessee shall pay to Lessor a late charge equal to five percent (5%) of such delinquent amount. Such late charge shall be payable by Lessee upon demand by Lessor and shall be deemed Rent hereunder. In no event shall such late charge exceed the maximum amounts permitted under Applicable Law. 21. Personal Property: Liens. Lessor and Lessee hereby agree that the Equipment is, and shall at all times remain, personal property notwithstanding the fact that any Item of Equipment may now be, or hereafter become, in any manner affixed or attached to real property or any improvements thereon. Lessee shall at all times keep the Equipment free and clear from all Liens. Lessee shall (i) give Lessor immediate written notice of any such Lien, (ii) promptly, at Lessee's sole cost and expense, take such action as may be necessary to discharge any such Lien, and (iii) indemnify and hold Lessor, on an after-tax basis, harmless from and against any loss or damage caused by any such Lien. 22. Events of Default: Remedies. (a) As used herein, the term "Event of Default" shall mean any of the following events: (1) Lessee fails to pay any Rent within ten (10) days after the same shall have become due; (2) Lessee or any Guarantor becomes insolvent or makes an assignment for the benefit of its creditors; (3) a receiver, trustee, conservator or liquidator of Lessee or any Guarantor or of all or a substantial part of Lessee's or such Guarantor's assets is appointed with or without the application or consent of Lessee or such Guarantor, respectively; (4) a petition is filed by or against Lessee or any Guarantor under any bankruptcy, insolvency or similar legislation; (5) Lessee or any Guarantor violates or fails to perform any provision of either this Lease or any other loan, lease or credit agreement or any acquisition or purchase agreement with Lessor or any other party; (6) Lessee violates or fails to perform any covenant or representation made by Lessee herein; (7) any representation or warranty made herein or in any Lease, certificate, financial statement or other statement furnished to Lessor shall prove to be false or misleading in any material respect as of the date on which the same was made; (8) Lessee makes a bulk transfer of furniture, furnishings, fixtures or other equipment or inventory; or (9) there is a material adverse change in Lessee's or any Guarantor's financial condition since the first Rent Commencement Date of any Equipment Schedule executed in connection herewith. An Event of Default with respect to any Equipment Schedule hereunder shall, at Lessor's option, constitute an Event of Default for all Equipment Schedules hereunder and any other agreements between Lessor and Lessee. (b) Upon the occurrence of an Event of Default, Lessor may do one or more of the following as Lessor in its sole discretion shall elect: (1) proceed by appropriate court action or actions, either at law or in equity, to enforce performance by Lessee of the applicable covenants of this Lease or to recover damages for the breach thereof; (2) sell any Item of Equipment at public or private sale; (3) hold, keep idle or lease to others any Item of Equipment as Lessor in its sole discretion may determine; (4) by notice in writing to Lessee, terminate this Lease, without prejudice to any other remedies hereunder; (5) demand that Lessee, and Lessee shall, upon written demand of Lessor and at Lessee's expense forthwith return all Items of Equipment to Lessor or its order in the manner and condition required by, and otherwise in accordance with all of the provisions of this Lease, except those provisions relating to periods of notice; (6) enter upon the premises of Lessee or other premises where any Item of Equipment may be located and, without notice to Lessee and with or without legal process, take possession of and remove all or any such Items of Equipment without liability to Lessor by reason of such entry or taking possession, and without such action constituting a termination of this Lease unless Lessor notifies Lessee in writing to such effect; (7) by written notice to Lessee specifying a payment date, demand that Lessee pay to Lessor, and Lessee shall pay to Lessor, on the payment date specified in such notice, as Page 6 liquidated damages for loss of a bargain and not as a penalty, any unpaid Rent due prior to the payment dated specified in such notice plus whichever of the following amounts Lessor, in its sole discretion, shall specify in such notice (together with interest on such amount at the Late Payment Rate from the payment date specified in such notice to the date of actual payment): (i) an amount, with respect to an Item of Equipment, equal to the Rent payable for such Item of Equipment, equal to the Rent payable for such Item of Equipment for the remainder of the then current Term thereof, after discounting such Rent to present worth as of the payment date specified in such notice on the basis of a per annum rate of discount equal to five percent (5%) from the respective dates upon which such Rent would have been paid had this Lease not been terminated; or (ii) the Stipulated Loss Value, computed as of the payment date specified in such notice or, if such payment date is not a Rent Payment Date, the Rent Payment Date next following the payment date specified in such notice (provided, however, that, with respect to any Item of Equipment returned to or repossessed by Lessor, the amount recoverable under this clause (ii) shall be reduced (but not below zero) by an amount equal to the Fair Market Sales Value (taking into account its actual condition) of such Item of Equipment; (8) cause Lessee, at its expense, to promptly assemble any and all Items of Equipment and return the same to Lessor at such place as Lessor may designate in writing; and (9) exercise any other right or remedy available to Lessor under applicable law or proceed by appropriate court action to enforce the terms hereof or to recover damages for the breach hereof or to rescind this Lease. In addition, Lessee shall be liable, except as otherwise provided above, for any and all unpaid Rent due hereunder before or during the exercise of any of the foregoing remedies, and for legal fees and other costs and expenses incurred by reason of the occurrence of any Event of Default or the exercise of Lessor's remedies with respect thereto, including without limitation the repayment in full of any costs and expenses necessary to be expended in repairing any Item of Equipment in order to cause it to be in compliance with all maintenance and regulatory standards imposed by this Lease. If an Event of Default occurs, to the fullest extent permitted by law, Lessee hereby waives any right to notice of sale and further waives any defenses, rights, offsets or claims against Lessor because of the manner or method of sale or disposition of any Items of Equipment. None of Lessor's rights or remedies hereunder are intended to be exclusive of, but each shall be cumulative and in addition to any other right or remedy referred to hereunder or otherwise available to Lessor or its assigns at law or in equity. No express or implied waiver by Lessor of any Event of Default shall constitute a waiver of any other Event of Default or a waiver of any of Lessor's rights 23. Notices. All notices and other communications hereunder shall be in writing ant shall be transmitted by hand, overnight courier or certified mail (return receipt requested), postage prepaid. Such notices and other communications shall be addressed to the respective party at the address set forth above or at such other address as any party may from time to time designate by notice duly given in accordance with this Section. Such notices and other communications shall be effective upon receipt. 24. General Indemnification. Lessee shal1 pay, and shall indemnify and hold Lessor harmless on an after-tax basis from and against, any and all liabilities, causes of action, claims, suits, penalties, damages, losses, costs or expenses (including attorneys' fees), obligations, liabilities, demands and judgements, and Liens, of any nature whatsoever (collectively, a "Liability") arising out of or in any way related to: (a) this Lease or any other written agreement entered into in connection with the transactions contemplated hereby and thereby (including, without limitation, a Purchase Agreement, if aay) or any amendment, waiver or modification of any of the foregoing or the enforcement of any of the terms hereof or any of the foregoing, (b) thc manufacture, purchase, ownership, selection, acceptance, rejection, possession, lease, sublease, operation, use, maintenance, documenting, inspection, control, loss, damage, destruction, removal storage, surrender, sale, use, condition, delivery, nondelivery, return or other disposition of or any other matter relating to any Item of Equipment or any part or portion thereof (including, in each case and without limitation, latent or other defects, whether or not discoverable, any claim for patent, trademark or copyright infringement and any and all Liabilities in any way relating to or arising out of injury to persons, properties or the environment or any and all Liabilities based on strict liability in tort, negligence, breach of warranties or violations of any regulatory law or requirement, (c) a failure to comply fully with any Environmental Law with respect to the Equipment or its operation or use, and (d) Lessee's failure to perform any covenant, or breach of any representation or warranty, hereunder; provided, that the foregoing indemnity shall not extend to the Liabilitics to thc extent resulting solely from the gross negligence or wilful misconduct of Lessor. Lessee shall deliver promptly to Lcssor (i) copies of any documents roceived from the United States Environmental Protection Agency or any state, county or municipal environmental or health agency and (ii) copies of any documents submitted by Lessee or any of its subsidiaries to the United States Environmental Protection Agency or any state, county or municipal environmental or health agency concerning the Equipment or Its operation. 25. Severability: Captions. Any provision of this Lease or any Equipment Schedule which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability sha11 not invalidate or render unenforceable such provision in any other jurisdiction. Captions are intended for convenience or reference only, and shall not be construed to define, limit or describe the scope or intent of any provisions hereof. 26. Lessor's Expense. Lessee shall pay all costs and expenses of Lessor, including attorneys' fees and the fees of any collectlon agencies, incurred by Lessor in enforcing any of the terms, conditions or provisions hereof or in protecting Lessor's rights hereunder. 27. Related Equipment Schedules. In the event that any Item of Equipment covered under any Equipment Schedule hereunder may become attached or affixed to, or used in connection with, Equipment covered under another Equipment Schedule hereunder (a "Related Equipment Schedule"), Lessee agree that, if Lessee elects to exercise a purchase or renewal option under any such Equipment Schedule, or if Lessee elects to return the Equipment under any such Equipment Schedule pursuant to Section 13 hereof, then Lessor, in its sole dlscretion, may require that all Equipment leased under all Related Equipment Schedules be similarly disposed of. 28. Financial and Other Data. During the Term hereof, Lessee shal1 furnish Lessor, as soon as available and in any event within 60 days after the end of each quarterly period (except the last) of each fiscal year, and, as soon as available and in any event within 120 days after the lst day of each fiscal year, financial statements of Lessee and each Guarantor, in each case certified by an independent public accountant if customarily available or requested. Lessee shall also furnish such other financial reports, information or data as Lessor may reasonably request from time to time; 29. Commitment Fee Requirement. An amount equal to the first periodic payment of Rent must accompany each Lessee proposal for an Equipment Schedule hereunder. THIS COMMITMENT FEE IS NONE-REFUNDABLE; provided, however, that, upon Lessor's acceptance of Lessee's proposal to enter into such Equipment Schedule, such commitment fee shall be applied to the first periodic payment of Rent thereunder. 30. No Affiliation with the Supplier. Lessee hereby represents and warrants to Lessor that, except as previously disclosed in writing to lessor, neither Lessee nor any of its officers or directors (if a corporation) or partners (if a partnership) has, directly or indirectly, any financial interest in the Supplier. 31. Representations and Warranties of Lessee. Lessee represents and warrants that: (a) Lessee is a corporation duly organized and validly existing in good standing under the laws of the state of its incorporation; (b) the execution, delivery and performance of this Lease and all related instruments and documents (1) have been duly authorized by all necessary corporate and/or partnership action on the part of Lessee, (2) do not require the approval of any stockholder, partner, trustee or holder of any obligations of Lessee except such as have becn duly obtained, and (3) do not and will not contravene any law, governmental rule, regulation or order now binding on Lessee, or the character or by-laws of Lessee, or contravene the provisions of, or constitute a default under, or result in the creation of any lien or encumbrance upon the property of Lessee under, any indenture, mortgage, contract or other agreement to which Lcssee is a party or by which it or its property is bound; (c) this Lease and all related instruments and documents, when entered into, will constitute legal, valid and binding obligations of Lessee enforceable against Lessee in accordance with tbe terms thereof; (d) there are no pending actions or proceedings to which Lessee is a part, and tbere are no other pending or threatened actions or proceedings of wbich Lessee has knowledge, before any court, arbitrator or administrative agency, which, either individually or in the aggregate, would adversely effect the financial condition of Lessee, or the ability of Lessee to perform its obligations hereunder, (e) Lessee is not in default under any obligation for tbe payment of borrowed money, for the deferred purchase price of property or for the payment of any rent under any lease agreement which, either individually or in the aggregate, would have the same such effect; (f) under the laws of the state(s) in which the Equipment is to be located, the Equipment consists solely of personal property and not fixtures; (g) the financial statements of Lessee (copies of which have been furnished to Lessor) have been prepared in accordance with generally acceptable accounting principles consistently applied ("GAAP"), and fairly present Lessee's financial condition and the results of its operations as of the date of and for the period covered by such statements, and since the date of such statements there has been no material adverse change in such conditions or operations; (h) the address stated above is the chief place of business and chief executive office, or in the case of individuals, the primary residece, of Lessee; (i) Lessee does not conduct business under a trade, assumed or fictitious name; and (j) the Equipment is being leased bereunder sololy for business purposes and that no item of Equipment will be used for personal family or household purposes. 32. Renewal And Purchase Options. With respect to an Equipment Schedule and the Equipment Group set forth thereon, so long as no Default or Event of Default shall have occurred and is continuing, then, upon not less than ninety (90) days prior Written notice to Lessor, ("Renewal Notice") Lessee may (a) at the expiration of the Initial Term, or any Renewal Term, purchase all, but not less than al1, of the Equipment Group for the Fair Market Sale Value of such Equipment Group, payable in cash to Lessor upon the expiration of the Initial Term or any Renewal Term, as the case may, (b) at the expiration of the Initial Term, renew this Lease on a month to month basis at the same Rent payable at the expiration of the Initial Term, or (c) at the expiration of tho Initial Term, renew this Lease for a minimum period of not less than twelve (12) consecutive months at the then current Fair Market Rental Value. If Lessee fails to give Lessor the Return Notice or the Renewal Notice at least ninety (90) days before the expiration of the Initial Term, Lessee shall be deemed to have chosen option (b) above. If Lessee exercises option.(a) above, Lessee shall purchase the Equipment "as is" and "where is" and without any warranties, express or implied, Lessor. 33. Lessee's Waivers. To the extent permitted by Applicable Law, Lessee hereby waives (a) any and all rights and remedies which it may now have or which at any time hereafter may be conferred upon it by statute (including, without limitation, Article 2A of the Uniform Commercial Code, as applicable) or otherwise, (1) which may limit or modify Lessor's rights or remedies hereunder, (2) to terminate, cancel, quit, repudiate or surrender this Lease, except as expressly provided herein; (3) to reject, revoke acceptance or accept partial delivery of thc Equipment; (4) to recover damages from Lessor for any breach of warranty or for any other reason provided, however, that no such waiver shall preclude Lessee from asserting any such claim against Lessor in a separate cause of action; or (5) to setoff or deduct all or any part of any claimed damages resulting from Lessor's default, if any, under this Lease. 34. UCC Filings. LESSEE HEREBY APPOINTS LESSOR OR ITS ASSIGNEE AS ITS TRUE AND LAWFUL ATTORNEY IN FACT, IRREVOCABLY AND COUPLED WITH AN INTEREST, TO EXECUTE AND FILE ON BEHALF OF LESSEE ALL UCC FINANCING STATEMENTS WHICH IN LESSOR'S SOLE DlSCRETION ARE NECESSARY OR PROPER TO SECURE LESSOR'S INTEREST IN THE EQUIPMENT IN ALL APPLICABLE JURISDICTIONS. 35. Miscellaneous. Time is of the essence with respect to this Lease. Any failure of Lessor to require strict performance by Lessee or any waiver by Lessor or any provision berein shall not be construed as a consent or waiver of any provision of this Lease. Neither this Lease nor any Equipment Schedule may be amended except by a writing signed by Lessor and Lessee. This Lease and each Equipment Schedule shall be binding upon, and inure to the benefit of, the parties hereto, their permittedo successors and assigns. This Lease will be binding upon Lessor only if executed by a duly authorized officer or representative of Lessor at lessor's principal place of business as set forth above. This Lease, and all other documents (the execution and delivery of which by Lessee is contemplated hereunder), shall be executed on Lessee's behalf by Authorized Signers of the Lessee. THIS LEASE IS BEING DELIVERED IN THE STATE OF NEW YORK AND SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, INCLUDING ALL MATTERS OF CONSTRUCTION, VALIDITY AND PERFORMANCE. 36. Jury Trial Waiver LESSOR AND LESSER HEREBY WAIVE TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO WHICH LESSOR OR LESSEE MAY BE PARTIES ARISING OUT OF OR ANY WAY PERTAINING TO THIS LEASE. THIS WAIVER IS MADE KNOWINGLY, WILLINGLY AND VOLUNTARILY BY THE LESSOR AND THE LESSEE WHO EACH ACKNOWLEDGE THAT NO REPRESENTATIONS HAVE BEBN MADE BY ANY INDIVIDUAL TO INDUCE THIS WAIVER OF TRIAL BY JURY OR IN ANY WAY TO MODIFY OR NULLIFY ITS EFFECT. 37. More than One Lessee. If more than one person or entity executes this Lease, each Equipment Schedule, and all addenda or other documents executed in connection herewith or therewith, as "Lessee," the obligations of "Lessee" contained herein and therein, shall be deemed joint and several and all references to "Lessee" shall apply both 1ndividually and jointly. 38. Quiet Enjoyment. So long as no Event of Default has occurred and is continuing, Lessee shall peaceably hold and quietly enjoy the Equipment without interruption by Lessor or any person or entity claimmg through Lessor. 39. Entire Agreement. This Lease, together with all Equipment Schedules, riders and addenda executed by Lessor and Lessee collectively constitute the entire understanding or agreement between Lessor and Lessee with respect to the leasing of the Equipment, and there is no understanding or agreement, oral or written, which is not set forth herein or therein. By initialing below, Lessee hereby further acknowledges the conditions of this Section 39. Lessee's Initials: RK 40. Execution in Counterparts. This Master Equipment Lease Agreement may be executed in several counterparts, each of which shall be an original and all of whlch shall constitute but one and the same instrument. IN WITNESS WHEREOF, Lessor and Lessee have executed this Lease as of the day and year first above written. Lessee: Lusor: WEBSECURE, INC. KEYCORP LEASING LTD. By: Illegible By: ------------------------------- ------------------------- Name: Name: Title: Title: THIS IS A CERTIFICATE ACKNOWLEDGING ACCEPTANCE OF THE EQUIPMENT FOR PURPOSES OF THE BELOW-REFERENCED LEASE. THIS IS NOT A DELIVERY RECEIPT. LESSEE ACKNOWLEDGEMENT (Certificate of Acceptance) Lessee Narne: Websecure, Inc. All the items of Equipment covered by Equipment Schedule No. 01 to Master Equipment Lease Agreement dated December 21, 1995 (the "Lease") between KeyCorp Leasing Ltd., as lessor ("KCL"), and the undersigned, as lessee,. (a) were received by the undersigned, (b) are satisfactory to the undersigned in all respects and are acceptable to the undersigned for lease under the Lease, (c) are suitable for the undersigned's purposes, (d) are in good order, repair and condition, (e) have been installed and operate properly, and (f) are subject to all of the terms and conditions of the Lease (including, without limitation,- Section 3 thereof). To the extent that Article 2A ("Article 2A") of the Uniform Commercial Code ("UCC") applies to the characterization of the Lease, the undersigned hereby agree(s) that the Lease is a "Finance Lease" as defined therein; The undersigned acknowledge(s): (i) that the undersigned has selected the "Supplier" (as defined in the UCC) and has directed KCL to purchase the Equipment from the Supplier in connection with the Lease, and (ii) that the undersigned has been informed in writing in the Lease, before the undersigned's execution of thereof, that the undersigned is entitled under Article 2A to the promises and warranties, including those of any third party, provided to KCL by the Supplier in connection with or as part of the Purchase Agreement (as defined in the Lease), and that the undersigned may communicate with the Supplier and receive an accurate and complete statement of those promises and warranties, including any disclaimers and limitations of them or of remedies. Dated: *X l2/26 , 1995 Websecure, Inc. By: Illegible --------------------------- Nane: Title: * To the extent that this date is left blank, the undersigned hereby authorize(s) KCL to date this Certificate of Acceptance on the undersigned's behalf. (Lessee's initials) ------ [EQUIPMENT SCHEDULE TO COME FROM OB&A] EX-10.I 6 FORM OF LOCK-UP AGREEMENT EXHIBIT 10i October __, 1996 Coburn & Meredith, Inc. 150 Trumbull Street Hartford, Connecticut 06103 Shamrock Partners, Ltd. 111 Veterans Square Media, Pennsylvania 19063 WebSecure, Inc. 1711 Broadway Saugus, Massachusetts 01906 Re: Lock-up Agreement Ladies and Gentlemen: In order to induce Coburn & Meredith and Shamrock Partners (collectively known as the "Underwriters") and WebSecure, Inc., a Delaware corporation, and any successor thereof (the "Company"), to enter into an underwriting agreement with respect to the initial public offering of shares of Common Stock to be issued by the Company, as described in the Company's Registration Statement on Form SB-2, the undersigned hereby agrees that for a period of thirteen (13) months following the effective date of the Registration Statement, the undersigned will not sell, transfer, assign, hypothecate, pledge or otherwise dispose of any beneficial interest in (either pursuant to Rule 144 or the regulations under the Securities Act of 1933, as amended, or otherwise) any securities issued by the Company (the "Securities") registered in the name of the undersigned or beneficially owned by it without the prior consent of the Underwriters. In order to enable you to enforce the aforesaid covenants, the undersigned hereby consents to the placing of legends and stop-transfer orders with the transfer agent of the Company's securities with respect to any of the securities registered in my name or beneficially owned by me. Coburn & Meredith, Inc. Shamrock Partners, Ltd. WebSecure, Inc. Re: Lock-up Agreement October __, 1996 Page 2 This letter agreement shall be governed by and construed in accordance with the laws of the Commonwealth of Massachusetts, without giving effect to conflict of law principles thereof. ------------------------------------ Signature ------------------------------------ Print Name ------------------------------------ Print Address ------------------------------------ Print Social Security Number or Taxpayer I.D. Number EX-10.J 7 EMPLOYMENT AGREEMENT WITH WILLIAM BLOCHER EXHIBIT 10j --------------- FORM OF KEY EMPLOYEE AGREEMENT --------------- To: William Blocher, Ph.D. 7 Redgate Lane As of October 12, 1996 Amherst, NH 03031 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 Chief Technical Officer for the Company reporting to the president, 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 devote at least forty hours per week to the business 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 your full salary at the time of termination. 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 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 at any time without cause, or by not renewing this Agreement pursuant to Section 2.1 hereof, provided the Company shall be obligated to pay you as severance pay an amount equal to six (6) months of the annual Base Salary (as set forth on Exhibit A hereto, as adjusted by periodic increases, if any),less applicable taxes and other required withholdings and any amounts you may owe to the Company and provided further that the Company shall continue in full force and effect for a period of six (6) months all health and insurance benefits that you enjoyed at the time of your termination. All unvested stock options would vest on the date of your termination. 2.3 For purposes of Section 2.2, the term "cause" shall mean: (a) Your intentional failure or refusal to perform the services specified herein, or to carry out any reasonable and lawful directions of the Company with respect to the services to be rendered or the manner of rendering such services by you; provided, however, that (i) such failure or refusal is material and repetitive, and (ii) you have been given reasonable notice and explanation of each refusal or failure, and reasonable opportunity to cure such refusal or failure, and no cure has been effected within a reasonable time after notice; (b) conviction of a felony; (c) fraud or embezzlement involving the assets of the Company, its customers, suppliers or affiliates; (d) inability for a continuous period of at least one hundred twenty (120) days to perform duties hereunder due to a physical or mental disability; or (e) breach of any term of this Agreement other than as noted in (a) above, 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 -2- 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 the approval of the Board of Directors, (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 principal place of employment from the greater Boston, Massachusetts area without your consent, the Company shall be obligated to pay to you within thirty (30) days of the date of your termination, as severance pay 150% of your annual base salary for six (6) months (as set forth on Exhibit A hereto), less applicable taxes, other required withholdings and any amounts you may owe to the Company and provided further that the Company shall continue in full force and effect for a period of six (6) months all health and insurance benefits that you enjoyed at the time of your termination. 2.5 You shall have the right to terminate this Agreement for any reason upon not less than sixty (60) days prior written notice to the Company. 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, -3- 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. 7. POST-EMPLOYMENT ACTIVITIES. 7.1 For a period of six months 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 six months immediately preceding termination or expiration, nor render services similar or reasonably related to those which you shall have rendered hereunder during such six months 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 -4- 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 six months 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. -5- 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. -6- 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. (You may retain for your records the accompanying counterpart of this Agreement enclosed herewith). Very truly yours, WebSecure, Inc. By: ----------------------------- Robert Kuzara, President Accepted and Agreed: - ------------------------ William Blocher, Ph.D. -7- EXHIBIT A EMPLOYMENT TERM, COMPENSATION AND BENEFITS OF WILLIAM BLOCHER, PH.D. 1. TERM. The term of the Agreement to which this Exhibit A is annexed and incorporated shall be until October 1, 1999 2. COMPENSATION. (a) Base Salary. Your Base Salary shall be $102,000.00 per annum, payable in accordance with the Company's payroll policies. (b) Bonuses. You shall be entitled to such bonuses as may be determined by the Company's Board of Directors. (c) Performance Reviews. Written reviews will be performed annually on your hire date anniversary . Salary increases will be determined at the discretion of the compensation committee of the Board of Directors. 3. STOCK OPTIONS. You will be offered 50,000 Stock Options at $4.00 per share to be vested over three (3) years with the first vesting to be April 1, 1997. 4. VACATION. You shall be entitled to all legal and religious holidays, and four (4) weeks paid vacation per annum. You will be allowed to carry over unused vacation entitlement to future periods or at your option receive compensation equivalent to the unused vacation entitlement at your then current salary. 5. 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. 6. SICK LEAVE. You shall be entitled to 5 (five) sick days per year. Sick days will be allowed to carry over to future periods if unused. No more than 65 days will be allowed to accrue. -8- EXHIBIT B OUTSIDE EMPLOYMENTS AND DIRECTORSHIPS OF WILLIAM BLOCHER, PH.D. 1. BBC Computers, Inc. 2. BBC Stores, Inc. 3. Presage Corp. 4. Harvard University 5. Boston University B-1 EXHIBIT C ------------- PROPRIETARY INFORMATION AND INVENTIONS AGREEMENT ------------- To: WebSecure, Inc. As of October 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 C-1 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. 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. 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 C-2 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 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. C-3 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. 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. C-4 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. C-5 17. GOVERNING LAW. This Agreement shall be governed and construed under Massachusetts law. --------------------------------- William Blocher, Ph.D. Accepted and Agreed: WebSecure, Inc. By: ---------------------------------- Robert Kuzara, President C-6 SCHEDULE A LIST OF PRIOR INVENTIONS Identifying Number of patents and patent applications Title Date or Brief Description of unpatented personal invention - ----- ---- ----------------------------------------------------- Copyrighted software Software programs under development C-7 EX-10.K 8 EMPLOYMENT AGREEMENT WITH CAROL OUELLETTE EXHIBIT 10k --------------- KEY EMPLOYEE AGREEMENT --------------- To: Carol Ouellette As of April 1, 1996 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 Chief Financial 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 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, 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 perform the services specified herein, or to carry out any reasonable and lawful directions of the Company with respect to the services to be rendered or the manner of rendering such services by you; provided, however, that (i) such failure or refusal is material and repetitive, and (ii) you have been given reasonable notice and explanation of each refusal or failure, and reasonable opportunity to cure such refusal or failure, and no cure has been effected within a reasonable time after notice; (b) conviction of a felony; (c) fraud or embezzlement involving the assets of the Company, its customers, suppliers or affiliates; (d) inability for a continuous period of at least one hundred twenty (120) days to perform duties hereunder due to a physical or mental disability; or (e) breach of any term of this Agreement other than as noted in (a) above, 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 the approval of the Board of Directors, (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 principal place of employment from the greater Boston, Massachusetts area without your consent, 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 three (3) months of your Base Salary (as set forth on Exhibit -2- A hereto), less applicable taxes, other required withholdings and any amounts you may owe to the Company and provided further that the Company shall continue in full force and effect for a period of six (6) months all health and insurance benefits that you enjoyed at the time 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. 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 -3- 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. 7. POST-EMPLOYMENT ACTIVITIES. 7.1 For a period of two (2) years 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 two (2) years immediately preceding termination or expiration, nor render services similar or reasonably related to those which you shall have rendered hereunder during such two (2) years 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 two (2) years 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 two (2) 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 -4- 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. 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. -5- 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. (You may retain for your records the accompanying counterpart of this Agreement enclosed herewith). Very truly yours, WEBSECURE, INC. By: ----------------------------------------- John J. Shields, Chief Executive Officer Accepted and Agreed: - ----------------------------- Carol Ouellette -6- EXHIBIT A EMPLOYMENT TERM, COMPENSATION AND BENEFITS OF CAROL OUELLETTE 1. TERM. The term of the Agreement to which this Exhibit A is annexed and incorporated shall be until May 1, 1999. 2. COMPENSATION. (a) Base Salary. Your Base Salary shall be $ 85,000 per annum, payable in accordance with the Company's payroll policies. (b) Bonuses. You shall be entitled to 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 _____ (__) weeks paid vacation per annum. 4. TRANSPORTATION ALLOWANCE. The Company shall provide you with a reasonable transportation allowance to cover the costs of leasing, insuring and maintaining an automobile for your commute to and from the Company and for your use on business travel that is directly related to Company business. In addition, the Company shall reimburse you for all other expenses reasonably incurred by you in the operation of the automobile during use directly related to Company business. 5. 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. -7- EXHIBIT B OUTSIDE EMPLOYMENTS AND DIRECTORSHIPS OF CAROL OUELLETTE 1. None. 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. 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. C-4 17. GOVERNING LAW. This Agreement shall be governed and construed under Massachusetts law. ------------------------------ Carol Ouellette Accepted and Agreed: WEBSECURE, INC. By: ---------------------------------------- John J. Shields, Chief Executive 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-11 9 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 Inception from Inception Year Ended (July 19, 1995) to (July 19, 1995) August 31, 1996 August 31, 1995 to August 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 200,050 200,050 200,050 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 4,805,050 4,805,050 4,805,050 - -------------------------------------------------------------------------------------------------------------------------- Net loss applicable to common and common equivalent shares $(7,924,014) $(33,626) $(7,957,640) Net loss per share of common and common equivalent shares $ (1.65) $(.01) $(1.66) - -------------------------------------------------------------------------------------------------------------------------- - ------------------------------- (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 10 CONSENT OF BDO SEIDMAN, LLP EXHIBIT 23a 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 October 11, 1996 on the financial statements of WebSecure, Inc. as of August 31, 1996 and for the year ended August 31, 1996, and the period from inception (July 19, 1995) to August 31, 1995 and for the period from inception to August 31, 1996. We also consent to the reference to us under the caption "Experts" in said prospectus. /s/ BDO Seidman, LLP ---------------------- BDO Seidman, LLP Boston, Massachusetts October 24, 1996 EX-27 11 FINANCIAL DATA SCHEDULE
5 9-MOS AUG-31-1996 AUG-31-1996 12,832 0 21,797 0 5,971 106,979 1,370,863 (197,466) 1,745,948 1,548,833 0 0 0 21,050 (124,365) 1,745,947 97,255 97,255 193,440 7,781,619 0 0 46,210 (7,924,014) 0 (7,924,014) 0 0 0 (7,924,014) (1.66) (1.66)
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